<PAGE>
As filed with the Securities and Exchange Commission on November 15, 1999
Registration No. 333-88175
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Vermont 4911 03-0111290
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
77 Grove Street
Rutland, Vermont 05701
(802) 773-2711
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Joseph M. Kraus
77 Grove Street
Rutland, Vermont 05701
(802) 733-2711
(Name, address, including zip code, and telephone number, including area code, of agent for service)
__________________________
Copies to:
M. Douglas Dunn, Esq.
Robert B. Williams, Esq.
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, NY 10005
(212) 530-5000
__________________________
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
__________________________
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not exchange these securities until the registration statement filed with the
Securities and Exchange Commission relating to these securities is effective.
This prospectus is not an offer to exchange these securities and it is not
soliciting an offer to exchange these securities in any state where the offer or
exchange is not permitted.
Subject to Completion, dated November 15, 1999
PROSPECTUS
$75,000,000
Central Vermont Public Service Corporation
Offer to Exchange
8 1/8 % Second Mortgage Bonds due 2004
For Any and All Outstanding
8 1/8 % Second Mortgage Bonds due 2004
This prospectus and accompanying letter of transmittal relate to our proposed
offer to exchange up to $75,000,000 aggregate principal amount of new 8 1/8%
Second Mortgage Bonds due 2004 (the "New Bonds"), which will be freely
transferable, for any and all outstanding 8 1/8% Second Mortgage Bonds due 2004
issued on July 30, 1999 (the "Old Bonds"), which have transfer restrictions.
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<S> <C>
. The exchange offer expires at 5:00 p.m., New York City time, on 1999,
unless extended.
. The terms of the New Bonds are substantially identical to the Old Bonds, except for
transfer restrictions, registration rights and liquidated damages.
. All Old Bonds that are validly tendered and not validly withdrawn will be exchanged.
Tenders of Old Bonds may be withdrawn at any time prior to expiration of the exchange
offer.
. Holders of Old Bonds do not have any appraisal or dissenters' rights in connection with
the exchange offer. Old Bonds not exchanged in the exchange offer will remain outstanding
and be entitled to the benefits of the Indenture, but, except under limited circumstances,
will have no further exchange or registration rights under the Registration Rights
Agreement.
. We do not intend to apply for listing of the New Bonds on any securities exchange or to
arrange for them to be quoted on any quotation system.
. The only conditions to completing the exchange offer are that the exchange offer not
violate applicable law or any applicable interpretation of the staff of the Securities and
Exchange Commission and no injunction, order or decree has been issued which would
prohibit, prevent or materially impair our ability to proceed with the exchange offer.
</TABLE>
-------------------------
Please see "Risk Factors" beginning on page 15 for a discussion of factors you
should consider in connection with the exchange offer.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the New Bonds, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read this entire prospectus
(and accompanying letter of transmittal and related documents) and any
amendments or supplements carefully before deciding to exchange your securities.
The date of this prospectus is , 1999.
================================================================================
<PAGE>
TABLE OF CONTENTS
WHERE TO FIND MORE INFORMATION........................................... 2
FORWARD-LOOKING STATEMENTS............................................... 3
PROSPECTUS SUMMARY....................................................... 4
RISK FACTORS............................................................. 15
USE OF PROCEEDS.......................................................... 25
CAPITALIZATION........................................................... 26
SELECTED CONSOLIDATED FINANCIAL DATA..................................... 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................................. 29
BUSINESS................................................................. 46
REGULATION AND RATES..................................................... 51
ELECTRIC INDUSTRY RESTRUCTURING.......................................... 54
OUR RESTRUCTURING PLAN................................................... 57
DESCRIPTION OF OTHER INDEBTEDNESS AND
PREFERRED STOCK......................................................... 60
THE EXCHANGE OFFER....................................................... 62
DESCRIPTION OF THE NEW BONDS............................................. 72
CERTAIN FEDERAL TAX CONSIDERATIONS....................................... 114
PLAN OF DISTRIBUTION..................................................... 117
LEGAL MATTERS............................................................ 117
INDEPENDENT PUBLIC ACCOUNTANTS........................................... 117
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WHERE TO FIND MORE INFORMATION
In connection with the exchange offer, we have filed with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933,
as amended, relating to the New Bonds to be issued in the exchange offer. As
permitted by SEC rules, this prospectus omits information included in the
registration statement. For a more complete understanding of this exchange
offer, you should refer to the registration statement, including its exhibits.
We are also subject to the information requirements of the Securities Exchange
Act. Accordingly, we file annual, quarterly and current reports as well as other
information with the Securities and Exchange Commission. The public may read and
copy any reports or other information that we file with the SEC at the SEC's
public reference room, Room 1024 at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at the SEC's regional offices located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661. The public may obtain information on
the operation of the public reference room by calling the SEC at 1-800-SEC-0330.
Our SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
http://www.sec.gov.
We have securities listed on the New York Stock Exchange. You can inspect and
copy reports and other information about us at the NYSE's offices at 20 Broad
Street, New York, New York.
We are "incorporating by reference" information into this prospectus. This
means that we are disclosing important information by referring to another
document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this prospectus, except for any information
superseded by information in this prospectus. This prospectus incorporates by
reference the documents set forth below that we have previously filed with the
SEC and any future filings made with the SEC under Section 13(a), 13(c), 14 or
15 (d) of the Securities Exchange Act of 1934, as amended thereafter. These
documents contain important information about us.
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<CAPTION>
SEC Filing (File No. 1-8222) Period/Date
- ---------------------------- -----------
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Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Quarterly Report on Form 10-Q Quarter ended June 30, 1999
Quarterly Report on Form 10-Q Quarter ended September 30, 1999
</TABLE>
You may also obtain a copy of these filings and the exchange offer
registration statement at no cost by writing or telephoning us at the following
address:
Central Vermont Public Service Corporation
77 Grove Street
Rutland, Vermont 05701
(802) 773-2711
Attention: Corporate Secretary
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone to provide you with
information that is different from this information.
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FORWARD-LOOKING STATEMENTS
This prospectus may contain statements regarding our assumptions, projections,
expectations, intentions or beliefs about future events. These statements are
intended as "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995 and for purposes of the safe harbor provided by
Section 21E of the Exchange Act and Section 27A of the Securities Act. We
caution that these statements may and often do vary from actual results and the
differences between these statements and actual results can be material.
Accordingly, we cannot assure you that actual results will not differ materially
from those expressed or implied by the forward-looking statements. Some of the
factors that could cause actual events to differ materially from those expressed
or implied in any forward-looking statement are:
. our ability to recover stranded costs;
. state and federal legislative and regulatory initiatives or proceedings that
affect the recovery of our investments or that have an impact on rate structures
and results of operation and cash flow;
. the weather and other natural phenomena;
. the timing and extent of changes in costs of labor and prices of commodities
and interest rates;
. changes in environmental and other laws and regulations to which we and our
subsidiaries are subject or other external factors over which we have no
control;
. the results of financing efforts;
. risks of ownership and decommissioning of nuclear facilities;
. expansion and other growth opportunities;
. technology advances in energy supply and distribution;
. achievement of Year 2000 readiness; and
. the effect of accounting policies issued periodically by accounting standard-
setting bodies.
These factors are discussed more completely in our filings with the SEC,
including our annual report on Form 10-K for the year ended December 31, 1998
and quarterly reports on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 1999, respectively, which are incorporated by reference into this
prospectus.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and
is not complete and may not contain all the information that is important to you
regarding the exchange offer. You should read the entire prospectus, including
the "Risk Factors" section and the financial statements and footnotes thereto
and other detailed information incorporated by reference into this prospectus,
before making a decision to participate in the exchange offer. As used in this
prospectus (unless otherwise noted or the context otherwise requires), (1)
"our," "us," "we" and "Company" refer to Central Vermont Public Service
Corporation and our subsidiaries and (2) "Bonds" refer to both the Old Bonds and
the New Bonds.
Central Vermont Public Service Corporation
We are the largest electric utility in Vermont. Together with our
subsidiaries, we engage principally in the purchase, production, transmission,
distribution and sale of electricity. We serve over 140,000 customers in nearly
three-quarters of the towns, villages and cities in Vermont, representing
approximately 50% of the Vermont population. We operate in New Hampshire through
our electric utility subsidiary, Connecticut Valley Electric Company Inc., or
Connecticut Valley, which serves approximately 10,000 customers. Our
consolidated operating revenues in 1998 were $303.8 million. Approximately 77%
of our consolidated operating revenues were generated from our retail electric
utility business in Vermont and approximately 7% were generated from our retail
electric utility business in New Hampshire. Our principal executive offices are
located at 77 Grove Street, Rutland, Vermont 05701. Our telephone number is
(802) 773-2711.
Our Vermont retail sales in 1998 of 2.1 million megawatt hours, or mWh, were
approximately 41% residential, 40% commercial, 18% industrial and 1% other.
Consolidated mWh sales in 1998 were 3.6 million. Consolidated mWh sales to
retail and firm wholesale customers accounted for 63.4% of our total sales
during 1998. The remaining sales were entitlement sales, sales to NEPOOL (the
New England power pool), and short-term power sales. Entitlement sales occur
when we sell a portion of the power to which we are entitled from a specific
contract or generating plant.
For 1998, our consolidated peak demand to serve our retail and firm wholesale
customers was 420.6 megawatts or mW. We currently purchase approximately 86% of
our retail and firm wholesale power needs under several contracts of varying
duration. During 1998, over 35% of these power needs came from Vermont Yankee,
an affiliated company which owns and operates a nuclear generating unit. During
1998, over 32% of our power needs came from Hydro-Quebec, one of the world's
largest generators of hydroelectricity which is owned by the province of Quebec,
Canada. Our remaining sources of power include purchase contracts with small
power producers, purchases from NEPOOL and other contracted sources, as well as
our own generation. Our purchased power portfolio includes a diversified mix of
sources and fuel types to meet our long-term load growth while providing short
and intermediate term opportunities to purchase or sell capacity and energy to
reduce overall power costs.
We generate approximately 14% of our retail and firm wholesale power needs
through several wholly and jointly owned power plants. During 1998, our 20
wholly owned hydroelectric plants accounted for approximately 9% of our overall
retail and firm wholesale energy needs. Our jointly owned nuclear and fossil
fuel facilities, Millstone Unit #3 (nuclear), Wyman #4 (oil-fired) and Joseph C.
McNeil (wood, gas and oil-fired), together accounted for approximately 5% of our
1998 total retail and firm wholesale power needs.
We utilize our affiliate Vermont Electric Power Company, Inc., or VELCO, to
transmit our power in the State of Vermont. We are the largest user of VELCO's
transmission system.
Our wholly and partially owned subsidiaries engage in the following energy and
non-energy related businesses:
. We own all of Connecticut Valley, a regulated utility, which distributes and
sells electricity to approximately 10,000 customers in 13 communities bordering
the Connecticut River in New Hampshire.
4
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. We own a 56.8% equity interest in VELCO, which owns and operates the high
voltage electric transmission system in Vermont.
. In addition to our 1.7% joint ownership in Millstone Unit #3, we own equity
interests in various nuclear facilities, including 31.3% of Vermont Yankee
Nuclear Power Corporation (Vermont Yankee), 2% of Connecticut Yankee Atomic
Power Company (Connecticut Yankee), 2% of Maine Yankee Atomic Power Company
(Maine Yankee), and 3.5% of Yankee Atomic Electric Company (Yankee Atomic).
Connecticut Yankee, Maine Yankee and Yankee Atomic no longer operate and are in
various stages of decommissioning.
. We own all of Catamount Energy Corporation, or Catamount, which has
investments in energy generation projects in the United States and Great
Britain.
. We own all of SmartEnergy Services, Inc., or SmartEnergy, which invests in
unregulated energy and service related businesses.
Our Restructuring Plan
In order to improve our financial condition, enhance our ability to compete
effectively in a changing electric utility industry and stabilize projected
costs, we are pursuing a comprehensive financial restructuring plan known as our
Restructuring Plan. The Restructuring Plan is consistent with the findings of
the Working Group on Vermont's Electricity Future, or the Working Group, which
was appointed by Vermont's Governor in July 1998 to make recommendations on
restructuring the State's electric utility industry. We support the conclusions
of the Working Group, which are described in more detail elsewhere herein. We
are aggressively pursuing implementation of our Restructuring Plan which
includes the following elements:
. Retail choice: voluntarily giving up the exclusive right to supply power to
our present electric customers, while retaining our rights as a distribution
company, as part of a global settlement of regulatory issues.
. Renegotiation of power purchase contracts: reducing our future cost of
power by renegotiating power contracts, specifically those with Hydro-Quebec and
the Vermont purchasing agent's contracts with small power producers which
together represented nearly 38% of our 1998 net energy supply. We may seek to
finance the cost of any auctions, buy-outs or buy-downs of power contracts
through the future issuance of securities in the capital markets.
. Contract and asset disposition: seeking to sell some or all of our power
purchase contracts and generating assets, including our interest in the Vermont
Yankee nuclear generating plant. On September 22, 1999, we announced that we
would seek, with the other Vermont Joint Owners, to auction the contract with
Hydro-Quebec. On October 15, 1999 we and the other owners accepted a bid for
sale of the Vermont Yankee plant to AmerGen Energy Company.
. Cost-cutting: implementing cost-cutting measures to reduce cash flow
requirements while maintaining safety and reliability standards.
. Holding company: establishing a new holding company to help us better
organize our businesses.
. Industry consolidation: assessing the opportunities for consolidation with
other Vermont electric distribution companies.
. Regulatory settlement: seeking a comprehensive regulatory settlement that
leads to long-term financial stability.
. Energy efficiency activities: creating a state sponsored "energy-
efficiency utility" to take over most system-wide energy-efficiency services
for electric customers. On September 30, 1999, the Public Service Board issued
a final Order approving a Memorandum of Understanding between the Company, the
5
<PAGE>
Vermont Department of Public Service, all other Vermont electric utility
companies and other interested parties that calls for the establishment of the
energy-efficiency utility and provides for its funding via a separately stated
Energy Efficiency Charge to our customers.
While we cannot predict whether some or all of the elements of our
Restructuring Plan will be implemented, we are pursuing implementation of our
Restructuring Plan through negotiations with power suppliers, regulatory
proceedings, legislative proceedings and other means. If endorsed by the Vermont
Public Service Board, or PSB, the Vermont utility regulator, the tentative
timetable calls for approval of each element of the Restructuring Plan by mid-
2000. See "Our Restructuring Plan" herein.
Pending implementation of the Restructuring Plan, we continue to address the
regulatory and other challenges we face. The primary challenge to our financial
strength results from uncertainties regarding the receipt of adequate and timely
rate relief necessary to meet increased purchased power costs. Those costs have
increased principally as a result of our long-term power purchase contract with
Hydro-Quebec. These matters are discussed under the headings "Risk Factors--Our
obligations under the VJO Power Contract with Hydro-Quebec may increase if a VJO
member defaults" and "Business--VJO Power Contract with Hydro-Quebec." We
have been unable in recent regulatory proceedings to recover the full amount of
our purchased power costs related to the VJO Power Contract, which is discussed
below. Our regulatory proceedings are discussed under the headings "Risk
Factors--We face uncertainty relating to the resolution of our Vermont rate
proceedings," "Risk Factors--We face uncertainty relating to the resolution of
our New Hampshire rate proceedings" and "Regulation and Rates." These matters
could have a material adverse impact on our financial condition.
Recent Developments
Ice Storm Arbitration with Hydro-Quebec
During January 1998, a significant ice storm affected parts of New England,
New York and the Province of Quebec, Canada. This storm damaged major components
of the Hydro-Quebec transmission system over which power is supplied to Vermont
under a power contract with Hydro-Quebec through the Vermont Joint Owners, known
as the VJO, a consortium of Vermont utilities. The power contract between Hydro-
Quebec and the VJO is referred to as the VJO Power Contract. The storm caused a
61-day interruption of a significant portion of scheduled contractual energy
deliveries into Vermont. The ice storm's effect on Hydro-Quebec's transmission
system caused the VJO to examine Hydro-Quebec's overall reliability and ability
to deliver energy. On the basis of that examination, the VJO determined that
Hydro-Quebec has been and remains unable to make available capacity with the
degree of firmness required by the VJO Power Contract. That determination
prompted the VJO to initiate an arbitration proceeding. In the arbitration, the
VJO is seeking to terminate its contractual obligation to purchase power from
Hydro-Quebec, to recover damages associated with Hydro-Quebec's failure to
comply with the VJO Power Contract, and to recover capacity payments made during
the period of non-delivery. The results of the arbitration, which are expected
by the end of June 2000, cannot be predicted at this time.
Possible Sale of Our Interest in the Vermont Yankee Nuclear Power Plant
We and the other owners of Vermont Yankee Nuclear Power Corporation accepted
a bid for the sale of the plant to AmerGen Energy Company, which is owned by
PECO Energy Company and British Energy. This transaction will also involve us
entering into a contract to purchase a portion of the power produced by this
plant. The Vermont Yankee sale needs to be approved by numerous state and
federal regulatory bodies. If we and the other owners receive the necessary
approvals, the transaction is expected to be completed by Summer 2000.
As part of the sale agreement with AmerGen, Vermont Yankee's current owners,
including us, will be protected from the financial risks associated with the
plant's ongoing operations and decommissioning.
6
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Possible Establishment of a New Holding Company
In an effort to prepare for the likely deregulation of the electric utility
industry in Vermont, we are pursuing a strategy of reorganizing into a new
holding company structure. Under the proposed structure, we would become a
subsidiary of a new holding company. Our two principal unregulated subsidiaries,
Catamount and SmartEnergy, would become direct subsidiaries of this new holding
company and would be our sister companies. We believe this holding company
structure would facilitate our transition to a deregulated electricity market.
On July 24, 1998, we filed a petition with the PSB for permission to reorganize
in this manner. The petition is still pending. In addition to PSB approval, the
proposed reorganization would require approval of federal regulators, including
the SEC and the FERC, our shareholders, and state regulators in Connecticut and
possibly other states. In any event, earnings from our unregulated subsidiaries
would not necessarily be available to support the repayment of the New Bonds.
See "Risk Factors--The Second Mortgage Indenture does not restrict our
unregulated subsidiaries."
Renewed Credit Facility and Liquidity
A portion of the net proceeds of the Bond offering was used to repay $15
million of outstanding loans under our revolving credit facility and the
remaining proceeds will be used for other general corporate purposes relative to
our utility business. We also canceled our $40 million revolving credit
facility. In addition, we recently extended until May 31, 2000 with renewal
options through November 5, 2002, an aggregate of approximately $16.9 million of
letters of credit which support outstanding development authority bonds. Our
reimbursement obligations in respect of these letters of credit are secured by
three new series of First Mortgage Bonds in an aggregate principal amount of
approximately $16.9 million. Separately, we have a $12 million accounts
receivable facility which we intend to pay-off when it matures on November 29,
1999. We expect to require additional financing by 2004, to refinance the New
Bonds and to meet our working capital needs. See "Risk Factors--We may have
insufficient liquidity to refinance the New Bonds at maturity."
The above information about us is not comprehensive. More detailed information
on the matters addressed in this summary are included elsewhere or incorporated
by reference in this prospectus. For additional information about our business
and affairs, including our consolidated financial statements and related notes,
management's discussion and analysis, pending environmental, legal and
regulatory proceedings and descriptions of a number of laws and regulations to
which we are subject, you should refer to the documents incorporated by
reference in this prospectus which are listed under the heading "Where to Find
More Information."
7
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Summary of the Exchange Offer
The form and terms of the New Bonds will be substantially identical to
those of the Old Bonds except that the New Bonds will have been registered under
the Securities Act. Therefore, the New Bonds will not be subject to transfer
restrictions, registration rights and related liquidated damages provisions
applicable to the Old Bonds.
The Exchange Offer..... We are offering to exchange an aggregate of $75.0
million principal amount of New Bonds for $75.0 million
of Old Bonds. Old Bonds may only be exchanged in
multiples of $1,000 principal amount. To be exchanged,
an Old Bond must be properly tendered and accepted.
Subject to conditions of the exchange offer, all
outstanding Old Bonds that are validly tendered and not
validly withdrawn will be exchanged for New Bonds
issued on or promptly after the expiration date of the
exchange offer. See "The Exchange Offer" and "The
Exchange Offer--Certain Conditions to the Exchange
Offer."
Currently, there is $75.0 million aggregate principal
amount of Old Bonds outstanding. No New Bonds are
outstanding.
Issuance of the Old
Bonds; Registration
Rights................. The Old Bonds were issued and sold to the initial
purchasers, Donaldson, Lufkin & Jenrette Securities
Corporation and TD Securities (USA) Inc., on July 30,
1999. In connection with that sale, we executed and
delivered the Registration Rights Agreement for the
benefit of the bondholders. In the Registration
Rights Agreement, we agreed to either:
. commence an exchange offer under which the New
Bonds, registered under the Securities Act with
terms substantially identical to those of the Old
Bonds, will be exchanged for the Old Bonds pursuant
to an effective registration statement; or
. cause the Old Bonds to be registered under the
Securities Act pursuant to a resale shelf
registration statement.
If we do not comply with our obligations under the
Registration Rights Agreement, we will be required to
pay liquidated damages that will be payable twice
yearly. See "The Exchange Offer."
Expiration Date........ The exchange offer will expire at 5:00 p.m., New York
City time, on _________, 1999, unless extended, in
which case the term "expiration date" shall mean the
latest date and time to which the exchange offer is
extended.
Conditions to the
Exchange Offer......... We are not required to consummate the exchange offer if
there is any pending or threatened action or proceeding
or proposed or effective legislation or other law or
rule that would make the exchange offer illegal, cause
us to have to pay damages as a result of the exchange
offer or delay or otherwise make it inadvisable to
consummate the exchange offer. See "The Exchange
Offer--Certain Conditions to the Exchange Offer." The
exchange offer is not conditioned upon any minimum
aggregate principal amount of Old Bonds being tendered
for exchange. Other than applicable U.S. federal and
state securities laws, we do not need to satisfy any
additional regulatory requirements or obtain any
regulatory approval to conduct the exchange offer.
8
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Procedures for
Tendering Old Bonds.... If you want to tender your Old Bonds in the exchange
offer, you must complete and sign a letter of
transmittal and send it, together with the Old Bonds or
a notice of guaranteed delivery and any other required
documents, to The Bank of New York, as exchange agent,
in compliance with the procedures for guaranteed
delivery contained in the letter of transmittal. The
letter of transmittal must be received by the exchange
agent prior to 5:00 p.m. on the expiration date of the
exchange offer. If your Old Bonds are registered in the
name of a nominee and you wish to tender your Old Bonds
in the exchange offer, you should instruct your nominee
to promptly tender your Old Bonds on your behalf.
Guaranteed Delivery
Procedures............. If you wish to tender your Old Bonds and:
. your Old Bonds are not immediately available;
. you cannot deliver your Old Bonds or any of the
other documents required by the letter of
transmittal to the exchange agent prior to the
expiration date of the exchange offer; or
. you cannot complete the procedure for book-entry
transfer on a timely basis;
You may tender your Old Bonds according to the
guaranteed delivery procedures detailed in the letter
of transmittal. See "The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights...... You may withdraw the tender of your Old Bonds by
providing a written withdrawal notice to the Exchange
Agent which must be received by the Exchange Agent
prior to 5:00 p.m. on the expiration date. See "The
Exchange Offer--Withdrawal Rights."
Acceptance of the Old
Bonds and Delivery
of the New Bonds....... We will accept for exchange any and all Old Bonds by
providing a written withdrawal notice to the Exchange
Agent which must be received by the Exchange Agent
prior to 5:00 p.m. on the expiration date. We will
issue and deliver the New Bonds promptly following the
expiration date of the exchange offer. See "The
Exchange Offer--Terms of the Exchange Offer."
Resale of the
New Bonds.............. Based on SEC no action letters, we believe that after
the exchange offer you may offer and sell the New Bonds
without registration under the Securities Act so long
as:
. You acquire the New Bonds in the ordinary course of
business;
. When the exchange offer begins you do not have an
arrangement with another person to participate in a
distribution of the New Bonds; and
. You are not engaged in a distribution of, nor do you
intend to distribute, the New Bonds.
9
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When you tender the Old Bonds we will ask you to
represent to us that:
. You are not an affiliate of ours within the meaning
of Rule 405 of the Securities Act;
. You will acquire the New Bonds in the ordinary
course of business; and
. When the exchange offer begins you are not engaged
in nor do you have plans with another person to be
engage in a distribution of the New Bonds.
If you are unable to make these representations, you
will be required to comply with the registration and
prospectus delivery requirements under the Securities
Act in connection with any secondary resale
transaction.
If you are a broker-dealer and receive New Bonds for
your own account, you may be deemed to be an
"underwriter" within the meaning of the Securities Act,
and you must acknowledge that you will deliver a
prospectus if you resell the New Bonds. By
acknowledging your intent and delivering a prospectus
you will not be deemed to admit that your are an
"underwriter" under the Securities Act. For a period
of 180 days after the exchange offer is consummated or
until the Old Bonds are resold, whichever comes first,
we will make this prospectus available to any broker-
dealer in connection with such a resale. See "Plan of
Distribution."
If necessary, we will cooperate with you to register
and qualify the New Bonds for offer or sale without any
restrictions or limitations under state "blue sky"
laws.
Consequences of
Failure to Exchange.... If you do not exchange your Old Bonds for the New Bonds
pursuant to the exchange offer you will still be
subject to the restrictions on transfer of your Old
Bonds as contained in the legend on the Old Bonds. In
general, you may not offer to sell or sell the Old
Bonds, except pursuant to a registration statement
under the Securities Act or any exemption from
registration thereunder and in compliance with
applicable state securities laws.
Certain U.S. Federal
Income Tax
Considerations......... The exchange of Old Bonds for New Bonds will not be a
taxable event for United States federal income tax
purposes. You will not recognize any taxable gain or
loss or any interest income as a result of the
exchange.
Registration Rights
Agreement.............. The exchange offer is intended to satisfy your
registration rights under the Registration Rights
Agreement. Those rights will terminate upon
completion of the exchange offer.
Use of Proceeds........ We will not receive any proceeds from the issuance of
New Bonds pursuant to the exchange offer. In
consideration for issuing the New Bonds in exchange for
the Old Bonds as described in this prospectus, we will
receive, retire and cancel the Old Bonds. See "Use of
Proceeds."
Exchange Agent......... The Bank of New York is the exchange agent for the
exchange offer.
10
<PAGE>
Description of the New Bonds
Issuer................. Central Vermont Public Service Corporation
New Bonds.............. $75.0 million in aggregate principal amount of our
8 1/8% Second Mortgage Bonds due 2004.
Maturity Date.......... August 1, 2004.
Interest Rate and
Payment Dates.......... Interest on the New Bonds will accrue at the rate of
8 1/8 % per annum from July 30, 1999, payable
semiannually in cash in arrears on February 1 and
August 1 of each year, commencing February 1, 2000;
provided that in the event the exchange offer is
consummated on or after February 1, 2000, interest will
accrue from February 1, 2000.
Optional Redemption.... We may redeem the New Bonds at any time in whole or in
part at our option upon not less than 30 nor more than
60 days' notice, by paying 100% of the principal amount
thereof plus accrued and unpaid interest thereon plus
the Make Whole Premium.
Change of Control...... If we experience a change of control, you will have the
right to require us to purchase all or any part of your
New Bonds at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase. See "Risk
Factors--We may not have sufficient funds to finance a
`change of control' offer."
Security............... The New Bonds will be secured by a second mortgage lien
on all of our utility property also subject to the lien
of our existing First Mortgage.
Ranking................ The New Bonds will be secured obligations and will
rank:
. junior to our existing and future First Mortgage
Bonds;
. senior in right of payment to all of our existing
and future unsecured obligations to the extent of
the value of the assets securing the New Bonds,
including liabilities and obligations in respect of
power purchase contracts and stranded cost
obligations associated with power purchase
contracts; and
. pari passu in right of payment with (1) all future
indebtedness that is secured by a second mortgage
lien on our utility property also subject to the
lien of our existing First Mortgage and (2) Old
Bonds that are not exchanged for New Bonds in the
exchange offer.
After the issuance of the New Bonds there will be $93.4
million of First Mortgage Bonds outstanding, all of
which will be senior to the New Bonds.
Prior to the maturity of the New Bonds, $41.0 million
of First Mortgage Bonds will mature. We currently hold
$10.0 million of retired First Mortgage Bonds. We plan
to use all $51.0 million of these retired First
Mortgage Bonds to meet renewal fund requirements under
the First Mortgage. See "Description of New Bonds--
Issuance of Additional First Mortgage Bonds." We expect
the amount of
11
<PAGE>
outstanding First Mortgage Bonds to decline from $93.4
million to $52.4 million by December 31, 2003.
Due to the renewal fund requirements under the First
Mortgage, we do not intend to issue any additional
First Mortgage Bonds prior to the maturity of the New
Bonds.
Covenants.............. We will issue the New Bonds under the Second Mortgage
Indenture. The supplemental indenture providing for the
issuance of the New Bonds contains several covenants
that will not be applicable at any time when the New
Bonds are rated investment grade. See "Description of
New Bonds--Changes in Covenants When New Bonds Rated
Investment Grade." If applicable, these covenants will
among other things, place limitations on our ability
to:
. Sell assets or merge with or into other companies;
. Pay dividends, make distributions on or repurchase
stock, and make investments;
. Borrow money;
. Enter into sale-leaseback transactions;
. Enter into transactions with affiliates; and
. Make payments for consents.
The New Bonds are rated investment grade. Therefore,
the only restrictive covenant that will apply when the
New Bonds are issued will be a restriction on liens.
The Second Mortgage Indenture contains other customary
covenants.
Trustee................ The Bank of New York.
You should refer to the section entitled "Risk Factors" for an explanation
of certain risks of investing in the New Bonds.
12
<PAGE>
Summary Selected Consolidated
Financial Data
(Dollars in thousands)
The following table presents summary selected consolidated financial
information about us as of the dates and for the periods indicated. The
historical financial data as of the end of and for each of the three years in
the period ended December 31, 1998, are derived from our audited consolidated
financial statements incorporated by reference herein. The historical financial
data as of and for the nine months ended September 30, 1999 and September 30,
1998 are derived from our unaudited financial statements which, in the opinion
of our management, contain all adjustments necessary for a fair presentation of
the information presented. This table should be read together with the detailed
financial and other information contained elsewhere or incorporated by reference
in this prospectus.
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- -------------
(Unaudited)
----------
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Operating revenues.................. $290,801 $304,732 $303,835 $219,886 $305,002(1)
Operating income(2)................. 23,275 18,636 7,991 7,531 17,477
Total interest expense,
net................................. 9,925 9,706 10,660 7,919 7,303
Net income.......................... 19,442 16,340 3,983 4,583 13,556
Preferred stock dividend
requirements....................... 2,028 2,028 1,945 1,459 1,397
Other Financial Data:
EBITDA(3)........................... 63,128 60,471 45,312 26,072 40,390
Net cash provided by
operating activities............... 43,007 41,974 21,743 16,843 32,095
Capital expenditures(4).............
20,541 15,678 18,254 13,407 11,327
Ratio of earnings to
fixed charges(5)................... 3.44x 3.77x 1.83x .97x 2.77x
Ratio of EBITDA to
Interest expense................... 6.36x 6.23x 4.25x 3.29x 5.53x
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998 As of September 30, 1999
----------------------- -------------------------
(Unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............................. $ 10,051 $ 66,262
Total assets........................................... 530,282 576,654
Total debt (incl. capital lease)....................... 151,085 198,007
Common stock equity.................................... 179,182 183,812
Preferred stock(6)..................................... 26,054 26,054
</TABLE>
13
<PAGE>
(1) Includes $8.8 million (pre-tax) billed during the period pursuant to the
4.7% temporary rate increase effective January 1, 1999, which is subject to
adjustment pending the outcome of regulatory proceedings in Vermont.
(2) After deduction of taxes on income.
(3) EBITDA represents earnings before interest charges, taxes on income,
depreciation, amortization, gains on asset sales, cash investment income and
noncash transactions resulting from the regulatory disallowance of the
recovery of power costs incurred. EBITDA is not defined by GAAP, and is
presented here only to provide additional information about our ability to
meet our future requirements for debt service and capital expenditures.
EBITDA should not be considered an alternative to net income as an indicator
of operating performance or an alternative to cash flow as a measure of
liquidity.
(4) Capital expenditures consist of construction and plant expenditures and
energy efficiency expenditures not currently being recovered in rates.
(5) For purposes of determining the ratio of earnings to fixed charges, (i)
earnings consist of income before income taxes plus fixed charges; and (ii)
fixed charges consist of interest charges on all indebtedness, including the
portion of rental expense that is representative of the interest factor.
(6) See "Description of Other Indebtedness and Preferred Stock--Preferred
Stock" for additional information about our outstanding preferred stock.
14
<PAGE>
RISK FACTORS
The following information is qualified in its entirety by the more detailed
information and the consolidated financial statements appearing elsewhere or
incorporated herein by reference in this prospectus.
There are Restrictions Upon Transfer and a Limited Trading Market for the Old
Bonds
We will issue New Bonds in exchange for the Old Bonds only after the
exchange agent receives your Old Bonds. Therefore, you should allow sufficient
time to ensure timely delivery of your Old Bonds. Neither we nor the exchange
agent is under any duty to give notification of defects or irregularities with
respect to your tender of the Old Bonds for exchange. If you do not tender your
Old Bonds, or if you do tender your Old Bonds and they are not accepted, your
Old Bonds will continue to be subject to the existing restrictions upon their
transfer. Accordingly, after completion of the exchange offer, you will only be
able to offer for sale, sell or otherwise transfer untendered Old Bonds as
follows:
. to the Company;
. pursuant to a registration statement that has been declared effective under
the Securities Act;
. for so long as the Old Bonds are eligible for resale pursuant to Rule 144A
under the Securities Act, to a person you reasonably believe is a qualified
institutional buyer ("QIB") within the meaning of Rule 144A, that purchases
for its own account or for the account of a QIB to whom notice is given that
thetransfer is being made in reliance on the exemption from the registration
requirements of the Securities Act provided by Rule 144A;
. pursuant to offers and sales that occur outside the United States to
foreign persons in transactions complying with the provisions of Regulation S
under the Securities Act; and
. pursuant to any other available exemption from the registration requirements
of the Securities Act.
To the extent that Old Bonds are tendered and accepted in the exchange offer,
the liquidity of the trading market for untendered Old Bonds could be adversely
affected. See "The Exchange Offer."
In addition, any holder of the Old Bonds who tenders in the exchange
offer for the purpose of participating in a distribution of the New Bonds will
be required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction. Each broker-
dealer who receives New Bonds for its own account in exchange for the Old Bonds,
where such Old Bonds were acquired by such broker-dealer as a result of market-
making activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such New Bonds. See "Plan
of Distribution."
Our obligations under the VJO Power Contract with Hydro-Quebec may increase if a
VJO member defaults
We are obligated to continue purchasing varying amounts of power from Hydro-
Quebec until 2016 as a party to the VJO Power Contract with Hydro-Quebec through
the Vermont Joint Owners, or VJO. Our remaining total commitment to purchase
power under this contract is estimated, based on current power market forecasts,
to be approximately $1.0 billion over the next 17 years. The VJO participation
contract under which the VJO resells Hydro-Quebec power to the Vermont
purchasing utilities, including ourselves, contains "step up" provisions
providing that if any purchasing utility defaults on its purchase obligations,
the other participants will assume responsibility for the defaulting party's
share on a pro rata basis. Our obligation is approximately 46% of the total
contract, and Green Mountain Power Corporation, another Vermont utility, is
obligated to purchase approximately 38% of the power purchased by the VJO under
the contract. A default by utilities that purchase power from the VJO,
particularly the utilities with significant purchase obligations, could have a
material adverse effect on our financial results. For example, if Green Mountain
Power defaults, our financial viability would be threatened because our
resulting "step up" obligation would exceed our financial resources. Many of
the utilities that purchase power under the VJO Power Contract face regulatory
and financial challenges similar to our own. We cannot predict
15
<PAGE>
whether all of the utilities that purchase power under the VJO Power Contract
will continue to meet their obligations.
We face uncertainty relating to the resolution of our Vermont rate proceedings
We face uncertainties regarding the receipt of adequate and timely rate relief
necessary to meet increased purchased power costs. These increases in purchased
power costs arise principally under the VJO Power Contract. Vermont regulations
do not allow for changes in purchased power and fuel costs to be passed on to
consumers through automatic rate adjustment clauses. Therefore, our practice is
to review costs periodically and to request rate increases when warranted. We
have been unable in recent regulatory proceedings to recover the full amount of
our purchased power costs under the VJO Power Contract.
We reached agreement with the Vermont Department of Public Service, or DPS,
the consumer advocate in Vermont, regarding a retail rate increase request we
filed in June 1998, providing for a temporary increase in our Vermont retail
rates of 4.7% or $10.9 million on an annualized basis, beginning January 1,
1999. The June 1998 rate increase request was primarily intended to recover the
cost of power purchases from Hydro-Quebec under the VJO Power Contract. The rate
increase, which was approved by the PSB, is subject to a retroactive or
prospective adjustment upon the resolution of issues relating to the VJO Power
Contract, which issues we have appealed to the Vermont Supreme Court. A decision
by the end of 1999 is possible. On July 8, 1999, Hydro-Quebec filed a Motion to
Intervene in this rate case. On July 30, 1999, the PSB issued a procedural
order in which the PSB denied Hydro-Quebec's Motion to Intervene but permitted
Hydro-Quebec to renew its request and provide more information by August 6,
1998. Hydro-Quebec did not renew its request. See "Regulation and Rates--
Vermont Retail Rate Proceedings."
If we receive an unfavorable ruling from the Vermont Supreme Court and the PSB
subsequently issues a rate order permanently adopting the disallowance
methodology used in determining the temporary rate increase, or a similar
methodology, for the duration of the VJO Power Contract, we would be required to
take an immediate charge to pre-tax earnings of $205.0 million. Such an outcome
would jeopardize our ability to continue as a going concern. See "Regulation
and Rates--Vermont Retail Rate Proceedings."
We face uncertainty relating to the resolution of our New Hampshire rate
proceedings
We are party to regulatory proceedings before the federal courts and the
Federal Energy Regulatory Commission, or the FERC, as described below. We cannot
predict the ultimate outcome of either proceeding at this time. An adverse
outcome in either proceeding could materially and adversely effect our results
of operations and financial condition.
Federal Court proceedings. In February 1997, the New Hampshire Public
Utilities Commission, or NHPUC, ordered Connecticut Valley, our subsidiary that
conducts our distribution utility operations in New Hampshire, to terminate its
wholesale rate schedule with us. The NHPUC subsequently found Connecticut Valley
"imprudent" for not having previously taken steps to terminate the rate
schedule and ordered that rates be reduced to market levels. We are seeking
relief in federal court to reverse the NHPUC's decision. See "Regulation and
Rates--New Hampshire Retail Rate Proceedings."
FERC proceedings. We have filed with the FERC seeking to recover stranded
costs through an exit fee in connection with the cancellation of the Connecticut
Valley rate schedule. The stranded cost obligation sought to be recovered,
expressed on a net present value basis as of January 1, 1999, is approximately
$48.0 million. The FERC administrative law judge's ruling on our request for
recovery is expected later this year. The FERC will act on the judge's
recommendations sometime thereafter.
If we are unable to obtain an order authorizing the recovery of the costs
sought in our FERC filing or in the federal court, it is possible that we would
be required to recognize a pre-tax loss under this contract totaling
16
<PAGE>
approximately $60.0 million. We would also be required to write-off
approximately $4.0 million (pre-tax) in regulatory assets associated with our
wholesale business. However, even if we obtain a FERC order authorizing the
exit fee we have requested, if Connecticut Valley is unable to recover its costs
by increasing the rates it charges its customers, Connecticut Valley would be
required to recognize a loss of approximately $48.0 million (pre-tax)
representing future underrecovery of power costs.
Our other stranded costs may not be recoverable
Restructuring initiatives and regulatory pressures in our companies' service
territories have created uncertainty with respect to future rates and the
recovery of "stranded costs." Stranded costs are expenditures incurred, or
commitments for future expenditures made, on behalf of customers with the
expectation that such expenditures would be recoverable in the future through
retail rates. Stranded costs might not be recoverable from customers in a fully
competitive electric utility industry because our costs may be above retail
prices paid by customers. We are vulnerable to stranded costs principally
because of:
. our long-term commitment to purchase power under the VJO Power Contract;
. our investment in nuclear generating capacity;
. significant regulatory assets, which are costs that have already been
expended but have been deferred by state regulators for future collection from
customers; and
. our obligations under other power purchase contracts that are priced above
the current market.
As of December 31, 1998, based on the DPS's estimate known as the "low market
price estimate," we have above-market power obligations with a combined net
present value of approximately $500 million. Our financial strength and
resulting ability to perform in a restructured environment will be negatively
affected if we are unable to recover our power obligations, and a reasonable
return on our power generation investments. Even if we are given the opportunity
to recover a large portion of our stranded costs, our earnings prospects in a
restructured environment will likely be affected in ways that we cannot now
predict.
Implementation of our restructuring plan is uncertain
We have filed with the PSB a plan to permit retail access in our service
territory and restructure Vermont's electric industry. See "Our Restructuring
Plan." We believe that implementation of our Restructuring Plan is a critical
element to improving our future financial performance and to providing our
customers with more stable electric rates and the continuation of efficient and
reliable electric service.
In the first session of the 1999-2000 Biennium of the Vermont legislature,
restructuring initiatives were considered that, had they been enacted, could
have impeded our ability to implement our Restructuring Plan, such as providing
the legislature with veto power over the restructuring decisions of the PSB and
providing a 10% rate reduction for all Vermont utility customers.
We cannot determine whether these legislative initiatives or future
restructuring legislation will be enacted in the second session of the 1999-2000
Biennium of the Vermont legislature. We also cannot predict the response of the
PSB to our Restructuring Plan. If our Restructuring Plan is not implemented or
its terms are materially and adversely changed because of legislative or
regulatory initiatives, we could experience an adverse impact on our financial
condition.
We face uncertainty relating to the proposed Vermont electric industry
restructuring
Competition in the energy industry continues to grow as a result of
legislative and regulatory initiatives, technological advances, relatively high
electric rates in some regions of the country, including New England, surplus
17
<PAGE>
generating capacity and the increased availability of natural gas. Changes in
the industry may place downward pressure on power prices and increase customer
choice through competition. In the second session of the 1999-2000 Biennium,
convening January 4, 2000, the Vermont Legislature may again debate deregulating
our industry and opening it up to retail competition. See "Electric Industry
Restructuring." If retail competition is implemented in Vermont or New
Hampshire, we are unable to predict the impact of such competition on our future
financial results, our ability to retain existing customers with respect to
their power supply purchases and attract new customers, or the margins that will
be realized on retail sales of electricity, if any such sales are sought. We
expect our power distribution and transmission service to our customers to
continue on an exclusive basis subject to continuing economic regulation.
Some restrictive covenants contained in the Second Mortgage Indenture do not
apply so long as the New Bonds are rated investment grade
Several restrictive covenants (not including any covenants restricting liens)
will not apply at any time that the New Bonds have an investment grade rating
from Standard & Poor's Corporation, or S&P, or Moody's Investor Service, Inc.,
or Moody's. S&P has indicated that at the time of issuance, the New Bonds will
be rated BBB- (an investment grade rating). Consequently, the New Bonds will not
have the benefit of these covenants until such time, if ever, that S&P's rating
of the New Bonds, if applicable, falls below BBB- or Moody's' rating of the New
Bonds, if applicable, is also below investment grade.
The Second Mortgage Indenture does not restrict our unregulated subsidiaries
We own several unregulated subsidiaries which engage in various businesses
including the development of independent power projects, the rental of water
heaters and the provision of home maintenance and repair services. The covenants
contained in the Second Mortgage Indenture generally do not apply to these
subsidiaries and do not restrict our ability to sell or otherwise dispose of our
interests in these subsidiaries. If we reorganize under a new holding company
structure, our principal unregulated subsidiaries, Catamount and SmartEnergy,
would cease to be our subsidiaries and would instead become our sister
companies. In any event, earnings from their operations would not necessarily be
available to support the repayment of the New Bonds.
Several events of default do not apply to Connecticut Valley
Until our investment in Connecticut Valley exceeds $12.0 million, several
events with respect to Connecticut Valley, including bankruptcy, significant
defaults under its debt obligations and significant judgments, will not
constitute an Event of Default under the Second Mortgage Indenture.
We may have insufficient liquidity to refinance the New Bonds at maturity
Based on our current level of operations and current rate levels, after
receipt of the proceeds of the offering and assuming the continued receipt of
the temporary 4.7% rate increase in Vermont, we believe our cash flow from
operations should be adequate to meet our future liquidity needs for the next
three to four years. However, we will require new financing by 2004 to repay
the New Bonds at maturity and to meet our working capital needs. We cannot
assure you, however, that our business will generate sufficient cash flow from
operations, that the temporary rate increase will remain at current levels or
that future borrowings will be available to us in an amount sufficient to enable
us to pay our indebtedness, including the New Bonds when due, or to fund our
other liquidity needs during the next four years. The resolution of these
uncertainties is, to a significant extent, subject to general economic,
financial, competitive, legislative, regulatory, weather and other factors that
are beyond our control. The type, timing and terms of financing that we may need
will be dependent upon our cash needs, the availability of refinancing sources
and the prevailing conditions in the financial markets. We cannot assure you
that any sources will be available to us at any given time or that the terms of
such sources will be favorable.
18
<PAGE>
We continue to have substantial leverage after the offering
The following chart shows important information about our leverage. This
information reflects the completion of the offering and the application of the
net proceeds:
<TABLE>
<CAPTION>
At September 30,
1999
--------------------
(Dollars in
millions)
<S> <C>
Total indebtedness (including capital lease obligations).......................... $198.0
Total preferred stock............................................................. 26.1
Stockholders' equity (excluding preferred stock).................................. 183.8
------
Total capitalization............................................................ $407.9
Total indebtedness to total capitalization........................................ 48.5%
</TABLE>
<TABLE>
<CAPTION>
As Adjusted
For the Year Ended
December 31, 1998
<S> <C>
Ratio of earnings to fixed charges...................................................... 1.36x
</TABLE>
Our indebtedness could have important consequences to you. For example, it
could:
. make it more difficult for us to satisfy our obligations with respect to the
New Bonds;
. make it more difficult to satisfy mandatory redemption requirements contained
in our preferred stock;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to fund future working capital, capital expenditures and
other general corporate requirements;
. require us to dedicate a substantial portion of our cash flow from operations
to payments on our indebtedness, thereby reducing the availability of our cash
flow to fund common dividends, working capital, capital expenditures and other
general corporate purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
. limit, among other things, our ability to borrow additional funds because of
the financial and other restrictive covenants under the terms of our
indebtedness. Failure to comply with those covenants could result in defaults
which, if not cured or waived, could have a material adverse effect on us.
We will have additional borrowings available to us, even after the offering
Under the terms of our First Mortgage and Second Mortgage Indentures, our
letter of credit facilities and other debt instruments, we will be able to incur
additional indebtedness in the future, subject to limitations contained in those
instruments. See "Description of Other Indebtedness and Preferred Stock--Other
Indebtedness." This debt may be either secured or unsecured. More specifically,
we may seek to issue additional debt in connection with implementing our
Restructuring Plan or in connection with auctioning, buying-out or buying-down
above-market power purchase contracts. If new debt is added to our and our
subsidiaries' current debt levels, we and they could face risks associated with
additional leverage.
We have significant financial obligations that are not reflected in our
financial statements
As a consequence of our investments in nuclear generating assets and electric
transmission facilities, and our long-term power purchase agreements, we have
significant financial obligations that are not reflected in our financial
statements. Through our investments in Vermont Yankee, Maine Yankee, Connecticut
Yankee and Yankee
19
<PAGE>
Atomic, and our ownership of a portion of Millstone Unit #3, we are obligated to
contribute to the capital requirements and to pay a portion of the operating
costs and decommissioning expenses of these facilities, which is proportionate
to our entitlement share of each facility's generation output. We also have
financial obligations related to our ownership interest in VELCO. Although we
own over 56% of VELCO, we are contractually restricted from exercising control
over the company, and, as a result, VELCO's financials are not consolidated with
our own. Finally, our long-term power purchase agreement with Hydro-Quebec
obligates us to make payments through 2016. See "--The costs of decommissioning
our partially-owned nuclear generating facilities could be greater than our
current estimates."
Current accounting rules may no longer apply to us in the future, causing
extraordinary charges
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation," or SFAS No. 71, allows regulated
entities like us, in appropriate circumstances, to establish regulatory assets
and liabilities, and thereby defer the income statement impact of some of our
costs and revenues that are expected to be realized in future rates. We believe
that we currently comply with the provisions of SFAS No. 71 for both our
regulated Vermont service territory and FERC-regulated wholesale businesses.
However, due to legal and regulatory actions, our regulated utility subsidiary
in New Hampshire, Connecticut Valley, no longer accounts for its results of
operations using SFAS 71. In the event we determine that we no longer meet the
criteria for following SFAS No. 71 for our Vermont regulated utility business,
the accounting impact would be an extraordinary, non-cash charge to operations
of approximately $59.0 million (pre-tax) as of September 30, 1999. Criteria that
would give rise to the discontinuance of SFAS No. 71 include (1) increased
competition that restricts our ability to establish prices to recover specific
costs or (2) a significant change in the manner in which rates are set by
regulators from cost-of-service-based regulation to another form of regulation.
The Securities and Exchange Commission has questioned the ability of certain
utility companies continuing the application of SFAS No. 71 where legislation
provides for the transition to retail competition. Deregulation of the price of
electricity presents issues related to the application of SFAS No. 71 and 101.
These issues, including when and how to discontinue the application of SFAS No.
71 by utilities during transition to competition, have been referred to the
Financial Accounting Standards Board's Emerging Issues Task Force (EITF).
The EITF has reached a tentative consensus, and no further discussion is
planned, that regulatory assets should be assigned to separable portions of our
business based on the source of the cash flows that will recover those
regulatory assets. Therefore, if the source of the cash flows is from a
separable portion of our business that meets the criteria to apply SFAS No. 71,
those regulatory assets should not be written off under SFAS No. 101, "Regulated
Enterprises--Accounting for the Discontinuation of Application of FASB Statement
No. 71," but should be assessed under paragraph 9 of SFAS No. 71 for
realizability.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," requires that any assets, including
regulatory assets, that are no longer probable of recovery through future
revenues, be revalued based on future cash flows. SFAS No. 121 requires that a
rate-regulated enterprise recognize an impairment loss for the amount of costs
excluded from probable recovery. As of September 30, 1999, based upon the
regulatory environment within which we currently operate, SFAS No. 121 did not
have an impact on our financial position or results of operations. Competitive
influences or regulatory developments may adversely impact this status in the
future.
Because we are unable to predict what form possible future restructuring
legislation will take, we cannot predict if or to what extent SFAS Nos. 71 and
121 will be applicable in the future. In addition, if we are unable to mitigate
or otherwise recover stranded costs that could arise from any potentially
adverse legislation or regulation, we would have to assess the likelihood and
magnitude of losses incurred under our power contract obligations.
As such, we cannot predict whether any restructuring legislation enacted in
Vermont or New Hampshire, once implemented, would have a material adverse effect
on our operations, financial condition or credit ratings. However, our failure
to recover a significant portion of our purchased power costs would likely have
a material adverse effect on our results of operations, cash flows, ability to
obtain capital at competitive rates and ability to
20
<PAGE>
exist as a going concern. It is possible that stranded cost exposure before
mitigation could exceed our current total common stock equity.
Our business is subject to significant government regulation that we can neither
predict nor control
We are regulated in virtually all aspects of our utility business by various
federal and state agencies. At the federal level, we are regulated by, among
others, the Securities and Exchange Commission, the FERC and the Nuclear
Regulatory Commission (NRC). The NRC is empowered to regulate the siting,
construction and operation of nuclear reactors with respect to public health,
safety, environmental and antitrust matters. Under its continuing jurisdiction,
the NRC may, after appropriate proceedings, require modification of units for
which operating licenses have already been issued, or impose new conditions on
such licenses, and may require that the operation of a unit cease or that the
level of generation of a unit be temporarily or permanently reduced.
Also at the federal level, we are subject to federal legislation under the
Public Utility Holding Company Act of 1935. Because we own a utility subsidiary,
we fall under the act's definition of a holding company. However, we are
currently exempt, under Rule 2 of the SEC's rules under the act, from all
provisions of the act except for Section 9(a)(2), which relates to the
acquisition of securities of public utility affiliates.
At the state level, we are subject to comprehensive regulation by, among
others, the PSB, the NHPUC and, for financing approvals, the Connecticut
Department of Public Utility Control.
In recent years, there has been significant activity at both legislative and
regulatory levels, throughout the United States, including New England, to
change the nature of regulation of our industry. Existing and future government
regulations may greatly influence how we operate our business, our business
strategy and, ultimately, our financial viability. We cannot predict the future
regulatory framework of our business.
Municipalization is a possible threat to our business in some geographic areas
One possible competitive threat we face is the potential for customers to
acquire our assets through a process known as municipalization. Under both
Vermont and New Hampshire law, municipalities are authorized to acquire the
electric distribution facilities located within their boundaries. In Vermont,
the exercise of such authority is conditioned upon an affirmative three-fifths
vote of the legal voters in an election and upon the payment of just
compensation including severance damages. Just compensation is determined either
by negotiation between the municipality and the utility or, in the event the
parties fail to reach an agreement, by the PSB after a hearing. If either party
is dissatisfied, the statute allows them to appeal the Board's determination to
the Vermont Supreme Court.
There has been only one instance where the Vermont law has been invoked. In
1977, the Town of Springfield acted to acquire our distribution facilities in
that community, but the action was subsequently discontinued by mutual agreement
of the parties in 1985. In addition, in late 1994 the Select Board of the Town
of Bennington considered whether to publicly hold a vote to acquire our
facilities located in Bennington. By vote of the Selectors taken on January 9,
1995, however, the Town decided not to pursue the vote at that time.
In New Hampshire, the exercise of such authority is conditioned upon a two-
thirds vote of the governing body of a city or town and a confirming vote of the
legal voters of such city or town within one year, and upon a determination of
the value of the property proposed to be taken. Value is determined by
negotiation or by the NHPUC after notice and hearing. An aggrieved party may
appeal the NHPUC determination to the New Hampshire Supreme Court. In the summer
of 1997, the City of Claremont, New Hampshire, engaged a consulting firm to
conduct a study to determine Claremont's options under New Hampshire law
including the possible municipalization of Connecticut Valley's service area
located within its jurisdiction. The City Council appropriated approximately
$750,000 for purposes of the study which has now been completed and the council
recently voted to pursue municipalization. On August 25, 1999, the City Council
narrowly approved a $50,000 public relations campaign in connection with the
proposed municipalization. Most recently, on September 8, 1999, the City
Council
21
<PAGE>
voted to postpone indefinitely the citizens' vote on municipalization which had
been set for November 2, 1999. No new date for the citizens' vote has been set.
We cannot predict at this time when or if a citizens vote on municipalization
will be held in connection with this initiative.
No other municipality served by us, so far as we know, has taken any formal
steps in an attempt to establish a municipal electric distribution system. We
cannot predict whether efforts to municipalize portions of our service territory
will be successful, and if so, what the impact will be on our financial
condition.
The costs of decommissioning our partially owned nuclear generating facilities
could be greater than our current estimates
We have equity ownership interests in various nuclear generating facilities
including: 31.3% of the outstanding common stock of Vermont Yankee; 2% of the
outstanding common stock of Maine Yankee; 2% of the outstanding common stock of
Connecticut Yankee; and 3.5% of the outstanding common stock of Yankee Atomic.
We also own a 1.7% undivided interest in Millstone Unit #3, part of the
Millstone Nuclear Power Station.
Each of the Yankee companies and Millstone has engaged consultants to estimate
the cost of decommissioning its nuclear generating unit. These estimates vary
depending on the method of decommissioning, economic assumptions, site and unit
specific variables, and other factors. Therefore, these estimates, as well as
actual costs, are subject to change. Based on the most recent decommissioning
estimate in 1997, our total share of the Millstone Unit #3 decommissioning costs
at December 31, 1998 was $9.7 million. As of December 31, 1998, we have funded
$3.2 million of these costs. Our share of remaining total costs with respect to
Maine Yankee, Connecticut Yankee and Yankee Atomic, which have discontinued
their operations and are in varying stages of decommissioning, is estimated to
be approximately $24.7 million at September 30, 1999. We believe that
substantially all of our proportionate share of the Maine Yankee, Connecticut
Yankee and Yankee Atomic decommissioning costs will be recovered through the
regulatory process. Although we believe that the resolution of the premature
retirement of these three plants will not have a material adverse effect on our
financial condition, there can be no assurance that our percentage share of the
decommissioning costs will not increase.
Vermont Yankee is in the process of preparing an updated site decommissioning
cost study. Preliminary results indicate that the new decommissioning estimate
could exceed $500 million in 1998 dollars versus the current estimate of $406.8
million in 1998 dollars. We would be responsible for up to 35% of these
estimated costs. On February 25, 1999, the Board of Directors of Vermont
Yankee granted an exclusive right to AmerGen Energy Co. to conduct a 120-day
period of due diligence and negotiate a possible agreement to purchase the
assets of Vermont Yankee. We have also received an unsolicited expression of
interest from Entergy Nuclear, Inc., to buy Vermont Yankee's nuclear power
plant. Vermont Yankee's owners, including us, pursued parallel negotiations
with the two potential purchasers with the objective of reaching a definitive
agreement. On October 15, 1999, we and the other owners of Vermont Yankee
accepted a bid for sale of the plant to AmerGen Energy Company, which is owned
by PECO Energy Company and British Energy. This transaction will also involve
us entering into a contract to purchase a portion of the power produced by this
plant. The Vermont Yankee sale needs to be approved by various state and
federal regulatory bodies. If we and the other owners receive all necessary
approvals, the transaction is expected to be completed in Summer 2000.
As part of the sale agreement with AmerGen, Vermont Yankee's current owners
including, us, will be protected from the financial risks associated with the
plant's ongoing operations and decommissioning.
Our business is subject to stringent environmental laws, which are subject to
change
In recent years, public concern for the environment has resulted in increased
governmental regulation of environmental matters. These environmental
regulations are administered by local, state and Federal regulatory authorities
and concern the impact of our generation, transmission, distribution,
transportation and waste handling facilities on air, water, land and aesthetic
qualities. We are subject to these regulations in the licensing and operation of
the generation, transmission and distribution facilities in which we have an
interest.
22
<PAGE>
We are required to comply with a number of statutes and regulations relating
to protection of the environment and to the safety and health of the public and
of the personnel in operating plants or engaged in the construction, operation
and maintenance of our other facilities. Such statutes and regulations, which
historically have changed from time to time, include regulation of hazardous
materials associated with each plant, limitations on noise emissions from the
plants, safety and health standards, and practices and procedures and
requirements relating to the discharge of air and water pollutants. In addition,
we could become liable for the investigation and removal of any hazardous
materials that may be found on our property regardless of the sources of such
hazardous materials. Failure to comply with any such statutes or regulations or
any change in the requirements of such statutes or regulations could result in
civil or criminal liability, imposition of cleanup liens and fines and large
expenditures to bring such property into compliance. We cannot presently
forecast the costs or other effects which environmental regulation may
ultimately have upon our existing and proposed facilities and operations. We
believe that, through the rate-making process, we should be able to recover
these costs reasonably incurred and related to our utility operations, although
there can be no assurance that we will be able to do so and there is substantial
uncertainty as to the portion of those costs we can ultimately recover. In
addition, not all of those costs are related to our current utility operations.
Finally, restructuring of the Vermont electric utility industry would render
significantly more uncertain our ability to recover our environmental regulatory
costs. See Note 14 of the Notes to Consolidated Financial Statements for the
year ended December 31, 1998 incorporated by reference in this prospectus.
Secured lenders may face potential environmental liability
Lenders that hold a security interest in real property may, in particular
circumstances, be held liable under environmental laws for the costs of
remediating or preventing releases or threatened releases of hazardous
substances at the mortgaged property. While lenders that neither foreclose on
nor participate in the management of a mortgaged property (as interpreted under
applicable law) generally have not been subject to such liability, lenders that
take possession of a mortgaged property or that participate in the management of
a mortgaged property must carefully adhere to federal and state rules to avoid
liability. In this regard, upon a default on the New Bonds or under the Second
Mortgage Indenture, the Trustee or the holders of the New Bonds would need to
evaluate the impact of these potential liabilities before determining whether to
foreclose on the mortgaged properties securing the New Bonds and exercising
other available remedies. In addition, the Trustee may decline to foreclose upon
the mortgaged properties or exercise remedies available to the extent that the
Trustee does not receive indemnification to its satisfaction from the holders of
the New Bonds.
We face uncertainty in relicensing hydroelectric projects
We are currently in the process of relicensing or preparing to license eight
separate hydroelectric generating facilities under the Federal Power Act. These
facilities, some of which are evaluated by the FERC as a single project,
represent approximately 29.9 mW, or 72.4%, of our total hydroelectric nameplate
capacity. In the new licenses, the FERC is expected to impose conditions
designed to address the impact of the projects on fish and other environmental
concerns. We are unable to predict the impact of imposition of such conditions,
but capital expenditures and operating costs are expected to increase and net
generation from these facilities will decrease in future periods.
The value of your collateral may not be sufficient to repay the New Bonds
The assets securing the New Bonds are not liquid and their value to you may be
substantially less than their value to us. In addition, the value of your
collateral may decline over time. Accordingly, we can give you no assurance:
. as to the value or sufficiency of the collateral securing your New Bonds;
. as to the amounts of proceeds from the sale, disposition or liquidation of
any of the collateral upon the Trustee's exercise of remedies following an event
of default under the New Bonds; or
23
<PAGE>
. that there would be sufficient proceeds upon the sale, disposition or
liquidation of the collateral to repay the principal and accrued but unpaid
interest, if any, on the New Bonds.
Proceeds of any sale of the collateral may not be sufficient to repay all
amounts due on the New Bonds. To the extent you are not repaid from the proceeds
of the sale of the collateral, you would have only an unsecured claim against
our remaining assets.
Your security interest under the Second Mortgage is junior to the lien of the
First Mortgage
The Second Mortgage Indenture provides you with a security interest in our
assets, to the extent described therein, but that security interest is
subordinated to the security interests in favor of the holders of our
outstanding First Mortgage Bonds. The holders of the First Mortgage Bonds
generally have the exclusive right to control decisions relating to the
enforcement of remedies. As a result, the holders of the Second Mortgage Bonds
may not be able to force a sale of the collateral securing their Second Mortgage
Bonds or otherwise independently pursue the remedies of a secured creditor under
the Second Mortgage Bonds as long as the First Mortgage Bonds are outstanding.
Holders of the First Mortgage Bonds may have interests that are different from
the interests of holders of the Second Mortgage Bonds and they may elect not to
pursue their remedies under the First Mortgage Indenture at a time when it would
be advantageous for the holders of the Second Mortgage Bonds to do so. In
addition, because the lien of our First Mortgage Indenture is superior to the
lien of the Second Mortgage Indenture, holders of the First Mortgage Bonds would
have a prior right in payment to the proceeds of the sale of any of their
collateral.
We may not have sufficient funds to finance a "change of control" offer
Upon the occurrence of specific kinds of events that result in our
experiencing a change of control, we will be required to offer to repurchase all
outstanding New Bonds. However, it is possible that we will not have sufficient
funds at the time of the change of control to make the required repurchase of
New Bonds. In addition, important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would not
constitute a "Change of Control" under the Second Mortgage Indenture. See
"Description of New Bonds--Repurchase at the Option of the Holders--Change of
Control."
24
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds in connection with the exchange offer. In
consideration for issuing the New Bonds in exchange for the Old Bonds as
described in this prospectus, we will receive, retire and cancel the Old Bonds.
The net proceeds from the sale of the Old Bonds, before payment of expenses
but including the initial purchasers' discount, were approximately $74,281,000.
We used $15.0 million of the net proceeds to repay amounts outstanding under our
revolving credit facility which has been terminated. We have used and will use
the balance of the proceeds of the offering of the Second Mortgage Bonds to pay
expenses associated with the issuance of the Old Bonds and the New Bonds and for
general corporate purposes relating to our regulated utility business, including
the repayment of $41.0 million of First Mortgage Bonds which mature between now
and 2004 and repayment of our $12.0 million accounts receivable facility which
matures on November 29, 1999. The remaining proceeds have been and will be
invested in short-term interest-bearing obligations until they are applied as
discussed above. See "Description of Certain Other Indebtedness and Preferred
Stock."
25
<PAGE>
CAPITALIZATION
The following table sets forth (i) our consolidated capitalization at
September 30, 1999 which includes the sale of the Second Mortgage Bonds and the
use of the proceeds as discussed under "Use of Proceeds." This table should be
read in conjunction with our audited consolidated financial statements and the
related notes for the year ended December 31, 1998 and our unaudited
consolidated financial statements and related notes for the quarter ended
September 30, 1999, which are incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
As of
September 30, 1999
(unaudited)
(Dollars in
thousands)
----------
<S> <C>
Cash and cash equivalents....................................................................... $ 66,262
========
Short-term debt:
Short-term debt:
Accounts Receivable Facility(1)............................................................... 12,000
--------
Total Short-term debt......................................................................... 12,000
--------
Long-term debt (including current portion):
First Mortgage Bonds.......................................................................... $ 76,500
8 1/8% Second Mortgage Bonds, due 2004....................................................... 75,000
Development Authority Bonds(2)................................................................ 16,300
Other (various)............................................................................... 1,783
--------
Total long-term debt.......................................................................... 169,583
--------
Capital Lease Obligations (including current portion)........................................... $ 16,424
--------
Cumulative Preferred stock (including current portion):
Non-redeemable................................................................................ $ 8,054
Redeemable.................................................................................... 18,000
--------
Total cumulative preferred stock(3)........................................................... 26,054
--------
Common stockholders' equity..................................................................... 183,812
--------
Total Capitalization............................................................................ $407,873
========
</TABLE>
____________________
(1) The Accounts Receivable Facility is currently limited in aggregate
principal amount to $12 million and expires on November 29, 1999.
(2) These bonds include $5.0 million of Millstone Pollution Control Bonds, $5.5
million of Seabrook Pollution Control Bonds and $5.8 million of East Barnet
Hydroelectric Revenue Bonds, issued by development authorities in
Connecticut, New Hampshire and Vermont, respectively. The bonds are secured
by three outstanding letters of credit which in turn will be secured by the
pledge of approximately $16.9 million of First Mortgage Bonds Series PP, QQ
and RR due 2015, 2009 and 2013, respectively.
(3) See "Description of Other Indebtedness and Preferred Stock--Preferred
Stock" for additional information about our outstanding preferred stock.
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands)
The following table presents selected consolidated financial information
about us as of the dates and for the periods indicated. The historical financial
data as of the end of and for each of the five years in the period ended
December 31, 1998, are derived from our audited consolidated financial
statements incorporated by reference herein. The historical financial data as of
and for the nine months ended September 30, 1999 and September 30, 1998 are
derived from our unaudited financial statements which, in the opinion of our
management, contain all adjustments necessary for a fair presentation of the
information presented. This table should be read together with the detailed
financial and other information contained elsewhere or incorporated by reference
in this prospectus.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
Year Ended December 31, -------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- --------- -------------
(Unaudited)
----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues....................... $277,158 $288,277 $290,801 $304,732 $303,835 $219,886 $305,002(1)
Operating expenses
Operations
Purchased power........................ 143,162 149,665 154,422 171,443 184,887 127,784 192,472
Production and transmission............ 21,122 20,883 20,941 22,417 23,383 17,279 16,756
Other operations....................... 40,691 42,116 38,098 40,909 44,110 32,808 36,166
Maintenance............................. 12,245 12,874 14,918 15,333 15,613 11,421 12,700
Depreciation............................ 16,478 17,297 17,960 16,931 16,708 12,603 12,705
Other taxes, principally property
Taxes.................................. 10,423 10,543 10,971 11,490 11,426 8,623 8,854
Taxes on income......................... 11,934 10,662 10,216 7,573 (283) 1,837 7,872
-------- -------- -------- -------- -------- -------- --------
Total operating expenses................ 256,055 264,040 267,526 286,096 295,844 212,355 287,525
-------- -------- -------- -------- -------- -------- --------
Operating income(2)...................... 21,103 24,237 23,275 18,636 7,991 7,531 17,477
Other income and deductions(2)........... 3,828 5,782 6,092 8,221 6,652 4,098 3,382
-------- -------- -------- -------- -------- -------- --------
Total operating and other income......... 24,931 30,019 29,367 26,857 14,643 11,629 20,859
-------- -------- -------- -------- -------- -------- --------
Interest expense
Interest on long-term debt.............. 9,611 9,544 9,473 9,337 9,868 7,409 5,768
Other interest.......................... 657 798 615 400 831 531 1,567
Allowance for borrowed funds
during construction.................... (137) (174) (163) (31) (39) (21) (32)
-------- -------- -------- -------- -------- -------- --------
Total interest expense, net.............. 10,131 10,168 9,925 9,706 10,660 7,919 7,303
-------- -------- -------- -------- -------- -------- --------
Net income before extraordinary
(charge)/credit......................... 14,800 19,851 19,442 17,151 3,983 3,710 13,556
Extraordinary (charge)/credit, net of
taxes................................... -- -- -- (811) (6) 873
-------- -------- -------- -------- -------- --------
Net income............................... $ 14,800 $ 19,851 $ 19,442 $ 16,340 $ 3,983 $ 4,583 $ 13,556
Preferred stock dividend
Requirements............................ 2,138 2,028 2,028 2,028 1,945 1,459 1,397
-------- -------- -------- -------- -------- -------- --------
Earnings available for common
stock................................... $ 12,662 $ 17,823 $ 17,414 $ 14,312 $ 2,038 $ 3,124 $ 12,159
======== ======== ======== ======== ======== ======== ========
Other Financial Data:
EBITDA(3)................................ $ 60,797 $ 65,455 $ 63,128 $ 60,471 $ 45,312 $ 26,072 $ 40,390
Net cash provided by operating
Activities.............................. $ 49,426 $ 41,711 $ 43,007 $ 41,974 $ 21,743 $ 16,843 $ 32,095
Capital expenditures(4).................. $ 28,780 $ 25,236 $ 20,541 $ 15,678 $ 18,254 $ 13,407 $ 11,327
Ratio of earnings to fixed
charges(5).............................. 3.43x 3.47x 3.44x 3.77x 1.83x .97x 2.77x
Ratio of EBITDA to interest
Expense................................. 6.00x 6.44x 6.36x 6.23x 4.25x 3.29x 5.53x
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
1994 1995 1996 1997 1998 As of September 30, 1999
-------- -------- -------- -------- -------- -------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....... $ 7,559 $ 11,962 $ 6,365 $ 16,506 $ 10,051 $ 66,262
Total assets.................... 490,399 489,931 502,968 531,940 530,282 576,654
Total debt (incl. Capital lease) 157,459 154,126 145,537 148,337 151,085 198,007
Common stock equity............. 170,784 179,760 186,469 187,123 179,182 183,812
Preferred Stock(7).............. 28,054 28,054 28,054 27,054 26,054 26,054
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $8.8 million (pre-tax) billed during the period pursuant to the
4.7% temporary rate increase effective January 1, 1999, which is subject to
adjustment pending the outcome of regulatory proceedings in Vermont.
27
<PAGE>
(2) After deduction of taxes on income.
(3) EBITDA represents earnings before interest charges, taxes on income,
depreciation, amortization, gains on asset sales, cash investment income
and noncash transactions resulting principally from the regulatory
disallowance of the recovery of power costs incurred. EBITDA is not defined
by GAAP, and is presented here only to provide additional information about
our ability to meet our future requirements for debt service and capital
expenditures. EBITDA should not be considered an alternative to net income
as an indicator of operating performance or an alternative to cash flow as
a measure of liquidity.
(4) Capital expenditures consist of construction and plant expenditures and
energy efficiency expenditures not currently being recovered in rates.
(5) For purposes of determining the ratio of earnings to fixed charges, (i)
earnings consist of income before income taxes plus fixed charges; and (ii)
fixed charges consist of interest charges on all indebtedness, including
the portion of rental expense that is representative of the interest
factor.
(6) Excludes approximately $9,000 of net extraordinary charges (after-tax)
recorded in the twelve months ended December 31, 1998 but classified in
"Other income and deductions."
(7) See "Description of Other Indebtedness and Preferred Stock--Preferred
Stock" for additional information about our outstanding preferred stock.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine months ended September 30, 1999 compared with nine months ended September
30, 1998
Earnings Overview
Earnings available for common stock and earnings per share of common stock for
the nine months ended September 30, 1999 were $12.2 million and $1.06 compared
to $3.1 million and $.27 for the corresponding period last year.
Improved earnings and earnings per share of common stock for 1999 reflect the
positive impact of a 4.7% temporary Vermont retail rate increase ($5.4 million
after-tax, or $.47 per share of common stock) as well as a 2.9% increase in
retail mWh sales.
Other factors affecting results in 1999, including the positive affect of
lower net power costs, are described in "--Results of Operations" below.
The 1998 nine months ended September 30, reflect the positive impact of
reversing Connecticut Valley's fourth quarter 1997 after-tax charges of $4.5
million, or $.39 per share of common stock.
The major elements of the Consolidated Statement of Income are discussed
below.
Results of Operations
Operating Revenues and mWh Sales
A summary of mWh sales and operating revenues for the nine months ended
September 30, 1999 and 1998 (and the related percentage changes from 1998) is
set forth below:
<TABLE>
<CAPTION>
Nine Months Ended September 30
--------------------------------------------------------------------------
Percentage Percentage
mWh Increase Revenues (000's) Increase
------------------------ ---------------------
1999 1998 (Decrease) 1999 1998 (Decrease)
----------- ----------- ------------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Residential................................. 712,872 692,304 3.0% $ 90,759 $ 84,499 7.4
Commercial.................................. 709,703 694,801 2.1 79,653 74,953 6.3
Industrial.................................. 322,238 307,647 4.7 26,317 24,344 8.1
Other retail................................ 4,688 5,364 (12.6) 1,343 1,457 (7.8)
--------- --------- -------- --------
Total retail sales........................... 1,749,501 1,700,116 2.9 198,072 185,253 6.9
--------- --------- -------- --------
Resale sales:
Firm........................................ 1,653 1,617 2.2 116 61 90.2
Entitlement................................. 280,614 229,076 22.5 14,964 14,825 .9
Other....................................... 2,642,182 578,741 356.5 87,697 15,966 449.3
--------- --------- -------- --------
Total resale sales........................... 2,924,449 809,434 261.3 102,777 30,852 233.1
--------- --------- -------- --------
Other revenues............................... -- -- -- 4,153 3,781 9.8
--------- --------- -------- --------
Total sales................................. 4,673,950 2,509,550 86.2 $305,002 $219,886 38.7
========= ========= ======== ========
</TABLE>
Retail mWh sales for the nine months ended September 30, 1999 increased 2.9%
compared to the nine months ended September 30, 1998 reflecting a return to
normal winter weather compared to 1998. Retail revenues increased $12.8 million,
or 6.9% compared to last year. This increase is due to 4.7% temporary retail
rate increase and the impact of higher mWh sales in the 1999 period as compared
to the same period in 1998.
For the nine months ended September 30, 1999, entitlement mWh sales increased
22.5% while related revenues increased .9% compared to the same period last
year. This increase results primarily from the Vermont Yankee extended refueling
outage in 1998.
29
<PAGE>
Other 1999 resale sales increased 2,063,441 mWh and other resale revenues
increased $71.7 million for the nine months ended September 30, 1999 primarily
as a result of our activity through our alliance with Virginia Power in jointly
supplying wholesale power in the Northeast and Mid-Atlantic states. However, we
have decided to discontinue this alliance because we believe the risks
associated with this relationship outweigh the potential rewards.
Net Purchased Power and Production Fuel Costs
The net cost components of purchased power and production fuel costs for the
nine months ended September 30, 1999 and 1998 are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------- --------------------------
Units Amount Units Amount
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Purchased and produced:
Capacity (mW)......................................... 856 $ 66,781 559 $ 71,221
Energy (mWh).......................................... 4,543,993 125,691 2,408,734 56,563
-------- --------
Total purchased power costs........................ 192,472 127,784
Production fuel (mWh)................................. 292,651 2,554 243,214 1,521
-------- --------
Total purchased power and production fuel costs......... 195,026 129,305
Less entitlement and other resales (mWh).............. 2,922,796 102,661 807,817 30,791
-------- --------
Net purchased power and production fuel
Net purchased power and production fuel costs........... $92,365 $98,514
======= =======
</TABLE>
Net purchased power and production fuel costs decreased $6.1 million, or 6.2%
for the nine months ended September 30, 1999 compared to nine months ended
September 30, 1998 resulting from better performance at the Millstone Unit #3
and at the Vermont Yankee nuclear power plant.
Energy purchases increased $69.1 million for 1999. This increase primarily
relates to the Virginia Power alliance and was offset by increases in other
resale sales described above.
In addition, the 1999 nine month period reflects the positive impact of $5.5
million (pre-tax) as the result of recognizing disallowed Hydro-Quebec power
costs during the fourth quarter of 1998. The 1998 nine month period reflects the
positive impact of reversing Connecticut Valley's fourth quarter 1997 charge of
$5.5 million (pre-tax).
Generating Units
We own and operate 20 hydroelectric generating units, two oil-fired turbines
and one diesel peaking unit with a combined nameplate capability of 73.7 mW. We
have equity ownership interests in four nuclear generating companies: Vermont
Yankee, a 514 mW nuclear unit of which we own 31.3%; Maine Yankee, an 847 mW
nuclear unit of which we own 2%; Connecticut Yankee, a 582 mW nuclear unit of
which we own 2%; and Yankee Atomic, a 173 mW nuclear unit of which we own 3.5%.
Connecticut Yankee, Maine Yankee and Yankee Atomic no longer operate and are in
various stages of decommissioning. In addition, we maintain joint-ownership
interests in Joseph C. McNeil, a 53 mW wood, gas and oil-fired unit; Wyman #4, a
619 mW oil-fired unit; and Millstone Unit #3, an 1149 mW nuclear unit, which is
a part of the Millstone Nuclear Power Station. Millstone Unit #3 and Connecticut
Yankee are operated by Northeast Utilities (NU). Also see "Vermont Yankee"
below.
We are currently in the process of relicensing or preparing to license eight
separate hydroelectric generating facilities under the Federal Power Act. These
facilities, some of which are evaluated by the FERC as a single project,
represent approximately 29.9 mW, or about 72.4% of our total hydroelectric
nameplate capacity. In the new licenses, the FERC is expected to impose
conditions designed to address the impact of the projects on fish and other
environmental concerns. We are unable to predict the impact of the imposition of
such conditions, but capital
30
<PAGE>
expenditures and operating costs are expected to increase and net generation
from these projects will decrease in future periods.
Merrimack Unit #2
Until contract termination on April 30, 1998, we purchased power and energy
from Merrimack Unit #2 pursuant to a contract dated July 16, 1966 entered into
by and between VELCO and Public Service Company of New Hampshire (PSNH).
Pursuant to the contract, as amended, VELCO agreed to reimburse PSNH, in the
proportion which the VELCO quota bears to the demonstrated net capability of the
plant, for all fixed costs of the unit and operating costs of the unit incurred
by PSNH, which are reasonable and cost-effective for the then-remaining term of
the VELCO contract. In early 1998, PSNH took the Merrimack Unit #2 facility off
line, shut it down and commenced a maintenance outage. In February, March and
April of 1998, PSNH billed VELCO for costs to complete the maintenance outage.
VELCO disputes the validity of a portion of the charges on grounds that the
maintenance at the unit was performed to extend the life of the Merrimack plant
beyond the term of the VELCO contract and that the maintenance charges were not
reasonable and cost-effective for the remaining term of the VELCO contract. We
estimate that the portion of the disputed charges allocable to us could be as
much as $1.0 million (pre-tax).
Nuclear Matters
Millstone Unit #3
Millstone Unit #3 resumed operation in June 1998 after a lengthy outage and,
accordingly, production fuel costs increased for the nine months ended September
30, 1999 compared to the same period of 1998.
We remain actively involved with the other non-operating minority joint-owners
of Millstone Unit #3. This group is engaged in various activities to monitor and
evaluate NU and Northeast Utilities Service Co.'s efforts relating to Millstone
Unit #3. On August 7, 1997, we and eight other non-operating owners of Millstone
Unit #3 filed a demand for arbitration with Connecticut Light and Power Company
and Western Massachusetts Electric Company, both NU affiliates, and lawsuits
against NU and its trustees. The arbitration and lawsuits seek to recover costs
associated with replacement power, operation and maintenance costs and other
costs resulting from the lengthy outage of Millstone Unit #3. The non-operating
owners claim that NU and two of its wholly owned subsidiaries failed to comply
with the NRC's regulations, failed to operate the facility in accordance with
good operating practice and attempted to conceal their activities from the non-
operating owners and the NRC. A mediator has been hired in an attempt to settle
the arbitration and the lawsuits.
Based on the most recent decommissioning estimate in 1997, our total share of
the Millstone Unit #3 decommissioning costs at December 31, 1998 was $9.7
million. As of December 31, 1998, we have funded $3.2 million of these costs.
On September 15, 1999, NU announced that it intends to auction its nuclear
plants, including Millstone Unit #3. We cannot predict at this time the effect
of such an auction, if it occurs, on us or on the ongoing litigation.
On October 27, 1999, NU and New England Power Company, or NEP, disclosed that
NU had reached an agreement with NEP and Montaup Electric Company, or MEC, two
of the non-operating minority joint owners, to settle their claims in the
arbitration and lawsuits. The settlement involves payment of fixed and
contingent amounts to NEP and MEC and the inclusion of their Millstone Unit #3
interests in NU's auction of the plant. The other non-operating minority joint
owners, including us, remain active in the arbitration and lawsuits and in
seeking to settle our claims against NU.
Maine Yankee
On August 6, 1997, the Maine Yankee nuclear power plant was prematurely
retired from commercial operation. We relied on Maine Yankee for less than 5% of
our required system capacity. Future payments for the
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<PAGE>
closing, decommissioning and recovery of the remaining investment in Maine
Yankee are estimated to be approximately $715.0 million in 1998 dollars
including a decommissioning obligation of $344.0 million.
On January 19, 1999, Maine Yankee and the active intervenors filed an Offer of
Settlement with the FERC which the FERC has approved. As a result, all issues
raised in the FERC proceeding, including recovery of anticipated future payments
for closing, decommissioning and recovery of the remaining investment in Maine
Yankee are resolved. Also resolved are the issues raised by the secondary
purchasers, who purchased Maine Yankee power through agreements with the
original owners, by limiting the amounts they will pay for decommissioning the
Maine Yankee plant and by settling other points of contention affecting
individual secondary purchasers. As a result, it is possible that we will not be
able to recover approximately $500,000 of these costs.
Connecticut Yankee
On December 4, 1996, the Connecticut Yankee nuclear power plant was
prematurely retired from commercial operation. We relied on Connecticut Yankee
for less than 3% of our required system capacity.
On August 31, 1998, a FERC administrative law judge recommended that the
owners of Connecticut Yankee, including us, may collect from customers $350.0
million for decommissioning the Connecticut Yankee Nuclear Power Plant rather
than the $426.7 million requested. The administrative law judge ruling is
subject to approval by the FERC Commissioners. If approved, it is possible that
we would not be able to recover approximately $1.5 million of decommissioning
costs through the regulatory process.
Yankee Atomic
In 1992, the Yankee Atomic nuclear power plant was retired from commercial
operation. We relied on Yankee Atomic for less than 1.5% of our system capacity.
Maine Yankee, Connecticut Yankee and Yankee Atomic Decommissioning Costs
Presently, substantially all of the costs billed to us by Maine Yankee,
Connecticut Yankee and Yankee Atomic, including a provision for ultimate
decommissioning of the units, are being collected from our customers through
existing retail and wholesale rate tariffs. Our share of remaining costs with
respect to Maine Yankee, Connecticut Yankee and Yankee Atomic's decisions to
discontinue operation is estimated to be $14.1 million, $9.0 million and $1.6
million, respectively, at September 30, 1999. These amounts are subject to
ongoing review and revisions and are reflected in the accompanying balance sheet
both as regulatory assets and nuclear decommissioning liability (current and
non-current). Although the estimated costs of decommissioning are subject to
change due to changing technologies and regulations, we expect that the nuclear
generating companies' liability for decommissioning, including any future
changes in the liability, will be recovered in their rates over their operating
or license lives.
The decision to prematurely retire each of these nuclear power plants was
based on economic analyses of the costs of operating them compared to the costs
of closing them and incurring replacement power costs over the remaining period
of the plants' operating licenses. We believe that based on the current
regulatory process, substantially all of our proportionate share of Maine
Yankee, Connecticut Yankee and Yankee Atomic decommissioning costs will be
recovered through the regulatory process and, therefore, the ultimate resolution
of the premature retirement of the three plants has not and should not have a
material adverse effect on our earnings or financial condition.
Vermont Yankee
On October 9, 1996, the NRC issued an industry-wide information request to
nuclear operators in the United States, including Vermont Yankee. The NRC was
concerned that NRC inspections and reviews at a number of plants had turned up
discrepancies between those plants' original designs and their actual
configurations and
32
<PAGE>
operating procedures. The NRC required information from each plant, including
Vermont Yankee, that would provide the NRC added confidence and assurance that
the plants are operated and maintained within their design basis and any
deviations are reconciled in a timely manner. On February 14, 1997, Vermont
Yankee filed its initial response with the NRC, concluding that "Vermont
Yankee's overall performance in the areas of design and configuration control is
fundamentally sound."
The most recent Plant Performance Review (April 9, 1999) issued by the NRC
states that (i) engineering programs, including Design Basis Documentation
development were being implemented well, (ii) Design Basis Documentation item
resolution presents a challenge to the engineering work force, and (iii) an
inspection will be conducted in the future specifically looking at the
resolution of Design Basis Documentation program identified discrepancies. The
design analysis will be completed in 2000.
This Design Basis Documentation project is expected to be completed in 2000.
Our 35% share of the total cost for this project is expected to be between $5.5
million and $6.2 million. Such costs are being deferred by Vermont Yankee and
amortized over the remaining license life of the plant.
On February 25, 1999, the Board of Directors of Vermont Yankee granted an
exclusive right to AmerGen Energy Co. to conduct a 120-day period of due
diligence and negotiate a possible agreement to purchase the assets of Vermont
Yankee.
On July 16, 1999, the Board of Directors of Vermont Yankee delayed a decision
on whether to sell the nuclear unit to AmerGen Energy Co. until August 2, 1999.
On August 2, 1999 Vermont Yankee received an unsolicited expression of
interest from Entergy Nuclear, Inc., to buy Vermont Yankee's nuclear power
plant. Vermont Yankee's owners, including us, pursued parallel negotiations
with the two potential purchasers with the objective of reaching a definitive
agreement.
On October 15, 1999, we and the other owners of Vermont Yankee accepted a bid
for sale of the plant to AmerGen Energy Company, which is owned by PECO Energy
Company and British Energy. This transaction will also involve us entering into
a contract to purchase a portion of the power produced by this plant. The
transaction is expected to be completed by Summer 2000.
Before final closing, the deal will require various regulatory approvals
including, but not limited to, the Federal Energy Regulatory Commission, the
Nuclear Regulatory Commission, the Securities and Exchange Commission and the
Vermont Public Service Board. The sale of the boiling water reactor has been
the subject of negotiations between Vermont Yankee's owners and AmerGen since
February 1999.
Assuming a final closing date for the transaction of July 1, 2000, AmerGen
will pay Vermont Yankee about $23.5 million for the plant and property and will
assume full responsibility and liability for operating and ultimately
decommissioning the nuclear station.
As a condition of the sale, Vermont Yankee's current owners will make a one-
time payment of $54.3 million to pre-pay the plant's decommissioning fund at
$313 million. In return, AmerGen will assume full responsibility for all future
operating costs and the estimated $800 million for decommissioning the plant at
the end of its operating license in 2012.
As part of the sale agreement with AmerGen, Vermont Yankee's current owners
including, us, will be protected from the financial risks associated with the
plant's ongoing operations and decommissioning.
Cogeneration/Small Power Qualifying Facilities
A number of small power producers using hydroelectric, biomass, and refuse-
burning generation are currently producing energy that we are purchasing. The
majority of these purchases are made from a state appointed purchasing agent
which purchases and redistributes the power to all Vermont utilities. For the
nine months ended September 30, 1999, we received 137,662 mWh from these sources
for which we paid $15.0 million.
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<PAGE>
As a part of our initiative to cut power costs and restructure Vermont's
utility industry, on August 3, 1999, we, Green Mountain Power, Citizens
Utilities and all of Vermont's 15 municipal utilities filed a petition with the
PSB requesting modification of the contracts between the independent power
producers and the utilities. The petition is based on unique provisions of the
existing contracts and PSB regulations that provide for modifications and
alterations that serve the public interest. The petition outlines seven
specific elements that, if implemented, could ultimately allow for the buy-out
and buy-down of these contracts and reduce ratepayers' committed power costs.
On September 3, 1999, the PSB responded to our petition by opening a formal
investigation regarding these contracts. Shortly thereafter, Citizens
Utilities, Hardwick Electric Department and the Burlington Electric Department
notified parties that they were withdrawing from the petition but that each will
participate in the case as a non-moving party. At this time, we cannot predict
the outcome of this proceeding which remains at a preliminary status before the
Public Service Board.
Production and Transmission
As a result of a settled transmission contract dispute between NEPOOL,
representing various New England utilities, and Hydro-Quebec, production and
transmission expenses decreased approximately $523,000 for the nine months ended
September 30, 1999 compared to the same period of 1998, partially offset by
higher nuclear fuel costs related to our joint-ownership units.
Other Operation
Other operation expenses increased $3.4 million primarily due to increased
regulatory and legal costs as well as increased Conservation & Load management
costs.
Maintenance
The increase in maintenance expenses of about $1.3 million results primarily
from costs associated with Hurricane Floyd during September 1999 as well as
increased maintenance costs related to Millstone Unit #3. Maintenance costs for
1998 include costs associated with the severe ice storm in January 1998. See
"Prospectus Summary--Recent Developments--Ice Storm Arbitration with Hydro-
Quebec."
Income Taxes
Federal and state income taxes fluctuate with the level of pre-tax earnings.
The increase in total income tax expense for 1999 results primarily from an
increase in pre-tax earnings for the period.
Other Income and Deductions
The decrease in other income, net results from a decrease in equity earnings
related to our non-regulated subsidiary companies.
Net Interest Expense
The decrease in net interest expense of $.5 million is due to the retirement
of long-term debt in December 1998 partially offset by an increase in interest
expense associated to short-term borrowings.
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<PAGE>
Extraordinary Credit
The 1998 extraordinary credit net of taxes of $873,000 represents a reversal
of a charge of a like amount taken in the fourth quarter of 1997.
Cash Dividends Declared
The increase in common dividends declared results from an early declaration
made in September, 1999 for a quarterly dividend payable on November 15, 1999.
Fiscal year 1998 compared with Fiscal year 1997
Earnings Overview
Our 1998 net income was $4.0 million or $.18 per share of common stock, which
equates to a 1.1% return on average common equity. Net income and earnings per
share of common stock for 1998 compare to $16.3 million and $1.25 in 1997, and
$19.4 million and $1.51 in 1996. The return on average common equity was 7.5%
for 1997 and 9.4% for 1996.
For 1998, net income and earnings per share of common stock for our utility
business reflect the negative impact of increased operating costs, predominantly
purchased power, and two regulatory actions. First, during April 1998, we agreed
to toll the statutory period of time in which the PSB must act on our pending
6.6% rate increase request filed in September 1997. At the same time, we asked
the Vermont Supreme Court to review the PSB's denial of our claim that the PSB
is precluded from again litigating a number of VJO Power Contract and demand
side management decisions. The appeal and associated stay of the rate case
significantly delayed the date that new rates would have otherwise taken effect.
As a result, our earnings for 1998 were adversely affected. Second, because of
the October 27, 1998 retail rate increase settlement discussed in "Regulation
and Rates," net income and earnings per share of common stock for 1998 include
the negative impact of an after-tax disallowance of $4.3 million, or $.38 per
share of common stock for our purchased power costs under the VJO Power
Contract.
Also, for 1998 net income and earnings per share of common stock for our
utility business reflect the net effect at Connecticut Valley of charges taken
during the fourth quarter of 1998 of $3.7 million, or $.32 per share of common
stock, offset by the reversal of 1997 charges during the first quarter of 1998
of $4.5 million, or $.39 per share of common stock. These charges and reversal
of charges are discussed below and in Notes 1 and 13 to the consolidated
financial statements incorporated by reference in this prospectus.
For 1997, net income and earnings per share of common stock for our utility
business reflect a net of tax extraordinary charge of approximately $800,000 and
$.07, respectively, associated with the discontinued application of SFAS No. 71
applied to Connecticut Valley. In addition, Connecticut Valley incurred an
after-tax charge of $3.6 million and $.31 per share of common stock for
disallowed power costs.
For 1997, non-utility net income and earnings per share of common stock
reflect a gain of $1.8 million and $.16, respectively, from the sale by
Catamount of its 8.1% partnership interest in the NW Energy Williams Lake L.P.
Project.
In addition, 1997 net income and earnings per share of common stock reflected
an after-tax gain of approximately $1.3 million and $.12, respectively, from
sale of non-utility property.
Results of Operations
The major elements of the Consolidated Statement of Income are discussed
below.
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<PAGE>
Operating Revenues and mWh Sales
A summary of mWh sales and operating revenues for 1998, 1997 and 1996 is set
forth below:
<TABLE>
<CAPTION>
mWh Sales Revenue
1998 1997 1996 1998 1997 1996
-------- --------- --------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential........................... 930,666 945,199 957,733 $115,911 $116,314 $108,603
Commercial............................ 937,547 916,311 900,590 103,221 104,460 98,890
Industrial............................ 418,778 427,764 401,781 33,617 34,206 32,399
Other retail.......................... 7,123 7,138 7,229 1,943 1,937 1,856
--------- --------- --------- -------- -------- --------
Total retail sales..................... 2,294,114 2,296,412 2,267,333 254,692 256,917 241,748
--------- --------- --------- -------- -------- --------
Resale sales:
Firm................................. 2,284 1,051 1,717 94 46 81
Entitlement.......................... 319,703 378,273 470,760 19,370 18,925 24,781
Other................................ 1,008,635 827,818 770,542 26,861 22,265 18,705
--------- --------- --------- -------- -------- --------
Total resale sales.................... 1,330,622 1,207,142 1,243,019 46,325 41,236 43,567
--------- --------- --------- -------- -------- --------
Other revenues........................ -- -- -- 2,818 6,579 5,486
--------- --------- --------- -------- -------- --------
Total................................ 3,624,736 3,503,554 3,510,352 $303,835 $304,732 $290,801
========= ========= ========= ======== ======== ========
</TABLE>
Year-to-year fluctuations in total retail mWh sales are primarily affected by
customer growth, conservation and load management programs, as well as relative
prices of alternate energy sources, weather patterns and conservation induced by
price changes and income elasticity responses of customers. Compared to 1997,
retail mWh sales for 1998 decreased 2,298 mWh and related revenues decreased
$2.2 million, or .9% compared to 1997. The revenue decrease is primarily
attributable to a modified rate design reflected in bills rendered since April
1, 1997. The modified rate design, which is revenue neutral on an annual basis,
decreases prices charged during the winter months of December through March and
increases prices during the remaining months of the year.
Retail mWh sales for 1997 increased 1.3% compared to 1996 reflecting an
improved Vermont economy. However, retail revenues increased $15.2 million or
6.3% over 1996 due to a $12.8 million increase in revenues resulting from the
full year impact of a 5.5% retail rate increase effective June 1, 1996, 2%
retail rate increase effective January 1, 1997, the positive impact of the
modified rate design described above, and a 1.3% increase in retail mWh sales.
For 1998, entitlement mWh sales decreased 15.5% compared to 1997. The decrease
results primarily from the scheduled refueling and maintenance outage of the
Vermont Yankee nuclear power plant. The outage, which reduced the plant's 1998
output, also reduced mWh sales. However, a portion of the higher costs of our
share of Vermont Yankee's costs associated with the refueling and maintenance
outage was passed on to entitlement customers resulting in an increase in
entitlement revenues of $400,000, or 2.4%.
Entitlement mWh sales and revenues decreased for 1997 compared to 1996
primarily due to the scheduled termination of several sales agreements in late
1996.
Other resale sales increased 180,817 mWh and related revenues increased $4.6
million for 1998. The increase resulted primarily from short-term system
capacity sales made by us and Virginia Power, with which we jointly supply
wholesale power in the Northeast and Mid-Atlantic States. This increase is
partially offset by lower sales to New England power pool, or NEPOOL.
Other resale sales and revenues for 1997 increased 7.4% and 19%, respectively,
due to increased sales to NEPOOL partially offset by a decrease in wholly-owned
and jointly-owned units sales.
Other revenues decreased for 1998 due to a provision for rate refunds in New
Hampshire of $2.7 million related to a Connecticut Valley fuel adjustment clause
and purchased power cost adjustment associated with the December 3, 1998 Court
of Appeals decision discussed in "Regulation and Rates," and to lower revenues
associated with transmission interconnection agreements partially offset by
increased pole attachment rentals.
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The increases in other revenues for 1997 resulted primarily from an increase
in transmission revenues related to various transmission interconnection
agreements.
The table below summarizes the components of increases or decreases in
revenues compared to the prior year:
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
(Dollars in thousands)
<S> <C> <C>
Revenue increase (decrease) from:
Retail mWh sales.......................................... $ (90) $ 2,377
Retail rates.............................................. (2,135) 12,792
Changes in firm resale sales.............................. 48 (35)
Changes in entitlement sales.............................. 445 (5,856)
Changes in other resale sales............................. 4,596 3,560
Changes in other revenues................................. (3,761) 1,093
Net increase over prior year................................. $ (897) $13,931
</TABLE>
Power Resources
We purchase approximately 86% of our retail and firm wholesale power needs
under several contracts of varying duration. Firm wholesale consists solely of
an approximate 1 mW sale to a small Vermont utility. During 1998, over 35% of
our power needs came from Vermont Yankee, an affiliated company which owns and
operates a nuclear generating unit from which we receive our entitlement share
of the output. Our purchased power portfolio includes a diversified mix of
sources and fuel types to meet our long-term load growth while providing short
and intermediate term opportunities to purchase or sell capacity and energy to
reduce overall power costs. A breakdown of our energy sources is shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1998 1997 1996
------------ ----------- ----------------
<S> <C> <C> <C>
Nuclear generating companies...................................... 36% 45% 46%
Hydro-Quebec VJO.................................................. 32 35 29
Other Canadian imports............................................ 5 6 9
PSNH-coal......................................................... 3 14 12
Company-owned hydro............................................... 9 8 9
Jointly-owned units............................................... 4 2 3
Small power producers............................................. 9 8 9
Other purchases/(sales), net...................................... 2 (18) (17)
------------ ----------- ----------------
100% 100% 100%
============ =========== ================
</TABLE>
In 1992, 1996 and 1997, the Boards of Directors of Yankee Atomic, Connecticut
Yankee and Maine Yankee, respectively, decided to permanently discontinue
operation of the Yankee Atomic, Connecticut Yankee and Maine Yankee nuclear
power plants, and to decommission the facilities. For additional information in
regard to the permanent shutdown of these nuclear power plants see "Nuclear
Matters" above and Note 2 to the Consolidated Financial Statements incorporated
by reference herein.
The Vermont Yankee nuclear power plant, which provides approximately one-third
of our required power supply, began a refueling outage on March 21, 1998 and
returned to service on June 3, 1998. The refueling outage extended twenty-six
days beyond the estimated forty-nine days. Vermont Yankee had no scheduled
refueling outage in 1997 and had a scheduled refueling outage from September 7
through November 5, 1996.
During scheduled nuclear refueling outages, we purchase more costly
replacement energy from other sources to satisfy energy needs. In accordance
with current rate-making treatment, we defer and amortize to expense over their
respective fuel cycles the incremental replacement energy and maintenance costs
associated with the scheduled portion of refueling outages for the Vermont
Yankee nuclear power plant and Millstone Unit #3 jointly-owned nuclear
generating unit. During 1998, we incurred $3.1 million and $6.5 million for
replacement energy and
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maintenance costs, respectively, of which $7.2 million in total was deferred.
During 1996, we deferred $1.5 million and $6 million of replacement energy and
maintenance costs, respectively.
Under a long-term purchase power contract expiring in 2016, we receive varying
amounts of capacity and energy from Hydro-Quebec. See Note 14 to the
Consolidated Financial Statements incorporated by reference herein for further
details related to the VJO Power Contract.
Under long-term contracts, we purchase power from a number of small power
producers who own qualifying facilities under the Public Utility Regulatory
Policies Act of 1978. These qualifying facilities produce energy using
hydroelectric, wood, biomass and refuse-burning generation. During 1998, we
purchased 212,702 mWh of which 154,832 mWh was associated with the Vermont
Electric Power Producers and 38,283 mWh is associated with a New
Hampshire/Vermont solid waste plant which sells directly to Connecticut Valley.
We expect to purchase an average of approximately 203,000 mWh of small power
output in each year 2000 through 2003. In 1999, we expect we will have purchased
187,500 mWh of small power output. Based on the forecast level of production,
the total commitment in the next four years to purchase power from these
qualifying facilities is estimated to be $91.7 million.
We engage in purchases and sales with other electric utilities and with NEPOOL
to take advantage of immediate pricing and other market conditions and to
balance our needs with our resources. We also engaged in marketing activities
with Virginia Power, with which we would jointly buy and sell wholesale power in
the Northeast and Mid-Atlantic states. However, we have decided to discontinue
this alliance because we believe the risks associated with this relationship
outweigh the potential rewards. These joint purchases are not included in the
table above.
The net cost components of purchased power and production fuel costs for the
past three years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
Units Amount Units Amount Units Amount
--------- ---------- --------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Purchased and produced:
Capacity (mW).................................. 613 $104,740 527 $ 99,513 526 $ 86,431
Energy (mWh)................................... 3,478,860 80,147 3,470,235 71,930 3,445,259 67,991
-------- -------- --------
Total purchased power costs...................... 184,887 171,443 154,422
Production fuel (mWh).......................... 332,835 1,996 237,064 1,820 295,802 1,570
-------- -------- --------
Total purchased power and
production fuel costs........................... 186,883 173,263 155,992
Less entitlement and
other resales (mWh)........................... 1,328,338 (46,231) 1,206,091 (41,190) 1,241,302 (43,486)
-------- -------- --------
Net purchased power and
production fuel costs............................. $140,652 $132,073 $112,506
======== ======== ========
</TABLE>
For 1998, purchased capacity cost increased $5.2 million over 1997. This
increase is the result of a $7.4 million disallowance of Hydro-Quebec power
costs discussed below, $7.2 million of higher costs primarily associated with
the VJO Power Contract, the Vermont Yankee extended outage and $1.6 million of
disallowed power costs at Connecticut Valley. Offsetting this increase is the
impact at Connecticut Valley totaling $11.0 million, associated with the
reversal of a $5.5 million charge-off during 1998 and a charge-off during 1997
of $5.5 million. See "Electric Utility Restructuring" below and Note 13 to the
Consolidated Financial Statements incorporated by reference herein for
additional information.
The increase in purchased capacity cost of $13.1 million for 1997 over 1996
resulted from $7.4 million in higher prices, $200,000 increase due to the amount
of mW purchased and $5.5 million representing Connecticut Valley's estimated
loss on power contracts for the twelve months following December 31, 1997
discussed below and in Note 13 to the Consolidated Financial Statements
incorporated by reference herein. Pursuant to a PSB Accounting Order, during the
first half of 1997, we reduced capacity costs by $5.8 million related to the VJO
Power Contract for which a payment of $5.8 million was received from Hydro-
Quebec on June 30, 1997.
Energy costs are directly related to the variable prices of oil, nuclear fuel
and coal but, more importantly, to the proportion of our purchased energy that
comes from each of these fuel sources. The increase in energy costs for 1998
resulted from an 11.1% or, $8.0 million, increase in unit costs of mWh purchased
and a $200,000 increase due
38
<PAGE>
to the volume of mWh purchased. The price increases result primarily from the
higher costs under the VJO Power Contract, increased purchases from small power
producers and the Vermont Yankee extended outage.
The increase in energy costs for 1997 resulted from a 5%, or $3.4 million
increase in unit costs of mWh purchased and a 0.7%, or $500,000, increase due to
the volume of mWh purchased. The price increase resulted primarily from the need
to replace power due to the shutdown of Maine Yankee and Connecticut Yankee and
the outage at Millstone Unit #3. For information related to recovery of costs
associated with the premature retirement of the Maine Yankee and Connecticut
Yankee nuclear power plants see Note 2 to the Consolidated Financial Statements
incorporated by reference herein.
We are responsible for paying our entitlement percentage of decommissioning
costs for Vermont Yankee, Connecticut Yankee, Maine Yankee and Yankee Atomic as
well as our joint ownership percentage of decommissioning costs for Millstone
Unit #3. See Notes 2 and 14 to the Consolidated Financial Statements
incorporated by reference herein. The staff of the SEC has questioned current
accounting practices of the electric utility industry, including our own,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in financial statements of electric
utilities. In response to these questions, the Financial Accounting Standards
Board has agreed to review the industry-wide accounting for nuclear
decommissioning costs. If current electric utility industry accounting practices
for such decommissioning costs are changed, it is possible that annual expense
provisions for decommissioning costs could increase, the total estimated costs
for decommissioning could be recorded as a liability, and income from external
decommissioning trusts could be reported as investment income instead of a
reduction to decommissioning expense. We do not believe that such changes, if
required, would have a material adverse effect on results of operations due to
our ability to recover decommissioning costs through the regulatory process. See
"Liquidity and Capital Resources--Competition" in our Annual Report on Form
10-K for the year ended December 31, 1998, for related information.
Millstone Unit #3 resumed operation in June 1998 after a lengthy outage;
accordingly, production fuel costs increased for 1998 compared to 1997. Also,
due to increased generation at the Wyman #4 and the Joseph C. McNeil generating
stations, production fuel costs increased for 1997 compared to 1996.
Based on present commitments and contracts, we expect that net purchased power
and production fuel costs will be approximately $143.0 million for each of 2000
and 2001. Our current forecast indicates that net purchased power and
production fuel costs for 1999 will be approximately $128.0 million.
Production and Transmission
Due to increased production costs, primarily related to Millstone Unit #3 and
higher transmission costs, production and transmission expenses increased $1.5
million in 1997 compared to 1996.
Other Operating Expenses
Primarily due to increased legal and regulatory expenses, other operating
expenses increased $3.2 million for 1998 compared to 1997.
Other operating expenses, in 1997, increased $2.8 million compared to 1996
resulting primarily from increased amortization of conservation and load
management costs combined with a decrease in deferral of conservation and load
management costs.
Maintenance Expenses
Maintenance expenses associated with our joint ownership interest in Millstone
Unit #3 decreased for 1998 compared to 1997. However, this decrease was offset
by an increase in maintenance expenses associated with our
39
<PAGE>
tree trimming program and expenses attributable to the severe ice storm in
January 1998. The increase in maintenance expenses for 1997 compared to 1996 is
due to increased Millstone Unit #3 maintenance costs.
Income Taxes
Federal and state income taxes fluctuate with the level of pre-tax earnings.
These taxes decreased for 1998 and 1997 as a result of lower pre-tax earnings.
Other Income, net
Total other income, net decreased for 1998 compared to 1997 and increased in
1997 over 1996 as the result of gains of $5.0 million from non-recurring asset
sales. Also, Other income, net for 1996 and 1997 include $2.3 million and
$400,000 of expenses incurred in connection with the Gauley River Power project,
currently under construction, in Summersville, West Virginia.
Other Interest Expense
Other interest expense increased for 1998 due to an increase in outstanding
short-term debt offset somewhat by lower interest rates. Other interest expense
declined for 1997 due to a decrease in short-term debt levels.
Extraordinary Credit (Charge)
As a result of legal and regulatory actions associated with Connecticut
Valley, in 1997 we recorded an extraordinary charge of $800,000. See "Electric
Utility Restructuring--New Hampshire" in our Annual Report on Form 10-K for the
year ended December 31, 1998, which is incorporated by reference herein.
Cash Dividends Declared--Common
Due to an early common dividend declaration made in December 1997 for the
quarterly dividend paid on February 13, 1998, common dividends declared
decreased for 1998 compared to 1997 and increased for 1997 compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
Nine months ended September 30, 1999 compared with nine months ended September
30, 1998
Our liquidity is primarily affected by the level of cash generated from
operations and the funding requirements of its ongoing construction and
conservation and load management programs. Net cash flow provided by operating
activities generated $32.1 million and $16.8 million for the nine months ended
September 30, 1999 and 1998, respectively. The increase is primarily due to
improved cash earnings and the extended refueling outage at Vermont Yankee
during 1998.
We ended the nine months of 1999 with cash and cash equivalents of $66.3
million, an increase of $56.2 million from the beginning of the year. The
increase in cash for the nine months of 1999 was the result of $32.1 million
provided by operating activities and $38.4 million provided by financing
activities, offset by $14.3 million used for investing activities.
Operating Activities
40
<PAGE>
Net income, depreciation and deferred income taxes and investment tax credits
provided $29.1 million. About $3.0 million of cash was provided by working
capital and other operating activities.
Investing Activities
Construction and plant expenditures consumed approximately $9.2 million, while
$5.1 million was used for energy-efficiency programs and non-utility
investments.
Financing Activities
Dividends paid on common stock were $7.6 million while preferred dividends
were $.9 million and reduction in capital lease obligations required $.8
million. Reduction in short-term debt was $28.8 million and issuance of long-
term debt provided $76.5 million.
The level of short-term borrowings fluctuates based on seasonal corporate
needs, the timing of long-term financings and market conditions.
Fiscal Year 1998 compared with Fiscal Year 1997
Our liquidity is primarily affected by the level of cash generated from
operations and the funding requirements of its ongoing construction and
conservation and load management programs.
Net cash provided by operating activities generated $21.7 million in 1998,
$42.0 million in 1997 and $43.0 million in 1996.
We ended 1998 with cash and cash equivalents of $10.1 million, a decrease of
$6.5 million from the beginning of the year. The decrease in cash for 1998 was
the result of $21.7 million provided by operating activities, $18.4 million used
for investing activities and $9.8 million used for financing activities.
Operating Activities
Net income, depreciation and deferred income taxes and investment tax credits
provided $14.7 million. $7.0 million was provided from fluctuations in working
capital and other operating activities.
Investing Activities
Construction and plant expenditures consumed $16.0 million while $5.3 million
was used for conservation and load management programs and non-utility
investments. $2.9 million was provided by a reduction in an escrow account to
fund a non-utility investment.
Financing Activities
Dividends paid on common stock were $10.1 million, while preferred stock
dividends were $1.9 million. Retirement of long-term debt and retirement of
preferred stock required $20.5 million and $1.0 million, respectively, and
reduction in capital lease obligations required $1.1 million. Short-term
obligations and sale of common stock provided $24.3 million and $500,000,
respectively.
Excluding allowance for funds used during construction, construction
expenditures are estimated at $18.0 million, $16.0 million and $16.0 million for
the years 1999 through 2001, respectively.
41
<PAGE>
Our level of short-term borrowings fluctuates based on seasonal corporate
needs, the timing of long-term financings and market conditions.
On June 3, 1996, our Board of Directors increased the quarterly dividend rate
from $.20 to $.22 per share payable August 15, 1996.
Through a common stock repurchase program initiated in 1994 and subsequently
suspended in order to preserve capital for use in industry restructuring and
other business purposes, we purchased 324,717 shares of our common stock in open
market transactions during 1995, 1996 and 1997 at an average price of $13.19 per
share. These transactions are recorded as treasury stock, at cost, in our
Consolidated Balance Sheet. Our capital structure ratios (including amounts of
long-term debt due within one year) for the past three years were as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
------------- -------------- -------------
<S> <C> <C> <C>
Common stock equity..................................... 56% 54% 53%
Preferred stock......................................... 8 8 8
Long-term debt.......................................... 31 33 34
Capital lease obligations............................... 5 5 5
------------- -------------- -------------
100% 100 % 100 %
============= ============== =============
</TABLE>
Liquidity and Capital Resources Generally
On July 30, 1999 we sold $75.0 million aggregate principal amount of 8
1/8% Second Mortgage Bonds due 2004 at a price of 99.915% in accordance with
Securities and Exchange Commission Rule 144A. We used $15.0 million of the net
proceeds to repay amounts outstanding under our revolving credit facility which
has been terminated. We have used and will use the balance of the proceeds of
the offering of the Old Bonds to pay expenses associated with the issuance of
the Old Bonds and the New Bonds and for general corporate purposes relating to
our regulated utility business, including the repayment of the $41.0 million of
First Mortgage Bonds which mature between now and 2004 and repayment of our $12
million accounts receivable facility which matures on November 29, 1999. The
remaining proceeds have been and will be invested in short-term interest-bearing
obligations until they are applied as discussed above. See "Description of
Certain Other Indebtedness and Preferred Stock."
See "Risk Factors--We may have insufficient liquidity to refinance the New
Bonds at maturity." In addition, we recently extended until May 31, 2000 with
renewal options through November 5, 2002, an aggregate of approximately $16.9
million of letters of credit which support outstanding development authority
bonds. Our reimbursement obligations in respect of these letters of credit are
secured by three series of First Mortgage Bonds in an aggregate principal amount
of approximately $16.9 million. Separately, we have a $12.0 million accounts
receivable facility which we intend to pay-off when it matures on November 29,
1999.
On March 12, 1999, Connecticut Valley was notified by Citizens Bank of New
Hampshire that it would exercise appropriate remedies in connection with the
violation of financial covenants associated with the $3.8 million loan agreement
with Citizens Bank unless the violation was cured by April 11, 1999. To avoid
default of this loan agreement, on April 6, 1999, pursuant to an agreement
reached on March 26, 1999, we purchased from Citizens Bank the $3.8 million
note.
On February 2, 1999, Standard & Poor's Corporation lowered our corporate
credit rating to triple-`B'-minus from triple-`B', the senior secured rating to
triple-`B'-plus from single-`A'-minus, and the preferred stock rating to double-
`B'-plus from triple-`B'-minus. In addition, the ratings were also placed on
CreditWatch with negative implications.
Standard & Poor's stated "the CreditWatch listing reflects the potentially
adverse impact of pending legal and regulatory decisions that could seriously
weaken our credit profile. The downgrades reflect increased business risk and
weakened financial measures as a result of recent regulatory decisions in
Vermont and New Hampshire and an adverse ruling by the United States First
Circuit Court of Appeals."
42
<PAGE>
Standard & Poor's also said "Resolution of the CreditWatch listing will
depend on the outcome of the pending Federal Energy Regulatory Commission case
and other legal proceedings at State and Federal levels, which could be resolved
in 1999. Adequate rate relief and successful mitigation of high power costs
through contract renegotiations or other methods are essential to stabilizing
the ratings."
On February 17, 1999, Standard & Poor's rating on our preferred stock was
automatically reduced to double-`B' in response to a global policy change in the
way Standard & Poor's rates preferred stock.
On July 16, 1999, Standard & Poor's assigned its triple-`B'-minus rating to
our then proposed $75.0 million second mortgage bonds. Concurrently, the Second
Mortgage Bonds were placed on CreditWatch with negative implications.
Standard & Poor's said "the second mortgage bonds are rated the same as our
corporate credit rating, and not notched up, because Standard & Poor's projects
that the value of our collateral will not substantially exceed the maximum
combined amount of first and second mortgage bonds that could be outstanding
under the terms of their respective indentures in a default scenario."
Also on February 17, 1999, Duff & Phelps Credit Rating Co. placed our credit
ratings on Rating Watch-Down due to the high level of regulatory and public
policy uncertainty in Vermont and the recent unfavorable ruling by the United
States Court of Appeals relating to Connecticut Valley.
Duff & Phelps stated "recent negative rulings by the PSB regarding purchased
power costs and the high level of uncertainty with public policy toward electric
utilities in Vermont adds risk to the Company's financial profile going
forward."
Also on July 16, 1999 Duff & Phelps lowered the preferred stock rating to
`BB+' (Double-B-plus) from `BBB-' (Triple-B-minus) to reflect the new $75.0
million issuance of second mortgage bonds. Duff & Phelps credit ratings remain
at `BBB' (Triple-B) for first mortgage bonds.
Current credit ratings of our securities by Duff & Phelps and Standard &
Poor's are as follows:
<TABLE>
<CAPTION>
Duff & Standard
Phelps & Poor's
------------- --------
<S> <C> <C>
Corporate Credit Rating................................................. N/A BBB-
First Mortgage Bonds.................................................... BBB BBB+
Second Mortgage Bonds................................................... BBB- BBB-
Preferred Stock......................................................... BB+ BB
</TABLE>
On November 12, 1998, Catamount, one of our wholly owned non-utility
subsidiaries, replaced its $8.0 million credit facility with a $25.0 million
revolving credit facility expiring November 11, 2002 which provides for up to
$25.0 million in revolving credit loans and letters of credit. Catamount
currently has a $1.2 million letter of credit outstanding to support obligations
in connection with a debt service requirement in the Appomattox Cogeneration
project and aggregated letters of credit of $11.0 million in support of
construction and equity commitments for its Gauley River Power project.
Financial obligations of our wholly owned unregulated subsidiaries are non-
recourse to the Company.
We cannot assure you that our business will generate sufficient cash flow from
operations or that future borrowings will be available to us in an amount
sufficient to enable us to pay our indebtedness, including the $75.0 million
Second Mortgage Bonds when due, or to fund our other liquidity needs. Our
ability to repay our indebtedness is, to a certain extent, subject to general
economic, financial, competitive, legislative, regulatory, weather and other
factors that are beyond our control. The type, timing and terms of future
financing that we may need will be dependent upon our cash needs, the
availability of refinancing sources and the prevailing conditions in the
financial markets. We cannot guarantee that any sources will be available to us
at any given time or that the terms of such sources will be favorable.
43
<PAGE>
ADDITIONAL ITEMS
Catamount's after-tax earnings were $1.2 million and $2.1 million for the nine
months of 1999 and 1998, respectively.
Catamount's after-tax earnings were $3.3 million, $4.1 million and $500,000
for 1998, 1997 and 1996, respectively. Earnings for 1997 include a net of tax
gain of $1.8 million from the sale of NW Energy Williams Lake L.P. Also, results
of operation for 1997 and 1996 include $400,000 and $2.3 million of pre-tax
expenses related to the Gauley River project currently under construction in
Summersville, West Virginia.
SmartEnergy incurred losses of $1.0 million and $1.2 million for the nine
months of 1999 and 1998, respectively.
SmartEnergy incurred losses of $1.5 million and $700,000 for 1998 and 1997,
respectively, and earnings of $300,000 for 1996.
Year 2000 Information
Year 2000 Information Systems Modifications
- -------------------------------------------
Many computer programs cannot distinguish between Year 2000 and the Year
1900. Our information systems could be affected by the date change in Year 2000
because most software application and operational programs will not properly
recognize calendar dates beginning in the Year 2000. If not corrected, many
computer applications could fail or create erroneous results. In order to
address this problem for our own computer systems, we have utilized internal and
external resources, including outside consultants, to make our applications Year
2000 compliant. Inventory, assessment and remediation testing and
implementation activities are now complete. We believe that all of our
financial and operating systems are now Year 2000 compliant.
However, our operations could still be adversely affected if a date-related
system failure occurred with one of our major power suppliers, such as Hydro-
Quebec or Vermont Yankee, with one of our other major suppliers, or with Velco,
the company responsible for transmission in Vermont. Velco, Hydro-Quebec and
Vermont Yankee indicate they are now Year 2000 ready. Other delivery systems
outside of Vermont could, in the event of a date-related system failure, cause
additional power supply interruptions. We have requested written reports from
our power supply vendors regarding each company's status relative to Year 2000
compliance and based on responses to date, these power supply vendors have
indicated that they are either currently compliant or expect to be compliant
before or by the end of 1999.
We have also requested compliance information from other major vendors and
suppliers, including those providing transmission and power delivery services
outside of Vermont. While this process is not yet complete, based upon
responses to date, many of those major vendors and suppliers have indicated that
they will be Year 2000 compliant in a timely manner. There can be no guarantee,
however, that these third parties will be successful in their compliance efforts
or that their failure to remediate Year 2000 issues would not have a material
adverse effect on us.
Failures of our principal power and transmission suppliers to remedy Year
2000 compliance issues could have a material adverse effect on us and result in
interruptions of power supply and transmission.
We are part of the Northeast grid contingency plan that would go into effect
immediately to provide electricity to our customers on a priority basis in the
event of power outages. We also have other contingency plans developed in the
event of the failure of our transmission, generation, distribution, metering,
telecommunications, information and public communications systems.
We have incurred $4.0 million of costs associated with making the necessary
modifications to our computer systems.
44
<PAGE>
During the first quarter of 1998, we requested an Accounting Order from the
PSB to defer these operating and maintenance costs. On August 31, 1998, the PSB
issued an Accounting Order authorizing us to defer a portion of these costs and
amortize them over a five-year period beginning January 1, 2000. Per PSB Order
dated December 11, 1998, we are authorized to seek recovery of these costs
through future regulatory proceedings.
45
<PAGE>
BUSINESS
We are the largest electric utility in Vermont. Together with our various
wholly owned and partially owned subsidiaries, we are engaged in the purchase,
production, transmission, distribution and sale of electricity as well as
certain non-energy related businesses. We serve over 140,000 customers in nearly
three-quarters of the towns, villages and cities in Vermont. Our revenues are
primarily derived from retail activities in the State of Vermont and resale
activities throughout the Northeast.
Our subsidiaries are engaged in various activities involving the generation,
transmission and distribution of electricity. Connecticut Valley is our wholly
owned subsidiary that distributes and sells electricity to approximately 10,000
customers in 13 communities in New Hampshire bordering the Connecticut River.
We maintain a diverse customer base, with minimal concentration of customer
risk. In 1998, our five largest customers accounted for only 4.7% of
consolidated revenues, and our single largest customer represented only 1.3% of
consolidated revenues.
We own 56.8% of the common stock and 46.6% of the preferred stock of VELCO,
which owns and operates the high voltage transmission system in Vermont. In
1983, VELCO created a wholly owned subsidiary, Vermont Electric Transmission
Company, Inc., or VETCO, to finance, construct and operate the Vermont portion
of the 450 KV high voltage direct current transmission line connecting the
Province of Quebec with Vermont and New England.
We have equity ownership interests in various nuclear facilities including:
31.3% of the common stock of Vermont Yankee; 2% of the outstanding common stock
of Maine Yankee; 2% of the outstanding common stock of Connecticut Yankee; and
3.5% of the outstanding common stock of Yankee Atomic. We also own a 1.73%
undivided interest in Millstone Unit #3. Connecticut Yankee, Maine Yankee and
Yankee Atomic no longer operate and are in various stages of decommissioning.
On October 15, 1999 we and the other owners of Vermont Yankee accepted a bid
for the sale of the Vermont Yankee plant to AmerGen Energy Company. See
"Management's Discussion and Analysis of the Financial Condition and Results of
Operations--Nuclear Matters--Vermont Yankee."
Central Vermont Public Service Corporation--East Barnet Hydroelectric, Inc.,
one of our wholly owned subsidiaries, was formed for the purpose of acquiring
and constructing a hydroelectric project in East Barnet, Vermont, which became
operational September 1, 1984 and has been leased and operated by us since its
in-service date.
Catamount Resources Corporation was formed for the purpose of holding our
subsidiaries that invest in unregulated business opportunities. Catamount, a
subsidiary of Catamount Resources Corporation, invests in unregulated energy
generation projects in the United States and Great Britain. Currently,
Catamount, through its wholly-owned subsidiaries, has interests in six operating
independent power projects located in Glenns Ferry and Rupert, Idaho; Rumford,
Maine; East Ryegate, Vermont; Thetford, England; and Hopewell, Virginia. In
addition, Catamount has interests in a project under construction in
Summersville, West Virginia and a project under development in Fort Dunlop,
England.
Another subsidiary of Catamount Resources Corporation, SmartEnergy, operates
several unregulated energy and service related businesses. SmartEnergy was
originally formed to engage in the sale of or rental of electric water heaters,
energy efficient products and other related goods and services. SmartEnergy also
owns 70% of Home Service Solutions, or HSS, which provides home and small
business maintenance and repair services. HSS is currently operating in fifteen
U.S. cities as part of a program with Sam's Clubs, a division of WalMart. See
"Risk Factors--The Second Mortgage Indenture does not restrict our unregulated
subsidiaries."
Power Resources
46
<PAGE>
We currently purchase approximately 86% of our retail and firm wholesale power
needs under several contracts of varying duration. Firm wholesale consists
solely of an approximate 1 mW sale to a small Vermont utility. During 1998, over
35% of our power needs came from Vermont Yankee, an affiliated company, which
owns and operates a nuclear generating unit from which we receive our
entitlement share of the output. During this same time period, over 32% of these
power needs came from Hydro-Quebec, one of the world's largest generators of
hydroelectricity which is owned by the province of Quebec, Canada. Our remaining
sources of power include purchase contracts with small power producers,
purchases from NEPOOL, and other contracted sources, as well as our own
generation. Our purchased power portfolio includes a diversified mix of sources
and fuel types to meet our long-term load growth while providing short and
intermediate term opportunities to purchase or sell capacity and energy to
reduce overall power costs.
The power required to serve our (including Connecticut Valley's) retail and
firm wholesale customers was 2,488,581 mWh for the year ended December 31, 1998.
The following tabulation shows the sources and amounts of the energy and
capacity available to us for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Net Effective
Capability
12 month Generated and
Power Source Average Purchased
- ------------ ----------------- -------------------------------------
mW mWh Percentage
----------------- ------------------- --------------
<S> <C> <C> <C>
Wholly and Jointly Owned Plants
Hydro..................................................... 40.7 221,763 8.9%
Diesel and Turbines....................................... 28.9 1,258 0.1
Millstone #3.............................................. 8.2 59,291 2.4
Wyman #4.................................................. 10.9 19,126 0.8
McNeil.................................................... 10.5 31,396 1.3
Long-Term Power Contracts
Vermont Yankee............................................ 133.6(1) 884,455(1) 35.5
Hydro-Quebec VJO.......................................... 143.3(1) 799,493(1) 32.1
Small Power Producers..................................... 33.7 212,645 8.5
Merrimack #2.............................................. 15.7 73,116 2.9
----------------- ------------------- --------------
Total Owned and Long-Term Sources........................... 425.5 2,302,543 92.5
Other Sources/Uses
Short-term Purchases...................................... 1,209,024
Less Short-term Wholesale Sales and Other................. (1,022,986)
Net.................................................... 186,038 7.5
------------------- --------------
Net Power for Retail and Firm Wholesale Sales............... 2,488,581 100.0
=================== ==============
</TABLE>
(1) Vermont Yankee purchases are net of Vermont Yankee entitlement sales of
approximately 25 mW and 161,475 mWh to another utility. Hydro-Quebec
purchases are net of sales back to Hydro-Quebec of 25 mW and 156,331 mWh.
Wholly Owned Plants. We own and operate 20 hydroelectric generating
facilities in Vermont which have an aggregate nameplate capability of 44.7 mW
and two oil-fired turbines and one diesel peaking unit with a combined nameplate
capability of 29.0 mW.
Jointly Owned Plants. We have a joint ownership interest in the following
generating and transmission plants, for which we are responsible for our share
of the operating expenses.
47
<PAGE>
<TABLE>
<CAPTION>
Name Fuel Type Ownership mW Entitlement
- ---- ------------ ------------- ---------------
<S> <C> <C> <C>
Millstone #3.................................................. Nuclear 1.73% 20
Wyman #4...................................................... Oil 1.78% 11
Joseph C. McNeil.............................................. Various 20.00% 10.6
</TABLE>
Equity Ownership in Plants. In 1966, we purchased 35% of the Vermont Yankee
common stock and were entitled to receive a like percentage of the output of the
unit. In late 1969 and early 1970, we sold at cost a combined total of 3.7% of
our original equity investment and we currently resell at cost 3.9% of our
entitlement. Our current equity ownership and net entitlement percentages are
31.3 and 31.1, respectively.
Major Long-Term Purchases. Under various contracts, we purchase from Hydro-
Quebec capacity and associated energy. Under the terms of these contracts, we
are required to pay some fixed capacity costs whether or not energy purchases
above a minimum level described in the contracts are made. Such minimum energy
purchases must be made whether or not other less expensive energy sources might
be available.
Small Power Qualifying Facilities. A number of small producers using
hydroelectric, biomass, and refuse-burning generation are currently producing
energy that we are purchasing. The majority of these purchases are made from a
state-appointed purchasing agent which purchases and redistributes the power to
all Vermont utilities. For the year ended December 31, 1998, we received 212,645
mWh from these sources for which we paid $22,557,152.
We have sufficient power under contract and through market purchases to supply
our current franchise obligations. We expect to actively manage our portfolio of
supply and demand side resources over the near-term, as we have in the past, to
minimize net power costs for our customers and shareholders. The timing and
nature of these events will be largely determined by future legislative and
regulatory actions at the state and national levels. See "Risk Factors."
VJO Power Contract with Hydro-Quebec
We are purchasing varying amounts of power from Hydro-Quebec through 2016 as a
party to a power contract with Hydro-Quebec entered into through the VJO, a
consortium of Vermont utilities which includes us, Green Mountain Power,
Citizens Utilities, Rochester Electric Light & Power and the Vermont Public
Power Supply authority representing municipalities and a cooperative in Vermont.
Our obligation is approximately 46% of the total contract, or approximately $1.0
billion over the next 17 years based on current power market forecasts. The VJO
participation contract under which the VJO resells Hydro-Quebec power to the
Vermont purchasing utilities, including ourselves, contains "step up"
provisions providing that if any purchasing utility defaults on its purchase
obligations, the other participants will assume responsibility for the
defaulting party's share on a pro rata basis. See "Risk Factors--Our
obligations under the VJO Power Contract with Hydro-Quebec may increase if a VJO
member defaults."
During January 1998, a significant ice storm affected parts of New York, New
England and the Province of Quebec, Canada. This storm damaged major components
of the Hydro-Quebec transmission system over which power is supplied to Vermont
under the VJO Power Contract with Hydro-Quebec. This resulted in a 61-day
interruption of a significant portion of scheduled contractual energy deliveries
into Vermont. The ice storm's effect on Hydro-Quebec's transmission system
caused the VJO to examine Hydro-Quebec's overall reliability and ability to
deliver energy. On the basis of that examination the VJO determined that Hydro-
Quebec has been and remains unable to make available capacity with the degree of
firmness required by the VJO Power Contract. That determination has prompted the
VJO to initiate an arbitration proceeding. In the arbitration, the VJO is
seeking to terminate the contract, to recover damages associated with Hydro-
Quebec's failure to comply with the contract, and to recover capacity payments
made during the period of non-delivery. In September 1999 an initial two weeks
of hearings were held dealing primarily with issues of contract interpretation.
Additional hearings dealing with technical issues will be held in the first
quarter of 2000. The Company expects a decision by the end of June 2000. The
results of the arbitration cannot be predicted at this time.
48
<PAGE>
On September 22, 1999, we announced that we will seek, with the other Vermont
Joint Owners, to auction the contract with Hydro-Quebec.
Transmission
VELCO provides transmission services for the State of Vermont acting by and
through the DPS, and for all of the electric distribution utilities in the State
of Vermont and is reimbursed for its costs for the transmission of power for
such entities. VELCO has 535 miles of transmission lines consisting primarily of
115 kV and greater. We, as the largest electric distribution utility in Vermont,
are the major user of VELCO's transmission system. VELCO also receives and
delivers power to us and the other electric utilities (cooperative, municipal
and investor-owned) in Vermont and transmits power for the Vermont utilities. We
own a majority interest in the Class B common stock of VELCO, but our ability to
control VELCO is limited by a Four-Party Agreement between us, VELCO, Green
Mountain Power and Citizens Utilities, another Vermont utility. We also own
several transmission lines. We have 7.5 miles of transmission lines of 120 kV
and 606 miles of subtransmission lines, which are predominantly 34.5 and 46 kV.
Proposed Formation of a Holding Company
On July 24, 1998, we filed a petition with the PSB for permission to create a
holding company that would have as direct subsidiaries us and our unregulated
subsidiaries, Catamount and SmartEnergy. We believe that a holding company
structure will facilitate our transition to a deregulated electricity market.
The proposed holding company formation must also be approved by federal
regulators, including the SEC and the FERC, and by our shareholders.
Stranded Costs
Currently, we are a party to:
. power purchase agreements that require us to make capacity and/or energy
payments to power suppliers or aggregating entities in exchange for
capacity/electricity from those power suppliers; and
. ownership agreements regarding our equity ownership in power producing
facilities, including nuclear power plants, that provide for us to fund our pro
rata share of operating expenses of the power producing investments in exchange
for receiving our pro rata share of the power output from these investments.
The cost of power under the power purchase agreements and the ownership
agreements exceeds the current market cost of power within New England. We are
addressing the increasing cost of power with measures including (i) negotiating
modifications in the power purchase and ownership agreements and (ii) evaluating
the divestiture of our generating assets and power purchase agreements. However,
we cannot increase rates without the PSB's approval. Failure to recover costs
through rates could impair our financial condition. We may not be able to reduce
our operating costs to levels that would obviate the need for rate increases
without impairing our ability to operate. See "Risk Factors--Our other stranded
costs may not be recoverable."
As a result of our above-market power costs and the uncertainty regarding our
ability to recover these costs through rate increases, we are likely to have
stranded costs related to the power purchase agreements, the ownership
agreements and other elements of our business. Any inability to recover our cost
of power and other stranded costs may affect our ability to generate an adequate
return on our equity and invested capital.
The above-market power costs of purchases from Hydro-Quebec, Vermont Yankee
and small power producers would comprise the majority of our stranded costs. The
stranded costs associated with these power sources should be evaluated in the
context of their contribution to our overall power supply. In 1998, these power
sources accounted for approximately 76% of our retail and firm wholesale energy
needs.
49
<PAGE>
If Vermont's electric industry is deregulated, we intend to request that the
State provide us with a competitive transition charge to recover stranded costs
associated with our wholesale power purchase contracts and other stranded costs.
See "Electric Industry Restructuring."
50
<PAGE>
REGULATION AND RATES
We recognize that adequate and timely rate relief is necessary if we are to
maintain our financial strength, particularly since Vermont regulatory rules do
not allow for changes in purchased power and fuel costs to be automatically
passed on to consumers through rate adjustment clauses. We intend to continue
our practice of periodically reviewing costs and requesting rate increases when
warranted.
Vermont Retail Rate Proceedings
On September 22, 1997, we filed with the Public Service Board, or PSB, for a
6.6% or $15.4 million retail rate increase to become effective June 6, 1998 to
offset the increasing cost of providing service. $14.3 million or 92.9% of the
rate increase request was to recover contractual increases in the cost of power
we purchase from Hydro-Quebec. At the same time, we also filed a request to
eliminate the current differential between the rates we charge customers in the
summer and the rates we charge customers in the winter and price electricity the
same year-round.
In response to our filing, the PSB decided to appoint an independent
investigator to examine our decision to buy power from Hydro-Quebec. We made a
filing with the PSB stating that the PSB as well as other parties should be
barred from reviewing past decisions because the PSB already examined our
decision to buy power from Hydro-Quebec in a 1994 rate case in which we were
penalized for "improvident power supply management." During February 1998, the
Department of Public Service, or DPS, filed testimony in opposition to our
retail rate increase request. The DPS recommended that the PSB instead reduce
our then current retail rates by 2.5% or $5.7 million. We sought, and the PSB
granted, permission to stay this rate case and to file an interlocutory appeal
of the PSB's denial of our motion to preclude a re-examination of our Hydro-
Quebec contract in 1991. We have argued our position before the Vermont Supreme
Court. Although the Vermont Supreme Court has not yet rendered a decision and it
is uncertain when a decision is forthcoming, a decision by the end of 1999 is
possible.
We filed on June 12, 1998 with the PSB for a 10.7% retail rate increase that
supplanted our September 22, 1997, 6.6% rate increase request, to be effective
March 1, 1999. On October 27, 1998, we reached an agreement with the DPS
regarding our June 1998 retail rate increase request providing for a temporary
rate increase in our Vermont retail rates of 4.7% or $10.9 million on an
annualized basis beginning January 1, 1999 and sets our authorized return on
equity in our Vermont retail business at 11% before disallowances in connection
with the Hydro-Quebec contract. The agreement was approved by the PSB on
December 11, 1998.
The 4.7% rate increase is subject to retroactive or prospective adjustment
upon future resolution of the issue presently before the Vermont Supreme Court,
which is described above. The agreement temporarily disallows approximately $7.4
million of our purchased power costs under the VJO Power Contract pending
resolution of the issue before the Vermont Supreme Court. As a result of the
agreement on our rate case, during the fourth quarter of 1998, we recorded a
loss of approximately $7.4 million (pre-tax) for disallowed purchased power
costs, representing our estimated under-recovery of power costs under the VJO
Power Contract for calendar year 1999.
If in the future, we are unable to increase rates to recover the temporarily
disallowed purchased power costs under the VJO power contract or otherwise
mitigate these costs, we would be required to record losses for any estimated
under recovery. At this time, we do not believe that such a loss is probable.
On February 28, 1998 the PSB issued an order in a Green Mountain Power rate
case. That order found Green Mountain Power's decision to lock-in the Hydro-
Quebec VJO contract in 1991 imprudent and further found that the contract was
not used and useful. As such, the PSB concluded that a large portion of the
contract's current costs should not be imposed on consumers and were disallowed.
Green Mountain Power appealed this rate order to the Vermont Supreme Court. We
are one of the participants in the Hydro-Quebec VJO contract. If we were to
eventually receive a rate order that would result in disallowance of Hydro-
Quebec power costs on a permanent basis similar to that contained in the Green
Mountain Power February 28, 1998 rate order, our ability to continue as a going
concern could be jeopardized. Because of these risks and because the PSB
rejected our claim that the PSB was precluded from again trying us on certain
Hydro-Quebec and related demand side management, or DSM issues,
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we concluded that it was necessary to have the so-called preclusion issue
reviewed by the Vermont Supreme Court before the PSB issues a final order in the
Company's 6.6% rate increase request.
Assuming an unfavorable Vermont Supreme Court ruling and depending on the
methodology used to determine the amount of any disallowance, the amount of any
permanent disallowance could be more or less than the $7.4 million temporary
disallowance. However, if we receive an unfavorable ruling from the Vermont
Supreme Court and the PSB subsequently issues a rate order permanently adopting
the disallowance methodology used to determine the temporary Hydro-Quebec
disallowance described above, or a similar methodology, for the duration of the
VJO Power Contract, we would not be able to recover approximately $205.0 million
of power costs over the life of the contract, including $11.5 million in 2000,
$11.6 million in 2001, $11.7 million in 2002, $11.9 in million 2003 and $12.1
million in 2004. In such an event, we would be required to take an immediate
charge to earnings of $205.0 million (pre-tax). Such an outcome could jeopardize
our ability to continue as a going concern.
New Hampshire Retail Rate Proceedings
Federal Court Proceedings
We sell firm power to Connecticut Valley under a wholesale rate schedule based
on forecast volumes and power costs for each calendar year, which is reconciled
to actual data annually. In February 1997, the New Hampshire Public Utilities
Commission, or NHPUC, ordered Connecticut Valley to terminate the wholesale rate
schedule with us. The NHPUC subsequently found Connecticut Valley "imprudent"
for not having previously taken steps to terminate the rate schedule and ordered
that rates be reduced to market levels. We are seeking relief in federal court
to reverse the NHPUC's decision. To date rates have not been reduced below where
they were as of December 1997.
Along with other New Hampshire utilities we are also seeking injunctive relief
in United States District Court against the NHPUC's efforts to restructure the
New Hampshire electric utility industry generally. In April 1998, Connecticut
Valley obtained a preliminary injunction which required the NHPUC to allow it to
recover through retail rates a portion of its stranded costs and purchased power
costs incurred pursuant to its FERC-authorized wholesale rate schedule. The
Court of Appeals vacated the injunction, finding that Connecticut Valley had not
demonstrated a sufficient probability of success to warrant preliminary relief.
At the same time, the Court of Appeals indicated that rates could not be reduced
below where they were as of December 1997. However, the Court of Appeals did
uphold the preliminary injunction staying the NHPUC's plans to restructure the
New Hampshire electricity industry. The matter has returned to the District
Court for hearings on Connecticut Valley's motion for a permanent injunction
against the NHPUC concerning restructuring. That hearing, as well as the court's
ruling on several dispositive summary judgment motions, is likely to occur late
this year.
Connecticut Valley also purchases power from several small power producers who
own qualifying facilities as defined by the Public Utility Regulatory Policies
Act of 1978. In 1998, under long-term contracts with these qualifying
facilities, Connecticut Valley purchased 41,477 mWh, of which 38,283 mWh were
purchased from Wheelabrator Claremont Company, L.P., or Wheelabrator.
Connecticut Valley has asserted before the FERC that Wheelabrator has not been a
qualifying facility since the plant began operation. On February 11, 1998, the
FERC issued an order denying Connecticut Valley's request for a refund of past
purchased power costs and for lower future costs based on our petition. We filed
a request for rehearing with the FERC on March 13, 1998 which was denied.
Subsequently, Connecticut Valley appealed to the D.C. Circuit Court of Appeals
which has yet to render a decision.
FERC Proceedings
In June 1997, we filed an application with the FERC to recover stranded costs
in connection with our wholesale rate schedule with Connecticut Valley and a
notice of cancellation of the Connecticut Valley rate schedule (contingent upon
the recovery of the stranded costs that would result from the cancellation of
this rate schedule). In December 1997, the FERC rejected our proposal to recover
our stranded costs through the imposition of a surcharge
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on our transmission tariff, but indicated that it would consider an exit fee
mechanism for collecting stranded costs. The FERC denied our motion for a
rehearing regarding our surcharge proposal, so we filed a request with the FERC
for an exit fee mechanism to collect the stranded costs resulting from the
cancellation of our contract with Connecticut Valley. The stranded cost
obligation sought to be recovered through an exit fee, expressed on a net
present value basis as of January 1, 1999, is approximately $48.0 million.
During April and May 1999, nine days of hearings were held at the FERC before an
administrative law judge, who will determine, among other things, whether
Connecticut Valley qualifies for an exit fee, and if so, the amount of
Connecticut Valley's stranded cost obligation to be paid to us as an exit fee.
The ruling of the administrative law judge is expected later this year, and the
FERC will act on the judge's recommendations sometime thereafter.
If we are unable to obtain an order authorizing the recovery of costs in
connection with our June 1997 FERC filing or in the federal court, it is
possible that we would be required to recognize a loss under this contract
totaling approximately $60.0 million (pre-tax). We would also be required to
write-off approximately $4.0 million (pre-tax) in regulatory assets associated
with our wholesale business. However, even if we obtain a FERC order
authorizing the updated requested exit fee, if Connecticut Valley is unable to
recover these costs by increasing its rates, Connecticut Valley would be
required to recognize a loss under this contract of approximately $48.0 million
(pre-tax) representing future under recovery of power costs.
In addition to its efforts before the court and FERC, Connecticut Valley has
initiated efforts and will continue to work for a negotiated settlement with
parties to the New Hampshire restructuring proceeding and the NHPUC. On
September 14 and 15, 1998 we participated in a settlement conference with an
Administrative Law Judge assigned for the settlement process at the FERC and the
parties to our exit fee filing.
An adverse resolution of these proceedings would have a material adverse
effect on our results of operations and cash flows. However, we cannot predict
the ultimate outcome of this matter.
Proceedings relating to Connecticut Valley's Fuel Adjustment Clause and
Purchased Power Cost Adjustment
Connecticut Valley's retail rate tariffs, approved by the NHPUC, contain a
Fuel Adjustment Clause, or FAC, and a Purchased Power Cost Adjustment, or PPCA.
Under these clauses, Connecticut Valley recovers its estimated annual costs for
purchased energy and capacity which are reconciled when actual data is
available. Based on a motion by the City of Claremont, an intervenor, the NHPUC,
in its order dated December 31, 1997, found that Connecticut Valley was
imprudent for not terminating its wholesale power contract with us and
ultimately ordered that we could only recover rates at the current market
levels. Subsequently, the NHPUC, in deference to a temporary restraining order
issued by a federal district court, allowed FAC and PPCA rates effective May 1,
1998 that would make us whole for 1997 undercollections, the 1998
undercollections incurred through April 30, 1998, and the increase in 1998 power
costs.
On the basis of estimates of costs for 1999 and reconciliations from 1998, the
combined 1999 FAC and PPCA rates would have resulted in a decrease in revenues
of approximately $2.3 million for 1999. The decrease was primarily caused by the
elimination of the various undercollections from prior periods mentioned above.
The City of Claremont filed a motion to determine the prudence of the 1999 power
costs. However, by agreement of the parties, including the NHPUC, the hearing
was limited to the mathematical calculation of the FAC and PPCA. An NHPUC order
allowed the decrease. Following the lifting of the temporary restraining order,
the NHPUC has ordered FAC and PPCA rates to be reduced to the levels prevailing
on December 31, 1997.
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ELECTRIC INDUSTRY RESTRUCTURING
The electric utility industry is in a period of transition that may result in
a shift away from rate making based on cost of service and return on equity to
more market-based rates. Many states, including Vermont and New Hampshire, where
we do business, are exploring new mechanisms to bring greater competition,
customer choice and market influence to the industry while retaining the public
benefits associated with the current regulatory system.
Recently, there have been three primary sources of Vermont governmental
activity in attempting to restructure the electric industry in Vermont: (a) the
Governor's Working Group, created by the Governor of Vermont; (b) the PSB's
Docket No. 6140, through which the PSB is considering restructuring proposals;
and (c) Senate Bill 62 of the Vermont Senate, which calls for retail
competition.
The Working Group
On July 22, 1998, the Governor of Vermont issued an Executive Order
establishing the Working Group on Vermont's Electricity Future to lead a new
effort to review the issues of potential restructuring of Vermont's electric
industry. The Working Group was created to determine how restructuring the
electric industry in Vermont could reduce both current and long-term electric
costs for all classes of Vermont electric consumers. The Working Group was asked
to provide a fact-based analysis of the options for electric industry
restructuring and the impact of such industry changes on consumers and upon
Vermont utilities. Further, the Working Group was directed by the Governor of
Vermont to gather information on and evaluate the possible consequences of the
current financial status of Vermont electric utilities.
A report was issued by the Working Group on December 18, 1998. Key conclusions
of its report were:
. The bankruptcy of Vermont electric utilities should not be viewed as an
appropriate means to reduce Vermont utilities' above-market power supply costs.
. Vermont should restructure its electric industry by moving rapidly to retail
choice whereby consumers would purchase power directly from competing power
suppliers.
. Vermont electric utilities should pursue power contract renegotiations
through payments to buy down power contracts or buy-out power contracts.
Financing for such payments should be obtained in the capital markets after a
comprehensive regulatory process dealing with all of the elements of the
restructuring of the Vermont electric utility industry.
. The Vermont electric utilities should pursue auctions of their power
generation assets and remaining power contracts.
. Consolidation of existing electric utilities in Vermont (there are currently
22 utilities) should be considered in order to effect additional savings for
utility customers.
The Working Group noted that by March 1, 2000, most New Englanders outside
Vermont will have a choice of their power supplier. While New England has the
highest electricity rates in the nation, electricity costs in Vermont have been
among the lowest in the region, although our rates are higher than the Vermont
average. However, that advantage is eroding as other states in New England
restructure their electric utility industries. Therefore, the Working Group
noted that it is in the interest of Vermont ratepayers to have the benefit of a
restructured electric utility industry as soon as possible.
Public Service Board Docket No. 6140
On September 15, 1998, the PSB opened a formal proceeding in Docket No. 6140
with the goal of creating a regulatory environment and a procedural framework to
call forth, for disciplined review, proposals for reducing current and future
power costs in Vermont. The PSB intended that this proceeding would define one
or more
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acceptable courses for reform. All Vermont utilities were made parties to that
proceeding. Subsequent to the PSB's announcement, preliminary position papers
were filed and a series of technical conferences were convened with the PSB to
recommend the scope of the investigation, potential courses for reform of
Vermont's power supply and other associated matters including the consideration
of the Working Group's recommendations. On March 3, 1999, we filed our
restructuring plan, a working plan to restructure a significant portion of
Vermont's electric utility industry, with the PSB and parties in Docket No.
6140. Our plan was a joint plan with Green Mountain Power Corporation. On July
12, 1999 the PSB issued a status order concluding that the objective of
implementing power supply reform may be advanced more effectively in ways other
than holding further technical conferences in this docket. Absent good reason to
hold one or more technical conferences pertinent to power supply reform, the PSB
indicated that the Docket will be closed on December 31, 1999.
As a companion proceeding to its investigation in Docket No. 6140, on January
19, 1999, the PSB issued an order opening a new contested case proceeding,
Docket No. 6140-A, where it indicated that it intended to issue final, binding
and appealable orders concerning matters related to the reform and restructuring
of Vermont's electric utility industry. Initially, the PSB notified parties that
it intended proceedings in Docket No. 6140-A to consider matters associated with
the bankruptcy of one or more of the Vermont electric utilities. After an
opportunity for comment, the focus of the proceeding was amended to first
consider the principles, authority and proposals for reform of Vermont's
electric power supply. These include issues associated with the scope and extent
of the Board's authority to approve "securitization" and other financings
proposed to be entered into in connection with the buy-out or buy-down of power
contracts and the criteria to be applied by the PSB when considering voluntary
utility restructuring proposals.
By Order dated June 24, 1999 in Docket 6140-A, the PSB formally adopted the
Vermont Principles on Electric Utility Restructuring. The Order explains that
proposals to open utility franchise service areas to retail competition,
including our Restructuring Plan, will only be approved if they can be found to
satisfy the public good after due consideration is given to each of 14
Restructuring Principles. If one or more of the principles is not satisfied by
the proposal, then the proponent must offer justification for the deficiency and
demonstrate satisfaction of the statutory requirements. As such, the PSB stated
that any filing proposing to open a franchise territory to retail choice would
have to be supported, at a minimum, by an explanation of how that proposal
fulfills the policy objectives established by the Vermont Principles on Electric
Utility Restructuring.
With regard to financing, no party to the investigation asked that the PSB
clarify its authority or issue a declaratory ruling concerning the criteria to
be considered when approving utility financings for the buy-out or buy-down of
committed power contracts. During the investigation, both we and Green Mountain
Power Corporation asserted that our anticipated refinancing approaches could be
accomplished utilizing the existing Vermont and federal legislative regime that
governs the regulation of electric utilities and that "securitization" style
financings were not presently being contemplated. Because no party to the Docket
contradicted these statements, the Board accepted our assertions and took no
further action to evaluate specific utility financing proposals.
In contrast VEPP, Inc., the PSB's purchasing agent for the purchase of power
from qualifying facilities pursuant to PSB Rule 4.100, proposed to use
administrative securitization to finance the reform of its power purchase
contracts. However, at the request of all commenting parties, the PSB determined
to withhold judgment on the issue as to whether the PSB had jurisdiction to
authorize a VEPP financing until such time as a specific proposal was actually
filed with the PSB. Toward this end, the PSB has stated that it will convene a
workshop, independent of this Docket, to further discuss VEPP's financing
proposal and to prepare for the opening of a possible rulemaking proceeding to
amend Rule 4.100 on this topic. In the absence of any requests for further
investigation or action to be filed within 30 days of the Docket No. 6140-a
Order, this investigation will be closed by the PSB.
Vermont Senate Bill 62
On April 3, 1997, Senate Bill 62 (S.62), an act relating to electric industry
restructuring, was passed by the Vermont Senate. Pursuant to S.62, electric
utility customers would have been entitled to purchase electricity in a
competitive market place. Incumbent investor-owned electric utilities, including
us, would have been required to separate their regulated distribution and
transmission operations from the competitive generation and retail
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operations. S.62 provided for the recovery of a portion of an investor-owned
utility's "above market costs" which became stranded on account of the
introduction of competition within their service area. When considering the
recovery of such amounts, S.62 would have required the PSB to weigh the goal of
sharing net prudently incurred, discretionary above-market costs "evenly"
between utilities and customers against other goals including preserving the
continuing financial integrity of the existing utility and respecting the just
interests of investors.
We believe that the unmodified provisions of S.62 would not have met the
criteria for continuing application of SFAS No. 71. S.62 also created an
incentive for us to take steps to close the Vermont Yankee nuclear power plant
by conditioning the recovery of plant-related stranded costs on the decision of
its owners to cease operations in 1998, unless the PSB agreed to allow the plant
to run for up to two more refuelings to avoid power shortages or for other
public interest reasons.
To become law, S.62 also needed to pass the Vermont House of Representatives
and be signed by the Governor of Vermont. Since the 1998 Legislative session
adjourned in April 1998 and S.62 was not passed by the House and signed by the
Governor, the bill did not become law and therefore died upon adjournment.
Instead of considering S.62, the Vermont House of Representatives convened a
special committee to study matters relating to the reform of Vermont's electric
utility system in the summer of 1997. That committee issued a report and
proposed legislation that would have provided for performance-based ratemaking
but explicitly rejected retail choice. However, neither the House of
Representatives nor the Vermont Senate acted on these reforms and the bill died
upon adjournment. Therefore, at this time, it cannot be determined whether
future restructuring legislation will be enacted in the current Biennium of the
Vermont legislature.
The first session of the 1999-2000 Biennium of the Vermont legislature
adjourned on May 15, 1999 without reaching a consensus on electric utility
restructuring. Several measures were considered by various committees of the
House and the Senate, including securitization, authorization of retail choice,
establishment of a legislative veto over any restructuring agreement reached
between the PSB and the utilities, various mandated levels of rate reductions
for customers paying stranded costs, and capturing for customers any or a
portion of the gain from the sale of a utility's transmission and distribution
assets.
We cannot determine at this time whether the second session of the Biennium,
which convenes on January 4, 2000, will be active on restructuring issues.
Therefore, we cannot predict at this time whether restructuring legislation will
be enacted in this Biennium.
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OUR RESTRUCTURING PLAN
We support the Working Group recommendations described above and believe that
the restructuring of the electric industry is essential to improve our financial
position, enhance our ability to effectively compete in a changing electric
utility industry and stabilize projected costs.
As a result, we are pursuing a comprehensive financial Restructuring Plan, a
number of elements of which were included in a report that we and Green Mountain
Power filed with the PSB in the first quarter of 1999 in connection with the
proceedings in Docket No. 6140 described above. We are aggressively pursuing
implementation of the Restructuring Plan which includes the following elements:
. Retail choice: voluntarily giving up the exclusive right to supply power to
our present electric customers, while retaining our rights as a distribution
company, as part of a global settlement of regulatory issues.
. Renegotiation of power purchase contracts: reducing our future cost of
power by renegotiating power contracts, specifically those with Hydro-Quebec and
the Vermont purchasing agent's contracts with small power producers which
together represent approximately 40% of our 1998 net energy supply. We may seek
to finance the cost of any buy-outs or buy-downs of power contracts through the
future issuance of securities in the capital markets. On September 22, 1999, we
announced that we will seek, with the other Vermont Joint Owners, to auction the
contract with Hydro-Quebec.
. Contract and asset disposition: seeking to sell power purchase contracts
and generating assets, including our interest in the Vermont Yankee nuclear
generating plant. On September 22, 1999 the Company announced that it will
seek, with other Vermont Joint Owners, to auction the contract with Hydro-
Quebec. On October 15, 1999, the Company and the other owners of Vermont Yankee
accepted a bid for sale of the plant to AmerGen Energy Company, which is owned
by PECO Energy Company and British Energy. This transaction will also involve
entering into a contract to purchase a portion of the power produced by this
plant. The Vermont Yankee sale needs to be approved by various state and
federal regulatory bodies. If the we and the other owners receive all necessary
approvals, the transaction is expected to be complete by Summer 2000.
. Cost-cutting: implementing cost-cutting measures to reduce cash flow
requirements while maintaining safety and reliability standards.
. Holding company: establishing a holding company to help us better organize
our business.
. Industry consolidation: assessing the opportunities for consolidation with
other Vermont electric distribution companies.
. Regulatory settlement: seeking a comprehensive regulatory settlement that
leads to long-term financial stability.
. Energy efficiency activities: creating a state sponsored "energy-
efficiency utility" to take over most system-wide energy-efficiency services
for electric customers. On September 30, 1999, the Public Service Board issued
a final Order approving a Memorandum of Understanding between the Company, the
Vermont Department of Public Service, all other Vermont electric utility
companies and other interested parties that calls for the establishment of the
energy-efficiency utility and provides for its funding via a separately stated
Energy Efficiency Charge to our customers.
We believe that implementation of our Restructuring Plan is a critical element
to improving our future financial performance and to providing our customers
with more stable electric rates and the continuation of efficient and reliable
electric service. The key contingency to our Restructuring Plan is regulatory
approval of a rate schedule that will allow us to recover the costs of the
restructuring See "--Rate Establishment." If the financial restructuring
described in this section is completed in conjunction with the deregulation of
Vermont's electric industry we anticipate that our utility financial performance
and prospects will improve significantly. While we cannot predict
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whether some or all of the elements of our Restructuring Plan will be
implemented, we are pursuing implementation of our Restructuring Plan through
negotiations with power suppliers, regulatory proceedings, legislative
proceedings and other means. See "Our Resturcturing Plan" herein.
Retail Choice
We intend to file a petition with the PSB to establish retail access for our
customers. The petition will:
. confirm our consent to providing our retail customers their choice of power
suppliers;
. seek a PSB order relieving us of our obligation to supply capacity and energy
to consumers; and
. establish us as the exclusive electric distribution provider within our
service territory.
We will also propose tariff amendments to establish open access and customer
choice. All of these proposals would result in our giving up our current
exclusive rights to serve present customers' electricity requirements, except
for distribution and delivery services, and allow competitive electricity sales
for our electric customers in Vermont, as part of a global settlement with our
regulators. Our request will be conditioned upon the approval of all other
elements of the restructuring plan.
Renegotiation of Power Purchase Agreements
We intend to reduce our future cost of power through the auction, buy-out or
buy-down of the power purchase agreements with Hydro-Quebec and the Vermont
purchasing agent's contracts with independent power producers. The power
purchase agreements accounted for approximately 40% of our retail mWh needs in
1998. If we successfully auction, buy-out or buy-down these agreements, and
appropriate regulatory approvals are obtained, we intend to seek to finance the
payments made to power suppliers with securities issued in the capital markets.
This aspect of the Restructuring Plan would effectively create an unsecured on-
balance sheet liability, and possibly an off-balance sheet liability for
Vermont's independent power producer contracts, for the repayment of debt
incurred to fund auctions, buy-downs or buy-outs for the above-market costs of
the power purchase agreements. We believe that a successful renegotiation would
result in improved operating cash flow that would be adequate to service the
obligations related to the purchased agreements and fund our ongoing operations.
Participants in the VJO, ourselves included, are now negotiating the terms under
which the agreements obligating (i) the VJO to buy power from Hydro-Quebec and
(ii) the VJO participants to buy their respective percentage commitments from
the VJO can be restructured. There can be no assurances, however, that we will
be successful in renegotiating these contracts or in completing the related
financing.
On August 3, 1999, the Company, Green Mountain Power, Citizens Utilities and
all of Vermont's 15 municipal utilities, filed a petition with the PSB
requesting modification of the contracts between the independent power producers
and the utilities. The petition is based on unique provisions of the existing
contracts and PSB regulations that provide for modifications and alterations
that serve the public interest and reserves for the PSB the authority to amend
the power purchase arrangements for good cause. The petition outlines seven
specific elements, that, if implemented, should ultimately allow for the buy-out
and buy-down of these contracts and reduce ratepayers' committed power costs.
On September 3, 1999, the PSB responded to our petition by opening a formal
investigation regarding these contracts. Shortly thereafter Citizens Utilities,
Hardwick Electric Department and the Burlington Electric Department notified
parties that they were withdrawing from the petition but that each will
participate in the case as non-moving parties. At this time, we cannot predict
the outcome of this proceeding which remains at a preliminary status before the
PSB.
Disposition of generating assets
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We are evaluating wholly-owned and jointly-owned generating sources to
determine whether they should be sold, operated or shut down. On September 22,
1999 we announced that we will seek, with other Vermont Joint Owners, to auction
the contract with Hydro-Quebec. On October 15, 1999, we and the other owners of
Vermont Yankee accepted a bid for sale of the plant to AmerGen Energy Company,
which is owned by PECO Energy Company and British Energy. This transaction will
also involve us entering into a contract to purchase a portion of the power
produced by this plant. The Vermont Yankee sale needs to be approved by various
state and federal regulatory bodies. If we and the other owners receive all
necessary approvals, the transaction is expected to be complete by Summer 2000.
Creation of an Energy-Efficiency Utility
On April 30, 1999, we entered into a Memorandum of Understanding, or MOU, with
the DPS for the creation of an energy-efficiency utility to provide state-wide
demand-side management services. Subsequently, other Vermont utilities, as well
as consumer interest groups, have endorsed the proposal. The MOU was filed with
the PSB on April 30, 1999 for approval in Docket No. 5980 which was opened by
the PSB to investigate the DPS's proposed Statewide Energy Efficiency Plan. By
Order dated September 30, 1999, the PSB approved the MOU.
The MOU resolves all issues now outstanding in Docket No. 5980 including the
governance structure for the energy-efficiency utility, the design of the
energy-efficiency utility programs and services, and the energy efficiency
utility budgets. The MOU also resolves all claims based on alleged actions or
failures to act prior to January 1, 2000 that we failed to satisfy our demand-
side management obligations to customers under Vermont law and regulations. The
new energy-efficiency delivery system is expected to be in place beginning in
the year 2000 and will replace most services now provided to customers by us. In
May 1999, the legislature approved, and in June 1999 the Governor of Vermont
signed, legislation supportive of the MOU.
Consolidation
We regularly assess the opportunities for consolidation within Vermont.
Cost-Cutting Opportunities
We have been actively pursuing cost-cutting opportunities to improve our
financial performance. We estimate that our number of employees will have been
reduced by approximately 27% from 1993 through 2000.
Rate Establishment
If the realization of other elements of our Restructuring Plan begins, we will
file petitions with the PSB for the establishment of rates that would provide
for revenues in amounts sufficient to support the financings necessary to
restructure our power supply portfolio in the above manner. It is essential that
the PSB permit us to recover in rates an annual amount sufficient to cover our
costs, including those incurred in connection with various components of the
Restructuring Plan.
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DESCRIPTION OF OTHER INDEBTEDNESS AND PREFERRED STOCK
Upon the completion of the offering, in addition to the Second Mortgage Bonds,
we (excluding our subsidiaries) will have the following indebtedness
outstanding.
First Mortgage Bonds
We have issued First Mortgage Bonds, which are senior to the Second Mortgage
Bonds, under the Mortgage of the Company, dated as of October 1, 1929, and
indentures supplemental thereto, to Old Colony Trust Company, as trustee, as
from time to time amended and supplemented, under which Mortgage State Street
Bank and Trust Company is now serving as successor trustee.
As of September 30, 1999, we had outstanding eight series of First Mortgage
Bonds, in an aggregate principal amount of $76,500,000, plus three additional
series as discussed below. At the present time, we do not intend to issue any
additional First Mortgage Bonds. The following table sets forth our upcoming
obligations with respect to principal payments and mandatory sinking fund
obligations on the First Mortgage Bonds outstanding as of September 30, 1999:
<TABLE>
<CAPTION>
Principal Amount Due
---------------------------------------------------------------
1999 2000 2001 2002 2003 2004
------ ------- ------ ------ ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Series of First Mortgage Bonds
9.20% Series FF................................. $ 7,500
9.26% Series GG................................. $3,000
9.97% Series HH................................. $3,000 $ 4,000 $4,000 $4,000 $ 3,000
8.91% Series JJ.................................
5.54% Series LL................................. $ 5,000
6.01% Series MM................................. $ 7,500
6.27% Series NN.................................
6.90% Series OO.................................
Totals........................................ $3,000 $16,500 $4,000 $7,000 $10,500 0
</TABLE>
In addition to the eight series of First Mortgage Bonds outstanding as of
September 30, 1999, concurrently with the issuance of the Old Bonds on July 30,
1999, we issued three new series of First Mortgage Bonds designated Series PP,
QQ and RR with a total aggregate stated principal amount of approximately $16.9
million. These First Mortgage Bonds were issued as replacement security for our
obligations in connection with approximately $16.9 million of outstanding
letters of credit. These First Mortgage Bonds, as replacement security, do not
increase our indebtedness.
The First Mortgage constitutes a direct first mortgage lien on substantially
all of our existing tangible utility property, which includes our fixed property
and franchises, consisting principally of electric plants and systems, electric
generating plants, electric transmission lines, electrical substations and
switching stations, electric distribution systems, and buildings, subject only
to liens and encumbrances permitted under the First Mortgage. In general, all
our tangible utility property acquired after the date of the Second Mortgage
Indenture will continue to be subjected to the lien of the First Mortgage, which
is senior to the lien of your New Bonds.
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Other Indebtedness
The following table summarizes our other significant credit obligations in
place following the issuance of the Old Bonds, including amounts
outstanding and corresponding maturity dates:
<TABLE>
<CAPTION>
Amount Outstanding
at September 30,
Description of Obligation 1999 Maturity
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Tax-Exempt Revenue Bonds/(1)/
New Hampshire Development
Authority.............................................. $ 5,500 December 2009
Vermont Development Authority........................... 5,800 December 2013
Connecticut Development Authority....................... 5,000 December 2015
Accounts Receivable Facility............................... $12,000 November 1999
Capital Lease Obligations.................................. $16,424 December 2006 (phase I
transmission facilities)
December 2015 (phase II
transmission facilities)
</TABLE>
_____________________
(1) We are obligated, in specified circumstances, to reimburse the issuer
of the three letters of credit that support these development authority
bonds pursuant to three reimbursement agreements and a guaranty. These
agreements contain specified covenants applicable to us so long as the
letters of credit or our related reimbursement obligations remain
outstanding. Among these covenants is the requirement that we not permit
our consolidated leverage ratio (i.e., the ratio of total indebtedness
that is recourse to us to total capitalization of us and our
consolidated subsidiaries) to be greater than 0.5 to 1.0.
Preferred Stock
As of September 30, 1999, we had outstanding 80,538 shares of non-redeemable
preferred stock and 180,000 shares of 8.30% Series redeemable preferred stock.
We are required to redeem $1.0 million of the 8.30% Series preferred stock each
year at par through a mandatory sinking fund. We may also redeem at par up to an
additional $1.0 million each year at our option. As of September 30, 1999, we
had no other preferred or preference stock outstanding.
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THE EXCHANGE OFFER
We issued the Old Bonds on July 30, 1999 (the "Closing Date") to the initial
purchasers in an offering to qualified institutional buyers under Rule 144A
under the Securities Act. As a condition to the sale of the Old Bonds, the
Company and the initial purchasers entered into the Registration Rights
Agreement on the Closing Date. The registration statement, of which this
prospectus is part, is intended to satisfy our obligation to conduct an exchange
offer under the Registration Rights Agreement summarized below. This summary of
provisions of the Registration Rights Agreement does not purport to be complete
and reference is made to the provisions of the Registration Rights Agreement
which has been filed as an exhibit to the registration statement and a copy of
which is available as set forth in "Where to Find More Information."
Pursuant to the Registration Rights Agreement, we agreed to file with the SEC
an exchange offer registration statement on the appropriate form under the
Securities Act with respect to the New Bonds. Upon the effectiveness of the
exchange offer registration statement, we will offer to the holders of Old Bonds
who are able to make specified representations the opportunity to exchange their
Old Bonds for the New Bonds. If we are not permitted to consummate the exchange
offer because the exchange offer is not permitted by applicable law or SEC
policy, or any bondholder notifies us within the specified time period that it:
. is prohibited by law or SEC policy from participating in the exchange offer;
. may not resell the New Bonds acquired by it in the exchange offer to the
public without delivering a prospectus and the prospectus contained in the
exchange offer registration statement is not appropriate or available for such
resales by such bondholder; or
. is a broker-dealer and holds Old Bonds acquired directly from us or an
affiliate of ours,
we will use our reasonable best efforts to file with the SEC a shelf
registration statement to cover resales of the Old Bonds by the bondholders who
satisfy conditions relating to the provision of information in connection with
the shelf registration statement. The Registration Rights Agreement, dated as
of July 30, 1999, provides that we will:
. file an exchange offer registration statement with the SEC on or prior to
October 28, 1999;
. use our reasonable best efforts to have the exchange offer registration
statement declared effective by the SEC on or prior to February 25, 1999;
. commence the exchange offer and use our reasonable best efforts to issue on
or prior to 45 business days after the date on which the exchange offer
registration statement was declared effective by the SEC, New Bonds in exchange
for all Old Bonds tendered prior thereto in the exchange offer; and
. if obligated, to use our reasonable best efforts to file a shelf registration
statement with the SEC on or prior to 45 days after such filing obligation
arises and to cause the shelf registration statement to be declared effective by
the SEC on or prior to 90 days after we are required to file such shelf
registration statement.
If:
. we fail to file with the SEC any of the registration statements required by
the Registration Rights Agreement on or before the date specified for such
filing;
. any of such registration statement is not declared effective by the SEC on or
prior to the date specified for such effectiveness;
. we fail to consummate the exchange offer on or prior to the date specified
with respect to the exchange offer registration statement; or
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<PAGE>
. any registration statement required by the Registration Rights Agreement is
filed and declared effective but thereafter ceases to be effective or usable for
its intended purpose;
(each such event referred to in the clauses above a "Registration Default"),
then we will pay liquidated damages to each bondholder, with respect to the
first 90-day period immediately following the occurrence of the first
Registration Default of a rate per annum equal to 0.25% of the principal amount
of transfer restricted securities held by such holder. The rate of the
liquidated damages will increase by an additional 0.25% per annum with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum rate of liquidated damages of 0.75% per annum of the
principal amount of transfer restricted securities. We in no event are required
to pay liquidated damages for more than one Registration Default at any given
time. We will pay all accrued liquidated damages (as more fully set forth in
the Indenture and the Old Bonds) on each Interest Payment Date. Following the
cure of all Registration Defaults, liquidated damages will not accrue.
Transfer Restricted Securities
For purposes of the foregoing, transfer restricted securities means:
each Old Bond until:
. the date on which such Old Bond is exchanged for a New Bond which is entitled
to be resold to the public by such bondholder without complying with the
prospectus delivery requirements of the Securities Act;
. the date on which such Old Bond has been disposed of in accordance with a
shelf registration statement; or
. the date on which such Old Bond is sold pursuant to Rule 144 under the
Securities Act or may be sold without restrictions pursuant to Rule 144(k) under
the Securities Act;
and each New Bond held by a broker-dealer until the date on which such New Bond
is disposed of by a broker-dealer as set forth under "Plan of Distribution"
below.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all of the Old Bonds
validly tendered and not withdrawn prior to the expiration date of the exchange
offer. As of the date of this prospectus, $75.0 million aggregate principal
amount of the Old Bonds is outstanding and no New Bonds are outstanding. This
prospectus, together with the letter of transmittal, is first being sent on or
about _____________, 1999, to all bondholders known to us. Our obligation to
accept the Old Bonds for exchange pursuant to the exchange offer is subject to
the conditions as set forth under "--Certain Conditions to the Exchange Offer"
below. We will issue $1,000 principal amount of New Bonds in exchange for each
$1,000 principal amount of outstanding Old Bonds accepted in the exchange offer.
Bondholders may tender some or all of their Old Bonds pursuant to the exchange
offer. See "--Consequences of Failure to Exchange." However, the Old Bonds may
be tendered only in integral multiples of $1,000.
The New Bonds will evidence the same debt as the Old Bonds for which they
are exchanged, and are entitled to the benefits of the Indenture. The form and
terms of the New Bonds are the same as the form and terms of the Old Bonds,
except that the New Bonds have been registered under the Securities Act.
Therefore, the New Bonds will not bear legends restricting their transfer.
Bondholders do not have any appraisal or dissenters' rights under the
Indenture in connection with the exchange offer. We intend to conduct the
exchange offer in accordance with the applicable requirements of Regulation 14E
under the Exchange Act.
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We shall be deemed to have accepted validly tendered Old Bonds when, as,
and if we have given verbal or written notice of our acceptance to the exchange
agent. The exchange agent will act as agent for the tendering bondholders for
the purpose of receiving the New Bonds.
If any tendered Old Bonds are not accepted for exchange because of an
invalid tender, or the failure to satisfy other conditions to the exchange offer
or otherwise, we will return such unaccepted tenders of Old Bonds without
expense to the bondholder of the Old Bond, as promptly as practicable after the
expiration date of the exchange offer.
Bondholders whose Old Bonds are not tendered or are tendered but not
accepted in the exchange offer will continue to hold such Old Bonds and will be
entitled to all the rights and preferences and subject to the limitations
applicable to the Old Bonds under the Indenture. Following completion of the
exchange offer, the bondholders will continue to be subject to the existing
restrictions upon transfer of the Old Bonds and we will have no further
obligation to those bondholders to provide for the registration under the
Securities Act of the Old Bonds held by them. To the extent that Old Bonds are
tendered and accepted in the exchange offer, the trading market for untendered,
and tendered but unaccepted, Old Bonds could be adversely affected.
Bondholders who tender Old Bonds in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of Old
Bonds pursuant to the exchange offer. We will pay all charges and expenses,
other than applicable taxes, in connection with the exchange offer. See "--Fees
and Expenses; Solicitation of Tenders."
Expiration Date; Extensions; Amendments
The term expiration date shall mean 5:00 p.m., New York City time on
___________, 1999, unless we extend the exchange offer. If we do extend the
exchange offer, the term expiration date shall mean the date and time to which
the exchange offer is extended. In order to extend the expiration date of the
exchange offer, we will notify the exchange agent of any extension by verbal or
written notice, mail to the registered bondholders an announcement of that
notice, and will make a release to the Dow Jones News Services prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled expiration date of the exchange offer.
We reserve the right at our sole discretion:
. to delay accepting any Old Bonds;
. to extend the exchange offer;
. to terminate the exchange offer and not accept the Old Bonds not previously
accepted if any of the conditions set forth below under "--Certain Conditions to
the Exchange Offer" shall have occurred and shall not have been waived by us, by
giving oral or written notice of such delay, extension or termination to the
exchange agent; or to amend the terms of the exchange offer in any manner. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by oral or written notice thereof to the bondholders.
If the exchange offer is amended in a manner determined by us to constitute a
material change, we will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to all bondholders, and we will
extend the exchange offer for a period of five to ten business days, depending
upon the significance of the amendment and the manner of disclosure to
bondholders, if the exchange offer would otherwise expire during such five to
ten business day period. During any extension of the expiration date of the
exchange offer, all Old Bonds previously tendered will remain subject to the
exchange offer and may be accepted for exchange by us.
We shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
64
<PAGE>
Interest on the New Bonds
Interest accrues on the New Bonds at the rate of 8 1/8 % per annum
from July 30, 1999 and is payable in cash semiannually in arrears on February 1
and August 1 of each year, commencing February 1, 2000; provided that in the
event the exchange offer is consummated on or after February 1, 2000, interest
will accrue from February 1, 2000 and interest will be payable commencing on
August 1, 2000. No interest will be payable on the Old Bonds on the date of the
exchange for the New Bonds and therefore no interest will be paid thereon to the
bondholders at such time.
Procedures for Tendering the Old Bonds
When a beneficial owner of Old Bonds tenders them to the Company as
set forth below and the Company accepts the Old Bonds, the beneficial owner of
the Old Bonds and the Company will be deemed to have entered into a binding
agreement upon the terms and subject to the conditions set forth in this
prospectus and the letter of transmittal.
Except as set forth below, if you wish to tender the Old Bonds for
exchange pursuant to the exchange offer, we must receive a properly completed
and duly executed letter of transmittal, including all other documents required
by such letter of transmittal, to the exchange agent at one of the addresses set
forth below under "Exchange Agent" on or prior to the expiration date of the
exchange offer. In addition:
. the exchange agent must receive certificates for such Old Bonds along with
the letter of transmittal;
. the exchange agent must receive prior to the expiration date of the exchange
offer a timely confirmation of a book-entry transfer of such Old Bonds into the
exchange agent's account at the Depository Trust Company pursuant to the
procedure for book-entry transfer described below; or
. the bondholder must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF OLD BONDS, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE BONDHOLDER. IF SUCH
DELIVERY IS BY MAIL, WE RECOMMEND THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT
TIME TO ASSURE TIMELY DELIVERY. YOU SHOULD NOT SEND LETTERS OF TRANSMITTAL OR
OLD BONDS TO US.
Each signature on a letter of transmittal or a notice of withdrawal,
as the case may be, must be guaranteed unless the Old Bonds surrendered for
exchange pursuant thereto are tendered:
. by a registered bondholder who has not completed the box entitled "Special
Issuance Instructions" or the box entitled "Special Delivery Instructions" in
the letter of transmittal; or
. for the account of an eligible institution (as defined below).
In the event that a signature on a letter of transmittal or a notice of
withdrawal, as the case may be, is required to be guaranteed, such guarantee
must be by a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States or otherwise be an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If
the Old Bonds are registered in the name of a person other than the person
signing the letter of transmittal, the Old Bonds surrendered for exchange must
be endorsed by, or be accompanied by, a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered bondholder with the signature
thereon guaranteed by an Eligible Institution. If the letter of transmittal is
signed by a person or persons other than the registered bondholder or
bondholders, the Old Bonds must either be endorsed by the registered bondholder
with signature guaranteed by an Eligible Institution or accompanied by
appropriate powers of attorney
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<PAGE>
with signature guaranteed by an Eligible Institution. In either case, the Old
Bonds must be signed exactly as the name or names of the registered bondholder
or bondholders that appear on the Old Bonds.
If a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or another acting in a fiduciary or representative
capacity signs the letter of transmittal or any Old Bonds or powers of attorney,
the person signing should indicate in which capacity he or she is signing and,
unless waived by us, submit proper evidence satisfactory to us of his or her
authority to sign with the letter of transmittal.
By tendering, each bondholder will represent to us that, among other
things:
. the New Bonds acquired pursuant to the exchange offer are being acquired in
the ordinary course of business of the person receiving such New Bonds, whether
or not that person is the bondholder; neither the bondholder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Bonds;
. if the bondholder is not a broker-dealer, or is a broker-dealer but will not
receive New Bonds for its own account in exchange for the Old Bonds, neither the
bondholder nor any such other person is engaged in or intends to participate in
the distribution of such New Bonds; and neither the bondholder nor any such
other person is an "affiliate" of ours, as defined under Rule 405 of the
Securities Act. If the tendering bondholder is a broker-dealer that will
receive New Bonds for its own account in exchange for Old Bonds that were
acquired as a result of market-making activities or other trading activities,
the bondholder may be deemed to be an "underwriter" within the meaning of the
Securities Act and will be required to acknowledge that it will deliver a
prospectus in connection with any resale of such New Bonds. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
DELIVERY OF DOCUMENTS TO US OR THE DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
We will determine in our sole discretion all questions as to the
validity, form, eligibility (including time of receipt) and acceptance of the
Old Bonds tendered for exchange, which determination shall be final and binding.
We reserve the absolute right to reject any and all tenders of any particular
Old Bonds not properly tendered or to not accept any particular Old Bonds which
acceptance might, in our judgment or our counsel, be unlawful. We also reserve
the absolute right in our sole discretion to waive any defects or irregularities
or conditions of the exchange offer as to any particular Old Bonds either before
or after the expiration date of the exchange offer (including the right to waive
the ineligibility of any bondholder who seeks to tender Old Bonds in the
exchange offer). The interpretation of the terms and conditions of the exchange
offer as to any particular Old Bonds either before or after the expiration date
of the exchange offer (including the letter of transmittal and its instructions)
by us shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with the tenders of Old Bonds for exchange must be
cured within a reasonable period of time as we shall determine. Neither the
Company, the exchange agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Bonds for exchange, nor shall any of them incur any liability for failure to
give such notification.
Acceptance of the Old Bonds for Exchange; Delivery of the New Bonds
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date of the exchange offer, all
Old Bonds properly tendered and will issue the New Bonds promptly after
acceptance of the Old Bonds. See "--Certain Conditions to the Exchange Offer"
below. For purposes of the exchange offer, we shall be deemed to have accepted
properly tendered Old Bonds for exchange when, and if we have given verbal or
written notice of our acceptance to the exchange agent. In all cases, issuance
of the New Bonds for the Old Bonds that are accepted for exchange pursuant to
the exchange offer will be made only after timely receipt by the exchange agent
of the following:
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<PAGE>
. certificates for such Old Bonds or a timely confirmation of a book-entry
transfer of such Old Bonds into the exchange agent's account at the Depository
Trust Company pursuant to the book-entry transfer procedures described below;
. a properly completed and duly executed letter of transmittal; and
. all other required documents.
If any tendered Old Bonds are not accepted for any reason set forth in the terms
and conditions of the exchange offer or if certificates representing the Old
Bonds are submitted for a greater principal amount than the bondholder desires
to exchange, those unaccepted or non-exchanged Old Bonds will be returned
without expense to the tendering bondholder thereof (or, in the case of Old
Bonds tendered by book-entry transfer into the exchange agent's account at the
Depository Trust Company pursuant to the book-entry transfer procedures
described below, those non-exchanged Old Bonds will be credited to an account
maintained with the Depository Trust Company) as promptly as practicable after
the expiration or termination of the exchange offer.
Book-Entry Transfer
The exchange agent will make a request to establish an account with
respect to the Old Bonds at the Depository Trust Company for purposes of the
exchange offer promptly after the date of this prospectus. Any financial
institution that is a participant in the Depository Trust Company's systems may
make book-entry delivery of the Old Bonds by causing the Depository Trust
Company to transfer such Old Bonds into the exchange agent's account at the
Depository Trust Company in accordance with the Depository Trust Company's
Automated Tender Offer Program ("ATOP") procedures for transfer. However, the
exchange for the Old Bonds so tendered will only be made after timely
confirmation of such book-entry transfer of Old Bonds into the exchange agent's
account, and timely receipt by the exchange agent of an Agent's Message (as such
term is defined in the next sentence) and any other documents required by the
letter of transmittal on or prior to the expiration date of the exchange offer
or pursuant to the guaranteed delivery procedures described below. The term
"Agent's Message" means a message, transmitted by the Depository Trust Company
and received by the exchange agent and forming a part of a timely confirmation
of a book-entry transfer, which states that the Depository Trust Company has
received an express acknowledgement from a bondholder tendering Old Bonds that
are the subject of such timely confirmation of a book-entry transfer that such
bondholder has received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce such agreement against such bondholder.
Guaranteed Delivery Procedures
If a registered bondholder of the Old Bonds desires to tender such Old
Bonds and the Old Bonds are not immediately available, or time will not permit
such bondholder's Old Bonds or other required documents to reach the exchange
agent before the expiration date of the exchange offer, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if:
. the tender is made through an Eligible Institution;
. prior to the expiration date of the exchange offer, the exchange agent
receives from such Eligible Institution a properly completed and duly executed
letter of transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by us (by telegram, telex,
facsimile transmission, registered or certified mail or hand delivery), setting
forth the name and address of the bondholder and the amount of Old Bonds
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates of all
physically tendered Old Bonds, in proper form for transfer, or a timely
confirmation of a book-entry transfer, as the case may be, and any other
documents required by the letter of transmittal will be deposited by the
Eligible Institution with the exchange agent; and
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. the certificates for all physically tendered Old Bonds, in proper form for
transfer, or a timely confirmation of a book-entry transfer, as the case may be,
and all other documents required by the letter of transmittal, are received by
the exchange agent within three NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
Withdrawal Rights
You may withdraw your tender of the Old Bonds at any time prior to the
expiration date of the exchange offer.
For a withdrawal to be effective, the exchange agent must receive a
written notice of withdrawal at the applicable address set forth below under
"Exchange Agent." Any such notice of withdrawal must:
. specify the name of the person having tendered the Old Bonds to be withdrawn;
. identify the Old Bonds to be withdrawn (including the principal amount of
such Old Bonds); and
. (where certificates for Old Bonds have been transmitted) specify the name in
which such Old Bonds are registered, if different from that of the withdrawing
bondholder.
If certificates for Old Bonds have been delivered or otherwise identified to the
exchange agent, then, prior to the release of such certificates, the withdrawing
bondholder must also submit the serial numbers of the particular certificates to
be withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such bondholder is an Eligible Institution. If Old
Bonds have been tendered pursuant to the procedure for book-entry transfer
described above, any note of withdrawal must specify the name and number of the
account at the Depository Trust Company to be credited with the withdrawn Old
Bonds and otherwise comply with the procedures of such facility. We will
determine all questions as to the validity, form and eligibility (including time
of receipt) of such notices, which shall be final and binding on all parties.
Any Old Bonds so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Old Bonds which have been tendered
for exchange but which are not exchanged for any reason will be returned to the
bondholder thereof without cost to such bondholder (or, in the case of Old Bonds
tendered by book-entry transfer procedures described above, such Old Bonds will
be credited to an account maintained with the Depository Trust Company for the
Old Bonds) as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. You may retender your properly withdrawn Old
Bonds by following one of the procedures described under "Procedures for
Tendering the Old Bonds" above at any time on or prior to the expiration date of
the exchange offer.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we shall
not be required to accept for exchange, or to issue New Bonds in exchange for,
any Old Bonds and may terminate or amend the exchange offer, if at any time
before the acceptance of such Old Bonds for exchange or the exchange of the New
Bonds for such Old Bonds, there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental regulatory or
administrative agency or commission:
(1) seeking to restrain or prohibit the making or consummation of the exchange
offer or any other transaction contemplated by the exchange offer, or
assessing or seeking any damages as a result thereof; or
(2) resulting in a material delay in our ability to accept for exchange or
exchange some or all of the Old Bonds pursuant to the exchange offer; or
(3) any statute, rule, regulation, order or injunction shall be sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
exchange offer or any of the transactions contemplated by the exchange
offer by any government or governmental authority, domestic or foreign; or
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(4) any action shall have been taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or foreign;
that in our sole judgment might directly or indirectly result in any of the
consequences referred to in (1) or (2) above or, in our sole judgment, might
result in the holders of New Bonds having obligations with respect to resales
and transfers of New Bonds which exceed those described in this prospectus, or
would otherwise make it inadvisable to proceed with the exchange offer. If we
determine in good faith that any of the conditions are not met, we may:
. refuse to accept any Old Bonds and return all tendered Old Bonds to
exchanging bondholders;
. extend the exchange offer and retain all Old Bonds tendered prior to the
expiration of the exchange offer, subject, however, to the rights of bondholders
to withdraw such Old Bonds (see "--Withdrawal Rights"); or
. waive some of the unsatisfied conditions with respect to the exchange offer
and accept all properly tendered Old Bonds which have not been withdrawn or
revoked. If such waiver constitutes a material change to the exchange offer, we
will promptly disclose such waiver by means of a prospectus supplement that will
be distributed to all bondholders.
Bondholders have specified rights and remedies against us under the
Registration Rights Agreement, including specified liquidated damages, should we
fail to consummate the exchange offer within a specified period of time,
notwithstanding a failure due to the occurrence of any of the conditions stated
above. Such conditions are not intended to modify those rights or remedies in
any respect. The foregoing conditions are for our benefit and may be asserted
by us in good faith regardless of the circumstances giving rise to such
condition or may be waived by us in whole or in part at any time and from time
to time in our discretion. The failure by us at any time to exercise the
foregoing rights shall not be deemed a wavier of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
Exchange Agent
The Bank of New York has been appointed as exchange agent for the
exchange offer. You should direct your questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal to the exchange agent addressed as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C>
By overnight courier or by hand: By registered or certified mail:
- -------------------------------------------------------------------------------------------------------------
The Bank of New York The Bank of New York
- -------------------------------------------------------------------------------------------------------------
Corporate Trust Service Window 101 Barclay Street 7E
- -------------------------------------------------------------------------------------------------------------
Ground Level New York, NY 10286
- -------------------------------------------------------------------------------------------------------------
101 Barclay Street Attention: Ayikwei Aryeetey
- -------------------------------------------------------------------------------------------------------------
New York, NY 10286 Telephone: (212) 815-3687
- -------------------------------------------------------------------------------------------------------------
Attention: Ayikwei Aryeetey Facsimile: (212) 815-6339
- -------------------------------------------------------------------------------------------------------------
Reorg Department, 7 East
- -------------------------------------------------------------------------------------------------------------
Telephone: (212) 815-3687
- -------------------------------------------------------------------------------------------------------------
Facsimile: (212) 815-6339
- -------------------------------------------------------------------------------------------------------------
</TABLE>
IF YOU DELIVER TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMIT
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, IT WILL NOT BE A VALID
DELIVERY.
Fees and Expenses; Solicitation of Tenders
We will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telephone or in person by our officers and regular employees and
our affiliates.
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We have not retained any dealer-manager in connection with the
exchange offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the exchange offer. We, however, will pay the
exchange agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection with the exchange
offer. The cash expenses to be incurred in connection with the exchange offer
will be paid by us and are estimated in the aggregate to be $140,000 which
includes fees and expenses of the exchange agent and Trustee plus accounting and
legal fees.
We will pay all transfer taxes, if any, applicable to the exchange of
the Old Bonds pursuant to the exchange offer. If, however, certificates
representing the New Bonds or the Old Bonds for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered bondholders
tendered, or if a transfer tax is imposed for any reason other than the exchange
of the Old Bonds pursuant to the exchange offer, then the tendering bondholder
must pay the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons). If a tendering bondholder does not
submit satisfactory evidence of payment of such taxes or exemption therefrom to
the exchange agent, the amount of such transfer taxes will be billed directly to
such tendering bondholder.
We have not authorized any person to give any information or to make
any representations in connection with the exchange offer other than those
contained in this prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by us.
Neither the delivery of this prospectus nor any exchange made hereunder shall,
under any circumstances, create any implication that there has been no change in
our affairs since the respective dates as of which information is given in this
prospectus. The exchange offer is not being made to (nor will tenders be
accepted from or on behalf of) bondholders in any jurisdiction in which the
making of the exchange offer or the acceptance of this prospectus would not be
in compliance with the laws of such jurisdiction.
Accounting Treatment
We will record the New Bonds at the same carrying value as the Old
Bonds, which is face value, as recorded in our accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The costs of the exchange offer will be expensed over the term of
the New Bonds.
Consequences of Failure to Exchange
If you do not exchange your Old Bonds for New Bonds pursuant to the
exchange offer, you will continue to be subject to the restrictions on transfer
of such Old Bonds as set forth in the legend on the Old Bonds. In general, you
may not offer to sell or sell the Old Bonds, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. We do not
intend to register the Old Bonds under the Securities Act. We believe that,
based upon interpretations contained in no-action letters issued to third
parties by the staff of the SEC, any bondholder may offer for resale, resell or
otherwise transfer the New Bonds issued pursuant to the exchange offer in
exchange for the Old Bonds (unless the bondholder is an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that:
. the bondholder acquires the New Bonds in the ordinary course of its business;
. the bondholder has no arrangement with any person to participate in the
distribution of such Old Bonds; and
. each broker-dealer that receives New Bonds for its own account in exchange
for Old Bonds must acknowledge that it will deliver a prospectus in connection
with any resale of such New Bonds. See "Plan of Distribution."
If any bondholder (other than a broker-dealer described in the preceding
sentence) has any arrangement or understanding with respect to the distribution
of the New Bonds to be acquired pursuant to the exchange offer, such bondholder
could not rely on the applicable interpretations of the staff of the SEC and
must comply with the
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registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. In addition, to comply with the
securities laws of various jurisdictions, if applicable, you may not offer or
sell the New Bonds unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and is complied with.
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DESCRIPTION OF THE NEW BONDS
You can find the definitions of many of the terms used in this description
under the subheading "Certain Definitions." In this description, the word
"Company" refers only to Central Vermont Public Service Corporation and not to
any of its subsidiaries.
The Company will issue the New Bonds under a Second Mortgage Indenture (the
"Second Mortgage Indenture") between itself and The Bank of New York, as
trustee (the "Trustee"). The Second Mortgage Indenture will be supplemented by
a second supplemental indenture (the "Supplemental Indenture" and, together
with the Second Mortgage Indenture, the "Second Mortgage"), in a public
transaction registered under the Securities Act. The terms of the New Bonds
include those stated in the Second Mortgage and those made part of the Second
Mortgage by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The issuance of the New Bonds under the Supplemental
Indenture will be based upon retired Old Bonds to be exchanged for New Bonds as
contemplated in the Registration Rights Agreement (such exchange, the "Exchange
Offer"). See "The Exchange Offer." The New Bonds will be secured by the
Mortgaged Property.
The following description is a summary of the material provisions of the
Second Mortgage, as supplemented by the Supplemental Indenture. This summary
does not purport to be complete and does not restate those agreements in their
entirety. This summary is subject to, and qualified in its entirety by,
reference to the provisions of the Second Mortgage and the Supplemental
Indenture. We urge you to read the Second Mortgage and the Supplemental
Indenture because they, and not this description, define your rights as holders
of the New Bonds. Copies of the Second Mortgage and the Supplemental Indenture
are available as described under "--Additional Information." Certain defined
terms used in this description but not defined below under "--Certain
Definitions" have the meanings assigned to them in the Second Mortgage and the
Supplemental Indenture.
Brief Description of the New Bonds
The New Bonds:
. are general obligations of the Company and not those of our subsidiaries;
. are secured by a second priority mortgage lien on the Mortgaged Property; and
. are effectively senior in right of payment to any future unsecured
Indebtedness of the Company to the extent of the value of the Mortgaged
Property.
Principal, Maturity and Interest
The Second Mortgage Indenture provides for the issuance by the Company of
Second Mortgage Bonds with an unlimited maximum aggregate principal amount. The
New Bonds represent the second series of Second Mortgage Bonds issued under the
Second Mortgage in an aggregate principal amount of $75.0 million minus the
outstanding aggregate principal amount of the Old Bonds that have not been
accepted for exchange pursuant to the Exchange Offer. The New Bonds and all
other series of Second Mortgage Bonds issued under the Second Mortgage are
collectively referred to as "Second Mortgage Bonds." The Company will issue
New Bonds in denominations of $1,000 and integral multiples of $1,000. The New
Bonds will mature on August 1, 2004, unless we redeem the New Bonds earlier as
discussed below.
Interest on the New Bonds will accrue at the rate of 8 1/8 % per annum and
will be payable semi-annually in arrears on February 1 and August 1, commencing
on February 1, 2000. The Company will make each interest payment to the Holders
of record on the immediately preceding January 15 and July 15.
Interest on the New Bonds will accrue from July 30, 1999 or, if interest has
already been paid on the Old Bonds to be exchanged pursuant to the Exchange
Offer for the corresponding New Bonds, from the date it was most recently paid
thereon. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
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Methods of Receiving Payments on the New Bonds
The New Bonds will be issued in the form of one or more Global Bonds, in
registered form, without coupons, in denominations of $1,000 or any integral
multiple thereof as described under "--Book-Entry, Delivery and Form." The
Global Bonds will be registered in the name of a nominee of DTC. Each Global
Bond (and any New Bond issued in exchange therefor) will be subject to
restrictions on transfer set forth therein as described under "--Book-Entry,
Delivery and Form--Certificated Bonds." Except as set forth under "--Book-
Entry, Delivery and Form--Certificated Bonds," owners of beneficial interests
in a Global Bond will not be entitled to have New Bonds registered in their
names, will not receive or be entitled to receive physical delivery of the New
Bond and will not be considered the registered holder of the New Bond under the
Second Mortgage.
So long as New Bonds are held in the form of one or more Global Bonds,
payments of principal, premium and interest will be payable through the
facilities of DTC.
Paying Agent and Registrar for the New Bonds
The Trustee will initially act as Paying Agent and Registrar. The Company may
change the Paying Agent or Registrar without prior notice to the Holders, and
the Company or any of its Subsidiaries may act as Paying Agent or Registrar.
Transfer and Exchange
A Holder may transfer or exchange New Bonds in accordance with the Second
Mortgage. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Second Mortgage. The Company is not required to transfer or
exchange any New Bond selected for redemption. Also, the Company is not required
to transfer or exchange any New Bond for a period of 15 days before a selection
of New Bonds to be redeemed. The registered Holder of a New Bond will be treated
as the owner of it for all purposes.
Security and Priority
The New Bonds will be secured equally and ratably with all Second Mortgage
Bonds of other series that may be issued in the future under the Second Mortgage
Indenture by a second mortgage lien on substantially all of our tangible utility
assets (but not any property of our subsidiaries).
. We own our principal plants and properties, insofar as they constitute real
estate, in fee.
. We also own equity interests in the Vermont Yankee, Maine Yankee, Connecticut
Yankee and Yankee Atomic nuclear generating plants (which equity interests are
not a part of the security under the First Mortgage and Second Mortgage).
. We have leases, easements or permits to operate our facilities located on
property we do not own.
. We have also obtained permits, grants, easements, licenses or franchises for
our electric transmission and distribution systems, which are mostly located
over or under highways, streets, other public places or property owned by
others.
The lien of the Second Mortgage is subject to Permissible Encumbrances and
specified exceptions. We will probably acquire property after the Initial
Issuance Date, which may be subject to the lien of the Second Mortgage and, to
the extent described below, will also be subject to the prior lien of the First
Mortgage Bonds. Such after-acquired property may also be subject to prior liens,
subject to limitations under our First Mortgage and Second
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Mortgage, which secure debt outstanding at the time of such acquisition in an
amount not in excess of its Cost or fair market value, whichever is less, and to
other Permissible Encumbrances.
We own property excepted from the lien of the Second Mortgage. Excepted
property under the First Mortgage and the Second Mortgage includes, among other
things:
. cash and securities (unless deposited with the respective trustees);
. accounts receivable, contracts, leases and operating agreements;
. equipment, materials, supplies and fuel held for sale or other disposition in
the ordinary course of business or for consumption or use by us;
. electricity, gas and other materials, products or services generated,
manufactured, produced or purchased by us for sale or distribution or to be used
by us;
. telephone properties, leasehold interests and leasehold improvements; and
. other real and personal property which is not used or to be used for one or
more of the primary purposes of our business.
The Trustee shall have a lien, senior to the Second Mortgage, on the Mortgaged
Property for the payment of its reasonable compensation and expenses and for
indemnity against liabilities.
The lien of the First Mortgage ranks prior to the lien of the Second Mortgage.
The aggregate principal amount of First Mortgage Bonds outstanding at September
30, 1999 was $76.5 million. The outstanding First Mortgage Bonds mature at
various dates through 2031. See "Description of Other Indebtedness and
Preferred Stock." Our reimbursement obligations in respect of three letters of
credit aggregating approximately $16.9 million, which support three series of
industrial development bonds, were, concurrently with the issuance of the Old
Bonds, secured by a pledge of newly-issued First Mortgage Bonds, in an aggregate
principal amount of approximately $16.9 million. These First Mortgage Bonds are
referred to herein as the "Pledge Bonds." There are no other material prior
liens on the Mortgaged Property. Additional First Mortgage Bonds may be issued
in the future in accordance with the provisions of the First Mortgage described
below under the heading "Issuance of Additional First Mortgage Bonds" subject
to the restrictions on us contained in the terms of other indebtedness. At
September 30, 1999, we could have issued up to $10 million of additional First
Mortgage Bonds under the First Mortgage. Agreements relating to the outstanding
letters of credit currently contain restrictive covenants further limiting the
amount of indebtedness we can incur. See "Description of Other Indebtedness and
Preferred Stock--Other Indebtedness." As discussed under the heading "Issuance
of Additional First Mortgage Bonds," we do not expect to issue additional First
Mortgage Bonds prior to the maturity of the Second Mortgage Bonds.
While First Mortgage Bonds are outstanding, the trustee under the First
Mortgage shall have control over the utilization of remedies available with
respect to the Mortgaged Property. Upon the occurrence and during the
continuance of a Default or Event of Default the trustee under the First
Mortgage (or if there are no First Mortgage Bonds outstanding, the Trustee) may
sell the Mortgaged Property or any part thereof in accordance with the terms of
the First Mortgage and any required regulatory approvals.
All funds received by the Trustee for the benefit of the Holders of the New
Bonds will be distributed by the Trustee in accordance with the provisions of
the Second Mortgage. Subject to the priority of the First Mortgage and any
required regulatory approvals, the Trustee will determine the circumstances and
manner in which the Mortgaged Property shall be disposed of, including, but not
limited to, the determination of whether to release all or any portion of the
Mortgaged Property from the Lien created by the Second Mortgage and whether to
foreclose on the Mortgaged Property following a Default or Event of Default.
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Release and Substitution of Mortgaged Property
Mortgaged Property may be released from the lien of the Second Mortgage:
(1) if after such release, the fair market value of the remaining Mortgaged
Property, including any Mortgaged Property to be acquired as a result of such
release, equals or exceeds a sum equal to the aggregate principal amount of
outstanding New Bonds, Old Bonds and Prior Lien Bonds, including First
Mortgage Bonds, outstanding; or
(2) if, subject to a 1% limitation during any 12-month period, the fair
market value of the Mortgaged Property to be released is less than 1/2 of 1%
of the aggregated principal amount of outstanding New Bonds, Old Bonds and
Prior Lien Bonds, including First Mortgage Bonds, outstanding; or
(3) on the basis of the deposit of cash, purchase money obligations,
Governmental Obligations or Bondable Property acquired by us with the proceeds
of, or otherwise in connection with, such release, or a waiver of the right to
authenticate and deliver Second Mortgage Bonds on the basis of Second Mortgage
Bonds or Prior Lien Bonds, including First Mortgage Bonds, which have been
retired, purchased or acquired by us since the date of the Second Mortgage and
have not theretofore been Bonded, or combination thereof.
Withdrawal of Cash
We may withdraw cash deposited with the Trustee in the amount of:
(1) the lesser of the Cost or fair market value of Unbonded Bondable
Property, after deducting the principal amount of all Prior Lien Bonds,
including First Mortgage Bonds, which are (a) outstanding and secured by a
Prior Lien on Bondable Property owned by us at the date of the Second
Mortgage, (b) outstanding and secured by a Prior Lien on Bondable Property at
the date of its acquisition by us after such date and (c) issued after the
date of the Second Mortgage; or
(2) the principal amount of Second Mortgage Bonds previously issued under
the Second Mortgage and Prior Lien Bonds, including First Mortgage Bonds, in
each case which have been retired or purchased or acquired by us, and which
have not theretofore been Bonded.
Issuance of Additional Second Mortgage Bonds
The Second Mortgage permits us to issue additional Second Mortgage Bonds in a
principal amount equal to the sum of:
(1) the lesser of the Cost or fair market value of Unbonded Bondable
Property, after deducting the principal amount of all Prior Lien Bonds,
including First Mortgage Bonds, which are (a) outstanding and secured by a
Prior Lien on Bondable Property owned by us at the date of the Second
Mortgage, (b) outstanding and secured by a Prior Lien on Bondable Property at
the date of its acquisition by us after such date and (c) issued after the
date of the Second Mortgage; and
(2) the principal amount of New Bonds, Old Bonds and Prior Liens Bonds,
including First Mortgage Bonds, which we have retired, purchased or acquired
since the date of the Second Mortgage or we are retiring, purchasing or
acquiring, and which have not already been Bonded; and
(3) the amount of cash deposited with the Trustee for such purpose.
Bondable Property includes our electric generating, electric transmission and
distribution properties; construction work in progress; property in the process
of being purchased in which we have legal title; easements on property of
others; fractional and undivided interests in property; engineering, financial,
economic and legal and
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other surveys, data processing equipment and software associated with the
acquisition or construction of property; and property we own located on property
others own, which we have the right to remove.
We will issue the New Bonds on the basis of retired Old Bonds. In accordance
with the limitations above, at September 30, 1999, after giving effect to the
issuance of the Old Bonds, we could have issued approximately $59 million of
additional Second Mortgage Bonds, subject to the restrictions on us contained in
the terms of other indebtedness. See "Description of Other Indebtedness and
Preferred Stock--Other Indebtedness." Subject to these additional restrictions
and after giving effect to the issuance of the New Bonds and the Pledge Bonds,
as of September 30, 1999, we could have issued approximately $15 million of
additional Second Mortgage Bonds.
Issuance of Additional First Mortgage Bonds
So long as the requirements of the First Mortgage are met, we may issue
additional First Mortgage Bonds to the extent of one or more of the following:
(1) the amount of available previously retired First Mortgage Bonds;
(2) 60% of the value of expenditures we make for additions and improvements
to our property subject to the First Mortgage;
(3) the amount of retired obligations secured by property we acquire; and
(4) the amount of cash on deposit with the First Mortgage trustee.
If First Mortgage Bonds are issued on the basis of (2) above, and in some
cases under (1) above, we must meet a mortgage interest coverage test that
requires us to have net earnings equal to at least twice the interest on all
First Mortgage Bonds to be outstanding after an issuance.
The First Mortgage provides that additional First Mortgage Bonds may not be
issued on the basis of (2) above if the property that is to be the basis for
issuance is subject to a Lien other than the lien of the First Mortgage.
Therefore, we will not be permitted to issue Second Mortgage Bonds on the basis
of (2) above so long as the lien of the Second Mortgage is in place.
Furthermore, we do not have and do not expect to have prior to the maturity of
the Second Mortgage Bonds, any obligations that would serve as a basis for
issuance under (3) above.
At the time we issued the Old Bonds, we issued approximately $16.9 million of
Pledge Bonds on the basis of (1) above to secure our reimbursement obligations
under letters of credit supporting outstanding development authority bonds.
After the issuance of the Pledge Bonds, $10.0 million of previously retired
First Mortgage Bonds is available as the basis for issuance of additional First
Mortgage Bonds. Prior to the maturity of the Second Mortgage Bonds, we also
expect to retire an additional $41.0 million of First Mortgage Bonds. The
maximum amount of First Mortgage Bonds that can be outstanding at any time prior
to the maturity of the Second Mortgage Bonds is $103.4 million. However, we are
required to meet renewal fund requirements under the First Mortgage each year
which we expect to meet with all available retired First Mortgage Bonds. Retired
First Mortgage Bonds used to meet those requirements may not be used as the
basis for issuance of additional First Mortgage Bonds. Therefore, we do not
intend to issue any additional First Mortgage Bonds prior to the maturity of the
Second Mortgage Bonds.
Optional Redemption
The New Bonds will be redeemable at the option of the Company at any time, in
whole or in part, upon not less than 30 nor more than 60 days' notice, in cash
at a redemption price equal to 100% of the principal amount thereof plus accrued
and unpaid interest thereon through the applicable redemption date plus the Make
Whole Premium.
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Selection and Notice
If less than all of the New Bonds are to be redeemed at any time, the Trustee
will select New Bonds for redemption on a pro rata basis.
No New Bonds of $1,000 in principal amount or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of New Bonds to be
redeemed at its registered address. Notices of redemption may not be
conditional.
If any New Bond is to be redeemed in part only, the notice of redemption that
relates to that New Bond shall state the portion of the principal amount thereof
to be redeemed. A new New Bond in principal amount equal to the unredeemed
portion of the original New Bond will be issued in the name of the Holder
thereof upon cancellation of the original New Bond. New Bonds called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest will cease to accrue on New Bonds or portions of them
called for redemption.
Mandatory Redemption
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the New Bonds.
Changes in Covenants when New Bonds Rated Investment Grade
If at any time the New Bonds are rated BBB- (or the equivalent) or higher by
S&P or Baa 3 (or the equivalent) or higher by Moody's (each a "Rating Event"
and such date, the "Rating Event Date"), the covenants specifically listed
under the captions:
"Repurchase at the Option of Holders--Asset Sales other than Mortgaged
Property Asset Sales;"
"Repurchase at the Option of Holders--Mortgaged Property Asset Sales and
Events of Loss;"
"Certain Covenants--Restricted Payments;"
"--Incurrence of Indebtedness;"
"--Dividend and Other Payment Restrictions Affecting Regulated
Subsidiaries;"
"--Merger, Consolidation or Sale of Assets;"
"--Sale and Leaseback Transactions;"
"--Transactions with Affiliates;" and
"--Payments for Consents"
in this prospectus (collectively, the "Suspended Covenants") will not be
applicable to the New Bonds; provided, however, if at any time after a Rating
Event Date the New Bonds shall be rated lower than BBB- by S&P, if rated by S&P,
and Baa 3 by Moody's, if rated by Moody's, the Suspended Covenants shall be
automatically reinstated (the "Reinstated Covenants") and all events that
occurred during any time that such covenants were suspended and that would have
violated such covenants had such covenants been in effect shall be deemed not to
constitute a Default or an Event of Default, as the case may be, and shall be
deemed to have been in compliance with such covenants for all purposes;
provided, further that thereafter all events occurring during any period in
which the Suspended Covenants have been reinstated shall be required to be in
compliance with the Reinstated Covenants.
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Notwithstanding the foregoing, if S&P and Moody's cease to rate the New Bonds
for reasons outside of the control of the Company, the Company may select a
replacement rating agency that is a "nationally recognized statistical rating
organization" within the meaning of rule 15c3-1(c)(2)(vi)(F) under the Exchange
Act, and the lowest investment grade credit rating from such replacement agency
shall be substituted in the preceding paragraph for the determination of a
Rating Event.
There can be no assurance that a Rating Event Date will occur, or, if one
occurs, that the New Bonds will continue to maintain an investment grade rating.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of New Bonds will have the right,
at such Holder's option, to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of that Holder's New Bonds
pursuant to a Change of Control Offer on the terms set forth in the Second
Mortgage. In the Change of Control Offer, the Company will offer a Change of
Control Payment in cash equal to 101% of the aggregate principal amount of New
Bonds repurchased plus accrued and unpaid interest thereon, to the date of
purchase. Within thirty days following any Change of Control, the Company will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase New Bonds on the
Change of Control Payment Date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed, pursuant to the procedures required by the Second Mortgage and described
in such notice.
The Company will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the New
Bonds as a result of a Change of Control. To the extent that the provisions of
any securities laws or regulations conflict with the Change of Control
provisions of the Second Mortgage, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Change of Control provisions of the Second Mortgage by
virtue of such compliance.
On the Change of Control Payment Date, the Company will, to the extent lawful:
(1) accept for payment all New Bonds or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all New Bonds or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee the New Bonds so
accepted together with an Officers' Certificate stating the aggregate
principal amount of New Bonds or portions thereof being purchased by the
Company.
The Paying Agent will promptly mail to each Holder of New Bonds so tendered
the Change of Control Payment for such New Bonds, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new New Bond equal in principal amount to any unpurchased portion of the New
Bonds surrendered, if any; provided that each such new New Bond will be in a
principal amount of $1,000 or an integral multiple thereof.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the Second Mortgage are applicable. Except as
described above with respect to a Change of Control, the Second Mortgage does
not contain provisions that permit the Holders of the New Bonds to require that
the Company repurchase or redeem the New Bonds in the event of a takeover,
recapitalization or similar transaction.
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The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Second Mortgage applicable to a Change of Control Offer made by the
Company and purchases all New Bonds validly tendered and not withdrawn under
such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of the Company and its
subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of New Bonds to require the Company to repurchase such New Bonds as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of the Company and its subsidiaries taken as a whole to
another Person or group may be uncertain.
The Change of Control purchase feature of the New Bonds may in specified
circumstances make more difficult or discourage a takeover. The Change of
Control purchase feature of the New Bonds is not the result of our knowledge of
any specific effort to accumulate shares of our common stock or to obtain
control of us by means of a merger, tender offer, solicitation or otherwise.
Instead, the Change of Control purchase feature of the New Bonds is a term
contained in many similar debt offerings and the terms of such feature result
from negotiations between us and the Initial Purchasers when the Second Mortgage
was established. In addition, our ability to purchase may be limited by
financial resources and our inability to raise the required funds because of
restrictions on the issuance of securities contained in other covenants
applicable to the New Bonds.
Asset Sales other than Mortgaged Property Asset Sales
The Company will not, and will not permit any of its Regulated Subsidiaries
to, consummate an Asset Sale, other than a Mortgaged Property Asset Sale,
unless:
(1) the Company (or the Regulated Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets or Equity Interests issued or sold or otherwise disposed
of (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee in the event of any Asset Sale
over $5.0 million); provided, that for purposes of an event set forth in
clause (ii) of the definition of "Event of Loss," fair market value shall be
the fair market value judicially determined by a court of competent
jurisdiction, and
(2) at least 75% of the consideration therefor received by the Company or
such Regulated Subsidiary is in the form of cash or cash equivalents (provided
that the requirement of this clause (2) shall not apply to Designated Asset
Sales with an aggregate fair market value since the Initial Issuance Date of
less than $5.0 million). For purposes of this provision, each of the following
shall be deemed to be cash:
(a) any liabilities (as shown on the Company's or such Regulated
Subsidiary's most recent balance sheet) of the Company or any Regulated
Subsidiary (other than contingent liabilities and liabilities that are by
their terms subordinated to the New Bonds) that are assumed by the
transferee of any such assets pursuant to an agreement that releases the
Company or such Regulated Subsidiary from further liability and
(b) any securities, notes or other obligations received by the Company
or any such Regulated Subsidiary from such transferee that are converted
within 180 days by the Company or such Regulated Subsidiary into cash (to
the extent of the cash received).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
other than a Mortgaged Property Asset Sale, the Company or any Regulated
Subsidiary may apply such Net Proceeds to:
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(1) the making of a capital expenditure or the acquisition of other
property or assets, in each case which is used or useable in the regulated
utility business of the Company or its Regulated Subsidiaries on the Initial
Issuance Date or businesses reasonably related thereto; or
(2) the repayment of outstanding Prior Lien Bonds.
Pending the final application of any such Net Proceeds, the Company or such
Regulated Subsidiary may temporarily reduce amounts available under revolving
credit facilities or invest such Net Proceeds in any manner that is not
prohibited by the Second Mortgage.
Any Net Proceeds from Asset Sales other than Mortgaged Property Asset Sales
that are not applied or invested as provided in the second sentence of this
section will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $7.5 million, the Company or the applicable
Regulated Subsidiary will be required to make an offer to all Holders of New
Bonds (an "Asset Sale Offer") and all holders of additional Second Mortgage
Bonds then outstanding to purchase the maximum principal amount of New Bonds and
such additional Second Mortgage Bonds that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase, in accordance with the procedures set forth in the Second Mortgage. To
the extent that the aggregate amount of New Bonds and such additional Second
Mortgage Bonds tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company or its Regulated Subsidiaries may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
New Bonds and such additional Second Mortgage Bonds surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the New
Bonds and additional Second Mortgage Bonds to be purchased on a pro rata basis.
Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero. Notwithstanding the foregoing, neither the Company nor any
Regulated Subsidiary shall be obligated to make an Asset Sale Offer if such
offer would violate an order, rule or regulation of a governmental authority
with jurisdiction over the Company or any such Regulated Subsidiary; provided
that the Company and such Regulated Subsidiary shall use their reasonable best
efforts to vacate or modify such order to permit such Asset Sale Offer.
Mortgaged Property Asset Sales and Events of Loss
The Company will not engage in a Mortgaged Property Asset Sale unless:
(1) such Mortgaged Property Asset Sale involves the Mortgaged Property in
its entirety, or, if such Mortgaged Property Asset Sale involves less than all
of the Mortgaged Property (a "Partial Mortgaged Property Asset Sale"), such
Partial Mortgaged Property Asset Sale involves a single Mortgaged Property
Asset Sale with a fair market value at the time of consummation of such
Mortgaged Property Asset Sale not exceeding $10.0 million and is not part of a
series of Mortgaged Property Asset Sales in any twelve month period with an
aggregate value (measured as of the time of consummation of such sales)
exceeding $10.0 million; provided, however, that any Mortgaged Property Asset
Sale in contemplation of or as part of the restructuring of the Company in
which the Company divests generation assets and/or power purchase agreements
shall not be subject to the $10.0 million limitation in this clause (1);
(2) the Company receives consideration in respect of and concurrently with
such Mortgaged Property Asset Sale at least equal to the fair market value of
such Mortgaged Property;
(3) with respect to each such Mortgaged Property Asset Sale, the Company
delivers an Officers' Certificate to the Trustee dated no more than 15 days
prior to the date of consummation of the relevant Mortgaged Property Asset
Sale, certifying that
(a) such sale complies with clauses (1) and (2) above and
(b) if the fair market value of the Mortgaged Property being sold
exceeds $5.0 million, such fair market value was based on the opinion of an
Independent Appraiser prepared contemporaneously with
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such Mortgaged Property Asset Sale and which opinion, in such case, will be
attached to the Officers' Certificate, as evidenced by copies of a
resolution of the Board of Directors of the Company adopted in respect of
and substantially concurrently with such Mortgaged Property Asset Sale;
(4) 100% of such consideration is in cash or Cash Equivalents; and
(5) the Net Proceeds therefrom shall be paid to the trustee under the First
Mortgage to be held in accordance with the terms of the First Mortgage if any
First Mortgage Bonds are then outstanding and, upon release of such Net
Proceeds by such trustee, such Net Proceeds shall be paid directly to the
Trustee pursuant to the Second Mortgage, to be held by the Trustee as
additional Mortgaged Property. To the extent that such Net Proceeds are
applied to the purchase of Bondable Property, such Bondable Property shall
become subject to the Lien of the Second Mortgage and shall become additional
Mortgaged Property.
The Company, within 360 days from the date of consummation of such Mortgaged
Property Asset Sale, may apply all of the Net Proceeds of a Mortgaged Property
Asset Sale:
(1) to purchase or otherwise invest in Bondable Property which shall become
additional Mortgaged Property under the Second Mortgage; or
(2) to repay outstanding Prior Lien Bonds.
Any such Net Proceeds of a Mortgaged Property Asset Sale not so applied shall
constitute "Excess Proceeds" and shall be applied, to the extent the Net
Proceeds can be released from the First Mortgage and Second Mortgage, to make an
Asset Sale Offer, in accordance with the terms of the second paragraph of the
covenant entitled "Asset Sales other than Mortgaged Property Asset Sales." The
Company shall use its reasonable best efforts to obtain the release of such Net
Proceeds from the provisions of the First Mortgage and the Second Mortgage.
If the Company suffers an Event of Loss with respect to Mortgaged Property:
(1) the Net Proceeds therefrom shall be paid to the trustee under the First
Mortgage to be held in accordance with the terms of the First Mortgage if any
First Mortgage Bonds are then outstanding and, upon release of such Net
Proceeds by such trustee, such Net Proceeds shall be paid directly to the
Trustee pursuant to the Second Mortgage, to be held by the Trustee as
additional Mortgaged Property; and
(2) the Company shall take such actions, at its sole expense, as may be
required to ensure that the Trustee, pursuant to Second Mortgage, has from the
date of such deposit a Lien (ranking prior to all other Liens on the property
other than the Lien of the First Mortgage) on such Net Proceeds pursuant to
the terms of the Second Mortgage.
As any portion or all of the Net Proceeds from any such Event of Loss are
received by the Trustee, the Company may apply all of such amount or amounts, as
received, together with all interest earned thereon, individually or in
combination:
(1) to purchase or otherwise invest in Bondable Property which shall become
additional Mortgaged Property under the Second Mortgage;
(2) to restore the relevant Mortgaged Property; or
(3) to repay outstanding Indebtedness with Liens on the Mortgaged Property
that rank prior in payment to the New Bonds.
In the event that the Company elects to restore the relevant Mortgaged
Property pursuant to the foregoing clause (2), within six months of receipt of
such Net Proceeds from an Event of Loss, the Company shall:
(1) give the Trustee irrevocable written notice of such election; and
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(2) enter into a binding commitment to restore such Mortgaged Property, a
copy of which shall be supplied to the Trustee, and shall have 12 months or as
soon as is reasonably practicable from the date of such binding commitment to
complete such restoration, which shall be carried out with due diligence. Any
such Net Proceeds of an Event of Loss not so applied shall constitute "Excess
Proceeds" and shall be applied to make an Asset Sale Offer in accordance with
the terms of the second paragraph of this covenant.
In the event that the Company decides pursuant to the foregoing provisions to
apply any portion of the Net Proceeds from a Mortgaged Property Asset Sale or an
Event of Loss to purchase or otherwise invest in Bondable Property:
(1) the Company shall deliver an officers' Certificate to the Trustee dated
no more than 30 days prior to the date of consummation of the relevant
investment in Bondable Property, certifying that the purchase price for the
amount of the investment in Bondable Property does not exceed the fair market
value of such Bondable Property, and, if the fair market value of such
Bondable Property exceeds $1.0 million, certifying that the fair market value
of such Bondable Property was determined in good faith by the Board of
Directors of the Company and, in the event the fair market value of such
Bondable Property exceeds $5.0 million, was based on the opinion of an
Independent Appraiser attached to the Officer's Certificate, as evidenced by
copies of a resolution of the Board of Directors of the Company adopted in
respect of and substantially concurrently with the investment in such Bondable
Property;
(2) the Trustee will release such certified purchase price to the Company,
free of the Lien of the Second Mortgage; and
(3) the Company shall take such actions, at its sole expense, as shall be
required to permit the Trustee, pursuant to the Second Mortgage, to release
such Net Proceeds, together with any interest thereon, from the lien of the
Second Mortgage and to ensure that the Trustee has, from the date of such
purchase or investment, a Lien ranking prior to all Liens (other than the Lien
securing any outstanding First Mortgage Bonds and Permissable Encumbrances) on
such Bondable Property under the Second Mortgage.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Regulated Subsidiaries
to, directly or indirectly:
(1) declare or pay any dividend or make any cash dividend or other
distribution on account of the Company's or any of its Regulated Subsidiaries'
Equity Interests, including, without limitation, any payment in connection
with any merger or consolidation involving the Company, other than (a)
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company and (b) any portion of a dividend or
distribution by a Regulated Subsidiary of the Company that is payable to the
Company or to any Regulated Subsidiary of the Company);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation in connection with any merger or consolidation involving
the Company) from any Person other than the Company or a Regulated Subsidiary
any Equity Interests of the Company, any of its Subsidiaries or any direct or
indirect parent of the Company (other than the conversion or exchange of
Equity Interests of the Company for other Equity Interests of the Company);
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness other than the First
Mortgage Bonds or the Second Mortgage Bonds or Indebtedness payable to the
Company, except at Stated Maturity; or
(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to as
"Restricted Payments"),
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unless, at the time of and after giving effect to such Restricted Payments:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(2) except in the case of a Restricted Investment, the Company would, at
the time of such Restricted Payment, and after giving pro forma effect thereto
as if such Restricted Payment had been made at the beginning of the applicable
four-quarter period, have a Fixed Charge Coverage Ratio of not less than 2.5
to 1 (calculated as described below under the caption "--Incurrence of
Indebtedness"); and
(3) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Regulated Subsidiaries after
the Initial Issuance Date (excluding Restricted Payments permitted by clauses
(2), (3), (4), (6), (7), (8) or (9) of the next succeeding paragraph), is less
than the sum of
(a) 20% of the Consolidated Cash Flow of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the Initial Issuance Date through the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Cash Flow for such period is a deficit, less 100% of such
deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Company
after the Initial Issuance Date as a contribution to its common equity
capital or from the issue or sale of Equity Interests (other than
Disqualified Stock) of the Company or from the issue or sale of convertible
or exchangeable Disqualified Stock or convertible or exchangeable debt
securities of the Company that have been converted into or exchanged for
such Equity Interests (other than Equity Interests (or Disqualified Stock
or debt securities) sold to a Subsidiary of the Company), plus
(c) to the extent that any Restricted Investment that was made after the
Initial Issuance Date is sold for cash or Cash Equivalents or was otherwise
liquidated or repaid for cash or Cash Equivalents, the lesser of (i) the
cash return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (ii) the initial amount of such Restricted
Investment, plus
(d) $15,000,000.
Notwithstanding the foregoing:
(A) nothing in this covenant shall prohibit or restrict any distribution of
any Equity Interests (other than Disqualified Stock) of the Company or of any of
its Unregulated Subsidiaries as part of a Holding Company Transaction; and
(B) following a Holding Company Transaction, neither the Company nor any
Regulated Subsidiary shall make a Restricted Payment other than a Restricted
Investment unless:
(1) such Restricted Payment is used to pay expenses incurred by the Holding
Company or a wholly-owned subsidiary of the Holding Company in the ordinary
course of business if, and only to the extent that, such expenses represent a
cost of the Company or a Regulated Subsidiary incurred in the ordinary course
of business; or
(2) the proceeds of such Restricted Payment are utilized by the Holding
Company solely to fund a pro rata distribution to the public shareholders of
the Holding Company; and
(C) The Company and its Regulated Subsidiaries shall not make any Restricted
Investments other than Restricted Investments in an aggregate amount (a) equal
to (i) for the period from the Initial Issuance Date through December 31, 1999,
$1.0 million and (ii) thereafter, $2.0 million in any fiscal year and (b) not to
exceed $10.0 million since the Initial Issuance Date, provided, that, if in any
fiscal year the aggregate amount of any such Restricted Investments is less than
the amount permitted in any fiscal year, the Company and its Regulated
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Subsidiaries will be entitled, in any succeeding fiscal year, to make Restricted
Investments in an amount equal to (a) $2.0 million plus (b) the aggregate amount
of Restricted Investments that were permitted but not made in any earlier fiscal
year (or portion thereof) after the Initial Issuance Date.
The Company shall be permitted to make distributions to the Holding Company in
an amount not to exceed, in any period, the amount of Restricted Investments
permitted by clause (C) above, provided that such distributions shall reduce,
dollar for dollar, the amount of Restricted Investments permitted to be made by
the Company by clause (C) above.
The preceding provisions will not prohibit:
(1) so long as no Default shall have occurred and be continuing or would be
caused thereby, the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Second Mortgage;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any Indebtedness other than the First Mortgage Bonds or the Second Mortgage
Bonds of the Company or of any Equity Interests of the Company in exchange
for, or out of the net cash proceeds of the substantially concurrent sale
(other than to the Regulated Subsidiary of the Company) of, Equity Interests
of the Company (other than Disqualified Stock), provided that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (3) (b) above;
(3) the defeasance, redemption, repurchase or other acquisition of
Indebtedness other than First Mortgage Bonds or Second Mortgage Bonds of the
Company with the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness;
(4) the payment of any dividend by a Regulated Subsidiary of the Company to
the holders of its common Equity Interests on a pro rata basis;
(5) the repurchase, redemption, cancellation or other acquisition or
retirement for value of any Equity Interests of the Company or any Subsidiary
of the Company held by any member of the Company's (or any of its
Subsidiaries') management, employees or directors pursuant to (i) any
management, employee or director equity subscription agreement or stock option
agreement or (ii) upon the death, disability or termination of employment of
such members of management employees or directors; provided that the aggregate
price paid for all such purchased, redeemed, acquired or retired Equity
Interests shall not exceed $1,000,000 in any twelve-month period;
(6) so long as no Default shall have occurred and be continuing or would be
caused thereby, the payment of dividends, and the satisfaction of mandatory
redemption obligations, in respect of any Preferred Stock outstanding on the
Initial Issuance Date in accordance with the terms thereof in effect on such
date;
(7) the repayment of (a) revolving credit borrowings used to finance
working capital needs or (b) other revolving credit facilities utilized to
finance accounts receivable;
(8) the utilization, in accordance with the terms of the Company's Dividend
Reinvestment Plan or employee benefit plans, of any proceeds from dividends
paid by the Company in respect of its Capital Stock permitted by this covenant
to be made to purchase additional shares of the Company's Capital Stock for
the benefit of the participants in such plan; and
(9) payments to any direct or indirect parent corporation of the Company in
respect of (A) federal income taxes for the tax periods for which a federal
consolidated return is filed by such direct or indirect parent corporation of
the Company for a consolidated group of which such direct or indirect parent
corporation of the Company is the parent and the Company and its Subsidiaries
are members, in an amount not to exceed the hypothetical federal income taxes
that the Company would have paid if the Company and its Regulated Subsidiaries
filed a separate consolidated return with the Company as the parent, taking
into account carryovers
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and carrybacks of tax attributes (including net operating losses) that would
have been allowed if such separate consolidated return had been filed, (B)
state income tax for the tax periods for which a state combined, consolidated
or unitary return is filed by such direct or indirect parent corporation of
the Company for a combined, consolidated or unitary group of which such direct
or indirect parent corporation of the Company is the parent and the Company
and its Subsidiaries are members, in an amount not to exceed the hypothetical
state income taxes that the Company would have paid if the Company and its
Regulated Subsidiaries had filed a separate combined, consolidated or unitary
return taking into account carryovers and carrybacks of tax attributes
(including net operating losses) that would have been allowed if such separate
combined return had been filed and (C) capital stock, net worth, or other
similar taxes (but for the avoidance of doubt, excluding any taxes based on
net or gross income) payable by such direct or indirect parent corporation of
the Company based on or attributable to its investment in or ownership of the
Company and its Regulated Subsidiaries; provided, however, that in no event
shall any such tax payment pursuant to this clause (9) exceed the amount of
federal (or state, as the case may be) income tax that is, at the time the
Company makes such tax payments, actually due and payable by such direct or
indirect parent corporation of the Company to the relevant taxing authorities
or to become due and payable within 30 days of such payment of the Company;
provided, further, that for purposes of this clause (9), payments made by any
Regulated Subsidiary to a Regulated Subsidiary or the Company which are in
turn distributed by such Regulated Subsidiary or the Company to any direct or
indirect parent corporation of the Company shall be disregarded.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by the Company or such Regulated
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
Independent Appraiser if the fair market value exceeds $10.0 million. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this "Restricted Payments" covenant were computed, together with a copy of any
fairness opinion or appraisal required by the Supplemental Indenture.
Incurrence Of Indebtedness
The Company will not, and will not permit any of its Regulated Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur"), any Indebtedness (including Acquired Debt) or issue
any Disqualified Stock and the Company will not permit any of its Regulated
Subsidiaries to issue any preferred stock; provided, however, that the Company
may incur Indebtedness (including Acquired Debt) and issue Disqualified Stock if
the Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such Indebtedness is incurred or
Disqualified Stock or preferred stock is issued would have been at least 2.50 to
1, determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if such Indebtedness had been incurred or such
Disqualified Stock or preferred stock had been issued at the beginning of such
four-quarter period.
The foregoing provisions will not apply to the incurrence of any of the
following Indebtedness (collectively, "Permitted Debt"):
(1) the existence of the Existing Indebtedness;
(2) the incurrence by the Company of Indebtedness represented by the Old
Bonds to be issued on the Initial Issuance Date and the New Bonds to be issued
pursuant to this prospectus;
(3) the incurrence by the Company or any of its Regulated Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property,
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plant or equipment used in the business of the Company or such Regulated
Subsidiary, in an aggregate principal amount, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (3), not to exceed $5.0 million
at any time outstanding;
(4) the incurrence by the Company or any of its Regulated Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Second Mortgage to be
incurred under the first paragraph of this covenant or clauses (1), (2), (3)
or (9) of this paragraph;
(5) the incurrence by the Company or any of its Regulated Subsidiaries of
intercompany Indebtedness between or among the Company and/or any of its
Regulated Subsidiaries; provided, however, that:
(a) if the Company is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to the prior payment in full in
cash of all Obligations with respect to the New Bonds, and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any Person other than the Company or a Regulated Subsidiary
being the obligee on such Indebtedness and (ii) any sale or other transfer
of any such Indebtedness to a Person that is not either the Company or a
Regulated Subsidiary and that results in such Person being the obligee on
such Indebtedness, shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Regulated
Subsidiary, as the case may be, that was not permitted by this clause (5);
(6) the incurrence by the Company or any of its Regulated Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging:
(a) interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Second Mortgage to be outstanding; or (b) the
cost of commodities purchased or received by the Company or any of its
Regulated Subsidiaries in the ordinary course of business provided that, in
the case of clause (b), the Net Termination Value of such Hedging Obligations
shall not at any time exceed $3.0 million;
(7) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness or
an issuance of Disqualified Stock for purposes of this covenant; provided, in
each such case, that the amount thereof is included in Fixed Charges of the
Company as accrued;
(8) Indebtedness of the Company or any Regulated Subsidiary represented by
performance bonds and letters of credit for the account of the Company or such
Regulated Subsidiary, as the case may be, in order to provide security for
workers' compensation claims and payment obligations in connection with self-
insurance, in each case, that are incurred in the ordinary course of business
in accordance with customary industry practice in amounts, and for the
purposes, customary in the Company's industry;
(9) the incurrence by the Company of unsecured Indebtedness after the
Initial Issuance Date the proceeds of which are utilized to finance Power
Contract Buyouts and related restructuring and transaction and financing
costs;
(10) the incurrence by a special purpose entity of Indebtedness in a
Securitization Transaction that is without recourse to the Company or to any
other Regulated Subsidiary of the Company or their assets (other than such
special purpose entity and its assets and, as to the Company or any Regulated
Subsidiary of the Company, other than pursuant to representations, warranties,
covenants and indemnities customary for such transactions) and is not
guaranteed by any such Person;
(11) the incurrence by the Company or any of its Regulated Subsidiaries of
Indebtedness under the Accounts Receivables Facility or any other similar
accounts receivables facilities, including any refinancings or replacements
thereof in an aggregate principal amount of Indebtedness not to exceed $15.0
million at any one time outstanding;
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(12) the incurrence of Indebtedness by Connecticut Valley in an amount not
to exceed $5.0 million at any time outstanding provided, however, that all net
proceeds shall be applied to the repayment of the note in the original
principal amount of $3.8 million issued by Connecticut Valley and owed to and
held by the Company, until all amounts on such note are paid in full; or
(13) the incurrence by the Company or any of its Regulated Subsidiaries of
additional Indebtedness after the Initial Issuance Date in an aggregate
principal amount (or accreted value, as applicable) at any time outstanding
not to exceed $15.0 million.
For purposes of determining compliance with this "Incurrence of
Indebtedness" covenant, in the event that an item of proposed Indebtedness
meets the criteria of more than one of the categories of Permitted Debt
described in clauses (1) through (13) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company will be permitted
to classify such item of Indebtedness on the date of its incurrence, or later
reclassify all or a portion of such item of Indebtedness, in any manner that
complies with this covenant.
Liens
The Company will not, directly or indirectly, create, incur, assume or suffer
to exist any Lien of any kind on any Mortgaged Property, other than the
following Liens:
(a) Permissable Encumbrances;
(b) Liens which rank prior in right of payment to the Lien on the Mortgaged
Property securing the New Bonds, provided such Liens do not secure an amount
of Indebtedness in excess of:
(1) $103.4 million, minus;
(2) the aggregate principal amount of Second Mortgage Bonds issued
pursuant to and in accordance with clause (c)(2) below on the basis of the
retirement, purchase or acquisition of Prior Lien Bonds;
(c) Liens which rank equal in right of payment with the Lien on the
Mortgaged Property securing the New Bonds, provided such Liens do not secure
an amount of Indebtedness in excess of the sum of:
(1) the lesser of the Cost or fair market value of Unbonded Bondable
Property, after deducting the principal amount of all Prior Lien Bonds,
including First Mortgage Bonds, which are (a) outstanding and secured by a
Prior Lien on Bondable Property owned by the Company at the date of the
Second Mortgage, (b) outstanding and secured by a Prior Lien on Bondable
Property at the date of its acquisition by the Company after such date and
(c) issued after the date of the Second Mortgage; and
(2) the principal amount of Old Bonds, New Bonds and Prior Liens Bonds,
including First Mortgage Bonds, which the Company has retired, purchased or
acquired since the date of the Second Mortgage or the Company is retiring,
purchasing or acquiring, and which have not already been Bonded; and
(3) the amount of cash deposited with the Trustee for such purpose;
(d) Liens on Mortgaged Property that rank junior in right of payment to the
Lien of the Second Mortgage.
The Company will not, directly or indirectly, create, incur, assume or suffer
to exist any Lien of any kind securing Indebtedness on any asset now owned or
hereafter acquired by the Company that does not constitute Mortgaged Property,
other than the following Liens:
(a) Liens on Equity Interests in Unregulated Subsidiaries;
(b) Liens on Equity Interests or assets of Connecticut Valley securing
Indebtedness in an aggregate principal amount not to exceed $5.0 million;
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(c) Liens on any property acquired, constructed or improved by the Company
after the date the Old Bonds were issued, and which are created or assumed
contemporaneously with such acquisition, construction or improvement, or
within 180 days after the completion thereof, to secure or provide for the
payment of all or any part of the cost of such acquisition, construction or
improvement (including related expenditures capitalized for federal income tax
purposes in connection therewith);
(d) Liens on any property existing at the time of acquisition thereof,
whether by merger, consolidation, purchase, lease or otherwise (including
Liens on property of a person existing at the time such person becomes a
Regulated Subsidiary); provided that such Liens were not incurred in
contemplation of the acquisition of such property and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or any Regulated Subsidiary or which becomes a Regulated Subsidiary of
the Company in connection with such transaction;
(e) Liens in favor of the United States of America or any state thereof, or
any department, agency or instrumentality or political subdivision of the
United States of America or any State thereof or political entity affiliated
therewith to secure partial, progress, advance or other payments, or other
obligations, pursuant to any contract or statute or to secure any Indebtedness
Incurred for the purpose of financing all or any part of the cost of
acquiring, constructing or improving the property subject to such Liens
(including Liens incurred in connection with pollution control, industrial
revenue or similar financings);
(f) Liens on property created, assumed or otherwise brought into existence
in contemplation of the sale or other disposition of the underlying property,
whether directly or indirectly, by way of share disposition or otherwise,
provided, that 180 days from the creation of such Liens the Company must have
disposed of such property and any Indebtedness secured by such Liens shall be
without recourse to the Company;
(g) Liens imposed by law, such as mechanics', workmen's, repairmen's,
materialmen's, carriers', warehousemen's, vendors or other similar liens
arising in the ordinary course of business, or governmental (federal, state or
municipal) liens arising out of contracts for the sale of products or services
by the Company, or deposits or pledges to obtain the release of any of the
foregoing;
(h) Liens arising out of pledges or deposits under workmen's compensation
laws or similar legislation and Liens of judgments thereunder which are not
currently dischargeable, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of money) or leases to which
the Company is a party, or deposits to secure the Company's public or
statutory obligations, or deposits in connection with obtaining or maintaining
self insurance or to obtain the benefits of any law, regulation or arrangement
pertaining to unemployment insurance, old age pensions, social security or
similar matters, or deposits of cash or obligations of the United States of
America to secure security, appeal or customs bonds to which the Company or
any Regulated Subsidiary is a party, or deposits in litigation or other
proceedings such as, but not limited to, interpleader proceedings;
(i) Liens created by or resulting from any litigation or other proceeding
which is being contested in good faith by appropriate proceedings, including
Liens arising out of judgments or awards against the Company with respect to
which the Company is in good faith prosecuting an appeal or proceeding for
review, or Liens incurred by the Company for the purpose of obtaining a stay
or discharge in the course of any litigation or other proceeding to which the
Company is a party;
(j) Liens for taxes or assessments or governmental charges or levies not
yet due or delinquent or which are being contested in good faith by
appropriate proceedings;
(k) Liens consisting of easements, rights of way, zoning restrictions,
restrictions on the use of real property, and defects and irregularities in
the title thereto, landlords' liens and other similar liens and encumbrances
none of which interferes materially with the use of the property covered
thereby in the ordinary course of the Company's business and which do not
materially detract from the value of such properties;
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(l) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Lien referred to in
the foregoing clauses; provided, that (i) such extension, renewal or
replacement Lien shall be limited to all or a part of the same property or
Indebtedness that secured the Lien extended, renewed or replaced and (ii) the
amount of Indebtedness secured by such Lien at such time is not increased;
(m) Liens on accounts receivable of the Company or any Regulated Subsidiary
securing Indebtedness incurred pursuant to clause (11) of the covenant
entitled under "Incurrence of Indebtedness"; and
(n) Liens on assets of a special purpose entity incurred in connection with
a Securitization Transaction.
Dividend and Other Payment Restrictions Affecting Regulated Subsidiaries
The Company will not, and will not permit any of its Regulated Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Regulated Subsidiary
to:
(a) pay dividends or make any other distributions to the Company or any of
its Regulated Subsidiaries
(i) on its Capital Stock; or
(ii) with respect to any other interest or participation in, or measured
by, its profits;
(b) pay any Indebtedness owed to the Company or any of its Regulated
Subsidiaries;
(c) make loans or advances to the Company or any of its Regulated
Subsidiaries; or
(d) transfer any of its properties or assets to the Company or any of its
Regulated Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the Initial Issuance Date and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive, taken as a
whole, with respect to such dividend and other payment restrictions than those
contained in such Existing Indebtedness, as in effect on the Initial Issuance
Date;
(2) applicable law or regulation;
(3) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Regulated Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired;
(4) by reason of customary non-assignment provisions in leases entered into
in the ordinary course of business and consistent with past practice;
(5) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions of the nature described in clause (d) in
the prior paragraph to the extent applicable to the property so acquired;
(6) any contract for the sale of 100% of the Capital Stock of a Regulated
Subsidiary;
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(7) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced;
(8) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(9) Indebtedness or other contractual requirements of a special purpose
entity in connection with a Securitization Transaction, provided that such
restrictions apply only to such special purpose entity;
(10) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, assets sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary course of
business;
(11) restrictions contained in the Indebtedness described in clause (12) of
the definition of Permitted Debt in the covenant entitled "--Incurrence of
Indebtedness";
(12) Indebtedness of a Regulated Subsidiary owed to and held by the
Company; and
(13) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Merger, Consolidation or Sale of Assets
The Company may not, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not the Company is the surviving corporation);
or (2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company and its Regulated
Subsidiaries taken as a whole, in one or more related transactions, to another
Person; unless:
(1) the corporation formed by such consolidation or surviving in such
merger or the Person that acquires by sale, assignment, transfer, conveyance
or other disposition, or that leases, such assets (in each such case, the
"Successor Entity"), is a corporation organized and existing under the laws
of the United States, any State thereof or the District of Columbia and
expressly assumes the Company's obligations under the Second Mortgage and the
New Bonds;
(2) immediately before and after such transaction no Default or Event of
Default exists; and
(3) the Successor Entity (or the Company, in the case of a consolidation or
merger in which the Company is the surviving entity)
(a) has Consolidated Net Worth immediately after the transaction (but
prior to any revaluation or recalculation of Consolidated Net Worth as of
the date of the transaction relating to a carry-over basis (if any) of the
assets acquired in the transaction (as determined in accordance with GAAP))
equal to or greater than the Consolidated Net Worth of the Company
immediately prior to the transaction and
(b) will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, have a Fixed Charge Coverage Ratio of not
less than 2.50 to 1 (calculated as described above under the caption "--
Incurrence of Indebtedness),"
provided, that the foregoing clause (3) shall not prevent a Holding Company
Transaction.
In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties of assets, in one or more related
transaction, to any other Person.
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Designation of Regulated and Unregulated Subsidiaries
The Board of Directors may designate any Regulated Subsidiary to be an
Unregulated Subsidiary if that designation would not cause a Default; provided
that in no event shall the regulated utility business currently operated by the
Company be transferred to or held by an Unregulated Subsidiary. If a Regulated
Subsidiary is designated as an Unregulated Subsidiary, the aggregate fair market
value of all outstanding Investments owned by the Company and its Regulated
Subsidiaries in the Subsidiary so designated will be deemed to be an Investment
made as of the time of such designation and will either reduce the amount
available for Restricted Payments under the first paragraph of the covenant
described above under the caption "--Restricted Payments" or reduce the amount
available for future Investments under one or more clauses of the definition of
Permitted Investments, as the Company shall determine. That designation will
only be permitted if such Investment would be permitted at that time and if such
Regulated Subsidiary otherwise meets the definition of an Unregulated
Subsidiary. The Board of Directors may redesignate any Unregulated Subsidiary to
be a Regulated Subsidiary if the redesignation would not cause a Default.
Sale and Leaseback Transactions
The Company will not, and will not permit any of its Regulated Subsidiaries
to, enter into any sale and leaseback transaction; provided that the Company or
any Regulated Subsidiary may enter into a Sale and Leaseback Transaction if:
(1) the Company or that Regulated Subsidiary, as applicable, could have
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such Sale and Leaseback Transaction under the covenant described above under
the caption "--Incurrence of Indebtedness;"
(2) the gross cash proceeds of that Sale and Leaseback Transaction are at
last equal to the fair market value, as determined in good faith by the Board
of Directors and set forth in an Officers' Certificate delivered to the
Trustee, of the property that is the subject of that sale and leaseback
transaction; and
(3) the transfer of assets in that Sale and Leaseback Transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "Repurchase
at the Option of Holders--Asset Sales other than Mortgaged Property Asset
Sales," and "Repurchase at the Option of Holders--Mortgaged Property Asset
Sales and Events of Loss."
The foregoing shall not prevent transactions between or among the Company
and/or its Regulated Subsidiaries or Securitization Transactions.
Transactions with Affiliates
The Company will not, and will not permit any of its Regulated Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Regulated Subsidiary than those that would have
been obtained in a comparable transaction by the Company or Regulated
Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $2.5 million a resolution of the Board of
Directors set forth in an officer's certificate certifying that such
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Affiliate Transaction complies with clause (1) above and that such
Affiliate Transaction has been approved by a majority of the disinterested
members of the Board of Directors; and
(b) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $10.0 million, an opinion as to the fairness to
the Company or such Regulated Subsidiary of such Affiliate Transaction from
a financial point of view issued by an Independent Appraiser.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by the Company or any of its
Regulated Subsidiaries in the ordinary course of business and consistent with
past practices of the Company or such Regulated Subsidiary;
(2) commercial transactions in the ordinary course of business for the
provision of goods and services by the Company to any of its Subsidiaries or
Affiliates (or, following a Holding Company Transaction, any Subsidiary or
Affiliate of the Holding Company); provided that the consideration received by
the Company is not less than the lower of cost to the Company of providing
such goods and services or the fair market value of such goods and services;
(3) transactions between or among the Company and/or its Regulated
Subsidiaries; and
(4) Restricted Payments permitted by the provisions of the Second Mortgage
described above under the caption "--Restricted Payments."
Payments For Consent
Neither the Company nor any of it its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of the New Bonds for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Second Mortgage or such New Bonds unless such consideration is offered to
be paid or agreed to be paid to all holders of the New Bonds that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
Reports
The Company shall file with the Trustee, within 15 days of filing them with
the Commission, copies of the current, quarterly and annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) that the
Company is required to file with the Commission pursuant to Section 13 and 15(d)
of the Exchange Act. If the Company is not subject to the requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall nevertheless file
with the Commission and the Trustee, on the date upon which it would have been
required to file with the Commission, current, quarterly and annual financial
statements, including any notes thereto (and with respect to annual reports, an
auditor's report by a firm of established national reputation, upon which the
Trustee may conclusively rely), and a "Management's Discussion and Analysis of
Financial Condition and Results of Operation," both comparable to that which
the Company would have been required to include in such current, quarterly and
annual reports, information, documents or other reports on Forms 8-K, 10-Q and
10-K if the Company were subject to the requirements of Section 13 or 15(d) of
the Exchange Act, provided that the Company shall not be required to register
under the Exchange Act by virtue of this provision, if not otherwise required to
do so.
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Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the New
Bonds;
(2) default in payment when due of the principal of, or premium, if any, on
the New Bonds;
(3) at any time such covenants are applicable, failure by the Company or
any of its Regulated Subsidiaries for 30 days after notice to comply with the
covenants described under the captions "Repurchase at the Option of Holders--
Mortgaged Property Asset Sales and Events of Loss," or "--Certain Covenants-
-Merger, Consolidation or Sale of Assets;"
(4) failure by the Company or any of its Regulated Subsidiaries for 60 days
after notice to comply with any of the other agreements in the Second
Mortgage;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Regulated Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Regulated
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Second Mortgage (other than Indebtedness of a Regulated
Subsidiary owed to and held by the Company), if that default:
(a) is caused by a failure to pay principal of, or interest or premium,
if any, on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment
Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity, and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5.0 million or more;
(6) failure by the Company or any of its Regulated Subsidiaries to pay
final non-appealable judgments aggregating in excess of $5.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days,
provided, that this clause (6) will not apply to any judgment in favor of the
Company against a Regulated Subsidiary; and
(7) events of bankruptcy or insolvency with respect to the Company or any
of its Regulated Subsidiaries.
In the case of an Event of Default arising from events of bankruptcy or
insolvency, with respect to the Company, any Regulated Subsidiary that is a
Significant Subsidiary or any group of Regulated Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding New Bonds
will become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding New Bonds may declare
all the New Bonds to be due and payable immediately.
However, solely for purposes of determining whether an Event of Default arises
under (5), (6) or (7) above, the term "Regulated Subsidiary" shall not include
Connecticut Valley at any time that the Investment by the Company in Connecticut
Valley (including amounts invested prior to the Initial Issuance Date) does not
exceed $12.0 million.
Holders of the New Bonds may not enforce the Second Mortgage or the New Bonds
except as provided in the Second Mortgage. Subject to specified limitations,
holders of a majority in principal amount of the then outstanding Second
Mortgage Bonds may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the New Bonds notice of specified
continuing Defaults or Events of Default (except a Default or Event of Default
relating to the payment of principal, interest, payments of any sinking or
analogous fund) if it determines that withholding notice is in their interest.
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The Holders of a majority in aggregate principal amount of the Second Mortgage
Bonds then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Second Mortgage Bonds waive any existing Default or Event of Default
and its consequences under the Second Mortgage except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the Second
Mortgage Bonds.
In the case of any Event of Default occurring by reason of any willful action
or inaction taken or not taken by or on behalf of the Company with the intention
of avoiding payment of any premium that the Company would have been required to
pay if the Company then had elected to redeem the New Bonds pursuant to the
optional redemption provisions of the Supplemental Indenture, an equivalent
premium shall become and be immediately due and payable to the extent permitted
by law upon the acceleration of the New Bonds.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Second Mortgage. At any time the Suspended
Covenants are in effect, upon becoming aware of any Default or Event of Default,
the Company is required to deliver to the Trustee a statement specifying such
Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
New Bonds, the Second Mortgage or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of New Bonds by
accepting a New Bond waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the New Bonds. The waiver
may not be effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Bonds ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding New Bonds to receive payments in
respect of the principal of, or interest or premium on such New Bonds when
such payments are due from the trust referred to below;
(2) the Company's obligations with respect to the New Bonds concerning
issuing temporary New Bonds, registration New Bonds, mutilated, destroyed,
lost or stolen New Bonds and the maintenance of an office or agency for
payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Second Mortgage.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to covenants that are described
in the Second Mortgage ("Covenant Defeasance") and thereafter any omission to
comply with those covenants shall not constitute a Default or Event of Default
with respect to the New Bonds. In the event Covenant Defeasance occurs, events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default and Remedies" will no
longer constitute an Event of Default with respect to the New Bonds.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the New Bonds, cash in U.S. dollars, non-
callable Governmental Obligations, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest and
premium on the outstanding New Bonds on the stated maturity or on the
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applicable redemption date, as the case may be, and the Company must specify
whether the New Bonds are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (b) since the date of the Second
Mortgage, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of Counsel
shall confirm that, the Holders of the outstanding New Bonds will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that the Holders of the outstanding New Bonds will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit);
or (b) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement
or instrument (other than the Second Mortgage) to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
(6) the Company must have delivered to the Trustee an Opinion of Counsel to
the effect that, assuming no intervening bankruptcy of the Company between the
date of deposit and the 91st day following the deposit and assuming that no
Holder is an "insider" of the Company under applicable bankruptcy law, after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally;
(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of New Bonds over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of
the Company or others; and
(8) the Company must deliver to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
The Supplemental Indenture
Except as provided in the next two succeeding paragraphs, the Supplemental
Indenture or the New Bonds may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the New Bonds then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, New Bonds), and any
existing default or compliance with any provision of the Supplemental Indenture
or the New Bonds may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding New Bonds (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, New Bonds).
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Without the consent of each Holder affected, an amendment or waiver of the
Supplemental Indenture or the New Bonds may not (with respect to any New Bonds
held by a non-consenting Holder):
(1) reduce the principal amount of New Bonds whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any New Bond or
alter the provisions with respect to the redemption of the New Bonds (other
than provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
New Bond;
(4) waive a Default or Event of Default in the payment of principal of, or
interest, or premium, if any, on the New Bonds (except a rescission of
acceleration of the New Bonds by the Holders of at least a majority in
aggregate principal amount of the New Bonds and a waiver of the payment
default that resulted from such acceleration);
(5) make any New Bond payable in money other than that stated in the New
Bonds;
(6) make any change in the provisions of the Supplemental Indenture
relating to waivers of past Defaults or the rights of Holders of New Bonds to
receive payments of principal of, or interest, or premium, if any, on the New
Bonds;
(7) waive a redemption payment with respect to any New Bond (other than a
payment required by one of the covenants described above under the caption "-
-Repurchase at the Option of Holders"); or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder of New Bonds,
the Company and the Trustee may amend or supplement the Supplemental Indenture
or the New Bonds:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated New Bonds in addition to or in place of
certificated New Bonds;
(3) to provide for the assumption of the Company's obligations to Holders
of New Bonds in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets;
(4) to make any change that would provide any additional rights or benefits
to the Holders of New Bonds or that does not adversely affect the legal rights
under the Second Mortgage of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Second Mortgage under the Trust Indenture
Act.
The Second Mortgage Indenture
In addition to the amendment, supplement and waiver provisions contained
within the Supplemental Indenture, the Second Mortgage Indenture contains
provisions permitting the Company and the Trustee, with the consent of the
holders of at least a majority in aggregate principal amount of the Second
Mortgage Bonds then outstanding, to modify the Second Mortgage Indenture;
provided that no such modification may, without the consent of each holder of
outstanding Second Mortgage Bonds affected thereby, extend the fixed maturity of
any Second Mortgage Bonds, or reduce the principal amount thereof, or reduce the
rate or extend the time of interest thereon, or reduce any Make Whole Premium
payable upon the redemption thereof.
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The Second Mortgage Indenture also permits specified amendments, supplements
and waivers without the consent of the holders of the Second Mortgage Bonds,
including one or more supplemental indentures for the creation of any new series
of Second Mortgage Bonds.
Satisfaction of New Bonds
The Second Mortgage will cease to be of further effect as to the New Bonds
when:
(1) either:
(a) all New Bonds that have been authenticated (except lost, stolen or
destroyed New Bonds that have been replaced or paid and New Bonds for the
payment of which money has theretofore been deposited in trust and
thereafter repaid to the Company) have been delivered to the Trustee for
cancellation; or
(b) all New Bonds that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise or will become due and payable within one
year and the Company has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust solely for the benefit of the
Holders, cash in U.S. dollars, non-callable Governmental Obligations, or a
combination thereof, in such amounts as will be sufficient, without
consideration of any reinvestment of interest, to pay and discharge the
entire indebtedness on the New Bonds not delivered to the Trustee for
cancellation for principal, premium and accrued interest to the date of
maturity or redemption;
(2) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or shall occur as a result of such deposit and such
deposit will not result in a breach or violation of, or constitute a default
under, any other instrument to which the Company is a party or by which the
Company is bound;
(3) the Company has paid or caused to be paid all sums payable by it in
respect of the New Bonds; and
(4) the Company has delivered irrevocable instructions to the Trustee under
the Second Mortgage to apply the deposited money toward the payment of the New
Bonds at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an Officers' Certificate and an Opinion
of Counsel to the Trustee stating that all conditions precedent to satisfaction
have been satisfied.
Concerning the Trustee
If the Trustee becomes a creditor of the Company, the Second Mortgage limits
its right to obtain payment of claims in some cases, or to realize on property
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Second
Mortgage Bonds will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to exceptions. The Second Mortgage provides that in case an Event of
Default shall occur and be continuing, the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of its own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Second
Mortgage at the request of any holder of Second Mortgage Bonds, unless such
holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense.
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Additional Information
Anyone who receives this prospectus may obtain a copy of the Second Mortgage,
the Supplemental Indenture and Registration Rights Agreement without charge by
writing to Central Vermont Public Service Corporation, 77 Grove Street, Rutland,
Vermont 05701 Attention: Chief Financial Officer.
Book-Entry, Delivery and Form
Except as described in the next paragraph, the New Bonds will initially be
issued in the form of one or more Global Bonds (the "Global Bonds"). The
Global Bonds will be deposited on the date of the closing of this exchange
offering with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of Cede & Co., as nominee of DTC (such nominee being
referred to herein as the "Global Bond Holder").
New Bonds that are issued as described below under "--Certificated Bonds"
will be issued in the form of registered definitive certificates (the
"Certificated Bonds"). Upon the transfer of Certificated Bonds, Certificated
Bonds may, unless all Global Bonds have previously been exchanged for
Certificated Bonds, be exchanged for an interest in the Global Bond representing
the principal amount of New Bonds being transferred, subject to the transfer
restrictions set forth in the Second Mortgage.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations. Access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interests
in, and transfers of ownership interests in, each security held by or on behalf
of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Company that, pursuant to procedures established by
it:
(1) upon deposit of the Global Bonds, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Bonds; and
(2) ownership of these interests in the Global Bonds will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants
and the Indirect Participants (with respect to other owners of beneficial
interest in the Global Bonds).
So long as the Global Bond Holder is the registered owner of any New Bonds,
the Global Bond Holder will be considered the sole Holder under the Second
Mortgage of any New Bonds evidenced by the Global Bonds. Beneficial owners of
New Bonds evidenced by the Global Bonds will not be considered the owners or
Holders thereof under the Second Mortgage for any purpose, including with
respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC relating to the New
Bonds.
Payments in respect of the principal of, and interest and premium on a Global
Bond registered in the name of the Global Bond Holder on the applicable record
date will be payable by the Trustee to or at the direction of the Global Bond
Holder in its capacity as the registered Holder under the Second Mortgage. Under
the terms of the Second Mortgage, the Company and the Trustee will treat the
Persons in whose names the New Bonds, including the Global Bonds, are registered
as the owners thereof for the purpose of receiving payments and for all other
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purposes. Consequently, neither the Company, the Trustee nor any agent of the
Company or the Trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Bonds or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Bonds; or
(2) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the New Bonds (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of New Bonds
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the New Bonds, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Certificated New Bonds
Subject to specified conditions, any Person having a beneficial interest in a
Global Bond may, upon prior written request to the Trustee, exchange such
beneficial interest for New Bonds in the form of certificated New Bonds. Upon
any such issuance, the Trustee is required to register such certificated New
Bonds in the name of, and cause the same to be delivered to, such Person or
Persons (or the nominee of any thereof). In addition, if:
(1) DTC (a) notifies the Company that it is unwilling or unable to continue
as depositary for the Global Bonds and the Company fails to appoint a
successor depositary or (b) has ceased to be a clearing agency registered
under the Exchange Act;
(2) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of certificated New Bonds in lieu of a Global
Bond; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the New Bonds;
then, upon surrender by the Global Bond Holder of its Global Bond, New Bonds in
such form will be issued to each person that the Global Bond Holder and DTC
identify as being the beneficial owner of the related New Bonds.
Neither the Company nor the Trustee will be liable for any delay by the Global
Bond Holder or DTC in identifying the beneficial owners of New Bonds and the
Company and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Bond Holder or DTC for all purposes.
Same Day Settlement and Payment
The Company will make payments in respect of the New Bonds represented by the
Global Bonds (including principal, premium, if any, and interest) by wire
transfer of immediately available funds to the accounts specified by the Global
Bond Holder. The Company will make all payments of principal, interest and
premium, if any, with respect to certificated New Bonds by wire transfer of
immediately available funds to the accounts specified by the Holders thereof
holding more than $1.0 million of New Bonds or, if no such account is specified,
or if such Holder
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of certificated New Bonds holds $1.0 million or less of New Bonds, by mailing a
check to each such Holder's registered address. The New Bonds represented by the
Global Bonds are expected to trade in DTC's Same-Day Funds Settlement System,
and any permitted secondary market trading activity in such New Bonds will,
therefore, be required by DTC to be settled in immediately available funds. The
Company expects that secondary trading in any certificated New Bonds will also
be settled in immediately available funds.
Certain Definitions
Set forth below are defined terms used in the Second Mortgage. Reference is
made to the Second Mortgage for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Accounts Receivable Facility" means that accounts receivable facility
existing pursuant to the Receivables Purchase Agreement, dated as of November
29, 1998, between the Company and The First National Bank of Boston.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control," as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial ownership of
10% or more of the Voting Stock of a Person shall be deemed to be control. For
purposes of this definition, the terms "controlling," "controlled by" and
"under common control with" shall have correlative meanings. No Person (other
than the Company or any Regulated Subsidiary of the Company) which makes, or in
which a special purpose entity makes, an Investment in connection with a
Securitization Transaction will be deemed to be an Affiliate of the Company or
any of its Regulated Subsidiaries solely by reason of such Investment.
"Appraiser" means a Person engaged in the business of appraising property
competent to determine the fair market value of the particular property in
question, and who or which, unless required to be independent, may be employed
by or Affiliated with the Company.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets by the
Company or any Regulated Subsidiary other than sales of inventory or other
current assets in the ordinary course of business consistent with past
practice; or
(2) the issuance of Equity Interests in any of the Company's Regulated
Subsidiaries or the sale of Equity Interests in any of its Regulated
Subsidiaries;
in the case of either clause (1) or (2), whether in a single transaction or a
series of related transactions:
(a) that have a fair market value in excess of $2.0 million; or
(b) for Net Proceeds in excess of $2.0 million.
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Notwithstanding the foregoing, the following items shall not be deemed to be
Asset Sales:
(1) a transfer of assets by the Company to a Regulated Subsidiary or by a
Regulated Subsidiary to the Company or to another Regulated Subsidiary;
(2) an issuance of Equity Interests by a Regulated Subsidiary to the
Company or to another Regulated Subsidiary;
(3) a Restricted Payment that is permitted by the Second Mortgage;
(4) sales of property or equipment that have become worn out, obsolete or
damaged or otherwise unsuitable for use in connection with the business of the
Company or any of its Regulated Subsidiaries;
(5) transactions involving the license, lease or sublease of any real or
personal property in the ordinary course of business;
(6) a transfer of Equity Interests in, or an issuance of Equity Interests
of, (x) a Subsidiary of the Company that is not a Regulated Subsidiary or (y)
any Person that is an Unregulated Subsidiary on the Initial Issuance Date;
(7) sales of (i) assets of the type specified in the definition of
"Securitization Transaction" to a special purpose entity and (ii) accounts
receivable, in each case for the fair market value thereof, including cash in
an amount at least equal to 75% of the book value thereof as determined in
accordance with GAAP, it being understood that, for the purposes of this
clause (7), notes received in exchange for the transfer of assets of the type
specified in the definition of "Securitization Transaction" will be deemed
cash if the special purpose entity or other payor is required to repay said
notes as soon as practicable from available cash collections less amounts
required to be established as reserves pursuant to contractual agreements with
entities that are not Affiliates of the Company entered into as part of a
Securitization Transaction; or
(8) sales of Equity Interests in VELCO for fair market value, as evidenced
by a resolution of the Board of Directors.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee for
net rental payments during the remaining term of the lease included in such sale
and leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the board of directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
"Bondable Property" shall have the meaning set forth in the Second Mortgage.
"Bonded" shall have the meaning set forth in the Second Mortgage.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
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(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of assets
of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than twelve months from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
twelve months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case,
with any domestic commercial bank having capital and surplus in excess of
$500.0 million;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each case
maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all the assets of the Company and its
Regulated Subsidiaries taken as a whole;
(2) the adoption of a plan relating to the liquidation or dissolution of
the Company;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" or
"group" (as such terms are defined in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act) becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of
more than 50% of the total voting power of all classes of outstanding Voting
Stock of the Company; or
(4) the first day on which a majority of the members of the Board of
Directors of the Company or of any Successor Entity (as defined under the
caption "Merger, Consolidation, or Sale of Assets" above) are not Continuing
Directors.
Notwithstanding the foregoing, a "Change of Control" shall not include a
"Holding Company Transaction."
"Common Stock" means the Company's common stock, $6.00 par value.
"Connecticut Valley" means Connecticut Valley Electric Company Inc., a New
Hampshire corporation.
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"Consolidated" means, with respect to the Company, the consolidation of the
accounts of the Regulated Subsidiaries with those of the Company, all in
accordance with GAAP (without duplication); provided, however, that
"consolidation" will not include consolidation of the accounts of any
Unregulated Subsidiary with the accounts of the Company. The term
"consolidation" has a correlative meaning.
"Consolidated Cash Flow" means, with respect to any specified Person for any
period, the Consolidated Utility Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized by
such Person or any of its Regulated Subsidiaries in connection with an Asset
Sale, to the extent such losses were deducted in computing such Consolidated
Utility Income; plus
(2) provision for taxes based on income or profits of such Person and its
Regulated Subsidiaries for such period, to the extent that such provision for
taxes was deducted in computing such Consolidated Utility Income; plus
(3) consolidated interest expense of such Person and its Regulated
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received pursuant to
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Utility Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense (other than the amortization of the cost of Power Contract
Buyouts after the Initial Issuance Date) to the extent that it represents an
accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Regulated Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Utility Income; minus
(5) non-cash items increasing such Consolidated Utility Income for such
period, other than the accrual of revenue in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash expenses
of, a Regulated Subsidiary of the Company shall be added to Consolidated Utility
Income to compute Consolidated Cash Flow of the Company only to the extent that
a corresponding amount would be permitted at the date of determination to be
distributed to the Company by such Regulated Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Regulated Subsidiary or its stockholders.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of the following amounts (each determined in accordance with GAAP):
(1) the consolidated equity of the common shareholders (or equity holders)
of such Person and its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock that by its terms is
not entitled to the payment of dividends unless such dividends may be declared
and paid only out of net earnings in respect of the year of such declaration
and payment, but only to the extent of any cash received by such Person upon
issuance of such preferred stock; less
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(3) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within 12 months after the acquisition of such business) subsequent to the
Initial Issuance Date in the book value of any asset owned by such Person or a
Subsidiary of such Person.
"Consolidated Utility Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its Regulated
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income of any Person that is not a Regulated Subsidiary or that
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
specified Person or a Wholly Owned Regulated Subsidiary thereof;
(2) the Net Income of any Regulated Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions
by that Regulated Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Regulated Subsidiary or its
stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded;
(5) the Net Income of any Unregulated Subsidiary shall be excluded, whether
or not distributed to the specified Person or one of its Subsidiaries; and
(6) to the extent such amounts have not already been excluded in
calculating Consolidated Utility Income, the amounts paid pursuant to clause
(9) of the covenant entitled "--Restricted Payments" shall be excluded.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the date of the Second
Mortgage; or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members of
such Board at the time of such nomination or election.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Designated Asset Sale" means an Asset Sale that is not a Mortgaged Property
Asset Sale and that is designated as a Designated Asset Sale by the Board of
Directors.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date of final maturity of the New Bonds. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require the Company to repurchase
such Capital Stock upon the occurrence of a change of control or an asset sale
shall not constitute Disqualified Stock if the terms of such Capital Stock
provide that the Company may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
the covenant described above under the caption "--Certain Covenants--Restricted
Payments."
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Loss" means (i) the loss or destruction of or damage to any
Mortgaged Property, (ii) the condemnation, seizure, confiscation, requisition of
the use or taking by exercise of the power of eminent domain or otherwise of any
Mortgaged Property or (iii) any consensual settlement in lieu of any event
listed in clause (ii), in each case whether in a single event or a series of
related events, that results in Net Proceeds from all sources in excess of $1.0
million.
"Existing Indebtedness" means Indebtedness of the Company and its Regulated
Subsidiaries in existence on the Initial Issuance Date, until such amounts are
repaid, including, without limitation, up to $17.0 million of First Mortgage
Bonds Series PP, QQ and RR to be issued on the Initial Issuance Date.
"First Mortgage" means the Mortgage of the Company dated October 1, 1929, to
State Street Bank and Trust Company, successor to Old Colony Trust Company, as
Trustee, as from time to time amended and supplemented.
"First Mortgage Bonds" means the securities and other Indebtedness
authenticated and delivered from time to time pursuant to the First Mortgage.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Regulated
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net of the effect of
all payments made or received pursuant to hedging Obligations; plus
(2) the consolidated interest of such Person and its Regulated Subsidiaries
that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Regulated Subsidiaries or secured by a
Lien on assets of such Person or one of its Subsidiaries, whether or not such
guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and whether
or not in cash, on any series of preferred stock of such Person or any of its
Regulated Subsidiaries, other than dividends on Equity Interests payable
solely in Equity Interests of the Company (other than Disqualified Stock) or
to the Company or a Regulated Subsidiary of the Company, times (b) a fraction,
the numerator of which is one and the denominator of which is one minus the
then current combined federal, state and local statutory tax rate of such
Person, expressed as a decimal, in each case, on a consolidated basis and in
accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for
any period, the ratio of the Consolidated Cash Flow of such Person and its
Regulated Subsidiaries for such period to the Fixed Charges of such Person and
its Regulated Subsidiaries for such period. In the event that the specified
Person or any of its Regulated Subsidiaries incurs, assumes, Guarantees, repays,
repurchases or redeems any Indebtedness (other than ordinary working capital
borrowings) or issues, repurchases or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated and on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or
redemption of Indebtedness, or such issuance, repurchase or redemption of
preferred stock, and the use of the proceeds therefrom as if the same had
occurred at the beginning of the applicable four-quarter reference period.
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In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Regulated Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be given pro forma effect as if they had occurred on
the first day of the four-quarter reference period and Consolidated Cash Flow
for such reference period shall be calculated on a pro forma basis in
accordance with Regulation S-X under the Securities Act, but without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Utility Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of
the specified Person or any of its Regulated Subsidiaries following the
Calculation Date.
"GAAP" means generally accepted accounting principles in use at the Initial
Issuance Date or, at the option of the Company, other generally accepted
accounting principles which are in use at the time of their determination; in
determining generally accepted accounting principles, the Company may, but shall
not be required to, conform to any accounting order, rule or regulation of any
regulatory authority having jurisdiction over the electric generating,
transmission or distribution operations of the Company.
"Governmental Obligations" means direct obligations of or obligations
unconditionally guaranteed by the federal government or any political
subdivision of the United States of America, any agency, department or any other
administrative authority or instrumentality thereof, including, without
limitation, any local or other governmental agency or other authority within the
United States of America.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements;
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates; and
(3) agreements in connection with commodities swaps or options.
"Holding Company" means the corporation formed in a Holding Company
Transaction which, immediately following such transaction, holds all of the
Company's outstanding capital stock other than preferred stock.
"Holding Company Transaction" means any transaction or series of
transactions the result of which is that a holding company acquires all of the
outstanding common stock of the Company, substantially as contemplated by the
Company's holding company filing with the PSB as of the Initial Issue Date,
provided, in no event shall a "Holding Company Transaction" include any
transaction in which any portion of the business conducted by the Company or a
Regulated Subsidiary, or any of the Capital Stock of a Regulated Subsidiary, is
transferred to a Person other than the Company or a Regulated Subsidiary.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent, in respect of:
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(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade payable;
or
(6) any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Independent" means, when used with respect to any specified Person, a
Person selected by the Chairman of the Board, Chief Executive Officer,
President, Chief Financial Officer or a Vice President of the Company and
approved by the Trustee, who (i) is in fact independent, (ii) does not have any
material direct financial interest or any material indirect financial interest
in the Company or in any other obligor on the New Bonds or in any Affiliate of
the Company or any such other obligor and (iii) is not connected with the
Company or such other obligor as an Affiliate or an officer, employee, promoter,
underwriter, trustee, or partner, director or Person performing similar
functions.
"Initial Issuance Date" means July 30, 1999.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Regulated Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Regulated Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Regulated Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Regulated Subsidiary not sold
or disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Certain Covenants--Restricted
Payments." The acquisition by the Company or any Regulated Subsidiary of the
Company of a Person that holds an Investment in a third Person shall be deemed
to be an Investment by the Company or such Regulated Subsidiary in such third
Person in an amount equal to the fair market value of the Investment held by the
acquired Person in such third Person in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law,
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including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in, except in connection with any Securitization Transaction, and any
filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
"Make Whole Premium" with respect to any New Bond shall mean with respect to
any prepayment of such New Bond in circumstances requiring the payment of a Make
Whole Premium, an amount equal to the excess of (a) the aggregate present value
as of the date of such prepayment of the expected future cash flows of such New
Bond (for the avoidance of doubt, such amounts shall include all principal and
interest payable with respect to such New Bond) (exclusive of interest accrued
to the date of prepayment) that, but for such prepayment, would have been
payable if such prepayment had not been made, all determined by discounting such
amounts at a rate which is equal to the Treasury Rate three days prior to
prepayment plus 50 basis points over (b) the aggregate principal amount of the
New Bond then to be prepaid.
"Moody's" means Moody's Investor Service, Inc., or any successor to its
securities ratings business.
"Mortgaged Property" means all of the Company's property subject to the Lien
of the Second Mortgage.
"Mortgaged Property Asset Sale" means the sale, lease (other than an
operating lease), conveyance or other disposition (each, a "Disposition") of
any Mortgaged Property, including, without limitation, by means of an
amalgamation, merger, consolidation or similar transaction (provided that
Disposition of all or substantially all of the assets of the Company and its
Regulated Subsidiaries taken as a whole will be governed by the provisions of
the Second Mortgage described above under the caption "--Change of Control" or
the provisions described above under the caption "--Merger, Consolidation or
Sale of Assets" and not by the provisions of the covenant entitled "Mortgaged
Property Asset Sales and Events of Loss"), or a series of related Dispositions
by the Company or any of its Regulated Subsidiaries involving the Mortgaged
Property, other than
(1) the sale for fair market value of machinery, equipment, furniture,
apparatus, tools or implements or other property that may be defective or may
have become worn out or obsolete or no longer useful in the reasonable
judgment of the Company in the operations of the Company;
(2) the sale or exchange of property at the Company's operating facilities
with an aggregate value not to exceed $2.0 million at any one time provided
such property has been replaced by property of equal or greater value within
180 days of such sale or exchange. A Mortgaged Property Asset Sale shall not
include the requisition of title to or the seizure, condemnation, forfeiture
or casualty of any Mortgaged Property; or
(3) the voluntary transfer, waiver or modification of the right to sell
power to our customers within our franchise area (but not our rights as a
distribution company) in contemplation of or as part of the restructuring of
the Company.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with: (a) any Asset Sale;
or (b) the disposition of any securities by such Person or any of its
Regulated Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Regulated Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Regulated Subsidiaries in respect of any Asset Sale or Mortgaged
Property Asset Sale (including, without limitation, any cash received upon the
sale or other disposition of any non-cash consideration received in any Asset
Sale or Mortgaged Property Asset Sale), net of the direct costs relating to such
Asset Sale or Mortgaged Property Asset Sale, including,
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without limitation, legal, accounting and investment banking fees, and sales
commissions, and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof, in each case, after taking into account any
available tax credits or deductions and any tax sharing arrangements, and
amounts required to be applied to the repayment of Indebtedness, other than the
First Mortgage Bonds and Second Mortgage Bonds, secured by a Lien on the asset
or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Net Termination Value" shall mean the difference between (a) the aggregate
amounts (if any) that would be required to be paid by the Company or any
Regulated Subsidiary if such Hedging Obligation were terminated by reason of
default relating to the Company or a Regulated Subsidiary, and (b) the aggregate
amounts (if any) that the Company or any Regulated Subsidiary would be entitled
to receive if such Hedging Obligations were terminated by reason of a default
relating to the Company or any Regulated Subsidiary. The Net Termination Value
shall be determined (a) as of the end of the most recent fiscal quarter ended or
(b) as of the date such Hedging Obligation is entered into if it is entered into
after the end of such fiscal quarter.
"Non-Recourse Debt" means Indebtedness
(1) as to which neither the Company nor any of its Regulated Subsidiaries
(other than the special purpose entity incurring such Indebtedness, in the
case of Indebtedness incurred in the ordinary course of business) (a) provides
credit support of any kind (including any undertaking, agreement or instrument
that would constitute Indebtedness), (b) is directly or indirectly liable as a
guarantor or otherwise, or (c) constitutes the lender;
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unregulated Subsidiary)
would permit upon notice, lapse of time or both any holder of any other
Indebtedness (other than the Old Bonds and the New Bonds) of the Company or
any of its Regulated Subsidiaries (other than the special purpose entity
incurring such Indebtedness, in the case of Indebtedness incurred in the
ordinary course of business), to declare a default on such other Indebtedness
or cause the payment thereof to be accelerated or payable prior to its Stated
Maturity; and
(3) with respect to any such Indebtedness incurred after the Initial
Issuance Date, the lenders have been notified of the non-recourse nature of
the Indebtedness.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating Cash Flow" means, with respect to any Person for any period, the
net cash provided by operating activities of such Person and its Regulated
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP.
"Permissable Encumbrances" shall have the meaning set forth in the Second
Mortgage Indenture.
"Permitted Investments" means
(1) an Investment by the Company or a Regulated Subsidiary in the Company
or in a Regulated Subsidiary of the Company;
(2) an Investment in Cash Equivalents;
(3) an Investment by the Company or any Regulated Subsidiary in a Person,
if as a result of such Investment
(a) such Person becomes a direct or indirect Regulated Subsidiary of the
Company or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Regulated Subsidiary of the Company;
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(4) an Investment received in connection with the bankruptcy or
reorganization of customers and suppliers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in
the ordinary course of business; and
(5) the acquisition by the Company, a Regulated Subsidiary or a special
purpose entity in connection with a Securitization Transaction of Equity
Interests of a trust or other Person established by the Company, a Regulated
Subsidiary or such special purpose entity to effect such Securitization
Transaction; and any other Investment by the Company or a Subsidiary of the
Company in a special purpose entity or any Investment by a special purpose
entity in any other Person in connection with a Securitization Transaction
provided, that such other Investment is in the form of a note or other
instrument that the special purpose entity or other Person is required to
repay as soon as practicable from available cash collections less amounts
required to be established as reserves pursuant to contractual agreements with
entities that are not Affiliates of the Company entered into as part of a
Securitization Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Regulated Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund, other
Indebtedness of the Company or any of its Regulated Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest thereon and
the amount of all expenses and premiums incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the New Bonds,
such Permitted Refinancing Indebtedness has a final maturity date later than
the final maturity date of, and is subordinated in right of payment to, the
New Bonds on terms at least as favorable to the Holders of New Bonds as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by the Regulated
Subsidiary who is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Power Contract Buyout" means the termination, restatement or amendment of
power purchase agreements of the Company or any Regulated Subsidiary pursuant to
the terms of any settlement agreement approved by the PSB.
"Preferred Stock" means any Capital Stock of the Company which by its terms
has preference to common stock in right of dividends or other distributions or
upon liquidation or dissolution.
"Prior Lien" means any Lien on any Mortgaged Property existing both at and
immediately prior to the time of the acquisition by the Company of such
Mortgaged Property, or created as a purchase money mortgage on such Mortgaged
Property at the time of its acquisition by the Company, in each case ranking
prior to or on a parity with the Lien of the Second Mortgage.
"Prior Lien Bonds" means the First Mortgage Bonds and any other bonds, notes
or other Indebtedness (including the evidence thereof) secured by a Prior Lien.
"PSB" means the Vermont Public Service Board.
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"Regulated Subsidiary" means Connecticut Valley and East Barnet and any
other Subsidiary of the Company that is not an Unregulated Subsidiary.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Sale and Leaseback Transaction" means any form of lease arrangement in
which the Company or a Regulated Subsidiary sells an asset to another Person in
exchange for cash and then contracts to lease the asset for a specified term.
"S&P" means Standard & Poor's Ratings Group or any successor to its
securities ratings business.
"Second Mortgage Bonds" means bonds of any series authenticated and
delivered from time to time under the Second Mortgage.
"Securitization Transaction" means a transaction in which the Company or any
Regulated Subsidiary, pursuant to authorization of the PSB, if required by
applicable law, or other appropriate governmental authorizations, transfers
rights or other property to a Person formed as a special purpose entity in
conjunction with a financing involving such Person of accounts receivable of
such person or based on the Company's or such Regulated Subsidiary's right to
collect a non-bypassable transition or similar charge or other transferred right
or property; provided that all Indebtedness incurred in connection with any such
transaction shall constitute Non-Recourse Indebtedness.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal (including mandatory sinking fund payments) was scheduled
to be paid in the original documentation governing such Indebtedness, and shall
not include any contingent obligations to repay, redeem or repurchase any such
interest or principal prior to the date originally scheduled for the payment
thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or one or more Subsidiaries of such
Person (or any combination thereof).
"Treasury Rate" shall mean at any time with respect to the New Bonds being
prepaid (a) the yield reported on page C4 of the Bloomberg Financial Markets
Service (or, if not available, any other nationally recognized trading screen
reporting on-line intraday trading in United States government securities) at
11:00 a.m. (New York, New York time) for those actively traded United States
government securities having a maturity (rounded to the nearest month)
corresponding to the remaining Weighted Average Life to Maturity of the New
Bonds being prepaid or (b) in the event that no nationally recognized trading
screen reporting on-line intraday trading in United States government securities
is available, Treasury Rate shall mean the weekly average of the yield to
maturity on the United States Treasury obligations with a constant maturity (as
compiled by and published in the most recently published issue of the United
States Federal Reserve Statistical Release designated H.15(519) or its successor
publication) most nearly equal to (by rounding to the nearest month) the
Weighted Average Life to Maturity of the New Bonds then being prepaid. If no
maturity exactly corresponding to such Weighted Average Life to maturity of such
New Bonds shall appear therein, the weekly average yield for the two most
closely corresponding published
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maturities shall be calculated pursuant to the foregoing sentence and the
Treasury Rate shall be interpolated or extrapolated, as the case may be, from
such yields on a straight-line basis (rounding, in the case of relevant periods,
to the nearest month).
"Unbonded" as applied to Old Bonds, New Bonds, Prior Lien Bonds or Bondable
Property means that such Old Bonds, New Bonds, Prior Lien Bonds or Bondable
Property are not Bonded.
"Unregulated Subsidiary" means (a) CV Realty, Catamount Resources, Catamount
Energy, Smart Energy and VELCO and (b) any of their respective Subsidiaries and
(c) any other Subsidiary of the Company that is designated by the Board of
Directors as an Unregulated Subsidiary pursuant to a Board Resolution, but, in
each case, only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with the Company or any Regulated Subsidiary of the Company (other than
transactions permitted by clause (2) of the covenant entitled "Transactions
with Affiliates") unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Regulated Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its
Regulated Subsidiaries has any direct or indirect obligation (a) to subscribe
for additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Regulated
Subsidiaries; and
(5) is not subject to federal or state regulation as a public utility
company.
Any designation of a Subsidiary of the Company as an Unregulated Subsidiary
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"--Certain Covenants--Restricted Payments." If, at any time, any Unregulated
Subsidiary would fail to meet the preceding requirements as an Unregulated
Subsidiary, it shall thereafter cease to be an Unregulated Subsidiary for
purposes of the Second Mortgage and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Regulated Subsidiary of the Company as of such date
and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness," the Company shall be in default of such covenant. The Board of
Directors of the Company may at any time designate any Unregulated Subsidiary to
be a Regulated Subsidiary; provided that such designation shall be deemed to be
an incurrence of Indebtedness by a Regulated Subsidiary of the Company of any
outstanding Indebtedness of such Unregulated Subsidiary and such designation
shall be permitted only if (1) such Indebtedness is permitted under the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"Vermont Yankee" means Vermont Yankee Nuclear Power Corporation, a Vermont
corporation, or the Company's interest therein, as the context may require.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
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(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly-Owned Regulated Subsidiary" of any specified Person means a
Regulated Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Regulated Subsidiaries of such Person.
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CERTAIN FEDERAL TAX CONSIDERATIONS
The following is a summary of the material United States federal income
tax consequences resulting from the exchange offer and from the ownership of the
New Bonds. It deals only with New Bonds held as capital assets and not with
special classes of bondholders, such as dealers in securities or currencies,
life insurance companies, tax exempt entities, and persons that hold a New Bond
in connection with an arrangement that completely or partially hedges the New
Bond. The discussion is based upon the Internal Revenue Code of 1986, as
amended, and regulations, rulings and judicial decisions thereunder as of the
date hereof. Such authorities may be repealed, revoked or modified so as to
produce federal income tax consequences different from those discussed below.
BONDHOLDERS TENDERING THEIR OLD BONDS OR PROSPECTIVE PURCHASERS OF NEW
BONDS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL
INCOME TAX AND ANY STATE OR LOCAL INCOME OR FRANCHISE TAX CONSEQUENCES IN THEIR
PARTICULAR SITUATIONS AND ANY CONSEQUENCES UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
The exchange of New Bonds for the Old Bonds pursuant to the exchange offer
will not be treated as an "exchange" for United States federal income tax
purposes because the New Bonds will not be considered to differ materially in
kind or extent from the Old Bonds. Rather, the New Bonds received by a
bondholder will be treated as a continuation of the Old Bonds in the hands of
such bondholder. As a result, there will be no United States federal income tax
consequences to bondholders exchanging the Old Bonds for the New Bonds pursuant
to the exchange offer. The bondholder must continue to include stated interest
in income as if the exchange had not occurred. The adjusted basis and holding
period of the New Bonds for any bondholder will be the same as the adjusted
basis and holding period of the Old Bonds. Similarly, there would be no United
States federal income tax consequences to a holder of Old Bonds that does not
participate in the exchange offer.
United States Holders
For purposes of this discussion, a "United States Holder" means:
(1) a citizen or resident of the United States;
(2) a partnership, corporation or other entity created or organized in or
under the law of the United States or of any State of the United States;
(3) an estate the income of which is subject to United States federal
income tax regardless of its source;
(4) a trust, if either:
(a) a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more United
States persons have the authority to control all substantial decisions of
the trust; or
(b) the trust was in existence on August 20, 1996 and elected to be
treated as a United States person at all times thereafter;
(5) any other person that is subject to United States federal income tax
on interest income derived from a Bond as a result of such income being
effectively connected with the conduct by such person of a trade or business
within the United States; or
(6) certain former citizens of the United States whose income and gain on
the New Bonds will be subject to U.S. income tax.
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Payments of Interest
Interest on a New Bond will be taxable to a United States Holder as
ordinary interest income at the time it is received or accrued, depending on the
bondholder's method of accounting for tax purposes.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply with respect to
non-corporate United States Holders to payments of principal and interest on a
New Bond and the proceeds of the sale of a New Bond before Maturity. A 31%
"backup withholding" tax will apply to such payments if the United States Holder
fails to provide an accurate taxpayer identification number or to report all
interest and dividends required to be shown on its federal income tax returns.
United States Alien Holders
As used herein, a "United States Alien" is a person or entity that, for
United States federal income tax purposes, is not a United States Holder.
Payments to United States Aliens
Under current United States federal income and estate tax law:
(1) payments of principal and interest on a New Bond by us or any paying
agent to a bondholder that is a United States Alien will not be subject to
withholding of United States federal income tax, provided that the bondholder:
(a) does not actually or constructively own 10% or more of the combined
voting power of our stock;
(b) is not a controlled foreign corporation related to us through stock
ownership; and
(c) provides a statement, under penalties of perjury (such as Form W-
8BEN), to the Company that the holder is a United States Alien and
provides its name and address;
(2) a bondholder that is a United States Alien will not be subject to
United States federal income tax on gain realized on the sale, exchange or
redemption of such Bond, unless:
(a) the gain is effectively connected with the conduct of a trade or
business within the United States by the United States Alien; or
(b) in the case of a United States Alien who is a nonresident alien
individual and holds the New Bond as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year and
certain other requirements are met; and
(3) a New Bond will not be subject to United States federal estate tax as
a result of the death of a bondholder who is not a citizen or resident of the
United States at the time of death, provided that:
(a) such bondholder did not at the time of death actually or
constructively own 10% or more of the combined voting power of all classes
of our stock; and,
(b) at the time of such bondholder's death, payments of interest on
such Bond would not have been effectively connected with the conduct by
such bondholder of a trade or business in the United States.
United States information reporting requirements and backup withholding
tax will not apply to payments on a New Bond made outside the United States by
us or any paying agent (acting in its capacity as such) to a
115
<PAGE>
bondholder that is a United States Alien provided that a statement described in
(1)(c) above has been received and neither we nor our paying agent has actual
knowledge that the payee is not a United States Alien.
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of a New Bond effected outside
the United States by a foreign office of a "broker" (as defined in applicable
Treasury regulations), provided that such broker:
(1) is a United States Alien;
(2) derives less than 50% of its gross income for certain periods from
the conduct of a trade or business in the United States; and
(3) is not a controlled foreign corporation as to the United States (a
person described in (1), (2) and (3) above being hereinafter referred to as a
"foreign controlled person"). Payment of the proceeds of the sale of a New Bond
effected outside the United States by a foreign office of any broker that is not
a foreign controlled person will not be subject to backup withholding tax, but
will be subject to information reporting requirements unless such broker has
documentary evidence in its records that the beneficial owner is a United States
Alien and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption.
New regulations governing backup withholding and information reporting are
generally scheduled to become effective for payments made after December 31,
2000. Rules under these regulations will have essentially the same substantive
effect, but will unify current certification procedures and forms.
116
<PAGE>
PLAN OF DISTRIBUTION
This prospectus, as it may be amended or supplemented from time to time,
may be used by a Broker-Dealer in connection with the resale of the New Bonds
received in exchange for the Old Bonds where such Old Bonds were acquired for
its own account as a result of market-making activities or other trading
activities (other than where acquired directly from the Company or any
"Affiliate," as defined in Rule 144 of the Securities Act). Each such Broker-
Dealer that participates in the exchange offer that receives the New Bonds for
its own account pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Bonds. We have
agreed that for a period of 180 days after the exchange offer is consummated or
until the Old Bonds are resold, whichever comes first, we will use our best
efforts to make this prospectus, as amended or supplemented, available to any
such Broker-Dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of New Bonds by
Participating Broker-Dealers. New Bonds received by Broker-Dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Bonds or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such Broker-
Dealer and/or the purchasers of any such New Bonds. Any Broker-Dealer that
resells New Bonds that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such New Bonds may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Bonds and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. For a period of one
year after the expiration date of the exchange offer, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any Broker-Dealer that requests such documents in the letter of
transmittal.
This prospectus has been prepared for use in connection with the exchange
offer and may be used by the initial purchasers in connection with the offers
and sales related to market-making transactions in the New Bonds. The initial
purchasers may act as principals or agents in such transactions. Such sales
will be made at prices related to prevailing market prices at the time of sale.
We will not receive any of the proceeds of such sales. The initial purchasers
have no obligation to make a market in the New Bonds and may discontinue their
market-making activities at any time without notice, at their sole discretion.
LEGAL MATTERS
Opinions as to the validity of the New Bonds will be rendered for us by Joseph
M. Kraus, Esq., our Senior Vice President and General Counsel, and by Milbank,
Tweed, Hadley & McCloy LLP, our special counsel. Mr. Kraus is one of our full-
time officers and owns 1,379 shares of our common stock directly and as a
participant in various employee benefit plans. Milbank, Tweed, Hadley & McCloy
LLP represents the Initial Purchasers or their affiliates from time to time in
matters unrelated to the exchange offer.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements and schedule incorporated by reference
in this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
117
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Sections 8.50 through 8.56 of the Vermont Business Corporation Act, inter
alia, generally empower a Vermont corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Similar
indemnity is authorized for such person against expenses (including attorneys'
fees) actually and reasonably incurred in connection with the defense or
settlement of any such threatened, pending or completed action or suit if such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the corporation, and provided further
that (unless a court of competent jurisdiction otherwise provides) such person
shall not have been adjudged liable to the corporation. Any such indemnification
may be made only as authorized in each specific case upon a determination by the
shareholders or disinterested directors or by independent legal counsel in a
written opinion that indemnification is proper because the indemnitee has met
the applicable standard of conduct.
Section 8.57 of the Vermont Business Corporation Act further authorizes a
corporation to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise, against any liability asserted
against such person, and incurred by such person in any such capacity, or
arising out of that person's status as such, whether or not the corporation
would otherwise have the power to indemnify that person under Section 8.50
through 8.56.
The Registrant's By-laws provide that, to the extent legally permissible, the
Registrant may indemnify any of its Directors, officers and employees who, as a
result of such position, was or is a party or is threatened to be made a party
to any contemplated, pending or completed action, suitor proceeding, whether
civil, criminal, administrative or investigative and whether formal or informal
against expenses, actually or reasonable incurred by him or her in connection
with such action, suit or proceeding.
Item 21. Exhibits and Financial Schedule Tables
(a) Exhibits:
A list of exhibits included as part of this registration statement is set
forth in the Exhibit Index that immediately precedes such exhibits and is
incorporated herein by reference.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required, are inapplicable or the required information has already
been provided elsewhere in the registration statement.
(c) Certain Reports, Opinions or Appraisals:
No such Reports, Opinions or Appraisals are applicable to this registration
statement.
II-1
<PAGE>
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d)of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the Trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of such Act.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within business one day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a post
effective amendment all information concerning a transaction, and the company
being acquired involved herein, that was not subject of and included in the
registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Rutland,
State of Vermont, November 15, 1999.
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
By:
/s/ Francis J. Boyle
- -----------------------------------------------------
Francis J. Boyle
Senior Vice President, Chief Financial Officer and Treasurer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------------------------- --------------------
<S> <C> <C>
/s/ * President, Chief Executive Officer and November 15, 1999
- ---------------------- Director (Principal Executive Officer)
Robert H. Young
/s/ * Senior Vice President, Chief Financial Officer November 15, 1999
- ---------------------- and Treasurer (Principal Financial Officer)
Francis J. Boyle
/s/ * Vice President and Controller (Controller and November 15, 1999
- ---------------------- Principal Accounting Officer)
James M. Pennington
/s/ * Director November 15, 1999
- ----------------------
Robert L. Barnett
/s/ * Director and Chairman of the Board November 15, 1999
- ----------------------
Frederic H. Bertrand
/s/ * Director November 15, 1999
- ----------------------
Rhonda L. Brooks
/s/ * Director November 15, 1999
- ----------------------
Robert G. Clarke
/s/ * Director November 15, 1999
- ----------------------
Luther F. Hackett
/s/ * Director November 15, 1999
- ----------------------
Mary Alice McKenzie
/s/ * Director November 15, 1999
- ----------------------
Janice L. Scites
</TABLE>
*By: Kenneth C. Picton
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
4.1* Second Mortgage Indenture between the Registrant and The Bank of New York, as Trustee, dated as of
July 15, 1999.
4.2* Form of Second Supplemental Indenture between the Registrant and The Bank of New York, as Trustee.
4.3* Form of Exchange Bond of the Registrant (included in Exhibit 4.2).
4.4* Registration Rights Agreement among the Registrant, Donaldson, Lufkin & Jenrette Securities.
Corporation and TD Securities (USA) Inc., dated as of July 30, 1999.
5* Legality Opinion of Milbank, Tweed, Hadley & McCloy LLP.
12 Statement Regarding Computation of Ratios of Earnings to Fixed Charges.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Milbank, Tweed, Hadley & McCloy LLP. (included in Exhibit 5)
24* Power of Attorney.
25 Form T-1 Statement of Eligibility.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
_________________
* Previously filed
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
9 months 9 months
1994 1995 1996 1997 1998 09/30/98 9/30/99
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income 14,800 19,851 19,442 16,340 3,983 4,583 13,556
Plus (Minus):
Income Taxes 11,409 10,907 10,219 9,163 146 1,837 8,130
Write-offs and Reversals 4,189 424 0 6,700 6,261 26,068 26,232
Net Income before taxes and extraordinary items 30,398 31,182 29,661 32,203 10,390 (280) 15,150
Fixed Charges:
Interest 10,267 10,342 10,088 9,737 10,699 7,940 7,335
Lease Interest 2,259 2,282 2,065 1,905 1,813 1,365 1,242
Total Fixed Charges 12,526 12,624 12,153 11,642 12,512 9,305 8,577
Income before taxes, extraordinary items
and fixed charges 42,924 43,806 41,814 43,845 22,902 9,025 23,727
Ratio of earnings to fixed charges 3.43 3.47 3.44 3.77 1.83 0.97 2.77
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our reports dated February 25,
1999 (except with respect to the matter discussed in Note 18, as to which the
date is March 26, 1999) included in Central Vermont Public Service Corporation's
Form 10-K for the year ended December 31, 1998 and to all references to our Firm
included in this registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
November 12, 1999
<PAGE>
EXHIBIT 25
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [_]
_____________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
_____________
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
(Exact name of obligor as specified in its charter)
Vermont 03-0111290
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
77 Grove Street
Rutland, Vermont 05701
(Address of principal executive offices) (Zip code)
_____________
8-1/2% Second Mortgage Bonds due 2004
(Title of the indenture securities)
========================================================================
<PAGE>
1. General information. Furnish the following information as to
the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Name Address
- ---------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-2-
<PAGE>
EXHIBIT 25
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 1st day of November, 1999.
THE BANK OF NEW YORK
By: /s/ MARY LAGUMINA
---------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
-3-
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1999,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
ASSETS Dollar Amounts
In Thousands
Cash and balances due from depository
institutions:
<S> <C>
Noninterest-bearing balances and currency and $ 5,597,807
coin...........................................
Interest-bearing balances....................... 4,075,775
Securities:
Held-to-maturity securities..................... 785,167
Available-for-sale securities................... 4,159,891
Federal funds sold and Securities purchased 2,476,963
under agreements to resell......................
Loans and lease financing receivables:
Loans and leases, net of unearned 38,028,772
income...............
LESS: Allowance for loan and 568,617
lease losses....................................
LESS: Allocated transfer risk 16,352
reserve.........................................
Loans and leases, net of unearned income, 37,443,803
allowance, and reserve.........................
Trading Assets................................... 1,563,671
Premises and fixed assets (including capitalized 683,587
leases).........................................
Other real estate owned.......................... 10,995
Investments in unconsolidated subsidiaries and 184,661
associated companies............................
Customers' liability to this bank on acceptances 812,015
outstanding.....................................
Intangible assets................................ 1,135,572
Other assets..................................... 5,607,019
-------------
Total assets..................................... $64,536,926
=============
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices............................. $26,488,980
Noninterest-bearing............................. 10,626,811
Interest-bearing................................ 15,862,169
In foreign offices, Edge and Agreement 20,655,414
subsidiaries, and IBFs.........................
Noninterest-bearing............................. 156,471
Interest-bearing................................ 20,498,943
Federal funds purchased and Securities sold 3,729,439
under agreements to repurchase..................
Demand notes issued to the U.S. Treasury......... 257,860
Trading liabilities.............................. 1,987,450
Other borrowed money:
With remaining maturity of one year or less..... 496,235
With remaining maturity of more than one year 465
through three years............................
With remaining maturity of more than three years 31,080
Bank's liability on acceptances executed and 822,455
outstanding.....................................
Subordinated notes and debentures................ 1,308,000
Other liabilities................................ 2,846,649
-----------
Total liabilities................................ 58,624,027
===========
EQUITY CAPITAL
Common stock..................................... 1,135,284
Surplus.......................................... 815,314
Undivided profits and capital reserves........... 4,001,767
Net unrealized holding gains (losses) on (7,956)
available-for-sale securities...................
Cumulative foreign currency translation (31,510)
-----------
adjustments.....................................
Total equity capital............................. 5,912,899
-----------
Total liabilities and equity capital............. $64,536,926
===========
</TABLE>
-5-
<PAGE>
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Reyni ] Directors
Alan R. Griffith ]
Gerald L. Hassell ]
- --------------------------------------------------------------------------------
-6-
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
OFFER TO EXCHANGE ITS
8 1/8% SECOND MORTGAGE BONDS DUE 2004 (SERIES B)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8 1/8% SECOND MORTGAGE BONDS DUE 2004 (SERIES A)
PURSUANT TO THE PROSPECTUS
DATED ________ ___, 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON ________ ___, 1999, UNLESS THE OFFER IS EXTENDED
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT DELIVERY/HAND:
The Bank of New York The Bank of New York
101 Barclay Street 7E Corporate Trust Service Window; Ground Level
New York, NY 10286 101 Barclay Street
Attn: Reorg. Dept. New York, NY 10286
Ayikwei Aryeetey Attn: Reorg. Dept. 7E
Ayikwei Aryeetey
</TABLE>
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(212) 815-3687
FACSIMILE TRANSMISSIONS:
(212) 815-6339
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of the Old Bonds
(as defined below) if either Old Bonds are to be forwarded herewith or if
tenders of Old Bonds are to be made by book-entry transfer to an account
maintained by The Bank of New York (the "Exchange Agent") at The Depository
Trust Company ("DTC") pursuant to the procedures set forth in "The Exchange
Offer-Procedures for Tendering the Old Bonds" in the Prospectus.
-1-
<PAGE>
Holders of Old Bonds whose certificates (the "Certificates") for such Old
Bonds are not immediately available or who cannot deliver their Certificates and
all other required documents to the Exchange Agent on or prior to the expiration
date (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Bonds according to
the guaranteed delivery procedures set forth in "The Exchange Offer-Procedures
for Tendering the Old Bonds" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE COMPANY OR DTC DOES NOT CONSTITUTE DELIVERY TO
THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING
----
INSTRUCTIONS CAREFULLY.
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<CAPTION>
==============================================================================================================================
DESCRIPTION OF OLD BONDS TENDERED
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Please Print Name and
Address of Registered
Holder(s) Old Bonds Tendered (Attach Principal Amount of Old Bonds Tendered
(Please Fill in if Blank) Certificate Number(s)* additional List if Necessary) (if Amount of Old Bonds Less Than All)**
- ------------------------ --------------------- ----------------------------- ----------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL AMOUNT TENDERED:
- ------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Old Bonds may be tendered in whole or in part in denominations of $1,000 and integral multiples thereof.
==============================================================================================================================
</TABLE>
BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY:
<TABLE>
<CAPTION>
<S> <C>
[ ] CHECK HERE IF TENDERED OLD BONDS ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution_________________________________________________________________________________________
DTC Account Number____________________________________________________________________________________________________
Transaction CodeNumber________________________________________________________________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD BONDS ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)__________________________________________________________________________________________
Window Ticket Number (if any)_________________________________________________________________________________________
Date of Execution of Notice of GuaranteedDelivery_____________________________________________________________________
Name of Institution Which Guaranteed Delivery_________________________________________________________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution_________________________________________________________________________________________
DTC Account Number____________________________________________________________________________________________________
Transaction Code Number_______________________________________________________________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD BONDS
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD BONDS FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name_____________________________________________________________________________________________________________________
Address__________________________________________________________________________________________________________________
</TABLE>
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Ladies and Gentlemen:
The undersigned hereby tenders to Central Vermont Public Service
Corporation (the "Company"), the above described aggregate principal amount of
the Company's 8 1/8% Second Mortgage Bonds Due 2004 (Series A) (the "Old Bonds")
in exchange for a like aggregate principal amount of the Company's 8 1/8% Second
Mortgage Bonds Due 2004 (Series B) (the "New Bonds") which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), upon the
terms and subject to the conditions set forth in the Company's prospectus dated
________ ___, 1999 (as the same may be amended or supplemented from time to
time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitute the "Exchange
Offer"):
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Bonds tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange 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 such Old Bonds as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Bonds, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Bonds to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Bonds to be issued in exchange for such Old
Bonds, (ii) present Certificates for such Old Bonds for transfer, and to
transfer the Old Bonds on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Bonds, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
BONDS TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
BONDS TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD BONDS TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF
THE EXCHANGE OFFER.
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The names(s) and address(es) of the registered holder(s) of the Old Bonds
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificate(s) representing such Old Bonds. The
Certificate number(s) and the Old Bonds that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Bonds are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Bonds than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Bonds will be returned (or, in the case of Old Bonds tendered by
book-entry transfer, such Old Bonds will be credited to an account maintained at
DTC), without expense to the tendering holder, promptly following the expiration
or termination of the Exchange Offer. The undersigned understands that tenders
of Old Bonds pursuant to any one of the procedures described in "The Exchange
Offer-Procedures for Tendering the Old Bonds" in the Prospectus and in the
instructions hereto will, upon the Company's acceptance for exchange of such
tendered Old Bonds, constitute a binding agreement between the undersigned and
the Company upon the terms and subject to the conditions of the Exchange Offer.
The undersigned recognizes that, under certain circumstances set forth in the
Prospectus, the Company may not be required to accept for exchange any of the
Old Bonds tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Bonds be issued
in the name(s) of the undersigned or, in the case of a book-entry transfer of
the Old Bonds, that such New Bonds be credited to the account indicated above
maintained at DTC. If applicable, substitute Certificates representing the Old
Bonds not exchanged or not accepted for exchange will be issued to the
undersigned or, in the case of a book-entry transfer of Old Bonds, will be
credited to the account indicated above maintained at DTC. Similarly, unless
otherwise indicated under "Special Delivery Instructions," please deliver New
Bonds to the undersigned at the address shown below the undersigned's signature.
BY TENDERING OLD BONDS AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT: (1) THE NEW BONDS ACQUIRED
PURSUANT TO THE EXCHANGE OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF
BUSINESS OF THE PERSON RECEIVING SUCH NEW BONDS, WHETHER OR NOT THAT PERSON IS
THE UNDERSIGNED; (2) NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON HAS AN
ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION
(WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW BONDS; (3) IF THE
UNDERSIGNED IS NOT A BROKER-DEALER, OR IS A BROKER-DEALER BUT WILL NOT RECEIVE
NEW BONDS FOR ITS OWN ACCOUNT IN EXCHANGE FOR THE OLD BONDS, NEITHER THE
UNDERSIGNED NOR ANY SUCH OTHER PERSON IS ENGAGED IN OR INTENDS TO PARTICIPATE IN
THE DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW BONDS;
AND (4) NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE" OF
THE COMPANY, AS DEFINED UNDER RULE 405 OF THE SECURITIES ACT.
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<PAGE>
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A BROKER-DEALER (A "PARTICIPATING BROKER-DEALER") IN
CONNECTION WITH THE RESALE OF THE NEW BONDS RECEIVED IN EXCHANGE FOR THE OLD
BONDS WHERE SUCH OLD BONDS WERE ACQUIRED FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES. EACH PARTICIPATING
BROKER-DEALER THAT PARTICIPATES IN THE EXCHANGE OFFER THAT RECEIVES THE NEW
BONDS FOR ITS OWN ACCOUNT PURSUANT TO THE EXCHANGE OFFER BY TENDERING SUCH OLD
BONDS AND EXECUTING THIS LETTER OF TRANSMITTAL AGREES THAT IT WILL DELIVER A
PROSPECTUS IN CONNECTION WITH ANY RESALE OF SUCH NEW BONDS. HOWEVER, BY SO
ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A PARTICIPATING BROKER-DEALER WILL
NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT. THE COMPANY HAS AGREED THAT FOR A PERIOD OF THE SHORTER OF 180
DAYS AFTER THE EXCHANGE OFFER IS CONSUMMATED AND WHEN THE NEW BONDS ARE RESOLD,
THE COMPANY WILL USE ITS BEST EFFORTS TO MAKE THE PROSPECTUS, AS AMENDED OR
SUPPLEMENTED, AVAILABLE TO ANY PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION
WITH ANY SUCH RESALE. IN THAT REGARD, EACH PARTICIPATING BROKER-DEALER, BY
TENDERING SUCH OLD BONDS AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT
UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE
DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY
REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE
PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF
CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW BONDS PURSUANT TO THE
PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS
GIVEN NOTICE THAT THE SALE OF THE NEW BONDS MAY BE RESUMED, AS THE CASE MAY BE.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
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HOLDER(S) SIGN HERE
(See Instructions 1, 2 and 5)
(Please Complete Substitute Form W-9 on Page 13)
(Bondholder's Signature(s) Must be Guaranteed if Required by Instruction 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Bonds hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certifications and other information as may be required by the Company
or the trustee for the Old Bonds to comply with the restrictions on transfer
applicable to the Old Bonds). If signature is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another acting in
a fiduciary representative capacity, please set forth the signer's full title.
See Instruction 5.
________________________________________________________________________________
________________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Date____________________________________________________________________________
Name(s)_________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Capacity (full title)___________________________________________________________
ADDRESS_________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number__________________________________________________
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(See Instructions 2 and 5)
________________________________________________________________________________
(AUTHORIZED SIGNATURE)
Date____________________________________________________________________________
Name of Firm____________________________________________________________________
Capacity (full title)___________________________________________________________
(PLEASE PRINT)
Address_________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(include zip code)
Area Code and Telephone Number__________________________________________________
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<TABLE>
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SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5 and 6) (See Instructions 1, 5 and 6)
To be completed ONLY if the New Bonds or Old To be completed ONLY if New Bonds or Old Bonds not tendered
Bonds not tendered are to be issued in the name are to be sent to someone other than the registered holder
of someone other than the registered holder of of the Old Bonds whose name(s) appear(s) above, or such
the Old Bonds whose name(s) appear(s) above. registered holder(s) at an address other than that shown
above.
Issue: Send:
[ ] Old Bonds not tendered, to: [ ] Old Bonds not tendered, to:
[ ] New Bonds, to: [ ] New Bonds, to:
Name(s) _______________________________________ Name(s) ___________________________________________________
Address _______________________________________ Address ___________________________________________________
________________________________________________ ____________________________________________________________
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
Area Code and Telephone Number ________________ Area Code and Telephone Number ____________________________
______________________________________________ ____________________________________________________________
_______________________________________________ ____________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY (TAX IDENTIFICATION OR SOCIAL SECURITY
NUMBER(S)) NUMBER(S))
=================================================================================================================
</TABLE>
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INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed if either (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer-Procedures for Tendering Old Bonds" in the Prospectus. Certificates, or
timely confirmation of a book-entry transfer of such Old Bonds into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at its address set forth herein on or prior to
the expiration date. Old Bonds may be tendered in whole or in part in the
principal amount of $1,000 and integral multiples of $1,000.
Holders who wish to tender their Old Bonds and (i) whose Old Bonds are not
immediately available or (ii) who cannot deliver their Old Bonds, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the expiration date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Old Bonds by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer-Procedures for
Tendering the Old Bonds" in the Prospectus. Pursuant to such procedures: (i)
such tender must be made by or through an Eligible Institution (as defined
below); (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company, must be
received by the Exchange Agent on or prior to the expiration date; and (iii) the
Certificates (or a timely confirmation of a book-entry transfer) representing
all tendered Old Bonds, in proper form for transfer, together with a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent within three New
York Stock Exchange, Inc. trading days after the date such executed Notice of
Guaranteed Delivery is received by the Exchange Agent, all as provided in "The
Exchange Offer-Guaranteed Delivery Procedures" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or registered or certified mail to the Exchange Agent, and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice. For Old Bonds to be properly tendered pursuant to the guaranteed
delivery procedure, the Exchange Agent must receive a Notice of Guaranteed
Delivery on or prior to the expiration date. As used herein and in the
Prospectus, "Eligible Institution" means a firm or other entity identified in
Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein): (i) a bank; (ii) a broker,
dealer, municipal securities broker or dealer or government securities broker or
dealer; (iii) a credit union; (iv) a national securities exchange, registered
securities association or clearing agency; or (v) a savings association that is
a participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
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<PAGE>
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on a security position listing as the owner of
the Old Bonds) of Old Bonds tendered herewith, unless such holder(s) has
completed either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" above; or
(ii) such Old Bonds are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s) on
this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Bonds Tendered" is inadequate, the Certificate number(s)
and/or the principal amount of Old Bonds and any other required information
should be listed on a separate signed schedule which is attached to this Letter
of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tender of the Old Bonds will be
accepted only in the principal amount of $1,000 and integral multiples thereof.
If less than all the Old Bonds evidenced by any Certificate submitted are to be
tendered, fill in the principal amount of the Old Bonds which are to be tendered
in the box entitled "Principal Amount of Old Bonds Tendered (If Principal Amount
of Old Bonds Less Than All)." In such case, new Certificate(s) for the
remainder of the Old Bonds that were evidenced by your old Certificate(s) will
only be sent to the holder of the Old Bond, promptly after the expiration date.
All Old Bonds represented by Certificates delivered to the Exchange Agent will
be deemed to have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of the Old Bonds may be
withdrawn at any time on or prior to the expiration date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in the
Prospectus on or prior to the expiration date. Any such notice of withdrawal
must specify the name of the person who tendered the Old Bonds to be withdrawn,
identify the Old Bonds being withdrawn, including the aggregate principal amount
of such Old Bonds, and (if Certificates for Old Bonds have been tendered) the
name of the registered holder of the Old Bonds as set forth on the Certificate
for the Old Bonds, if different from that of the person who tendered such Old
Bonds. If Certificates for the Old Bonds have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such
Certificates for the Old Bonds, the tendering holder must submit the serial
numbers shown on the particular Certificates for the Old Bonds to be withdrawn
and the signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Old Bonds tendered for the account of an
Eligible Institution. If Old Bonds have been tendered pursuant to the
procedures for book-entry transfer set forth in "The Exchange Offer-Procedures
for Tendering the Old Bonds," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of Old Bonds, in
which case a notice of withdrawal will be effective if delivered to the Exchange
Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of
tenders of Old Bonds may not be rescinded. Old Bonds properly withdrawn will
not be deemed validly tendered for
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<PAGE>
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the expiration date by following any of the procedures described in
the Prospectus under "The Exchange Offer-Procedures for Tendering the Old
Bonds."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Bonds which have been tendered
but which are withdrawn will be returned to the holder thereof without cost to
such holder promptly after the expiration or termination of the Exchange Offer.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Bonds tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Bonds tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal. If any
tendered Old Bonds are registered in different name(s) on several Certificates,
it will be necessary to complete, sign and submit as many separate Letters of
Transmittal (or facsimiles thereof) as there are different registrations of
Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons' authority
to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Bonds listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required unless New Bonds are to be issued in the
name of a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Bonds listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Trustee for the Old Bonds may require in accordance with the
restrictions on transfer applicable to the Old Bonds. Signature(s) on such
Certificate(s) or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Bonds are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Bonds are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
Certificates of Old Bonds not exchanged will be returned by mail or, if tendered
by book-entry transfer, by crediting the account indicated above maintained at
DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion,
all questions as to the form of documents, validity, eligibility (including time
of receipt) and
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<PAGE>
acceptance for exchange of any tender of Old Bonds, which determination shall be
final and binding on all parties. The Company reserves the absolute right to
reject any and all tenders determined by it not to be in proper form or the
acceptance of which, or exchange for, may, in the view of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under "The Exchange Offer-Certain Conditions to the Exchange
Offer" or any conditions or irregularity in any tender of Old Bonds of any
particular holder whether or not similar conditions or irregularities are waived
in the case of other holders. The Company's interpretation of the terms and
conditions of the Exchange Offer (including this Letter of Transmittal and the
instructions hereto) will be final and binding. No tender of Old Bonds will be
deemed to have been validly made until all irregularities with respect to such
tender have been cured or waived. Neither the Company, any affiliates or assigns
of the Company, the Exchange Agent, nor any other person shall be under any duty
to give notification of any irregularities in tenders or incur any liability for
failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Old Bonds are accepted for exchange is required
to provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service (the "IRS") may
subject the holder or other payee to a $50 penalty. In addition, payments to
such holders or other payees with respect to Old Bonds exchanged pursuant to the
Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Bonds or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Bonds. If the Old Bonds are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report. Certain holders
(including, among others, corporations, financial institutions and certain
foreign persons) may not be subject to these backup withholding and reporting
requirements. Such holders should nevertheless complete the
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<PAGE>
attached Substitute Form W-9 below, and write "exempt" on the face thereof, to
avoid possible erroneous backup withholding. A foreign person may qualify as an
exempt recipient by submitting a properly completed IRS Form W-8, signed under
penalties of perjury, attesting to that holder's exempt status. Please consult
the enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which holders are exempt from
backup withholding. Backup withholding is not an additional U.S. Federal income
tax. Rather, the U.S. Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Bonds have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to
the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Old Bonds for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, New Bonds are to be delivered to, or are to be issued
in the name of, any person other than the registered holder of the Old Bonds
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Bonds in connection with the Exchange Offer, then the amount of any such
transfer tax (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
-12-
<PAGE>
TO BE COMPLETED BY ALL
TENDERING SECURITY HOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: CENTRAL VERMONT PUBLIC SERVICE CORPORATION
<TABLE>
<CAPTION>
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN ON THE LINE AT RIGHT AND CERTIFY BY TIN_______________________
FORM W-9 SIGNING AND DATING BELOW Social Security Number or
Employer Identification Number
Department of the Treasury NAME (Please Print)
Internal Revenue Service Part 2
____________________________________________________________________
Payor's Request for Taxpayer Awaiting
Identification Number (TIN) ADDRESS_____________________________________________________________
and Certification ____________________________________________________________________
TIN [ ]
CITY________________________________________________________________
STATE_______________________________ZIP CODE________________________
<S> <C> <C>
Part 3 - CERTIFICATION - UNDER THE 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), (2) I am not
subject to backup withholding either because (i) I am exempt from backup
withholding, (ii) 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 (iii) the IRS has
notified me that I am not longer subject to backup withholding, and (3)
any other information provided on this form is true and correct.
SIGNATURE_____________________________________DATE_____________________________________________
You must cross out item (iii) in Part (2) above if you have been
notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return and you have
not been notified by the IRS that you are no longer subject to backup
withholding.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY, IN CERTAIN CIRCUMSTANCES,
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT
TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTION FORM W-9
FOR ADDITIONAL DETAILS.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 (1) 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 (2)
I intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number by the time of
payment, 31% of all payments made to me on account of the New Notes shall be
retained until I provide a taxpayer identification number to the Exchange Agent
and that, if I do not provide my taxpayer identification number within 60 days,
such retained amounts shall be remitted to the Internal Revenue Service as
backup withholding and 31% of all reportable payments made to me thereafter
will be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
<TABLE>
<CAPTION>
<S> <C>
Signature____________________________ Date____________________________
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number To Give the Payer--
Social Security numbers have nine digits separated by two hyphens: i.e., 000-
00-0000. Employer identification numbers have nine digs separated by only one
hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Give the
SOCIAL
For this type of account: SECURITY
number of--
- ---------------------------------------------------------------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of the account or,
account) if combined funds, the first
individual on the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act) The grantor-trustee(1)
4. a. The usual revocable savings trust The actual owner(1)
account (grantor is also trustee)
nominee
b. So-called trust account that is not a
legal or valid trust under State law
5. Sole proprietorship The owner(3)
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Give the
SOCIAL
For this type of account: SECURITY
number of--
- ---------------------------------------------------------------------------------------------------
<S> <C>
6. Sole Proprietorship The owner(3)
7. A valid trust, estate, or The legal entity(4)
pension trust The corporation
8. Corporate account The organization
9. Religious, charitable, or
educational organization
account
The partnership
10. Partnership The organization
11. Association, club, or other
tax-exempt organization The broker or
12. A broker or registered
13. Account with the The public entity
Department of Agriculture in
the name of a public entity
(such as a State or local
government, school district, or
prison) that receives
agricultural program payments
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has an SSN, that person's number must be
furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show your individual name. You may also enter your business name. You may
use either your Social Security Number or your Employer Identification
Number.
(4) List first and circle the name of the legal trust, estate or pension trust.
(Do not furnish the identifying number of the personal representative or
trustee unless the legal entity itself is not designated in the account
title.)
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
-14-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service (the "IRS") and apply for a
number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments include the
following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual retirement
plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a) of the Code.
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
. Payments of interest not generally subject to backup withholding include
the following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
. Payments described in section 6049(b)(5) of the Code to non-resident
aliens.
. Payments on tax-free covenant bonds under section 1451 of the Code.
. Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE
FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN
ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL
REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see Sections 6041, 6041A(a), 6045, 6050A and 6050N of
the Code and the regulations promulgated thereunder.
Privacy Act Notice.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividends, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to wilful neglect.
(2) Civil Penalty for False Information with Respect to Withholding--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information.--Wilfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
-15-
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
8 1/8% SECOND MORTGAGE BONDS DUE 2004 (SERIES A)
OF
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 8 1/8% Second Mortgage Bonds
Due 2004 (Series A) (the "Old Bonds") are not immediately available, (ii) the
Old Bonds, the Letter of Transmittal and all other required documents cannot be
delivered to The Bank of New York (the "Exchange Agent") on or prior to the
expiration date (as defined in the Prospectus referred to and as defined below)
or (iii) the procedures for delivery by book-entry transfer cannot be completed
on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand,
overnight courier, registered or certified mail, or transmitted by facsimile
transmission, to the Exchange Agent. See "The Exchange Offer-Procedures for
Tendering the Old Bonds" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
<S> <C>
BY REGISTERED OR BY OVERNIGHT DELIVERY/HAND:
CERTIFIED MAIL: The Bank of New York
The Bank of New York Corporate Trust Service Window; Ground Level
101 Barclay Street 7E 101 Barclay Street
New York, NY 10286 New York, NY 10286
Attn: Reorg. Dept. Attn: Reorg. Dept. 7E
Ayikwei Aryeetey Ayikwei Aryeetey
</TABLE>
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(212) 815-3687
FACSIMILE TRANSMISSIONS:
(212) 815-6339
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY 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.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Central Vermont Public Service
Corporation, a Vermont corporation (the "Company"), upon the terms and subject
to the conditions set forth in the Company's prospectus dated __________ ____,
1999 (as the same may be amended or supplemented from time to time, the
"Prospectus"), and the related letter of transmittal (the "Letter of
Transmittal," which, together with the Prospectus, constitute the "Exchange
Offer"), receipt of which is hereby acknowledged, the aggregate principal amount
of the Old Bonds set forth below pursuant to the guaranteed delivery procedures
set forth in the Prospectus under the caption, "The Exchange Offer-Procedures
for Tendering the Old Bonds."
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Name(s) of Registered Holder(s):__________________________________
Amount Tendered: $______________ __________________________________________________________________
Certificate No(s). (if available:)________________________________________________________________________
Address(es):______________________________________________________________________________________________
Area Code and Telephone Number(s):________________________________________________________________________
If the Bonds will be tendered by book-entry transfer, provide the following information:
DTC Account Number:_______________________________________________________________________________________
Date:_____________________________________________________________________________________________________
</TABLE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
X_____________________________ ______________________
X_____________________________ ______________________
Date
Must be signed by the holder(s) of the Old Bonds as their name(s) appear(s)
on the certificates for Old Bonds or on a security position listing, or by
person(s) authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below and, unless waived by the Company, provide
proper evidence satisfactory to the Company of such person's authority to so
act.
Please print name(s) and address(es)
Name(s): _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Capacity: _________________________________________________________________
Address(es): _________________________________________________________________
THE GUARANTEE ON THE NEXT PAGE MUST ALSO BE COMPLETED
2
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Bonds
tendered hereby in proper form for transfer, or confirmation of the book entry
transfer of such Old Bonds to the Exchange Agent's account at The Depositary
Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set
forth in the Prospectus, in either case together with one or more properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and
any other required documents within three New York Stock Exchange, Inc. trading
days following the date of receipt by the Exchange Agent of this Notice of
Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Bonds tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
________________________________ ________________________________
Name of Firm Authorized Signature
________________________________ ________________________________
Address Title
________________________________ (Please Type or Print)
Zip Code
Area Code and Telephone Number: __________________ Date:________________
NOTE: DO NOT SEND THE OLD BONDS WITH THIS NOTICE OF GUARANTEED DELIVERY.
ACTUAL SURRENDER OF THE OLD BONDS MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED
BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
3
