<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-25748
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GREAT BAY POWER CORPORATION
(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 02-0396811
- ------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
COCHECO FALLS MILLWORKS, 100 MAIN STREET, SUITE 201
DOVER , NEW HAMPSHIRE 03820
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 742-3388
20 LADD STREET, PORTSMOUTH, NEW HAMPSHIRE 03801-4080
(Former Address of principal executive offices) (Former Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes X No
--- ---
Class Outstanding at November 8, 1996
- --------------------------------------- -------------------------------
Common Stock, $0.01 Par Value per Share 8,373,448
<PAGE> 2
GREAT BAY POWER CORPORATION
INDEX
Part I. Financial Information:
Item 1 - Financial Statements
Statements of Income and Loss - Three and Nine
Months Ended September 30, 1996 and 1995 .................... 3
Balance Sheets at September 30, 1996
and December 31, 1995 ........................................ 4-5
Statements of Cash Flows - Nine
Months Ended September 30, 1996 and 1995 .................... 6
Notes to Financial Statements .................................... 7-11
Item 2 - Financial Discussion
Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 11-16
Part II. Other Information:
Item 1 - Legal Proceedings ....................................... 17
Item 6 - Exhibits and Reports on Form 8-K ........................ 17
Signature ........................................................ 18
Exhibit Index .................................................... 19
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
GREAT BAY POWER CORPORATION
STATEMENTS OF INCOME AND LOSS
(UNAUDITED)
(Dollars in Thousands, except shares and per share data)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenues $ 8,102 $ 6,350 $ 22,298 $ 20,759
Operating Expenses:
Production 4,081 4,484 11,524 12,786
Transmission 172 231 660 705
Administrative & General 1,864 1,673 5,088 4,612
Depreciation & Amortization 874 784 2,622 2,304
Taxes other than Income 997 1,005 3,075 3,027
---------- ---------- ---------- ----------
Total Operating Expenses 7,988 8,177 22,969 23,434
---------- ---------- ---------- ----------
Operating Income (Loss) 114 (1,827) (671) (2,675)
Other (Income) Deductions:
Interest Income (363) (375) (833) (1,184)
Decommissioning Cost Accretion 565 0 1,696 0
Decommissioning Trust Fund Income (56) 0 (218) 0
Miscellaneous (7,051) (26) (7,048) (18)
---------- ---------- ---------- ----------
Total Other (Income) Deductions (6,905) (401) (6,403) (1,202)
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes 7,019 (1,426) 5,732 (1,473)
Income Taxes 0 (94) 0 (97)
---------- ---------- ---------- ----------
Net Income (Loss) $ 7,019 $ (1,332) $ 5,732 $ (1,376)
========== ========== ========== ==========
Weighted Average Number of Shares Outstanding 7,965,146 7,999,998 7,987,971 7,999,998
========== ========== ========== ==========
Earnings (Loss) Per Share $ 0.88 $ (0.17) $ 0.72 $ (0.17)
========== ========== ========== ==========
</TABLE>
(The accompanying notes are an integral part of these statements.)
3
<PAGE> 4
<TABLE>
GREAT BAY POWER CORPORATION
BALANCE SHEET
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash & Cash equivalents $ 14,058 $ 8,874
Short-term Investments, at market 13,738 7,595
Accounts Receivable 2,693 1,535
Materials & Supplies, net 4,149 4,230
Prepayments & Other Assets 2,451 1,249
-------- --------
Total Current Assets 37,089 23,483
-------- --------
Property, Plant, & Equipment:
Utility Plant 105,043 104,696
Less: Accumulated Depreciation (6,265) (4,165)
-------- --------
Net Utility Plant 98,778 100,531
Nuclear Fuel 11,205 9,925
Less: Accumulated Amortization (3,326) (304)
-------- --------
Net Nuclear Fuel 7,879 9,621
Net Property, Plant & Equipment 106,657 110,152
-------- --------
Other Assets:
Decommissioning Trust Fund 6,061 5,108
Deferred Debits & Other 33 28
-------- --------
Total Other Assets 6,094 5,136
-------- --------
TOTAL ASSETS $149,840 $138,771
======== ========
</TABLE>
(The accompanying notes are an integral part of these statements)
4
<PAGE> 5
<TABLE>
GREAT BAY POWER CORPORATION
BALANCE SHEET
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 133 $ 237
Taxes Accrued 459 1,293
Miscellaneous Current Liabilities 1,883 1,437
-------- --------
Total Current Liabilities 2,475 2,967
Operating Reserves:
Decommissioning Liability 51,906 50,228
Miscellaneous Other 671 671
-------- --------
Total Operating Reserves 52,577 50,899
Other Liabilities & Deferred Credits 3,083 2,672
Stockholders' Equity:
Common stock, $.01par value
Authorized - 20,000,000 and 8,000,000 shares, respectively
Issued - 8,417,748 shares and 7,999,948 shares, respectively 84 80
Less: Treasury Stock - 44,300 Common Shares, at cost (335) 0
Common Stock Warrants 0 0
Preferred Stock, $.01 par value
Authorized - 5,000,000 shares
Issued and outstanding - none 0 0
Additional paid-in capital 92,100 88,030
Accumulated Deficit (144) (5,877)
-------- --------
Total Stockholders' Equity 91,705 82,233
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $149,840 $138,771
======== ========
</TABLE>
(The accompanying notes are an integral part of these statements.)
5
<PAGE> 6
<TABLE>
GREAT BAY POWER CORPORATION GREAT BAY POWER CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Net cash flow from operating activities:
Net Income (Loss) $ 5,732 $(1,376)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation & Amortization 2,619 2,304
Amortization of nuclear fuel 3,022 3,541
Deferred Taxes 0 (94)
Decommissioning Trust Accretion 1,696 0
Decommissioning Trust Interest (247) 0
Gain on Transfer of Assets (7,050) 0
(Increase) decrease in accounts receivable (1,158) 509
(Increase) decrease in materials & supplies (54) (51)
(Increase) decrease in prepaids and other assets (1,208) (272)
Increase (decrease) in accounts payable (103) (190)
Increase (decrease) in taxes accrued (833) (419)
Other 857 (566)
------- -------
Net cash provided by operating activities 3,273 3,386
------- -------
Net cash flows from investing activities:
Utility plant additions (730) (899)
Nuclear fuel additions (1,280) (1,762)
Payments to decommissioning fund (723) (643)
Proceeds from Sale of Fixed Assets 7,050 0
Decrease (Increase) in Short term investments (6,145) (5,739)
------- -------
Net cash used in investing activities (1,828) (9,043)
------- -------
Net cash from financing activities:
Repurchase of Common Stock (335) 0
Warrant Exercise 4,074 0
------- -------
Net cash provided by financing activities 3,739 0
------- -------
Net increase (decrease) in cash and cash equivalents 5,184 (5,657)
Cash and cash equivalents, beginning of period 8,874 18,533
------- -------
Cash and cash equivalents, end of period $14,058 $12,876
======= =======
</TABLE>
(The accompanying notes are an integral part of these statements.)
6
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GREAT BAY POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note A - THE COMPANY
Great Bay Power Corporation ("Great Bay" or the "Company") is a public
utility whose principal asset is a 12.1% joint ownership interest in the
Seabrook Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook
Project"). Great Bay was incorporated in 1986 and was formerly known as EUA
Power Corporation. Great Bay sells its share of the electricity output of the
Seabrook Project in the wholesale electricity market, primarily in the Northeast
United States. Great Bay does not have operational responsibility for the
Seabrook Project. The Company's share of the Seabrook Project capacity is
approximately 140 megawatts ("MW"). Great Bay currently sells all but 10 MW of
its share of the Seabrook Project capacity in the short-term market.
Until May 1, 1996, the Company had two employees, and substantially all of
the Company's power marketing and administrative functions were performed on the
Company's behalf by third parties pursuant to contractual agreements. As of May
1, 1996, the Company assumed responsibility for virtually all of its
administrative functions. As of September 23, 1996, the Company had six
employees.
On April 11, 1996, BayCorp Holdings, Ltd. ("BayCorp"), a wholly-owned
subsidiary of the Company, filed a Form S-4 Registration Statement with the
Securities and Exchange Commission relating to the reorganization of the Company
into a holding company structure (the "Merger") pursuant to which the Company
would become a wholly-owned subsidiary of BayCorp, a new Delaware company. If
the Merger is consummated, BayCorp will be able to engage in business
activities, through subsidiaries other than the Company, from which the Company
is prohibited from engaging because of its status as an Exempt Wholesale
Generator ("EWG") under the Public Utility Holding Company Act of 1935. The
restructuring is subject to regulatory approval by the Federal Energy Regulatory
Commission (the "FERC"), the Nuclear Regulatory Commission (the "NRC") and the
New Hampshire Public Utilities Commission (the "NHPUC"). The Company has
received regulatory approvals from the FERC and the NHPUC and is awaiting
approval from the NRC. At a meeting of shareholders held on July 2, 1996, the
shareholders of the Company voted to approve the Merger. The Company expects to
complete the restructuring by the end of December 1996. As a New Hampshire
public utility, many transactions by the Company are subject to approval by the
NHPUC. If the Merger is consummated, while the activities of the Company will
continue to be subject to such regulation, the activities of BayCorp will not
be.
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial statements included herein have been prepared on
behalf of the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments,
7
<PAGE> 8
GREAT BAY POWER CORPORATION
consisting of normal recurring adjustments, necessary for a fair presentation of
interim period results. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted or condensed pursuant to such rules and
regulations. The Company believes, however, its disclosures herein, when read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1995, are adequate to make the information presented not
misleading. The results for the interim periods are not necessarily indicative
of the results to be expected for the full fiscal year.
In March 1995, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of", effective for fiscal years beginning after December
15, 1995. SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets and requires that assets which are no longer probable of
recovery be charged to earnings. The Company adopted SFAS No. 121 on January 1,
1996, and the adoption did not have a material impact on the Company's financial
position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", effective for fiscal years beginning after December 15, 1995.
SFAS No. 123 requires that financial statements include certain disclosures
related to stock-based employee compensation arrangements regardless of the
method used to account for them. The Company does not plan to adopt the
accounting under this pronouncement but rather adopt the required audited pro
forma disclosure in the year end financial statements. Based on arrangements
covered by the pronouncement, the pro forma effects on earnings and earnings per
share are not expected to be material.
Note C - PECO SERVICES AGREEMENT AND WARRANT AGREEMENT
The Company and PECO Energy Company ("PECO") entered into a Services
Agreement dated as of November 3, 1995 (the "PECO Services Agreement"), pursuant
to which PECO was appointed as the Company's exclusive agent to market and sell
the Company's uncommitted portion of electricity generated by the Seabrook
Project. Proceeds from the sale of the Company's electricity, together with
reservation fees payable by PECO to the Company, are shared between the Company
and PECO in accordance with formulas set forth in the PECO Services Agreement.
The PECO Services Agreement became effective on December 31, 1995.
At the time that the Company entered into the PECO Services Agreement, the
Company and PECO entered into a Warrant Purchase Agreement (the "PECO Warrant
Purchase Agreement") pursuant to which, on February 15, 1996, PECO purchased a
warrant from the Company for $1,000,000. The PECO Warrant entitled PECO to
purchase 4.99% of the total shares outstanding of the Company's Common Stock at
an exercise price of the higher of (1) $9.75 per share, or (2) the highest
trading price per share of the Company's Common Stock prior to September 30,
1996.
8
<PAGE> 9
GREAT BAY POWER CORPORATION
On September 30, 1996, PECO exercised its warrant and purchased 417,800
shares, or 4.99%, of the Company's Common Stock at a price of $9.75 per share.
As a result of the exercise of the warrant by PECO, the marketing agreement
between PECO and Great Bay was automatically extended through December 31, 1998.
In addition, the parties agreed to extend the marketing arrangement for an
additional year through December 31, 1999. Under the terms of the warrant, the
$1,000,000 received for the purchase of the warrant was credited towards the
purchase price for the 417,800 newly issued shares. Thus, Great Bay received an
additional $3,100,000 as a result of PECO's exercise of the warrant.
Note D - COMMITMENTS AND CONTINGENCIES
Nuclear Power, Energy and Utility Regulation
- --------------------------------------------
The Seabrook Project and the Company, as part owner of a licensed nuclear
facility, are subject to the broad jurisdiction of the NRC, which is empowered
to authorize the siting, construction and operation of nuclear reactors after
consideration of public health and safety, environmental and anti-trust matters.
The Company has been, and will be, affected to the extent of its proportionate
share by the cost of any such requirements made applicable to Seabrook Unit 1.
The Company is also subject to the jurisdiction of the FERC under Parts II
and III of the Federal Power Act and, as a result, is required to file with FERC
all contracts for the sale of electricity. FERC has the authority to suspend the
rates at which the Company proposes to sell power, to allow such rates to go
into effect subject to refund and to modify a proposed or existing rate if FERC
determines that such rate is not "just and reasonable." FERC's jurisdiction also
includes, among other things, the sale, lease, merger, consolidation or other
disposition of facilities, interconnection of certain facilities, accounts,
service and property records.
Because it is an EWG, the Company is not subject to the jurisdiction of the
Securities and Exchange Commission under the Public Utility Holding Company Act
of 1935. In order to maintain its EWG status, the Company must continue to
engage exclusively in the business of owning and/or operating all or part of one
or more "eligible facilities" and to sell electricity only at wholesale (i.e.,
not to end users) and activities incidental thereto. An "eligible facility" is a
facility used for the generation of electric energy exclusively at wholesale or
used for the generation of electric energy and leased to one or more public
utility companies. The term "facility" may include a portion of a facility. In
the case of Great Bay, its 12.1% joint ownership interest in the Seabrook
Project comprises an "eligible facility." Upon completion of the restructuring
described in Note A above, the activities of the holding company will not be
subject to the limitations and restrictions required of EWGs.
Substantial controversy has existed for some time concerning nuclear
generating plants and over the years such opposition has led to construction
delays, cost overruns,
9
<PAGE> 10
GREAT BAY POWER CORPORATION
licensing delays, demonstrations and other difficulties. The Seabrook Project
was the subject of significant public controversy during its construction and
licensing and remains controversial. An increase in public concerns regarding
the Seabrook Project or nuclear power in general could adversely affect the
operating license of Seabrook Unit 1. While Great Bay cannot predict the
ultimate effect of such controversy, it is possible that it could result in a
premature shutdown of the unit.
In the event of a permanent shutdown of any unit, NRC regulations require
that it be completely decontaminated of any residual radioactivity. While the
owners of the Seabrook Project are accumulating a trust fund (the
"Decommissioning Trust Fund") to pay decommissioning costs, if these costs
exceed the amount of the trust fund, the owners (including Great Bay) will be
liable for the excess.
Decommissioning Liability
- -------------------------
Based on the Financial Accounting Standards Board's ("FASB") tentative
conclusions, the Company has recognized as a liability its proportionate share
of the estimated Seabrook Project decommissioning ("Seabrook Project's
Decommissioning Liability"). The initial recognition of this liability was
capitalized as part of the fair value of the utility plant at November 23, 1994.
The estimated cost to decommission the Seabrook Project, based on a study
performed in 1994 for the lead owner of the Seabrook Project, is approximately
$414 million in 1995 dollars and $2.1 billion in 2026 dollars, assuming a 36
year life for the facility and a future escalation rate of 4.25%. Based on this
estimate, the value of Great Bay's share of this liability in 1995 dollars was
approximately $50.2 million, which had been recorded as a liability on the
December 31, 1995 balance sheet.
During the first nine months of 1996, the Company began to accrete its
share of the Seabrook Project's decommissioning liability at the 4.25% rate used
in the 1994 study. This accretion is a non-cash charge which recognizes the
future escalation in the Company's liability related to the closure and
decommissioning of its nuclear plant in current year dollars over the licensing
period of the plant. As a result of this accretion, the Company's share of the
estimated decommissioning cost as of September 30, 1996 was $51.9 million, which
has been recorded as a liability on the September 30, 1996 balance sheet.
Liquidity and Capital Expenditures
- ----------------------------------
Great Bay anticipates that its share of the Seabrook Project's capital
expenditures for the 1996 fiscal year will total approximately $7.0 million,
primarily for nuclear fuel and various capital projects. This estimated amount
is based on the latest projections provided by the Managing Agent of the
Seabrook Project.
On July 22,1996, the Company received $7,036,792 from the proceeds of the
sale of unused steam generators from Seabrook Unit 2 to Public Service Electric
and Gas
10
<PAGE> 11
GREAT BAY POWER CORPORATION
Company and the co-owners of Salem Unit 1. The Company had previously written
off its investment in Seabrook Unit 2 and recognized a gain from the sale of the
steam generators in the quarter ended September 30, 1996.
As described in Note C above, on September 30, 1996 PECO exercised its
warrant to acquire 4.99% of the Company's Common Stock at a price of $9.75 per
share.
Note E - EQUITY
On January 18, 1996, the Company held a special meeting of stockholders. At
the special meeting, the stockholders approved an amendment to the Company's
Restated Articles of Incorporation to increase the number of authorized shares
of Common Stock from 8,000,000 to 20,000,000 shares. In addition, the
stockholders authorized 5,000,000 shares of undesignated Preferred Stock, the
terms and rights of which may be designated from time to time by the Board of
Directors of the Company.
On June 4, 1996, the Board of Directors of Great Bay adopted a resolution
authorizing the Company to repurchase up to an aggregate of 140,000 shares of
the Company's Common Stock on the open market or in privately negotiated
transactions. The authority to repurchase shares established by this resolution
continues to the earlier of June 30,1997, or a determination by the Board of
Directors to discontinue such repurchases. As of October 31, 1996, the Company
had repurchased 44,300 shares at a cost of $335,050 as part of the repurchase
program.
The Company has never paid cash dividends on the Common Stock. The Company
currently intends to retain all of its future earnings and does not anticipate
paying a dividend in the foreseeable future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
-------------
Overview
- --------
Great Bay is a public utility whose principal asset is a 12.1% joint
ownership interest in the Seabrook Project in Seabrook, New Hampshire. Great Bay
was incorporated in New Hampshire in 1986. The Company sells its share of the
electricity output of the Seabrook Project in the wholesale electricity market,
primarily in the Northeast United States. Great Bay does not have operational
responsibility for the Seabrook Project. Instead, the daily operational and
management responsibilities of the Seabrook Project are carried out by a
Managing Agent, which is currently North Atlantic Energy Service Corporation
("NAESCO"), a wholly owned subsidiary of Northeast Utilities. Great Bay's share
of the Seabrook Project capacity is approximately 140 MW. Great Bay currently
sells all but 10 MW of its share of the Seabrook Project capacity in the
short-term market.
11
<PAGE> 12
GREAT BAY POWER CORPORATION
The Company's operating results and the comparability of these results on
an interim and annual basis are directly impacted by the operations of the
Seabrook Project, including the cyclical refueling outages (generally 18-24
months apart) as well as any unscheduled outages. During outage periods at the
Seabrook Project, the Company has no electricity available for sale and
consequently no revenues.
The Seabrook Project from time to time experiences both scheduled and
unscheduled outages. Great Bay incurs losses during outage periods due to the
loss of all operating revenues and the additional costs associated with the
outages as well as continuing operating and maintenance expenses and
depreciation. Unscheduled outages or operation of the unit at reduced capacity
can occur due to the automatic operation of safety systems following the
detection of a malfunction. In addition, it is possible for the unit to be shut
down or operated at reduced capacity based on the results of scheduled and
unscheduled inspections and routine surveillance by Seabrook Project personnel.
It is not possible for Great Bay to predict the frequency or duration of any
future unscheduled outages; however, it is likely that such unscheduled outages
will occur. The Managing Agent of the Seabrook Project has scheduled the next
refueling outage for May 1997. Refueling outages are scheduled generally every
18-24 months depending upon the Seabrook Project capacity factor and the rate at
which the nuclear fuel is consumed.
THIRD QUARTER OF FISCAL 1996 COMPARED TO THE THIRD QUARTER OF FISCAL 1995
- -------------------------------------------------------------------------
Operating Revenues
- ------------------
Operating revenues increased by approximately $1,752,000, or 27.6%, to
$8,102,000 in the third quarter of 1996 as compared with $6,350,000 in the third
quarter of 1995. This increase in operating revenues was primarily due to better
operating performance at the Seabrook Project represented by a higher capacity
factor. During the third quarter of 1996, the capacity factor at the Seabrook
Project was 100% of the rated capacity versus a capacity factor of 90.4% for the
same period in 1995. There were no unscheduled outages in the third quarter of
1996 as compared to an unscheduled outage which occurred in early July during
the third quarter of 1995. Sales of electricity by the Company increased by
approximately 11.8% to 311,424,130 kWhs in 1996 as compared with 278,606,000
kWhs in 1995. The Company also realized a higher sales price per kWh (determined
by dividing total sales revenue by the total number of kWhs sold in the
applicable period) during the third quarter of 1996 as compared to the third
quarter of 1995. During the third quarter of 1996 the sales price per kWh
increased 14.5% to 2.60 cents per kWh as compared with 2.27 cents per kWh in the
1995 period. Great Bay's cost of power (determined by dividing total operating
expenses by Great Bay's 12.1% share of the power produced by the Seabrook
Project during the applicable period) decreased by 12.6% to 2.56 cents per kWh
during the third quarter of 1996 as compared to 2.93 cents per kWh during the
third quarter of 1995. This decrease was primarily due to lower operating
expenses during the third quarter of 1996 compared to the third quarter of 1995
and to the higher capacity factor at the Seabrook Project during the third
quarter
12
<PAGE> 13
of 1996 as compared to the third quarter of 1995. Scheduled and unscheduled
outage time increases Great Bay's cost of power because Seabrook Project costs
are spread over fewer kWhs.
Operating Expenses
- ------------------
Production and transmission expenses for the third quarter of 1996
decreased by $462,000, or 9.8%, as compared with the third quarter of 1995. This
decrease was primarily the result of reduced operating costs at the Seabrook
Project due to lower staffing levels and a reduction in the level of outside
services, lower nuclear fuel amortization because the Seabrook Project added
less expensive nuclear fuel at the last refueling outage and lower outage
accruals as the result of the use of a 19 month assumed scheduled operating
cycle in the third quarter of 1996 and an 18 month cycle in the third quarter of
1995. The change in the operating cycle reflects a change by the Managing Agents
of the Seabrook Project as to the assumed burn rate of the nuclear fuel.
Administrative and General expenses increased by $191,000 during the third
quarter of 1996, an increase of 11.4% over the comparable period in 1995. This
increase was primarily due to charges associated with the implementation of a
new accounting system at the Seabrook Project in August of 1996 which resulted
in additional administrative and general expense.
Depreciation and amortization expenses increased 11.5% to $874,000 in the
third quarter of 1996 as compared to $784,000 during the third quarter of 1995.
This increase was primarily attributable to the Company's utility plant
additions being depreciated over the remaining license life of the Seabrook
Project and amortization of the cost of the materials and supplies inventory
that is expected to be on hand at the expiration of the Seabrook Project's NRC
operating license.
Other (Income) Deductions
- -------------------------
Other (Income) Deductions increased $6,504,000, reflecting $6,905,000 in
other income during the third quarter of 1996 as compared to other income of
$401,000 recorded during the third quarter of 1995. This increase was primarily
due to the receipt by the Company of $7,036,792 from the proceeds of the sale by
the joint owners of the Seabrook Project of four unused steam generators from
Seabrook Unit 2 during the third quarter of 1996. This increase in other income
was offset in part by the Company's accretion of its share of the Seabrook
Project's decommissioning liability. During the first quarter of 1996, Great Bay
Power began to accrete its share of the Seabrook Project's decommissioning
liability to 1996 dollars from 1995 dollars. In 1995 there was no expense for
Great Bay's share of the Seabrook Project's decommissioning liability because
the entire amount of Great Bay's share of the Seabrook Project's decommissioning
liability was reflected as a liability on Great Bay's balance sheet under fresh
start accounting principles. This accretion expense is a non-cash charge and
recognizes Great Bay's liability related to the closure and decommissioning of
its nuclear
13
<PAGE> 14
GREAT BAY POWER CORPORATION
plant in current year dollars over the licensing period of the plant. The
accretion expense for the third quarter ended September 30, 1996 was $565,000.
Interest (Income) Expense and Decommissioning Trust Fund Income increased
11.7%, or $44,000, reflecting $419,000 in interest income for the third quarter
of 1996 as compared to $375,000 in interest income for the third quarter of
1995. This increase in interest income reflects a higher average cash balance
during the third quarter of 1996 as compared to the third quarter of 1995.
Net Income (Loss)
- -----------------
As a result of the above factors, during the third quarter ended September
30, 1996, the Company recorded net income of $7,019,000, or approximately $0.88
per share, as compared to a net loss of $1,332,000, or approximately $0.17 per
share, in the third quarter ended September 30, 1995.
FIRST NINE MONTHS OF FISCAL 1996 COMPARED TO THE FIRST NINE MONTHS OF FISCAL
- ----------------------------------------------------------------------------
1995
- ----
Operating Revenues
- ------------------
Operating Revenues increased by approximately $1,539,000, or 7.4%, to
$22,298,000 during the first nine months of 1996 as compared to $20,759,000
during the first nine months of 1995. During the first nine months of 1996, the
capacity factor at the Seabrook Project was 95.6% of the rated capacity versus a
capacity factor of 92.8% of the rated capacity for the same period in 1995.
Sales of electricity by the Company increased by approximately 4.2% to
883,652,600 kWhs in 1996 as compared with 847,929,550 kWhs in 1995. During the
first nine months of 1996 the average sales price per kWh increased
approximately 3.3% to 2.52 cents per kWh as compared to 2.44 cents per kWh
during the first nine months of 1995. Great Bay's cost of power decreased by
5.8% to 2.60 cents per kWh during the first nine months of 1996 as compared to
2.76 cents per kWh during the first nine months of 1995. This decrease was due
to lower operating expenses during the nine months ended September 30, 1996
compared to the nine months ended September 30, 1995 and to less outage time
during the first nine months of 1996 compared to the first nine months of 1995.
Scheduled and unscheduled outage time increases Great Bay's cost of power
because Seabrook Project costs are spread over fewer kWhs.
Operating Expenses
- ------------------
Production and transmission expenses for the first nine months of 1996
decreased by $1,307,000, or 9.7%, compared to the first nine months of 1995.
This decrease was the result of the same factors that caused the decrease in
production expenses in the third quarter of 1996 in comparison with the third
quarter of 1995.
14
<PAGE> 15
GREAT BAY POWER CORPORATION
Administrative and General expenses increased $476,000 during the first
nine months of 1996, an increase of 10.3% over the comparable period in 1995.
This increase was primarily due to the costs associated with the growth and
management of the Company, including transition and start-up costs associated
with the Company directly performing its own administrative functions following
the termination of its Marketing and Management and Administrative Services
Agreements with UNITIL Resources, Inc. and marketing fees paid to PECO. The
marketing fees paid to PECO are calculated based upon a revenue sharing formula.
Depreciation and amortization expenses increased $318,000, or 13.8%, to
$2,622,000 in the first nine months of 1996 as compared to $2,304,000 during the
first nine months of 1995. This increase was primarily attributable to the same
factors that caused the increase in depreciation and amortization in the third
quarter of 1996 in comparison to the third quarter of 1995.
Other (Income) Deductions
- -------------------------
Other (Income) Deductions increased 432%, or approximately $5,201,000,
reflecting $6,403,000 in other income during the first nine months of 1996 as
compared to other income of $1,202,000 during the first nine months of 1995.
This increase was primarily attributable to the same factors that caused the
increase in other income in the third quarter of 1996 in comparison to the third
quarter of 1995. These factors were the gain of $7,036,792 from the sale of the
steam generators, offset by the accretion of Great Bay's share of the
decommissioning liability for the Seabrook Project. The accretion expense for
this liability for the first nine months of 1996 was $1,696,000.
Interest (Income) Expense and Decommissioning Trust Fund Income decreased
11.2%, or $133,000, during the first nine months of 1996 as compared to the
first nine months of 1995. This reduction in interest income was the result of a
lower average cash balance during the first nine months of 1996 as compared to
the first nine months of 1995.
Net Income (Loss)
- -----------------
As a result of the above factors, during the nine month period ended
September 30, 1996, the Company recorded net income of $5,732,000, or
approximately $0.72 per share, as compared to a net loss of $1,376,000, or
approximately $0.17 per share, during the nine months ended September 30, 1995.
Tax Loss Carryforwards
- ----------------------
For federal income tax purposes, as of December 31, 1995, the Company had
net operating loss carry forwards ("NOLs") of approximately $167 million, which
are scheduled to expire between 2005 and 2010. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue
15
<PAGE> 16
Code of 1986, as amended, an annual limitation is imposed on the ability of the
Company to use $136 million of these carryforwards. The Company's best estimate
at this time is that the annual limitation on the use of $136 million of the
Company's NOLs is approximately $5.5 million per year. The Company's other $31
million of NOLs are not currently subject to such limitations.
Liquidity
- ---------
The Company's cash and short-term investments increased approximately
$11,327,000 during the first nine months of 1996. Principal factors increasing
liquidity during the nine months ended September 30, 1996 were the net income
discussed above, which included the gain of $7,036,792 from the sale of the Unit
2 steam generators, and PECO's exercise of its warrant, discussed in Note C
above, which resulted in the receipt by Great Bay of approximately $4,074,000 in
cash. Other factors significantly affecting the Company's cash position include
non-cash charges to income of $5,614,000 for depreciation and amortization and
decommissioning trust fund accretion of $1,696,000.
Offsetting these items were decommissioning trust fund payments of
$723,000, an increase in accounts receivable of $1,158,000 due to the resumption
of power sales in the first quarter of 1996 following a scheduled refueling
outage in December 1995, an increase in prepayments and other assets of
$1,208,000, primarily related to cash funding of the Company's share of the
Seabrook Project's operating costs, and the June 1996 payment of the State of
New Hampshire Nuclear Station Property tax. A decrease in Taxes Accrued of
$833,000 reflects the Company's payment of its half year 1995 and half year 1996
Town of Seabrook property taxes.
In December of 1995, the Town of Seabrook, New Hampshire ("Town of
Seabrook") issued a bill for property taxes for the second half of 1995 to
"North Atlantic Energy Corp., et al." The Town of Seabrook informed Great Bay
that it believed Great Bay's share of this bill was $1,293,000. Great Bay
initially refused to pay the 1995 bill because Great Bay believes that the Town
of Seabrook's assessment of Great Bay's interest in the Seabrook Project was
overstated and because the bill failed to recognize Great Bay as an independent
taxpayer with a separately assessed and valued parcel of real estate. On April
30, 1996, Great Bay paid the December 1995 property tax bill to avoid the Town
of Seabrook placing a lien on the Seabrook Project and on June 26, 1996, Great
Bay paid its half year 1996 property taxes.
During the second quarter of 1996, the Company initiated a Common Stock
repurchase program as discussed in Note E above. As of October 31, 1996 the
Company had repurchased 44,300 shares at a cost of $335,050.
16
<PAGE> 17
GREAT BAY POWER CORPORATION
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings
-----------------
In December of 1995, the Town of Seabrook, New Hampshire issued a bill for
property taxes for the second half of 1995 to "North Atlantic Energy Corp., et
al." The Town of Seabrook informed Great Bay that it believed Great Bay's share
of this bill was $1,293,000. Great Bay initially refused to pay the bill because
Great Bay believes that the Town of Seabrook's assessment of Great Bay's
interest in the Seabrook Project was overstated and because the bill failed to
recognize Great Bay as an independent taxpayer with a separately assessed and
valued parcel of real estate. On April 30, 1996, Great Bay paid the December
1995 property tax bill to avoid the Town of Seabrook placing a lien on the
Seabrook Project. Great Bay filed a petition with the Town of Seabrook seeking a
tax abatement of Great Bay's 1995 property taxes. The Town of Seabrook denied
Great Bay's abatement request and on June 19, 1996 Great Bay appealed the Town
of Seabrook's decision to the Board of Land and Tax Appeals in Concord, New
Hampshire. The case is still pending before the Board of Land and Tax Appeals.
Management is unable to express an opinion as to the outcome of this matter.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) See Exhibit Index
(b) There were no reports on Form 8-K submitted for the three months ended
September 30, 1996.
17
<PAGE> 18
GREAT BAY POWER CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREAT BAY POWER CORPORATION
/s/ John A. Tillinghast
----------------------------
John A. Tillinghast
President, Treasurer and Chief Executive
Officer (Principal Accounting Officer)
Dated: November 14, 1996
18
<PAGE> 19
GREAT BAY POWER CORPORATION
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 First Amendment to Services Agreement between PECO Energy
Company and Great Bay Power Corporation dated September 27,
1996 (1)
10.2 Second Amendment to Warrant Purchase Agreement dated
September 27, 1996.
27 Financial Data Schedule
- -------------------
(1) Confidential treatment requested, which portions are omitted and filed
separately with the Commission.
19
<PAGE> 1
Exhibit 10.1
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
FIRST AMENDMENT TO SERVICES AGREEMENT
between
PECO ENERGY COMPANY
and
GREAT BAY POWER CORPORATION
This First Amendment to Services Agreement (the "Amendment Agreement")
between PECO Energy Company, a Pennsylvania corporation ("PECO"), and Great Bay
Power Corporation, a New Hampshire corporation ("Great Bay") (collectively the
"Parties") is made and dated this 27th day of September, 1996.
WHEREAS, PECO and Great Bay are parties to a Services Agreement dated as of
November 3, 1995 (the "Agreement"); and
WHEREAS, PECO and Great Bay have determined that entering into the
Amendment Agreement is in their respective best interests;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto, intending to be legally bound, do hereby agree
as follows:
1. TERM OF THE AGREEMENT. Section 2 of the Agreement is hereby deleted in
its entirety and the following is substituted therefor:
"The initial term of this Agreement shall expire on December 31, 1999,
provided however, that if either Party does not give notice to the other
party on or prior to September 1, 1999 and each September 1 thereafter that
the Party does not elect to terminate this Agreement, then the term of this
Agreement shall be automatically extended to December 31 of the following
year. If either Party provides notice of termination, the Agreement will
terminate on December 31 of the relevant year. Notice of termination shall
be provided in accordance with the terms of Section 20 of this Agreement.
Services under the Agreement shall commence upon the Service Commencement
Date."
2. SEABROOK CAPACITY FACTOR. The last sentence of Section 12 of the
Agreement is deleted and the following is substituted therefor:
<PAGE> 2
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
"During any year in which there is a scheduled Seabrook refueling Outage,
the number of hours equal to the planned duration of such scheduled
Seabrook refueling Outage, as reported by Seabrook to its owners, which
notice Great Bay shall provide to PECO promptly upon Great Bay's receipt of
such notice, shall be exempted from calculation of Seabrook Capacity Factor
for the purposes of Sections 9(c) and 12 and all calculations made pursuant
to Attachment 1."
3. RESERVATION FEE. Section 6(a) of the Agreement is amended by deleting
the last sentence thereof and substituting therefor the following:
"PECO shall not pay a Reservation Fee for energy associated with the
Seabrook Capacity Factor equal to or greater than 85%."
4. SERVICE FEE. Section 6(b) of the Agreement is amended by deleting said
Section and substituting therefor the following:
"In consideration for providing the services specified above, PECO shall be
paid by Great Bay a Service Fee, which during each calendar year, or
portion thereof, in which the Agreement is in effect equals the product of
(i) ***, (ii) Net Sales Revenues, and (iii) the lesser of Seabrook Capacity
Factor and 85.0% PECO shall not be paid a Service Fee for the portion of
total Net Sales Revenues Associated with a Seabrook Capacity Factor equal
to or greater than 85.0%."
5. PECO EXCLUSIVITY. Paragraph 3(b) of the Agreement is amended by deleting
subparagraph (v) and substituting therefor the following:
"(v) enter into an agreement that would cause the Initial Power Amount to
deviate from the amount set forth in Attachment 2 hereto, unless otherwise
agreed to in writing by PECO and except pursuant to a Transaction."
6. EFFECTIVE DATE. The amendments to the Agreement provided for in
paragraphs 3 and 4 of this Amendment Agreement shall be applicable only to
calculations of Reservation Fees and Service Fees for periods on and after the
date hereof. Accordingly, an Annual True-Up shall be calculated for the period
January 1, 1996 through September 30, 1996 in accordance with the Agreement
prior to giving effect to this Amendment Agreement and an Annual True-Up shall
be calculated for the period October 1, 1996 through December 31, 1996, and for
each year thereafter, in accordance with the Agreement as amended hereby. This
Amendment Agreement shall be effective and the enforceable obligation of the
Parties upon exercise by PECO of Warrant No. 2, dated September 27, 1996 to
purchase 417,800 shares of Great Bay Common Stock, and payment by PECO of the
purchase price therefor.
-2-
<PAGE> 3
7. ATTACHMENT 1. Attachment 1 to the Services Agreement is deleted and
Attachment 1 which is attached hereto is substituted therefor in its entirety.
8. TRUE-UP UPON TERMINATION. The first sentence of Section 16(c) is amended
by deleting said sentence and substituting therefor the following:
"Not later than fifteen (15) days following termination of the Agreement
pursuant to paragraph 2 or subparagraphs (a) and (b) of this Section 15,
PECO and Great Bay shall conduct a Termination True-Up."
9. STATUS OF AGREEMENT. Except as modified hereby, the Agreement remains in
full force and effect.
10. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire
agreement of the Parties concerning the subject matter addressed by the First
Amendment.
IN WITNESS WHEREOF, the Parties hereto have caused this First Amendment to
be duly executed by their respective representatives thereunto duly authorized
as of the respective dates set forth below.
- --------------------------------------------------------------------------------
PECO ENERGY COMPANY GREAT BAY POWER CORPORATION
- --------------------------------------------------------------------------------
By: /s/ Nancy J. Zausner By: John A. Tillinghast
----------------------------------- ------------------------------
- --------------------------------------------------------------------------------
Date: 9/27/96 Date: September 26, 1996
--------------------------------- ----------------------------
- --------------------------------------------------------------------------------
-3-
<PAGE> 4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
ATTACHMENT 1
METHODOLOGY FOR COMPUTATION OF TRUE-UP AMOUNTS
HALF-YEAR TRUE-UP AMOUNT
- ------------------------
<TABLE>
The following methodology will be utilized to determine the Half-Year True-Up
Amount. During 1996, the period over which the Half-Year True-Up Amount will be
determined will be adjusted to reflect the Service Commencement Date.
<CAPTION>
Step Calculations to be Made Variable Name Formula
- ---- ----------------------- ------------- -------
<S> <C> <C> <C>
1 Determine the number of hours during Half-Year =[Sigma]January[arrow]June (Hours in each
the half-year period Hours month)
2 Determine the number of MWhs of Half-Year GB =[Sigma]January[arrow]June (Initial Power
Seabrook energy owned by Great Bay Power Amount* number of hours, or portions
during the half-year period thereof, during each day in which Seabrook
generated power)
3 Determine Seabrook Net Power during Half-Year SB =[Sigma]January[arrow]June (Amount of Net
the half-year period Power Power generated by Seabrook each day)
4 Determine Planned Refueling Outage Half-Year =[Sigma]January[arrow]June (Number of hours,
Hours Planned or portions thereof, during the relevant
Refueling period in which Seabrook was in a planned
Outage Hours refueling outage)
5 Determine Half-Year Seabrook Capacity Half-Year SCF =Half-Year SB Power
Factor ------------------------------
Seabrook Rated Capacity during
period* (Half-Year Hours -
Half-Year Planned Refueling
Outage Hours)
<FN>
If Half-Year SCF is less than 85.0%, the Half-Year True-Up Amount shall equal $0.
</TABLE>
A-1
<PAGE> 5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
<TABLE>
<CAPTION>
Step Calculations to be Made Variable Name Formula
- ---- ----------------------- ------------- -------
<S> <C> <C> <C>
6 Determine the amount of Half-Year Step 6 Result =Half-Year SCF = 85%
SCF which is greater than 85%
7 Determine Half-Year Revenue Share GB Half-Year =[(84.99%****) + (Step 6
for PECO and Great Bay, (expressed Revenue Share Result*100%)]/Half-Year SCF
as a %age)
PECO Half- =1-Great Bay Half-Year
Year Revenue Revenue Share
Share
</TABLE>
ANNUAL TRUE-UP AMOUNT
- ---------------------
<TABLE>
The following methodology will be utilized to determine the Annual True-Up
Amount. During 1996, the period over which the Annual True-Up Amount is
determined will be adjusted to reflect the actual Service Commencement Date.
<CAPTION>
Step Calculations to be Made Variable Name Formula
- ---- ----------------------- ------------- -------
<S> <C> <C> <C>
1 Determine the number of hours Annual Hours =8760, unless the year is a leap
during the year year, in which case, =8784
2 Determine the number of MWhs of Annual GB =[Sigma]January[arrow]Dec31 (Initial Power
Seabrook energy owned by Great Bay Power Amount* number of hours, or portions
during the half-year period thereof, during each day in which Seabrook
generated power)
3 Determine Seabrook Net Power Annual SB =[Sigma]January[arrow]Dec.31 (Amount of Net
during the year Power Power generated by Seabrook each day)
4 Determine Annual Planned Refueling Annual =[Sigma]January[arrow]June 30 (Number of
Outage Hours Planned hours, or portions thereof, during the
Refueling relevant period in which Seabrook was in
Outage Hours a planned refueling outage)
5 Determine Annual Seabrook Capacity Annual SCF =Annual SB Power
Factor ----------------------------
Seabrook Rated Capacity
during period* (Annual Hours
- Annual Planned Refueling
Outage Hours)
</TABLE>
A-2
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
If Annual SCF is less than 85.0%, the Annual True-Up Amount shall equal $0.
<TABLE>
Step Calculations to be Made Variable Name Formula
- ---- ----------------------- ------------- -------
<S> <C> <C> <C>
6 Determine the amount of Annual SCF Step 6 Result = Annual SCF-85%
which is greater than 85%
7 Determine Annual Revenue Share for GB Annual =[(84.99%****) + (Step 6
PECO and Great Bay, (expressed as a Revenue Share Result*100%)]/Annual SCF
%age)
PECO Annual = 1 GB Annual Revenue Share
Revenue Share
8 Determine Annual Net Sales Revenue Annual NSR =[Sigma]January[arrow]December (Net Sales
Revenue for each month)
9 Determine Delinquent Amounts Annual DA =Delinquent Amounts as of
outstanding as of December 31st of December 31st
relevant calendar year
10 Determine Reservation Fee Rebate. Annual RFR If Annual SCF is = or >85%,
No Reservation Fee Rebate is owed if Annual RFR=(Annual SCF-85%)*Annual
Annual Seabrook Capacity Factor is GB Power* ****
less than 85%
11 Determine Annual True-Up Basis Annual =Annual NSR-Annual DA-Annual RFR
Distribution
Basis
12 Determine Service Fee Owed to PECO =Annual Basis *PECO Annual Revenue Share
13 Determine Revenue Share Owed to Annual GB =Annual Basis*GB Annual Revenue Share
Great Bay Revenue Owed
14 Determine what share of Half-Year Half-Year DA =(Half-Year DA*GB Annual revenue
Delinquent Amount GB should have True-Up Share) -GB Half-Year Delinquent Share
been paid at the Annual GB Revenue
Share rate
15 Determine revenue received by GB GB Revenue =[Sigma]January[arrow]December (Monthly Payment
during the relevant calendar year Received to GB for each month)
</TABLE>
A-3
<PAGE> 7
<TABLE>
<CAPTION>
Step Calculations to be Made Variable Name Formula
- ---- ----------------------- ------------- -------
<S> <C> <C> <C>
16 Determine Annual True-Up Amount Annual True- =Annual GB Revenue Owed-GB Revenue
Up Amount Received-Half Year True-Up Amount
+ Half-Year DA True Up
17 Determine Sharing of unpaid PECO =Annual DA*PECO Annual
Delinquent Amounts Delinquent Revenue Share
Share
</TABLE>
TERMINATION TRUE-UP AMOUNT
- --------------------------
The Termination True-Up Amount shall be calculated utilizing the same
methodology as the Half-Year True-Up Amount. The start date for the period for
which the Termination True-Up Amount is calculated shall be (i) January 1, if
the most recent true-up performed before the date of termination was an Annual
True-Up, and (ii) July 1, if the most recent true-up performed before the date
of termination was a Half-Year True-Up. The date end for the period for which
the Termination True-Up Amount is calculated shall be the date of termination.
A-4
<PAGE> 1
EXHIBIT 10.2
SECOND AMENDMENT TO WARRANT PURCHASE AGREEMENT
This Second Amendment to Warrant Purchase Agreement is entered into as of
September 27, 1996, by and between Great Bay Power Corporation, a New Hampshire
corporation (the "Company"), and PECO Energy Company, a Pennsylvania corporation
(the "Purchaser").
WHEREAS, the Company and the Purchaser are parties to a Warrant Purchase
Agreement dated as of November 3, 1995, as amended by a First Amendment to
Warrant Purchase Agreement dated as of November 18, 1995 (the "Warrant Purchase
Agreement") in which the Company agreed to sell to Purchaser a warrant to
purchase 420,000 shares of the Company's Common Stock ("Warrant No. 1"); and
WHEREAS, the Purchaser purchased the Warrant No. 1 on February 14, 1996;
and
WHEREAS, since the date that the Purchaser purchased Warrant No. 1, the
Company has purchased certain of its own shares so that if the Purchaser
exercised Warrant No. 1., the Purchaser would own more than 5% of the issued and
outstanding shares of the Company; and
WHEREAS, the Company and the Purchaser desire that the Purchaser not own
more than 5% of the issued and outstanding shares of the Company;
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:
1. In full and complete substitution of Warrant No. 1, Warrant No. 2 in the
form attached hereto as Exhibit A ("Warrant No. 2") shall be issued by the
Company to the Purchaser. For all purposes, Warrant No. 2 shall constitute the
Warrant Purchase Shares as used in the Warrant Purchase Agreement and the term
Warrant Purchase Shares as used in the Warrant Purchase Agreement shall mean and
refer to the 417,800 shares of the Company's Common Stock, $.01 par value per
share, which are the subject of Warrant No. 2. The Purchaser shall return the
original of Warrant No. 1 to the Company for destruction by the Company.
2. Except as modified hereby, the Warrant Purchase Agreement remains in
full force and effect.
PECO ENERGY COMPANY GREAT BAY POWER CORPORATION
By: Nancy J. Zausner By: J Tillinghast
Date: 9/27/96 Date: 9/27/96
1
<PAGE> 2
EXHIBIT A
---------
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT ARE SUBJECT TO THE RESTRICTIONS
(INCLUDING RESTRICTIONS IMPOSED UNDER APPLICABLE SECURITIES LAWS)
ON TRANSFER SET FORTH IN SECTIONS 4 AND 11 OF THIS WARRANT. THIS
WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER APPLICABLE STATE SECURITIES STATUTES.
Warrant No. 2 Number of Shares: 417,800
(subject to adjustment)
Date of Issuance: September 27, 1996
GREAT BAY POWER CORPORATION
Common Stock Purchase Warrant
-----------------------------
(Void after September 30, 1996)
Great Bay Power Corporation, a New Hampshire corporation (the "Company"),
for value received, hereby certifies that PECO Energy Company, a Pennsylvania
corporation (the "Registered Holder"), is entitled, subject to the terms set
forth below and the terms of the Warrant Purchase Agreement, upon exercise of
this Warrant to purchase from the Company, at any time on or after the Approval
Date, as hereafter defined, and on or before the Warrant Expiration Date, as
hereafter defined, at not later than 5:00 p.m. (Boston, Massachusetts time),
417,800 shares of the Company's Common Stock .01 par value (the "Common Stock")
at a purchase price per share equal to the greater of (x) $9.75 (as adjusted
pursuant to Section 2, the "Fixed Component") and (y) the highest price at which
a share of the Company's Common Stock has traded on the National Association of
Securities Dealers National Market from the Approval Date to the date on which
the Warrant is exercised (as adjusted pursuant to Section 2, the "Variable
Component").
The shares purchasable upon exercise of this Warrant, and the purchase
price per share, each as adjusted from time to time pursuant to the provisions
of this Warrant, are hereinafter referred to as the "Warrant Shares" and the
"Purchase Price," respectively. This Warrant shall be of no further force and
effect, unless the Approval Date occurs on or before May 31, 1996. Approval Date
shall mean the date when an amendment to the Company's Certificate of
Incorporation is filed with the New Hampshire Secretary of State increasing the
number of the Company's authorized shares of Common Stock to a number of
sufficient to permit the Company to reserve the Warrant Shares for issuance
pursuant to this Warrant in the event of exercise by the Registered Holder.
For purposes of this Warrant, Warrant Expiration Date shall mean the
earliest to occur of the following: (1) September 30, 1996, if the Seabrook
Capacity Factor for the period from the Service Commencement Date through
September 15, 1995 is equal to or greater than 60%; (2)
2
<PAGE> 3
December 31, 1996, if the Seabrook Capacity Factor for the period from the
Service Commencement Date through December 15, 1996 is equal to or greater than
60%; (3) two (2) business days following the first date after December 31, 1996
that the Seabrook Capacity Factor for the immediately preceding twelve months is
equal to or greater than 60%; or (4) December 31, 1997. Service Commencement
Date and Seabrook Capacity Factor shall have the respective meanings ascribed to
such terms in the Services Agreement dated November 3, 1995, between the Company
and the Registered Holder hereof.
1. Exercise.
--------
(a) This Warrant may be exercised by the Registered Holder, in whole
but not in part, by surrendering this Warrant, with the purchase form appended
hereto as EXHIBIT I duly executed by the registered Holder or by the Registered
Holder's duly authorized attorney, at the principal office of the Company, or at
such other office or agency as the Company may designate, accompanied by payment
in full, in lawful money of the United States, of the Purchase Price payable in
respect of the Warrant Shares, less $1,000,000.
(b) The exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in Section 1(a) above. At
such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in Section 1(c)
below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant, the
Company, at its expense, will cause to be issued in the name of, and delivered
to, the Registered Holder, or as the Registered Holder (upon payment by the
Registered Holder of any applicable transfer taxes) may direct a certificate or
certificates for the number of full Warrant Shares to which the Registered
Holder shall be entitled upon such exercise plus, in lieu of any fractional
share to which the Registered Holder would otherwise be entitled, cash in an
amount determined pursuant to Section 3 hereof.
2. Adjustments.
-----------
(a) If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Fixed Component of the Purchase Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall, simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend, be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Fixed Component of the Purchase Price in effect immediately prior to
such combination shall, simultaneously with the effectiveness such combination,
be proportionately increased. When any adjustment is required to be made in the
Fixed Component of the Purchase Price, the number of Warrant Shares purchasable
upon the exercise of this Warrant shall be changed to the number determined by
dividing (i) an amount equal to the number of shares issuable upon the exercise
of this Warrant immediately prior to such adjustment, multiplied by the Fixed
Component of the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Fixed Component of the Purchase Price in effect immediately after
such adjustment. At the time of exercise of the Warrant, the Variable Component
of the Purchase Price shall equal
3
<PAGE> 4
the highest of the Period High Prices, as adjusted pursuant to the last sentence
of this paragraph. Period High Prices means the highest price at which a share
of the Company's Common Stock has traded on the National Association of
Securities Dealers National Market for each of the following periods: (A) from
the Approval Date to the first adjustment of the Fixed Component; (B) each
period from an adjustment to the Fixed Component to the next such adjustment
following the first adjustment of the Fixed Component; and (C) the period from
the last adjustment to the Fixed Component immediately prior to the exercise of
the Warrant. Each Period High Price shall be adjusted in the same proportion as
the adjustment to the Fixed Component each time that the Fixed Component was
adjusted subsequent to the time that such Period High Price was in effect.
(b) If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in Section 2(a) above), or any
consolidation or merger of the Company with or into another corporation, or a
transfer of all or substantially all of the assets of the Company, then, as part
of any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, lawful provision shall be made so that the Registered Holder of
this Warrant shall have the right thereafter to receive upon the exercise hereof
the kind and amount of shares of stock or other securities or property which the
Registered Holder would have been entitled to receive if, immediately prior to
any such reorganization, reclassification, consolidation, merger or sale, as the
case may be, the Registered Holder had held the number of shares of Common Stock
which were then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined in good faith by the Board of
Directors of the Company) shall be made in the application of the provisions set
forth herein with respect to the rights and interests thereafter of the
Registered Holder of this Warrant, such that the provisions set forth in this
Section 2 (including provisions with respect to adjustment of the Purchase
Price) shall thereafter be applicable, as nearly as is reasonably practicable,
in relation to any shares of stock or other securities or property thereafter
deliverable upon the exercise of this Warrant.
(c) When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Registered Holder a certificate setting
forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in Section 2(a) or (b) above.
3. FRACTIONAL SHARES. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the mean between the low bid and high asked
prices of the Warrant Shares on the over-the-counter market as reported by the
National Association of Securities Dealers Automated Quotations System or the
closing market price of the Warrant Shares on a national securities exchange or
the last reported sales price on the NASDAQ National Market on the trading day
immediately prior to the date of exercise, whichever is applicable, or if none
is applicable, then on the basis of the then market value of the Warrant Shares
as shall be reasonably determined in good faith by the Board of Directors of the
Company.
4. Requirements for Transfer.
-------------------------
4
<PAGE> 5
(a) This Warrant may only be transferred to the extent permitted by
Section 9(b). The Warrant Shares shall not be sold or transferred unless either
(i) they first shall have been registered under the Securities Act, or (ii) the
Company first shall have been furnished with an opinion, in form and substance
satisfactory to the Company, of legal counsel satisfactory to the Company to the
effect that such sale or transfer is exempt from the registration requirements
of the Securities Act.
(b) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may
not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such securities are registered
under such Act or an opinion, in form and substance satisfactory
to the Company, of counsel satisfactory to the Company is
obtained to the effect that such sale or transfer is exempt from
the registration requirements of the Securities Act."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the Registered representing any Warrant
Shares, at the request of the Registered Holder, at such time as they become
eligible for resale pursuant to Rule 144(k) under the Securities Act or upon
registration.
5. NO IMPAIRMENT. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
6. Notices of Record Date, etc. In case:
---------------------------
(a) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right; or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is
5
<PAGE> 6
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, or (ii) the
effective date on which such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place, and
the time, if any which is to be fixed, as of which the holders of record of
Common Stock (or such other stock or securities at the time deliverable upon the
exercise of this Warrant) shall be entitled to exchange their shares of Common
Stock (or such other stock or securities) for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at
least ten (10) days, or if such advance notice is not practicable, then such
shorter period as may be practicable, prior to the record date or effective date
for an event specified in Section 6(a), (b) or (c).
7. RESERVATION OF STOCK. On and after the Approval Date the Company will at
all times reserve and keep available, solely for issuance and delivery upon the
exercise of this Warrant, such number of Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant.
8. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
9. Transfers, etc.
--------------
(a) The Company will maintain a register containing the name and
address of the Registered Holder of this Warrant. The Registered Holder may
change its address as shown on the Warrant register by written notice to the
Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant and
all rights hereunder are transferable, in whole but not in part, solely to an
Affiliate, as such term is defined in Rule 12b-2 under the Security Exchange Act
of 1934, as amended, of the Registered Holder upon surrender of this Warrant
with a properly executed assignment (in the form of EXHIBIT II hereto) at the
principal office of the Company.
(c) Until any transfer of this Warrant is made in the Warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
10. GIVING OF NOTICES, ETC. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be in writing and shall
be delivered and effective in accordance with the terms of the Warrant Purchase
Agreement between the Company and Purchaser of even date.
6
<PAGE> 7
11. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
12. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
13. HEADINGS. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
14. GOVERNING LAW. This Warrant will be governed by an construed in
accordance with the internal laws (and not the laws of conflicts) of the State
of New Hampshire.
15. NO THIRD PARTY BENEFICIARIES. This Warrant shall not confer any rights
or remedies upon any person other than the signatories hereto and their
respective successors and permitted assigns.
16. ENTIRE AGREEMENT. Except for the Warrant Purchase Agreement, this
Warrant constitutes the entire agreement among the signatories hereto and
supersedes any prior understandings, agreements or representations by or among
the signatories hereto, written or oral, that may have related in any way to the
subject matter hereof.
17. COUNTERPARTS. This Warrant may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
18. NOUNS AND PRONOUNS. Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of names and pronouns shall include the plural and vice-versa.
19. SEVERABILITY. Any provision of this Warrant that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
[Corporate Seal] GREAT BAY POWER CORPORATION
ATTEST: By:
---------------------------------
Title: President
- -------------------------------- Address: Cocheco Falls Millworks
100 Main Street, Suite 201
Dover, NH 03820-3835
AGREED AND ACCEPTED:
PECO ENERGY COMPANY
7
<PAGE> 8
By:
---------------------------------
Title: Vice President
Address: PECO Energy Company - Power Team
2004 Renaissance Blvd.
King of Prussia, PA 19406
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GREAT BAY POWER CORPORATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 14,058
<SECURITIES> 13,738
<RECEIVABLES> 2,693
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,089
<PP&E> 112,922
<DEPRECIATION> 6,265
<TOTAL-ASSETS> 149,840
<CURRENT-LIABILITIES> 2,475
<BONDS> 0
<COMMON> 84
0
0
<OTHER-SE> 91,621
<TOTAL-LIABILITY-AND-EQUITY> 149,840
<SALES> 22,298
<TOTAL-REVENUES> 22,298
<CGS> 17,881
<TOTAL-COSTS> 22,969
<OTHER-EXPENSES> (6,403)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,732
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,732
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
