AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998.
REGISTRATION NO. 333-55923
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
NIAGARA MOHAWK POWER CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 15-0265555
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
----------------------
300 ERIE BOULEVARD WEST
SYRACUSE, NEW YORK 13202
(315) 474-1511
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
----------------------
WILLIAM F. EDWARDS
NIAGARA MOHAWK POWER CORPORATION
SENIOR VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
300 ERIE BOULEVARD WEST
SYRACUSE, NEW YORK 13202
(315) 474-1511
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
COPIES TO:
JANET T. GELDZAHLER, ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 558-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
AS DETERMINED BY MARKET CONDITIONS.
------------------
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 of the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please 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
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. |_|
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
20,546,264 SHARES
NIAGARA MOHAWK POWER CORPORATION
COMMON STOCK PAR VALUE $1.00 PER SHARE
---------------------------
All of the 20,546,264 shares of common stock, par value $1.00 per share
("Common Stock"), of Niagara Mohawk Power Corporation, a New York corporation
(the "Company"), being offered hereby are being sold by the shareholders of the
Company (the "Selling Shareholders"). The Company will not receive any proceeds
of the sale of shares of Common Stock by the Selling Shareholders. See "Selling
Shareholders."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS PRIOR TO ANY
INVESTMENT IN THE SHARES 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.
---------------------------
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, the Underwriters or any other person. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to sell or the
solicitation of an offer to buy any security other than the shares offered
hereby, an offer to sell or a solicitation of an offer to buy the Shares 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 in this Prospectus is correct as of any time subsequent to
the date hereof.
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary......................................................... 3
The Company................................................................ 3
Risk Factors............................................................... 6
Dividend Policy............................................................ 10
The MRA and the PowerChoice Agreement...................................... 11
The Share Exchange......................................................... 15
Selling Shareholders....................................................... 16
Plan of Distribution....................................................... 18
Validity of the Shares..................................................... 20
Experts.................................................................... 20
Available Information...................................................... 20
Incorporation of Certain Documents by Reference............................ 21
Glossary of Certain Electricity, Natural Gas and Accounting Terms.......... 22
June 30, 1998
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and the financial
statements, including the notes thereto, appearing elsewhere (or incorporated by
reference) in this Prospectus. Each prospective investor is encouraged to read
this Prospectus and the documents incorporated by reference herein and therein
in their entirety. See "Glossary of Certain Electricity, Natural Gas and
Accounting Terms" appearing as Appendix A for definitions of certain terms used
in this Prospectus.
THE COMPANY
Niagara Mohawk Power Corporation (the "Company") is engaged in the
generation, purchase, transmission, distribution and sale of electricity and the
purchase, distribution, sale and transportation of natural gas in New York
State. The Company provides electric service to its customers in areas of
central, northern and western New York having a total population of
approximately 3.5 million, including the cities of Buffalo, Syracuse, Albany,
Utica, Schenectady, Niagara Falls, Watertown and Troy. The Company sells,
distributes and transports natural gas in areas of central, northern and eastern
New York contained within the Company's electric service territory having a
total population of approximately 1.7 million. The Company owns or has a
significant ownership interest in seven principal fossil and nuclear electric
generating facilities and a total capacity of approximately 5,299 megawatts
("MW") of electricity.
In 1997, the Company entered into two related agreements that it
believes will significantly improve its financial outlook, namely the
PowerChoice Settlement Agreement dated October 10, 1997 (as modified by the PSC
Order (as defined), the "PowerChoice Agreement") and the Master Restructuring
Agreement dated July 9, 1997, as amended (the "MRA"). Pursuant to the
PowerChoice Agreement, the Company and the New York State Public Service
Commission (the "PSC"), which regulates utilities in the State of New York, have
agreed to a five-year rate plan and the Company has agreed to divest its fossil
and hydro generating facilities (the "Genco Divestiture"), representing 4,217 MW
of capacity and approximately $1.1 billion of net book value. The PSC issued a
written order approving the PowerChoice Agreement and the MRA on March 20, 1998
(the "PSC Order"). The Company currently intends to use the proceeds from any
Genco Divestiture to reduce indebtedness. Pursuant to the MRA, the Company and
14 independent power producers ("IPPs", and such 14 IPPs, the "IPP Parties")
agreed to terminate, restate or amend 27 power purchase agreements ("PPAs")
between the Company and such IPPs in exchange for cash and approximately 42.9
million shares of the Company's Common Stock. The Selling Shareholders are IPP
Parties. The MRA closed on June 30, 1998. The Company funded its cash
obligations under the MRA through the sale of $3.45 billion principal amount of
senior unsecured debt (the "Debt Offering"). In addition, the Company sold 22.4
million of the 42.9 million shares of Common Stock to the public (the "Equity
Offering", and together with the Debt Offering, the "MRA Financing"), and
delivered the proceeds thereof to the IPP Parties. The remaining 20.5 million
shares received by the IPP Parties are being registered hereunder. See "The MRA
and the PowerChoice Agreement."
For the twelve months ended March 31, 1998, the Company derived
approximately 84.5% of its revenues from the sale and transmission of
electricity and 15.5% of its revenues from the sale, distribution and
transportation of natural gas. During such period, the Company had revenues,
EBITDA, interest charges and net income of approximately $3.9 billion, $859.7
million, $272.0 million, and $100.7 million, respectively. After giving pro
forma effect to the consummation of the MRA and the MRA Financing, and the
principal terms of the PowerChoice Agreement excluding the Genco Divestiture,
the Company would
3
<PAGE>
have had revenues, EBITDA, interest charges and net loss of approximately $3.8
billion, $1.3 billion, $516.1 million, and $(35.2) million, respectively.
"EBITDA" represents earnings before interest charges, interest income, income
taxes, depreciation and amortization, non-cash regulatory deferrals and other
amortizations, and extraordinary items. EBITDA is presented to provide
additional information about the Company's ability to meet its future
requirements for debt service and capital expenditures. EBITDA should not be
considered an alternative to net income as an indicator of operating performance
or an alternative to cash flow as a measure of liquidity. See the Pro Forma
Condensed Statements of Income and the Consolidated Statements of Cash Flows
incorporated by reference in this Prospectus. See "The MRA and the PowerChoice
Agreement" and the "Pro Forma Condensed Financial Statements" set forth herein.
The Company's principal executive offices are located at 300 Erie
Boulevard West, Syracuse, New York 13202, and its telephone number is (315)
474-1511.
BACKGROUND OF THE MRA
The Company entered into the PPAs that are subject to the MRA because
it was required to do so under the Public Utility Regulatory Policies Act of
1978 ("PURPA"), which was intended to provide incentives for businesses to
create alternative energy sources. Under PURPA, the Company was required to
purchase electricity generated by qualifying facilities of IPPs at prices that
were not expected to exceed the cost that otherwise would have been incurred by
the Company in generating its own electricity, or in purchasing it from other
sources (known as "avoided costs"). While PURPA was a federal initiative, each
state retained certain delegated authority over how PURPA would be implemented
within its borders. In its implementation of PURPA, the State of New York passed
the "Six-Cent Law," establishing 6(cent) per kilowatt hour ("Kwh") as the floor
on avoided costs for projects less than 80 MW in size. The Six-Cent Law remained
in place until it was amended in 1992 to deny the benefit of the statute to any
future PPAs. The avoided cost determinations under PURPA were periodically
increased by the PSC during this period. PURPA and the Six-Cent Law, in
combination with other factors, attracted large numbers of IPPs to New York
State, and, in particular, to the Company's service territory, due to the area's
existing energy infrastructure and availability of cogeneration hosts. The
pricing terms of substantially all of the PPAs that the Company entered into in
compliance with PURPA and the Six-Cent Law or other New York laws were based, at
the option of the IPP, either on administratively determined avoided costs or
minimum prices, both of which have consistently been materially higher than the
wholesale market prices for electricity.
Since PURPA and the Six-Cent Law were passed, the Company has been
required to purchase electricity from IPPs in quantities in excess of its own
demand and at prices in excess of those available to the Company by internal
generation or for purchase in the wholesale market. In fact, by 1991 the Company
was facing a potential obligation to purchase power from IPPs substantially in
excess of its peak demand of 6,093 MW. As a result, the Company's competitive
position and financial performance have deteriorated and the price of
electricity paid per Kwh by its customers has risen significantly above the
national average. Accordingly, in 1991 the Company initiated a parallel strategy
of negotiating individual PPA buyouts, cancellations and renegotiations, and of
pursuing regulatory and legislative support and litigation to mitigate the
Company's obligation under the PPAs. By mid-1996, this strategy had resulted in
reducing the Company's obligations to purchase power under its PPA portfolio to
approximately 2,700 MW. Notwithstanding this reduction in capacity, over the
same time period, the payments made to the IPPs in respect of their PPAs rose
from approximately $200 million in 1990 to approximately $1.1 billion in 1997 as
independent power facilities from which the Company was obligated to purchase
electricity commenced operations. The Company estimates that absent the MRA,
payments made to the IPPs pursuant to PPAs would continue to escalate by
approximately $50 million per year until 2002.
4
<PAGE>
Recognizing the competitive trends in the electric utility industry and
the impracticability of remedying the situation through a series of customer
rate increases, in mid-1996, the Company began comprehensive negotiations to
terminate, amend or restate a substantial portion of above-market PPAs in an
effort to mitigate the escalating cost of these PPAs as well as to prepare the
Company for a more competitive environment. These negotiations led to the MRA
and the PowerChoice Agreement. See "The MRA and the PowerChoice Agreement."
BUSINESS STRATEGY
In New York State, where the Company's principal assets are located,
the PSC has established guidelines and goals for the development of a
competitive electricity market through the Competitive Opportunities Proceeding.
The PSC's stated goals include (i) lowering customer rates; (ii) increasing
customer choice; (iii) maintaining reliability of service; (iv) continuing
environmental and public policy programs; (v) mitigating concerns about market
power; and (vi) continuing customer protections and the obligation to serve. In
addition, the PSC has stated that electric utilities may recover stranded costs
from customers through a non-bypassable "wires" charge, known as a Competitive
Transition Charge ("CTC"), to be collected by electric distribution companies.
Stranded costs are utility costs that cannot be fully recovered from customers
in rates established in a competitive market. However, the PSC also cautioned
that a careful balancing of customer and electric utility interests and
expectations is necessary, and that the level of stranded cost recovery will
ultimately depend on the particular circumstances of each electric utility. Six
of the seven investor-owned electric utilities in New York State have had major
restructuring proposals approved, including the Company's PowerChoice Agreement.
Management believes that the MRA and the PowerChoice Agreement provide
the Company with financial stability and create an improved platform from which
to build value. The primary objective of the MRA is to convert a large and
growing off-balance sheet payment obligation that threatens the financial
viability of the Company into a fixed and manageable capital obligation.
Accordingly, the Company believes that the lower contractual obligations
resulting from the MRA will significantly improve cash flow which can be
dedicated to reduce indebtedness incurred to fund the MRA. With the PowerChoice
Agreement, the Company has established lower prices for its industrial,
commercial and residential electric customers for a period of three years and
reasonable certainty of prices for the two years thereafter. The MRA also
facilitates the creation of a competitive electricity supply market in the
Company's service territory.
In the near term, the Company believes the greatest opportunity for
improving the cash flow and financial condition of the Company will come from
focusing on the regulated electric transmission, distribution, nuclear and gas
operations. The Company will continue to emphasize operational excellence and
seek to improve margins through cost reductions. In addition, the Company
intends to pursue low risk unregulated business opportunities. Pursuant to the
PowerChoice Agreement, the Company has a one-year window in which to form a
holding company that, if formed, would enhance the Company's ability to explore
unregulated business opportunities to foster longer-term strategic growth. The
Company has obtained approval from its shareholders for the formation of a
holding company. The implementation of a holding company will only occur
following various regulatory approvals and is not expected to occur prior to the
first quarter of 1999. See "The Share Exchanges."
5
<PAGE>
RISK FACTORS
This Prospectus contains or incorporates by reference statements that
constitute forward looking information within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements regarding the Company's
future financial condition, results of operations, cash flows, financing plans,
business strategy, projected costs and capital expenditures, operations under
the MRA and the PowerChoice Agreement and words such as "anticipate,"
"estimate," "expect," "project," "intend," and similar expressions are intended
to identify forward-looking statements. Such statements appear in this
Prospectus under the captions "Prospectus Summary," "Risk Factors," and "The MRA
and the PowerChoice Agreement." Such statements are subject to certain risks,
uncertainties and assumptions. All of these forward-looking statements are based
on estimates and assumptions made by the Company's management which, although
believed by the Company's management to be reasonable, are inherently uncertain.
Investors are cautioned that such forward-looking statements are not guarantees
of future performance or results and involve risks and uncertainties and that
actual results or developments may differ materially from the forward-looking
statements as a result of various factors, including the factors described
below.
EFFECT OF MRA AND POWERCHOICE ON THE COMPANY'S REPORTED EARNINGS
The Company's reported net income will be significantly depressed in
the future as compared to historical results because of the effects of the MRA
and the PowerChoice Agreement. Pursuant to the rate reductions under
PowerChoice, the Company's electric revenues will be reduced by approximately
$111.8 million to be phased in over three years. In addition, the compensation
paid to the IPP Parties in the form of cash and Common Stock will be capitalized
and carried on the Company's books as a regulatory asset in an amount of
approximately $4.0 billion (the "MRA Regulatory Asset"). This asset will be
amortized generally over ten years and will substantially reduce the Company's
reported earnings. Finally, the estimated additional interest charges and
amortization of debt issuance costs associated with the Debt Offering will
increase the Company's future interest expense and correspondingly reduce
earnings. The impact of reduced revenues under the PowerChoice Agreement, the
MRA Regulatory Asset and the increased interest expense related to the Debt
Offering will be partially offset by the benefit to the Company of the decreased
cost of electricity purchased from the IPPs. On a pro forma basis, as a result
of the above adjustments, the Company's net income (loss) will be reduced by
$135.1 million and $136.1 million for the year ended December 31, 1997 and the
twelve months ended March 31, 1998, respectively, to $48.2 million and $(35.4)
million, respectively, for such periods. On a historical basis, the Company
reported net income of $183.3 million and $100.7 million, respectively, for such
periods. The foregoing may adversely affect the market for the Common Stock and
the prices at which it may trade.
SUBSTANTIAL LEVERAGE AND LIMITED FINANCIAL FLEXIBILITY
As a result of the MRA and the Debt Offering, the Company has
substantial leverage and significant debt service obligations. As of March 31,
1998, on a pro forma basis after giving effect to the consummation of the MRA
and the Debt Offering, the Company would have had outstanding approximately $6.8
billion of senior indebtedness, consisting primarily of $2.8 billion of First
Mortgage Bonds, which are secured by a lien on substantially all of the
Company's utility property, $529.0 million of borrowings under the Company's
senior bank facility, which are secured with First Mortgage Bonds, $20.0 million
of unsecured medium term notes and $3.279 billion of senior unsecured notes (the
"Notes"). The Company also has available additional borrowings of $275.0 million
under its senior bank facility and, under the financial covenants set forth in
the indenture governing the Notes, has the ability to incur an additional $1.5
billion of indebtedness. See "The MRA and the PowerChoice Agreement."
6
<PAGE>
The degree to which the Company is leveraged could have important
consequences to holders of the Common Stock, including: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or other corporate 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.
EFFECT OF DECREASED SALES TO CUSTOMERS
Under the PowerChoice Agreement, the Company has established rates
intended to create sufficient cash flow to at least cover its operating
expenses, satisfy its fixed obligations, and recover allowable stranded costs.
The Company's rate design is based on estimates of future electricity usage and
the number of customers connected to the Company's distribution system. The
level of electric revenues can be adversely affected by lower than projected
sales to retail customers and by customer bypass of the system. Economic
conditions in the Company's service area could result in lower sales due to the
relocation of customers. Because of the relatively high cost of the Company's
electricity, customers could seek to bypass the Company's distribution system
through self-generation or the replacement of the Company with a municipal or
other utility. While the PowerChoice Agreement requires the payment of an exit
fee or access charge in these circumstances (except with respect to customers
who had made substantial investment in on-site generation as of October 10,
1997), the affected customers and competitors may challenge the Company's right
to collect these fees, or the appropriate level of these fees. There can be no
assurance that the Company would prevail in any such proceeding. If revenues are
significantly lower than those anticipated in its rate design, the Company's
profitability could be materially adversely affected.
REGULATORY MATTERS
Following implementation of the PowerChoice Agreement, the Company will
remain subject to extensive regulation by the PSC. While the most material
aspects of the Company's rate structure for the next five years are established
in the PowerChoice Agreement, under certain circumstances, the PSC could
initiate proceedings to reduce rates. Conversely, the PSC is likely to continue
to assess competitive consequences in considering future rate increases even in
the event that the Company experiences revenue shortfalls or increased expenses.
In addition, many aspects of the Company's operations, including its electric
transmission and distribution systems, the operation and maintenance of its
nuclear facilities, its gas distribution operations and the issuance of
securities, will continue to be subject to extensive regulation by both the
federal government and the PSC. Changes in these regulations or in their
application to the Company could adversely affect the Company's business and
financial condition. Further, uncertainty exists regarding the ultimate impact
on the Company as the electric industry is further deregulated and electricity
suppliers gain open access to the Company's retail customers.
New York laws governing the approval of the PowerChoice Agreement
provide various parties the right to appeal such approval by giving notice of
their intention to do so within four months of the date on which approval is
received. Such an appeal may be based on the failure of the record to show a
reasonable basis for the terms of the PowerChoice Agreement and may result in an
amendment of the record to correct such failure, in renegotiation of such terms
or in renegotiation of the PowerChoice Agreement as a whole. There can be no
assurance that, if appealed, the approval of the PowerChoice Agreement will be
upheld or that such appeal will not result in terms substantially less favorable
to the Company than those described
7
<PAGE>
herein. Certain parties have filed petitions for rehearing before the PSC. Of
the six petitions filed, three have been denied. In addition, certain parties
and filed an action seeking to enjoin the implementation of the PowerChoice
Agreement, the MRA and the Company's contemplated Genco Divestiture on the
grounds that the PSC failed to comply with the provisions of the New York State
Environmental Quality Review Act. On April 20, 1998, the application for a
temporary restraining order was denied, and on May 22, 1998, the injunction was
denied and the petition was dismissed, which decision is appealable. The Company
is unable to predict the outcome of any such proceeding. Suspension of the
PowerChoice Agreement or renegotiation of its material terms could have a
material adverse effect on the Company's results of operations.
RESTRICTIONS ON THE ABILITY TO PAY DIVIDENDS
The Company's Board of Directors omitted the Common Stock dividend
beginning in 1996 in order to stabilize the Company's financial condition and to
provide additional cash to service its fixed obligations. The Company expects to
dedicate a substantial portion of its future cash flow to reduce the
indebtedness incurred in connection with the MRA, which will reduce the amount
of cash available to pay dividends on the Common Stock. In addition, the
PowerChoice Agreement, as well as the indenture governing the Notes and the
Company's senior bank facility, significantly limit the amount that the Company
is permitted to pay in dividends on its Common Stock and Preferred Stock. In
light of the foregoing, there can be no assurance that the Company will be in a
position to pay dividends on the Common Stock in the near future and, if such
dividends are paid, their amount may be limited based on the Board's evaluation
of the Company's financial condition, business conditions and other factors at
the time.
FEDERAL INCOME TAX IMPLICATIONS OF MRA TO THE COMPANY
The Company has requested rulings from the Internal Revenue Service to
the effect that the amount of cash and Common Stock paid to the IPP Parties who
are terminating their PPAs upon closing of the MRA will be currently deductible
and generate a substantial net operating loss ("NOL"). No assurance can be given
that favorable rulings will be issued. If favorable rulings are not received,
and the Company's claimed current deductions are challenged on audit and not
ultimately sustained, the amount of tax refunds generated from the NOL
carryback, and thus the amount of cash available to provide operating capital
and service the Company's obligations following consummation of the MRA, would
be reduced. While any disallowed deductions would ultimately be allowable in
future years, and would likely create, or increase the amount of NOLs available
to offset tax liabilities in future years, cash flow would be adversely affected
in the near term.
The Company's ability to utilize the NOL generated as a result of the
MRA could be substantially limited under the rules of section 382 of the
Internal Revenue Code (the "Code") if certain changes in the Company's stock
ownership were to occur following the consummation of the MRA. In general, the
limitation is triggered by a more than 50% change in stock ownership during a
3-year testing period by shareholders who own, directly or indirectly, 5% or
more of the Common Stock. For purposes of making the change in ownership
computation, the IPP Parties who are issued Common Stock pursuant to the MRA and
the purchasers in the Equity Offering will likely be considered separate 5%
shareholder groups, with the result that a stock ownership change of up to 23%
will be deemed to have occurred by reason of their collective acquisition of
such stock. Thus, if the IPP Parties, the purchasers in the Equity Offering and
any other 5% shareholders experience ownership increases totaling more than 27%
during any 3-year testing period that includes the consummation date of the MRA,
the 50% statutory threshold would be breached and the NOL limitation would
apply. The rules for determining changes in stock ownership for purposes of
section 382 are extremely complicated and in many respects uncertain. A stock
ownership change could
8
<PAGE>
occur as a result of circumstances that are not within the control of the
Company. If a more than 50% change in ownership were to occur, the Company's
remaining usable NOL on a going forward basis would likely be significantly
lower than the NOL amount which otherwise would be usable absent the limitation.
Consequently, the Company's net cash position could be significantly lower as a
result of tax liabilities which would otherwise be eliminated or reduced through
unrestricted use of the NOL.
NUCLEAR FACILITY RISK
Risks of substantial liability arise from the ownership and operation
of nuclear facilities, including, among others, structural problems at a nuclear
facility, the storage, handling and disposal of radioactive materials,
limitations on the amounts and types of insurance coverages commercially
available and uncertainties with respect to the technological and financial
aspects of decommissioning nuclear facilities at the end of their useful lives.
The Company's Nine Mile Point Nuclear Unit No. 1 ("Unit 1") nuclear facility is
one of the oldest in operation, having commenced operations in 1969. In the
event of an extended outage of either Unit 1 or Unit 2 at Nine Mile Point, the
Company would be required to purchase power in the open market to replace the
power normally produced by these facilities. Such purchases would subject the
Company to the risk of increased energy prices and, depending on the length of
the outage and the level of market prices, could have a material adverse effect
on the Company's cash flow. Under the PowerChoice Agreement, the Company is not
entitled to pass along these increased costs to customers in the form of higher
electric rates. If either facility were to have problems with its physical
condition or require significant capital expenditure, the Company would evaluate
the economic justification of continuing to operate the facility. The prudence
of the Company's decision to close a facility is subject to review by the PSC to
determine whether the Company should be allowed to recover its incremental
costs, including replacement power costs, which would likely be an amount
significant to the Company.
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 is currently conducting
a program to investigate and restore, as necessary to meet current environmental
standards, certain properties associated with its former gas manufacturing
process and other properties which the Company has learned may be contaminated
with industrial waste, as well as investigating identified industrial waste
sites as to which it may be determined that the Company contributed. The Company
has also been advised that various federal, state or local agencies believe
certain properties require investigation and has prioritized the sites based on
available information in order to enhance the management of investigation and
remediation, if necessary. The Company is currently aware of 124 such sites with
which it has been or may be associated, including 76 which are Company-owned.
With respect to non-owned sites, the Company may be required to contribute some
share of the remedial costs. The Company has denied any responsibility in
certain of these sites and is contesting liability accordingly. Although in
practice, remedial costs are often allocated among parties, one party can, as a
matter of law, be held liable for all of the remedial costs at a site regardless
of fault. The Company has accrued a liability in the amount of $220 million for
remedial costs and the high end of the range of remedial costs is currently
estimated by the Company to be approximately $650 million, including
approximately $285 million in the unlikely event the Company is required to
assume 100% responsibility at non-owned sites. The Company believes that it is
probable that environmental compliance and remediation costs will continue to be
recovered in its rates and the Company has recorded a regulatory asset for
recovery of these costs. However, there can be no assurance that additional
expenses associated with remedial costs or compliance with
9
<PAGE>
proposed and future environmental laws and regulations could not have a material
adverse effect on the future operations and financial condition of the Company.
ACCOUNTING PRINCIPLES
The Company continues to apply the accounting principles of SFAS No. 71
to its electric transmission and distribution, nuclear and gas operations, based
on the terms of the PowerChoice Agreement. SFAS No. 71 permits a utility to
defer certain costs for future recovery which would otherwise be charged to
expense when authorized to do so by the relevant regulatory authorities. As of
March 31, 1998, the Company had recorded $811.0 million of regulatory assets,
net of regulatory liabilities, associated with the electric business. The
deferral of the costs of the MRA by the PSC will cause the net regulatory assets
to increase by approximately $4.0 billion. In the event that the Company
determined, either as a result of lower than expected revenues or higher than
expected costs, that its net regulatory assets were not in fact recoverable, it
could no longer apply the principles of SFAS No. 71 and would be required to
record a non-cash charge against income in the amount of the remaining
unamortized net regulatory assets.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on the Common
Stock since 1996. The Company currently intends to retain future earnings to
repay indebtedness and therefore, does not anticipate paying any cash dividends
in the immediate future. The Company is limited in its ability to pay cash
dividends in respect of its Common Stock pursuant to the PowerChoice Agreement,
the indenture governing the Notes and the Company's senior bank facility. Any
future determination to declare and pay dividends will be made by the Board of
Directors after evaluating the Company's earnings, cash flow, financial
position, capital requirements, contractual agreements, regulatory restrictions,
competitive position, and such other factors as the Board of Directors deems
relevant.
10
<PAGE>
THE MRA AND THE POWERCHOICE AGREEMENT
Overview
On March 20, 1998, the Company received written approval from the PSC
for the PowerChoice Agreement which establishes a five-year rate plan and
incorporates the terms of the MRA. The key terms of the PowerChoice Agreement
include: (i) a revenue reduction of $111.8 million (exclusive of reductions in
the New York State Gross Receipts Tax) for all customer classes to be phased in
over three years beginning upon the consummation of the MRA; (ii) a mechanism to
cap prices to electric customers in years four and five of the five-year term;
(iii) an allowance for the Company to recover stranded costs (including the
recoverable costs associated with the MRA); (iv) the permission to establish the
MRA Regulatory Asset, reflecting the recoverable costs of the MRA which will be
amortized generally over ten years; (v) an agreement by the Company to divest
its fossil and hydro electric generating facilities within a defined time period
and retain its nuclear generating facilities with a commitment to explore their
divestiture at a later date; and (vi) an agreement by the Company to provide its
retail electric customers with the option to choose their supplier of
electricity by no later than December 1999.
The MRA
The closing of the MRA Financing closed concurrently with the closing
of the MRA. Pursuant to the MRA, the Company reached an agreement with 14 IPPs
to terminate, restate or amend 27 PPAs in exchange for approximately $3.6
billion of cash and approximately 42.9 million shares of Common Stock
(representing approximately 23% of the Company's outstanding shares following
such issuance). Approximately 22.4 million shares of Common Stock were issued in
the Equity Offering and the net proceeds thereof were paid to the IPP Parties.
The remainder of the 42.9 million shares of Common Stock was issued directly to
the IPP Parties and is being registered hereunder. The proceeds of the Debt
Offering, together with cash on hand, were used to fund the Company's cash
obligation under the MRA. The principal effects of the MRA are to significantly
reduce the Company's existing payment obligations under the PPAs, which
consisted of approximately 2,700 MW of capacity in aggregate for all existing
PPAs at March 31, 1998.
The Company expects that the MRA will result in a significant
improvement in cash flow resulting from the reduction in the payment obligation
(both in nominal dollars and PPA duration) under the existing PPAs. The savings
in annual energy payments will yield significant free cash flow that can be
dedicated to the repayment of the Notes.
Under the terms of the MRA, the Company's significant long-term and
escalating IPP payment obligations have been restructured into a more manageable
debt obligation and a portfolio of restated and amended PPAs with price and
duration terms that the Company believes are more favorable than the existing
PPAs. Under the MRA, 18 PPAs representing approximately 1,100 MW of electric
generating capacity have been terminated completely, thus allowing this capacity
to be replaced through the competitive market at market-based prices. The
Company has no continuing obligation to purchase energy from the terminating
IPPs. Also under the MRA, eight PPAs representing approximately 541 MW of
capacity have been restated on economic terms and conditions which the Company
believes are more favorable to it than the terms of the existing PPAs subject to
the MRA. The restated PPAs have shorter terms (ten years) and have been
structured as financial swap contracts where the Company receives or makes
payments to the IPP Parties based upon the differential between the contract
price and a market reference price for electricity. The contract prices are
fixed for the first two years changing to an indexed pricing formula thereafter.
Contract quantities are fixed for the full ten year term of the contracts. The
indexed pricing structure ensures that the
11
<PAGE>
price paid for energy and capacity will fluctuate relative to the underlying
market cost of gas and general indices of inflation. Until such time as a
competitive energy market structure becomes operational in the State of New
York, the amended and restated contracts provide the IPP Parties with a put
option for the physical delivery of energy. Additionally, one PPA representing
42 MW of capacity will be amended to reflect a shorter term (17 years) and a
lower stream of fixed unit prices. The Company's expected future commitment
under the restated and amended contracts ranges from approximately $210 million
in the first year to $290 million in the tenth year.
Against the Company's forecast of market energy prices, the amended and
restated PPAs represent an expected above-market payment obligation. The Company
believes, however, that its portfolio of amended and restated PPAs could provide
it and its customers with a hedge against significant upward movement in market
prices for electricity. The portfolio of amended and restated PPAs and market
purchases contain terms that are more responsive than the existing PPAs to
competitive market price changes.
The IPP Parties and their designees own approximately 20.5 million
shares of the Common Stock, representing approximately 11% of the Company's
voting securities. Pursuant to the MRA, any IPP Party that received 2% or more
of the outstanding Common Stock and any designee of IPP Parties that received
more than 4.9% of the outstanding Common Stock upon the consummation of the MRA,
together with certain but not all affiliates (collectively, "2% Shareholders"),
entered into certain shareholder agreements (the "Shareholders Agreements").
Pursuant to each Shareholder Agreement, the 2% Shareholders agree that for five
years from the consummation of the MRA they will not acquire more than an
additional 5% of the outstanding Common Stock (resulting in ownership in all
cases of no more than 9.9%) or take any actions to attempt to acquire control of
the Company, other than certain permitted actions in response to unsolicited
actions by third parties. The 2% Shareholders generally vote their shares on a
"pass-through" basis, in the same proportion as all shares held by other
shareholders are voted, except that they may vote in their discretion (i) for
extraordinary transactions and (ii) for directors when there is a pending
proposal to acquire the Company. Purchasers of the shares offered hereby who are
not affiliates of any 2% Shareholders will not be subject to the above described
restrictions.
Each of the IPP Parties that owns shares of Common Stock being
registered hereunder has agreed, until 45 days after the closing of the Equity
Offering, not to offer, sell or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock, or enter into any swap or similar
arrangement with respect thereto, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, subject to certain
exceptions.
The PowerChoice Agreement
The PowerChoice Agreement, which was approved by the PSC on March 20,
1998, establishes a five-year rate plan that will reduce average residential and
commercial rates by an aggregate of 3.2% over the first three years. The rate
plan will take effect within 30 days of approval by the PSC of the tariffs
implementing PowerChoice, but in no case earlier than the MRA closing. The
reduction in prices will include certain savings that will result from partial
reductions of the GRT. Industrial customers will see average reductions of 25%
relative to 1995 price levels; these decreases will include discounts currently
offered to some industrial customers through optional and flexible rate
programs. The cumulative rate reductions, exclusive of GRT savings, are
estimated to be $111.8 million, to be phased in over the first three years of
the agreement. During the term of the PowerChoice Agreement, the Company will be
permitted to defer certain costs associated primarily with environmental
remediation, nuclear decommissioning and related costs, and changes in laws,
regulations, rules and orders. The Company must also defer, during the term of
12
<PAGE>
the PowerChoice Agreement, the difference between the assumed weighted average
interest rate of 8.5% used by the Company to prepare its PowerChoice proposal
and the actual weighted average interest rate for the Senior Notes portion of
the Debt Offering. In years four and five of its rate plan, the Company can
request an annual increase in prices subject to a cap of 1% of the all-in price,
excluding commodity costs (e.g., transmission, distribution, nuclear, and
forecasted CTC). In addition to the price cap, the PowerChoice Agreement
provides for the recovery of deferrals established in years one through four and
cost variations resulting from indexing provisions of the MRA financial
contracts. The aggregate of the price cap increase and recovery of deferrals is
subject to an overall limitation of inflation.
Under the terms of the PowerChoice Agreement, all of the Company's
customers will be able to choose their electricity supplier in a competitive
market by December 1999. The Company will continue to distribute electricity
through its transmission and distribution systems and would be obligated to be
the so-called provider of last resort for those customers who do not exercise
their right to choose a new electricity supplier.
The PowerChoice Agreement provides that the MRA and the contracts
executed pursuant thereto are found to be prudent. The PowerChoice Agreement
further provides that the Company shall have a reasonable opportunity to recover
its stranded costs, including those associated with the MRA and the contracts
executed thereto, through a CTC and, under certain circumstances, through exit
fees or in rates for back-up service.
The PSC has limited the amount of the MRA Regulatory Asset that can be
recovered from customers to approximately $4.0 billion. The MRA Regulatory Asset
represents the recoverable costs of the MRA, consisting of the cash compensation
paid to the IPP Parties, the issuance of approximately 42.9 million shares of
Common Stock, of which 20.5 million shares are being registered hereunder with
the remainder being issued in the Equity Offering, and other expenses related to
the MRA. The value of the limitation on the recoverability of the MRA Regulatory
Asset is expected to be recorded as a $263.2 million charge to expense in the
second quarter of 1998.
The PowerChoice Agreement calls for the Company to divest all its
fossil and hydro generating facilities and prohibits the Company from owning
non-nuclear generating assets within the State of New York except as described
below. The Genco Divestiture is intended to be accomplished through an auction,
the plan for which was approved by the PSC in an order dated May 6, 1998.
Winning bids are expected to be selected in the fall of 1998. The Company will
retain a portion of the auction sale proceeds, above specified levels, as an
incentive to obtain maximum value in the sale. This incentive would be recovered
from sale proceeds. The Company agreed that if it does not receive an acceptable
bid for an asset, the Company will form a subsidiary to hold any such asset and
then will legally separate this subsidiary from the Company through a spin-off
to shareholders or otherwise. If a bid of zero or below is received for an
asset, the Company may keep the asset as part of its regulated business. The
auction process will serve to quantify any stranded costs associated with the
Company's fossil and hydro generating facilities. The Company will have a
reasonable opportunity to recover these costs through the CTC and, under certain
circumstances, through exit fees or in rates for back-up service. The Company
intends to use any cash proceeds from such an auction to repay indebtedness.
The PowerChoice Agreement contemplates that the Company's nuclear
plants will remain part of the Company's regulated business. The Company has
been supportive of the creation of a statewide New York Nuclear Operating
Company that it expects would improve the efficiency of nuclear units throughout
the state. The PowerChoice Agreement stipulates that absent such a statewide
solution, the Company will
13
<PAGE>
file a detailed plan for analyzing other proposals regarding its nuclear
facilities, including the feasibility of an auction, transfer and/or divestiture
of such facilities, within 24 months of approval of the PowerChoice Agreement.
The PowerChoice Agreement also allows the Company to form a holding
company at its election. The Company obtained approval from its shareholders for
the formation of a holding company. The implementation of a holding company
structure will only occur following various regulatory approvals and is not
anticipated to occur prior to the first quarter of 1999.
14
<PAGE>
THE SHARE EXCHANGE
EXCHANGE AGREEMENT
In order to effectuate a holding company structure, the Company will
engage in a share exchange (the "Share Exchange") whereby: (i) each share of the
Company's Common Stock outstanding immediately prior to the effective time of
the Share Exchange will be exchanged for one new share of common stock of the
holding company ("Holdings"); (ii) Holdings will become the owner of all
outstanding Common Stock of the Company; and (iii) the shares of Holdings common
stock held by the Company immediately prior to the Share Exchange will be
canceled.
As a result, upon completion of the Share Exchange, Holdings will
become a holding company, the Company will become a subsidiary of Holdings, and
all of Holdings common stock outstanding immediately after the Share Exchange
will be owned by the former holders of the Company's Common Stock outstanding
immediately prior to the share exchange. Following the Share Exchange, certain
of the Company's existing non-utility subsidiaries will be transferred to
Holdings and become subsidiaries of Holdings.
The Company's outstanding preferred stock will not be exchanged in the
Share Exchange but will continue as shares of the Company preferred stock. The
Share Exchange will not change the rights of the holders of such shares as
currently provided in the Company's Amended Certificate of Incorporation. Debt
of the Company will remain unchanged and will continue as outstanding
obligations of the Company after the Share Exchange.
CONDITIONS TO EFFECTIVENESS OF THE SHARE EXCHANGE
The Share Exchange is subject to the satisfaction of the following
conditions: (i) all necessary orders, authorizations, approvals or waivers from
the PSC and all other jurisdictive regulatory bodies, boards or agencies have
been received, remain in full force and effect, and do not include, in the sole
judgment of the Board of Directors of the Company, unacceptable conditions; and
(ii) shares of Holdings common stock to be issued in connection with the
exchange have been listed, subject to official notice of issuance, by the New
York Stock Exchange.
Following satisfaction of these conditions, the Share Exchange will
become effective immediately following the close of business on the date of
filing with the New York Department of State of a certificate of exchange
pursuant to Section 913(d) of the New York Business Corporation Law. The Company
cannot predict when all conditions will be satisfied, but expects that the share
exchange will become effective in the first quarter of calendar 1999.
LISTING OF HOLDINGS COMMON STOCK
Holdings is applying to have its common stock listed on the New York
Stock Exchange. It is expected that such listing will become effective at the
effective time of the Share Exchange. The stock exchange ticker symbol of
Holdings common stock will be "NMK", and quotations will be carried in
newspapers as they have been for the Company's Common Stock. Following the Share
Exchange, the Company's Common Stock will no longer trade and will be delisted
and no longer registered pursuant to Section 12 of the Securities Exchange Act
of 1934.
15
<PAGE>
SELLING SHAREHOLDERS
The table below sets forth the expected beneficial ownership of Common
Stock by each Selling Shareholder at June 30, 1998 and following the sale of the
shares of Common Stock offered by such Selling Shareholder. The Selling
Shareholders are IPP Parties or designees of IPP Parties and all of the shares
of Common Stock to be sold by the Selling Shareholders represent shares issued
to them in connection with the closing of the MRA.
<TABLE>
<CAPTION>
Shares of Common Stock Shares of Common Stock to be
Beneficially Owned Before Beneficially Owned After Sale
Sale Under this Prospectus Under this Prospectus (1) (2)
(1) (2)
Shares to
Name of Selling Shareholder Number Percentage be sold Number Percentage
--------------------------- ------ ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Onondaga Cogeneration Limited 1,292,801 (3) 1,292,801 0 --
Partnership
c/o GPU International, Inc.
One Upper Pond Road
Parsippany, NJ 07054
Indeck-Ilion Limited Partnership 4,763,874(4) 2.54% 4,763,874(4) 0 --
Indeck Energy Services, Inc.
600 North Buffalo Grove Road
Buffalo Grove, IL 60089
Indeck-Yerkes Limited Partnership 4,763,874(4) 2.54% 4,763,874(4) 0 --
Indeck Energy Services, Inc.
600 North Buffalo Grove Road
Buffalo Grove, IL 60089
Indeck-Olean Limited Partnership 4,763,874(4) 2.54% 4,763,874(4) 0 --
Indeck Energy Services, Inc.
600 North Buffalo Grove Road
Buffalo Grove, IL 60089
Indeck-Oswego Limited Partnership 4,763,874(4) 2.54% 4,763,874(4) 0 --
Indeck Energy Services, Inc.
600 North Buffalo Grove Road
Buffalo Grove, IL 60089
Jones Capital Corporation 400,000 (3) 400,000 0 --
J.A. Jones Drive
Charlotte, NC 28287
Energy Investors Fund, L.P. 420,581 (3) 420,581 0 --
200 Berkeley Street
20th Floor
Boston, MA 02116
Iroquois Power 391,593 (3) 391,593 0 --
c/o Clements & Duchame, P.C.
2 Judson Street
Canton, NY 10017
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Energy Factors, Incorporated 7,787,306(5) 4.16% 7,680,206(6) 107,100(7) (3)
450 Lexington Avenue
37th Floor
New York, NY 10017
Energy Corporation of America 187,035 (3) 187,035 0 --
4643
South Ulster Street
Suite 1100
Denver, CO 80237-2867
Sithe Energies, Inc. 7,787,306(5) 4.16% 7,680,206(6) 107,100(7) (3)
450 Lexington Avenue
37th Floor
New York, NY 10017
Sithe Energies U.S.A., Inc. 7,787,306(5) 4.16% 7,680,206(6) 107,100(7) (3)
450 Lexington Avenue
37th Floor
New York, NY 10017
Sundance Energy, Ltd. 494,404 (3) 494,404 0 --
380 Cemetery Road
Oswego, NY 13126
Beta Carthage, Inc. 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3)
1151 Flatbush Road
Kingston, NY 12401
Beta C&S Limited 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3)
1151 Flatbush Road
Kingston, NY 12401
Beta South Glens Falls, Inc. 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3)
1151 Flatbush Road
Kingston, NY 12401
Beta Natural Dam, Inc. 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3)
1151 Flatbush Road
Kingston, NY 12401
Beta N Limited 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3)
1151 Flatbush Road
Kingston, NY 12401
Beta Syracuse, Inc. 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3)
1151 Flatbush Road
Kingston, NY 12401
Beta Beaver Falls, Inc 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3)
1151 Flatbush Road
Kingston, NY 12401
Harold N. Kamine 300,000 (3) 300,000 0 --
c/o Kamine Development Corp.
1535 Rt. 206
Suite 300
Bedminster, NJ 07921-2567
<PAGE>
<FN>
- ------------
(1) Based on the number of shares of Common Stock outstanding on June 30, 1998.
Beneficial ownership is determined in accordance with rules of the
Commission and includes shares over which the indicated beneficial owner
exercises voting and/or investment power.
(2) Each IPP Party that holds 2% or more of the outstanding Common Stock and
any designee of IPP Parties that holds more than 4.9% of the outstanding
Common Stock upon the consummation of the MRA, together with certain but
not all affiliates (collectively, "2% Shareholders"), entered into certain
shareholder agreements (the "Shareholders Agreements"). Pursuant to each
Shareholder Agreement, the 2% Shareholders agree that for five years from
the consummation of the MRA they will not acquire more than an additional
5% of the outstanding Common Stock (resulting in ownership in all cases of
no more than 9.9%) or take any actions to attempt to acquire control of the
Company, other than certain permitted actions in response to unsolicited
actions by third parties. The 2% Shareholders generally vote their shares
on a "pass-through" basis, in the same proportion as all shares held by
other shareholders are voted, except that they may vote in their discretion
(i) for extraordinary transactions and (ii) for directors when there is a
pending proposal to acquire the Company.
(3) Less than 1%.
(4) Includes (i) 1,463,505 shares held by Indeck-Ilion Limited Partnership,
(ii) 1,116,806 shares held by Indeck-Yerkes Limited Partnership, (iii)
1,993,911 shares held by Indeck-Olean Limited Partnership, and (iv) 189,652
shares held by Indeck-Oswego Limited Partnership.
(5) Includes (i) 4,350,569 shares held by Energy Factors, Incorporated, (ii)
1,683,311 shares held by Sithe Energies U.S.A., Inc. and (ii) 1,753,426
shares held by Sithe Energies, Inc.
(6) Includes (i) 4,350,569 shares held by Energy Factors, Incorporated, (ii)
1,683,311 shares held by Sithe Energies U.S.A., Inc. and (iii) 1,646,326
shares held by Sithe Energies, Inc.
(7) Includes 107,100 shares held by Sithe Energies, Inc.
(8) Includes (i) 611,801 shares held by Beta Carthage, Inc., (ii) 217,625
shares held by Beta C&S Limited, (iii) 621,409 shares held by Beta South
Glens Falls, Inc., (iv) 380,948 shares held by Beta Natural Dam, Inc., (v)
526,071 shares held by Beta N Limited, (vi) 894,934 shares held by Beta
Syracuse, Inc., (vii) 1,362,982 shares held by Beta Beaver Falls, Inc., and
(viii) 1 share held by Besicorp Group Inc.
(9) Includes (i) 611,801 shares held by Beta Carthage, Inc., (ii) 217,625
shares held by Beta C&S Limited, (iii) 621,409 shares held by Beta South
Glens Falls, Inc., (iv) 380,948 shares held by Beta Natural Dam, Inc., (v)
526,071 shares held by Beta N Limited, (vi) 894,934 shares held by Beta
Syracuse, Inc., and (vii) 1,362,982 shares held by Beta Beaver Falls, Inc.
(10) Includes 1 share held by Besicorp Group Inc.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
The shares of Common Stock covered by this Prospectus may be offered
and sold from time to time by the Selling Shareholders. The Selling Shareholders
will act independently of the Company in making decisions with respect to the
timing, manner and size of each sale. The Selling Shareholders may sell the
shares being offered hereby on the New York Stock Exchange, or otherwise, at
prices and under terms then prevailing or at prices related to the then current
market price or at negotiated prices. The shares may be sold by one or more of
the following means of distribution: (a) a block trade in which the
broker-dealer so engaged will attempt to sell such shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) in privately negotiated transactions. To the extent required, this
Prospectus may be amended and supplemented from time to time to describe a
specific plan of distribution. In connection
18
<PAGE>
with distributions of such shares or otherwise, the Selling Shareholders may
enter into hedging transactions with broker-dealers or other financial
institutions. In connection with such transactions, broker-dealers or other
financial institutions may engage in short sales of the Common Stock in the
course of hedging the positions they assume with the Selling Shareholders. The
Selling Shareholders may also sell the Common Stock short and redeliver the
shares to close out such short positions. The Selling Shareholders may also
enter into option or other transactions with broker-dealers or other financial
institutions which require the delivery to such broker-dealer or other financial
institution of shares of Common Stock offered hereby, which shares such
broker-dealer or other financial institution may resell pursuant to this
Prospectus (as supplemented or amended to reflect such transaction). The Selling
Shareholders may also pledge such shares to a broker-dealer or other financial
institution, and, upon a default, such broker-dealer or other financial
institution may effect sales of the pledged shares pursuant to this Prospectus
(as supplemented or amended to reflect such transaction). In addition, any
shares of Common Stock covered by this Prospectus that qualify for sale pursuant
to Rule 144 may be sold under Rule 144 rather than pursuant to this Prospectus.
In effecting sales, brokers, dealers or agents engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
Selling Shareholders in amounts to be negotiated prior to the sale. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any such commissions, discounts or concessions may be deemed to be
underwriting discounts or commissions under the Securities Act. The Company will
pay all expenses incident to the offering and sale of the shares of Common Stock
covered by this Prospectus to the public other than any commissions and
discounts of underwriters, dealers or agents and any transfer taxes.
In order to comply with the securities laws of certain states, if
applicable, the shares of Common Stock covered by this Prospectus must be sold
in such jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states such shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
The Company has advised the Selling Shareholders that the
anti-manipulation rules of Regulation M under the Exchange Act may apply to
sales of shares of Common Stock covered by this Prospectus in the market and to
the activities of the Selling Shareholders and their affiliates. In addition,
the Company will make copies of this Prospectus available to the Selling
Shareholders and has informed them of the need for delivery of copies of this
Prospectus to purchasers at or prior to the time of any sale of the shares of
Common Stock covered by this Prospectus. The Selling Shareholders may indemnify
any broker-dealer that participates in transactions involving the sale of the
shares of Common Stock covered by this Prospectus against certain liabilities,
including liabilities arising under the Securities Act.
At the time a particular offer of shares of Common Stock covered by
this Prospectus is made, if required, a Prospectus Supplement will be
distributed that will set forth the number of shares of Common Stock covered by
this Prospectus being offered and the terms of the offering, including the name
of any underwriter, dealer or agent, the purchase price paid by any underwriter,
any discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public.
The sale of shares of Common Stock covered by this Prospectus by the
Selling Shareholders is subject to compliance by the Selling Shareholders with
certain contractual restrictions with the Company. There can
19
<PAGE>
be no assurance that the Selling Shareholders will sell all or any of the shares
of Common Stock covered by this Prospectus.
The Company has agreed to indemnify the Selling Shareholders and any
person controlling a Selling Shareholder against certain liabilities, including
liabilities under the Securities Act. The Selling Shareholders have agreed to
indemnify the Company and certain related persons against certain liabilities,
including liabilities under the Securities Act.
The Company has agreed with certain of the Selling Shareholders to keep
the Registration Statement of which this Prospectus constitutes a part effective
for up to two years following the effectiveness of the Registration Statement
containing this Prospectus.
VALIDITY OF THE SHARES
The validity of the shares offered hereby will be passed upon for the
Company by Sullivan & Cromwell, New York, New York, counsel to the Company.
EXPERTS
The financial statements incorporated in this Prospectus have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934 (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 at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
New York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661. 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 website (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The Common Stock of the Company is listed on
the New York Stock Exchange, 20 Broad Street, New York, New York 10005, where
reports and other information concerning the Company may be inspected.
Additional information regarding the Company and the securities offered
hereby is contained in the Registration Statement on Form S-3 and the exhibits
thereto (the "Registration Statement") filed with the Commission under 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.
20
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated in this Prospectus by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1997.
2. Amendment to Annual Report on Form 10-K/A for the year ended December
31, 1997.
3. Second Amendment to Annual Report on Form 10-K/A for the year ended
December 31, 1997.
4. Current Report on Form 8-K dated February 11, 1998.
5. Quarterly Report on Form 10-Q for the three months ended March 31, 1998.
6. Amendment to Quarterly Report on Form 10-Q/A for the three months ended
March 31, 1998.
7. Proxy Statement dated May 29, 1998 for the Company's 1998 Annual
Meeting.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the
Equity Offering will be deemed to be incorporated by reference in this
Prospectus and will be part of this Prospectus from the date of filing of such
documents. Any statement contained in this Prospectus or in any document
incorporated or deemed to be incorporated by reference in this Prospectus will
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in this Prospectus or in any subsequently
filed document that also is or is deemed to be incorporated by reference in this
Prospectus modifies or supersedes such statement. any statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person to whom
a copy of this Prospectus is delivered, upon the written or oral request of any
such person, a copy of any document described in this Prospectus (not including
exhibits to those documents unless such exhibits are incorporated by reference
into the information incorporated into this Prospectus). Requests for copies
should be directed to Niagara Mohawk Power Corporation, 300 Erie Boulevard West,
Syracuse, New York 13202. Attention: Leon T. Mazur, telephone number: (315)
474-1511.
21
<PAGE>
APPENDIX A
GLOSSARY OF CERTAIN ELECTRICITY, NATURAL GAS
AND ACCOUNTING TERMS
TERM DEFINITION
Avoided Costs The costs an electric utility would otherwise incur to
generate power if it did not purchase electricity from
another source.
Cogeneration The simultaneous production of electric energy and useful
thermal energy for industrial, commercial, heating or
cooling purposes.
CTC Competitive Transition Charge.
Electric The delivery of electric energy to customers on
distribution system. Electric energy is carried at
high voltages along transmission lines. For consumers
needing lower voltages, it is reduced in voltage at a
substation and delivered over primary distribution lines
extending throughout the area where the electricity is
distributed. For users needing lower voltage, the voltage
is reduced once again by a distribution transformer or a
line transformer. At this point it changes from primary
to secondary distribution voltage.
GRT Gross Receipts Tax.
GwH Gigawatt-hours: one gigawatt hour equals one billion watt
hours.
IPP Independent Power Producer: any person that owns or
operates, in whole or in part, one or more Independent
Power Facilities.
KW Kilowatt: one thousand watts.
Kwh Kilowatt-hour: a unit of electrical energy equal to one
kilowatt of power supplied or taken from an electric
circuit steadily for one hour.
MW Megawatt: one million watts.
MWh Megawatt hour: one thousand kilowatt hours.
NYSERDA New York State Energy Research and Development Authority.
PPA Power Purchase Agreements: long-term contracts under
which a utility is obligated to purchase electricity from
an IPP at specified rates.
PSC New York State Public Service Commission.
PURPA Public Utility Regulatory Policies Act of 1978, as
amended. One of five bills signed into law on November 8,
1978, as the National Energy Act. It sets forth
procedures and requirements applicable to state utility
commissions, electric and natural gas utilities and
certain federal regulatory agencies. A major aspect of
this law is the mandatory purchase obligation from
qualifying facilities.
SFAS No. 71 Statement of Financial Accounting Standards No. 71
"Accounting for the Effects of Certain Types of
Regulation".
Six-Cent Law Section 66-c of the New York State Public Service Law,
governing minimum prices to be paid under certain PPAs.
Transmission The act or process of transporting electric energy in
bulk from a source or sources of supply to other
principal parts of the system or to other utility
systems. Also a functional classification relating to
that portion of utility plant used for the purpose of
transmitting electric energy in bulk to other principal
parts of the system or to other utility systems, or to
expenses relating to the operation and maintenance of
transmission plant.
Unit 1 Nine Mile Point Nuclear Station Unit No. 1, a 613 MW
nuclear generating facility 100% owned by Niagara Mohawk
and in operation since 1969.
Unit 2 Nine Mile Point Nuclear Station Unit No. 2, a 1144 MW
nuclear generating facility 41% owned by Niagara Mohawk
and in operation since 1988.
22
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses, other than
underwriting discounts and commissions, to be incurred in connection with the
distribution of the securities registered under this registration statement.
Except as indicated, all costs and expenses will be paid by the Company.
Amount
to be paid
SEC registration fee........................................ $81,633
Legal fees and expenses..................................... 20,000
Accounting fees and expenses................................ 15,000
Miscellaneous............................................... 20,000
---------
Total............................................ $136,633
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 721 through 726 of the Business Corporation Law of the State
of New York (the "BCL") provide for indemnification of the Company's officers
and directors under certain conditions and subject to specific limitations. The
BCL permits New York corporations to supplement the statutory indemnification
with additional "non-statutory" indemnification for directors and officers
meeting a specified standard of conduct and to advance to officers and directors
litigation expenses under certain circumstances. As permitted by the BCL,
Article VI of the Company's By-Laws provides for indemnification of, and
advancement of litigation expenses incurred by, directors and officers of the
Company.
The Company has also obtained insurance providing for indemnification
of directors and officers against certain expenses and liabilities. In addition,
pursuant to a 1986 amendment to the BCL, the Company has entered into agreements
with certain of the officers and directors of the Company providing for
indemnification for the liability of officers and directors not covered by the
policy mentioned above. Such additional indemnification does not cover acts
committed in bad faith or acts which were the result of active and deliberate
dishonesty. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Furthermore, Article XIIA of the Certificate of Incorporation of the
Company limits, with certain exceptions, the personal liability of a director of
the Company to the Company or its shareholders for damages for any breach of
duty in such capacity to the fullest extent permitted by the BCL.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Index to Exhibits
3(a) Certificate of Amendment of Certificate of Incorporation of Niagara
Mohawk Power Corporation under Section 805 of the Business Corporation
Law of New York.
3(b) By-Laws of Niagara Mohawk Power Corporation, as amended April 23, 1998.
5 Opinion of Sullivan & Cromwell.
23(a) Consent of PriceWaterhouse LLP.
23(b) Consent of Sullivan & Cromwell (included within Exhibit 5 hereto).
24 Power of attorney (included on page II-4).
- -----------
* Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 19(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.
(iii) 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;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment 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.
II-2
<PAGE>
(3) 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.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of this chapter at the start
of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of
the Act need not be furnished, provided, that the registrant includes
in the prospectus, by means of a post-effective amendment, financial
statements required pursuant to this paragraph (a)(4) and other
information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial
statements. Notwithstanding the foregoing, with respect to registration
statements on Form F-3, a post-effective amendment need not be filed to
include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Form F-3.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described under "Item 15,
Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Syracuse, State of New
York, on the 26th day of June, 1998.
NIAGARA MOHAWK POWER CORPORATION
By:
/s/ Steven W. Tasker
-------------------------------------------------
Name: Steven W. Tasker
Title: Vice President-Controller and Principal
Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities indicated on June 26, 1998:
SIGNATURE Title Date
--------- ----- ----
/s/ William F. Edwards Senior Vice President and Chief June 26, 1998
- ----------------------- Financial Officer
/s/ Arthur W. Roos Vice President-Treasurer June 26, 1998
- -----------------------
II-4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NIAGARA MOHAWK POWER CORPORATION
Under Section 805 of the Business Corporation Law
The undersigned, being Vice President - Law and Secretary, of Niagara
Mohawk Power Corporation, New York corporation, hereby certify that:
FIRST. The name of the corporation is Niagara Mohawk Power Corporation,
and the name under which it was formed was Niagara Hudson Public Service
Corporation.
SECOND. The certificate of consolidation forming the corporation was
filed by the Department of State on July 31, 1937.
<PAGE>
THIRD. The certificate of incorporation is amended to increase the
number of shares which the corporation has authority to issue from 185,000,000
common shares of the par value of $1 per share to 250,000,000 common shares
of the par value of $1 per share. To effect such change, Parts A and C of
Article IV of the certificate of incorporation of the corporation are hereby
amended to read as follows:
"IV.A. The total number of shares which the Corporation may have is
281,000,000, of which 3,400,000 are to have a par value of $100 each,
27,600,000 are to have a par value or $25 each and 250,000,000 are to have a
par value of $1 each."
"C. The shares of the Corporation are to be classified as follows:
3,400,000 shares are to be Preferred Stock with a par value of $100
each;
19,600,000 shares are to be Preferred Stock with a par value of $25
each;
8,000,000 shares are to be Preference Stock with a par value of $25
each; and
250,000,000 shares are to be Common Stock with a par value of $1 each."
FOURTH. The foregoing amendment of the certificate of incorporation was
authorized by the Board of Directors of the corporation at a meeting duly called
and held on May 14, 1998, followed by the favorable vote of the holders of a
majority of all outstanding shares entitled to vote thereon at a meeting of
shareholders duly called and held on June 29, 1998.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this certificate of
amendment of certificate of incorporation on June 29, 1998 and affirm the
statements contained herein as true under the penalties of perjury.
NIAGARA MOHAWK POWER CORPORATION
By /s/ Paul J. Kaleta
--------------------------------------
Paul J. Kaleta
Vice President - Law
By /s/ Kapua A. Rice
--------------------------------------
Kapua A. Rice
Secretary
-3-
Exhibit 3(b)
BY-LAWS
NIAGARA MOHAWK POWER CORPORATION
ADOPTED JANUARY 5, 1950
(As Amended April 23, 1998)
<PAGE>
BY-LAWS
NIAGARA MOHAWK POWER CORPORATION
ADOPTED JANUARY 5, 1950
(As Amended April 23, 1998)
*INDEX
<TABLE>
<CAPTION>
Page Page
<S> <C> <C>
Additional Officers 14 Lost Stock Certificates 19
Adjournments 4 Notices of Meetings 3,8,11
Amendments 20 Officers 11
Annual Meeting 2 Place of Meeting 3
Assistant Officers 13,14 President 12
Audit Committee 10 Procedure 4,9,11,20
Bonds 15 Proxies 6
Certificate of Stock 17 Quorum 4,9
Chairman of the Board 12 Record Date 18
Committees 9 Registrar 17
Compensation 8,15 Resignation 7
Controller 13 Scrip 19
Corporate Charter 1 Secretary 13
Corporate Seal 20 Special Meetings 3
Directors 6 Stock 17
Directors' Meetings 8 Stockholders' Meetings 2
Election 2,6,12,20 Term of Office 6,12
Executive Committee 10 Transfer Agent 17
Finance Committee 10 Transfers of Shares 18
Finances 19 Treasurer 14
Fiscal Year 20 Unanimous Written Consent 11
General Provisions 19 Vacancies 7
Indemnification; Insurance 15,17 Vice Presidents 13
Inspectors of Election 5 Voting 5
<FN>
*This Index does not constitute part of the By-Laws or have any bearing upon the
interpretation of their terms and provisions.
</FN>
</TABLE>
<PAGE>
BY-LAWS OF NIAGARA MOHAWK POWER CORPORATION
ARTICLE I
BY-LAWS SUPPLEMENT CORPORATE CHARTER
SECTION 1. CORPORATE CHARTER: The provisions of these by-laws supplement the
corporate charter. The provisions of the latter shall govern over the provisions
of these by-laws in the event of any conflict, Elections of directors and
meetings of stockholders in addition to those provided by these by-laws may be
held in accordance with the provisions of the corporate charter. The term
"corporate charter" as used in these by-laws includes the Certificate of
Consolidation of Antwerp Light and Power Company, Baldwinsville Light and Heat
Company of Baldwinsville, N.Y., Fulton Fuel and Light Company, Fulton Light,
Heat and Power Company, Malone Light and Power Company, Northern New York
Utilities, Inc., The Norwood Electric Light and Power Company, Peoples Gas and
Electric Company of Oswego, St. Lawrence County Utilities, Inc., St. Lawrence
Valley Power Corporation, The Syracuse Lighting Company, Inc., and Utica Gas and
Electric Company forming Niagara Hudson Public Service Corporation, filed in the
Department of State of the State of New York on July 31, 1937, all certificates
supplemental thereto or amendatory thereof or in restatement thereof filed in
the Department of State of the State of New York (including specifically but
without limitation among all such supplemental or amendatory certificates
heretofore filed or hereafter to be filed, the Certificate of Change of Name of
Niagara Hudson Public Service Corporation to Central New York Power Corporation,
filed in the Department of State of the State of New York on September 15, 1937,
the Certificate of Consolidation of New York Power and Light Corporation and
Buffalo Niagara Electric Corporation and Central New York Power Corporation
which is to survive the consolidation and be named Niagara Mohawk Power
Corporation Pursuant to Sections 26-a and 86 of the Stock Corporation Law and to
Subdivision 4 of Section 11 of the Transportation Corporations Law, filed in the
Department of State of the of New York on January 5, 1950, and the
Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk Power
Corporation Pursuant to Sections 26-a and 36 of the Stock Corporation Law, filed
in the Department of State of the State of New York on January 5, 1950), and
includes also all resolutions of the board of directors fixing the designations,
preferences, privileges and voting powers of any series of stock of the
corporation, and all other instruments which are binding upon, and define or set
forth the rights of, the stockholders of the corporation.
1
<PAGE>
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETING: The annual meeting of the stockholders of the
corporation for the election of directors and the transaction of such other
business as may properly come before it shall be held at such date and time as
may be designated by the Board of Directors.
Business properly brought before any such annual meeting shall include
matters specifically set forth in the corporation's proxy statement with respect
to such meeting, matters which the Chairman of the Board of Directors in his
sole discretion causes to be placed on the agenda of any such annual meeting and
(i) any proposal of a stockholder of this corporation and (ii) any nomination by
a stockholder of a person or persons for election as director or directors, if
such stockholder has made a written request to this corporation to have such
proposal or nomination considered at such annual meeting, as provided herein,
and further provided that such proposal or nomination is otherwise proper for
consideration under applicable law and the certificate of incorporation and
by-laws of the corporation.
Notice of any proposal to be presented by any stockholder or of the
name of any person to be nominated by any stockholder for election as a director
of the corporation must be received by the secretary of the corporation at its
principal executive office not less than 60 nor more than 90 days prior to the
date of the annual meeting; provided, however, that if the date of the annual
meeting is first publicly announced or disclosed (in a public filing or
otherwise) less than 70 days prior to the date of the meeting, such notice shall
be given not more than ten days after such date is first so announced or
disclosed. Public notice shall be deemed to have been given more than 70 days in
advance of the annual meeting if the corporation shall have previously
disclosed, in these by-laws or otherwise, that the annual meeting in each year
is to be held on a determinable date, unless and until the Board of Directors
determines to hold the meeting on a different date.
Any stockholder who gives notice of any such proposal shall deliver
therewith the text of the proposal to be presented and a brief written statement
of the reasons why such stockholder favors the proposal and setting forth such
stockholder's name and address, the number and class of all shares of each class
of stock of the corporation beneficially owned by such stockholder and any
material interest of such stockholder in the proposal (other than as a
stockholder).
Any stockholder desiring to nominate any person for election as a
director of the corporation shall deliver with such notice a statement in
writing setting forth the name of the
2
<PAGE>
person to be nominated, the number and class of all shares of each class of
stock of the corporation beneficially owned by such person, the information
regarding such person required by paragraphs (a), (e) and (f) of Item 401 of
Regulation S-K adopted by the Securities and Exchange Commission (or the
corresponding provisions of any regulation subsequently adopted by the
Securities and Exchange Commission applicable to the corporation), such person's
signed consent to serve as a director of the corporation if elected, such
stockholder's name and address and the number and class of all shares of each
class of stock of the corporation beneficially owned by such stockholder. As
used herein, shares "beneficially owned" shall mean all shares as to which such
person, together with such person's affiliates and associates (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to
beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange
Act of 1934, as well as all shares as to which such person, together with such
person's affiliates and associates, has the right to become the beneficial owner
pursuant to any agreement or understanding, or upon the exercise of warrants,
option or rights to convert or exchange (whether such rights are exercisable
immediately or only after the passage of time or the occurrence of conditions).
The person presiding at the meeting in addition to making any other
determinations that may be appropriate to the conduct of the meeting, shall
determine whether such notice has been duly given and shall direct that
proposals and nominees not be considered if such notice has not been so given.
SECTION 2. SPECIAL MEETINGS: Special meetings of the stockholders of the
corporation may be called at any time by a majority of the entire board of
directors or by the Chairman of the Board or the President. Such request shall
state the purpose or purposes of the proposed meeting.
Special meetings of stockholders for the election of directors in
accordance with the provisions of the corporate charter providing for a special
election of directors in the event of default in the payment of dividends on the
preferred stock or preference stock for a specified period and on the
termination of such default may be called as provided in the corporate charter.
SECTION 3. PLACE AND NOTICE OF STOCKHOLDERS' MEETINGS: Meetings of Stockholders
shall be held at the principal office of the corporation in the City of
Syracuse, New York, or at such other place or places in the State of New York as
may be determined from time to time by the board of directors. For meetings
other than annual meetings, the notice shall also state by and at whose
direction and for what purpose or purposes the meeting is called. If the manner
of giving notice of the meeting is not specified by law or the corporate
charter, notice shall be given by mailing, postage prepaid, not less than ten
(10) nor more than sixty (60) days before such meeting, a copy of the notice of
such meeting, stating the purpose or purposes for which the
3
<PAGE>
meeting is called and the time when and the place where it is to be held, to
each stockholder of record on the record date established pursuant to Article
VII, Section-4 entitled to vote at the meeting at his address as it appears on
the stock book of the corporation, unless he shall have filed with the Secretary
of the corporation a written request that notices intended for him be mailed to
some other address, in which case it shall be mailed to the address designated
in such request. If, at any meeting, action is proposed to be taken which would,
if taken, entitle shareholders fulfilling the requirements of Section 623 of the
New York Business Corporation Law to receive payment for their shares, the
notice of such meeting shall also include a statement to that effect.
SECTION 4. BUSINESS AT STOCKHOLDERS' MEETINGS: Business transacted at all
meetings of stockholders shall be confined to the objects stated in the notice
of the meeting and matters germane thereto. In the absence of fraud, the
determination of the holders of a majority of the stock present in person or by
proxy and entitled to vote at the meeting shall be conclusive as to whether any
proposed action or proceeding at such meeting is within the scope of the notice
of such meeting.
SECTION 5. PROCEDURE: The order of business and all other matters of procedure
at every meeting of stockholders may be determined by the presiding officer.
SECTION 6. QUORUM: Except as otherwise provided by law or in the corporate
charter, the presence of a majority of the holders of shares, in person or by
proxy, entitled to vote thereat shall constitute a quorum at any shareholders'
meeting.
SECTION 7. ADJOURNMENTS: Except as otherwise provided by the corporate
charter, the stockholders entitled to vote who are present in person or by proxy
at any meeting of stockholders, whether or not a quorum shall be present or
represented at the meeting, shall have power by a majority vote to adjourn the
meeting from time to time without further notice other than announcement at the
meeting, unless the board of directors shall fix a new record date in respect of
such adjourned meeting, in which case the provisions of Section 3 of this
Article shall apply. At any adjourned meeting at which the requisite amount of
voting stock shall be present in person or by proxy any business may be
transacted which might have been transacted at the meeting as originally called,
and the stockholders entitled to vote at the meeting as originally called, and
no others, unless the board of directors shall have fixed a new record date in
respect thereof, shall be entitled to vote at such adjourned meeting.
4
<PAGE>
SECTION 8. VOTING: Whenever an action shall require the vote of stockholders,
the tabulations that identify the particular vote of a stockholder on all
proxies, consents, authorizations and ballots shall be kept confidential, except
as disclosure may be required (i) by applicable law, (ii) in pursuit or defense
of legal proceedings, (iii) to resolve a bona fide dispute as to the
authenticity of one or more proxies, consents, authorizations or ballots or as
to the accuracy of any tabulation of such proxies, consents, authorizations or
ballots, (iv) if an individual stockholder requests that his or her vote and
identity be forwarded to the corporation, or (v) in the event of a proxy or
consent solicitation in opposition to the solicitation of the Board of Directors
of the corporation; and the receipt and tabulation of such votes will be by an
independent third party not affiliated with the corporation. Comments written on
proxies, consents, authorizations and ballots, will be transcribed and provided
to the secretary of the corporation without reference to the vote of the
stockholder, except where such stockholder has requested that the nature of
their vote be forwarded to the corporation.
Stockholders shall have such voting rights as may be granted by law and
the provisions of the corporate charter. All questions presented to stockholders
for decision shall be decided by a vote of shares. Voting may be viva voce
unless a stockholder present in person or by proxy and entitled to vote at the
meeting shall demand a vote by ballot in which event a vote by ballot shall be
taken. Except where otherwise provided by law, the corporate charter or these
by-laws, elections shall be determined by a plurality vote and all other
questions that shall be submitted to stockholders for decision shall be decided
by a majority of the votes cast.
SECTION 9. INSPECTORS OF ELECTION: Two inspectors of election who are not
employees or directors of the corporation, shall be appointed by the directors
to serve at each meeting of stockholders, or of a class of stockholders, such
inspectors to serve at such meeting and any adjournments thereof; and such
inspectors shall have authority to count and report upon the votes cast at such
meeting upon the election of directors and such other questions as may be voted
upon by ballot. In the event that any such inspector of election shall not have
been appointed by the directors to serve at such meeting, or, having been
appointed, shall be absent from such meeting or adjournment or unable to serve
thereat, such inspector shall be appointed by the presiding officer at such
meeting or adjournment.
The inspectors appointed to act at any meeting of stockholders, before
entering upon the discharge of their duties, shall be sworn faithfully to
execute the duties of inspectors at such meeting with strict impartiality and
according to the best of their ability, and the oath so taken shall be
subscribed by them and shall be filed in the records of such meeting.
The inspectors shall be responsible for determining the number of
shares outstanding, the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the validity and effect of any proxies.
They shall also receive and tabulate all votes, ballots or
5
<PAGE>
consents and determine the result of any election, hear and determine all
challenges and questions arising in connection with any election and do such
acts to conduct the election according to the applicable provisions of'law of
the State of New York.
SECTION 10. PROXIES: Each stockholder entitled to vote at any meeting of
stockholders may be represented and vote at such meeting by his proxy,
authorized and acting in manner as provided by the applicable laws of the State
of New York. No proxy shall be valid after the expiration of eleven (11) months
from the date of its execution unless otherwise provided in the proxy in
accordance with law.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND QUALIFICATIONS: Except as otherwise required by the
provisions of the corporate charter relating to the rights of the holders of any
class or series of preferred or preference stock having a preference over the
common stock as to dividends or to elect directors under specified
circumstances, the board of directors shall consist of not less than nine (9)
nor more than twenty-one (21) persons, the exact number initially to be fifteen
(15) persons, subject to change from time to time to any number not less than
nine (9) nor more than twenty-one (21) persons by the board of directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the board for
adoption). Directors need not be stockholders. No person, other than those
serving on November 11, 1976, who has reached age 70 prior to May 1 in the year
such director would otherwise stand for election, shall stand for election as a
director.
SECTION 2. ELECTION AND TENURE OF OFFICE: Except as otherwise provided by law,
the corporate charter or these by-laws, the directors of the corporation shall
be elected at the annual meeting of the stockholders or at any meeting of the
stockholders held in lieu of such annual meeting, which meeting, for the
purposes of these by-laws, shall be deemed the annual meeting. The directors
shall be classified, with respect to the time for which they severally hold
office into three classes, as nearly equal in number as possible, one class to
hold office initially for a term expiring at the annual meeting of stockholders
to be held in 1989, another class to hold office initially for a term expiring
at the annual meeting of stockholders to be held in 1990, and another class to
hold office initially for a term expiring at the annual meeting of stockholders
to be held in 1991, with the members of each class to hold office until their
successors are elected and qualified. At each annual meeting of the stockholders
of the corporation, the
6
<PAGE>
successors to the class of directors whose terms expire at that meeting shall be
elected, to hold office until the annual meeting of stockholders held in the
third year following the year of their election. Except as otherwise provided in
the corporate charter, the directors shall hold office until the annual meeting
at which their respective terms expire and until their successors are elected
and have qualified. The election of directors shall be conducted by two
inspectors of election appointed as hereinbefore provided. The election need not
be by ballot and shall be decided by a plurality vote.
SECTION 3. RESIGNATION; REMOVAL: Any director of the corporation may resign at
any time by giving his resignation to the chief executive officer of the
corporation, or to the Secretary. Such resignation shall take effect at the time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective. Subject to the
rights of the holders of any class or series of preferred or preference stock
having preference over the holders of common stock as to dividends or to elect
directors under specified circumstances, any director, or the entire board of
directors, may be removed from office at any time, but only for cause.
SECTION 4. VACANCIES: Except as otherwise provided by the corporate charter, if
the office of any director becomes vacant for any reason, a majority of the
directors then in office, whether or not such majority shall constitute a
quorum, may choose a successor who, to the extent required by New York law,
shall hold office until the next annual meeting of stockholders at which the
election of directors is in the regular order of business and until his
successor has been elected and qualified; provided that if New York law does not
so require, such director shall hold office for the full unexpired term of the
director whose seat he is filling, or any such vacancy in the board of directors
may be filled by the stockholders entitled to vote at any meeting of
stockholders, notice of which shall have referred to the proposed election.
Except as otherwise provided by the corporate charter, in the event of
an increase in the number of directors pursuant to Section 1 of this Article
III, a majority of the directors then in office, whether or not such majority
shall constitute a quorum, may elect the additional director or directors who to
the extent required by New York law, shall hold office until the next annual
meeting of stockholders at which the election of directors is in the regular
order of business and until his successor has been elected and qualified;
provided that if New York law does not so require, such director or directors
shall hold office for the full unexpired term of the class of directors to which
such director or directors is elected, or any such director or directors may be
elected by the stockholders entitled to vote at any meeting of stockholders,
notice of which shall have referred to the proposed election. No decrease in the
number of authorized directors constituting the entire board of directors shall
shorten the term of any incumbent director.
7
<PAGE>
SECTION 5. COMPENSATION: Members of the board of directors shall be entitled to
compensation for service and the board of directors may assign duties to any
member or members of the board and may fix the amount of compensation therefor,
which shall be a charge to be paid by the corporation. The board of directors
may elect or appoint members of the board as officers, members of committees, or
agents of the corporation, may assign duties to be performed and may fix the
amount of the respective salaries, fees or other compensation therefor, and the
amount so fixed shall be a charge to be paid by the corporation. In addition to
any other compensation provided pursuant to these by-laws, each director shall
be entitled to receive a fee, in amount as fixed from time to time by resolution
of the board of directors, for attendance at any meeting of the board, or of any
committee of the board, together with his expenses of attendance, if any.
SECTION 6. MEETINGS OF DIRECTORS: Regular meetings of the board of directors
shall be held at such times and at such places as may be determined by the board
of directors, or by the Chairman of the Board or by the President. Special
meetings of the board may be called from time to time by any three directors, or
by the Chairman of the Board or by the President.
Any action required or permitted to be taken by the board or any
committee thereof may be taken without a meeting if all board or committee
members file one or more written consents to a resolution authorizing the action
with the respective minutes of the board or committee as the case may be.
Any one or more members of the board or of any of its committees may
participate in a meeting of the board or committee by conference telephone or
similar communications equipment allowing all participants in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence at a meeting.
SECTION 7. NOTICE OF MEETINGS OF BOARD OF DIRECTORS: Notice of each meeting of
the board of directors, stating the time and place thereof, shall be given to
each member of the board by the Secretary, or an Assistant Secretary, by mailing
the same, postage prepaid, addressed to each member of the board at his
residence or usual place of business not less than three (3) days before the
meeting, or by delivering the same to each member of the board personally or to
his residence or usual place of business, or by sending the same by telegraph or
facsimile transmission to his residence or usual place of business, not less
than one (1) day before the meeting. Meetings of the board of directors may also
be held at any time and place without notice provided all the members are
present at such meeting without protest or, at any time before or after the
meeting, shall sign a written waiver of notice. The notice of any meeting of the
board of directors need not specify the purpose or purposes for which the
meeting is called, except as otherwise expressly provided in these by-laws.
8
<PAGE>
SECTION 8. QUORUM: At all meetings of the board of directors, except where
otherwise provided by law, the corporate charter, or these by-laws, a quorum
shall be required for the transaction of business and shall consist of not less
than one-third of the entire board, if the number of members be more than nine
(9), but not less than a majority, if the number of directors be less than nine
(9); and the vote of a majority of the directors present shall decide any
questions that may come before the meeting. A majority of the directors present
at any meeting, although less than a quorum, may adjourn the same from time to
time, without notice other than announcement at the meeting, until a quorum is
present.
SECTION 9. PROCEDURE: The order of business and all other matters of procedure
at every meeting of directors may be determined by the presiding member.
ARTICLE IV
COMMITTEES OF DIRECTORS
SECTION 1. DESIGNATION: The board of directors, by resolution or resolutions
adopted by a majority of the entire board, shall designate an Executive
Committee, an Audit Committee and a Finance Committee, and may designate one or
more other committees, each committee to consist of three (3) or more directors
of the corporation. In the interim between meetings of the board, the Executive
Committee shall have and may exercise the powers of the board of directors
granted by the corporate charter and these by-laws and by resolution of the
board, and such other committees shall have only such powers as shall be granted
by these by-laws and by resolution of the board; provided, however, that no
committee shall have authority as to the following matters:
(a) The submission to shareholders of any action that needs shareholders'
approval by law;
(b) The filling of vacancies in the board of directors or in any committee;
(c) The fixing of compensation of the directors for serving on the board or on
any committee;
(d) The amendment or repeal of the by-laws, or the adoption of new by-laws; or
(e) The amendment or repeal of any resolution of the board which, by its terms,
shall not be so amendable or repealable.
9
<PAGE>
Each committee shall serve at the pleasure of the board of directors and
shall have such name or names as may be determined from time to time by the
by-laws or by resolution or resolutions adopted by the board of directors.
Except as otherwise required by law, the existence of any such committee may be
terminated, or its powers and authority modified, at any time by resolution of
the board of directors.
SECTION 2. EXECUTIVE COMMITTEE: When the board of directors is not in session,
the Executive Committee shall have all of the authority of the board of
directors, except it shall have no authority as to the matters specified in
Section 1 of this Article IV. The Chairman of the Board shall be Chairman of the
Executive Committee. The members of the Executive Committee shall serve at the
pleasure of the board of directors.
SECTION 3. AUDIT COMMITTEE: The Audit Committee shall recommend to the board of
directors the accounting firm to be selected by the board or to be recommended
by it for shareholder approval, as independent auditor of the corporation and
its subsidiaries; act on behalf of the board in meeting and reviewing with the
independent auditors, the chief internal auditor and the appropriate corporate
officers matters relating to corporate financial reporting and accounting
procedures and policies, adequacy of internal controls and the scope of the
respective audits of the independent auditors and the internal auditor; review
the results of such audits with the respective auditing agency and reporting
thereon to the board; review and make recommendations to the board concerning
the independent auditor's fees and services; review interim and annual financial
reports and disclosures and submit to the board any recommendations it may have
from time to time with respect to financial reporting and accounting practices
and policies; be consulted, and its consent obtained, prior to the selection or
termination of the chief internal auditor; oversee matters involving compliance
with Corporate business ethics policies including the work of the Business
Ethics Council; review management's assessment of financial risks; authorize
special investigations and studies, as appropriate, in fulfillment of its
function as specified herein or by resolution of the board of directors; and
perform any other duties or functions deemed appropriate by the board of
directors. The Committee will conduct a self-assessment at least every three
years of its performance in relation to its powers and responsibilities. The
membership of such committee shall consist only of directors of the corporation
who are not, and have not been, officers of the company.
SECTION 4. FINANCE COMMITTEE: The Finance Committee shall exercise such powers
of the board of directors as shall be provided in one or more resolutions of the
board of directors with respect to the issuance by the corporation of securities
and evidences of indebtedness and the participation by the corporation in other
financing transactions and with respect to the authorization of the making,
modification, alteration, termination or abrogation of notes, bills, mortgages,
sales, deeds, financing leases, liens and contracts of the corporation and shall
further be empowered to take any action in connection with the determination of
the terms of any
10
<PAGE>
securities, evidences of indebtedness or other financing transactions of the
corporation the issuance of which by the corporation or the participation in
which by the corporation shall have theretofore been approved by the board of
directors, and shall further perform any other duties or functions deemed
appropriate by the board of directors.
SECTION 5. RECORDS AND PROCEDURE: Said committees shall keep regular minutes of
their proceedings and report the same to the board when required. Unless
otherwise determined by the board of directors each committee may appoint a
chairman and a secretary and such other officers of the committee as it may deem
advisable, may determine the time and place of holding each meeting of the
committee, the notice of meetings to be given to members, and all other
procedural questions which may arise in connection with the work of the
committee.
SECTION 6. UNANIMOUS WRITTEN CONSENT: Any action authorized in writing, by all
of the members of a committee, and filed with the minutes of the corporation
shall be the act of that committee with the same force and effect as if the same
had been passed by unanimous vote at a duly called meeting of such committee.
SECTION 7. NOTICE: Unless otherwise provided by resolution of the board of
directors or by a vote of a majority of the members of the relevant committee,
notice of cormnittee meetings shall be given in the same manner as notice of
special meetings of the board of directors is to be given under Article III,
Section 7 of the By-Laws.
ARTICLE V
OFFICERS
SECTION 1. OFFICERS: The officers of the corporation shall consist of a Chairman
of the Board, a President, one or more Vice-Presidents, a Secretary, a
Controller, a Treasurer, and such Assistant Secretaries, Assistant Controllers
and Assistant Treasurers and other officers as shall be elected or appointed by
the board of directors. The board of directors may elect or appoint a General
Counsel upon such terms and with such powers and duties as it may prescribe and
may also designate the General Counsel an officer of the corporation.
11
<PAGE>
SECTION 2. ELECTION: The officers of the corporation shall be elected or
appointed by the board of directors at the meeting of the board held after each
annual meeting of the stockholders. The Chairman of the Board and the President
shall be elected or appointed by the board of directors from among their number.
Any number of Vice-Presidents, the Secretary, the Controller, the Treasurer and
other officers established pursuant to resolution of the board of directors
shall also be elected or appointed by the board of directors.
SECTION 3. TERM OF OFFICE: The officers of the corporation shall hold office
until the meeting of the board of directors held after the next annual meeting
of the stockholders and until their successors are elected and have qualified,
unless a shorter term is fixed or unless removed, subject to the provisions of
law, by the board of directors. The Chairman of the Board, the President, any
Vice President, the Secretary, the Controller or the Treasurer may be removed at
any time, with or without cause, by the board of directors provided that notice
of the meeting at which such action shall have been taken shall set forth such
action as one of the purposes of such meeting. Any other officer of the
corporation may be removed at any time, with or without cause, by the board of
directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the board of directors at any time to serve the
remaining current term of that office.
SECTION 4. CHAIRMAN OF THE BOARD. There shall be a chairman of the Board of
Directors, with the official title "Chairman of the Board", who shall be the
chief executive officer of the corporation. The Chairman of the Board shall
preside at meetings of the stockholders, the board of directors and the
Executive Committee. He shall recommend to the board policies to be followed by
the corporation, and, subject to the board, shall have general charge of the
policies and business of the corporation and general supervision of the details
thereof, and shall supervise the operation, maintenance and preservation of the
properties of the corporation. He shall keep the board of directors informed
respecting the business of the corporation. He shall have authority to sign on
behalf of the corporation all contracts and other documents or instruments to be
signed or executed by the corporation, and, in all cases where the duties and
powers of subordinate officers and agents of the corporation are not
specifically prescribed by the by-laws or by resolutions of the board of
directors, the Chairman of the Board may prescribe such duties and powers. He
shall perform such other duties as may from time to time be assigned to him by
the board of directors.
SECTION 5. THE PRESIDENT: The President shall have the direction of and
responsibility for the operations of the corporation and such other powers and
duties as the board of directors or the chairman of the Board shall designate
from time to time and, in the absence or inability to act of the Chairman of
the Board, shall have the powers and duties of the Chairman of the Board. The
President, unless some other person is thereunto specifically authorized by vote
of the board of directors, shall have authority to sign all contracts and other
documents and instruments of the corporation.
12
<PAGE>
SECTION 6. THE VICE-PRESIDENTS: The Vice-Presidents may be designated by such
title or titles and in such order of seniority as the board of directors may
determine. The Vice-Presidents shall perform such of the duties and exercise
such of the powers of the President on behalf of the corporation as may be
assigned to them respectively from time to time by the board of directors or by
the Chairman of the Board or the President, and, subject to the control of the
board, shall have authority to sign on behalf of the corporation all contracts
and other documents or instruments necessary for the conduct of the business of
the corporation. The Vice Presidents shall perform such other duties as may from
time to time be assigned to them respectively by the board of directors or the
Chairman of the Board or the President.
SECTION 7. THE SECRETARY AND ASSISTANT SECRETARIES: The Secretary shall cause
notices of all meetings of stockholders and directors to be given as required by
law, the corporate charter, and these by-laws. He shall attend all meetings of
stockholders and of the board of directors and keep the minutes thereof. He
shall affix the corporate seal to and sign such instruments as require the seal
and his signature and shall perform such other duties as usually pertain to his
office or as are required of him by the board of directors or the Chairman of
the Board or the President.
Any Assistant Secretary may, in the absence or disability of the
Secretary, or at his request, perform the duties and exercise the powers of the
Secretary, and shall perform such other duties as the board of directors, the
Chairman of the Board, the President or the Secretary shall prescribe.
The Secretary or any Assistant Secretary may certify under the
corporate seal as to the corporate charter or these by-laws or any provision
thereof, the acts of the board of directors or any committee thereof, the
tenure, signatures, identity and acts of officers of the corporation or other
corporate facts, and any such certificate may be relied upon by any person or
corporation to whom the same shall be given until receipt of written notice to
the contrary.
In the absence of the Secretary and of an Assistant Secretary, the
stockholders or the board of directors may appoint a secretary pro tem to record
the proceedings of their respective meetings and to perform such other acts
pertaining to said office as they may direct.
SECTION 8. THE CONTROLLER AND ASSISTANT CONTROLLERS: The Controller shall be the
chief accounting officer of the corporation. He shall have general supervision
of the accounting and financial reporting policies of the corporation, and shall
recommend policies and procedures and shall render current and periodic reports
of financial status to the Chairman of the Board, the
13
<PAGE>
President and the board of directors. He shall perform such other duties as
usually pertain to his office or as are required of him by the board of
directors or the Chairman of the Board or the President.
Any Assistant Controller may, in the absence or disability of the
Controller, or at his request, perform the duties and exercise the powers of the
Controller and shall perform such other duties as the board of directors, the
Chairman of the Board, the President or the Controller shall prescribe.
SECTION 9. THE TREASURER AND ASSISTANT TREASURERS: The Treasurer is authorized
and empowered to receive and collect all moneys due the corporation and to
receipt for the same. He shall be empowered to execute on behalf of the
corporation all instruments, agreements and certificates necessary or
appropriate to effect the issuance by the corporation of securities or evidences
of indebtedness or to permit the corporation to enter into and perform any other
financing transactions to the extent the foregoing are within the ordinary
course of business of the corporation or have been authorized by the board of
directors or a committee thereof. He shall cause to be entered in books of the
corporation to be kept for that purpose full and accurate accounts of all moneys
received by and paid on account of the corporation. He shall make and sign such
reports, statements, and instruments as may be required of him by the board of
directors or by laws of the United States or the State of New York, or by
commission, bureau, department or agency created under any such laws, and shall
perform such other duties as usually pertain to his office or as are required of
him by the board of directors or the Chairman of the Board or the President.
Any Assistant Treasurer may, in the absence or disability of the
Treasurer, or at his request, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties as the board of directors, the
Chairman of the Board, or the President, or the Treasurer shall prescribe.
SECTION 10. ADDITIONAL OFFICERS: In addition to the officers provided for by
these by-laws, the board of directors may, from time to time, designate and
appoint such other officers as may be necessary or convenient for the
transaction of the business and affairs of the corporation. Such other officers
shall have such powers and duties as may be assigned to them by resolution of
the board of directors.
SECTION 11. OFFICERS HOLDING TWO OR MORE OFFICES: Any two or more of the
above-mentioned offices may be held by the same person, except that the
President shall not also be the Secretary, but no officer shall execute or
verify any instrument in more than one capacity if such instrument be required
by law or otherwise to be executed or verified by any two or more officers.
14
<PAGE>
SECTION 12. DUTIES OF OFFICERS MAY BE DELEGATED: In case of the absence of any
officer of the corporation, or for any other reason that the board of directors
may deem sufficient, the board of directors may delegate, for the time and to
the extent specified, the powers or duties of any officer to any other officer,
or to any director.
SECTION 13. COMPENSATION: The compensation of all officers with an assigned
salary level above the scale of Salary Grade N as prescribed in the Salary
Administration Program, as adopted by the board of directors, shall be fixed by
the board of directors. The compensation of all other officers and employees
shall be fixed by the Chairman of the Board or by the President in accordance
with the Salary Administration Program.
SECTION 14. BONDS: The board of directors may require any officer, agent or
employee of the corporation to give a bond to the corporation, conditional upon
the faithful performance of his duties, with one or more sureties and in such
amount as may be satisfactory to the board of directors. The premium payable to
any surety company for such bond shall be paid by the corporation.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS; INSURANCE
SECTION 1. INDEMNIFICATION: The corporation shall fully indemnify, to the extent
not expressly prohibited by law, each person involved in, or made or threatened
to be made a party to, any action, claim or proceeding, whether civil or
criminal, including any investigative, administrative, legislative, or other
proceeding, and including an action by or in the right of the corporation or any
other corporation, or any partnership, joint venture, trust, employee benefit
plan, or other enterprise, and including appeals therein (any such action or
proceeding being hereinafter referred to as a "Matter"), by reason of the fact
that such person, such person's testator or intestate (i) is or was a director
or officer of the corporation, or (ii) is or was serving, at the request of the
corporation, as a director, officer, or in any other capacity, any other
corporation, or any partnership, joint venture, trust, employee benefit plan, or
other enterprise, against any and all judgments, fines, penalties, amounts paid
in settlement, and expenses, including attorneys' fees, actually and reasonably
incurred as a result of or in connection with any Matter, except as provided in
the next paragraph.
No indemnification shall be made to or on behalf of any such person if
a judgment or other final adjudication adverse to such person establishes that
such person's acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material
15
<PAGE>
to the cause of action so adjudicated, or that such person personally gained in
fact a financial profit or other advantage to which such person was not legally
entitled. In addition, no indemnification shall be made with respect to any
Matter initiated by any such person against the corporation, or a director or
officer of the corporation, other than to enforce the terms of this article,
unless such Matter was authorized by the board of directors. Further, no
indemnification shall be made with respect to any settlement or compromise of
any Matter unless and until the corporation has consented to such settlement or
compromise.
In making any determination regarding any person's entitlement to
indemnification hereunder, it shall be presumed that such person is entitled to
indemnification, and the corporation shall have the burden of proving the
contrary.
Written notice of any Matter for which indemnity may be sought by any
person shall be given to the corporation as soon as practicable and the
corporation shall be permitted to participate therein. Such person shall
cooperate in good faith with any request that common counsel be utilized by the
parties to any Matter who are similarly situated, unless to do so would be
inappropriate due to actual or potential differing interests between or among
such parties.
SECTION 2. ADVANCEMENT OF EXPENSES: Except in the case of a Matter against a
director, officer, or other person specifically approved by the board of
directors, the corporation shall, subject to Section 1 above, pay expenses
actually and reasonably incurred by or on behalf of such a person in connection
with any Matter in advance of the final disposition of such Matter. Such
payments shall be made promptly upon receipt by the corporation, from time to
time, of a written demand of such person for such advancement, together with an
undertaking by or on behalf of such person to repay any expenses so advanced to
the extent that the person receiving the advancement is ultimately found not to
be entitled to indemnification for part or all of such expenses.
SECTION 3. RIGHTS NOT EXCLUSIVE: The rights to indemnification and advancement
of expenses granted by or pursuant to this article (i) shall not limit or
exclude, but shall be in addition to, any other rights which may be granted by
or pursuant to any statute, corporate charter, by-law, resolution, or agreement,
(ii) shall be deemed to constitute contractual obligations of the corporation to
any director, officer, or other person who serves in a capacity referred to
herein at any time while this article is in effect, (iii) are intended to be
retroactive and shall be available with respect to events occurring prior to the
adoption of this article, and (iv) shall continue to exist after the repeal or
modification hereof with respect to events occurring prior thereto. It is the
intent of this article to require the corporation to indemnify the persons
referred to herein for the aforementioned judgments, fines, penalties, amounts
paid in settlement, and expenses, including attorneys' fees, in each and every
circumstance in which such indemnification could
16
<PAGE>
lawfully be permitted by express provisions of by-laws, and the indemnification
required by this article shall not be limited by the absence of an express
recital of such circumstances.
SECTION 4. AUTHORIZATION OF CONTRACTS: The corporation may, with the approval of
the board of directors, enter into an agreement with any person who is, or is
about to become, a director or officer of the corporation, or who is serving, or
is about to serve, at the request of the corporation, as a director, officer, or
in any other capacity, any other corporation, or any partnership, joint venture,
trust, employee benefit plan, or other enterprise, which agreement may provide
for indemnification of such person and advancement of expenses to such person
upon terms, and to the extent, not prohibited by law. The failure to enter into
any such agreement shall not affect or limit the rights of any such person under
this article.
SECTION 5. INSURANCE: The corporation may purchase and maintain insurance to
indemnify the corporation and the directors and officers within the limits
permitted by law.
SECTION 6. SEVERABILITY: If any provision of this article is determined at any
time to be unenforceable in any respect, the other provisions shall not in any
way be affected or impaired thereby.
ARTICLE VII
STOCK
SECTION 1. TRANSFER AGENT AND REGISTRAR: The board of directors may appoint one
or more individuals, banks, firms of bankers, or trust companies the agent or
agents of the corporation for the transfer of shares of its stock, and may also
appoint one or more individuals, bank, firms of bankers, or trust companies
registrar or registrars for the registering of shares of its stock.
SECTION 2. CERTIFICATE OF STOCK: The certificates of stock of the corporation
shall be numbered and shall be recorded in the books of the corporation as they
are issued. They shall contain the holder's name and number of shares and shall
be signed by the Chairman of the Board, the President or a Vice-President and
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and shall be sealed with the corporate seal, which may be a
facsimile. Where any such certificate is signed by a registrar, the signatures
of any such Chairman of the Board, President, Vice-President, Secretary,
Assistant Secretary, Treasurer or Assistant Treasurer upon such certificate may
be facsimiles. In case any such officer who has signed
17
<PAGE>
or whose facsimile signature has been placed upon such certificate shall have
ceased to be such before such certificate is issued, it may be issued by the
corporation with the same effect as if such officer had not ceased to be such at
the date of its issue. No certificate of stock shall be valid until
countersigned by a transfer agent if the corporation have a transfer agent for
the class or series of stock represented by such certificate whose signature may
be a facsimile and until registered by a registrar if the corporation have a
registrar for such class or series.
SECTION 3. TRANSFERS OF SHARES: Subject to applicable law, shares of stock shall
be transferable on the books of the corporation by the holder thereof, in person
or by duly authorized attorney, upon the surrender to the corporation or any
transfer agent of the corporation of the certificate representing the shares to
be transferred, duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer. The corporation shall be entitled to treat
the holder of record of any share or shares of stock as the owner thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person whether or not
it shall have express or other notice thereof, save as expressly provided by the
laws of the State of New York. The board of directors, to the extent permitted
by law, shall have power and authority to make all such rules and regulations as
it may deem expedient concerning the issue, transfer, and registration of
certificates of stock.
SECTION 4. FIXING OF RECORD DATE OR CLOSING TRANSFER BOOKS: The board of
directors may fix a day and hour, not more than sixty (60) days prior to the day
on which any meeting of stockholders is to be held, as the time as of which
stockholders entitled to notice of or to vote at such meeting and at all
adjournments thereof shall be determined; and in the event such record date is
fixed by the board of directors no one other than the holders of record on such
date of stock entitled to notice of or to vote at such meeting shall be entitled
to notice of or to vote at such meeting or, unless a new record date be fixed as
provided in Article II, Section 7 of these by-laws, any adjournment thereof. The
board of directors may at its option, in lieu of fixing a record date as
aforesaid, prescribe a period, not exceeding sixty (60) days prior to any
meeting of stockholders, during which no transfer of shares on the books of the
corporation may be made.
The board of directors may fix a day and hour, not exceeding sixty (60)
days preceding the date fixed for the payment of a dividend or the making of any
distribution, or for the delivery of evidences or rights or evidences of
interests arising out of any change, conversion or exchange of stock, as a
record time for the determination of the stockholders, or stockholders of any
class or series, entitled to receive any such dividend, distribution, rights, or
interests, and in such case only stockholders of record at the time so fixed
shall be entitled to receive such dividend, distribution, rights, or interests,
or the board of directors may at its option prescribe a period, not exceeding
sixty (60) days prior to the date for such payment, distribution or delivery,
during which no transfer of stock on the books of the corporation may be made.
18
<PAGE>
SECTION 5. LOST STOCK CERTIFICATES: The holder of any certificate representing
shares of stock of the corporation shall immediately notify the corporation of
any mutilation, loss, or destruction thereof, and the board of directors or an
officer or officers duly authorized thereunto by the board of directors may in
its or his discretion authorize one or more new certificates for the same number
of shares in the aggregate to be issued to such holder upon the surrender of the
mutilated certificate, or, in case of loss or destruction of the certificate,
upon satisfactory proof of such loss or destruction and the deposit of indemnity
by way of bond or otherwise in such form and amount and with such surety or
sureties or security as the board of directors or such officer or officers may
require to protect the corporation against loss or liability by reason of the
issuance of such new certificates; but the board of directors may in its
discretion refuse to issue new certificates save upon the order of the court
having jurisdiction in such matters.
SECTION 6. SCRIP: The board of directors may from time to time authorize the
issuance by the corporation of scrip certificates representing interests in
fractions of a full share of any class or series of stock of the corporation,
and, subject to the provisions of the corporate charter and applicable
provisions of law, shall have power to prescribe the rights, and the conditions
and limitations thereof, to which the holders of such scrip certificates shall
be entitled in respect of such scrip certificates and of the interests in shares
of stock of the corporation represented thereby, which rights and the conditions
and limitations thereon shall be set forth therein to the extent required by
law. Such scrip certificates may be issued in registered or bearer form, as the
board of directors may determine.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. FINANCES: The funds of the corporation shall be deposited in its name
with such bank or banks, firm or firms of bankers, trust company or trust
companies as the board of directors may from time to time designate. All checks,
notes, drafts and other negotiable instruments of the corporation shall be
signed by such officer or officers, agent or agents, employee or employees or
such other person or persons as may be designated by the board of directors from
time to time by resolution, or by the Chairman of the Board or the President or
the Treasurer in the exercise of authority conferred by resolution of the board
of directors. No officers, agents, employees of the corporation, or other
person, alone or with others, shall have power to make any checks, notes, drafts
or other negotiable instruments in the name of the corporation or to bind the
corporation thereby, except as in this article provided.
19
<PAGE>
SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall be the calendar
year unless otherwise provided by the board of directors.
ARTICLE IX
CORPORATE SEAL
SECTION 1. FORM OF SEAL: The seal of the corporation shall bear the name of the
corporation, the year of its incorporation, and such appropriate design as the
board of directors may approve. The seal on stock certificates or on any
corporate obligation for the payment of money may be facsimile.
ARTICLE X
AMENDMENTS
SECTION 1. PROCEDURE: These by-laws may be added to, amended, altered, or
repealed at any meeting of stockholders, notice of which shall have referred to
the proposed action, by the vote of the holders of record of a majority of the
outstanding shares of the corporation entitled to vote, or, to the extent
permitted by law, at any meeting of the board of directors, notice of which
shall have referred to the proposed action, by the affirmative vote of a
majority of the board of directors.
SECTION 2. AMENDMENT OF BY-LAW REGULATING ELECTION OF DIRECTORS: If any by-law
regulating an impending election of directors is adopted or amended or repealed
by the board of directors, there shall be set forth in the notice of the next
meeting of stockholders for the election of directors the by-law so adopted or
amended or repealed, together with a concise statement of the changes made.
20
<TABLE>
<S> <C>
SULLIVAN & CROMWELL
NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC) 125 Broad Street, New York 10004-2498
CABLE ADDRESS: LADYCOURT, NEW YORK __________
FACSIMILE: (212) 558-3588
1701 PENNSYLVANIA AVE., N.W., WASHINGTON, D.C. 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI I-CHOME, CHIYODA-KU, TOKYO 100
NINE QUEEN'S ROAD, CENTRAL, HONG KONG
OBERLINDAU 54-56, 60323 FRANKFURT AM MAIN
</TABLE>
June 26, 1998
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, NY 13202
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933
(the "Act") of 20,546,264 shares (the "Securities") of Common Stock, par value
$1.00 per share, of Niagara Mohawk Power Corporation, a New York corporation
(the "Company"), we, as your special counsel, have examined such corporate
records, certificates and other documents, and such questions of law as we have
considered necessary or appropriate for the purposes of this opinion. Upon the
basis of such examination, we advise you that, in our opinion, when the
Company's shareholders have duly approveda proposal to increase the number of
shares of Common Stock the Company is authorized to issue from 185,000,000 to
250,000,000, the Certificate of Amendment of the Company's Certificate of
Incorporation, substantially in the form
<PAGE>
Niagara Mohawk Power Corporation -2-
filed as an exhibit to the Registration Statement, has been duly filed with the
Secretary of State of the State of New York, and the Securities have been duly
issued pursuant to the terms of the Master Restructuring Agreement dated July 9,
1997, as amended, the Securities will be validly issued, fully paid and
nonassessable.
The foregoing opinion is limited to the Federal laws of the United
States and the laws of the State of New York, and we are expressing no opinion
as to the effect of the laws of any other jurisdiction.
In rendering the foregoing opinion, we have relied as to certain
matters on information obtained from public officials, officers of the Company
and other sources believed by us to be responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Validity of
the Shares" in the Prospectus. In giving such consent, we do not
<PAGE>
Niagara Mohawk Power Corporation -3-
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act.
Very truly yours,
