<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
JANUARY 6, 1999
(TO PROSPECTUS DATED JANUARY 5, 1999)
Filed pursuant to Rule 424(b)(2)
SEC File No. 333-64215
TEXAS-NEW MEXICO POWER COMPANY
$175,000,000
6 1/4% SENIOR NOTES DUE JANUARY 2009
- --------------------------------------------------------------------------------
THE COMPANY: THE SENIOR NOTES:
. We are a public utility engaged in . Maturity: January 15, 2009.
generating, purchasing, transmitting,
distributing and selling electricity . Interest: interest accrues
to approximately 226,000 customers from January 12, 1999.
in Texas and New Mexico.
. Interest Payments: semi-
. Texas-New Mexico Power Company annually on July 15 and January
4100 International Plaza 15, commencing on July 15,
P.O. Box 2943 1999.
Fort Worth, Texas
76113 (817) 731-0099 . Redemption: redeemable at our
option, in whole or in part,
PROPOSED TRADING FORMAT: at the Make-Whole Price
set forth on page S-16.
. Listing: not listed on any
securities exchange or included . Security: until the Release
in any automated quotation Date, the Senior Notes will be
system. secured by the Senior Note
Mortgage Bonds. On the Release
THE OFFERING: Date, the Senior Notes will
become unsecured general
. Use of Proceeds: to retire obligations of the Company, and
our 12.5% Secured Debentures rank on a parity with other
and reduce amounts currently unsecured indebtedness of the
outstanding under our existing Company.
bank credit facilities.
. Closing Date: January 12, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Per
Senior Note Total
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<S> <C> <C>
Public offering price: 99.522% $174,163,500
Underwriting fees: 0.650% $ 1,137,500
Proceeds to Company: 98.872% $173,026,000
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</TABLE>
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Neither the SEC nor any state securities commission has determined whether this
prospectus supplement is truthful or complete. Nor have they made, nor will
they make, any determination as to whether anyone should buy these securities.
Any representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
The Underwriters listed below will purchase the Senior Notes on a firm
commitment basis subject to certain conditions.
DONALDSON, LUFKIN & JENRETTE WARBURG DILLON READ LLC
CHASE SECURITIES INC.
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
LEGG MASON WOOD WALKER
INCORPORATED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
- --------------------- ----
<S> <C>
Summary.......................... S-3
Use of Proceeds.................. S-9
Capitalization................... S-10
Business......................... S-11
Recent Developments.............. S-13
Description of the Senior Notes.. S-15
Underwriting..................... S-19
Validity of the Senior Notes..... S-20
Forward-looking Statements and
Factors That May Affect Future
Results......................... S-21
</TABLE>
<TABLE>
<CAPTION>
PROSPECTUS PAGE
- ---------- ----
<S> <C>
Available Information................................................. 2
Incorporation of Certain Documents by Reference....................... 2
Statement Regarding Forward Looking Information....................... 3
The Company........................................................... 3
Use of Proceeds....................................................... 4
Ratio of Earnings to Fixed Charges.................................... 4
Overview of Securities................................................ 5
Description of Senior Debt Securities................................. 5
Description of the First Mortgage Bonds............................... 17
Plan of Distribution.................................................. 20
Validity of Securities................................................ 21
Experts............................................................... 21
</TABLE>
S-2
<PAGE>
SUMMARY
This summary is qualified by more detailed information appearing in other
sections of this Prospectus Supplement and in the Prospectus. The other
information is important, so please read this Prospectus Supplement and the
Prospectus carefully.
THE COMPANY
We are a public utility engaged in generating, purchasing, transmitting,
distributing and selling electricity to approximately 226,000 customers. We
operate in 85 municipalities and adjacent rural areas in three operating
regions in Texas and New Mexico. Our largest division, the Gulf Coast Region,
includes the area along the Texas Gulf Coast between Houston and Galveston.
This division produced 54.3% of total operating revenues in 1997. Our North-
Central Region, which extends from Lewisville, Texas to areas in northeast
Texas along the Red River and includes areas southwest of the Dallas-Fort Worth
metropolitan area, produced 24.8% of total operating revenues in 1997. Our
Mountain Region, which includes areas in southwest and south-central New
Mexico, produced 18.5% of total operating revenues in 1997. The remaining 2.4%
of our revenues in 1997 were generated by our power marketing activities in
which we resell electricity to customers outside of our system.
We own, through wholly-owned subsidiaries, one electric generating facility,
TNP One, which is located in Robertson County, Texas. TNP One consists of two
150-megawatt units, each of which uses a lignite-fueled, circulating fluidized
bed technology. The two units supply, on an annualized basis, approximately 20%
of our energy requirements. We purchase the remaining approximately 80% of our
energy requirements through power purchase agreements with varying terms and
maturities.
Our two subsidiaries, Texas Generating Company ("TGC") and Texas Generating
Company II ("TGC II"), were organized to assist us in our acquisitions of Unit
1 and Unit 2 of TNP One. We, TGC and TGC II, are all Texas corporations.
Our operations are subject to regulation by the Public Utility Commission of
Texas ("PUCT") and the New Mexico Public Utility Commission ("NMPUC"). Also,
some of our activities, such as issuing securities, are subject to the
jurisdiction of the Federal Energy Regulatory Commission.
We are a wholly-owned subsidiary of TNP Enterprises, Inc. ("TNP"), a Texas
corporation and an exempt utility holding company. TNP is listed on the New
York Stock Exchange under the ticker symbol TNP. Our predecessor was organized
in 1925. Our executive offices are located at 4100 International Plaza, P.O.
Box 2943, Fort Worth, Texas 76113. Our telephone number is (817) 731-0099.
There are a number of forces underlying the movement toward increasing
competition in the electric utility industry. These include legislative and
regulatory changes, technological advances, consumer demands, greater
availability of natural gas, and environmental needs. The increasingly
competitive environment for energy generation presents opportunities to compete
for new customers, as well as the risk of loss of existing customers.
The most significant effect of competition on us, as well as on other
utilities, may be how the question of our ability to recover potential stranded
costs is finally resolved. "STRANDED COSTS" are the difference between what it
costs us to generate or purchase electricity and what a customer would be
willing to pay for electricity in a competitive market. If we are unable to
recover a significant portion of our stranded costs, we could experience a
negative impact on our financial condition. In Texas, our potential stranded
costs relate primarily to TNP One. Stranded costs from TNP One could
potentially be more than $270 million. In New Mexico, our potential stranded
costs relate to our purchase power contracts and could potentially be $3
million to $9 million. We cannot predict what portion of our stranded costs we
will ultimately be able to recover, nor can we predict the impact on our
results of operations in the event that we do not recover all of our stranded
costs.
S-3
<PAGE>
In addition to working toward the satisfactory resolution of the stranded
costs issue, we are pursuing strategies to retain existing customers and
attract new ones. We believe that current competitive developments in the
wholesale market are benefitting us and our customers. The fact that we
purchase much of our power gives us a greater degree of flexibility than
utilities that generate most of their own power needs, because we can take
advantage of lower overall wholesale power prices and pursue new options in
obtaining purchased power. We also believe that our competitive position has
been strengthened with the PUCT open access transmission rule. We believe that
our revenue growth opportunities are through an increased customer base and new
services.
TEXAS TRANSITION PLAN
On July 22, 1998, the PUCT verbally approved our proposed transition to
competition plan (the "TEXAS TRANSITION PLAN"). The PUCT issued its final
written order documenting its approval on November 7, 1998. We expect that
certain parties will appeal the PUCT's written order to the District Court in
Travis County, Texas.
The Texas Transition Plan includes a number of important provisions:
. First, we will implement a series of residential and commercial rate
reductions totaling 9% and 3%, respectively, during a five-year transition
period. The first rate reductions for residential and commercial customers
of 3% and 1%, respectively, became effective retroactive to January 1, 1998.
. Second, earnings on our Texas operations are capped at 11.25% return on
equity, less assumed discounts on industrial rates. These discounts on
industrial rates for 1998 are $4.1 million, but we have the ability to
reduce the amount of the discount in succeeding years. We will apply Texas
earnings in excess of the cap to either recover stranded costs related to
our generation investment in TNP One or to provide refunds to customers,
according to guidelines approved by the PUCT.
. Third, the Texas Transition Plan includes a cap on operating and maintenance
expenses applicable to our Texas operations based on costs incurred per
customer in 1996, which will apply in determining the amount of excess
earnings subject to refund.
. Fourth, we will be allowed to record $15 million of additional depreciation
annually, beginning in 1999, during the transition period. This additional
depreciation will help us to mitigate our stranded costs related to TNP One.
. Finally, our fixed fuel factor has been increased to include the energy-
related portion of purchased power costs. The demand portion of purchased
power costs has been included in base rates at annualized 1996 levels.
The Texas legislature may consider and adopt legislation concerning retail
competition or other laws that could affect our operations during the upcoming
1999 session or in subsequent legislative sessions. To date, we believe that at
least two bills providing for the implementation of retail competition have
been pre-filed with the Texas legislature for consideration during the 1999
session. At this time, however, we do not know whether this proposed
legislation will be considered or adopted by the legislature, and we do not
know if any additional bills containing similar proposals will be introduced or
considered, or what such legislation could contain.
Absent legislation implementing retail competition prior to the end of the
five year transition period, we will file with the PUCT, at the end of the
transition period, a proposal to voluntarily implement retail access,
contingent upon the approval of an appropriate mechanism for recovery of any
remaining stranded costs. The PUCT has committed to full recovery of stranded
costs if they are quantified using a market-based methodology, if we offer
retail access and stranded costs are allocated fairly to all customers.
During the nine months ended September 30, 1998, the results of our
operations reflect a one-time charge of $3.2 million, or $0.24 per share,
related to the implementation of the Texas Transition Plan. The charge
S-4
<PAGE>
consists of the write-off of previously deferred transition plan expenses of
$2.2 million, net of taxes, and customer refunds of $1.0 million, net of taxes.
The results of operations are also affected by additional depreciation of
$735,000 ($455,000, net of taxes) and provision for rate refund of $734,000
($455,000, net of taxes), both of which resulted from the earnings cap.
NEW MEXICO COMMUNITY CHOICE
Following approval by the NMPUC on April 11, 1997, we implemented Community
Choice effective May 1, 1997. The plan provides our customers the right to
choose their energy provider after a three-year transition period. The plan
freezes rates (including the recovery of purchased power) during the transition
period and allows for customer aggregation based on market forces. We believe
the price of power will cause customers to aggregate their power needs in order
to get the best value for electricity. We believe the plan will allow us to
recover our potential stranded costs in New Mexico. The actual recovery and
amount of potential stranded costs will depend on the future market and price
for power through May 1, 2000.
As in Texas, the New Mexico legislature, during its upcoming 1999 session or
in subsequent legislative sessions, may consider and adopt legislation
concerning retail competition or other laws that could affect our operations.
We currently expect that at least one bill concerning retail competition will
be introduced. At this time, however, we do not know whether this proposed
legislation will be considered or adopted by the New Mexico legislature, and we
do not know if any additional bills containing similar proposals will be
introduced or considered, or what such legislation could contain.
NON-REGULATED ACTIVITIES
TNP, our parent company, has pursued certain non-regulated business
activities. To date, these activities have been in areas related to our utility
business. However, they have been separate from the utility business and not
dependent on our utility operations.
Facility Works, Inc. ("FWI") is a wholly owned subsidiary of TNP that began
operations in 1996. FWI provided integrated mechanical, electrical, plumbing
and other maintenance and repair services to commercial customers in Texas
metropolitan areas. FWI was engaged in construction activities in 1996 and
1997. TNP discontinued this construction segment, however, in late 1997. In
addition, TNP announced on October 15, 1998 that it has elected to discontinue
the remaining operations of FWI. TNP expects that the phase-out of FWI will
extend into the second quarter of 1999. The impact of these discontinued
operations is described in the notes to TNP's financial statements contained in
TNP's Annual Report on Form 10-K for the year ended December 31, 1997 and in
TNP's Quarterly Reports on Form 10-Q for the quarters ended June 30, 1998 and
September 30, 1998.
TNP also has invested $2.5 million in an enterprise that is developing a
solid oxide fuel cell technology for commercial application and will make an
additional investment of $7 million, subject to the enterprise's attainment of
certain developmental goals. This venture is presently in its development
stage, and TNP has not recognized any income from it. This venture has not had
a material effect on TNP's results of operations.
In addition to these activities, TNP continues to review other potential non-
regulated business ventures for possible investment.
POWER MARKET VOLATILITY
During the summer of 1998, certain utilities in the midwestern United States
experienced shortages of power and wide fluctuations in purchased power costs.
These incidents resulted from a default by a power
S-5
<PAGE>
marketing company in its delivery of firm power to a utility customer. We did
not experience any power shortages or material price fluctuations during the
summer of 1998, and we believe that no other utility in Texas or New Mexico
experienced these shortages or material fluctuations. We believe that the
presence of systems such as the Electric Reliability Council of Texas ("ERCOT")
in our service areas makes the occurrence of events of similar magnitude
unlikely in our areas of operation. Due to the increasing role of independent
power marketers operating within our service areas, however, we cannot
guarantee that shortages or similar events affecting the availability and cost
of power will not occur.
The PUCT has expressed concern regarding the availability of power within
Texas in light of the events last summer in the midwestern United States.
However, we believe that our current and new supplier contracts are sufficient
to provide adequate power resources to meet our projected demand. These
suppliers appear to have reliable sources to meet their contractual obligations
to supply our needs.
S-6
<PAGE>
THE OFFERING
Issuer...................... Texas-New Mexico Power Company. Our principal
executive office is located at 4100
International Plaza, P.O. Box 2943, Fort
Worth, Texas 76113. Our telephone number is
(817) 731-0099.
Securities offered.......... $175,000,000 aggregate principal amount of 6
1/4% Senior Notes due 2009.
Maturity date............... The Senior Notes will mature on January 15,
2009.
Interest payment dates...... We will pay interest on the Senior Notes
semi-annually on July 15 and January 15,
beginning July 15, 1999.
Security.................... The Senior Notes will be secured by the
Senior Note Mortgage Bonds until a date to be
known as the "RELEASE DATE." On the Release
Date, the Senior Notes will become unsecured
general obligations of the Company. The
Senior Note Mortgage Bonds are First Mortgage
Bonds of the Company delivered to the Trustee
as security for the Senior Notes.
Optional redemption......... We may redeem all or a part of the Senior
Notes at our option by paying the Make-Whole
Price (as discussed herein).
Sinking fund................ None.
Use of proceeds............. We will use the proceeds from the sale of the
Senior Notes to retire our 12.5% Secured
Debentures that are maturing on January 15,
1999 and to reduce amounts currently
outstanding under our 1996 bank credit
facility.
S-7
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS)
The following table presents our selected consolidated financial data. We
derived the annual data from our audited financial statements. You can find
these financial statements in our Annual Reports on Form 10-K for the years
ended December 31, 1997, 1996 and 1995. We derived the nine months data from
our unaudited quarterly financial statements. You can find these financial
statements in our Quarterly Report on Form 10-Q for the nine months ended
September 30, 1998. The data for the nine months ended September 30, 1997 and
1998 do not necessarily provide information concerning the results of
operations for the entire year. You should read this data together with
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and the Consolidated Financial Statements and related notes, as
contained in our Form 10-Ks and Form 10-Qs.
<TABLE>
<CAPTION>
TWELVE
MONTHS ENDED
NINE MONTHS ENDED SEPTEMBER
FISCAL YEARS ENDED DECEMBER 31, SEPTEMBER 30, 30,
-------------------------------------------------- ------------------- ------------
1993 1994 1995 1996 1997 1997 1998 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Operating revenues... $ 474,242 $ 477,989 $ 485,823 $ 502,737 $ 580,693 $ 445,619 $ 457,097 $592,171
Other income, net of
taxes............... 1,224 (19,377) 10,729 2,348 1,377 675 1,059 1,761
--------- --------- --------- --------- --------- --------- --------- --------
Total.............. 475,466 458,612 496,552 505,085 582,070 446,294 458,156 593,932
Expenses:
Purchased power...... 200,183 194,595 178,465 196,481 261,043 194,591 214,241 280,693
Fuel................. 44,348 46,988 48,898 47,201 41,730 35,251 31,751 38,230
Other operating and
maintenance......... 80,866 84,438 82,833 83,948 84,294 61,373 65,229 88,150
Reorganization
costs............... -- 8,782 -- -- -- -- -- --
Depreciation of
utility plant....... 36,015 36,782 37,850 38,170 38,851 29,099 28,993 38,745
Taxes other than
income taxes........ 30,296 29,651 28,865 32,727 33,260 25,149 27,934 36,045
Income taxes......... 4,294 (1,238) 12,317 10,333 22,062 18,808 16,622 19,876
--------- --------- --------- --------- --------- --------- --------- --------
Total.............. 396,002 399,998 389,228 408,860 481,240 364,271 384,770 501,739
--------- --------- --------- --------- --------- --------- --------- --------
Income before interest
charges............... 79,464 58,614 107,324 96,225 100,830 82,023 73,386 92,193
--------- --------- --------- --------- --------- --------- --------- --------
Interest charges:
Interest on long-term
debt................ 63,833 71,568 70,544 64,654 52,557 39,989 36,875 49,443
Other interest and
amortization of
debt-related costs.. 4,108 3,680 3,416 4,709 4,355 3,157 3,306 4,504
--------- --------- --------- --------- --------- --------- --------- --------
Total.............. 67,941 75,248 73,960 69,363 56,912 43,146 40,181 53,947
--------- --------- --------- --------- --------- --------- --------- --------
Income before the
cumulative effect of
change in
accounting............ 11,523 (16,634) 33,364 26,862 43,918 38,877 33,205 38,246
Cumulative effect of
change in accounting
for unbilled
revenues, net of
taxes................. -- -- 8,445 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------
Net income............. 11,523 (16,634) 41,809 26,862 43,918 38,877 33,205 38,246
Dividends on preferred
stock................. 879 790 655 167 158 120 114 152
--------- --------- --------- --------- --------- --------- --------- --------
Income applicable to
common stock.......... $ 10,644 $ (17,424) $ 41,154 $ 26,695 $ 43,760 $ 38,757 $ 33,091 $ 38,094
========= ========= ========= ========= ========= ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
AS OF (UNAUDITED)
DECEMBER 31, ---------------------
1997 ACTUAL AS ADJUSTED
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital, not including current
maturities of long-term debt............. $(57,794) $(76,093) $(76,093)
Current maturities of long-term debt...... 100 137,900 7,900
Total assets.............................. 967,006 972,277 974,738
Long-term debt, less current maturities... 477,900 302,000 435,815
Common shareholder's equity............... 287,021 291,512 291,512
</TABLE>
S-8
<PAGE>
USE OF PROCEEDS
The net proceeds from the offering of the Senior Notes are estimated to be
approximately $172.5 million (after underwriting discounts and estimated
offering expenses). We will apply these proceeds as follows:
. $130 million for the retirement of our 12.5% Secured Debentures that mature
on January 15, 1999, plus approximately $1.3 million for the payment of
interest on these Debentures accrued from December 15, 1998, and
. Approximately $41.2 million to reduce amounts currently outstanding under
our existing 1996 bank credit facility (the "1996 FACILITY").
Our 1996 Facility provides for a total commitment of $80 million, which
expires in September 2001. At September 30, 1998, the interest rate on
borrowings under the 1996 Facility was 7.4%.
If we do not use the net proceeds immediately, we will temporarily invest
them in short-term, interest-bearing obligations.
S-9
<PAGE>
CAPITALIZATION
The following table sets forth our short-term debt and capitalization as of
September 30, 1998, on an actual and as adjusted basis to reflect the issuance
of the Senior Notes and the application of the estimated net proceeds from the
Senior Notes. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1998 (UNAUDITED)
---------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED
<S> <C> <C>
Cash and cash equivalents................................ $ 8,894 $ 8,894
========= =========
Long-term debt:
First Mortgage Bonds
Series M, 8.70% due 2006(/1/)........................ $ 7,900 $ 7,900
Series U, 9.25% due September 15, 2000............... 100,000 100,000
6 1/4% Senior Notes due January 15, 2009............... 0 175,000
Secured Debentures
12.50% due January 15, 1999.......................... 130,000 0
Series A, 10 3/4% due January 15, 2003(/2/).......... 140,000 140,000
Revolving Credit Facilities
1995 Facility........................................ 0 0
1996 Facility(/3/)................................... 62,000 20,815
--------- ---------
Total long-term debt............................... 439,900 443,715
Redeemable cumulative preferred stock.................... 3,240 3,240
Common shareholder's equity:
Common Stock, $10 par value per share,
12,000,000 shares authorized, 10,705 shares
outstanding........................................... 107 107
Capital in excess of par value 222,146 222,146
Retained earnings...................................... 69,259 69,259
--------- ---------
Total common shareholder's equity.................. 291,512 291,512
--------- ---------
Total capitalization..................................... $ 734,652 $ 738,467
========= =========
</TABLE>
- --------
(1) All outstanding Series M First Mortgage Bonds were redeemed as of October
14, 1998.
(2) Redeemable at the option of the Company, in whole or in part, at any time
on or after September 15, 2000.
(3) As of January 4, 1999, the principal amount outstanding under the 1996
Facility was $80.0 million. Based on that amount, the principal amount
outstanding on January 4, 1999, as adjusted to reflect the application of
the estimated net proceeds, would be $38.8 million.
S-10
<PAGE>
BUSINESS
SERVICE TERRITORY
We serve a market niche of smaller to medium sized communities. Only two of
the 85 communities in our service area have populations in excess of 50,000.
Our sales in all regions are primarily to retail customers. We have set
forth below the revenues contributed by each of our operating sectors and its
percentage of our total operating revenues in 1995, 1996, and 1997,
respectively. No single customer accounted for more than 10% of our operating
revenues during any of the years presented in the table.
OPERATING REVENUES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
SECTOR --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Gulf Coast................... $ 250,165 51.5% $ 269,535 53.6% $ 315,596 54.3%
North-Central................ 130,200 26.8 134,236 26.7 144,098 24.8
Panhandle(/1/)............... 7,322 1.5 -- -- -- --
Mountain..................... 98,136 20.2 98,966 19.7 107,243 18.5
Power Marketing.............. -- -- -- -- 13,756 2.4
--------- ----- --------- ----- --------- -----
Total...................... $ 485,823 100.0% $ 502,737 100.0% $ 580,693 100.0%
========= ===== ========= ===== ========= =====
</TABLE>
- --------
(1) The Panhandle sector was sold to Southwestern Public Service Co. in
September 1995.
SOURCES OF ENERGY
Power generated at TNP One is transmitted over our own transmission lines to
other utilities' transmission systems for delivery to our Texas service area
systems. To maintain a reliable power supply for our customers and to
coordinate interconnected operations, we are a member of ERCOT and the Western
Systems Coordinating Council.
We purchase the remainder of our electricity from various suppliers with
diversified fuel sources. During 1997, we made approximately 81% of our
purchases of power under multi-year firm contracts. We made 19% of our
purchases of power through the short-term spot market. The availability and
cost of purchased power to us is subject to changes in supplier costs,
regulations and laws, fuel costs, and other factors. We continue to pursue
opportunities to reduce purchased power costs through the short-term wholesale
marketplace.
S-11
<PAGE>
The following table sets forth certain information concerning our sources of
electric energy in 1997.
<TABLE>
<CAPTION>
YEAR CONTRACT PERCENT OF ENERGY
EXPIRES PROVIDED
<S> <C> <C>
TEXAS
Generation:
TNP One.................................... -- 26%
Purchased Power:
Texas Utilities Electric Co. ("TU")(/1/)... 2002 20
Clear Lake Cogeneration L.P................ 2004 16
Other (primarily cogenerators)............. Various 38
---
Total........................................ 100%
===
NEW MEXICO
Purchased Power:
Public Service Co. of New Mexico
("PNM")(/2/).............................. 1999 12%
El Paso Electric Co........................ 2002 12
New Century Energy Co...................... 2001 15
Other (primarily short-term
contracts)(/3/)........................... -- 61
---
Total........................................ 100%
===
</TABLE>
- --------
(1) During 1995, we notified TU of our intent to cease purchasing a
significant portion of the full requirements power and energy from TU
effective January 1, 1999. Our agreement with TU provided for certain
purchases through 2010. In December 1997, we entered into an agreement
with TU that resolved outstanding issues and shortened the term of our
preexisting agreement with TU to June 2002 from May 2010.
(2) Our contract with PNM expired effective January 1, 1999. We continue to
purchase capacity and energy from PNM through short-term contracts at
market prices.
(3) Our suppliers under short-term contracts include Tucson Electric Power
Co., PNM, El Paso Electric Co. and New Century Energy Co.
We believe that our current and new supply arrangements and available
capacities on the wholesale market are adequate to satisfy our foreseeable
power requirements. See "Summary--Recent Developments--Power Market
Volatility."
RECOVERING PURCHASED POWER AND FUEL COSTS
During 1997, we recovered purchased power costs (both energy and capacity)
from our Texas customers through a power cost recovery adjustment clause
authorized by the PUCT. The clause allowed us to recover this significant
component of operating expenses within two months of billing by our suppliers.
Effective January 1, 1998, we began to recover fuel costs and energy costs
related to purchase power contracts from our Texas customers through a fixed
fuel recovery factor approved by the PUCT. The capacity portion of purchased
power is now recovered through base rates. See "Recent Developments--
Competition--Texas Transition Plan."
In New Mexico, our practice had been to recover purchased power costs under
regulatory provisions similar to the ones previously in force in Texas.
However, as of May 1, 1997, we have been implementing Community Choice, our
plan for transition to competition within our New Mexico service territory.
This plan freezes rates (including the recovery of purchased power) during the
succeeding three-year transition period. See "Recent Developments --
Competition -- New Mexico Community Choice."
S-12
<PAGE>
ENVIRONMENTAL REGULATIONS
In addition to regulation as a utility, our facilities are regulated by the
Environmental Protection Agency and by Texas and New Mexico environmental
agencies. TNP One uses environmentally efficient circulating fluidizing bed
technology that eliminates the need for expensive scrubbers. We were allotted
sufficient emission allowances to comply with the Clean Air Act of 1990 through
the year 2000. While we expect to institute further controls after the year
2000 or purchase emissions credits, we do not expect any material costs to be
incurred.
We, along with our subsidiaries and certain projects affiliated with us, are
subject to various federal, state and local environmental laws that relate to
the cleanup of properties that are affected by hazardous substances. Certain
environmental laws, such as the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), impose strict,
retroactive, joint and several liability on persons responsible for releases of
hazardous substances. Responsibility for these releases is broadly construed
under these laws. We have owned and operated, and we currently own and operate,
industrial facilities that use hazardous substances. We do not know of any
conditions from this use that would result in our incurring material
liabilities. However, we can not assure you that these costs will not arise or
that these costs would not be material.
During 1995, 1996 and 1997, we incurred expenses related to air, water, and
solid waste pollution abatement (including ash removal) of approximately $5.5
million, $6.1 million, and $5.0 million, respectively. Additionally, due to
increased regulation of nitrogen oxides emissions, we expect either to incur
certain capital expenditures or to purchase emission credits for compliance. We
do not expect that any of the matters described above or any of our other
liabilities or compliance costs will have a material impact on our capital
expenditures, earnings or competitive position. However, some risk of
environmental liability is inherent in the nature of our current and former
businesses, and we might in the future incur material costs to meet current or
more stringent compliance, cleanup or other obligations pursuant to
environmental laws.
RECENT DEVELOPMENTS
LITIGATION
Clear Lake. We are the defendant in a lawsuit styled Clear Lake Cogeneration
Limited Partnership v. Texas-New Mexico Power Company. This suit was filed on
October 2, 1997 and is pending in the 234th District Court of Harris County,
Texas. This lawsuit and a parallel proceeding pending before the PUCT arose out
of disagreements between us and the limited partnership ("CLEAR LAKE") over the
interpretation of certain terms of an agreement under which we purchase
cogenerated electricity from Clear Lake. We moved for summary judgment on all
grounds, and Clear Lake moved for summary judgment with respect to certain
claims. On November 2, 1998, the court ruled on these motions, granting our
motion for summary judgment on certain issues, denying motions by both parties
relating to the material issues in the case, and granting Clear Lake leave to
amend its summary judgment motion with respect to certain issues.
With respect to the lawsuit, Clear Lake disputes several charges for which we
have billed Clear Lake. Clear Lake also alleges that we have failed to abide by
contractual language concerning several issues. Clear Lake is seeking
approximately $22 million in damages in the lawsuit. We are currently in
settlement discussions with Clear Lake, but there can be no assurance that we
will reach a settlement with Clear Lake that will be satisfactory to us.
Pending any settlement in this lawsuit, we will continue to vigorously contest
this lawsuit. We do not expect the ultimate disposition of this lawsuit to have
a material effect on our results of operations.
A proceeding pending before the PUCT with respect to Clear Lake was filed on
October 1, 1997. This proceeding involves an action for interpretation of the
terms of the purchase power agreement that related to the payment for wheeling
services. Requests for information are ongoing in the PUCT matter. The staff of
the PUCT has issued briefs supporting our position on certain issues and
opposing our position on other issues. We
S-13
<PAGE>
are vigorously contesting the claims of Clear Lake in the PUCT proceeding. At
this time, we do not know the timing of the PUCT's ruling. We do not believe
that the outcome of the lawsuit with Clear Lake will affect the PUCT's ruling.
Phillips Petroleum. We are also the defendant in a lawsuit styled Phillips
Petroleum Company v. Texas-New Mexico Power Company. This lawsuit was filed on
October 1, 1997 and is pending in the 149th Judicial District Court of Brazoria
County, Texas. In this matter, Phillips Petroleum Company ("PHILLIPS
PETROLEUM") contends that it sustained economic losses of approximately $36
million following a one and one-half hour interruption in its electrical
service on May 17, 1997. We claim that most, if not all, of Phillips
Petroleum's alleged damages are barred by limitations contained within our
tariff approved by the PUCT. The lawsuit is in the initial discovery stage. In
regard to this matter, we believe we have insurance coverage on most claims of
Phillips Petroleum up to a total of $32 million, with a $500,000 self-
retention.
We are involved in various claims and other legal actions arising in the
ordinary course of business. In our opinion, the ultimate disposition of these
other matters will not have a material adverse effect on our consolidated
financial position or results of operations.
S-14
<PAGE>
DESCRIPTION OF THE SENIOR NOTES
The following information concerning the Senior Notes supplements the
description of the general terms and provisions of Senior Debt Securities set
forth in the accompanying Prospectus. If the information is inconsistent with
the Prospectus, the following language should replace the language in the
Prospectus. If we use a term that is not defined in this Prospectus
Supplement, you should use the definition contained in the Prospectus or the
Indenture. The following description of the terms of the Senior Notes is not
complete. You should read this description of the Senior Notes together with
the description of the Senior Debt Securities in the accompanying Prospectus.
GENERAL
We will issue the Senior Notes as a new series of Senior Debt Securities. We
will issue the Senior Notes under an Indenture, dated as of January 1, 1999,
between us and Chase Bank of Texas, N.A., as Trustee (the "TRUSTEE"), as
amended and supplemented by a First Supplemental Indenture, dated as of
January 1, 1999, between us and the Trustee (collectively, the "INDENTURE").
The Indenture is described in more detail in the Prospectus. The Senior Notes
are the first series of Senior Debt Securities that we have issued.
MATURITY, INTEREST RATE AND PAYMENT DATES
The Senior Notes will:
.be our direct obligations,
.be secured in the manner described below under the caption "Security;
Release Date,"
.be limited to an aggregate principal amount of $175,000,000, and
.mature on January 15, 2009.
Interest on the Senior Notes will:
.begin to accrue on January 12, 1999, the date the Senior Notes are issued,
.be at the annual interest rate stated on the cover page of this Prospectus
Supplement,
. be payable semi-annually on July 15, and January 15 in each year,
commencing July 15, 1999,
.be calculated based on a 360-day year consisting of twelve 30-day months,
and
. be paid to the person in whose name the Senior Note is registered at the
close of business on the July 1 and January 1 respectively, whether or
not a business day, next preceding such interest payment date.
SECURITY; RELEASE DATE
When we issue the Senior Notes, we will also issue and deliver to the
Trustee, as security for the Senior Notes, First Mortgage Bonds, Series X (the
"SENIOR NOTE MORTGAGE BONDS"). These Senior Note Mortgage Bonds will be issued
under the Twenty-Sixth Supplemental Indenture, dated as of January 1, 1999, to
the Indenture of Mortgage and Deed of Trust, dated as of November 1, 1944,
between Community Public Service Co., our predecessor, and City National Bank
and Trust Company of Chicago, Chicago, Illinois (whose current successor is
U.S. Bank Trust, N.A.) (the "MORTGAGE TRUSTEE"), as amended by various
supplemental indentures (collectively, the "MORTGAGE INDENTURE"). We will
issue the Senior Note Mortgage Bonds in an aggregate principal amount of
$175,000,000. We have agreed to issue the Senior Note Mortgage Bonds in the
name of the Trustee in its capacity as trustee under the Indenture. The
Trustee has agreed to hold the Senior Note Mortgage Bonds in this capacity
under all circumstances and not transfer the Senior Note Mortgage Bonds until
the earlier of the Release Date or the prior retirement of the Senior Notes
through redemption,
S-15
<PAGE>
repurchase or otherwise. The interest rates, interest payment dates, method of
paying interest, stated maturity date and redemption provisions for the Senior
Note Mortgage Bonds will be identical to the terms of the Senior Notes.
Prior to the Release Date, any principal, interest or premium payments that
we make on the Senior Notes will be deemed also to have been made with respect
to the Senior Note Mortgage Bonds. On and after the Release Date, the Senior
Notes will no longer be secured by the Senior Note Mortgage Bonds and will
become our unsecured general obligations. The Release Date will be chosen by
us, but it will not occur before the later of
. the date that all of the First Mortgage Bonds (other than the Senior
Note Mortgage Bonds that secure the Senior Notes and other series of
Senior Debt Securities) have been retired through payment, redemption or
some other method, at, before or after the maturity of such First
Mortgage Bonds, and
. the date as of which all Liens on any of our property or on the property
of any of our Subsidiaries (other than certain Liens that are permitted
to exist, as described in the Prospectus under the caption "Description
of the Senior Debt Securities--Limitation on Liens") have been
terminated or otherwise removed.
As of December 1, 1998, we had the following secured debt outstanding:
.First Mortgage Bonds Series U due September 15, 2000,
.12 1/2% Secured Debentures due January 15, 1999, and
.10 3/4% Secured Debentures due 2003 and redeemable beginning September 15,
2000.
As a result, if (i) we redeem our outstanding 10 3/4% Secured Debentures on
September 15, 2000, (ii) we do not issue any additional First Mortgage Bonds or
other debt secured by Liens, and (iii) all other Liens other than those
permitted by the Indenture have been terminated or otherwise removed, the
Release Date may occur as early as September 15, 2000.
You should review the description in the Prospectus that describes the
circumstances under which the Senior Note Mortgage Bonds will no longer be held
by the Trustee as security for the Senior Notes. This description is contained
under the heading "Description of Senior Debt Securities--Security; Release
Date." We will be required to give notice to the Holders when the Release Date
occurs.
FORM AND EXCHANGES
The Senior Notes will be evidenced by one global Senior Note, in fully
registered form, without coupons (the "GLOBAL SENIOR NOTE"). We will deposit
the Global Senior Note with a custodian for and registered in the name of a
nominee of the Depositary. Beneficial interests in the Global Senior Note will
be shown on, and transfers of beneficial interests will be effected only
through, records maintained by the Depositary and its participants. Beneficial
interests in the Global Senior Note will be exchanged for Senior Notes in
certified form only under the limited circumstances described in the Prospectus
under the caption "Description of the Senior Debt Securities--Book-Entry
Securities."
REDEMPTION OF THE SENIOR NOTES
We may redeem the Senior Notes, in whole or in part, at any time. If we
redeem the Senior Notes, we will pay the Make-Whole Price. The "MAKE-WHOLE
PRICE" is an amount equal to the greater of (i) 100% of the principal amount of
such Senior Notes and (ii) as determined by an Independent Investment Banker,
the sum of the present values of the remaining scheduled payments of principal
and interest thereon (not including any portion of such payments of interest
accrued as of the redemption date) discounted to the redemption date on a semi-
annual basis (assuming a 360-day year consisting of twelve 30-day months) at
the Adjusted Treasury Rate, plus, in each case, accrued and unpaid interest
thereon to the redemption date.
S-16
<PAGE>
"ADJUSTED TREASURY RATE" means, with respect to any redemption date, the rate
per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, plus 0.30%.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Senior Notes to be redeemed that would be utilized,
at the time of selection and in accordance with customary financial practice,
in pricing new issues of corporate debt securities of comparable maturity to
the remaining term of such Senior Notes.
"COMPARABLE TREASURY PRICE" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities," or (ii) if such release (or any successor release) is
not published or does not contain such prices on such business day, (A) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Reference Treasury Dealer
Quotations.
"INDEPENDENT INVESTMENT BANKER" means one of the Reference Treasury Dealers
appointed by the Trustee after consultation with us.
"REFERENCE TREASURY DEALER" means each of Donaldson, Lufkin & Jenrette
Securities Corporation, Warburg Dillon Read LLC, Chase Securities Inc., First
Chicago Capital Markets, Inc., NationsBanc Montgomery Securities LLC, and their
respective successors; provided, however, that if any of the foregoing is not a
primary U.S. Government securities dealer in New York City (a "PRIMARY TREASURY
DEALER"), we will appoint another Primary Treasury Dealer for such entity.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date.
We will send each Holder of Senior Notes to be redeemed notice of the
redemption by first-class mail, postage prepaid, mailed not less than 30 nor
more than 60 days prior to the redemption date.
Unless we default in payment of the redemption price, the portion of Senior
Notes called for redemption will no longer accrue interest on and after the
redemption date.
The Senior Notes do not provide for any sinking fund.
We may purchase the Senior Notes in the open market, by tender or by other
methods. We may hold these purchased Senior Notes, resell them or give them to
the Trustee for cancellation. If applicable, we will comply with the
requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") and other securities laws and regulations in
connection with any such purchase. The Senior Notes may be defeased in the
manner provided in the Indenture.
PAYMENT AND PAYING AGENTS
Principal of and interest and premium, if any, on the Senior Notes issued in
the form of Global Securities will be paid in the manner described in the
Prospectus under the caption "Description of the Senior Debt Securities--Book-
Entry Securities."
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<PAGE>
Any payment made by us for the payment of principal, interest or premium, if
any, on any Senior Note that remains unclaimed for two years after such amount
has become due and payable will be repaid to us. The holder of such Senior Note
will only be able to look to us for such payment.
APPLICABILITY OF CERTAIN COVENANTS
The Supplemental Indenture provides that the covenants summarized in the
accompanying Prospectus under the caption "Description of the Senior Debt
Securities--Limitations on Liens" and "--Limitations on Sale and Lease-Back
Transactions" apply to the Senior Notes from and after the Release Date.
S-18
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
that relates to the Senior Notes, we have agreed to sell to each of the
Underwriters named below, and the Underwriters have severally agreed to
purchase from us, the principal amount of the Senior Notes set forth next to
their names.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OF SENIOR NOTES
UNDERWRITER ---------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation ............ $61,250,000
Warburg Dillon Read LLC......................................... 61,250,000
Chase Securities Inc. .......................................... 16,917,250
First Chicago Capital Markets, Inc.............................. 16,917,250
NationsBanc Montgomery Securities LLC........................... 16,917,250
Legg Mason Wood Walker, Inc..................................... 1,748,250
------------
Total......................................................... $175,000,000
============
</TABLE>
The Underwriting Agreement states that the obligations of the several
Underwriters to purchase and accept delivery of the Senior Notes offered by
this Prospectus Supplement are subject to the approval of certain legal matters
by their counsel and certain other conditions. If any of the Senior Notes are
purchased by the Underwriters pursuant to the Underwriting Agreement, then all
of the Senior Notes must be purchased.
The Underwriters have told us that they intend to offer the Senior Notes to
the public initially at the price to the public that is on the cover page of
this Prospectus Supplement. The Underwriters also intend to offer the Senior
Notes to certain dealers (including the Underwriters) at this public price less
a concession that will not exceed 0.40% per Senior Note. The Underwriters may
allow, and such dealers may reallow, a discount that will not exceed 0.25% per
Senior Note to any other Underwriter and certain other dealers. After the
completion of the initial offering of the Senior Notes, the Underwriters may
change the offering price and other selling terms at any time, without notice.
We have agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"SECURITIES ACT"). Alternatively, we may contribute to payments that the
Underwriters may be required to make as a result of these liabilities. These
indemnification provisions would require us to hold the Underwriters harmless
from and against any and all losses, claims, damages, liabilities and judgments
caused by any false statement or any failure to state a material fact in this
Prospectus Supplement. The indemnification provisions would not apply to false
statements or omissions that are based on information relating to any
Underwriter that is furnished in writing to us by that Underwriter expressly
for use in this Prospectus Supplement and subject to certain other limitations.
Other than in the United States, neither we nor the Underwriters have taken
any action that would permit a public offering of the Senior Notes offered by
this Prospectus Supplement in any jurisdiction that requires such actions be
taken for such an offering. The distribution of this Prospectus Supplement and
the offering or sale of the Senior Notes offered by this Prospectus Supplement
may be restricted by law in certain jurisdictions. Accordingly, the Senior
Notes offered by this Prospectus Supplement may not be offered or sold,
directly or indirectly, in or from any jurisdiction, unless the offer or sale
complies with the applicable laws of the jurisdiction. Also, neither this
Prospectus Supplement nor any other offering materials or advertisements in
connection with the Senior Notes may be distributed or published in or from any
jurisdiction, unless these offering materials or advertisements comply with the
laws of the jurisdiction. Both we and the Underwriters require any person that
has possession of this Prospectus Supplement to inform himself or herself about
applicable restrictions and to observe these restrictions. This Prospectus
Supplement does not constitute an offer of, or an invitation to subscribe for
purchase of, any Senior Notes and may not be used for the purpose of an offer
to, or solicitation by, anyone in any jurisdiction or in any circumstances in
which such offer or solicitation is not authorized or is unlawful.
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<PAGE>
In connection with the offering of the Senior Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price
of the Senior Notes. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. The Underwriters may bid for and purchase
Senior Notes in the open market to cover syndicate short positions. In
addition, the Underwriters may bid for and purchase Senior Notes in the open
market to stabilize the price of the Senior Notes. These activities may
stabilize or maintain the market price of the Senior Notes above independent
market levels. The Underwriters are not required to engage in these activities
and may end these activities at any time.
Prior to this offering, there has been no public market for the Senior Notes.
The Underwriters have informed us that they may make a market in the Senior
Notes from time to time. The Underwriters are not obligated to do this, and
they may discontinue this market making at any time without notice. Therefore,
no assurance can be given concerning the liquidity of the trading market for
the Senior Notes or that an active market will develop. We do not intend to
apply for the Senior Notes to be listed on any national securities exchange or
national securities quotation system.
In the ordinary course of their respective businesses, certain of the
Underwriters and their affiliates have engaged, and may in the future engage,
in investment banking or commercial banking transactions with us, our
subsidiaries, or TNP and its subsidiaries. In particular, affiliates of First
Chicago Capital Markets, Inc. and NationsBanc Montgomery Securities LLC are
lenders under our 1996 Facility and will receive a portion of the amounts
repaid under the 1996 Facility with the net proceeds of this offering. Because
more than 10% of the net proceeds will be paid to affiliates of the
Underwriters, the offering of Senior Notes is being made pursuant to Rule
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc. Warburg Dillon Read LLC has served in the past and currently
serves as financial advisor to us, our subsidiaries, TNP and its subsidiaries.
In its role as a financial advisor to TNP, Warburg Dillon Read LLC provided
certain assistance to TNP with respect to the amendment of TNP's Shareholder
Rights Plan. Chase Bank of Texas, N.A., the Trustee, is an affiliate of Chase
Securities Inc.
VALIDITY OF THE SENIOR NOTES
The validity of the Senior Notes and the Indenture will be passed upon by
Michael D. Blanchard, our Vice President and General Counsel, and by Haynes and
Boone, LLP, Fort Worth, Texas. Certain other matters will be passed upon for us
by Haynes and Boone, LLP. Certain legal matters in connection with the offering
will be passed upon for the Underwriters by Milbank, Tweed, Hadley & McCloy,
New York, New York. All matters pertaining to local laws in connection with the
issuance of the Senior Notes offered hereby will be passed upon only by Haynes
and Boone, LLP as to Texas law, and Rubin, Katz, Salazar, Alley & Rouse, Santa
Fe, New Mexico, as to New Mexico law.
S-20
<PAGE>
FORWARD-LOOKING STATEMENTS
AND FACTORS THAT MAY AFFECT FUTURE RESULTS
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995
with respect to our financial condition, results of operations and business.
Statements in this document that are not historical facts are "forward-looking
statements" for the purpose of the safe harbor provided by Section 21E of the
Exchange Act, and Section 27A of the Securities Act.
These "forward-looking statements" include statements that relate to
. the outcome of current and future . revenues,
rate/regulatory proceedings, . working capital,
. the continued application of regulatory
accounting principles, . liquidity,
. future cash flows, . capital needs,
. the potential recovery of stranded costs, . interest costs, and
. future business prospects, . income.
We caution you that forward-looking statements are necessarily estimates
that reflect the best judgment of our senior management. These forward-looking
statements involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the forward-looking
statements. We recommend that you consider these forward-looking statements in
light of various important factors, including those set forth in this
Prospectus Supplement and other factors set forth from time to time in the
reports and registration statements that we file with the Commission.
To identify forward-looking statements, you should look for words such as
"estimate," "project," "intend," or "expect." These forward-looking statements
are found at various places throughout this document. You are cautioned not to
rely too much on these forward-looking statements, which speak only as of the
date of this document. The discussions under the captions "Use of Proceeds"
and "The Company" are particularly susceptible to the risks and uncertainties
discussed below.
We do not promise to update these forward-looking statements to reflect
actual results, changes in assumptions or other factors that could affect
these statements. In addition, we may from time to time make forward-looking
statements about the matters described in this document or other matters
concerning us.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The following factors could cause actual results to differ from our forward-
looking statements:
. legislation in the states we serve that affects the regulation of our
business,
. changes in regulations affecting our business,
. results of regulatory proceedings affecting our operations,
. future acquisitions or strategic partnerships that we may make,
. changes in general business and economic conditions, particularly in the
geographic areas in which we do business,
. increased competition from other energy suppliers as well as from
alternative forms of energy, and
. changes in the availability and pricing of purchased power supplies.
S-21
<PAGE>
PROSPECTUS
$200,000,000
TEXAS-NEW MEXICO POWER COMPANY
SENIOR DEBT SECURITIES
----------------
Texas-New Mexico Power Company ("TNMP" or the "Company") from time to time
may offer, in an aggregate principal amount not to exceed $200,000,000, in one
or more series, its senior debt securities (the "Senior Debt Securities").
Prior to the Release Date (as defined in "Overview of Securities" below), the
Senior Debt Securities will be secured by the issuance and delivery to the
Trustee (as defined below) in trust for the benefit of the holders of Senior
Debt Securities one or more series of first mortgage bonds (the "First
Mortgage Bonds") issued under the Company's Mortgage Indenture (as defined
below). The Senior Debt Securities will be issued under the indenture to be
entered into between TNMP and Chase Bank of Texas, N.A., as trustee (the
"Trustee"), as amended and supplemented by supplemental indentures thereto
(collectively, the "Indenture"). The Senior Debt Securities may be offered in
amounts, at prices and on terms to be determined at the time of sale. Certain
terms of the Senior Debt Securities including, where applicable, the specific
designation, aggregate principal amount, interest rate, interest payment
dates, maturity, public offering price, description of collateral, any
redemption terms or other specific terms of each series of the Senior Debt
Securities in respect of which this Prospectus is being delivered will be set
forth in an accompanying prospectus supplement or supplements (each such
supplement, a "Prospectus Supplement").
TNMP may sell the Senior Debt Securities to or through underwriters, through
dealers or directly to purchasers. See "Plan of Distribution." Each Prospectus
Supplement will set forth the names of such underwriters or dealers, if any,
any applicable commissions or discounts and the proceeds to TNMP from such
sale.
This Prospectus may not be used to consummate sales of the Senior Debt
Securities unless accompanied by a Prospectus Supplement applicable to the
Senior Debt Securities being sold.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM- MISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
January 5, 1999
<PAGE>
AVAILABLE INFORMATION
The Company and TNP Enterprises, Inc. ("TNP"), of which the Company is the
principal wholly-owned operating subsidiary, are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In accordance with the Exchange Act, the Company and TNP file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The reports, proxy statements and other
information can be inspected and copied at the public reference facilities
that the Commission maintains at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission'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. Copies of these materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission at the principal offices of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Senior Debt Securities.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement,
certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements made in the Prospectus concerning the contents of any
documents referred to herein are not necessarily complete. With respect to
each such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description,
and each such statement shall be deemed qualified in its entirety by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference
in this Prospectus:
(i) Annual Report on Form 10-K for the year ended December 31, 1997;
(ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
(iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1998;
(iv) Current Report on Form 8-K dated October 9, 1998; and
(v) Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus from their respective dates of filing.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
by reference (other than exhibits to such documents which are not specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the Company at 4100
2
<PAGE>
International Plaza, P.O. Box 2943, Fort Worth, Texas 76113. Telephone
requests may be directed to Michael D. Blanchard, Vice President and General
Counsel of the Company, at (817) 731-0099.
STATEMENT REGARDING FORWARD LOOKING INFORMATION
The discussions in this document and incorporated by reference herein, and
in any Prospectus Supplement hereto, that are not historical facts, including,
but not limited to, the outcome of current and future rate/regulatory
proceedings, the continued application of regulatory accounting principles,
future cash flows and the potential recovery of stranded costs, are based upon
current expectations. Actual results may differ materially. Among the facts
that could cause the results to differ materially from expectations are the
following: legislation in the states TNMP serves affecting the regulation of
TNMP's business; changes in regulations affecting TNMP's business; results of
regulatory proceedings affecting TNMP's operations; future acquisitions or
strategic partnerships; general business and economic conditions; the
effectiveness of TNMP's year 2000 mitigation plan, and the timely year 2000
compliance by TNMP's vendors; and other factors described from time to time in
TNP's and TNMP's reports filed with the Commission. The Company wishes to
caution readers not to place undue reliance on any such forward looking
statements, which are made pursuant to the Private Securities Litigation
Reform Act of 1995 and, as such, speak only as of the date made.
THE COMPANY
TNMP is a public utility engaged in generating, purchasing, transmitting,
distributing and selling electricity to approximately 226,000 customers in 85
municipalities and adjacent rural areas through three operating regions in
Texas and New Mexico. The Company's largest division, the Gulf Coast Region,
includes the area along the Texas Gulf Coast between Houston and Galveston.
This division produced 54.3% of total operating revenues in 1997. The
Company's North-Central Region produced 24.8% of total operating revenues in
1997, and the Company's Mountain Region produced 18.5% of total operating
revenues in 1997. The remaining 2.4% of TNMP's revenues in 1997 were generated
by the Company's power marketing activities. TNMP's predecessor was organized
in 1925.
TNMP, through its subsidiaries, owns one electric generating facility, TNP
One, which is located in Robertson County, Texas. TNP One consists of two 150-
megawatt units, each of which utilizes a lignite-fueled, circulating fluidized
bed technology. The two units supply, on an annualized basis, approximately
20% of TNMP's power requirements.
TNMP has two subsidiaries, Texas Generating Company and Texas Generating
Company II, both of which were organized to facilitate TNMP's acquisitions of
Unit 1 and Unit 2 of TNP One, in 1990 and 1991, respectively. The Company and
its subsidiaries are all Texas corporations. Their executive offices are
located at 4100 International Plaza, P.O. Box 2943, Fort Worth, Texas 76113
and their telephone number is (817) 731-0099.
The Company is subject to regulation by the Public Utility Commission of
Texas and the New Mexico Public Utility Commission. The Company is subject in
some of its activities, including the issuance of securities, to the
jurisdiction of the Federal Energy Regulatory Commission.
The Company is a wholly-owned subsidiary of TNP, a Texas corporation and an
exempt utility holding company, which is listed on the New York Stock Exchange
under the ticker symbol TNP.
3
<PAGE>
USE OF PROCEEDS
Except as otherwise stated in the applicable Prospectus Supplement, net
proceeds from the sale of the Senior Debt Securities offered hereby will be
used for the discharge, retirement or repayment of short or long-term debt and
borrowings made or expected to be made and for other corporate purposes.
Specific allocations of proceeds for such purposes have not been made at this
time. Funds may be borrowed in anticipation of future requirements.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth TNMP's ratio of earnings to fixed charges for
the periods indicated.
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED DECEMBER 31,
ENDED ------------------------
SEPTEMBER 30, 1998 1997 1996 1995 1994 1993
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(/1/) .................... 2.06 2.15 1.53 1.87 * 1.24
</TABLE>
- --------
*Earnings were insufficient to fund fixed charges in 1994. The amount of the
shortfall was $30 million.
(1) For the purpose of computing these ratios, earnings consist of net income
plus income taxes and fixed charges. Fixed charges consist of total
interest, amortization of debt discount, premium and expense and the
estimated portion of interest implicit in rentals.
4
<PAGE>
OVERVIEW OF SECURITIES
The Senior Debt Securities may be issued from time to time and in one or
more series. Prior to the Release Date (as defined below), the Senior Debt
Securities will be secured by TNMP's First Mortgage Bonds (the "Senior Note
Mortgage Bonds"). On the Release Date, any outstanding Senior Debt Securities
will cease to be secured by the Senior Note Mortgage Bonds and will become
unsecured general obligations of TNMP.
Each series of Senior Debt Securities will be issued under the Indenture, as
supplemented by a supplemental indenture describing the particular terms of
such series. The form of Indenture is filed as an exhibit to the Registration
Statement. The new supplemental indentures will be entered into
contemporaneously with the issuance of each series of the Senior Debt
Securities to be so secured.
TNMP will issue the Senior Note Mortgage Bonds under one or more
supplemental indentures (each, a "Supplemental Mortgage Indenture") to the
Indenture of Mortgage and Deed of Trust, dated as of November 1, 1944, between
Community Public Service Co. (now known as Texas-New Mexico Power Company) and
City National Bank and Trust Company of Chicago, Chicago, Illinois (whose
current successor is U.S. Bank Trust, N.A.) (the "Mortgage Trustee"), as
supplemented and amended by the supplemental indentures thereto (collectively,
the "Mortgage Indenture").
The "Release Date" will be the date on which the Senior Debt Securities will
cease to be secured by the Senior Note Mortgage Bonds and become unsecured
general obligations of TNMP. The date will be chosen by TNMP, but will not
occur prior to the later of (i) the date as of which all First Mortgage Bonds,
other than the Senior Note Mortgage Bonds securing the Senior Debt Securities
of all series, have been retired through payment, redemption or otherwise, at,
before or after the maturity thereof, and (ii) the date as of which all Liens
on any Property of the Company or any Subsidiary (other than certain Liens
permitted to exist as described in "Decription of the Senior Debt Securities--
Limitation on Liens") have been terminated or otherwise removed.
Neither the Indenture nor the Mortgage Indenture (collectively, the
"Indentures") requires that TNMP issue future issues of debt securities under
the Indentures. Subject to certain restrictions that are described in
"Description of the Senior Debt Securities--Limitations on Liens" and "--
Limitations on Sale and Lease-Back Transactions," the Company will be free to
employ other indentures or documentation, containing provisions different from
those included in the Indentures or applicable to one or more issues of Senior
Debt Securities, in connection with future issues of such other debt
securities. Certain capitalized terms herein are defined in the Indentures.
DESCRIPTION OF THE SENIOR DEBT SECURITIES
The following summaries of certain provisions of the Senior Debt Securities
and the Indenture do not purport to be complete and are subject to, and are
qualified in their entirety by express reference to, all the provisions of the
Indenture, including the definitions therein of certain terms. Capitalized
terms not defined herein are defined in the Indenture.
GENERAL
Until the Release Date, the Senior Debt Securities of each series will be
secured by one or more series of Senior Note Mortgage Bonds issued under the
Mortgage Indenture and delivered to the Trustee. See "--Security; Release
Date." ON THE RELEASE DATE, THE SENIOR DEBT SECURITIES WILL CEASE TO BE
SECURED BY THE SENIOR NOTE MORTGAGE BONDS AND WILL BECOME UNSECURED GENERAL
OBLIGATIONS OF THE COMPANY AND WILL RANK ON A PARITY WITH OTHER UNSECURED
INDEBTEDNESS OF THE COMPANY. The Indenture provides that, in addition to the
Senior Debt Securities offered hereby, TNMP may issue additional Senior Debt
Securities thereunder, without limitation as to aggregate principal amount,
from time to time, in one or more series. Prior to the Release Date, the
amount of Senior Debt Securities that TNMP may issue cannot exceed the
aggregate principal amount
5
<PAGE>
of First Mortgage Bonds that the Company is able to issue under its Mortgage
Indenture. As of November 30, 1998, there was one series of First Mortgage
Bonds outstanding in an aggregate principal amount equal to $100 milion.
The Indenture does not contain any debt covenants or provisions which would
afford holders of Senior Debt Securities protection in the event of a highly
leveraged transaction.
Please refer to the Prospectus Supplement relating to each particular issue
of the Senior Debt Securities being offered for, among other things, the
following terms thereof:
(a) the title of the Senior Debt Securities of the series;
(b) any limit upon the aggregate principal amount of the Senior Debt
Securities of the series which may be authenticated and delivered under
the Indenture;
(c) the person to whom any interest on a Senior Debt Security of the series
shall be payable, if other than the Holder;
(d) the date or dates on which the principal or installments of principal
is payable and any rights to extend such date or dates and the duration
of such extension;
(e) the rate or rates (which may be fixed or variable) per annum at which
the Senior Debt Securities of the series will bear interest or the
method by which such rate or rates shall be determined and the date
from which such interest will accrue or the method by which such date
or dates shall be determined and the right (if any) to extend such
dates and the duration of such extension;
(f) the obligation, if any, of the Company to redeem, repay or purchase any
Senior Debt Securities of the series pursuant to any sinking fund or
analogous provisions or at the option of a holder thereof, and the
period or periods within which, the price or prices at which and the
terms and conditions upon which, any such securities shall be redeemed,
repaid or purchased, in whole or in part, pursuant to such obligation;
(g) the denominations in which any Senior Debt Securities of the series
shall be issuable, if other than denominations of $1,000 and any
integral multiple thereof;
(h) if other than the principal amount thereof, the portion of the
principal amount of Senior Debt Securities of the series which shall be
payable upon declaration of acceleration of the maturity thereof;
(i) if other than such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public or private
debts, the coin or currency in which payment of the principal of (and
premium, if any) and interest, if any, on the Senior Debt Securities of
the series shall be payable and the manner of determining the
equivalent thereof in the currency of the United States of America for
any purpose;
(j) if the principal of (and premium, if any) or interest, if any, on the
Senior Debt Securities of the series are to be payable, at the election
of the Company or a Holder thereof, in a coin or currency other than
that in which the Senior Debt Securities are stated to be payable, the
period or periods within which, and the terms and conditions upon
which, such election may be made;
(k) if the amount of payments of principal of (and premium, if any) or
interest, if any, on the Senior Debt Securities of the series may be
determined with reference to an index based on a coin or currency other
than that in which such Senior Debt Securities are stated to be payable
or pursuant to a formula, the manner in which such amounts shall be
determined;
(l) any provisions permitted by the Indenture relating to Events of Default
or covenants of the Company with respect to such series of Senior Debt
Securities;
(m) if the principal amount payable at the stated maturity of any Senior
Debt Securities of the series will not be determinable as of any one or
more dates prior to the stated maturity, the amount which shall be
deemed to be the principal amount of such Senior Debt Securities as of
any such date for any purpose
6
<PAGE>
under the applicable Prospectus Supplement or under the Indenture,
including the principal amount thereof which shall be due and payable
upon any maturity other than the stated maturity or which shall be
deemed to be outstanding as of any date prior to the stated maturity
(or, in any such case, the manner in which such amount deemed to be the
principal amount shall be determined);
(n) if applicable, that the Senior Debt Securities of the series, in whole
or any specified part, shall not be defeasible pursuant to the
Indenture and the manner in which any election by the Company to
defease such Senior Debt Securities shall be evidenced;
(o) if applicable, that any Senior Debt Securities of the series shall be
issuable in whole or in part in the form of one or more Global
Securities (as hereinafter defined at page 15) and, in such case, the
respective Depositaries (as hereinafter defined at page 15) for such
Global Securities, the form of any legend or legends which shall be
borne by any such Global Security and any circumstances in which any
such Global Security may be exchanged in whole or in part for Senior
Debt Securities registered, and any transfer of such Global Security in
whole or in part may be registered, in the name or names of persons
other than the Depositary for such Global Security or a nominee
thereof;
(p) providing collateral to the Trustee to secure payment of the principal
of (and premium, if any) and interest on the Senior Debt Securities of
any series, and provisions for the release of any such collateral; and
(q) any other terms of the series.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the principal of (and premium, if any) and interest on, the Senior Debt
Securities of each series will be payable, and the Senior Debt Securities of
each series will be exchangeable and transfers thereof will be registrable, at
the Place of Payment, provided that, if the Senior Debt Securities of any
series are not Global Securities, at the option of the Company, payment of
interest with respect to such Securities may be made by check mailed or wire
transferred to the address of each Holder of such Securities.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Senior Debt Securities of each series will be issued in United States
dollars in fully registered form, without coupons, in denominations of $1,000
or any integral multiple thereof. No service charge will be made for any
transfer or exchange of the Senior Debt Securities of each series, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
SECURITY; RELEASE DATE
Until the Release Date, each series of the Senior Debt Securities will be
secured by one or more series of Senior Note Mortgage Bonds issued and
delivered by the Company to the Trustee. See "Description of the First
Mortgage Bonds." When issuing Senior Debt Securities prior to the Release
Date, the Company will simultaneously issue and deliver Senior Note Mortgage
Bonds to the Trustee as security for such Senior Debt Securities. The Senior
Note Mortgage Bonds will have the same stated rate of interest (or interest
calculated in the same manner), interest payment dates, stated maturity date
and redemption provisions and will be in the same aggregate principal amount
as the corresponding Senior Debt Securities. The Trustee has agreed to hold
the Senior Note Mortgage Bonds in such capacity under all circumstances and
not transfer such Senior Note Mortgage Bonds until the earlier of the Release
Date or the prior retirement of the Senior Debt Securities through redemption,
repurchase or otherwise. Any payment made in respect to the Company's
obligations under the Senior Debt Securities shall be deemed a payment in
respect of the Senior Note Mortgage Bonds. The obligation of the Company to
make payments with respect to the principal of and interest on the Senior Note
Mortgage Bonds shall be fully satisfied and discharged to the extent that, at
any time that any such payment shall be due, the Company shall have paid fully
the then due principal of and interest on, and fees with respect to, the
Senior Debt Securities.
7
<PAGE>
ON THE RELEASE DATE, THE TRUSTEE WILL DELIVER ALL SENIOR NOTE MORTGAGE BONDS
TO THE COMPANY FOR CANCELLATION AND THE COMPANY WILL CAUSE THE TRUSTEE TO
PROVIDE NOTICE TO ALL HOLDERS OF SENIOR DEBT SECURITIES THAT THE RELEASE DATE
HAS OCCURRED. AS A RESULT, ON THE RELEASE DATE, THE SENIOR NOTE MORTGAGE BONDS
WILL CEASE TO SECURE THE SENIOR DEBT SECURITIES, AND THE SENIOR DEBT
SECURITIES WILL BECOME UNSECURED GENERAL OBLIGATIONS OF THE COMPANY AND WILL
RANK ON A PARITY WITH OTHER UNSECURED SENIOR INDEBTEDNESS OF THE COMPANY. Each
series of Senior Note Mortgage Bonds will be secured by a lien on certain
property owned by the Company. In certain circumstances prior to the Release
Date, the Company is permitted to reduce the aggregate principal amount of an
issue of Senior Note Mortgage Bonds held by the Trustee, but in no event to an
amount lower than the aggregate outstanding principal amount of the Senior
Debt Securities initially issued contemporaneously with such Senior Note
Mortgage Bonds. Following the Release Date, the Company will cause the
Mortgage Indenture to be closed, and the Company will not issue any additional
bonds under such Mortgage Indenture. The intention of these provisions is that
before the Release Date the Senior Debt Securities will have the benefit of
being secured by the First Mortgage Bonds, and after the Release Date the
Senior Debt Securities will have the benefit of the same security as other
secured debt of the Company, if any, subject to specified exceptions.
LIMITATIONS ON LIENS
The Indenture provides that from and after the Release Date and as long as
any Senior Debt Securities are outstanding, the Company may not, and may not
permit any Subsidiary to, incur, issue, assume, guarantee or permit to exist
Indebtedness (as hereinafter defined at page 14) that is secured by any Liens
on any Property (each as hereinafter defined at page 14), of the Company or
any Subsidiary, whether such Property was owned by the Company or any
Subsidiary, as applicable, at the date of the Indenture or thereafter
acquired, without making, or causing such Subsidiary to make, effective
provision to secure all of the Senior Debt Securities of each series, issued
under the Indenture and then outstanding, by such Lien, equally and ratably
with any and all other Indebtedness thereby secured so long as such
Indebtedness shall be so secured. This restriction will not apply to any
Indebtedness that is secured by any of the following:
(a) Liens on any Property acquired, constructed or improved by the Company
or any Subsidiary after the date of the Indenture 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) incurred after the date of the Indenture;
(b) Liens of or upon any Property existing at the time of acquisition
thereof, whether by merger, consolidation, purchase, lease or otherwise
(including Liens of or upon Property of a corporation existing at the
time such corporation becomes a Subsidiary);
(c) Liens in favor of the Company or any Subsidiary;
(d) 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);
(e) Liens on any 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 or any Subsidiary;
(f) 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
8
<PAGE>
governmental (federal, state or municipal) liens arising out of
contracts for the sale of products or services by the Company or any
Subsidiary, or deposits or pledges to obtain the release of any of the
foregoing;
(g) 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 or any Subsidiary is a party, or deposits
to secure public or statutory obligations of the Company or any
Subsidiary, 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 surety, appeal or customs
bonds to which the Company or any Subsidiary is a party, or deposits in
litigation or other proceedings such as, but not limited to,
interpleader proceedings;
(h) 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
or any Subsidiary with respect to which the Company or such Subsidiary
is in good faith prosecuting an appeal or proceedings for review; or
Liens incurred by the Company or any Subsidiary for the purpose of
obtaining a stay or discharge in the course of any litigation or other
proceeding to which the Company or such Subsidiary is a party;
(i) Liens for taxes or assessments or governmental charges or levies not
yet due or delinquent, or which can thereafter be paid without penalty,
or which are being contested in good faith by appropriate proceedings;
(j) 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 business
of the Company or such Subsidiary and which do not, in the opinion of
the Company, materially detract from the value of such properties; and
(k) 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 (a), (b), or (e) to (j), inclusive;
provided that (i) such extension, renewal or replacement Lien shall be
limited to all or a part of the same Property that secured the Lien
extended, renewed or replaced (plus improvements on such Property) and
(ii) the amount of Indebtedness secured by such Lien at such time is
not increased.
The Indenture provides that notwithstanding the foregoing limitations, the
Company or its Subsidiaries may incur, issue, assume or guarantee Indebtedness
secured by Liens without equally and ratably securing the Senior Debt
Securities of each series then Outstanding, provided, that at the time of such
incurrence, issuance, assumption or guarantee of Indebtedness, after giving
effect thereto and to the retirement of any Indebtedness of the Company or of
any Subsidiary which is concurrently being retired, the sum of (i) the
aggregate amount of all outstanding Indebtedness of the Company or of any
Subsidiary secured by Liens which could not have been incurred, issued,
assumed or guaranteed by the Company or a Subsidiary without equally or
ratably securing the Senior Debt Securities of each series then Outstanding,
except for the provisions of this paragraph, plus (ii) the Attributable Value
of Sale and Leaseback Transactions entered into pursuant to the last paragraph
of "--Limitations on Sale and Lease-Back Transactions," does not at such time
exceed the greater of 10% of the Net Tangible Assets (as hereinafter defined
at page 14) or 10% of the Consolidated Capitalization of the Company (as
hereinafter defined at page 14).
LIMITATIONS ON SALE AND LEASE-BACK TRANSACTIONS
The Indenture provides that after the Release Date, so long as any Senior
Debt Securities are Outstanding, neither the Company nor any Subsidiary will
enter into any arrangement under which the Company or a Subsidiary would lease
any Property which it has sold or transferred or is going to sell or transfer
(a "Sale and
9
<PAGE>
Leaseback Transaction") unless either: (a) the Company or such Subsidiary
would, when entering into such arrangement, be entitled, without equally and
ratably securing the Securities of each series then Outstanding, to incur,
issue, assume or guarantee Indebtedness secured by a Lien on such property
pursuant to the first paragraph of "--Limitations on Liens" (including clauses
(a)-(k) thereof); or (b) the Company, within 180 days after such sale or
transfer applies an amount equal to the greater of (i) the net proceeds of the
sale of Property sold and leased back pursuant to such arrangement or (ii) the
fair market value of the Property so sold and leased back at the time of
entering into such arrangement (as determined by any two Officers) to the
retirement of Funded Indebtedness of the Company; provided, that the amount to
be applied to the retirement of Funded Indebtedness of the Company shall be
reduced by (i) the principal amount of any Senior Debt Securities delivered
within 120 days after such sale to the Trustee for retirement and
cancellation, and (ii) the principal amount of Funded Indebtedness, other than
Senior Debt Securities, voluntarily retired by the Company within 120 days
after such sale. This provision applies to Sale and Leaseback Transactions
with primary lease terms and possible renewal terms exceeding three years.
Notwithstanding the foregoing, the Company and its Subsidiaries, or any of
them, may enter into a Sale and Leaseback Transaction which would otherwise be
prohibited; provided, that at the time of such transaction, after giving
effect thereto, the sum of (i) the aggregate amount of the Attributable Value
in respect of all Sale and Leaseback Transactions existing at such time which
could not have been entered into except for the provisions of this paragraph
plus (ii) the aggregate amount of outstanding Debt secured by Liens in
reliance on the last paragraph of "--Limitations on Liens" of the Indenture
does not at such time exceed the greater of 10% of the Net Tangible Assets or
10% of the Consolidated Capitalization of the Company. A Sale and Leaseback
Transaction shall not be deemed to result in the creation of a Lien.
VOTING OF SENIOR NOTE MORTGAGE BONDS HELD BY THE TRUSTEE
Prior to the Release Date, the Trustee, as a holder of Senior Note Mortgage
Bonds, will attend any meeting of bondholders under the Mortgage Indenture as
to which it receives due notice, or, at its option, will deliver its proxy in
connection therewith. Either at such meeting, or otherwise where the consent
of holders of Mortgage Bonds issued under the Mortgage Indenture is sought
without a meeting, the Trustee will vote all of the Senior Note Mortgage Bonds
held by it, or will consent or withhold its consent with respect thereto, as
directed by the Holders of a majority in aggregate principal amount of the
Outstanding Senior Debt Securities; provided, however, the Trustee may not
vote the First Mortgage Bonds pledged as collateral for any particular series
in favor of, or give consent to, any action which, in the Trustee's opinion,
would materially adversely affect such series of First Mortgage Bonds in a
manner not shared generally by all other First Mortgage Bonds, except upon
notification by the Trustee to the holders of the related series of Senior
Debt Securities of such proposal and consent thereto of the Holders of a
majority in principal amount of the Outstanding Senior Debt Securities of such
series.
RESIGNATION OR REMOVAL OF TRUSTEE
The Trustee may resign at any time with respect to any series of Senior Debt
Securities by giving written notice thereof to the Company. The Trustee may be
removed at any time with respect to any series of Senior Debt Securities by
the Holders of a majority in aggregate principal amount of the Outstanding
Senior Debt Securities of that series, delivered to the Trustee and to the
Company.
If at any time: (i) the Trustee fails to comply with the conflict of
interest provisions contained in Section 310(b) of the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, with respect to
any series of Senior Debt Securities after written request therefor by the
Company or by any Holder who has been a Holder of a Senior Debt Security of
that series for at least six months, (ii) the Trustee ceases to be eligible
under the Indenture with respect to any series of Senior Debt Securities and
fails to resign after written request therefor by the Company or by any such
Holder, (iii) the Trustee becomes incapable of acting with respect to any
series of Senior Debt Securities, or (iv) the Trustee is adjudged a bankrupt
or insolvent or a receiver of the Trustee or of its property is appointed or
any public officer takes charge or control of the Trustee or of its property
or affairs for the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (1) the Company may remove the Trustee, with respect
to the Senior Debt Securities of that series, or, in the case of
10
<PAGE>
clause (iv), with respect to all series, or (2) subject to the Indenture, any
Holder who has been a Holder of a Senior Debt Security of such series for at
least six months may, on behalf of itself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee with respect to the series, or, in
the case of clause (iv), with respect to all series.
If the Trustee resigns, is removed or becomes incapable of acting with
respect to any series of Senior Debt Securities, or if a vacancy occurs in the
office of the Trustee with respect to any series of Senior Debt Securities for
any cause, the Company will promptly appoint a successor Trustee or Trustees
with respect to the Senior Debt Securities of that or those series (it being
understood that any such successor Trustee may be appointed with respect to
the Senior Debt Securities of one or more or all of such series and that at
any time there will be only one Trustee with respect to the Senior Debt
Securities of any particular series). If, within one year after such
resignation, removal or incapacity, or the occurrence of such vacancy, a
successor Trustee with respect to such series of Senior Debt Securities is
appointed by the Holders of a majority in aggregate principal amount of the
Outstanding Senior Debt Securities of such series delivered to the Company and
the predecessor Trustee, the successor Trustee so appointed will, forthwith
upon its acceptance of such appointment in accordance with the applicable
requirements of the Indenture, become the successor Trustee with respect to
such series and supersede the successor Trustee appointed by the Company with
respect to such series. If no successor Trustee with respect to such series
has been so appointed by the Company or the Holders of such series and
accepted appointment in the manner required by the Indenture, any Holder who
has been a Holder of a Senior Debt Security of that series for at least six
months may, on behalf of itself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to such series.
The Company will give notice of each resignation and each removal of the
Trustee with respect to the Senior Debt Securities of any series and each
appointment of a successor Trustee with respect to the Senior Debt Securities
of any series by mailing written notice of such event by first-class mail,
postage prepaid, to the Holders of Senior Debt Securities of that series as
their names and addresses appear in the Security Register. Each notice shall
include the name of the successor Trustee with respect to the Senior Debt
Securities of such series and the address of its Corporate Trust Office.
CONCERNING THE TRUSTEE
Chase Bank of Texas, N.A. is the Trustee under the Indenture. The Trustee is
not the trustee under any other indenture pursuant to which securities of the
Company are outstanding. The Company maintains banking relationships with the
Trustee and with an affiliate of the Trustee in the ordinary course of
business, and such affiliate of the Trustee is the agent for a syndicated
group of banks, which includes the Trustee, that has extended a $100 million
revolving line of credit to the Company.
EVENTS OF DEFAULT
The Indenture defines an Event of Default with respect to the Senior Debt
Securities of any series as: (a) default in payment of principal (or premium,
if any) of any Senior Debt Security of that series when due and payable, at
its Maturity or otherwise; (b) default in payment of any interest on any
Senior Debt Security of that series when due and payable, and continuance of
such default for a period of 30 days; (c) default in the deposit of any
sinking fund payment, when and as due by the terms of a Senior Debt Security
of that series; (d) default in the performance, or breach, of any covenant or
warranty of the Company in the Indenture (other than certain covenants or
warranties) and continuance of such default or breach by the Company for 60
days after due notice in the performance of any covenants or warranties in the
Indenture; (e) certain events of bankruptcy, insolvency or reorganization of
the Company; (f) prior to the Release Date, a "default" under the Mortgage
Indenture has occurred and is continuing; and (g) acceleration of any
Indebtedness (including Senior Debt Securities of any other series) of the
Company in an aggregate principal amount exceeding $10 million.
The Indenture provides that, if any Event of Default with respect to Senior
Debt Securities of any series at the time Outstanding occurs and is
continuing, either the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Outstanding Senior Debt Securities of that
series may, by notice as provided in the
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Indenture, declare the aggregate principal amount, together with all accrued
and unpaid interest thereon, of all Senior Debt Securities of that series to
be due and payable immediately upon notice in writing to the Company (and to
the Trustee if given by Holders), but upon certain conditions such declaration
may be annulled and past defaults (except, unless theretofore cured, a default
in payment of principal of or interest on the Senior Debt Securities and
certain other specified defaults) may be waived by the Holders of a majority
in aggregate principal amount of the Outstanding Senior Debt Securities of
that series on behalf of the Holders of all Senior Debt Securities of such
series, except that upon the occurrence of certain bankruptcy Events of
Default, such principal and interest shall become immediately payable without
any such declaration.
The Indenture provides that the Trustee will, within 90 days after the
Trustee has received written notice of a default with respect to Senior Debt
Securities of any series at the time Outstanding, give to the Holders of the
Outstanding Senior Debt Securities of such series, notice of such default
known to it if uncured or not waived, provided that, except in the case of
default in the payment of principal of (or premium, if any) or interest on any
such Senior Debt Securities, the Trustee will be protected in withholding of
such notice if the Trustee in good faith determines that the withholding of
such notice is in the interest of the Holders of the Outstanding Senior Debt
Securities of such series; and, provided further, that such notice shall not
be given until 30 days after the occurrence of a "Default" specified in clause
(d) of "Event of Default" above. The term "Default" for the purpose only of
this provision means any event which is, or after notice or lapse of time or
both would become, an Event of Default.
The Holders of a majority in aggregate principal amount of the outstanding
Senior Debt Securities of any series will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Senior Debt Securities of such series; provided that (a) the
Trustee will have the right to decline to follow any such direction if the
Trustee, being advised by counsel, determines that the action so directed may
not lawfully be taken or would conflict with the Indenture; (b) the Trustee
will have the right to decline to follow such direction if the Trustee in good
faith determines that the proceedings so directed would involve it in personal
liability or be unjustly prejudicial to the Holders not taking part in such
direction; (c) such direction will be presented by such Holders to the Trustee
in a timely manner; (d) such direction will not be in conflict with any rule
of law or with the Indenture; and (e) the Trustee may take any other action
deemed proper by the Trustee which is not inconsistent with such direction.
The Indenture includes a covenant that the Company will file at least
annually with the Trustee a certificate of no Default, or specifying any
Default that exists.
DISCHARGE; DEFEASANCE
The Indenture provides that the Company, at its option (to the extent
provided), (a) will be discharged from any and all obligations with respect to
the Senior Debt Securities (except for certain obligations, including
registering the transfer or exchange of the Senior Debt Securities, replacing
stolen, lost or mutilated Senior Debt Securities, maintaining paying agencies
and holding monies for payment in trust) or (b) need not comply with certain
restrictive covenants of the Indenture (and the occurrence of certain Events
of Default with respect to such restrictive covenants), upon the deposit with
the Trustee (and in the case of a defeasance, 91 days after such deposit), in
trust, of money, or U.S. Government Obligations, or a combination thereof,
which through the payment of interest thereon and principal thereof in
accordance with their terms will provide money in an amount sufficient to pay
all the principal of and interest on the Senior Debt Securities on the date
such payments are due in accordance with the terms of the Senior Debt
Securities to their stated maturities. Upon such defeasance and discharge, the
Trustee will deliver to the Company for cancellation all Senior Note Mortgage
Bonds securing such Senior Debt Securities, after which time such Senior Debt
Securities will no longer be secured by Senior Note Mortgage Bonds. To
exercise any such option, the Company is required to meet certain conditions,
including delivering to the Trustee an opinion of counsel to the effect that
the deposit and related defeasance would not cause the Holders of the Senior
Debt Securities to recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance, and will be subject to
federal income tax on the same
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amount, in the same manner and at the same times as would have been the case
if such deposit and defeasance were not to occur.
MODIFICATION OF THE INDENTURE
The Indenture permits the Company and the Trustee to execute supplemental
indentures that add, change or eliminate provisions of the Indenture or modify
the rights of the Holders of Outstanding Senior Debt Securities. Such
execution may be without the consent of the Holders of the Senior Debt
Securities in some cases and in others with the consent of the Holders of at
least a majority in principal amount of Outstanding Senior Debt Securities of
each series of Senior Debt Securities affected by the supplemental indenture.
No such supplemental indenture, however, may, without the consent of Holders
of 100% in Principal Amount of Outstanding Senior Debt Securities of each
series affected thereby (a) change the Stated Maturity of any Senior Debt
Security, (b) reduce the principal amount of, or the rate of interest on, any
Senior Debt Security, (c) change the place or currency of payment on any
Senior Debt Security, (d) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity thereof, (e) prior
to the Release Date, impair the interest of the Trustee in the Senior Note
Mortgage Bonds, (f) reduce the stated percentage of Outstanding Senior Debt
Securities necessary to modify or amend the Indenture or related documents, or
(g) reduce the percentage of aggregate principal amount of Outstanding Senior
Debt Securities necessary for waiver of compliance with certain provisions of
the Indenture or for the waiver of certain covenants and defaults.
OUTSTANDING SECURITIES
The Indenture provides that Senior Debt Securities owned by the Company or
any of its affiliates shall not be deemed to be Outstanding when determining
whether the Holders of the requisite principal amount of Outstanding Senior
Debt Securities have given any request, demand, authorization, direction,
notice consent or waiver under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company may, without the consent of the
Holders of any of the Outstanding Senior Debt Securities under the Indenture,
consolidate with or merge with or into any other corporation, or convey,
transfer or lease its properties and assets substantially as an entirety to
any Person, provided that: (i) the successor is a corporation organized under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the successor corporation, if other than the Company, assumes the
Company's obligations on the Senior Debt Securities and under the Indenture,
(iii) if prior to the Release Date, the successor corporation assumes the
Company's obligations on the Senior Note Mortgage Bonds and under the Mortgage
Indenture; (iv) after giving effect to the transaction, no Event of Default,
and no event which, after notice or lapse of time, would become an Event of
Default, shall have occurred and be continuing; (v) if the Company's assets
would become subject to a lien not permitted by the Indenture, the Senior Debt
Securities are secured equally and ratably with all Indebtedness secured
thereby; and (vi) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such consolidation,
merger, conveyance, transfer and lease and such supplemental indenture comply
with the Indenture and that all conditions precedent therein provided for
relating to such transaction have been complied with.
CERTAIN DEFINITIONS
"Attributable Value" in respect of any Sale and Leaseback Transaction means,
as of the time of determination, the lesser of (i) the sale price of the
property so leased multiplied by a fraction the numerator of which is the
remaining portion of the base term of the lease included in such Sale and
Leaseback Transaction and the denominator of which is the base term of such
lease, and (ii) the total obligation (discounted to present value at the rate
of interest specified by the terms of such lease) of the lessee for rental
payments (other than amounts required to be paid on account of property taxes
as well as maintenance, repairs, insurance, water rates and other items which
do not constitute payments for property rights) during the remaining portion
of the base term of the lease included in such Sale and Leaseback Transaction.
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"Consolidated Capitalization" of the Company means consolidated total assets
less consolidated non-interest bearing current liabilities, all as shown by a
consolidated balance sheet of the Company and all Subsidiaries prepared in
accordance with generally accepted accounting principles at the date of such
balance sheet.
"Funded Indebtedness" means notes, bonds, debentures or other similar
evidences of Indebtedness which by its terms matures at or is extendible or
renewable at the option of the obligor to a date more than 12 months after the
date of the creation of such Indebtedness.
"Indebtedness" means, with respect to any Person (without duplication), (a)
any liability of such Person (1) for borrowed money or under any reimbursement
obligation relating to a letter of credit, financial bond or similar
instrument or agreement, (2) evidenced by a bond, note, debenture or similar
instrument or agreement (including a purchase money obligation) given in
connection with the acquisition of any business, properties or assets of any
kind (other than a trade payable or a current liability arising in the
ordinary course of business or a performance bond or similar obligation), (3)
for the payment of money relating to any obligations under any capital lease
of real or personal property or (4) any agreement or instrument in respect of
an interest rate or currency swap, exchange or hedging transaction or other
financial derivatives transaction; (b) any liability of others described in
the preceding clause (a) that the Person has guaranteed or that is otherwise
its legal liability; and (c) any amendment, supplement, modification,
deferral, renewal, extension or refunding of any liability of the types
referred to in clauses (a) and (b) above. For the purpose of determining any
particular amount of Indebtedness under this definition, guarantees of (or
obligations with respect to letters of credit or financial bonds supporting)
Indebtedness otherwise included in the determination of such amount shall not
be included.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, security interest, lien, encumbrance, or
other security arrangement of any kind or nature whatsoever on or with respect
to such Property (including any conditional sale or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Net Tangible Assets" means the amount shown as total assets on the
consolidated balance sheet of the Company prepared in accordance with
generally accepted accounting principles on the date of such balance sheet,
less the following: (i) intangible assets including, but without limitation,
such items as goodwill, trademarks, tradenames, patents and unamortized debt
discount and expense and other regulatory assets carried as an asset on the
balance sheet; and (ii) appropriate adjustments, if any, on account of
minority interests.
"Outstanding," when used with respect to Senior Debt Securities of any
series, means, as of the date of determination, all such Senior Debt
Securities theretofore authenticated and delivered under this Indenture,
except:
(a)such Senior Debt Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(b)such Senior Debt Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Senior Debt Securities; provided that, if such
Senior Debt Securities are to be redeemed, notice of such redemption has
been duly given pursuant to the Indenture of provision therefor
satisfactory to the Trustee has been made;
(c)Senior Debt Securities as to which Defeasance has been effected pursuant
to the Indenture; and
(d)such Senior Debt Securities in exchange for or in lieu of which other
Senior Debt Securities have been authenticated and delivered pursuant to
the Indenture, or which shall have been paid in accordance with the
provisions of the Indenture governing mutilated, destroyed, lost or stolen
Senior Debt Securities (except with respect to any such Senior Debt
Security as to which proof satisfactory to the Trustee is presented that
such Senior Debt Security is held by a Person in whose hands such Senior
Debt Security is a legal, valid and binding obligation of the Company).
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"Person" means any individual, corporation, partnership, joint venture,
association, company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Property" of any Person means all such Person's (i) property and assets and
(ii) rights to and interests in all property and assets.
"Sale and Lease-Back Transaction" means any arrangement with any Person,
providing for the leasing by the Company or a Subsidiary for a period,
including renewals, in excess of three years of any Property which has been or
is to be sold or transferred by the Company or any Subsidiary to such Person.
"Subsidiary" means any corporation or other business entity of which the
Company owns or controls (either directly or through one or more other
Subsidiaries) more than 50% of the issued share capital or other ownership
interests, in each case having ordinary voting power to elect or appoint
directors, managers or trustees of such corporation or other business entity
(whether or not capital stock or other ownership interests or any other class
or classes shall or might have voting power upon the occurrence of any
contingency).
"U.S. Government Obligations" means securities that are (1) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (2) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the issuer thereof or any
other Person, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any obligation or a specific payment of principal of or interest on any
such obligation held by such custodian for the account of the holder of such
depository receipt, provided that (except as required by law) such custodian
is not authorized to make any deduction from the amount payable to the holder
of such depository receipt from any amount received by the custodian in
respect of the obligation or the specific payment of principal of or interest
on the obligation evidenced by such depository receipt.
BOOK-ENTRY SECURITIES
Each series of Senior Debt Securities may be issued in the form of one or
more global notes (the "Global Securities") representing all or part of such
series of Senior Debt Securities and which will be deposited with or on behalf
of The Depository Trust Company as depositary (the "Depositary") and
registered in the name of the Depositary or nominee of the Depositary.
Certificated Senior Debt Securities will not be exchangeable for Global
Securities and, except under the circumstances described below, the Global
Securities will not be exchangeable for certificated Senior Debt Securities.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary holds securities that its participants ("Participants") deposit
with the Depositary. The Depositary also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
The Depositary is owned by a number of its Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange Inc. and the National
Association of Securities Dealers, Inc. Access to The Depository Trust Company
system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. The rules
applicable to the Depositary and its Participants are on file with the
Commission.
Upon the issuance of the Global Securities in registered form, the
Depositary will credit, on its book-entry registration and transfer system,
the respective principal amounts of the Senior Debt Securities represented by
the Global Securities to the accounts of Participants. The accounts to be
credited shall be designated by the Underwriters. Ownership of beneficial
interests in the Global Securities will be limited to Participants or persons
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that may hold interests through Participants. Ownership of beneficial
interests by Participants in the Global Securities will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depositary or its nominee. Ownership of beneficial interests
in the Global Securities by persons that hold through Participants will be
shown on, and the transfer of that ownership interest within such Participant
will be effected only through, records maintained by such Participant. Owners
of beneficial interests in the Global Securities will not receive written
confirmation providing details of the transaction, as well as periodic
statements of their holdings, from the Participants through which they
purchased beneficial interests in the Global Securities. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in the Global Securities.
So long as the Depositary, or its nominee, is the registered owner of the
Global Securities, the Depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the Senior Debt Securities represented
by the Global Securities for all purposes under the Indenture. Except as set
forth below, owners of beneficial interests in the Global Securities will not
be entitled to have Senior Debt Securities registered in their names, will not
receive or be entitled to receive physical delivery of the Senior Debt
Securities in definitive form and will not be considered the owner or Holders
thereof under the Indenture.
Payment of principal of, premium, if any, and any interest on the Senior
Debt Securities will be made to the Depositary or its nominee, as the case may
be, as the registered owner or the Holder of the Global Securities
representing the Senior Debt Securities. None of the Company, the Trustee, any
Paying Agent or the registrar for the Senior Debt Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Securities or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
The Depositary has advised the Company that, upon receipt of any payment of
principal, premium or interest in respect of the Global Securities, the
Depositary will credit immediately Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the
principal amount of the Global Securities as shown on the records of the
Depositary. The Company also expects that payments by Participants to owners
of beneficial interests in the Global Securities held through such
Participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name" and will be the
responsibility of such Participants.
The Global Securities may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor of the Depositary or a nominee of such
successor. If the Depositary is at any time unwilling or unable to continue as
Depositary and a successor Depositary is not appointed by the Company within
ninety days, the Company will issue certificated notes in definitive
registered form in exchange for the Global Securities representing the Senior
Debt Securities. In addition, the Company may at any time and in its sole
discretion determine not to have any Senior Debt Securities in registered form
represented by one or more Global Securities and, in such event, will issue
certificated notes in definitive form in exchange for the Global Securities
representing the Senior Debt Securities. In any such instance, an owner of a
beneficial interest in the Global Securities will be entitled to physical
delivery in definitive form of certificated Senior Debt Securities represented
by the Global Securities equal in principal amount to such beneficial interest
and to have such certificated notes registered in its name.
Management of the Depositary is aware that some computer applications,
systems, and the like for processing data ("Systems") that are dependent upon
calendar dates, including dates before, on and after January 1, 2000, may
encounter "Year 2000 problems." The Depositary has informed its Participants
and other members of the financial community (the "Industry") that is has
developed and is implementing a program so that its Systems, as the same
relate to the timely payment of distributions (including principal and
interest payments) to securityholders, book-entry deliveries, and settlement
of trades within the Depositary (the "Depositary Services"), continue to
function appropriately. This program includes a technical assessment and a
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remediation plan, each of which is complete. Additionally, the Depositary's
plan includes a testing phase, which is expected to be completed within
appropriate time frames.
However, the Depositary's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom the Depositary licenses
software and hardware, and third party vendors on whom the Depositary relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. The Depositary has
informed the Industry that it is contacting (and will continue to contact)
third party vendors from whom the Depositary acquires services to: (i) impress
upon them the importance of such services being Year 2000 compliant; and (ii)
determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, the Depositary is in the
process of developing such contingency plans as it deems appropriate.
According to the Depositary, the foregoing information with respect to the
Depositary has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
DESCRIPTION OF THE FIRST MORTGAGE BONDS
First Mortgage Bonds, including any series of Senior Note Mortgage Bonds
issued as security for the Senior Debt Securities, will be issued in one or
more series under the Company's Mortgage Indenture.
The following summaries of certain provisions of the First Mortgage Bonds
and the Mortgage Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by express reference to, all the
provisions of the Mortgage Indenture, including the definitions therein of
certain terms. Certain capitalized terms herein are defined in the Mortgage
Indenture.
REDEMPTION AND IMPROVEMENT FUND
Redemption provisions, if any, for each series of Senior Note Mortgage Bonds
will be described in the Prospectus Supplement relating thereto. Except as
provided below, the First Mortgage Bonds outstanding on the date of the
Indenture may not be redeemed at the option of the Company prior to maturity.
Under the Mortgage Indenture, the First Mortgage Bonds may be redeemed by
application of cash deposited with the Mortgage Trustee in connection with the
taking, purchase or sale of mortgage property, by or pursuant to the direction
of a municipal or governmental body.
As an Improvement Fund, the Company must pay to the Mortgage Trustee on or
before May 1, in each year, cash equal to the amount of the Minimum Provision
for Depreciation for the preceding calendar year (i.e., as to each full
calendar month included in such period the greater of (1) the amount recorded
on the books of the Company during such calendar month as charged to income
for depreciation of Public Utility Property or (2) 1/12 of 2% of the Book Cost
of Depreciable Public Utility Property at the beginning of such calendar
month), less credits consisting of (i) Available Additions, (ii) bonds of any
series (taken at principal amount) available as the basis for the issue of
First Mortgage Bonds under the Mortgage Indenture, and/or (iii) appropriations
required for prior lien improvement funds and improvements and/or additions to
Public Utility Property which is subject to Prior Liens, not previously used
under such Prior Liens. First Mortgage Bonds used as a credit as aforesaid (or
retired by the application of cash in the Improvement Fund) may be reinstated
by using credits of the character referred to in (i) and (ii) above or by the
deposit of cash. Cash in the Improvement Fund may be withdrawn by using
credits of the character referred to in (i) and (ii) above or may be applied
to the retirement of First Mortgage Bonds of any series. Cash held in such
fund may not be applied to the redemption of the First Mortgage Bonds.
The First Mortgage Bonds are not subject to any sinking or additions fund.
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KIND AND PRIORITY OF LIEN
The Senior Note Mortgage Bonds will be secured equally and ratably with all
First Mortgage Bonds of other series by the first lien of the Mortgage
Indenture on Public Utility Property and other property owned by the Company
(but not its Subsidiaries), which includes substantially all the permanent
physical properties and franchises of the Company (except as stated below),
subject, however, to Permitted Encumbrances and minor exceptions. The Mortgage
Indenture requires that there shall be subjected to the lien thereof all
after-acquired property (except as to property of the character expressly
excepted and subject to certain limitations in cases of mergers and
consolidations), subject, however, to Permitted Encumbrances and Prior Liens.
Prior Liens may consist only of existing liens or purchase money liens on
after-acquired property, and the principal amount of all such liens may not
exceed 10% of the principal amount of the outstanding First Mortgage Bonds.
There are excepted from the lien of the Mortgage Indenture bills, notes,
accounts receivable, cash, contracts, shares of stock, bonds, evidences of
indebtedness and other securities, and all other choses in action, unless
specifically mortgaged and pledged or expressly required so to be; goods,
merchandise and appliances held for sale; materials and supplies; automobiles
and trucks and similar equipment; oil, coal and other minerals (other than
gas) underlying mortgaged lands; oil properties, oil leases and royalties and
income therefrom and rights under oil and gas leases to explore for and
produce oil; property used principally in the oil business; office equipment;
and all other after-acquired property which is not Public Utility Property.
While wholly-owned subsidiaries of the Company own interests in Unit 1 or Unit
2 of TNP One, the interests owned by such subsidiaries will not be subject to
the lien of the Mortgage Indenture.
REPORTS
The Mortgage Indenture requires periodic inspections and reports to the
Mortgage Trustee by an independent engineer as to maintenance. A certificate
of the Company as to absence of default is required to be furnished to the
Mortgage Trustee annually.
ISSUANCE OF ADDITIONAL BONDS AND WITHDRAWAL OF CASH DEPOSITED AGAINST SUCH
ISSUANCE
The aggregate principal amount of First Mortgage Bonds which may be issued
under the Mortgage Indenture is unlimited. First Mortgage Bonds of any series
may be issued from time to time on the basis of (1) 60% of the amount of
Available Additions, (2) the deposit of cash, and (3) First Mortgage Bonds of
any series paid, redeemed or otherwise retired (or for whose payment or
redemption cash has been deposited with the Mortgage Trustee) other than First
Mortgage Bonds the retirement of which has previously been made the basis for
the issuance of additional First Mortgage Bonds or the withdrawal of cash or
First Mortgage Bonds retired through the operation of any sinking, improvement
or analogous fund to the extent that the terms of any such fund preclude such
use.
With certain exceptions in the case of (3) above, additional First Mortgage
Bonds may not be issued under the Mortgage Indenture unless Net Earnings
Available for Interest of the Company for 12 consecutive months out of the
preceding 15 months are at least two times the aggregate amount of annual
Interest Charges on Bonded Indebtedness which gives effect to the interest on
the additional First Mortgage Bonds to be issued (the "Interest Coverage
Ratio"). Based upon this requirement and assuming an interest rate of 9.0%, at
November 30, 1998, the Company could have issued $267 million of First
Mortgage Bonds. The amount of First Mortgage Bonds that the Company could
issue as of September 30, 1998, based on Available Additions, was less than $1
million.
Cash deposited with the Mortgage Trustee pursuant to (2) above may be
withdrawn to the extent of 60% of Available Additions and 100% of First
Mortgage Bonds retired and not previously used exclusive of First Mortgage
Bonds retired through sinking fund operations, to the extent the Mortgage
Indenture precludes such use of First Mortgage Bonds, or through the
Improvement Fund.
RESTRICTIONS ON DECLARATION OF DIVIDENDS
The Mortgage Indenture provides that, so long as any First Mortgage Bonds of
Series U remain outstanding, the Company is prohibited from declaring
dividends on any shares of its common stock (other than dividends
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payable solely in common stock of the Company), or making any payment on
account of the purchase, redemption, or other retirement of any shares of any
class of its stock (other than pursuant to any sinking, purchase or analogous
fund for its preferred stock) or, directly or indirectly, making any other
distribution in respect thereof (other than cash dividends on its preferred
stock), unless such dividends on common stock ("Stock Payments") are declared
to be payable not more than ninety days after the date of declaration, and
unless, at the date of such declaration of dividends on common stock or the
date of such payment or distribution (after giving effect, as if paid, to the
proposed Stock Payment), the sum of $1.5 million, plus (or minus, in the case
of a deficit) the net income of the Company computed for the period from
December 31, 1969, to and including the date of declaration (in the case of
dividends on common stock) or the making of such proposed Stock Payment, is
greater than the sum of the aggregate of all Stock Payments declared or made
during such period plus the aggregate amount of all cash dividends on, and
payments pursuant to any sinking, purchase or analogous fund for, preferred
stock of the Company declared or made during such period. At September 30,
1998, pursuant to the terms of the Mortgage Indenture, approximately $9.5
million of the Company's $69 million of retained earnings at such date was
restricted.
MODIFICATION OF BONDHOLDERS' RIGHTS
The rights of the bondholders may be modified with the consent of the
holders of 75% of the First Mortgage Bonds, including not less than 60% of
each series affected. In general, no modification of the terms of maturity or
payment of principal, premium or interest is effective against any bondholder
without his consent.
THE MORTGAGE TRUSTEE
The holders of a majority in principal amount of the First Mortgage Bonds
outstanding may require the Mortgage Trustee to enforce the Mortgage
Indenture, but the Mortgage Trustee is not required to expend its own funds or
incur liability if it has reasonable grounds to believe that repayment of such
funds or liability is not reasonably assured.
No holder of any First Mortgage Bond has the right to institute suit to
enforce the Mortgage Indenture (other than with respect to the unconditional
obligation of the Company to pay the principal of, and interest accrued on,
First Mortgage Bonds to the holders thereof) unless the holders of at least
25% in principal amount of the First Mortgage Bonds outstanding shall have
filed a request with the Mortgage Trustee for it to institute such action,
together with an offer of adequate security and indemnity.
DEFAULTS
An Event of Default is defined in the Mortgage Indenture as (a) failure to
pay principal or premium when due, (b) failure to pay interest for 30 days
after becoming due, (c) failure to discharge or satisfy any sinking or
improvement fund obligation when due, (d) failure to observe (i) the 10%
restriction on Prior Lien Indebtedness, (ii) certain restrictions on the
payment of dividends, (iii) the covenants as to sale, merger or lease, or (iv)
the provisions as to investment of certain trust funds, (e) failure to perform
or observe other covenants, agreements or conditions for 60 days after notice,
(f) entry of an order for reorganization or appointment of a trustee or
receiver and continuance of such order or appointment, unstayed, for 60 days,
(g) certain adjudications, petitions or consents in bankruptcy, insolvency or
reorganization proceedings, and (h) rendering of a judgment in excess of
$100,000 and its continuance unsatisfied for 60 days after any stay of
execution thereon has been terminated.
Upon the occurrence of an Event of Default and until it shall have been
remedied, the Mortgage Trustee or the holders of not less than 25% in
principal amount of the First Mortgage Bonds outstanding may declare the
principal of, and interest accrued on, all First Mortgage Bonds to be due and
payable immediately.
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PLAN OF DISTRIBUTION
The Company may sell any series of the Senior Debt Securities (i) to or
through underwriters; (ii) to or through dealers; or (iii) directly to
purchasers. A Prospectus Supplement will set forth the terms of the offering
of each series of the Senior Debt Securities, including the name or names of
any underwriters or dealers, the purchase price of such Senior Debt Securities
and the proceeds to the Company from such sale, any underwriting discounts and
other items constituting underwriters' compensation, any initial public
offering price, any discounts or concessions allowed or reallowed or paid to
dealers and any securities exchange on which such Senior Debt Securities may
be listed. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time. Only
firms named in the Prospectus Supplement or a related pricing supplement, if
applicable, will be deemed to be underwriters or dealers in connection with
the Senior Debt Securities offered thereby.
If underwriters are used in the sale, the Senior Debt Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of
sale. The Senior Debt Securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters or
directly by one or more underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Senior Debt Securities will
be named in the Prospectus relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth
on the cover of such Prospectus Supplement. Unless otherwise set forth in the
Prospectus Supplement, the obligations of the underwriters to purchase the
Senior Debt Securities offered thereby will be subject to certain conditions
precedent, and the underwriters will be obligated to purchase all of such
Senior Debt Securities if any are purchased.
The Senior Debt Securities may be sold directly by the Company to investors
or others who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale thereof. The terms of any such sales
will be described in the Prospectus Supplement relating thereto.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters or dealers to solicit offers from certain types of institutions
to purchase the Senior Debt Securities from the Company at the public offering
price set forth in the Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the
future. Such contracts will be subject only to those conditions set forth in
the Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
Underwriters and dealers may be entitled under agreements entered into with
the Company, to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which such underwriters or dealers may
be required to make in respect thereof. Underwriters and dealers may engage in
transactions with, or perform services for the Company in the ordinary course
of business.
The Senior Debt Securities may or may not be listed on a national securities
exchange. No assurance can be given that there will be a market for any series
of the Senior Debt Securities.
20
<PAGE>
VALIDITY OF SECURITIES
The validity of the Senior Debt Securities offered hereby and the Indenture
will be passed upon for the Company by Michael D. Blanchard, Vice President
and General Counsel of the Company and by Haynes and Boone, LLP, Fort Worth,
Texas. Certain other matters will be passed upon for the Company by Haynes and
Boone, LLP. Certain legal matters in connection with the offering will be
passed upon for any underwriters by Milbank, Tweed, Hadley & McCloy, New York,
New York. All matters pertaining to local laws in connection with the issuance
of the Senior Debt Securities offered hereby will be passed upon only by
Haynes and Boone, LLP as to Texas law, and Rubin, Katz, Salazar, Alley &
Rouse, Santa Fe, New Mexico, as to New Mexico law.
EXPERTS
The consolidated financial statements of Texas-New Mexico Power Company as
of and for the year ended December 31, 1997, included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of Arthur Andersen LLP, independent public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Texas-New Mexico Power Company as
of December 31, 1996 and 1995, and for each of the years in the two-year
period ended December 31, 1996, included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG LLP, independent public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
The report of KPMG LLP covering the Company's consolidated financial
statements refers to a change in the method of accounting for operating
revenues in 1995.
21
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JANUARY 6, 1999
TEXAS-NEW MEXICO POWER COMPANY
$175,000,000
6 1/4% SENIOR NOTES DUE 2009
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PROSPECTUS SUPPLEMENT
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DONALDSON, LUFKIN & JENRETTE
WARBURG DILLON READ LLC
CHASE SECURITIES, INC.
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
LEGG MASON WOOD WALKER
INCORPORATED
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
OR TO MAKE REPRESENTATIONS AS TO MATTERS NOT STATED IN THIS PROSPECTUS SUPPLE-
MENT AND THE PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS ARE NOT AN OFFER TO SELL THESE SECU-
RITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURIS-
DICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALES MADE HEREUNDER AF-
TER THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THE DATE OF THE PROSPECTUS SHALL
CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN OR THE
AFFAIRS OF THE COMPANY HAVE NOT CHANGED SINCE THE DATE HEREOF OR THEREOF.
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