<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 1997
REGISTRATION NO. 333-32030
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
POST-EFFECTIVE AMENDMENT NO. 1
ON FORM S-3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
EL PASO ELECTRIC COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-0607870
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
100 NORTH STANTON
EL PASO, TEXAS 79901
(915) 543-5711
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------------
TERRY BASSHAM, ESQ.
GENERAL COUNSEL
EL PASO ELECTRIC COMPANY
KAYSER BUILDING
100 NORTH STANTON
EL PASO, TEXAS 79901
(915) 543-5711
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
--------------------------
WITH A COPY TO:
DANIEL G. KELLY, JR.
SIDLEY & AUSTIN
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED UNIT PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Mortgage Bonds $107,634,509 100% (1) $107,634,509 $37,115
Common Stock 13,842,797 shares $5.53 (2) $ 76,550,667 26,397
Preferred Stock 160,000 shares $ 100.00 (1) $ 16,000,000 5,518
-------
Total $69,030(3)
===========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933 on the basis of
the aggregate principal amount of First Mortgage Bonds and the liquidation
preference of Preferred Stock to be registered. Pursuant to Rule 416(b)
under the Securities Act of 1933, the Registration Statement also covers
shares of Preferred Stock received from time to time as "payment in kind"
stock dividends.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 on the basis of
the average high and low prices of the Common Stock on the American Stock
Exchange on March 27, 1996.
(3) The securities registered hereunder are being carried forward from the
Registration Statement on Form S-1 to which the enclosed Prospectus
relates. The full amount of the filing fee in respect of such securities
($69,030) was previously paid at the time of the initial filing of such
Registration Statement (April 3, 1996) and of Pre-Effective Amendment No. 1
thereto (April 24, 1996).
THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY
BE NECESSARY TO DELAY THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
EL PASO ELECTRIC COMPANY
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-3 ITEM
NUMBER AND CAPTION LOCATION IN PROSPECTUS
<S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Facing Page; Cross-Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus...................... Inside Front and Outside Back Cover
Pages; Available Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Risk Factors; Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Determination of Offering Price
6. Dilution................................. *
7. Selling Security-Holders................. Selling Securityholders
8. Plan of Distribution..................... Plan of Distribution
9. Description of Securities to be
Registered............................... Description of Bonds; Description of Preferred
Stock; Certain Federal Income Tax Consequences;
Description of Common Stock
10. Interest of Named Experts and Counsel.... Legal Matters; Experts
11. Material Changes......................... The Company; Reorganization Under Chapter 11 of
the Bankruptcy Code; Capitalization
12. Incorporation of Certain Information by
Reference................................ Available Information
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
</TABLE>
___________________________________________
*Answer is negative or item is inapplicable.
<PAGE>
SUBJECT TO COMPLETION, APRIL 4, 1997
PROSPECTUS
EL PASO ELECTRIC COMPANY
$17,700,000 9.40 % SERIES E FIRST MORTGAGE BONDS DUE 2011
28,548 SHARES OF 11.40% SERIES A PREFERRED STOCK
11,908,539 SHARES OF COMMON STOCK
___________________
The First Mortgage Bonds (the "Bonds"), the shares of 11.40% Series A
Preferred Stock (the "Preferred Stock") and the shares of Common Stock, no par
value (the "Common Stock" and, collectively with the Bonds and the Preferred
Stock, the "Securities") of El Paso Electric Company, a Texas corporation (the
"Company"), covered by this Prospectus may be sold from time to time by the
securityholders specified in this Prospectus or their successors in interest
(the "Selling Securityholders"). See "Selling Securityholders."
The Bonds and the Preferred Stock are not listed on any national securities
exchange. The Common Stock is listed on the American Stock Exchange (the
"AMEX") under the trading symbol "EE." On April ___, 1997 the last reported
sale price of the Common Stock on the AMEX was $_____ per share.
The Company will not receive any of the proceeds from the sale of the
Securities being offered by the Selling Securityholders. The Selling
Securityholders may, from time to time, sell the Common Stock for cash at market
prices prevailing on the AMEX at the time of sale, or sell the Bonds, the
Preferred Stock and Common Stock under certain other terms. See "Plan of
Distribution."
___________________
THE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 1 FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April , 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission's Regional Offices at 7 World Trade Center, New York, New York 10007
and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at the prescribed rates. The Commission
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. Reports, proxy
statements and other information concerning the Company can also be inspected at
the offices of the AMEX, 86 Trinity Place, New York, New York 10006.
Additional information regarding the Company and the securities offered
hereby is contained in the Registration Statement on Form S-1 and the exhibits
thereto (the "Registration Statement") filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement, which may be inspected without charge at, and copies of which may be
obtained at prescribed rates from the Commission, at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549.
The Bonds were issued pursuant to a General Mortgage Indenture and Deed of
Trust, as supplemented by a First Supplemental Indenture each dated as of
February 1, 1996 (the "Indenture"), between the Company and State Street Bank
and Trust Company, as trustee. The Preferred Stock was issued pursuant to a
Statement of Resolution Establishing Series of Preferred Stock (the "Statement
of Resolution"). Pursuant to the terms of the Indenture and Statement of
Resolution, so long as any Bonds or shares of Preferred Stock, respectively,
remain outstanding, the Company will furnish to holders thereof quarterly
reports (containing unaudited financial statements) for the first three quarters
of each fiscal year of the Company and annual reports (containing audited
financial statements and an opinion thereon by the Company's independent
certified public accountants) that the Company is, or would be, required to file
under Section 13 or 15(d) of the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "1996 10-K Report"); and
(2) The description of the Company's Common Stock contained in the
Company's registration statement on Form 8A dated February 12, 1996,
which was declared effective on February 15, 1996, registering the
Common Stock pursuant to Section 12(b) of the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which is deemed to be incorporated by
reference herein modifies or supersedes such prior statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
<PAGE>
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to El Paso Electric
Company, Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention:
Secretary, telephone number (915) 543-5711.
<PAGE>
RISK FACTORS
DEPENDENCE OF VALUES AND FINANCIAL RATIOS ON MANAGEMENT'S ESTIMATES OF FUTURE
PERFORMANCE
The Company emerged from bankruptcy on February 12, 1996 (the
"Reorganization") pursuant to its Fourth Amended Plan of Reorganization (the
"Plan"). In connection with its emergence from bankruptcy, the Company adopted
fresh-start reporting in accordance with the requirements of Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"). SOP 90-7 required a determination of the
Company's reorganization value, which is the estimated fair value of the
reorganized entity as a going concern at the time that it emerges from
bankruptcy. Management's estimate of the reorganization value of the Company on
the effective date of the Reorganization was $1,910 million. This amount was
determined by the Company based primarily on the estimated value of its capital
structure, which in turn resulted from management's estimates of future
operating results. The valuation necessarily assumed that the Company will
achieve management's estimates of future operating results in all material
respects. If these results are not achieved, the resulting values could be
materially different.
The book values assigned to the Company's assets, the operating results and
the ratios that measure the Company's ability to meet its requirements for debt
service reflect the Company's reorganization value and are correspondingly
impacted by the estimates described above. The failure by the Company to achieve
management's estimates of future operating results could cause actual asset
values and debt-to-equity, fixed charge and interest coverage ratios to be
materially lower than those presented in the pro forma financial statements.
UNCERTAIN VALUE OF MORTGAGED PROPERTY; DIFFICULTY OF FORECLOSURE
An aggregate of $1,075 million of the Company's senior debt, including the
Bonds and $46.6 million drawn under a $100 million credit facility with Chemical
Bank (the "Chemical Credit Facility"), is secured by a first mortgage lien on
substantially all of the property of the Company used in its generation,
transmission and distribution operations. The value allocated to the property
used in the Company's generation, transmission and distribution operations
(designated "Utility Plant-Net Plant in Service") in the Company's balance sheet
at December 31, 1996 (incorporated herein by reference to the 1996 10-K Report)
is approximately $1,415 million. See "-Dependence of Values and Financial Ratios
on Management's Estimates of Future Performance." As of February 12, 1996, the
value allocated to the assets used in the Company's generation, transmission and
distribution operations is based on the Company's estimate of the replacement
cost less depreciation of such assets and is derived from the value of the
Company as a going concern rather than on an appraisal or other professional
valuation of its assets. This value is derived to a material extent from
assumptions regarding rates to be charged by the Company for power and,
accordingly, does not represent the aggregate market value of the
4
<PAGE>
Company's individual utility plant assets, the value that a willing buyer would
pay therefor, or the value that would be ascribed thereto under traditional
cost-based utility regulation. The value allocated to the Company's net utility
plant is, in turn, allocated among individual assets in accordance with
accounting rules, and those values do not necessarily represent market values
for individual assets because the Company's assets comprise an integrated
system. Investors should recognize that foreclosure, which is severely limited
because of the Company's status as a regulated public utility, may not produce
tangible assets with a value sufficient to repay the Bonds.
SUBSTANTIAL LEVERAGE AND LIMITED FINANCIAL FLEXIBILITY
The Company has substantial leverage and significant debt service
obligations. Due to a rate settlement (the "Rate Stipulation") entered into
between the Company and the major parties to a rate proceeding before the Public
Utility Commission of Texas (the "PUCT") pursuant to which the base rates that
the Company charges most of its Texas retail customers have been fixed (the
"Rate Freeze") for a ten year period beginning August 2, 1995 (the "Freeze
Period"), the Company does not expect to be able to raise its rates in order to
recover increases in future costs or to replace lost revenues. As of December
31, 1996, the Company had total long-term indebtedness, including the long-term
portion of financing and capital lease obligations, of approximately $1,046
million, redeemable preferred stock of $108 million and long-term indebtedness
as a percentage of total capitalization of approximately 70%. The Company also
will have available borrowings under the Chemical Credit Facility.
The degree to which the Company is leveraged could have important
consequences to holders of the Securities, including: (i) the Company's ability
to obtain additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes will be limited in
the future; (ii) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for other
purposes; and (iii) the Company's substantial leverage may place the Company at
a competitive disadvantage, hinder its ability to adjust rapidly to changing
market conditions and make it more vulnerable in the event of a downturn in
general economic conditions or its business. As a result, any significant
reduction in revenues or significant increase in costs or expenditures could
have a material adverse effect on the Company's ability to satisfy its
obligations under the Bonds.
NON-COMPARABILITY OF HISTORICAL FINANCIAL STATEMENTS
The Company's historical financial statements prior to emergence from
bankruptcy are not comparable to its financial statements that give effect to
the consummation of the Plan and the transactions contemplated thereby,
including the application of fresh-start reporting and, therefore, are not
indicative of the Company's future performance. As a result of the
Reorganization, the Company significantly reduced its total debt and simplified
its capital structure. At December 31, 1996, the Company's capital structure
consisted of approximately $1,046 million of long-term
5
<PAGE>
debt (including the long-term portion of financing and capital lease
obligations), $108 million of Preferred Stock and approximately $331 million of
common stock equity. The Company also has a $100 million revolving credit
facility to finance nuclear fuel purchases and to provide working capital.
Approximately $46.6 million of this revolving credit facility was drawn to
finance nuclear fuel, of which approximately $20.2 million is included in the
long-term debt described above. In addition, the financial statements of the
Company covering periods following the Reorganization are prepared in accordance
with fresh-start reporting, pursuant to which the Company's assets were recorded
at Reorganization Value and liabilities were recorded at fair value as of the
effective date of the Reorganization. See"-Dependence of Values and Financial
Ratios on Management's Estimates of Future Performance." The Company's
financial statements are not comparable to those of most other public utilities
because the Company does not report its financial statements under SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation."
INCREASED COSTS AND LOSS OF GENERATION CAPACITY AT PALO VERDE NUCLEAR GENERATING
STATION
A significant percentage of the Company's generating capacity, assets and
operating expenses is attributable to the Palo Verde Nuclear Generating Station
("Palo Verde"). The Company's 15.8% interest in each of the three Palo Verde
units represents approximately 600 MW of generating capacity. Palo Verde
represents approximately 40% of the Company's available net generating capacity
and represented approximately 53% of the Company's available energy for the
twelve months ended December 31, 1996. Nuclear fuel represented approximately
53% of the total KWH energy mix of the Company for the twelve months ended
December 31, 1996. The Company faces risks of additional or unanticipated costs
at Palo Verde relating to (i) increases in operations and maintenance expenses;
(ii) the potential replacement of steam generators; (iii) an extended outage of
any of the Palo Verde units; (iv) increases in decommissioning costs; (v) the
storage of radioactive materials; and (vi) compliance with the regulations
governing nuclear generating stations. The Company's portion of the total costs
associated with the potential replacement of the Palo Verde Unit 2 steam
generators in the next five to ten years is currently estimated not to exceed
$30 million, including replacement power costs incurred during the period in
which Unit 2 would be out of service while the steam generators were replaced.
Under the Rate Stipulation, the Company bears the risk of its share of certain
increased costs related to Palo Verde with respect to its Texas retail customers
during the Freeze Period, and the Company does not expect to be able to recover
any of such increased costs from its New Mexico and wholesale customers. The
loss of a significant portion of Palo Verde generating capacity or the
incurrence by the Company of its share of the increased costs described above
could result in a material adverse effect on the Company's future operations and
financial condition. See "-Substantial Leverage and Limited Financial
Flexibility." Palo Verde is also subject to performance standards in Texas and
New Mexico. If Palo Verde does not meet these performance criteria, the Company
could be subject to a revenue reduction.
6
<PAGE>
POTENTIAL LOSS OF CUSTOMERS DUE TO LITIGATION WITH THE CITY OF LAS CRUCES AND
OTHER MATTERS
Approximately 18% of the Company's revenues for the twelve months ended
December 31, 1996 were derived from supplying power to the City of Las Cruces,
the Comision Federal de Electricidad de Mexico (the national electric utility of
Mexico, "CFE") and three military bases. The City of Las Cruces has instituted
litigation seeking the ability to condemn the Company's distribution system and
related assets located within its city limits. In March 1997, the New Mexico
House of Representatives and Senate passed a bill that would give the City of
Las Cruces the authority to acquire and operate the Company's distribution
system within both the city limits and the surrounding five miles. If the City
of Las Cruces succeeds in its efforts, the Company could lose its Las Cruces
customer base, although the Company would receive compensation as established by
the court. In addition, if the City of Las Cruces succeeds in its efforts,
additional areas of the Company's New Mexico service territory may join the City
of Las Cruces system or establish their own system. For the twelve months ended
December 31, 1996, customers within the City of Las Cruces represented
approximately 7% of the Company's revenues and all customers in New Mexico
(other than Holloman and White Sands) represented approximately 8% of the
Company's revenues. The Company's contract with CFE, under which it supplied up
to 200 MW of power, expired on December 31, 1996. Following a competitive bid
process, the Company and CFE entered into a new power supply contract for 1997
covering the supply of various amounts of power from 120 to 200 MW. There can be
no assurance that the Company will be able to maintain CFE as a substantial
customer in the future. In recent years, the United States has closed a large
number of military bases and there can be no assurance that Holloman, White
Sands or Ft. Bliss will not be closed in the future. The loss of any of these
major customers could adversely affect the Company's revenues. See "-Substantial
Leverage and Limited Financial Flexibility."
REGULATION
TEXAS RATE STIPULATION
The Company is currently charging residential and commercial retail rates
in Texas pursuant to the Rate Stipulation. The Rate Stipulation provides a level
of certainty in the rates that the Company currently charges the majority of its
customers. There can be no assurance that such revenues will be sufficient to
recover any increased costs incurred during the Freeze Period, including the
Company's share of any increased costs in connection with Palo Verde (such as
the cost of decommissioning, operations and maintenance costs, and capital
expenditures), increases in other non-fuel costs of operation as a result of
higher than anticipated levels of inflation, changes in tax laws or regulatory
requirements, or other causes. See "-Increased Costs and Loss of Generation
Capacity at Palo Verde Nuclear Generating Station." If the Company loses a
significant portion of its retail customer base or wholesale sales, the Company
does not expect that it would be able to replace such revenues through increased
retail rates in Texas during the Freeze Period. See "-Substantial Leverage and
Limited Financial Flexibility."
7
<PAGE>
Additionally, neither the Rate Stipulation nor the Agreed Order dated
August 30, 1995 of the PUCT that implemented certain provisions of the Rate
Stipulation (the "Agreed Order") deprives Texas regulatory authorities of their
jurisdiction over the Company during the Freeze Period. Under certain scenarios,
certain parties could seek to initiate an inquiry into the reasonableness of the
Company's rates in Texas. In addition, the Rate Stipulation provides that, in
the event of a merger or other business combination involving the Company, the
parties to the Rate Stipulation retain their rights to participate as a party in
a proceeding relating to such merger or business combination, as well as the
right to pursue a reduction in rates below the freeze level to reflect
reductions in the Company's operating costs resulting from the merger.
REDUCTION OF RATES AND OTHER REGULATORY CHANGES
The Company does not currently have any agreement with New Mexico
regulatory authorities or parties to New Mexico regulatory proceedings
comparable to the Rate Stipulation. The Company, pursuant to an order of the
NMPUC, filed all of the rate filing package data required by the NMPUC with the
NMPUC, including cost of service data and supporting testimony, on March 3,
1997. The Company cannot predict what action the NMPUC may take in this
proceeding, and there can be no assurance that the Company will continue to be
able to charge its current rates in New Mexico. See "-Substantial Leverage and
Limited Financial Flexibility."
The Company is subject to extensive regulation by both the federal
government and the states in which the Company conducts its business. State and
federal governmental agencies regulate the rates charged by the Company, the
issuance of operational permits, the maintenance of those permits and, in some
cases, the issuance of securities. Changes in these regulations or in their
application to the Company could adversely affect the Company's business and
financial condition.
INCREASED COSTS OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company and its operations are subject to a wide range of environmental
laws and regulations relating to, among other matters, air emissions, wastewater
discharges, landfill operations and hazardous waste management. Compliance with
these laws and regulations is an increasingly important factor in the Company's
business. The Company will continue to incur capital and operating expenditures
in order to comply with applicable federal and state environmental laws and to
meet new regulatory requirements. Additional expenses associated with compliance
with proposed and future environmental laws and regulations could have a
material adverse effect on the future operations and financial condition of the
Company. See "-Substantial Leverage and Limited Financial Flexibility."
8
<PAGE>
POTENTIAL CLAIMS FOR TAX INDEMNIFICATION
Pursuant to certain agreements entered into in connection with the
Company's sale and leaseback transactions related to Palo Verde and the Plan,
the Company may face claims for indemnification of the lessors for certain tax
liabilities and the loss of certain assumed tax benefits incurred by such
lessors. The Company has been notified that the Internal Revenue Service (the
"Service") has raised certain issues relating to investment tax credits claimed
by a lessor. The Company estimates that the total amount of potential claims for
indemnification from all lessors related to the issues raised by the Service
could approximate $10.0 million, exclusive of interest, if the Service prevails.
The Company cannot predict the outcome of the matter or the Company's liability
for any resulting claim for indemnification. The Company also cannot predict the
ultimate number or magnitude of claims that may be asserted or for which the
Company may be liable under the tax indemnification obligations in the Palo
Verde agreements.
SIGNIFICANT CHANGES IN ELECTRIC UTILITY INDUSTRY; INCREASED COMPETITION
The electric utility industry is facing significant changes and increased
competition as a result of changes in federal provisions relating to third-party
transmission services and independent power production, as well as potential
changes in state regulatory provisions relating to wholesale and retail service.
The Company's wholesale and large retail customers currently have, in varying
degrees, and, in the future, may have additional, alternate sources of
economical power, including co-generation of electric power. This issue is
particularly important to the Company because its rates are significantly higher
than the national and regional average. In the face of increased competition
there can be no assurance that such competition will not adversely affect the
future operations, cash flows and financial condition of the Company or that the
Company will be able to sustain retail rates at the level established by the
Rate Stipulation during the Freeze Period.
BONDS AND PREFERRED STOCK NOT LISTED ON A NATIONAL SECURITIES EXCHANGE
The Bonds and the Preferred Stock are not listed on any national securities
exchange. The Company has been advised that certain securities firms may make a
market in the Bonds and the Preferred Stock; however, they are not obligated to
do so, and any market-making may be discontinued at any time without notice.
Accordingly, no assurance can be given that any active public or other market
will develop or continue for the Bonds or the Preferred Stock nor can any
assurance be given with respect to the liquidity of, nor the trading market for,
such securities.
SENSITIVITY TO WEATHER; SEASONALITY OF EARNINGS
Because the Company's business is impacted by the use of electricity for
cooling, weather patterns can have a material effect on the Company's sales of
electricity. Accordingly, the Company's earnings generally are higher in the
second and third quarters than in the first and
9
<PAGE>
fourth quarters. Although temperature levels are relatively stable over time,
variations can occur from time to time, and cooler than normal weather in the
summer may adversely affect the Company's revenues and earnings.
THE COMPANY
The Company is a public utility engaged in the generation, transmission and
distribution of electricity in an area of approximately 10,000 square miles in
west Texas and southern New Mexico. The Company also serves wholesale customers
in Texas, New Mexico, California and Mexico. The Company owns or has
significant ownership interests in five electrical generating facilities
providing it with a total capacity of approximately 1,500 megawatts of
electricity. For the twelve months ended December 31, 1996, the Company's
energy sources consisted of approximately 53% nuclear fuel, 32% natural gas, 7%
coal and 8% purchased power.
The Company serves approximately 279,000 residential, commercial,
industrial and wholesale customers. The Company distributes electricity to
retail customers principally in El Paso, Texas and Las Cruces, New Mexico
(representing approximately 56% and 7%, respectively, of the Company's revenues
for the twelve months ended December 31, 1996). In addition, the Company sells
electricity to wholesale customers, including Texas-New Mexico Power Company,
the Imperial Irrigation District, a southern California electric power agency,
and the Comision Federal de Electricidad de Mexico, the national electrical
utility of Mexico. Principal industrial and other large customers of the Company
include steel production, copper and oil refining, and garment manufacturing
concerns and United States military installations including the United States
Army Air Defense Center at Fort Bliss in Texas and White Sands Missile Range and
Holloman Air Force Base in New Mexico.
The Company's principal offices are located at Kayser Building, 100 North
Stanton, El Paso, Texas 79901 (telephone 915-543-5711). The Company was
incorporated in Texas in 1901.
REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
PLAN OF REORGANIZATION
On February 12, 1996, the Company's Plan, which was confirmed by the
Bankruptcy Court on January 9, 1996, became effective. This permitted the
Company to emerge from a bankruptcy proceeding that began in January 1992.
As a result of the Reorganization, the Company has significantly reduced
its total debt and simplified its capital structure. The Company's total
obligations subject to compromise (including obligations related to Palo Verde
leases, which represented $700 million of allowed claims in the
10
<PAGE>
Bankruptcy Case) prior to its Reorganization was $2,007 million. Under the
Plan, this debt and all Palo Verde lease obligations were extinguished and the
creditors received a combination of cash and newly issued debt and equity
securities of the reorganized Company. On December 31, 1996, the capital
structure of the reorganized Company consisted of approximately $1,046 million
of long-term debt, including the long-term portion of financing and capital
lease obligations, $108 million of redeemable preferred stock and approximately
$331 million of common stock equity. The Company has a $100 million revolving
credit facility to finance nuclear fuel purchases and to provide working
capital. Approximately $46.6 million of this revolving credit facility was
drawn to finance nuclear fuel, of which approximately $20.2 million is included
in the long-term debt described above. Under the Plan, all of the Company's
former common and preferred stock was cancelled and the holders of such
securities received approximately 15% of the reorganized Company's Common Stock
and the right to receive certain litigation recoveries, if any.
In addition, in connection with the extinguishment of lease obligations, on
the Effective Date arrangements pursuant to which the Company sold and leased
back portions of its interest in Palo Verde were terminated and the Company
reacquired such interests. The Company has agreed to indemnify certain parties
to the sale-leaseback transactions against certain possible tax liabilities.
The Company's Common Stock is listed for trading on the American Stock
Exchange under the symbol "EE" and began trading on February 16, 1996.
RATE STIPULATION
On the effective date of the Plan, the Agreed Order entered on August 30,
1995 by the PUCT became effective. The Agreed Order implemented certain
provisions of the Rate Stipulation among the Company and substantially all of
the other parties to a rate proceeding in Texas. Among other things, under the
Rate Stipulation, (i) the Company received a one-time annual increase in Texas
retail base rates of approximately $24.9 million; (ii) the Company's base rates
for most customers in Texas will be fixed at this increased level during the
Freeze Period; (iii) the City of El Paso granted the Company a new franchise
that extends through the Freeze Period; (iv) the Company will retain 75% during
the first five years of the Freeze Period and 50% during the remainder of the
Freeze Period of (A) the revenues generated by providing third-party
transmission services and (B) profit margins from certain off-system power
sales; (v) no refunds or surcharges will be made for fuel costs and revenues for
the period from July 1993 through June 1995; and (vi) all appeals of PUCT orders
concerning the Company and all outstanding PUCT dockets concerning the Company's
rates were resolved.
ACCOUNTING TREATMENT
The Company's financial statements for periods following its emergence from
bankruptcy are not comparable to its pre-emergence historical financial
statements, which do not reflect the
11
<PAGE>
Reorganization. For periods following its emergence from bankruptcy, the
Company has applied fresh-start reporting in accordance with SOP 90-7. SOP 90-7
requires a determination of the Company's reorganization value, which represents
the going concern value of the Company's capital structure and an allocation of
such value to the Company's assets based on their relative fair values. The
application of SOP 90-7 results in the creation of a new reporting entity having
no retained earnings or accumulated deficit. Management's estimate of the
reorganization value of the Company as of February 12, 1996 was approximately
$1,910 million.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996. See "Risk Factors--Dependence of Values and Financial Ratios
on Management's Estimates of Future Performance."
<TABLE>
<CAPTION>
AS OF DECEMBER 31 , 1996
-------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Capitalization:
Common stock, stated value $1 per share, 100,000,000 shares authorized,
59,999,981 shares issued and outstanding; and 180,000 restricted shares.... $ 60,180
Capital in excess of stated value............................................ 240,768
Unearned compensation-restricted stock awards................................ (758)
Accumulated earnings......................................................... 30,835
Net unrealized gain on marketable securities,
less applicable income tax expense of $125................................. 232
----------
Common stock equity........................................................ 331,257
Preferred stock, cumulative, no par value, 2,000,000 shares authorized,
Redemption required - 1,084,264 shares issued and outstanding;
at liquidation preference................................................. 108,426
Long-term debt.............................................................. 1,021,749
Financing and capital lease obligations..................................... 24,424
----------
Total capitalization $1,485,856
==========
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
In each of the four fiscal years preceding the effectiveness of the
Reorganization, the Company's earnings were not sufficient to cover fixed
charges. The amount of such deficiency was $6,148,000, $22,364,000, $39,241,000
and $42,959,000 for the fiscal years ended December 31, 1992 through December
31, 1995, respectively. In those same years, the Company's earnings were also
insufficient to cover fixed charges and preferred stock dividend requirements by
$17,613,000, $33,829,000, $50,706,000 and $54,424,000, respectively. For the
period from February 12, 1996 through December 31, 1996, the Company's ratio of
earnings to fixed charges was 1.7:1, and its ratio of earnings to fixed charges
and preferred stock dividend requirements was 1.4:1. For purposes of
determining the above deficiencies and ratios (i) earnings consist of earnings
(loss) before income tax plus fixed charges; and (ii) fixed charges consist of
interest expense on all indebtedness (including amortization of deferred debt
issuance costs) and the portion of operating lease rental expense that is
representative of the interest factor. The deficiencies and ratios of earnings
to fixed charges and preferred stock dividend requirements include preferred
stock dividend requirements adjusted to a pre-tax basis using the statutory tax
rates.
13
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Securities. All of the proceeds will be received by the Selling
Securityholders. See "Selling Securityholders."
DETERMINATION OF OFFERING PRICE
The offering price of the Securities will be determined by the Selling
Securityholders in transactions entered into by them regarding the Securities.
See "Plan of Distribution."
SELLING SECURITYHOLDERS
This Prospectus relates to the offer and sale by the Selling
Securityholders of Securities that were (i) issued to them in the Reorganization
and (ii) acquired by them in other transactions prior to the date of this
Prospectus. The Prospectus is part of a registration statement filed under the
Securities Act pursuant to the terms of the Registration Rights Agreement dated
as of February 12, 1996 among the Company, Fidelity Management & Research
Company and Fidelity Management Trust Company, on behalf of certain entities
(the "Registration Rights Agreement"). In the Registration Rights Agreement, the
Company has agreed to keep the Registration Statement continuously effective
until the earlier of (x) such time as the Selling Securityholders receive an
opinion of counsel that registration is no longer required to effect public
distribution of the Securities and (y) the first date that all of the Securities
shall cease to be "Registrable Securities" as defined in the Registration Rights
Agreement. The Securities shall cease to be "Registrable Securities" when,
among other things, they have been disposed of in accordance with the
Registration Statement or Rule 144 under the Securities Act or when the
restrictions on transfer by the Selling Securityholders under the Securities Act
shall no longer be applicable. The Registration Rights Agreement provides that
certain rights of the parties thereto are assignable in connection with a sale
of the Securities.
The Securities offered by this Prospectus are offered for the account
of the Selling Securityholders. The following table sets forth, as of March 24,
1997, the names of the Selling Securityholders offering the Securities, the
number and percentage of shares of Common Stock and Preferred Stock owned by
such Selling Securityholders, and the aggregate principal amount of each series
of Bonds owned by such Selling Securityholders and the percentage of all issued
and outstanding Bonds (at December 31, 1996) represented thereby.
14
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common Percentages
Stock ("CS") of Common Series and Aggregate Percentage of
and Preferred Stock or Preferred Principal Amount Bonds
Name of Entity Stock ("PS") Stock Owned of Bonds Owned
- --------------- ------------- ------------------ ---------------------- -------------
<S> <C> <C> <C> <C>
Fidelity Charles Street Trust:
Fidelity Asset Manager (1)................ 57,500(CS) * Series E - $ 3,290,000 *
Fidelity Charles Street Trust:
Fidelity Asset Manager: Growth (1)........ 15,300(CS) * Series E - $ 1,470,000 *
Variable Insurance Products Fund:
High Income Portfolio (1)................. 3,300(CS) *
Fidelity Puritan Trust:
Fidelity Puritan Fund (1)................. 3,700(CS) *
Fidelity Summer Street Trust:
Fidelity Capital & Income Fund (1)........ 5,999,941(CS) 10.0%(CS)
28,548(PS) 2.6%(PS)
Fidelity Fixed-Income Trust:
Spartan High Income Fund (1).............. 890,613(CS) 1.5% Series E - $ 7,710,000 *
Fidelity Magellan Fund (1).................. 137,600(CS) *
Fidelity Advisor Series II:
Fidelity Advisor High Yield Fund (1)...... 66,400(CS) *
Fidelity Devonshire Trust:
Fidelity Equity-Income Fund (1)........... 13,900(CS) *
Belmont Fund, L.P. (2)...................... 1,056,401(CS) 1.8%
Belmont Capital Partners II, L.P. (2)....... 3,131,921(CS) 5.2%
Fidelity Management Trust Company
on behalf of accounts managed by it (2)... 531,963(CS) * Series E - $ 5,230,000 *
Series E - $ 17,700,000
------------- ------- ------------ -----
TOTALS 11,908,539(CS) 19.9%(CS) $ 17,700,000 2.1%
28,548(PS) 2.6%(PS)
</TABLE>
*Represents less than 1%.
15
<PAGE>
(1) Each of such entities is either an investment company or a
portfolio of an investment company registered under Section 8 of the Investment
Company Act of 1940, as amended, or a private investment account advised by FMR
Co. FMR Co. is a Massachusetts corporation and an investment advisor registered
under Section 203 of the Investment Advisers Act of 1940, as amended, and
provides investment advisory services to each of such entities mentioned above,
and to other registered investment companies and to certain other funds which
are generally offered to a limited group of investors. FMR Co. is a wholly-
owned subsidiary of FMR Corp., a Massachusetts corporation.
(2) Shares indicated as owned by such entity are owned directly by
various private investment accounts, primarily employee benefit plans or other
trust accounts for which FMTC serves as trustee or managing agent. FMTC is a
wholly-owned subsidiary of FMR Corp. and a bank as defined in Section 3(a)(6) of
the Securities Exchange Act of 1934, as amended.
Because the Selling Securityholders may sell all or a part of their
Securities, no estimate can be given as to the number of shares of Common Stock
and Preferred Stock or Bonds to be held by any Selling Securityholders upon
termination of the offering. The shares of Common Stock owned by the Selling
Securityholders represent approximately 19.85% of the approximately 60,000,000
issued and outstanding shares of Common Stock as of March 24, 1997. The shares
of Preferred Stock owned by the Selling Securityholders represent approximately
2.6% of the 1,084,264 issued and outstanding shares of Preferred Stock as of
March 24, 1997. The Bonds owned by the Selling Securityholders represent
approximately 2.1% of the aggregate issued and outstanding Bonds as of December
31, 1996.
Prior to the effectiveness of the Reorganization, the Commission
entered an order granting FMR Co. and FMTC an exemption from regulation as a
public utility holding company under the Public Utility Holding Company Act of
1935 for a period of up to three years in respect of the ownership of the Common
Stock set forth in the above table. In their application for the exemption, FMR
Co. and FMTC stated that during such three year period, they will seek to reduce
their holdings such that their aggregated ownership is less than 10% of the
outstanding voting securities of the Company. They reserved the right to
request permission to extend the exemption period if, despite their good faith
efforts, they are unable to reduce their holdings consistent with their
fiduciary obligations.
16
<PAGE>
PLAN OF DISTRIBUTION
The Securities may be sold from time to time to purchasers directly by
any of the Selling Securityholders. Alternatively, any of the Selling
Securityholders may from time to time offer the Securities through underwriters,
dealers or agents who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Securities for whom they may act as agent. The Selling
Securityholders and any such underwriters, dealers or agents who participate in
the distribution of the Securities may be deemed to be underwriters, and any
profits on the sale of the Securities by them and any discounts, commissions, or
concessions received by any such underwriters, dealers or agents might be deemed
to be underwriting discounts and commissions under the Securities Act. At any
time a particular offer of the Securities is made, if required, a Prospectus
Supplement will be distributed that will set forth the aggregate amount of the
Securities being offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, any discounts, commissions and
other items constituting compensation from the Selling Securityholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
Such Prospectus Supplement and, if necessary, a post-effective amendment to the
Registration Statement of which this Prospectus is a part will be filed with the
Commission to reflect the disclosure of additional information with respect to
the distribution of the Securities.
The Securities may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the Selling Securityholders or by agreement between the Selling
Securityholders and underwriters or dealers.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including without limitation, Rules 10b-3
and Regulation M (Rules 100-102), which provisions may limit the timing of
purchases and sales of any of the Securities by the Selling Securityholders and
any other such person. Furthermore, under Regulation M, any person engaged in a
distribution of the Securities may not simultaneously engage in market-making
activities with respect to the particular Securities being distributed for a
period of five business days prior to the commencement of such distribution.
All of the foregoing may affect the marketability of the Securities and the
ability of any person or entity to engage in market-making activities with
respect to the Securities.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Securities to the public other than
commissions, fees and discounts of underwriters, dealers or agents. The Company
has also agreed to indemnify the Selling Securityholders and any underwriter
they may utilize against certain liabilities, including liabilities under the
Securities Act.
17
<PAGE>
In order to comply with certain states' securities laws, if
applicable, the Securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In certain states the Securities may
not be sold unless the Securities have been registered or qualified for sale in
such state, or unless an exemption from registration or qualification is
available and is obtained.
No director, officer or agent of the Company is expected to be
involved in soliciting offers to purchase the Securities offered hereby, and no
such person will be compensated by the Company for the sale of any such
Securities. Certain officers of the Company may assist such representatives of
the Selling Securityholders in such efforts but will not be compensated
therefor.
DESCRIPTION OF BONDS
GENERAL
The Bonds were issued pursuant to a General Mortgage Indenture and
Deed of Trust, as supplemented by a First Supplemental Indenture each dated as
of February 1, 1996 (the "Indenture"), between the Company and State Street Bank
and Trust Company, as trustee (the "Trustee"). The terms of the Bonds include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Bonds are subject to all such terms, and holders of Bonds are referred to the
Indenture and the Trust Indenture Act for a statement thereof. Concurrent with
the issuance of the Bonds, the Company issued First Mortgage Bonds in Series F,
G and H (the "Collateral Series Bonds") to secure certain letter of credit
reimbursement obligations of the Company related to pollution bonds and the
obligations of the Company under a revolving credit facility. The term "First
Mortgage Bonds," as used herein, means any first mortgage bonds issued by the
Company at any time pursuant to the Indenture, as supplemented by an applicable
supplemental indenture relating to such first mortgage bonds, including, without
limitation, the Bonds and the Collateral Series Bonds. The following summary of
certain provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. A copy of the Indenture has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The definitions of certain terms used in the following summary are
set forth below under "-Definitions."
The Bonds are senior secured obligations of the Company, rank senior
in right of payment to all future Subordinated Indebtedness of the Company and
rank pari passu in right of payment with all existing and future senior
Indebtedness of the Company.
18
<PAGE>
PRINCIPAL, MATURITY AND INTEREST
Each series of Bonds is limited in aggregate principal amount, bears
interest at the rate and will mature on (i) February 1, in the case of Series A,
C and D Bonds, and (ii) May 1, in the case of Series B and E Bonds, of the year
set forth opposite the respective series below:
SERIES PRINCIPAL AMOUNT INTEREST RATE MATURITY
- ---------- ---------------- -------------- --------
Series A $125.0 million 7.25% 1999
Series B $150.0 million 7.75% 2001
Series C $149.0 million 8.25% 2003
Series D $236.0 million 8.90% 2006
Series E $285.9 million 9.40% 2011
Interest on the Series A, C and D Bonds will be payable semi-annually in cash
in arrears on February 1 and August 1 of each year, commencing on August 1,
1996, to holders of record on the immediately preceding January 15 and July 15.
Interest on the Series B and E Bonds will be payable semi-annually in cash in
arrears on May 1 and November 1 of each year, commencing on May 1, 1996, to
holders of record on the immediately preceding April 15 and October 15. Interest
on the Bonds will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of twelve 30-
day months. Principal, premium, if any, and interest on the Bonds will be
payable at the office or agency of the Company maintained for such purpose or,
at the option of the Company, payment of interest may be made by check mailed to
the holders of the Bonds at their respective addresses set forth in the register
of holders of Bonds or by wire transfer to holders of Bonds. Until otherwise
designated by the Company, the Company's office or agency will be the office of
the Trustee maintained for such purpose. The Bonds are issued in denominations
of $1,000 and integral multiples thereof.
SECURITY
The Indenture constitutes a first mortgage lien on the Mortgaged Property,
subject to Permissible Encumbrances. The Bonds will be secured by the Mortgaged
Property on an equal and ratable basis and will rank pari passu (except as to
sinking funds and other analogous funds established for the exclusive benefit of
a particular series) with all other First Mortgage Bonds, regardless of series,
from time to time issued and outstanding under the Indenture.
19
<PAGE>
OPTIONAL REDEMPTION
Except as provided under "-Change of Control," Bonds in Series A, B, C and D
will not be redeemable at the Company's option prior to maturity.
Except as provided under "-Change of Control," Bonds in Series E will not be
redeemable at the Company's option prior to February 1, 2006. Thereafter, the
Company, at its option, may redeem, in whole or in part, the Series E Bonds,
upon not less than 30 nor more than 60 days' notice, in cash at the respective
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest thereon through the applicable
redemption date, if redeemed during the twelve-month period beginning on
February 1 of the years indicated below.
YEAR PERCENTAGE
---- ----------
2006 104.700%
2007 102.350%
2008 and thereafter 100.000%
MANDATORY REDEMPTION; REPURCHASES UPON CERTAIN FINANCINGS
Except as set forth below and under "-Change of Control," the Company is not
required to make mandatory redemption or sinking fund payments with respect to
the Bonds prior to maturity.
In the event the Company (a) issues any Retained Bonds and (b) within 60 days
of the Initial Issuance Date, incurs any Indebtedness under clauses (iii) or (v)
of the second paragraph of the covenant entitled "Incurrence of Indebtedness,"
the Company will, to the extent required by the Plan, redeem such Retained Bonds
at a price in cash equal to 100% of the principal amount thereof, plus accrued
and unpaid interest thereon through the date of redemption. In addition, (a)
following such payments pursuant to the Plan within such 60-day period, or (b)
if such Indebtedness is incurred more than 60 days after the Initial Issuance
Date, the Company will repurchase Bonds through open market purchases in the
amounts and within the time limits set forth in clauses (iii) and (v) of the
second paragraph of the covenant entitled "Incurrence of Indebtedness."
Furthermore, the Company will repurchase Bonds through open market purchases in
the amounts and within the time limits set forth in clause (iv) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness."
In addition, the Company is required in certain circumstances to apply the
Excess Proceeds from a sale or condemnation to repurchase Bonds through open
market purchases. See "-Certain Covenants-Application of Certain Proceeds of
Sale or Condemnation."
20
<PAGE>
SELECTION AND NOTICE
If less than all of the Bonds are to be redeemed at any time, selection of
Bonds of such series for redemption will be made by the Trustee, on a pro rata
basis (or as nearly pro rata as practicable in the sole discretion of the
Trustee); provided that no Bonds of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days prior to the redemption date to each holder of Bonds to be
redeemed at its registered address (or, in the case of a mandatory redemption
within 60 days from the Initial Issuance Date, at least 20 but not more than 45
days prior to the date of redemption). If any Bond is to be redeemed in part
only, the notice of redemption that relates to such Bond shall state the portion
of the principal amount thereof to be redeemed. A Bond in principal amount equal
to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Bond. On and after the redemption
date, interest ceases to accrue on Bonds or portions of them called for
redemption.
CHANGE OF CONTROL
On or prior to February 1, 1999 and no earlier than 30 days nor later than 60
days after the date upon which the Company delivers a written notice to the
holders of the occurrence of a Change of Control, the Company will have the
right to redeem all or part of one or more series of Bonds (the "Change of
Control Redemption") at a redemption price in cash equal to 108% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon
through the date of redemption. The Company will mail or cause to be mailed
notice of the Change of Control Redemption to each holder within ten days of the
occurrence of a Change of Control.
In addition, upon a Change of Control, each holder of Bonds will have the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such holder's Bonds not otherwise subject to an
optional redemption (in the case of Bonds in Series E) or a Change of Control
Redemption pursuant to an offer by the Company (the "Change of Control Offer")
at an offer price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon through the date of purchase.
The Company will mail or cause to be mailed notice of the Change of Control
Offer to each holder of Bonds within ten days following any Change of Control,
which will (i) describe the transaction or transactions that constitute the
Change of Control, (ii) indicate whether the Company is making a Change of
Control Redemption (if prior to the third anniversary of the Initial Issuance
Date) or an optional redemption (and, if so, will describe the terms thereof)
and (iii) offer to repurchase Bonds pursuant to the procedures required by the
Indenture and described in such notice.
The Company's ability to pay cash to the Holders of Bonds upon a repurchase
may be limited by the Company's then existing financial resources. There can be
no assurance that the Company will have sufficient funds to repurchase the Bonds
following a Change of Control. Except as described above with respect to a
Change of Control, the Indenture does not contain
21
<PAGE>
provisions that permit the holders of the Bonds to require that the Company
repurchase or redeem the Bonds in the event of a takeover, recapitalization or
similar restructuring.
The Company will comply with the requirements of Rule 14e-1 under the Exchange
Act, and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with any repurchase or
redemption of the Bonds as a result of a Change of Control.
ISSUANCE AND REDEMPTION OF COLLATERAL SERIES BONDS
In addition to the Bonds, the Company issued the Collateral Series Bonds under
a supplemental indenture in the aggregate principal amounts set forth as
follows:
SERIES PRINCIPAL AMOUNT
------- ----------------
Series F $163,841,823
Series G $ 34,134,780
Series H $100,000,000
The Collateral Series Bonds were issued to the New Facility Agents (or, in the
case of the Series F Bonds, the Maricopa LC Creditors) to provide for the
payment by the Company of principal and interest due under the New Facility
Agreements. The Collateral Series Bonds are registered in the names of the New
Facility Agents (or, in the case of the Series F Bonds, the Maricopa LC
Creditors) and will not be transferable except to a successor to such Person as
provided in the New Facility Agreements. The Collateral Series Bonds bear
interest at the same rates of interest provided under the terms of the New
Facility Agreements. The obligation of the Company to make payments with respect
to principal and interest on the Collateral Series Bonds shall be satisfied and
discharged to the extent the Company shall have satisfied and discharged its
obligation to pay principal and interest under the New Facility Agreements. In
the event that all of the Company's obligations under a New Facility Agreement
have been discharged, the Collateral Series Bonds issued to secure such New
Facility Agreement will be deemed paid in full and the holder of such Collateral
Series Bonds will be required to surrender such Bonds to the Trustee for
cancellation.
The Trustee may conclusively presume that the obligations of the Company to
make principal and interest payments under the New Facility Agreements have been
satisfied and discharged unless and until the Trustee shall have received a
written demand for redemption from the holder of such Collateral Series Bonds
(or, in the case of the Series F Bonds, the Maricopa LC Agent). Unless the
Trustee otherwise receives notice that such redemption demand or the declaration
of the maturity of the principal under a New Facility Agreement has been
rescinded, the Collateral Series Bonds shall be redeemed on the fifth Business
Day following receipt of such redemption demand at 100% of the principal amount
of the outstanding principal under such agreement plus accrued interest to the
redemption date.
22
<PAGE>
The Collateral Series Bonds are not subject under the Indenture to a Change of
Control Redemption or entitled to be repurchased as part of a Change of Control
Offer. However, under the terms of a New Facility Agreement, the occurrence of a
Change of Control under certain circumstances may cause an event of default
under such New Facility Agreement, in which case the holder of Collateral Series
Bonds could demand the redemption of such Bonds.
ISSUANCE OF ADDITIONAL BONDS
The Indenture provides that, subject to the covenant entitled "Incurrence of
Indebtedness," the Company may at any time and from time to time issue
additional First Mortgage Bonds in principal amounts equal to the sum of (a) the
lesser of (i) 75% of the amount of Unfunded Bondable Property and (ii) 100% of
the principal amount of First Mortgage Bonds (except in the case of the Bonds,
in which case the applicable percentage is 75%) and Prior Lien Indebtedness
which have been Retired or purchased or acquired by the Company since the
Initial Issuance Date or are then being Retired or purchased or acquired by the
Company, and which have not theretofore been Funded; and (b) the amount of cash
deposited with the Trustee for such purpose.
The term "Bondable Property," as used in the Indenture, generally includes (i)
all Mortgaged Property of the Company (excluding Excepted Property, going
concern value and goodwill); (ii) all property used by the Company in its
electric generating, transmission and distribution operations, including,
without limitation, construction work in progress, property in the process of
purchase to which the Company has legal title, fractional and undivided
interests of the Company in property, engineering, economic, environmental,
financial, geological and legal and other analyses and surveys, data processing
equipment and software associated with the acquisition or construction of
property, paving, grading and other improvements to property owned by others but
used by the Company; and (iii) certain property owned by the Company located on
property owned by others, including governments. The amount of Bondable Property
at any time is equal to (a) as to any Bondable Property owned by the Company on
the Initial Issuance Date, (i) the Gross Book Value as of the Initial Issuance
Date; and (ii) at any time after the Initial Issuance Date, the lesser of the
Gross Book Value as of the Initial Issuance Date or the Fair Value thereof, and
(b) as to any Bondable Property other than Bondable Property owned by the
Company on the Initial Issuance Date, the lesser of the Cost or Fair Value of
such Bondable Property; minus 133 1/3% of the principal amount of all Prior Lien
Indebtedness secured by Prior Liens on Bondable Property which is (x)
outstanding at the Initial Issuance Date or at the date of the acquisition of
such Bondable Property or (y) issued or incurred after such respective dates.
The Initial Series Bonds will be issued on the basis of 100% of the amount of
Unfunded Bondable Property. See "Risk Factors-Dependence of Values and Financial
Ratios on Management's Estimates of Future Value" and "-Uncertain Value of
Mortgaged Property; Difficulty of Foreclosure." The Company currently is not
able to issue additional First Mortgage Bonds on the basis of Unfunded Bondable
Property.
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RELEASE AND SUBSTITUTION OF PROPERTY; WITHDRAWAL OF CERTAIN CASH
The Indenture provides that Mortgaged Property may be released from the Lien
of the Indenture: (i) subject to certain limitations, if the Mortgaged Property
is old, obsolete, inadequate or unnecessary for use in the Company's electric
generation, transmission and distribution operations, or to alter, change the
location of, add to, repair and replace any transmission and distribution lines,
pipes, substations, machinery, fixtures and equipment, or to surrender or assent
to the modification of any franchise, and to cancel or make changes in or
substitutions of leases and rights of way, or in the event of condemnation; (ii)
if after such release, the Fair Value of the remaining Mortgaged Property equals
or exceeds an amount equal to 133 1/3% of the aggregate principal amount of
First Mortgage Bonds and Prior Lien Indebtedness outstanding; or (iii) on the
basis of (a) the deposit of cash or Governmental Obligations, (b) Unfunded
Bondable Property to be acquired by the Company with the proceeds of, or
otherwise in connection with, such release, or (c) a waiver of the right to
issue additional First Mortgage Bonds on the basis of First Mortgage Bonds or
Prior Lien Indebtedness which have been or are to be Retired or purchased or
acquired by the Company after the Initial Issuance Date, and have not
theretofore been Funded. The Indenture contains further provisions for the
release of Mortgaged Property which become operational when the Bonds are no
longer outstanding.
In addition, subject to the covenant entitled "Application of Certain Proceeds
of Sale or Condemnation," the Indenture provides that cash deposited with the
Trustee may be withdrawn by the Company from time to time: (i) in the case of
cash deposited with the Trustee as a basis for the issuance of additional First
Mortgage Bonds, in the amount of 75% of the amount of Unfunded Bondable
Property; (ii) in the case of any other cash received by the Trustee, including
cash from the sale of Mortgaged Property, in the amount of 100% of the amount of
Unfunded Bondable Property; or (iii) in an amount equal to the principal amount
of First Mortgage Bonds which the Company may issue on the basis of Retired
First Mortgage Bonds and Retired Prior Lien Indebtedness. Cash may also be used
or applied to the payment at maturity or on redemption or repurchase of any
First Mortgage Bonds or Prior Lien Indebtedness then outstanding.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or
make any distribution on account of the Company's or any of its Subsidiaries'
Equity Interests, including, without limitation, any payment in connection with
any merger or consolidation involving the Company (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or dividends or distributions payable by a Subsidiary of the Company to
the Company or to any Wholly Owned Subsidiary of the Company); (ii) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of the
Company, any of its Subsidiaries or any direct or indirect parent of the Company
(other than any Equity Interests owned by the
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Company); (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Subordinated Indebtedness, except at
final maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(A) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(B) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of Subordinated Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in clause (a)
of the first paragraph of the covenant described below under caption "-
Incurrence of Indebtedness;" provided that this clause (B) shall not
apply to the payment of dividends in respect of the Common Stock; and
(C) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Subsidiaries after
the Initial Issuance Date (excluding Restricted Payments permitted by
clauses (i), (ii), (iv) and (vi) of the next succeeding paragraph), is
less than the sum of (i) 50% of an amount equal to the Consolidated Net
Income of the Company minus dividends (whether in cash or in kind) paid
in respect of its Series A Preferred Stock for the period (taken as one
accounting period) from the day after the Initial Issuance Date to the
end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by the Company from the issuance or
sale since the Initial Issuance Date of Equity Interests (other than
Disqualified Stock) of the Company or of debt securities of the Company
that have been converted into such Equity Interests of the Company, plus
(iii) $10.0 million; provided, however, that the foregoing limitations
contained in clause (C) of the first paragraph of this covenant shall
not apply during any period commencing on the date of delivery to the
Trustee of an officers' certificate to the effect that the Bonds of the
series having the longest maturity then outstanding have been rated
Investment Grade by a Rating Agency identified in such certificate and
terminating on the date upon which such securities cease to be rated, or
are downgraded, or placed on a "watch list" for possible downgrading,
below Investment Grade by every Rating Agency which provided the
Investment Grade rating (or if such Rating Agency is then no longer able
to provide rating information, by any other Rating Agency which
similarly rated the such series of Bonds Investment Grade).
The foregoing provisions will not prohibit (i) the payment of dividends,
whether paid in kind or in cash, in respect of the Series A Preferred Stock in
accordance with the terms thereof; (ii) the purchase, redemption or other
acquisition or retirement for value of the Series A Preferred
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Stock (provided, in the case of the foregoing clauses (i) and (ii), the Company
shall not pay any cash dividends on (except cash paid solely in lieu of the
Company's issuance of any fractional shares of Series A Preferred Stock paid as
in kind dividends on the Series A Preferred Stock) or purchase, redeem, acquire
or retire any Series A Preferred Stock until the earlier to occur of (A) the
date of delivery to the Trustee of an officers' certificate to the effect that
the Bonds having the longest maturity then outstanding have been rated
Investment Grade by a Rating Agency identified in such certificate, and
terminating on the date upon which such securities cease to be rated, or are
downgraded or placed on a "watch list" for possible downgrading below,
Investment Grade by every Rating Agency which provided the Investment Grade
rating, and (B) May 1, 1999); (iii) the payment of any dividend within 60 days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of the Indenture; (iv) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of the Company in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause
(C)(ii) of the first paragraph of this covenant; (v) the repurchase, redemption
or other acquisition or retirement for value of any Equity Interests of the
Company or any Subsidiary of the Company held by any member of the Company's (or
any of its Subsidiaries') management, provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $250,000 in any twelve-month period, plus the aggregate cash proceeds
received by the Company during such twelve-month period from any reissuance of
Equity Interests by the Company to members of management of the Company and its
Subsidiaries; and (vi) the repurchase by the Company of the Series A Preferred
Stock on or prior to February 1, 1999 in accordance with the terms thereof upon
the occurrence of a Change of Control; provided, that in the case of each of
clauses (i) through (vi) above, no Default or Event of Default shall have
occurred and be continuing immediately after such transaction.
The amount of all Restricted Payments (other than in cash) shall be the
fair market value (evidenced by a resolution of the Board of Directors set forth
in an officers' certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company or
such Subsidiary, as the case may be. Not later than the date of making any
Restricted Payment, and so long as the limitations contained in clause (C) of
the first paragraph of the covenant "-Restricted Payments" apply, the Company
shall deliver to the Trustee an officers' certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by such covenant were computed, which calculations may be
based upon the Company's latest available financial statements.
Incurrence of Indebtedness
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable, contingently
or otherwise, with respect to (collectively, "incur") any Indebtedness
(including Acquired Debt) and that the Company will not issue any Disqualified
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Stock; provided, however, that (a) the Company may incur Subordinated
Indebtedness (including Acquired Debt) and issue shares of Disqualified Stock if
the Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such Subordinated Indebtedness is
incurred or such Disqualified Stock is issued would have been at least 2.0 to 1,
and (b) the Company may incur any Indebtedness (including Acquired Debt) other
than Subordinated Indebtedness if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred would have been at least 2.5 to 1, in each
case, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if such additional Indebtedness had been incurred,
or the Disqualified Stock had been issued, as the case may be, at the beginning
of such four-quarter period.
The foregoing provisions do not apply to (i) Indebtedness represented by the
Initial Series Bonds; (ii) Plan Indebtedness other than the Initial Series
Bonds; (iii) Indebtedness arising under a nuclear fuel financing facility
(including, without limitation, any Indebtedness represented by the nuclear fuel
financing portion of the New Credit Agreement, if issued), provided that an
amount equal to the amount of such nuclear fuel financing facility (after
deduction for any transaction costs) shall be applied first pursuant to the Plan
or to redeem Retained Bonds pursuant to the Plan and thereafter to retire Bonds
then outstanding through open market purchases of such Bonds (or, if such
Indebtedness is incurred more than 60 days from the Initial Issuance Date, such
amount will be used within 45 days of the receipt thereof by the Company to
retire Bonds then outstanding through open market purchases of such Bonds); (iv)
Indebtedness arising under an accounts receivable financing facility and/or
contract payments financing facility, provided that the net proceeds (after
deduction for any transaction costs) from such facility shall be used within 45
days of the receipt thereof by the Company to retire Bonds then outstanding
through open market purchases of such Bonds; (v) any Indebtedness (not otherwise
arising under clauses (iii) and (iv) above) issued by a bank or other commercial
lender (including, without limitation, Indebtedness represented by the working
capital portion of the New Credit Agreement, if issued); provided that any
advances thereunder which shall result at any time in an amount outstanding in
excess of $50.0 million thereunder (after deduction for any transaction costs)
shall be applied first pursuant to the Plan or to redeem Retained Bonds pursuant
to the Plan and thereafter to retire Bonds then outstanding through open market
purchases of such Bonds (or, if such amount is incurred more than 60 days after
the Initial Issuance Date, such amount shall be used within 45 days of receipt
by the Company to retire Bonds then outstanding through open market purchases of
such Bonds); (vi) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, or any extensions, refinancings, renewals or
replacements thereof, in each case incurred for the purpose of financing all or
any part of the purchase price or cost of construction or improvement of
property used in the business of the Company or such Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time outstanding; (vii) the
incurrence by the Company or any of its Subsidiaries of (A) Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are used
to extend, refinance, renew, replace, defease or refund, Indebtedness permitted
under clause (ii) above, and (B) any Indebtedness in exchange for, or the net
proceeds
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of which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness permitted under clauses (iii), (iv) or (v) above so long as the
principal amount of such Indebtedness does not exceed the principal amount of
the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of accrued interest and premiums, if any, thereon and
the reasonable expenses incurred in connection therewith); (viii) the incurrence
by the Company or any of its Subsidiaries of intercompany Indebtedness between
and among the Company and any of its Wholly Owned Subsidiaries; provided,
however, that (A) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than a Wholly
Owned Subsidiary and (B) any sale or other transfer of any such Indebtedness to
a Person that is not either the Company or a Wholly Owned Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by the
Company or such Subsidiary, as the case may be; (ix) the incurrence by the
Company or any of its Subsidiaries of Hedging Obligations that are incurred for
the purpose of fixing or hedging interest rate risk with respect to any floating
rate Indebtedness that is permitted by the terms of the Indenture to be
outstanding; (x) Bonds issued from time to time to secure the obligations of the
Company under (A) each New Facility Agreement, (B) the pollution control bonds
for which the Maricopa Reimbursement Agreement and/or Farmington Reimbursement
Agreement provides credit support, or (C) any financing entered into in
connection with the extension, refinancing, renewal or refunding of all or part
of the Indebtedness under such New Facility Agreement, the Indebtedness in
respect of such pollution control bonds for which such New Facility Agreement
provides credit support, or the Indebtedness under such extension, refinancing,
renewal or refunding; provided, that each such Bond shall by its terms provide
that it shall be deemed paid in full at such time as the Company's obligations
referenced in the above subclauses (A), (B) or (C) of this clause (x) which such
Bond is intended to secure, as the case may be, are paid in full and discharged,
and that any payment made in respect of such Bond shall be deemed a payment made
in respect of such underlying obligation which such Bond is intended to secure;
and (xi) Subordinated Indebtedness incurred after the third anniversary of the
Initial Issuance Date for the purpose of financing the redemption or repurchase
of any Series A Preferred Stock of the Company, provided that (A) the principal
amount of such Subordinated Indebtedness does not exceed the aggregate
redemption or repurchase price of such Series A Preferred Stock (plus accrued
dividends thereon and reasonable expenses incurred in connection therewith), (B)
the interest rate on such Subordinated Indebtedness shall not exceed the
dividend or coupon rate payable in respect of such Series A Preferred Stock, and
(C) the maturity date of such Subordinated Indebtedness shall be no sooner than
the mandatory redemption date for the Series A Preferred Stock occurring in the
year 2008.
Liens
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any Mortgaged Property now owned or hereafter
acquired, other than the Lien of the Indenture and Permissible Encumbrances
(provided that, for purposes of this covenant only, Permissible Encumbrances of
the type set forth in clause (a) of the definition of Permissible Encumbrances,
other than the Lien of the Indenture, shall not be permitted).
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The Company will not, and will not permit any of its Subsidiaries to, directly
or indirectly, create, incur, assume or suffer to exist any Lien on any assets
other than the Mortgaged Property now owned or hereafter acquired by the Company
or a Subsidiary of the Company, other than (i) Permissible Encumbrances
(provided that, for purposes of this covenant only, Permissible Encumbrances of
the type set forth in clause (a) of the definition of Permissible Encumbrances,
other than the Lien of the Indenture, shall not be permitted), (ii) Liens
existing on the Initial Issuance Date, (iii) Liens on nuclear fuel, cores and
materials, the interests in such nuclear fuel, cores and materials, pursuant to
a nuclear fuel financing facility permitted under clause (iii) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness;" (iv) Liens
incurred in connection with an accounts receivable facility and/or contract
payments facility permitted under clause (iv) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness;" (v) Liens with respect to
Indebtedness incurred by the Company or a Subsidiary of the Company in
connection with the acquisition or lease by the Company or such Subsidiary after
the Initial Issuance Date of furniture, fixtures, equipment and other assets not
owned by the Company as of the Initial Issuance Date in connection with the
ordinary course of business of the Company or such Subsidiary and otherwise
permitted under the covenant entitled "Incurrence of Indebtedness;" provided,
however, that (a) such Indebtedness shall not be secured by any assets of the
Company or any Subsidiary of the Company other than the asset with respect to
which such Indebtedness is incurred; and (b) the Lien securing such Indebtedness
shall be created within 90 days of the incurrence of such Indebtedness; (vi)
Liens incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security; (vii) Liens on the assets of any Person existing at the time such
assets are acquired by the Company or any of its Subsidiaries, whether by
merger, consolidation, purchase of assets or otherwise so long as such Liens (a)
are not created, incurred or assumed in contemplation of such assets being
acquired by the Company or any of its Subsidiaries, and (b) do not extend to any
other assets of the Company or any of its Subsidiaries; and (viii) Liens arising
from any Permitted Refinancing Indebtedness with respect to the foregoing;
provided, however, that the Lien shall be limited to all or part of the property
or assets which secured the Indebtedness so refinanced.
Application of Certain Proceeds of Sale or Condemnation
The Indenture provides that, in the event of the sale or condemnation of
Bondable Property, the Company will deposit the Net Proceeds thereof with the
Trustee to the extent required by the Indenture. Within one year of the receipt
by the Trustee pursuant to the Indenture of any Excess Proceeds, the Company
will (i) reinvest, or enter into an agreement with respect to the reinvestment
of, such Excess Proceeds in real or tangible personal property integral to the
generation, transmission or distribution of electricity (which property shall
automatically be deemed to constitute Bondable Property for purposes of the
Indenture) or (ii) use such Excess Proceeds to repurchase Bonds through open
market purchases of such Bonds. To the extent that, after application of such
Excess Proceeds in accordance with clauses (i) and (ii) above, any Excess
Proceeds remain in an amount less than $1,000 (or an amount necessary to
purchase one Bond), such remaining Excess Proceeds shall remain on deposit with
the Trustee.
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The Company will not use any Excess Proceeds as a basis upon which to issue
additional First Mortgage Bonds under the Indenture, unless and until such
Excess Proceeds are reinvested as contemplated by clause (i) of the preceding
paragraph.
As used in this covenant, "Excess Proceeds" shall mean an amount equal to (x)
the aggregate Net Proceeds from all such sales or condemnations occurring within
any twelve-month period (which, within such twelve-month period, have not been
reinvested in real or tangible personal property integral to the generation,
transmission or distribution of electricity (which property shall automatically
be deemed to constitute Bondable Property)), the value of which sales or
condemnations shall be determined as of the date of such sale or condemnation,
minus (y) the amount, if any, required under Section 2(j) of the Rate
Stipulation (as such term is defined in the Plan) to be paid or credited to
ratepayers as a result of each such sale or condemnation, if and only if the
Company is required to make such payment or credit to ratepayers over a period
of twelve months or less, minus (z) $10,000,000. The amount of Excess Proceeds
shall be deposited and applied as such amount is received by the Company or the
Trustee (as the case may be). "Net Proceeds" means the aggregate cash proceeds
received by the Company or any of its Subsidiaries in respect of any sale or
condemnation of Bondable Property (including, without limitation, any cash
received upon the sale or other disposition of any non-cash consideration
received in any such sale or condemnation), net of the direct costs relating to
such sale or condemnation (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any expenses incurred in the
relocation of assets (which relocation is required as a result of such sale or
condemnation), taxes paid or payable which are attributable to such sale or
condemnation (after taking into account any available tax credits or deductions
and any tax sharing arrangements), and any cash reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability of
any Subsidiary to (a)(i) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (A) on its Capital Stock or (B) with respect
to any other interest or participation in, or measured by, its profits or (ii)
pay any Indebtedness owed to the Company or any of its Subsidiaries, (b) make
loans or advances to the Company or any of its Subsidiaries or (c) transfer any
of its properties or assets to the Company or any of its Subsidiaries, except
for such encumbrances or restrictions existing under or by reason of (i) the
Indenture and the Bonds; (ii) the New Facility Agreements; (iii) applicable law;
(iv) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that the Consolidated Cash Flow of such Person is not taken into
account in determining whether such
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acquisition was permitted by the terms of the Indenture; (v) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices; (vi) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (c) above on the property so
acquired; or (vii) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not, directly or indirectly,
consolidate with or merge into any corporation or convey or otherwise transfer
or lease, subject to the Lien of the Indenture, the Mortgaged Property as or
substantially as an entirety to any Person, unless (a) the corporation formed by
such consolidation or into which the Company is merged or the Person which
acquired by conveyance or other transfer, or which leases, the Mortgaged
Property as or substantially as an entirety (in each such case, the "Successor
Entity"), is a corporation organized and existing under the laws of the United
States, any State thereof or the District of Columbia; (b) the consolidation,
merger, conveyance, transfer or lease shall be upon terms as shall fully
preserve and in no respects impair the Lien or security of the Indenture or any
of the rights or powers of the Trustee or holders of First Mortgage Bonds under
the Indenture and shall not create any Prior Lien (other than Permissible
Encumbrances) on the Mortgaged Property; (c) the Mortgaged Property shall not be
subject to any Lien granted to secure the obligations of the Successor Entity,
which obligations were then outstanding or are proposed to be issued in
connection with such consolidation, merger, conveyance, transfer or lease,
unless simultaneously therewith or prior thereto effective provisions shall be
made to establish the Lien of the Indenture as superior to such other Lien with
respect to any of the Mortgaged Property then or thereafter acquired by the
Company or such Successor Entity; (d) any such lease shall be made expressly
subject to immediate termination by the Company or by the Trustee at any time
during the continuance of an Event of Default, and also by the purchaser of the
Mortgaged Property so leased at any sale thereof under the Indenture, whether
such sale is made under the power of sale conferred in the Indenture or by
judicial proceeding; and (e) upon any such consolidation, merger, conveyance or
transfer, or upon any such lease the term of which extends beyond the date of
maturity of any of the then outstanding First Mortgage Bonds, the Successor
Entity assumes by a supplemental indenture the due and punctual payment of the
principal of, premium, if any, and interest on all of the First Mortgage Bonds
then outstanding according to their tenor and the due and punctual performance
and observance of all of the covenants, agreements and conditions of the
Indenture to be kept or performed by the Company.
In addition, so long as the Initial Series Bonds are outstanding, the Company
may not, directly or indirectly, consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the Mortgaged
Property in one or more related transactions, or assign any of its obligations
under the Indenture, to another corporation, Person or entity unless (i)
immediately
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before and after such transaction no Default or Event of Default exists; and
(ii) the Successor Entity (or the Company, in the case of a consolidation or
merger in which the Company is the surviving entity) (A) has Consolidated Net
Worth immediately after the transaction (but prior to any revaluation or
recalculation of Consolidated Net Worth as of the date of the transaction
relating to a carry-over basis (if any) of the assets acquired in the
transaction (as determined in accordance with GAAP)) equal to or greater than
the Consolidated Net Worth of the Company immediately preceding the transaction
and (B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Subordinated Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in clause (a) of the first paragraph of the covenant described above under
the caption "-Incurrence of Indebtedness."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make any contract, agreement, understanding, loan, advance or Guarantee with,
or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person and (b) the Company delivers to the Trustee (i) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $5.0 million, a resolution of the Board of Directors set forth in an
officers' certificate certifying that such Affiliate Transaction complies with
clause (a) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors; and (ii) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $10.0 million, an opinion as to the fairness to the Company or such
Subsidiary of such Affiliate Transaction from a financial point of view issued
by an investment banking firm of national standing with total assets in excess
of $1.0 billion; provided that (x) any employment agreement entered into by the
Company or any of its Subsidiaries, provided that the Company delivers to the
Trustee a resolution of the Board of Directors set forth in an officers'
certificate certifying that such transaction has been approved by a majority of
the disinterested members of the Board of Directors; (y) transactions between or
among the Company and/or its Subsidiaries; and (z) transactions permitted by the
provisions of the Indenture described above under the caption "-Restricted
Payments," in each case, shall not be deemed Affiliate Transactions.
Insurance
The Indenture provides that, until the Initial Series Bonds shall have been
paid in full, the Company will, and will cause its Subsidiaries to, maintain
insurance with responsible carriers against such risks and in such amounts as is
customarily carried by similar businesses with such
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deductibles, retentions, self insured amounts and co-insurance provisions as are
customarily carried by similar businesses of similar size, including, without
limitation, general liability, special liability, property and casualty and
nuclear insurance.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any holder of any First Mortgage Bonds
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of the Indenture or the First Mortgage Bonds unless such
consideration is offered to be paid or agreed to be paid to all holders of the
First Mortgage Bonds that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
Reports
The Indenture provides that, the Company shall file with the Trustee, within
15 days of filing them with the Securities and Exchange Commission (the
"Commission"), copies of the annual reports and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) that the Company is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
If the Company is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall nevertheless file with the Commission and the
Trustee, on the date upon which it would have been required to file with the
Commission, financial statements, including any notes thereto (and with respect
to annual reports, an auditor's report by a firm of established national
reputation, upon which the Trustee may conclusively rely), and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations," both
comparable to that which the Company would have been required to include in such
annual reports, information, documents or other reports if the Company were
subject to the requirements of Section 13 or 15(d) of the Exchange Act, provided
that the Company shall not be required to register under the Exchange Act by
virtue of this provision, if not otherwise required to do so.
If the Company is required to furnish annual or quarterly reports to its
stockholders pursuant to the Exchange Act, the Company shall cause any annual
report furnished to its stockholders generally and any quarterly or other
financial reports it furnishes to its stockholders generally to be filed with
the Trustee and the Company shall cause such reports to be mailed to the holders
at their addresses appearing in the register of Bonds maintained by the
Registrar. If the Company is not required to furnish annual or quarterly reports
to its stockholders pursuant to the Exchange Act, the Company shall cause its
financial statements referred to in the immediately preceding paragraph,
including any notes thereto (and with respect to annual reports, an auditors'
report by a firm of established national reputation), and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations," to be
so mailed to the holders within 120 days
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after the end of each of the Company's fiscal years and within 60 days after the
end of each of the first three fiscal quarters of each year.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event of
Default: (i) default for 60 days in the payment when due of interest on any of
the First Mortgage Bonds; (ii) default in the payment when due of the principal
of, or premium, if any, on, any of the First Mortgage Bonds; (iii) failure by
the Company to comply with the provisions described under the captions "-
Restricted Payments," "-Incurrence of Indebtedness" or "-Merger, Consolidation
or Sale of Assets," the mandatory repurchase requirements described under the
caption "-Change of Control," or the mandatory redemption requirements under the
caption "-Issuance and Redemption of Collateral Series Bonds;" (iv) failure by
the Company for 60 days after notice to comply with any of its other agreements
in the Indenture or the Bonds; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness of the Company or any of its Subsidiaries (or the
payment of which is Guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or Guarantee now exists or is created after the date
of the Indenture, which default (a) is caused by a failure to pay the principal
of, interest on or other amounts owing in respect of, such Indebtedness at the
maturity of such Indebtedness (a "Payment Default") or (b) has resulted in the
acceleration of such Indebtedness prior to its expressed maturity; and, in each
case the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $10.0
million or more; (vi) failure by the Company or any of its Subsidiaries to pay
one or more final judgments aggregating in excess of $10.0 million not otherwise
covered and payable by insurance, which judgments are not paid, discharged or
stayed for a period of 60 days; and (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in aggregate principal amount of the then outstanding First
Mortgage Bonds of any series affected by Event of Default may declare all of the
Bonds of such series to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, any Significant Subsidiary
or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding First Mortgage Bonds will become due and
payable without further action or notice. Holders of the First Mortgage Bonds
may not enforce the Indenture or the First Mortgage Bonds except as provided in
the Indenture. Subject to certain limitations, holders of not less than a
majority in aggregate principal amount of the then outstanding First Mortgage
Bonds of any series affected by such Event of Default may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from holders of the
First Mortgage Bonds notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
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In the case of any Event of Default occurring by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Bonds pursuant to the optional
redemption or Change of Control provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Bonds. If an Event of Default
occurs by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Bonds, then the premium specified in the Indenture shall also
become immediately due and payable to the extent permitted by law upon the
acceleration of the Bonds.
The holders of not less than a majority in aggregate principal amount of the
Bonds then outstanding which would be materially adversely affected by such
waiver, by notice to the Trustee may on behalf of the holders of all of the
Bonds so affected waive any existing Default or Event of Default and its
consequences under the Indenture, except (a) an Event of Default in the payment
of principal of, premium, if any, or interest on the Bonds; (b) an Event of
Default arising from the creation of any Prior Lien, except Permissible
Encumbrances; or (c) an Event of Default in respect of the waiver of which a
specific provision is otherwise made in the Indenture.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No incorporator, stockholder, director, officer or employee of the Company
shall have any liability for any obligations of the Company under the First
Mortgage Bonds and the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Any and all such rights and
claims against every such incorporator, stockholder, director, officer or
employee, as such, whether arising at common law or in equity, or created by
rule of law, statute, constitution or otherwise, are expressly released and
waived as a condition of, and as part of the consideration for, the execution of
the Indenture and the issuance of the First Mortgage Bonds. Such waiver may not
be effective to waive liabilities under the federal securities laws and it is
the view of the Commission that such a waiver is against public policy.
DEFEASANCE AND DISCHARGE
The Lien of the Indenture will be satisfied and discharged when all First
Mortgage Bonds theretofore authenticated and issued have been paid, retired,
repurchased, redeemed, cancelled or otherwise discharged. In addition, the Lien
of the Indenture will be satisfied and discharged if (a) all of the First
Mortgage Bonds mature within one year or all of them are to be called for
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redemption within one year under arrangements satisfactory to the Trustee for
giving the notice of redemption; (b) the Company irrevocably deposits in trust
with the Trustee money or Government Obligations sufficient to pay principal of,
premium, if any, and interest on the First Mortgage Bonds to redemption (and in
the case of the deposit of Government Obligations an Accountant's Certificate
shall be provided stating that such Government Obligations are in an amount
which, taking into account any reinvestment and proceeds, will be sufficient to
pay the principal of, premium, if any, and interest on such Bonds); (c) at the
time of deposit of money or Government Obligations, no Default has occurred and
is continuing; and (d) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel each stating that all conditions precedent
provided for in the Indenture relating to the satisfaction and discharge of the
Indenture and the First Mortgage Bonds have been complied with. Upon the deposit
of money or Government Obligations as provided in the Indenture, holders of
First Mortgage Bonds will have no rights under the Indenture except to payment
of principal of, premium, if any, and interest on the First Mortgage Bonds.
Notwithstanding the satisfaction and discharge of the Indenture, the Trustee
shall have an unsecured right to receive compensation and reimbursement of
expenses through the date of such satisfaction and discharge, and to charge and
be reimbursed by the Company for reasonable expenditures and liabilities which
the Trustee may thereafter incur in good faith and without negligence on its
part.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Bonds in accordance with the Indenture. The
Registrar and the Trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
holder to pay any applicable taxes and fees required by law. The Company is not
required to transfer or exchange any Bond selected for redemption. Also, the
Company is not required to transfer or exchange any Bond for a period of 15 days
before a selection of such Bond to be redeemed. The registered holder of a Bond
will be treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or the
First Mortgage Bonds may be amended or supplemented, and any existing default or
compliance with any provision of the Indenture or the First Mortgage Bonds may
be waived, with the consent of the holders of not less than a majority in
principal amount of the then outstanding First Mortgage Bonds (including
consents obtained in connection with a tender offer or exchange offer for First
Mortgage Bonds); provided, however, that if there shall be First Mortgage Bonds
of more than one series of First Mortgage Bonds outstanding and if the proposed
action to be taken will materially adversely affect the rights of holders of
First Mortgage Bonds of one or more of such series, then the consent (including
consents obtained in connection with a tender offer or exchange offer for First
Mortgage Bonds) only of the holders of a majority in aggregate principal amount
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of outstanding First Mortgage Bonds of all series so affected, considered as one
class, shall be required.
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Bonds held by a non-consenting holder): (i) reduce the
principal amount of Bonds whose holders must consent to an amendment, supplement
or waiver; (ii) reduce the principal or premium, if any, of or change the fixed
maturity of any Bond, or alter the provisions with respect to any sinking,
improvement, maintenance, replacement or analogous fund or conversion,
redemption or repurchase rights with respect to any Bond; (iii) reduce the rate
of or change the time for payment of interest on any Bond; (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the Bonds (except a rescission of acceleration of the First Mortgage
Bonds by the holders of at least a majority in aggregate principal amount of the
First Mortgage Bonds of any series affected by such Default or Event of Default
and a waiver of the payment default that resulted from such acceleration); (v)
make any Bond payable in money other than that stated in any Bond; (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of holders of Bonds to receive payments of principal of or
premium, if any, or interest on the Bonds; (vii) waive a redemption payment with
respect to any Bond; (viii) limit the right of a holder of Bonds to institute
suit for the enforcement of payment of principal of, premium, if any, or
interest, if any, on such Bonds in accordance with the terms of such Bonds; (ix)
permit the creation by the Company of any Prior Lien, provided that, for
purposes of this provision, no merger or consolidation of the Company permitted
by the provisions of the Indenture with any other Person owning property subject
to a Prior Lien, shall be deemed to constitute the creation of a Prior Lien; or
(x) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of First
Mortgage Bonds, the Company and the Trustee may amend or supplement the
Indenture or any First Mortgage Bonds: (a) to amplify or correct the description
of any property conveyed or pledged or intended so to be by the Indenture; (b)
to convey to the Trustee and to subject to the Lien of the Indenture any other
property, including any Excepted Property; (c) to establish and create one or
more series of First Mortgage Bonds and to specify the terms of such series of
First Mortgage Bonds; (d) to provide that the Company shall not issue any
additional First Mortgage Bonds or to add conditions, limitations or
restrictions on the Company with respect to any series of First Mortgage Bonds
under the Indenture; (e) to add additional covenants and agreements of the
Company to the Indenture, to add additional Events of Default under the
Indenture, or to surrender any right of power reserved to or conferred upon the
Company pursuant to the Indenture; (f) to provide for alternative methods or
forms for evidencing and recording the ownership of First Mortgage Bonds; (g) to
reflect changes in GAAP; (h) to provide a sinking, amortization, improvement,
replacement or other analogous fund or funds for the benefit of all or any of
the First Mortgage Bonds of any one or more series; (i) to comply with the rules
or regulations of any national securities exchange on which any of the First
Mortgage Bonds may be listed; (j) to modify the provisions of the Indenture for
the continued qualification of the Indenture under the Trust Indenture Act, or
under any similar federal statute hereafter enacted; (k) to evidence the
succession to the Company by a Successor Entity, or successive successions, and
the assumption
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by such Successor Entity of the covenants and obligations of the Company under
the Indenture; (l) to evidence the succession of a new trustee to any trustee
and to evidence the appointment and the terms of such appointment of any co-
trustee or separate trustee under the Indenture; (m) to supply any omission,
cure any ambiguity, or cure, correct or supplement any defective or inconsistent
provision contained in the Indenture or in any supplemental indenture thereto;
or (n) to make any other change to the provisions of the Indenture or any
supplemental indenture, which change is not inconsistent with the Indenture and
which will not adversely affect or diminish the legal rights under the Indenture
or any supplemental indenture of any holder of outstanding First Mortgage Bonds
or materially impair the security of the Indenture.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of not less than a majority in principal amount of the then
outstanding First Mortgage Bonds of any series affected by an Event of Default
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (which is not cured), the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Bonds, unless such holder will have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person; and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
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"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control; provided further that (i) any Person owning or
operating power generation or transmission facilities in which the Company owns
joint or undivided interests and (ii) any Person formed as a special purpose
entity in conjunction with a nuclear fuel financing facility shall not be deemed
an Affiliate of the Company.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would at
such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock; (ii)
in the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock; (iii) in the case of a partnership, partnership interests (whether
general or limited); and (iv) any other interest or participation that confers
on a Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars; (ii) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition; (iii) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or
better; (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above; and (v) commercial paper having the highest rating
obtainable from Moody's or S&P and in each case maturing within six months after
the date of acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole; (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company; (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" or "group" (as such terms are defined in Sections 13(d)(3) and 14(d)(2)
of the Exchange Act) becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of
more than 50% of the voting stock of the Company; or (iv) the first day on which
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a majority of the members of the Board of Directors of the Company are not
Continuing Directors. For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring voting
stock of the Company will be deemed to be a transfer of such portion of such
voting stock as corresponds to the portion of the equity of such entity that has
been so transferred.
"Collateral Series Bonds" means First Mortgage Bonds of the Company in Series
F, G and H issued pursuant to the Indenture.
"Common Stock" means the common stock of the Company as it exists on the
Initial Issuance Date or as it may be constituted from time to time.
"Consolidated Cash Flow" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (i) an amount equal
to any extraordinary loss plus any net loss realized in connection with a sale
of assets (to the extent such losses were deducted in computing such
Consolidated Net Income); plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income;
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to any sale and leaseback
transaction, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations, but excluding, however, the interest
component of any deferred payment obligations), to the extent that any such
expense was deducted in computing such Consolidated Net Income; plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash charges (excluding any such non-cash
charge to the extent that it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash charges were
deducted in computing such Consolidated Net Income; minus (v) cash payments made
on any deferred payment obligations in such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
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"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof; (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders; (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded; and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date, the
sum of (i) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date; plus (ii) the respective amounts
reported on such Person's balance sheet as of such date with respect to any
series of Preferred Stock (other than Disqualified Stock and Series A Preferred
Stock) that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such Preferred Stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the date of the Indenture
in the book value of any asset owned by such Person or a consolidated Subsidiary
of such Person, (y) all investments as of such date in unconsolidated
Subsidiaries, and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or was named in the prospectus relating
to the Bonds, with his or her consent, as a prospective member of such Board of
Directors or (ii) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Cost" means, as to any property, the actual cost to the Company of such
property including (a) cash or its equivalent paid for such property, including
without limitation all costs and allowances for funds used during the
construction thereof, and other deferred costs relating to such construction,
but only to the extent permitted by GAAP or accounting orders from any
governmental regulatory commission; (b) the fair value to the Company in cash
(as of the date of delivery) of any securities or other property delivered in
connection with the acquisition of such property; (c) the principal amount of
any Prior Lien Indebtedness secured by a Prior Lien upon
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such property at the time of its acquisition unless such principal amount of
Prior Lien Indebtedness has previously been used in determining the Cost of
other property subject to such Prior Lien; and (d) the principal amount of any
other Indebtedness incurred or assumed in connection with the acquisition of
such property; the Cost of property acquired by the Company without
consideration or by merger, consolidation or dissolution shall be deemed to be
the Fair Value thereof at the date of its acquisition.
The cost of any new plant or system may be deemed to include any franchises,
rights and intangible property simultaneously acquired with the same, for which
no separate or distinct consideration shall have been paid or apportioned. In
cases where different classes or kinds of property have been acquired for a
consideration not divided among the respective classes or kinds of property
acquired, the Company may allocate on its books in any reasonable manner
consistent with sound accounting practice the cost of the property comprising
the different classes and kinds of property, and the Company may from time to
time classify or reclassify any property so acquired in accordance with the
requirements of any regulatory authority having jurisdiction over the accounts
of the Company, and the cost as so allocated, classified or reclassified shall
be deemed to be the Cost of the respective classes or kinds of property. If the
cost of any property is not separately shown by the books of the Company, a good
faith estimate may be used.
"Default" means any event that is or with the passage of time or the giving of
notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is one year after the date on which any of the Initial Series Bonds
mature; provided that the Series A Preferred Stock shall not be deemed to
constitute Disqualified Stock.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Excepted Property" means all of the following property, whether now owned or
hereafter acquired by the Company: (a) all cash on hand and in banks, shares of
stock, bonds, notes, evidences of Indebtedness and other securities not
deposited, or required to be deposited, with the Trustee by the express
provisions of the Indenture; (b) all bills, notes and other instruments,
accounts receivable, claims, credits, judgments, demands, general intangibles,
licenses and privileges (except franchises and permits), emissions allowances,
chooses in action, patents, patent applications, patent licenses and other
patent rights, trade names, trademarks and all contracts, leases and agreements
of whatsoever kind and nature, other than any of the foregoing which are by the
express provisions of the Indenture subjected or required to be subjected to the
Lien of the Indenture; (c) all goods, wares, merchandise, appliances, tools,
equipment and spare parts (each prior to being placed in service) materials,
supplies and fuel, manufactured, produced, purchased
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or acquired for the purpose of sale or lease in the ordinary course of business
or for use or consumption in, or in the operation of, any properties of, or for
the benefit of, the Company, or held in advance of use thereof for maintenance,
replacement or fixed capital purposes; (d) all electricity, gas, steam, water,
ice, oil, coal and other materials, products or services generated,
manufactured, produced, provided or purchased by the Company for sale or
distribution or used or to be used by the Company; (e) all timber, crops, sand,
gravel, rocks, earth, natural gas, oil, coal, uranium and other minerals,
products or components of land and minerals, harvested, mined or extracted from
or otherwise separated from the earth, or lying or being upon, within or under
any properties of the Company, including the Mortgaged Property, and timber,
crops, sand, gravel, rocks, earth, natural gas, oil, coal, uranium and other
land and mineral rights, leases and royalties and income therefrom, and rights
to explore for minerals, products and components of land; (f) all nuclear fuel,
cores and materials, and interests therein; (g) all office furniture, equipment
and supplies, business machines, telephone and communication equipment, computer
equipment (except to the extent such equipment constitutes an integral part of
the electric generating, transmission and/or distribution operations of the
Company), record production, storage and retrieval equipment, and all
components, spare parts, accessories, software, programs and supplies used or to
be used in connection with the foregoing; (h) aircraft, automobiles, railcars,
watercraft, trucks, tractors, trailers and other vehicles and moveable
equipment, together with all equipment, components, spare parts, accessories,
supplies and fuel used or to be used in connection with any of the foregoing;
(i) all books and records; (j) all leasehold interests and leasehold
improvements, except as otherwise included as Mortgaged Property by the
Indenture or any supplemental indenture thereto; (k) the last day of the term of
each leasehold estate (oral or written, and/or any agreement therefor) now or
hereafter enjoyed by the Company, and whether falling within a general or
particular description of property; (l) all real or personal property which (i)
is not specifically described in the Indenture, (ii) is not specifically
subjected or required to be subjected to the Lien of the Indenture by any
express provision of the Indenture, and (iii) is not an integral part of or used
or to be used as an integral part of the electric generation, transmission
and/or distribution operations of the Company or in connection with the
operation of any property specifically subjected or required to be subjected to
the Lien of the Indenture by the express provisions of the Indenture; and (m)
all property excepted from the Lien of the Indenture pursuant to the terms of
the Indenture. The Company may, pursuant to the provisions of the Indenture,
subject to the Lien and operation of the Indenture all or any part of the
Excepted Property, in which case such property shall no longer constitute
Excepted Property.
"Fair Value" when applied to any property means its fair value to the Company
as determined without deduction for any Prior Liens upon such property, which
fair value may be determined without physical inspection by use of accounting
and engineering records and other data maintained by, or available to, the
Company.
"Farmington LC Agent" means Citibank, N.A., as agent for the creditors under
the Farmington Reimbursement Agreement, and its successors.
"Farmington Reimbursement Agreement" means that certain Letter of Credit and
Reimbursement Agreement to be entered into among the Company, Citibank, N.A., as
issuing
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bank, the creditors specified therein, and the Farmington LC Agent, as the same
may be amended from time to time.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to any sale and leaseback transactions,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations, but excluding, however, the interest component of any
deferred payment obligations); (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period; and (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such Guarantee or Lien is
called upon); and (iv) all cash dividend payments on any series of Preferred
Stock of such Person, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any period,
the ratio of the Consolidated Cash Flow of such Person and its Subsidiaries for
such period to the Fixed Charges of such Person and its Subsidiaries for such
period. In the event that the Company or any of its Subsidiaries incurs,
assumes, Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues Preferred Stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of Preferred Stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. For purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the four-
quarter reference period, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Subsidiaries following the Calculation Date.
"Funded" or "Funding" means (a) as such term is applied to Bondable Property,
the aggregate amount of Bondable Property which has been used as a basis for the
authentication and delivery of First Mortgage Bonds or the withdrawal of cash;
(b) as such term is applied to First Mortgage Bonds, such First Mortgage Bonds
which have been used as a basis for the
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authentication and delivery of First Mortgage Bonds or the withdrawal of cash,
and First Mortgage Bonds paid, purchased or redeemed with money used or applied
by the Trustee; (c) as such term is applied to Prior Lien Indebtedness, such
Prior Lien Indebtedness which has been (i) used as a basis for the
authentication and delivery of First Mortgage Bonds or the withdrawal of cash;
(ii) used as a basis for the issuance of Prior Lien Indebtedness under such
Prior Lien; or (iii) used as the basis for the release of property or the
withdrawal of cash under any Prior Lien; and Prior Lien Indebtedness paid with
money used or applied by the Trustee; (d) as such term is applied to First
Mortgage Bonds and/or Prior Lien Indebtedness, such First Mortgage Bonds and/or
Prior Lien Indebtedness which have been used as a basis for a waiver by the
Company of its right to the authentication and delivery of First Mortgage Bonds
based on Retired First Mortgage Bonds or Retired Prior Lien Indebtedness; and
(e) as such term is applied to First Mortgage Bonds, Prior Lien Indebtedness
and/or Bondable Property, such First Mortgage Bonds, Prior Lien Indebtedness
and/or Bondable Property which have been allocated or used as a basis for any
credit or action or pursuant to any provision of, or retired through the
operation of, any sinking, improvement, maintenance, replacement or analogous
fund for any series of First Mortgage Bonds; provided, that any such First
Mortgage Bonds, Prior Lien Indebtedness or Bondable Property so allocated or
used shall be reinstated as Unfunded when all of the First Mortgage Bonds of the
series of First Mortgage Bonds in connection with which such fund was
established are Retired.
"GAAP" means generally accepted accounting principles in use at the Initial
Issuance Date, or, at the option of the Company, other generally accepted
accounting principles which are in use at the time of their determination; in
determining generally accepted accounting principles, the Company may, but shall
not be required to, conform to any accounting order, rule or regulation of any
regulatory authority having jurisdiction over the electric generating,
transmission and distribution operations of the Company.
"Governmental Obligations" means direct obligations of, or obligations
unconditionally guaranteed by, the United States of America.
"Gross Book Value" means the value of the Bondable Property as reflected in
the entries "Net Plant in Service" and "Construction Work in Progress" on the
balance sheet of the Company as of the Initial Issuance Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
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"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"Initial Issuance Date" means February 12, 1996.
"Initial Series Bonds" means the Bonds and the Collateral Series Bonds.
"Investment Grade" means a rating of BBB- or higher by S&P and Baa3 or higher
by Moody's or the equivalent of such investment grade ratings by S&P or Moody's.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided, however, that an acquisition of assets, Equity Interests or other
securities by the Company for consideration consisting of common equity
securities of the Company shall not be deemed to be an Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or adverse claim affecting title or resulting in a charge
against real or personal property, or a security interest of any kind in respect
of such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"Maricopa LC Agent" means Citibank, N.A., as agent for the issuing banks and
Maricopa LC Creditors under the Maricopa Reimbursement Agreement, and its
successors.
"Maricopa LC Creditors" means Citibank, N.A., Credit Suisse, Westpac Banking
Corporation and Canadian Imperial Bank of Commerce, and their respective
successors.
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"Maricopa Reimbursement Agreement" means that certain Letter of Credit and
Reimbursement Agreement to be entered into among the Company, Citibank, N.A.,
Credit Suisse and Westpac Banking Corporation, as issuing banks, the Maricopa LC
Creditors and the Maricopa LC Agent, as the same may be amended from time to
time.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Mortgaged Property" means, as of any particular time, (i) all of the real,
personal and mixed property which is an integral part of or is used or to be
used as an integral part of the electric generating, transmission and/or
distribution operations of the Company; (ii) any undivided legal interest of the
Company in any such property which is jointly owned by the Company and any other
Person or Persons; (iii) franchises and permits owned by the Company in
connection with the electric generating, transmission and/or distribution
operations of the Company; and (iv) any other property which at said time is
subject, or is intended by the terms of the Indenture to be subject, to the Lien
of the Indenture (including any securities, purchase money mortgages, insurance
and sale proceeds and other cash held by the Trustee or required by the
Indenture to be paid to the Trustee), however created, including, without
limitation, (A) all of such property which is acquired by the Company after the
Initial Issuance Date and (B) all of the property which is described in the
Indenture and in supplemental indentures thereto; provided that Mortgaged
Property shall not be deemed to include Excepted Property.
"Net Income" means, with respect to any Person, the net income (loss) of such
Person, determined in accordance with GAAP and before any reduction in respect
of Preferred Stock dividends, excluding, however, (i) any gain (but not loss),
together with any related provision for taxes on such gain (but not loss),
realized in connection with (a) any sale of assets (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries;
and (ii) any extraordinary or nonrecurring gain (but not loss), together with
any related provision for taxes on such extraordinary or nonrecurring gain (but
not loss).
"New Credit Agent" means Chemical Bank, as collateral agent for the lenders
under the New Credit Agreement and its successors, or any other collateral agent
appointed under the New Credit Agreement.
"New Credit Agreement" means that certain Credit Agreement to be entered into
among the Company, a nuclear fuel financing vehicle, the lenders specified
therein, Chemical Bank, as issuing bank and administrative agent, and the New
Credit Agent, as the same may be amended from time to time. In the event the
Credit Agreement with Chemical Bank is not consummated, the New Credit Agreement
shall mean the "Credit Facility" as defined in the Plan.
"New Facility Agent" means the Maricopa LC Agent, the Farmington LC Agent and
the New Credit Agent, as the context may require.
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"New Facility Agreement" means the Maricopa Reimbursement Agreement, the
Farmington Reimbursement Agreement and the New Credit Agreement, as the context
may require.
"Permissible Encumbrances" means, as of any time, any of the following: (a)
the Lien of the Indenture and all Liens junior thereto not otherwise prohibited
under the terms of any supplemental indenture; (b) any Prior Lien not otherwise
listed in this definition of Permissible Encumbrances if (i) at the time of the
acquisition by the Company of the Mortgaged Property subject to such Prior Lien,
the lesser of the Cost or Fair Value of such Mortgaged Property is at least
equal to 133.33% of the principal amount of the obligations secured by such
Prior Lien; (ii) all other Liens on such Mortgaged Property, except for
Permissible Encumbrances, shall have been discharged at the time of such
acquisition; and (iii) such other Prior Lien shall not attach to any other
Mortgaged Property other than pursuant to an after-acquired property clause of
such Prior Lien; provided that if the Company, as a Successor Entity, shall have
executed a supplemental indenture relating thereto, the extension of such Prior
Lien to Mortgaged Property subsequently acquired by the Company shall be
permitted notwithstanding the limitation expressed in this clause (b)(iii); (c)
Liens for taxes or assessments by governmental bodies not yet due or the payment
of which is being contested in good faith by the Company and for which the
Company shall have set aside on its books adequate reserves to the extent
required by GAAP; (d) any right of any municipal or other governmental body or
agency, by virtue of any franchise, grant, license, permit, contract or statute,
to occupy, purchase or designate a purchaser of, or to order the sale of, any
Mortgaged Property upon payment of reasonable compensation therefor, or to
modify or terminate any franchise, grant, license, permit, contract or other
right, or to regulate the property and business, of the Company; (e) Liens
incidental to construction or current operations of the Company which are not
delinquent or, whether or not delinquent, are being contested in good faith by
the Company and for which the Company shall have set aside on its books adequate
reserves to the extent required by GAAP; (f) easements, rights of way,
restrictions, exceptions or reservations, and zoning ordinances, regulations and
restrictions, with respect to any property or rights of way of the Company,
which do not, individually or in the aggregate, materially impair the use of
such property or rights of way for the purposes for which such property or
rights of way are held by the Company; (g) irregularities in or defects of title
to any property or rights of way of the Company which do not materially impair
the use of such property or rights of way for the purposes for which such
property or rights of way are held by the Company; (h) Liens securing
obligations neither assumed by the Company nor on account of which it
customarily pays interest, directly or indirectly, existing upon real property,
or rights in or relating to real property acquired by the Company for rights of
way for lines, pipes, structures and appurtenances thereto; (i) party-wall
agreements and agreements for, and obligations relating to, the joint or common
use of property owned solely by the Company or owned by the Company in common or
jointly with one or more Persons; (j) Liens securing Indebtedness incurred by a
Person, other than the Company, which Indebtedness has been neither assumed nor
Guaranteed by the Company nor on which it customarily pays interest, existing on
property which the Company owns jointly or in common with such Person or such
Person and others, if there is an effective bar against partition of such
property which would preclude the sale of such property by such other Person or
the holder of such Lien without the consent of the Company; (k) any attachment,
judgment and other similar Lien arising in connection with court proceedings (i)
in an amount not in excess of the
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greater of $10 million or 1% of the principal amount of the First Mortgage Bonds
outstanding at the time such attachment, judgment or Lien arises or (ii) the
execution of which has been stayed or which has been appealed and secured, if
necessary, by an appeal bond, provided that no Event of Default shall result
therefrom; (l) the burdens of any law or governmental rule, regulation, order or
permit requiring the Company to maintain certain facilities or to perform
certain acts as a condition of its occupancy or use of, or interference with,
any public or private lands or highways or any river, stream or other waters;
(m) any duties or obligations of the Company to any federal, state or local or
other governmental authority with respect to any franchise, grant, license,
permit or contract which affects any Mortgaged Property; (n) Liens in favor of a
government or governmental entity securing (i) payments pursuant to a statute
(other than taxes and assessments), or (ii) Indebtedness incurred to finance all
or part of the purchase price or Cost of construction of the property subject to
such Lien; (o) leases existing at the Initial Issuance Date affecting properties
owned by the Company at said date and renewals and extensions thereof and, with
respect to leases affecting properties acquired by the Company after such date,
leases (i) which have respective terms of not more than 10 years (including
extensions or renewals at the option of the tenant) or (ii) which do not
materially impair the use by the Company of such properties for the respective
purposes for which they were acquired; (p) Liens vested in lessors, licensors or
permitters for rent to become due or for other obligations or acts to be
performed, the payment of which rent or the performance of which other
obligations or acts is required under leases, subleases, licenses or permits, so
long as the payment of such rent or the performance of such other obligations or
acts is not delinquent or is being contested in good faith and by appropriate
proceedings and the Company shall have set aside in its books adequate reserves
for the payment thereof to the extent required by GAAP: (q) any trustee's Lien;
and (r) any other Liens of whatever nature or kind which, in the opinion of
independent counsel, do not, individually or in the aggregate, materially impair
the Lien of the Indenture or the security afforded thereby for the benefit of
the Bondholders.
"Permitted Investments" means (a) Investments in the Company or in a Wholly
Owned Subsidiary of the Company (including Investments by the Company in the
First Mortgage Bonds or the Series A Preferred Stock to the extent otherwise
permitted by a supplemental indenture); (b) Investments in Cash Equivalents; (c)
Investments by the Company or any Subsidiary of the Company in a Person, if as a
result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of
the Company or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Subsidiary of the Company; (d)
Investments in any Person owning or operating power generation or transmission
facilities in which the Company owns joint or undivided interests; (e)
Investments in a Person formed as a special purpose entity in conjunction with a
nuclear fuel financing facility; (f) Investments in conjunction with the
bankruptcy or reorganization of customers and suppliers and in settlement of
delinquent obligations of, and other disputes with, customers and suppliers
arising in the ordinary course of business; and (g) existing Investments of the
Company.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance,
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renew, replace, defease or refund, in whole or in part, other Indebtedness of
the Company or any of its Subsidiaries; provided, however, that (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of accrued interest and premiums, if any,
thereon and the reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness (and, in
case of refinanced First Mortgage Bonds, the First Mortgage Bonds of the same
series) being extended, refinanced, renewed, replaced, defeased or refunded;
(iii) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Bonds, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Bonds on
terms at least as favorable to the holders of Bonds as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; provided,
further, that in no event shall clauses (i), (ii) and (iii) of the first proviso
of this definition apply to any extension, refinancing, renewal, replacement or
refunding of (a) the Maricopa Reimbursement Agreement, (b) the Farmington
Reimbursement Agreement, (c) any loan agreement or installment sale agreement
between the Company and the Maricopa County, Arizona Pollution Control
Corporation (or its permitted successors), so long as such extension,
refinancing, renewal, replacement or refunding is entered into with the consent
of the creditors of the Maricopa Reimbursement Agreement (if such agreement
shall then be in effect), and/or (d) any loan agreement or installment sale
agreement between the Company and the City of Farmington, New Mexico (or its
permitted successors), so long as such extension, refinancing, renewal,
replacement or refunding is entered into with the consent of the creditors of
the Farmington Reimbursement Agreement (if such agreement shall then be in
effect), in each case so long as the principal amount of the facility extending,
refinancing, renewing, replacing or refunding the Indebtedness referenced in
clauses (a), (b), (c) and/or (d) does not exceed the principal amount of the
pollution control bonds underlying such facility plus (in the case of clauses
(a) and (b)) the amount of interest coverage then required to be included in
such facility based on the determination of a Rating Agency.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Plan" means the Fourth Amended Plan of Reorganization of El Paso Electric
Company, dated November 7, 1995, filed in the United States Bankruptcy Court,
Western District of Texas, Austin Division, with respect to the Company, as the
same may be amended.
"Plan Indebtedness" means the Indebtedness of the Company contemplated by the
Plan.
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"Preferred Stock" means any Capital Stock of the Company which by its terms
has preference to common stock in right of dividends or other distributions or
upon liquidation or dissolution.
"Prior Lien" means any Lien on any Mortgaged Property existing both at and
immediately prior to the time of the acquisition by the Company of such
Mortgaged Property, or created as a purchase money mortgage on such Mortgaged
Property at the time of its acquisition by the Company, in each case ranking
prior to or on a parity with the Lien of the Indenture.
"Prior Lien Indebtedness" means any bonds, notes or other Indebtedness
(including the evidence thereof) secured by a Prior Lien.
"Rating Agency" means S&P or Moody's.
"Restricted Investment" means an Investment other than a Permitted Investment.
"Retained Bonds" means Bonds, if any, issued by the Company to creditors of
the Company pursuant to Section 2.2(B) of the Plan.
"Retired" means as of any particular time First Mortgage Bonds and Prior Lien
Indebtedness theretofore but after the Initial Issuance Date, paid, retired,
repurchased, redeemed, canceled or otherwise discharged, or for the payment,
retirement, repurchase or redemption of which money or Eligible Obligations in
the necessary amount shall have been deposited with, or shall then be held by,
the Trustee with respect to First Mortgage Bonds, or the trustee or mortgagee
under the Prior Lien which secures such Prior Lien Indebtedness with respect to
Prior Lien Indebtedness, in each case with irrevocable direction to apply such
money or the proceeds of such Eligible Obligations to such purchase, payment,
retirement or redemption.
"S&P" means Standard & Poors' Ratings Services, a division of The McGraw-Hill
Companies, Inc., and its successors.
"Series A Preferred Stock" means the 11.40% Series A Preferred Stock of the
Company.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act of 1933, as amended, as such Regulation is in
effect on the date hereof.
"Subordinated Indebtedness" means Indebtedness of the Company (whether
outstanding on the date hereof or hereafter created, incurred, assumed or
Guaranteed by the Company or its Subsidiaries) which is subordinate to the Bonds
in right of payment or rights upon liquidation of the Company, whether pursuant
to the terms of the instrument creating or evidencing such Indebtedness or
otherwise. For avoidance of doubt, no Indebtedness shall be deemed to be
Subordinated Indebtedness solely by reason of the fact that such Indebtedness is
unsecured or the Lien of such Indebtedness is junior to the Lien of the
Indenture, and in no event shall any
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Indebtedness under the New Facility Agreements or any Permitted Refinancing
Indebtedness or replacements thereof be deemed Subordinated Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof); and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Unfunded," as applied to First Mortgage Bonds, Prior Lien Indebtedness or
Bondable Property, means that such First Mortgage Bonds, Prior Lien Indebtedness
or Bondable Property are not Funded.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment; by (ii) the then outstanding principal amount of
such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all
of the outstanding Capital Stock or other ownership interests of which (other
than directors' qualifying shares) shall at the time be owned by such Person or
by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly
Owned Subsidiaries of such Person.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The Preferred Stock was issued on February 12, 1996 pursuant to the
Statement of Resolution. The definitions of certain terms used in the Statement
of Resolution and in the following summary are substantially the same as those
used in the Indenture. For a description thereof, see "Description of Bonds-
Definitions."
The Company's Amended and Restated Articles of Incorporation (the "Restated
Articles of Incorporation"), which become effective on February 12, 1996,
authorize the Company to issue up to 2,000,000 shares of preferred stock, no par
value per share. The Board of Directors has the power, without further action
of the shareholders (unless required by applicable laws or
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regulations or the terms of any outstanding securities of the Company), to
provide for the issuance of shares of preferred stock, in one or more series,
and to fix for each such series such designations, preferences, limitations and
relative rights, including voting rights, as are stated in the resolution
adopted by the Board of Directors providing for the issuance of such series and
as are permitted by the Texas Business Corporation Act.
Pursuant to the Statement of Resolution, 1,000,000 shares of the Preferred
Stock with a liquidation preference of $100 per share (the "Liquidation
Preference") were authorized for issuance plus additional shares of Preferred
Stock as may be issued in payment of dividends thereon. During the period from
the effective date of the Reorganization through February 1, 1997, the Company
issued an additional 115,150 shares of Preferred Stock as pay-in-kind dividends.
The Preferred Stock is fully paid and nonassessable, and holders thereof have no
preemptive rights. The Preferred Stock is not convertible into, or exchangeable
for, other securities of the Company.
The Liquidation Preference of the Preferred Stock is not necessarily
indicative of the price at which shares of the Preferred Stock will trade, and
the Preferred Stock may trade at prices below its Liquidation Preference. The
market price of the Preferred Stock can be expected to fluctuate with changes in
the financial markets and economic conditions, the financial condition and
prospects of the Company and other factors that generally influence the market
prices of securities. See "Risk Factors-Substantial Leverage and Limited
Financial Flexibility" and "-Restrictions on Ability to Pay Dividends."
All distributions with respect to the Preferred Stock, including the
declaration or payment of dividends, redemptions, repurchases and distributions
upon a liquidation, dissolution or winding up of the Company or a reduction or
decrease in capital stock of the Company, are subject to the provisions of the
Texas Business Corporation Act, including provisions which prohibit any
distributions if (i) after giving effect thereto, the Company would be unable to
pay its debts as they become due in the usual course of business; or (ii) the
distribution exceeds the surplus of the Company. Under Section 305 of the FPA,
it is unlawful for a director or officer of the Company to participate in the
making or payment of dividends from "any funds properly included in capital
account." If there are any accrued and unpaid dividends on the Preferred Stock,
the Statement of Resolution prohibits the redemption or repurchase of any shares
of Preferred Stock unless either (i) all such accrued and unpaid dividends are
paid prior to any partial redemption or repurchase of shares of Preferred Stock
or (ii) all outstanding shares are redeemed or repurchased in the redemption or
repurchase.
RANKING
The Preferred Stock will, with respect to dividend rights and rights on
liquidation, winding up, dissolution of the Company and reduction or decrease in
capital stock, rank: (i) senior to all classes of common stock of the Company
and each other class of capital stock or series of preferred stock issued by the
Company the terms of which provide that such class or
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series will rank junior to the Preferred Stock or which do not specify their
rank (collectively with the common stock of the Company, "Junior Securities");
(ii) on a parity with each other class of capital stock or series of preferred
stock issued by the Company that specifically provides that such class or series
will rank on a parity with the Preferred Stock (collectively, "Parity
Securities"); and (iii) junior to each other class of capital stock or series of
preferred stock issued by the Company that specifically provides that such class
or series will rank senior to the Preferred Stock (collectively, "Senior
Securities"). In addition, creditors and shareholders of the Company's
subsidiaries, if any, will have priority over the Preferred Stock with respect
to claims on the assets of such subsidiaries.
DIVIDENDS
Dividends will be cumulative from the date of issuance of the Preferred
Stock and will accrue and, except as described below, be payable quarterly in
arrears. Holders of Preferred Stock will be entitled to receive, when, as and if
declared by the Board of Directors of the Company, out of funds legally
available therefor, dividends on the Preferred Stock, at the rate of 11.40% per
annum of the Liquidation Preference thereof. Dividend accrual periods will end
on February 1, May 1, August 1 and November 1 of each year (each, a "Dividend
Accrual Date"), commencing May 1, 1996. The first dividend was paid on November
1, 1996 and included all amounts of dividends accrued from the date of issuance.
Prior to May 1, 1999, dividends will be paid in additional fully paid and
nonassessable shares of Preferred Stock at the rate of one share of Preferred
Stock for each $100 of such dividend, subject to adjustment in the event of any
stock split, stock combination, recapitalization or similar transaction with
respect to the Preferred Stock. In lieu of issuing fractional shares as
dividends, each holder of Preferred Stock shall receive the cash value of any
such fractional share at the rate of $100 per share. On and after May 1, 1999,
dividends will be paid in cash. Dividends payable for each full dividend period
will be computed by dividing the dividend rate by four and multiplying by the
aggregate Liquidation Preference of the Preferred Stock for which dividends are
payable or being accrued. Dividends payable for any period less than a full
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Accrued and unpaid dividends, if any, will not bear
interest or, except for dividends paid or accrued in shares of Preferred Stock,
bear dividends thereon. Dividends will cease to accrue in respect of shares of
the Preferred Stock on the date of their redemption or repurchase by the
Company. See "Certain Federal Income Tax Considerations."
OPTIONAL REDEMPTION
Except as provided under "-Change of Control," the Preferred Stock will not
be redeemable at the Company's option prior to February 1, 1999. Thereafter, the
Company, at its option, may redeem, in whole or in part, the Preferred Stock
upon not less than 30 nor more than 60 days' notice, in cash at the respective
redemption prices (expressed as percentages of the Liquidation Preference) set
forth below, plus accrued and unpaid dividends (including an
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amount equal to a prorated dividend from the immediately preceding Dividend
Accrual Date to the date of redemption), if any, if redeemed during the twelve-
month period beginning on February 1 of the years indicated below:
Year Percentage
---- ----------
1999................. 105.700%
2000................. 104.560%
2001................. 103.420%
2002................. 102.280%
2003................. 101.140%
2004 and thereafter.. 100.000%
MANDATORY REDEMPTION
On February 1, 2008, the Company will be required to redeem (subject to the
legal availability of funds therefor) all outstanding shares of Preferred Stock
at a price in cash equal to the Liquidation Preference thereof, plus all accrued
and unpaid dividends, if any, to the date of redemption. The Company is not
required to make sinking fund payments with respect to the Preferred Stock.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution, or winding up
of the affairs of the Company or reduction or decrease in its capital stock
resulting in a distribution of assets to the holders of the Company's common
stock (a "reduction or decrease in capital stock"), holders of Preferred Stock
will be entitled to payment out of the assets of the Company available for
distribution of an amount equal to the Liquidation Preference per share of
Preferred Stock held by such holder or in arrears, plus accrued and unpaid
dividends, if any, to the date fixed for liquidation, dissolution, winding up or
reduction or decrease in capital stock (including an amount equal to a prorated
dividend from the immediately preceding Dividend Accrual Date to the date fixed
for liquidation, dissolution, winding up or reduction or decrease in capital
stock), before any distribution is made on any Junior Securities, including,
without limitation, common stock of the Company. If, upon any voluntary or
involuntary liquidation, dissolution, winding up of the Company or reduction or
decrease in capital stock, the application of all amounts available for payments
with respect to the Preferred Stock and all Parity Securities would not result
in payment in full of the Preferred Stock and such Parity Securities, holders of
the Preferred Stock and the Parity Securities will share equally and ratably in
any distribution of assets of the Company in proportion to the full Liquidation
Preference to which each is entitled. After payment in full of the Liquidation
Preference to which holders of Preferred Stock are entitled, such holders will
not be entitled to any further participation in any distribution of assets of
the Company. However, neither the voluntary sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all of the property
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or assets of the Company nor the consolidation or merger of the Company with one
or more corporations will be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the Company or reduction or decrease
in capital stock, unless such sale, conveyance, exchange or transfer shall be in
connection with a liquidation, dissolution or winding up of the business of the
Company or reduction or decrease in capital stock.
The Statement of Resolution does not contain any provision requiring funds
to be set aside to protect the Liquidation Preference of the Preferred Stock,
although such Liquidation Preference will be substantially in excess of the par
value of such shares of the Preferred Stock. In addition, the Company is not
aware of any provision of Texas law or any controlling decision of the courts of
the State of Texas that requires a restriction upon the surplus of the Company
solely because the Liquidation Preference or other amount payable upon
liquidation of the Preferred Stock will exceed the par value.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control on or prior to February 1, 1999,
and no earlier than 30 days nor later than 60 days after the date upon which the
Company delivers a written notice to the holders of the Preferred Stock of the
occurrence of a Change of Control, the Company will have the right to redeem all
or part of the Preferred Stock (the "Change of Control Redemption") at a
redemption price in cash equal to 108% of the aggregate Liquidation Preference
thereof, plus accrued and unpaid dividends (including an amount equal to a
prorated dividend from the immediately preceding Dividend Accrual Date), if any,
to the redemption date. The Company will mail or cause to be mailed notice of
the Change of Control Redemption to each holder within ten days of the
occurrence of a Change of Control.
In addition, upon a Change of Control, each holder of shares of Preferred
Stock will have the right to require the Company to repurchase all or any part
of such holder's shares of Preferred Stock not otherwise subject to a Change of
Control Redemption or an optional redemption pursuant to an offer by the Company
(the "Change of Control Offer") at an offer price in cash equal to 101% of the
Liquidation Preference thereof, plus accrued and unpaid dividends (including an
amount equal to a prorated dividend from the immediately preceding Dividend
Accrual Date to the date of purchase), if any, to the date of purchase (the
"Change of Control Payment"). The Company will mail or cause to be mailed notice
of the Change of Control Offer to each holder of the Preferred Stock within ten
days following any Change of Control, which will (i) describe the transaction or
transactions that constitute the Change of Control; (ii) if on or prior to
February 1, 1999, indicate whether the Company is making a Change of Control
Redemption (and, if so, will describe the terms thereof); and (iii) offer to
repurchase the Preferred Stock pursuant to the procedures required by the
Statement of Resolution and described in such notice.
The Statement of Resolution will provide that, prior to complying with the
provisions of this covenant, but in any event within 90 days following a Change
of Control, the Company will
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either repay all of its outstanding indebtedness, perform all of its obligations
or obtain the requisite consents, if any, under all agreements restricting or
prohibiting the repurchase of the shares of Preferred Stock required by this
covenant. The Company will publicly announce the results of the Change of
Control Offer on, or as soon as practicable after, the Change of Control Payment
date.
The Company's ability to repurchase the Preferred Stock may be limited by
its then existing financing arrangements. See "Description of Bonds-Certain
Covenants-Restricted Payments." In addition, there can be no assurance that the
Company will have sufficient funds to repurchase the Preferred Stock following a
Change of Control. Except as described above with respect to a Change of
Control, the Statement of Resolution does not contain provisions that permit the
holders of shares of the Preferred Stock to require that the Company repurchase
or redeem the Preferred Stock in the event of a takeover, recapitalization or
similar restructuring.
The Company will comply with the requirements of Rules 13e-4 and 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the Preferred Stock in connection with a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the Statement of Resolution, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
violated the Statement of Resolution by virtue thereof.
VOTING RIGHTS
Holders of the Preferred Stock will have no voting rights, except as
required by law and as provided in the Statement of Resolution therefor. Upon
(a) the accumulation of accrued and unpaid dividends on the outstanding
Preferred Stock in an amount equal to six full quarterly dividends (whether or
not consecutive); (b) the failure of the Company to satisfy any mandatory
redemption or repurchase obligation (including, without limitation, pursuant to
any required Change of Control Offer) with respect to the Preferred Stock; (c)
the failure of the Company to make a Change of Control Offer within 30 days
following any Change of Control; or (d) the failure of the Company to comply
with the covenants set forth below under the caption "-Certain Covenants" (each
of the events described in clauses (a), (b), (c) and (d) being referred to
herein as a "Voting Rights Triggering Event"), the number of members of the
Company's Board of Directors will be increased by two, and the holders of a
majority of the outstanding shares of Preferred Stock, voting as a separate
class, will be entitled to elect two members to the Board of Directors of the
Company. Voting rights arising as a result of a Voting Rights Triggering Event
will continue until such time as all dividends in arrears on the Preferred Stock
are paid in full or such other Voting Rights Triggering Event has been cured or
waived.
The Company may not authorize or issue (i) any Parity Securities, or any
obligation or security convertible into or evidencing the right to purchase
Parity Securities, without the affirmative vote or consent of the holders of a
majority of the then outstanding shares of
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Preferred Stock; and (ii) any Senior Securities, or any obligation or security
convertible into or evidencing the right to purchase Senior Securities, without
the affirmative vote or consent of the holders of two-thirds of the then
outstanding shares of Preferred Stock, in each case, voting as a separate class.
CERTAIN COVENANTS
Merger, Consolidation and Sale of Assets
Without the affirmative vote of holders of a majority of the outstanding
shares of Preferred Stock, voting as a class, the Company may not consolidate or
merge with or into (whether or not the Company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another Person unless (i) the resulting, surviving or
transferee Person (the "Successor Corporation") is a corporation organized or
existing under the laws of the United States, any state thereof or the District
of Columbia; (ii) the Preferred Stock shall be converted into or exchanged for
and shall become shares of the Successor Corporation having, in respect of the
Successor Corporation, substantially the same powers, preferences and relative
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereon, that the Preferred Stock had immediately
prior to such transaction; (iii) the Successor Corporation will have
Consolidated Net Worth immediately after the transaction (but prior to any
revaluation or recalculation of Consolidated Net Worth as of the date of the
transaction relating to a carry-over basis (if any) of the assets acquired in
the transaction (as determined in accordance with GAAP)) equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction; and (iv) the Company shall deliver to the transfer agent prior to
the consummation of the proposed transaction an officers' certificate and an
opinion of counsel to the effect that such sale, assignment, transfer, lease,
conveyance or other disposition complies with the terms of the Statement of
Resolution and that all conditions precedent to such sale, assignment, transfer,
lease, conveyance or other disposition have been satisfied.
Junior Payments
So long as any shares of Preferred Stock are outstanding, the Company will
not declare, pay or set apart for payment on any Junior Securities or Parity
Securities any dividends whatsoever, whether in cash, property or otherwise
(other than dividends payable in shares of the class or series upon which such
dividends are declared or paid, or payable in shares of common stock with
respect to Junior Securities other than common stock, together with cash in lieu
of fractional shares), nor will the Company make any distribution on any Junior
Securities or Parity Securities, nor will any Junior Security or Parity Security
be purchased, redeemed or otherwise acquired or retired for value by the Company
or any of its Subsidiaries, nor will any monies be paid or made available for a
sinking fund for the purchase or redemption of any Junior Security or Parity
Security (each, a "Junior Payment"), unless all dividends, redemption
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payments, Change of Control Payments or other payments to which the holders of
Preferred Stock shall be entitled at the time of such Junior Payment shall have
been paid or declared and a sum of money sufficient for the payment thereof set
apart; provided, however, that until May 1, 1999, no Junior Payments, other than
with respect to the Common Stock, may be made in cash. Notwithstanding the
foregoing, if the Company is unable to meet its payment obligations with respect
to dividends, redemption payments, Change of Control Payments or other payments
with respect to the Preferred Stock and other Parity Securities as described
herein, holders of Preferred Stock and Parity Securities will share equally and
ratably in any payments by the Company with respect thereto.
Reports
The provisions of the Statement of Resolution relating to the provision of
reports and information by the Company will be substantially the same as the
provisions of the Indenture relating to such matters. See "Description of Bonds-
Certain Covenants-Reports."
TRANSFER AGENT AND REGISTRAR
The Bank of New York is the transfer agent and registrar for the Preferred
Stock.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth the material anticipated federal income
tax consequences of the purchase, ownership and disposition of the Preferred
Stock by holders that are United States persons. For this purpose, United States
persons include (i) a citizen or resident of the United States; (ii) a
corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof; (iii) an estate (and, in
general, for tax years beginning on or before December 31, 1996, any trust) that
is subject to United States federal income taxation regardless of the source of
its income; and (iv) for tax years beginning after December 31, 1996 (or, if
elected, for tax years ending after August 20, 1996), a trust if a court within
the United States is able to exercise primary jurisdiction over the
administration of the trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust. This summary is
based upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), final, temporary and proposed regulations promulgated thereunder, and
administrative rulings and judicial decisions now in effect, all of which are
subject to change (possibly with retroactive effect) or differing
interpretations. This summary does not purport to deal with all aspects of
federal income taxation that may be relevant to an investor's decision to
purchase Preferred Stock and it is not intended to be applicable to all
categories of investors, some of which, such as dealers in securities, banks,
insurance companies, regulated investment companies, tax-exempt organizations,
foreign persons, persons that hold Preferred Stock as part of a straddle or
conversion transaction or holders subject to the alternative minimum tax, may be
subject to special rules. In addition, the summary is limited to persons that
will hold the Preferred Stock as "capital assets" within the meaning of Section
1221 of the Code. The following discussion is subject to the requirement that a
taxpayer obtain the consent of the Internal Revenue Service before changing a
method of accounting. No ruling has been or will be requested by the Company
from the Internal Revenue Service on any tax matters relating to the Preferred
Stock, and there can be no assurance that the Internal Revenue Service will not
take a different view with respect to the tax consequences described below. ALL
PROSPECTIVE PURCHASERS OF SHARES OF THE PREFERRED STOCK ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED STOCK.
DISTRIBUTIONS ON THE PREFERRED STOCK
A holder of the Preferred Stock will be treated as having received a
distribution when additional shares of Preferred Stock or cash are distributed
in payment of dividends. The amount of any distribution will be equal to the
amount of cash or the fair market value of the additional shares of Preferred
Stock distributed. A holder's initial tax basis in, and the issue price of, any
such additional shares of Preferred Stock will be equal to their fair market
value on the date of distribution. A holder's holding period for such additional
shares will commence with the date of their distribution, and will not include
such holder's holding period for the shares of Preferred Stock with respect to
which the additional shares were distributed.
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The Preferred Stock is redeemable at the option of the Company at a premium
on and after February 1, 1999. Treasury Regulations provide that, with respect
to preferred stock that is redeemable at a premium at the option of the issuer,
the amount of the premium will be treated as a constructive distribution (or
series of constructive distributions) of additional stock on preferred stock
that is taken into account under principles similar to the principles of Section
1272(a) of the Code if redemption is more likely than not to occur. For purposes
of the foregoing rule, Treasury Regulations provide a safe harbor under which
constructive distribution treatment does not result if (i) the issuer and holder
are unrelated (applying a test of relatedness that may be satisfied based on 20%
common ownership); (ii) there are no plans, arrangements or agreements that
effectively require, or are intended to compel, the issuer to redeem the stock;
and (iii) the exercise of the option to redeem would not reduce the yield of the
stock. The Company believes that the foregoing safe harbor will be satisfied
with respect to the Preferred Stock held by holders that are unrelated to the
Company. Treasury Regulations further provide that holders of preferred stock
that is subject to redemption at a premium at the option of such holders must
accrue the premium as income under principles similar to the principles of
Section 1272(a) of the Code if certain conditions are met. The Company believes
that those conditions will not be met with respect to the Preferred Stock.
A distribution with respect to the Preferred Stock will be treated as a
dividend for federal income tax purposes to the extent of the Company's current
and accumulated earnings and profits, as determined under federal income tax
law. The portion of a distribution treated as a dividend will be includible in
such holder's gross income as ordinary income. The portion of a distribution
with respect to the Preferred Stock not treated as a dividend ( i.e., the
excess, if any, of the amount of the distribution over the Company's current and
accumulated earnings and profits) will be treated first as a return of such
holder's basis in that Preferred Stock (determined on a share-by-share basis
rather than by aggregating all of a holder's shares) and then, to the extent
that it exceeds such basis, as gain on the sale of that Preferred Stock. Any
such gain will be treated as capital gain with respect to Preferred Stock held
as a capital asset. Any such gain that is treated as capital gain will be
treated as long-term capital gain with respect to Preferred Stock held for more
than one year.
Under Section 243 of the Code, a corporate holder generally would be able
to deduct 70% of the portion of any distribution that is treated as a dividend,
provided that the stock has been held for more than 45 days. There are, however,
several restrictions on the availability of the dividends-received deduction. In
addition, a corporate holder may be required to reduce its tax basis in the
Preferred Stock by the nontaxable portion of any "extraordinary dividend" within
the meaning of Section 1059 of the Code received during the first two years of
its holding period. Generally, an "extraordinary dividend" is a dividend that
(i) equals or exceeds 5% of the holder's basis in the Preferred Stock (treating
all dividends having ex-dividend dates within an 85-day period as a single
dividend) or (ii) exceeds 20% of the holder's adjusted basis in the Preferred
Stock (treating all dividends having ex-dividend dates within a 365-day period
as a single dividend). If an election is made by the holder, under certain
circumstances the fair market value of the Preferred Stock as of the day before
the ex-dividend date may be substituted
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for the holder's basis in applying those tests. Although the first dividend paid
on the Preferred Stock, on November 1, 1996, likely exceeded this threshold,
subsequent dividends, including dividends paid after the date hereof generally
will not, and thus will not be considered extraordinary dividends within the
meaning of Section 1059 of the Code. Corporate holders should consult their own
tax advisors regarding the extent, if any, to which Section 1059 of the Code and
restrictions on the availability of the dividends-received deduction may apply
to their particular factual situation. In addition, prospective investors should
be aware that in February 1997, the President of the United States proposed that
the dividends-received deduction available under Section 243 of the Code to a
corporation that owns less than 20% (by vote and value) of the stock in the
corporation paying the dividend be reduced from 70% to 50%. The President's
proposal would be effective for dividends paid or accrued more than 30 days
after the date of enactment of the proposal. As of the date hereof, it is not
clear whether legislation adopting this proposal or any other proposal reducing
the dividends-received deduction will ultimately be enacted.
REDEMPTION OR SALE OF PREFERRED STOCK
Upon the redemption, or other taxable disposition by sale or exchange, of
shares of the Preferred Stock, a holder will generally recognize capital gain or
loss (except to the extent of payments received in connection with a redemption
that are attributable to declared dividends, which payments will be treated in
the same manner as distributions described above). The gain or loss recognized
on such exchange will generally be equal to the difference between the amount
realized by the holder and such holder's adjusted tax basis in the Preferred
Stock. Different rules may apply to the redemption of Preferred Stock by a
holder that continues to own stock of the Company, actually or constructively,
following the redemption.
BACKUP WITHHOLDING
In general, a noncorporate holder of the Preferred Stock will be subject to
backup withholding at a rate of 31% with respect to dividends with respect to,
or the proceeds of a sale, exchange or redemption of, the Preferred Stock if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status, or to meet certain other requirements. Amounts
paid as backup withholding do not constitute an additional tax and will
be credited against the holder's federal income tax liabilities.
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DESCRIPTION OF COMMON STOCK
The Amended and Restated Articles of Incorporation authorize the Company to
issue up to 100,000,000 shares of common stock. Approximately 60,000,000 shares
of Common Stock were issued pursuant to the Plan and there were 60,239,236
shares issued and outstanding at March 14, 1997. All such shares are fully paid
and nonassessable.
The holders of Common Stock are entitled to one vote for each share on all
matters voted on by stockholders, including the election of directors, subject
to any class or series voting rights of holders of any preferred stock. Except
as otherwise required by law or provided in any resolution adopted by the Board
of Directors with respect to any series of preferred stock, the holders of
Common Stock will possess all voting power. The Restated Articles of
Incorporation do not provide for cumulative voting in the election of directors.
The Board of Directors is divided into three classes of directors (Class I,
Class II and III), the term of which expire at successive annual shareholders'
meetings. The first annual shareholders' meeting following the effective date of
the Plan will be in May 1997, at which meeting Class I directors will stand for
election.
Holders of Common Stock are not entitled to preemptive rights to subscribe
for or purchase any part of any new or additional issue of stock or securities
convertible into stock. The Common Stock does not contain any redemption
provisions or conversion rights. The Company is not required to make sinking
fund payments with respect to the Common Stock.
Subject to any preferential rights of any outstanding series of preferred
stock created by the Board of Directors from time to time, the holders of Common
Stock are entitled to such dividends as may be declared from time to time by the
Board of Directors from funds available therefor, and in the event of any
liquidation, dissolution or winding up of the Company, the holders of Common
Stock will be entitled to receive pro rata the remainder, if any, of the assets
of the Company after the discharge of its liabilities.
All distributions with respect to the Common Stock, including the
declaration or payment of dividends, redemptions, repurchases and distributions
upon a liquidation, dissolution or winding up of the Company or reduction or
decrease in capital stock of the Company, are subject to the provisions of the
Texas Business Corporation Act, including provisions that prohibit any
distribution if (i) after giving effect thereto, the Company would be unable to
pay its debts as they become due in the usual course of business, or (ii) the
distribution exceeds the surplus of the Company. In addition, under Section 305
of the Federal Power Act, it is unlawful for a director or officer of the
Company to participate in the making or payment of dividends from "any funds
properly included in capital account." Pursuant to the Statement of Resolution,
no dividends can be paid on the Common Stock if there are dividends in arrears
on the Preferred Stock.
63
<PAGE>
So long as any of the Company's First Mortgage Bonds, Series A through H,
are outstanding and the series with the longest maturity is not rated
"investment grade" by either Standard & Poor's Rating Services or Moody's
Investors Service, Inc., the Company may not declare any dividend on the Common
Stock, other than in additional shares of Common Stock, or make any other
distribution on, or acquire for value any shares of Common Stock (with certain
limited exceptions) unless, after giving effect thereto, the aggregate of all
such dividends, distributions and certain other payments made by the Company
since February 12, 1996 would be less than the sum of (i) 50% of the
Consolidated Net Income (as defined in the Indenture, see "Description of Bonds-
Definitions") of the Company minus dividends paid in respect of the Series A
Preferred Stock for the period from February 13 to the most recently ended
fiscal quarter for which internal financial statements are available (or, if
such Consolidated Net Income is a deficit, less 100% of such deficit), plus (ii)
100% of the aggregate net proceeds received by the Company from the issuance or
sale since February 12, 1996 of equity securities or debt securities that have
been converted into equity securities, plus (iii) $10.0 million.
So long as a drawing is available under any of four letters of credit
issued in connection with the four series of pollution control revenue bonds of
the Company, the Company cannot, without the written consent of the creditors
under two reimbursement agreements related to such letters of credit, declare
any dividend on the Common Stock, other than in additional shares of Common
Stock, or make any other distribution on, or acquire for value any shares of
Common Stock (with certain limited exceptions) unless, after giving effect
thereto, the aggregate of all such dividends, distributions and certain other
payments made by the Company since February 12, 1996 would be less than the sum
of (i) 50% of the Consolidated Net Income (as defined in the reimbursement
agreements) of the Company minus dividends paid in respect of the Preferred
Stock for the period from February 13 to the most recently ended fiscal quarter
for which internal financial statements are available (or, if such Consolidated
Net Income is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net proceeds received by the Company from the issuance or sale since
February 12, 1996 of equity securities or debt securities that have been
converted into equity securities, plus (iii) $10.0 million; and provided that
the aggregate amount of dividends on the Common Stock shall not exceed $15
million prior to the third anniversary of the initial date of issue (February
12, 1999).
The Chemical Bank Facility contains the same restrictions on the payment of
dividends as the reimbursement agreements discussed above.
LEGAL MATTERS
The validity of the Securities offered by this Prospectus have been passed
upon for the Company by Eduardo A. Rodriguez, Esq., Senior Vice President and
General Counsel, and by Sidley & Austin, New York, New York.
64
<PAGE>
EXPERTS
The financial statements of the Company as of December 31, 1995 and
1996, and for each of the years in the three year period ended December 31, 1996
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as set forth in their report thereon included
therein and incorporated herein by reference. Such financial statements
referred to above are incorporated herein by reference in reliance upon such
report given upon the authority of said firm as experts in accounting and
auditing.
65
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in or
incorporated by reference into this Prospectus, and if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any other person. This Prospectus does not constitute an offer
to sell or the solicitation of an offer to buy any security other than the
Bonds, the Preferred Stock and the Common Stock offered hereby, an offer to sell
or a solicitation of an offer to buy the Bonds, the Preferred Stock or the
Common Stock by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to any person in any circumstances in which such offer
or solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent to
the date hereof.
----------------------------------
TABLE OF CONTENTS
Page
Risk Factors 1
The Company 7
Reorganization Under Chapter 11 of the
Bankruptcy Code 7
Capitalization 10
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividend Requirements 10
Use of Proceeds 11
Determination of Offering Price 11
Selling Securityholders 11
Plan of Distribution 14
Description of Bonds 15
Description of Preferred Stock 49
Certain Federal Income Tax Considerations 57
Description of Common Stock 60
Legal Matters 61
Experts 62
EL PASO ELECTRIC COMPANY
$17,700,000 9.40% Series E First Mortgage
Bonds due 2011
28,548 shares of 11.40% Series A Preferred Stock
11,908,539 shares of Common Stock
--------------------
PROSPECTUS
--------------------
April __, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered hereby.
SEC registration fee.................................................$ 69,030
Printing............................................................. 60,000
Legal fees and expenses.............................................. 60,000
Accounting fees and expenses......................................... 20,000
Miscellaneous........................................................ 1,970
-------
Total.........................................................$211,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act provides for the
indemnification of officers and directors of the Company against liability in
proceedings in which the individual is wholly successful and permits
authorization of indemnification in other proceedings. The Company's Restated
Articles of Incorporation and Bylaws provides for indemnification in other
proceedings. The Company's Restated Articles of Incorporation and Bylaws
provide for indemnification of officers and directors of the Company to the
fullest extent permitted by law. The Company has also entered into indemnity
agreements with each officer and director pursuant to which the Company is
required to indemnify such officers and directors to the fullest extent
permitted by law. Article 1302-7.06 of the Texas Miscellaneous Corporation Law
Act authorizes a Texas corporation to include a provision in its articles of
incorporation to provide that "a director of the corporation shall not be
liable, or shall be liable only to the extent provided in the articles of
incorporation, to the corporation or its shareholders...for monetary damages for
an act or omission in the director's capacity as a director," with certain
exceptions. The Company's Restated Articles of Incorporation includes a
provision eliminating the liability of a director for monetary damages to the
Company to the fullest extent permitted by Article 1302-7.06.
Under the Registration Rights Agreement, the Company has agreed to indemnify
the Selling Securityholders and the Selling Securityholders have agreed to
indemnify the Company against certain liabilities and expenses incurred in
connection with the registration statement, including, with respect to their
respective obligations under the Securities Act.
For the undertaking with respect to indemnification see Item 17 herein.
II-1
<PAGE>
ITEM 16. EXHIBITS.
Exhibit 4 - Instruments Defining the Rights of Securityholder; including
Indentures:
4.01 - General Mortgage Indenture and Deed of Trust dated as of
February 1, 1996, and First Supplemental Indenture dated as of
February 1, 1996, including form of Series A through H First
Mortgage Bonds. (Exhibit 4.01 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.)
4.02 - Statement of Resolution Establishing Series of Preferred Stock,
dated February 7, 1996 and effective February 12, 1996.
(Exhibit 4.02 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.)
Exhibit 5 - Opinion re Legality:
5.01 - Opinion of Sidley & Austin. (Exhibit 5.01 to the Company's
Registration Statement on Form S-1, Registration No.
333-32030.)
5.02 - Opinion of Eduardo A. Rodriguez, Esq. (Exhibit 5.02 to the
Company's Registration Statement on Form S-1, Registration No.
333-32030.)
5.03 - Opinion of Eduardo A. Rodriguez, Esq. (Exhibit 5.03 to the
Company's Registration Statement on Form S-1, Registration No.
333-32030.)
Exhibit 10 - Material Contracts
10.01 - Registration Rights Agreement dated as of February 12, 1996
among El Paso Electric Company, Fidelity Management & Research
Company and Fidelity Management Trust Company. (Exhibit 10.01
to the Company's Registration Statement on Form S-1,
Registration No. 333-32030.)
Exhibit 12 - Opinion re Computation of Ratios
12.01 - Ratio of Earnings to Fixed Charges.*
12.02 - Ratio of Earnings to Fixed Charges and Preferred Stock Dividend
Requirements*
Exhibit 23 - Consents of Experts
23.01 - Consent of KPMG Peat Marwick LLP.*
23.02 - Consent of Sidley & Austin (contained in their opinion filed as
Exhibit 5.01).
23.03 - Consent of Eduardo A. Rodriguez, Esq. (contained in his
opinions filed as Exhibits 5.02 and 5.03).
Exhibit 24 - Power of Attorney
24.01 - Power of Attorney (Exhibit 24.01 to the Company's Registration
Statement on Form S-1, Registration No. 333-32030.)
________________
* Filed herewith.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
a. The undersigned hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
b. Insofar as indemnification for labilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person of the Company in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
c. The undersigned registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(4) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of El Paso, State of Texas, on the 4th
day of April 1997.
EL PASO ELECTRIC COMPANY
By: /s/ James S. Haines, Jr.
--------------------------------------
James S. Haines, Jr.
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ------ -----
/s/ James S. Haines, Jr. Chief Executive Officer, April 4, 1997
- ------------------------------ President and Director -------------
James S. Haines, Jr. (Principal Executive Officer)
/s/ Gary R. Hedrick Vice President, Treasurer April 4, 1997
- ------------------------------ and Chief Financial Officer -------------
Gary R. Hedrick (Principal Financial and
Accounting Officer)
/s/ George W. Edwards, Jr. Chairman of the Board and April 4, 1997
- ------------------------------ Director -------------
George W. Edwards, Jr.
/s/ Wilson K. Cadman Director April 4, 1997
- ------------------------------ -------------
Wilson K. Cadman
/s/ James A. Cardwell Director April 4, 1997
- ------------------------------ -------------
James A. Cardwell
II-4
<PAGE>
Signature Title Date
--------- ------ -----
/s/ Ramiro Guzman Director April 4, 1997
- ------------------------------ -------------
Ramiro Guzman
/s/ James W. Harris Director April 4, 1997
- ------------------------------ -------------
James W. Harris
/s/ Kenneth R. Heitz Director April 4, 1997
- ------------------------------ -------------
Kenneth R. Heitz
/s/ Edward C. Houghton, IV Director April 4, 1997
- ------------------------------ -------------
Edward C. Houghton, IV
/s/ Michael K. Parks Director April 4, 1997
- ------------------------------ -------------
Michael K. Parks
/s/ Eric B. Siegel Director April 4, 1997
- ------------------------------ -------------
Eric B. Siegel
/s/ Stephen Wertheimer Director
- ------------------------------ April 4, 1997
Stephen Wertheimer -------------
/s/ Charles A. Yamarone Director
- ------------------------------ April 4, 1997
Charles A. Yamarone -------------
II-5
<PAGE>
EXHIBIT 12.01
EL PASO ELECTRIC COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
REORGANIZED
PREDECESSOR COMPANY COMPANY
------------------------------------------------------------- ------------
PERIOD FROM PERIOD FROM
JANUARY 1 FEBRUARY 12
TO TO
YEARS ENDED DECEMBER 31, FEBRUARY 11 DECEMBER 31,
------------------------------------------------
1992 1993 1994 1995 1996 1996
------------ ---------- ---------- ---------- ---------- ------------
(IN THOUSANDS EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest charges....................... $ 73,176 $ 82,237 $ 97,616 $ 91,923 $ 9,569 $ 91,355
Interest portion of rent expense....... 72,125 71,963 71,974 71,477 8,134 1,218
-------- -------- -------- -------- ------- --------
Total fixed charges.................... $145,301 $154,200 $169,590 $163,400 $17,703 $ 92,573
======== ======== ======== ======== ======= ========
Earnings:
Net income (loss) before reorganization
items, extraordinary item and cumulative
effect of a change in accounting
principle............................ $ (1,812) $(11,261) $(19,162) $(23,341) $(4,053) $ 41,919
Income taxes.......................... (419) (7,105) (17,498) (15,798) (3,415) 26,670
-------- -------- -------- -------- ------- --------
Pretax earnings (loss)................ (2,231) (18,366) (36,660) (39,139) (7,468) 68,589
Fixed charges......................... 145,301 154,200 169,590 163,400 17,703 92,573
Capitalized interest.................. (3,917) (3,998) (2,581) (3,820) (412) (5,189)
-------- -------- -------- -------- ------- --------
Earnings as defined.................... $139,153 $131,836 $130,349 $120,441 $ 9,823 $155,973
======== ======== ======== ======== ======= ========
Ratio of earnings to
fixed charges......................... 1.0:1 .8:1 .8:1 .7:1 .6:1 1.7:1
======== ======== ======== ======== ======= ========
Excess (deficiency) of earnings to
fixed charges......................... $ (6,148) $(22,364) $(39,241) $(42,959) $(7,880) $ 63,400
======== ======== ======== ======== ======= ========
</TABLE>
<PAGE>
EXHIBIT 12.02
EL PASO ELECTRIC COMPANY
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
REORGANIZED
PREDECESSOR COMPANY COMPANY
---------------------------------------------------------------- -------------
PERIOD FROM PERIOD FROM
JANUARY 1 FEBRUARY 12
TO TO
YEARS ENDED DECEMBER 31, FEBRUARY 11, DECEMBER 31,
--------------------------------------------------
1992 1993 1994 1995 1996 1996
-------------- ---------- ---------- -------- --------- ----------
(IN THOUSANDS EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest charges............ $ 73,176 $ 82,237 $ 97,616 $ 91,923 $ 9,569 $ 91,355
Interest portion of rent
expense.................... 72,125 71,963 71,974 71,477 8,134 1,218
Preferred stock dividend
requirements(1)............ 11,465 11,465 11,465 11,465 1,316 16,135
-------- -------- -------- -------- ------- --------
Total fixed charges and
preferred stock
dividend requirements....... $156,766 $165,665 $181,055 $174,865 $19,019 $108,708
======== ======== ======== ======== ======= ========
Earnings:
Net income (loss) before
reorganization items,
extraordinary item and
cumulative effect of a
change in accounting
principle................. $ (1,812) $(11,261) $(19,162) $(23,341) $(4,053) $ 41,919
Income taxes............... (419) (7,105) (17,498) (15,798) (3,415) 26,670
-------- -------- -------- -------- ------- --------
Pretax earnings (loss)..... (2,231) (18,366) (36,660) (39,139) (7,468) 68,589
Fixed charges (excluding
preferred stock dividend
requirements)............. 145,301 154,200 169,590 163,400 17,703 92,573
Capitalized interest....... (3,917) (3,998) (2,581) (3,820) (412) (5,189)
-------- -------- -------- -------- ------- --------
Earnings as defined......... $139,153 $131,836 $130,349 $120,441 $ 9,823 $155,973
======== ======== ======== ======== ======= ========
Ratio of earnings to
fixed charges and
preferred stock dividend
requirements............... .9:1 .8:1 .7:1 .7:1 .5:1 1.4:1
======== ======== ======== ======== ======= ========
Excess (deficiency) of
earnings to fixed charges
and preferred stock
dividend requirements..... $(17,613) $(33,829) $(50,706) $(54,424) $(9,196) $ 47,265
======== ======== ======== ======== ======= ========
</TABLE>
(1) Calculated as follows: Preferred stock dividend requirements/(1 -statutory
income tax rate).
<PAGE>
Exhibit 23.01
The Board of Directors
El Paso Electric Company:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
El Paso, Texas
March 27, 1997
