<PAGE> 1
As Filed Pursuant to Rule 424(b)(2)
Registration No. 333-53367
PROSPECTUS SUPPLEMENT
(To Prospectus dated July 20, 1998)
$435,000,000
PUBLIC SERVICE COMPANY OF NEW MEXICO
$300,000,000 7.10% SERIES A SENIOR UNSECURED NOTES DUE 2005
$135,000,000 7.50% SERIES B SENIOR UNSECURED NOTES DUE 2018
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Public Service Company of New Mexico (the "Company") will offer
$300,000,000 aggregate principal amount of its 7.10% Series A Senior Unsecured
Notes Due 2005 (the "Series A SUNs") and $135,000,000 aggregate principal amount
of its 7.50% Series B Senior Unsecured Notes Due 2018 (the "Series B SUNs" and
together with the Series A SUNs, the "Offered SUNs"). The Offered SUNs will bear
interest from August 6, 1998 payable semiannually on each February 1 and August
1, commencing February 1, 1999. The Series A SUNs will mature on August 1, 2005
and the Series B SUNs will mature on August 1, 2018. Each series of Offered SUNs
will be redeemable at the option of the Company in whole at any time or in part
from time to time, at a redemption price equal to the greater of (i) 100% of
their principal amount or (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted to the date of
redemption on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Yield (as defined herein) plus 50 basis points,
plus in each case accrued interest to the date of redemption. See "Description
of Offered SUNs" herein and "Description of SUNs" in the accompanying
Prospectus.
Each series of Offered SUNs will be represented by one or more Registered
Global SUNs registered in the name of The Depository Trust Company (the
"Depositary") or its nominee. Beneficial interests in the Registered Global SUNs
will be shown on, and transfers thereof will be effected through, records
maintained by the Depositary or its participants. Except as described herein,
SUNs in definitive form will not be issued. See "Description of Offered SUNs"
herein and "Description of SUNs -- Registered Global SUNs" in the accompanying
Prospectus.
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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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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- ----------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(2) COMPANY(3)
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<S> <C> <C> <C>
Per Series A SUN 99.893% 1.000% 98.893%
Total $299,679,000 $3,000,000 $296,679,000
- ----------------------------------------------------------------------------------------------------------------------
Per Series B SUN 99.674% 1.375% 98.299%
Total $134,559,900 $1,856,250 $132,703,650
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</TABLE>
(1) Plus accrued interest, if any, from August 6, 1998 to date of delivery.
(2) For information regarding indemnification of the Underwriters, see
"Underwriting".
(3) Before deducting expenses payable by the Company estimated at $647,000.
------------------
The Offered SUNs are offered severally by the Underwriters, as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
Offered SUNs will be made only in book-entry form through the facilities of the
Depositary on or about August 6, 1998 against payment therefor in immediately
available funds.
------------------
SALOMON SMITH BARNEY
CHASE SECURITIES INC. MORGAN STANLEY DEAN WITTER
CITICORP SECURITIES, INC. J.P. MORGAN & CO.
BANCAMERICA ROBERTSON STEPHENS CIBC OPPENHEIMER
The date of this Prospectus Supplement is August 3, 1998.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED SUNS. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF OFFERED SUNS TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF A PENALTY BID. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING".
THE COMPANY
The Company was incorporated in the State of New Mexico in 1917 and has its
principal offices at Alvarado Square, Albuquerque, New Mexico 87158 (telephone
number 505-241-2700). The Company is a public utility primarily engaged in the
generation, transmission, distribution and sale of electricity and in the
transmission, distribution and sale of natural gas within the State of New
Mexico. In addition, in pursuing new business opportunities, the Company is
focusing on energy and utility related activities under its Energy Services
Business Unit. The Company is also operating the City of Santa Fe's water
system.
The total population of the area served by one or more of the Company's
utility services is estimated to be approximately 1.3 million, of which 52.1%
live in the greater Albuquerque area.
For the six months ended June 30, 1998, the Company derived 55.8% of its
operating revenues from electric operations, 24.5% from natural gas operations
and 19.7% from energy services operations.
As of June 30, 1998, the Company employed 2,796 persons.
RECENT DEVELOPMENTS
ELECTRIC RATE CASE
In November 1997, the Company filed its electric rate case pursuant to a
New Mexico Public Utility Commission ("NMPUC") order. In the filing, the Company
stated that, although the Company could justify a $5 million rate increase, it
would not seek to increase rates, stating that rate stability is important in
preparing for industry restructuring.
In April 1998, the NMPUC Staff and intervenors in the rate case filed their
testimony. The NMPUC Staff recommended a decrease of $33.2 million in current
rates while the New Mexico Attorney General ("AG") and the City of Albuquerque
("COA") recommended decreases of $31.2 million and $45.4 million, respectively,
based on traditional cost of service rate-making.
In addition, the AG recommended that a "market" approach to valuation of
the Company's generating assets should be used in determining the Company's
rates. The AG also recommended that if stranded costs exist in the future as a
result of use of this method, the Company should only be allowed to recover 50%
of such amounts. The Company's review indicates that if the AG's initial
revaluation proposal is adopted, there could be an additional $105 million
reduction in rates and more than a $960 million write-down of the Company's
generation assets. The New Mexico Industrial Energy Consumers ("NMIEC") also
recommended that the Company's generation assets should be revalued for
rate-making purposes to reflect a "market" approach to valuation of the
facilities. The Company's review indicates that if NMIEC's revaluation proposal
is adopted, there could be an additional $60 million reduction in rates and more
than a $550 million write-down of the Company's generation assets. The Company
reviewed the testimony of the NMPUC Staff and intervenors and filed its rebuttal
testimony in May 1998.
In rebuttal testimony, the Company stated that (1) the level of cost of
service rate reductions proposed by the NMPUC staff, AG and COA were not
justified, although the Company accepted certain adjustments to its originally
filed cost of service, reducing the revenue requirements of the Company, and (2)
the recommendations made by the AG and NMIEC regarding the revaluation of the
Company's generation assets were highly speculative, subject to numerous highly
subjective assumptions, overly complex, contrary to law, unfair and
unreasonable, effected an unconstitutional taking of property and otherwise
improper. The Company's rebuttal testimony states that the plant revaluation
proposals submitted by the AG and NMIEC rely on the long discredited
reproduction cost method of rate base valuation associated with the fair value
concept of rate-making, which has been found to be inferior to the original cost
less depreciation method of rate base valuation long preferred by courts and
regulators.
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<PAGE> 3
Hearings in the case began on May 18, 1998 and were completed on June 22,
1998. Subsequent to the conclusion of the hearings, the NMPUC required the
submission of contemporaneous briefs in chief and proposed orders by all parties
no later than July 30, 1998 with reply briefs due no later than August 10, 1998.
Briefs in chief were filed by all parties and NMPUC Staff on July 30, 1998. The
briefs generally contained arguments supporting positions the parties had taken
at the hearings and, in some instances, adopting additional reductions that had
been proposed by other parties. The revised rate reductions based on traditional
ratemaking principles recommended by the NMPUC Staff, AG and COA were
approximately $36 million, $31 million and $53 million, respectively. The only
major departure from recommendations made at the hearing was by the AG regarding
rate base revaluation. Although adhering to the concept and urging NMPUC
adoption of the concept, the AG also recommended that the NMPUC consider the
financial implications to the Company of the write-offs and associated rate
reduction. The AG's revised recommendation was an additional rate reduction of
$25 million which he calculated to result from a write-off of $142 million after
tax. The Company expects a decision to be rendered in the September/October time
frame.
The Company is unable to predict the ultimate outcome of this case. Based
on traditional rate-making principles, it is possible that the NMPUC could order
a rate reduction in excess of the highest cost of service reduction recommended
by any party, since the parties recommended disallowance of different cost of
service items. To do so, however, the NMPUC would have to adopt out of period
adjustments reflecting cost decreases without considering any offsetting cost
increases and reduce the Company's requested return on common equity (ROE) of
12.6% to 9.1%, as recommended by the NMPUC Staff. In the past the NMPUC has been
critical of efforts to take advantage of selected out of period adjustments. The
Company continues to view the rate base revaluation proposals of the AG and
NMIEC as extreme, unprecedented, confiscatory, and unsupported in either law or
fact. If the NMPUC adopts one of these approaches or a variant, the Company
intends to seek immediate judicial relief to prevent unreasonable and serious
harm to the Company's financial integrity.
The Company understands that El Paso Electric Company ("EPE"), also under
NMPUC jurisdiction, has reached a settlement in its electric rate case with many
of the same parties that are parties to the Company's rate case. As part of the
settlement, EPE has agreed to revalue its investment in its existing generating
assets dedicated to New Mexico public service for New Mexico jurisdictional
ratemaking purposes only. The revaluation results in a write down on EPE's New
Mexico regulated books of account of its nuclear assets and a write up of
non-nuclear generating assets. The EPE settlement expressly states that it is
the result of a unique fact situation, and that its resolution is special to the
circumstances presented. The EPE settlement remains subject to NMPUC approval.
Although many of the same parties are involved, the Company believes that the
EPE rate settlement should not affect the Company's rate case.
JOINT PROPOSAL FOR ACQUISITION OF PLAINS' ASSETS
In May 1998, Plains Electric Generation and Transmission Cooperative, Inc.
("Plains") issued a request for proposals for the acquisition of all or a
portion of the assets of Plains, which include a 250 MW coal-fired power plant.
On July 15, 1998, the Company and Tri-State Generation and Transmission
Association, Inc. ("Tri-State") made a non-binding joint proposal for the
acquisition of all of the assets of Plains. Tri-State is a wholesale electric
power generation and transmission cooperative association headquartered near
Denver, Colorado. The consideration for the acquisition would be a combination
of cash and the assumption of debt. The Company is unable to predict the outcome
of this transaction. However, the Company does not anticipate that it will have
any material impact on its financial condition or results of operations.
THE 1997 GAS RATE CASE
In October 1997, the Company filed its gas rate case with the NMPUC
pursuant to an NMPUC order issued in February 1997. In its filing, the Company
requested a rate increase of $12.6 million. The NMPUC staff recommended a rate
increase of $2.5 million. The AG, however, recommended a rate decrease of $4.9
million. Other parties to the rate case recommended certain adjustments to the
Company's proposed rate increase.
An uncontested stipulation settling the case was filed with the NMPUC in
April 1998 for its approval. If approved, there would be no significant change
in the Company's overall revenue levels. The stipulation is still
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<PAGE> 4
pending before the NMPUC. Should the stipulation be rejected by the NMPUC, a
hearing of the full litigated case would be required. The Company is currently
unable to predict the ultimate outcome of this case.
ELECTRIC INDUSTRY RESTRUCTURING IN NEW MEXICO
The New Mexico Legislative Interim Committee on Utilities and
Telecommunications, chaired by Senator Michael Sanchez, will be considering
electric industry restructuring, as well as other issues, during the remainder
of 1998 in preparation for possible introduction of a committee-backed bill
authorizing restructuring in the 1999 legislative session. Senator Sanchez has
chaired every interim legislative committee that has studied this issue since
1993, when a restructuring bill was first introduced in New Mexico. The
Legislature in 1996 unanimously passed a Joint Memorial at the recommendation of
the interim committee declaring that retail electric competition was not then in
the public interest of New Mexico but directed the NMPUC to monitor and evaluate
developments and report back to the Legislature. The NMPUC filed its report with
the Legislature during the 1998 session, expressing its conclusion that retail
electric competition would be beneficial. Senator Sanchez has expressed the
opinion that 1999 might very well be the appropriate time for the Legislature to
enact restructuring legislation. He has informally called upon all interested
parties to submit proposed legislation to the Committee for its consideration by
September.
In May the Company approached the NMPUC on an informal basis to explore the
possibility of the Company filing a voluntary restructuring plan with the NMPUC
that, if accepted by the NMPUC, could be used as a model for restructuring
legislation in the 1999 session. To date, no such filing has occurred and the
Company continues to explore options for introducing retail electric competition
in New Mexico in a manner that protects the financial integrity of the Company.
On July 1, the Clinton Administration sent restructuring legislation to
Congress. The proposed legislation endorses the principle that utilities should
be able to recover prudent, legitimate, verifiable and non-mitigable stranded
costs. The legislation leaves to the states decisions regarding the pace and
shape of regulatory change, generally calling for open access to occur by 2003,
but allowing states to opt out of the federal approach.
The Arizona Corporation Commission (the "ACC") has issued another order in
its process of opening that state to competition beginning at the end of this
year. In that order the ACC has allowed full stranded cost recovery on the
condition that generation is divested. If utilities choose not to divest
generation, then the ACC will determine the appropriate amount of stranded cost
recovery. The Arizona Legislature has passed a law confirming the ACC's
authority over electric industry restructuring and expanding restructuring to
include public power entities not subject to the ACC's jurisdiction. The Company
shares joint ownership of power plants located in Arizona and New Mexico with
Arizona utilities, is interconnected with those utilities, and competes with
them in the wholesale market. The Company is unable to predict what, if any,
impact the Arizona actions will have on the Company.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by
meaningful, cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the statements.
Words such as "estimates," "expects," "anticipates," "plans," "believes,"
"projects," and similar expressions identity forward-looking statements.
Accordingly, the Company hereby identifies the following important factors which
could cause the Company's actual financial results to differ materially from any
such results which might be projected, forecasted, estimated or budgeted by the
Company in forward-looking statements: (i) adverse actions of utility regulatory
commissions; (ii) utility industry restructuring; (iii) failure to recover
stranded costs; (iv) the inability of the Company to successfully compete
outside its traditional regulated market; (v) regional economic conditions,
which could affect customer growth; (vi) adverse impacts resulting from
environmental regulations; (vii) loss of favorable fuel supply contracts; (viii)
failure to obtain water rights and rights-of-way; (ix) operations and
environmental problems at generating stations; (x) the cost of debt and equity
capital; (xi) weather conditions; and (xii) technical developments in the
utility industry.
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<PAGE> 5
USE OF PROCEEDS
On July 6, 1998, the Company received a Final Order from the NMPUC
approving the issuance of up to $435 million principal amount of SUNs to provide
funds to refinance the lease debt associated with the sale and leaseback
portions of the Company's interests in Palo Verde Nuclear Generating Station
("PVNGS") Units 1 and 2 ("Lease Debt"). As of July 16, 1998, the Company held
$271 million principal amount of Lease Debt as an investment with the remaining
$148 million principal amount of Lease Debt held by the public in the form of
Lease Obligation Bonds (the "Public Lease Debt"). The net proceeds from the
Offered SUNs will be applied in accordance with NMPUC authorization, and will
result in the repayment of certain of the Company's short-term debt. It is
expected that approximately 65% of the net proceeds of the offering of the
Offered SUNs will be used to effectuate the repayment of short-term loans made
to the Company under a revolving credit facility by certain lenders including
The Chase Manhattan Bank, an affiliate of Chase Securities Inc., Citibank, N.A.,
an affiliate of Citicorp Securities, Inc., Morgan Guaranty Trust Company of New
York, an affiliate of J.P. Morgan Securities Inc., Bank of America National
Trust and Savings Association, an affiliate of BancAmerica Robertson Stephens
and Canadian Imperial Bank of Commerce, an affiliate of CIBC Oppenheimer, as
well as the liquidation of amounts under an accounts receivables liquidity
facility with an affiliate of Citicorp Securities, Inc. The remaining 35% of net
proceeds of the offering of the Offered SUNs will be used to effectuate the
retirement of the Public Lease Debt including payment of expenses. See
"Underwriting". The amounts being repaid were used for general corporate
purposes, including purchase of portions of the Lease Debt which is being
refinanced. Under the relevant instruments the amounts being repaid bear
interest at variable rates and for variable short-term periods. Currently, the
interest rates are between 5.9% and 6.25%, and the current scheduled maturities
occur in August and October 1998. The interest rate on the Public Lease Debt
being retired (which the Company in effect has been paying through its lease
rental payments) is 10.30% on approximately $87 million and 10.15% on
approximately $61 million.
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<PAGE> 6
SUMMARY FINANCIAL AND OPERATING INFORMATION
The following material is qualified in its entirety by reference to the
information incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. The selected data presented below under the caption
"Selected Earnings Statement Data" as of the end of and for each of the years in
the five year period ended December 31, 1997, are derived from the consolidated
financial statements of Public Service Company of New Mexico and subsidiaries,
which financial statements have been audited by Arthur Andersen LLP, independent
public accountants. The consolidated financial statements as of December 31,
1997 and 1996, and for each of the years in the three-year period ended December
31, 1997, and the report thereon, are incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus. The selected unaudited
data presented below under the caption "Selected Earnings Statement Data" and
"Capitalization" for the six-month periods ended June 30, 1997 and 1998, and as
of June 30, 1998, are derived from the unaudited consolidated financial
statements of Public Service Company of New Mexico and its subsidiaries, which
Arthur Andersen LLP have reviewed in accordance with professional standards for
a review of such interim financial information.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED EARNINGS
STATEMENT DATA:
Electric, Gas, Water, Energy
Services Revenues............. $ 638,729 $ 537,564 $ 1,135,267 $ 883,386 $ 808,465 $ 904,711 $ 873,878
Operating Expenses.............. 582,127 474,874 1,011,222 757,367 695,077 753,633 740,594
Earnings (Loss) Before Interest
Charges and Income Taxes...... 85,497 93,438 183,927 167,781 184,289 191,776 (32,741)
Interest Charges, Net........... 28,363 29,341 56,214 54,707 57,934 70,587 85,823
Income Taxes (Benefit)(1)....... 21,141 23,634 46,718 40,494 50,793 40,871 (57,078)
Net Income (Loss) from
Continuing Operations......... 35,992 40,463 80,995 72,580 75,562 80,318 (61,486)
ELECTRIC SALES (MWH).............. 6,628,243 5,932,936 13,320,542 10,981,516 8,619,878 9,315,084 8,822,004
GAS THROUGHPUT --
DECATHERMS (000'S)(2)........... 49,133 47,215 84,610 100,096 109,594 132,071 135,332
RATIO OF EARNINGS TO FIXED
CHARGES(3)...................... 1.95 2.03 2.05 1.94 1.99 1.83 0.27(4)
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------------------------
ACTUAL AS ADJUSTED(6)
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ------- --------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
CAPITALIZATION:
Short-Term Debt........................................... $ 302,700 17.7% $ 24,700 1.3%
Long-Term Debt............................................ 574,346 33.5 1,009,346 53.9
Cumulative Preferred Stock, without Mandatory Redemption
Requirements............................................ 12,800 0.7 12,800 0.7
Common Shareholders' Equity............................... 824,218 48.1 824,218 44.1
--------- ----- --------- -----
Total Capitalization(5)............................. $1,714,064 100.0% $1,871,064 100.0%
========= ===== ========= =====
</TABLE>
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(1) Income Taxes (Benefit) calculated on earnings (loss) from continuing
operations.
(2) On June 30, 1995, the Company sold substantially all of the gas gathering
and processing assets. Gas Throughput data for 1995, 1996, 1997 and the
first six months of 1997 and 1998 reflect the effects of such sale.
(3) For purposes of computing the Ratio of Earnings to Fixed Charges, earnings
have been calculated by adding back the provision for income taxes and fixed
charges. Fixed charges include total interest charges (without reduction for
the allowance for borrowed funds used during construction), the interest
portion of all rents and certain payments under a purchase power contract.
(4) The less than 1:1 ratio for 1993 was primarily the result of the write-down
of certain assets resulting from the stipulation filed with the NMPUC
recommending that electric retail rates be reduced by $30 million. The fixed
charge coverage deficiency aggregated approximately $119 million for 1993.
(5) Total capitalization does not include the present value of the Company's
lease obligations for PVNGS Units 1 and 2 and Eastern Interconnection
Project as debt. The present value of the Company's lease obligations for
PVNGS Units 1 and 2 and Eastern Interconnection Project will be reduced from
$316 million to $169 million as a result of this transaction.
(6) The capitalization amounts are adjusted to reflect the issuance of $435
million of SUNs and the repayment of $278 million of short-term debt.
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<PAGE> 7
DESCRIPTION OF OFFERED SUNS
The following description of the particular terms of the Offered SUNs
offered hereby supplements and, to the extent inconsistent therewith, replaces
the description of the general terms and provisions of the SUNs set forth in the
accompanying Prospectus under the caption "Description of SUNs," to which
description reference is hereby made. The following summary is qualified in its
entirety by reference to the Indenture referred to in the accompanying
Prospectus.
GENERAL
The Series A SUNs offered hereby constitute a series of SUNs under the
Indenture, limited to $300 million aggregate principal amount, and will mature
on August 1, 2005. The Series B SUNs offered hereby constitute a series of SUNs
under the Indenture, limited to $135 million aggregate principal amount, and
will mature on August 1, 2018.
Each series of Offered SUNs will bear interest from August 6, 1998 at the
rate shown in their title, payable semi-annually (to holders of record at the
close of business on the January 15 or July 15 immediately preceding the
interest payment date) on February 1 and August 1 of each year beginning
February 1, 1999. Upon issuance, each series of Offered SUNs will be represented
by one or more Registered Global SUNs that will be deposited with, or on behalf
of, the Depositary and will be registered in the name of the Depositary or its
nominee. For so long as the Offered SUNs are registered in the name of the
Depositary, or its nominee, the principal and interest due on the Offered SUNs
will be payable by the Company or its agent to the Depositary for payment to its
participants for subsequent disbursement to the beneficial owners. See
"Description of SUNs -- Registered Global SUNs" in the accompanying Prospectus.
REDEMPTION PROVISIONS
Each series of Offered SUNs will be redeemable at the option of the
Company, in whole at any time or in part from time to time, at a redemption
price equal to the greater of (i) 100% of their principal amount or (ii) the sum
of the present values of the remaining scheduled payments of principal and
interest thereon discounted to the date of redemption on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Yield plus 50 basis points, plus in each case accrued interest to the date of
redemption, such redemption price to be set forth in an Officers' Certificate
(as defined in the Indenture) delivered to the Trustee on or before the
redemption date and upon which the Trustee may conclusively rely.
"Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the series of Offered SUNs being redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the series of Offered SUNs. "Independent
Investment Banker" means Salomon Brothers Inc or, if such firm is unwilling or
unable to select the Comparable Treasury Issue, one of the remaining Reference
Treasury Dealers appointed by the Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury
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<PAGE> 8
Dealer Quotations for such redemption date, or (B) if the Trustee obtains fewer
than four such Reference Treasury Dealer Quotations, the average of all such
Quotations. "Reference Treasury Dealer Quotations" means with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date.
"Reference Treasury Dealer" means (i) each of Salomon Brothers Inc, Chase
Securities Inc., Morgan Stanley & Co. Incorporated, Citicorp Securities, Inc.,
J.P. Morgan Securities Inc., BancAmerica Robertson Stephens and CIBC Oppenheimer
Corp.; provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer;
and (ii) any other Primary Treasury Dealer selected by the Company.
If less than all of the Offered SUNs of either series are to be redeemed,
the Trustee shall select, in such manner as it shall deem appropriate and fair,
the particular Offered SUNs or portions thereof to be redeemed. Notice of
redemption shall be given by mail not less than 30 nor more than 60 days prior
to the date fixed for redemption to the holders of Offered SUNs to be redeemed
(which, as long as the Offered SUNs are held in the book-entry only system, will
be the Depositary (or its nominee) or a successor depositary); provided,
however, that the failure to duly give such notice by mail, or any defect
therein, shall not affect the validity of any proceedings for the redemption of
Offered SUNs as to which there shall have been no such failure or defect. Such
notice may state that such redemption shall be conditional upon receipt by the
Paying Agent or Agents (as defined in the Indenture) for such Offered SUNs, on
or prior to the date fixed for such redemption, of money sufficient to pay the
principal of and premium, if any, and interest, if any, on such SUNs and that if
such money shall not have been so received such notice shall be of no force or
effect and the Company shall not be required to redeem such SUNs. On and after
the date fixed for redemption (unless the Company shall default in the payment
of the series of Offered SUNs or portions thereof to be redeemed at the
applicable redemption price, together with interest accrued thereon to such
date), interest on the series of Offered SUNs or the portions thereof so called
for redemption shall cease to accrue.
The Offered SUNs have no sinking fund provisions.
DEFEASANCE AND COVENANT DEFEASANCE
Each series of Offered SUNs, in whole or in any specified part, shall be
defeasible pursuant to the Defeasance and the Covenant Defeasance provisions of
the Indenture. See "Description of SUNs -- Discharge, Defeasance and Covenant
Defeasance" in the accompanying Prospectus.
S-8
<PAGE> 9
UNDERWRITING
Under the terms of and subject to the conditions contained in an
Underwriting Agreement dated August 3, 1998, the Underwriters named below have
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective principal amounts of the Series A SUNs and Series B SUNs for a total
principal amount of Offered SUNs set forth below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL TOTAL
AMOUNT OF AMOUNT OF PRINCIPAL
SERIES A SERIES B AMOUNT OF
UNDERWRITERS SUNS SUNS OFFERED SUNS
- ------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Salomon Brothers Inc ............................ $ 96,000,000 $ 43,200,000 $139,200,000
Chase Securities Inc. ........................... 52,500,000 23,625,000 76,125,000
Morgan Stanley & Co. Incorporated ............... 52,500,000 23,625,000 76,125,000
Citicorp Securities, Inc. ....................... 42,000,000 18,900,000 60,900,000
J.P. Morgan Securities Inc....................... 42,000,000 18,900,000 60,900,000
BancAmerica Robertson Stephens .................. 7,500,000 3,375,000 10,875,000
CIBC Oppenheimer Corp............................ 7,500,000 3,375,000 10,875,000
------------ ------------ ------------
Total.......................................... $300,000,000 $135,000,000 $435,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Offered SUNs are subject to
the approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are committed to take and pay for all of the
Offered SUNs if any are taken.
The Underwriters initially propose to offer part of the Offered SUNs
directly to the public at the public offering prices set forth on the cover page
hereof and part to dealers at prices which represent a concession of 0.60% of
the principal amount in the case of the Series A SUNs and 0.80% of the principal
amount in the case of the Series B SUNs under the public offering prices, and
any Underwriter may allow, and such dealers may reallow, a concession not in
excess of 0.25% of the principal amount to certain other dealers. All sales to
dealers will be made pursuant to dealer agreements. After the initial offering
of the Offered SUNs, the offering prices and other selling terms may, from time
to time, be varied by the Underwriters.
Until the distribution of the Offered SUNs is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase Offered SUNs. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the prices of Offered SUNs. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the prices of Offered SUNs.
If the Underwriters create a short position in the Series A or the Series B
SUNs in connection with the offering by selling more than are set forth on the
cover page of this Prospectus Supplement, the Underwriters may reduce that short
position by purchasing the applicable series in the open market.
The Underwriters may also impose a penalty bid on certain broker dealers.
This means that if the Underwriters purchase Offered SUNs in the open market to
reduce the Underwriters' short position or to stabilize the price of the Offered
SUNs, they may reclaim the amount of the selling concession from the broker
dealers who sold those Offered SUNs as a part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Offered SUNs. In addition, neither
the Company nor any of the Underwriters make any representation that
S-9
<PAGE> 10
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
There is at present no trading market for the Offered SUNs. The
Underwriters are not obligated to make a market in the Offered SUNs, and the
Company cannot predict whether a trading market for the Offered SUNs will
develop or, if developed, will be maintained. The Company does not intend to
apply for listing of the Offered SUNs on a national securities exchange.
The Underwriters, and certain affiliates thereof, engage in investment
banking and commercial banking transactions with and perform services for the
Company and its affiliates in the ordinary course of business. An affiliate of
Citicorp Securities, Inc. will be an investor in a trust that will be
established as a part of the refinancing of the Lease Debt. An affiliate of
Citicorp Securities, Inc. is one of the lessors in the PVNGS sale and leaseback
transactions, as are affiliates of Chase Securities Inc. The Chase Manhattan
Bank, also an affiliate of Chase Securities Inc., serves as the lease indenture
trustee under the lease indenture and collateral trust trustee under the
collateral trust indenture relating to the Lease Debt and lease obligation
bonds, and as the trustee under the indenture relating to the Offered SUNs as
well as trustee under an existing senior unsecured note indenture.
It is expected that approximately 65% of the net proceeds of the offering
of the Offered SUNs will be used to effectuate the repayment of short-term loans
made to the Company under a revolving credit facility by certain lenders
including The Chase Manhattan Bank, an affiliate of Chase Securities Inc.,
Citibank, N.A., an affiliate of Citicorp Securities, Inc., Morgan Guaranty Trust
Company of New York, an affiliate of J.P. Morgan Securities Inc., Bank of
America National Trust and Savings Association, an affiliate of BancAmerica
Robertson Stephens and Canadian Imperial Bank of Commerce, an affiliate of CIBC
Oppenheimer, as well as the liquidation of amounts under an accounts receivables
liquidity facility with an affiliate of Citicorp Securities, Inc. The remaining
35% of net proceeds of the offering of the Offered SUNs will be used to
effectuate the retirement of the Public Lease Debt including payment of
expenses. Additionally, Salomon Brothers Inc may be deemed to be an affiliate of
Citicorp Securities, Inc. under Rule 2720(i) of the Conduct rules of the
National Association of Securities Dealers, Inc. (the "NASD Conduct Rules").
Under the NASD Conduct Rules, special considerations apply to a public offering
of securities where more than 10% of the net proceeds thereof will be paid to
participating underwriters or any of their affiliates. Therefore, the offering
of the Offered SUNs is being conducted pursuant to Rule 2710(c)(8) of the NASD
Conduct Rules which establishes certain procedural safeguards in connection with
offerings in such circumstances, and, in effect, requires that the yield at
which such securities are to be distributed to the public must be established at
a yield no lower than that recommended by a "qualified independent underwriter,"
as defined in Rule 2720(b)(15), who must participate in the preparation of the
registration statement and the prospectus and who must exercise the usual
standards of "due diligence" with respect thereto. In accordance with such
requirements, Morgan Stanley & Co. Incorporated has agreed to act as a qualified
independent underwriter, and the yield at which the Offered SUNs are to be
distributed to the public is not less than that recommended by Morgan Stanley &
Co. Incorporated.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933.
S-10
<PAGE> 11
PROSPECTUS
$650,000,000
PUBLIC SERVICE COMPANY OF
NEW MEXICO
SENIOR UNSECURED NOTES
------------------
Public Service Company of New Mexico (the "Company") intends to issue from
time to time up to $650,000,000 (or the equivalent in foreign currency or
composite currency) aggregate principal amount of its senior unsecured notes
(the "SUNs"), or if any SUNs are issued at an original issue discount, such
greater amount as shall result in net proceeds to the Company of $650,000,000,
which will be offered to the public on terms determined by market conditions at
the time of sale. The SUNs may be issued in one or more series with the same or
various maturities at par, at a premium or with an original issue discount. When
particular SUNs are offered, a prospectus supplement (a "Prospectus
Supplement"), together with this Prospectus, will be delivered setting forth the
terms of such SUNs, including, where applicable, the specific designation,
aggregate principal amount, denominations, maturity, rate of interest (or manner
of calculation thereof) and time of payment thereof, any redemption provisions,
the initial public offering price and any other specific terms in connection
with the offering and sale of such SUNs. The SUNs will be unsecured and
unsubordinated obligations of the Company ranking equally with all existing and
future unsecured and unsubordinated obligations of the Company. Unless otherwise
specified in the applicable Prospectus Supplement, the SUNs will be represented
by global certificates (each, a "Registered Global SUN") registered in the name
of a nominee of The Depository Trust Company, New York, New York (the
"Depositary"). Beneficial interests in the SUNs will be shown on, and transfers
thereof will be effected only through, records maintained by the Depositary
(with respect to participants' interests) and its participants. Except as
described in this Prospectus, SUNs in certificated form will not be issued in
exchange for Registered Global SUNs.
------------------
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.
------------------
This Prospectus may not be used to consummate sales of SUNs unless
accompanied by a Prospectus Supplement. The Company may sell SUNs through
underwriters, dealers or agents, or directly to one or more purchasers. The
applicable Prospectus Supplement will set forth the names of the underwriters,
dealers or agents, if any, the net proceeds to the Company from any such sale,
and any applicable commissions or discounts. See "Plan of Distribution" for
possible indemnification arrangements for underwriters, dealers, and agents.
------------------
The date of this Prospectus is July 20, 1998.
<PAGE> 12
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SUNS OFFERED HEREBY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCES IMPLY
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (together with all amendments thereto,
the "Registration Statement") on Form S-3 under the Securities Act of 1933 (the
"Securities Act"), with respect to the SUNs offered hereby. This Prospectus,
filed as a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
In addition, certain documents filed by the Company with the Commission have
been incorporated herein by reference. See "Incorporation of Certain Information
by Reference." For further information regarding the Company and the SUNs
offered hereby, reference is made to the Registration Statement, including the
exhibits and schedules thereto and the documents incorporated herein by
reference. The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission, at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549;
and at the regional offices of the Commission at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding reporting companies under the Exchange Act,
including the Company, at http://www.sec.gov. The Common Stock of the Company is
listed on the New York Stock Exchange. Reports, proxy statements and other
information concerning the Company can be inspected and copied at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 and the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 are hereby incorporated by reference.
In addition, all documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering of the SUNs shall be deemed to be
incorporated by reference in this Prospectus and be a part hereof from the date
of filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference in this Prospectus shall 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 other subsequently filed
document that also is or is deemed to be incorporated by reference, modifies or
replaces such statement. Any such statement so modified or superseded shall not
be deemed, except as so modified, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon written or oral request of any
such person, a copy of any or all of the documents incorporated by reference
herein, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to:
Barbara Barsky, Vice President of Strategy, Analysis and Investor
2
<PAGE> 13
Relations, Public Service Company of New Mexico, Alvarado Square, Albuquerque,
New Mexico 87158, or by telephone at (505) 241-2477.
THE COMPANY
Public Service Company of New Mexico (the "Company") was incorporated in
the State of New Mexico in 1917 and has its principal offices at Alvarado
Square, Albuquerque, New Mexico 87158 (telephone number 505-241-2700). The
Company is a public utility primarily engaged in the generation, transmission,
distribution and sale of electricity and in the transmission, distribution and
sale of natural gas within the State of New Mexico. In addition, in pursuing new
business opportunities, the Company is focusing on energy and utility related
activities under its Energy Services Business Unit. The Company is also
operating the City of Santa Fe's water system.
The total population of the area served by one or more of the Company's
utility services is estimated to be approximately 1.3 million, of which 52.1%
live in the greater Albuquerque area.
For the year ended December 31, 1997, the Company derived 63.6% of its
operating revenues from electric operations, 26.0% from natural gas operations
and 10.4% from energy services operations.
As of December 31, 1997, the Company employed 2,789 persons.
3
<PAGE> 14
SUMMARY FINANCIAL AND OPERATING INFORMATION
The following material is qualified in its entirety by reference to the
information incorporated herein by reference (as specified above). The selected
data presented below under the caption "Selected Earnings Statement Data" as of
the end of and for each of the years in the five year period ended December 31,
1997, are derived from the consolidated financial statements of Public Service
Company of New Mexico and subsidiaries, which financial statements have been
audited by Arthur Andersen LLP, independent public accountants. The consolidated
financial statements as of December 31, 1997 and 1996, and for each of the years
in the three-year period ended December 31, 1997, and the report thereon, are
incorporated by reference elsewhere in this Prospectus. The selected unaudited
data presented below under the caption "Selected Earnings Statement Data" and
"Capitalization" for the three-month periods ended March 31, 1997 and 1998, and
as of March 31, 1998, are derived from the unaudited consolidated financial
statements of Public Service Company of New Mexico and its subsidiaries, which
Arthur Andersen LLP have reviewed in accordance with professional standards for
a review of such interim financial information.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED EARNINGS
STATEMENT DATA:
Electric, Gas, Water, Energy
Services Revenues............. $ 329,764 $ 298,822 $ 1,135,267 $ 883,386 $ 808,465 $ 904,711 $ 873,878
Operating Expenses.............. 297,485 262,129 1,011,222 757,367 695,077 753,633 740,594
Earnings (Loss) Before Interest
Charges and Income Taxes...... 47,681 53,924 183,927 167,781 184,289 191,776 (32,741)
Interest Charges, Net........... 13,787 14,234 56,214 54,707 57,934 70,587 85,823
Income Taxes (Benefit)(1)....... 12,680 14,794 46,718 40,494 50,793 40,871 (57,078)
Net Income (Loss) from
Continuing Operations......... 21,214 24,896 80,995 72,580 75,562 80,318 (61,486)
ELECTRIC SALES (MWH).............. 3,383,876 2,858,554 13,320,542 10,981,516 8,619,878 9,315,084 8,822,004
GAS THROUGHPUT --
DECATHERMS (000'S)(2)........... 32,540 32,099 84,610 100,096 109,594 132,071 135,332
RATIO OF EARNINGS TO FIXED
CHARGES(3)...................... 2.14 2.30 2.05 1.94 1.99 1.83 0.27(4)
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
AMOUNT PERCENT
-------------- -------
(IN THOUSANDS)
<S> <C> <C>
CAPITALIZATION:
Short-Term Debt........................................... $ 243,860 14.8%
Long-Term Debt............................................ 574,344 34.7
Cumulative Preferred Stock, without Mandatory Redemption
Requirements............................................ 12,800 0.8
Common Shareholders' Equity............................... 822,112 49.7
---------- -----
Total Capitalization(5)............................. $1,653,116 100.0%
========== =====
</TABLE>
- ---------------
(1) Income Taxes (Benefit) calculated on earnings (loss) from continuing
operations.
(2) On June 30, 1995, the Company sold substantially all of the gas gathering
and processing assets. Gas Throughput data for 1995, 1996, 1997 and the
first three months of 1997 and 1998 reflect the effects of such sale.
(3) For purposes of computing the Ratio of Earnings to Fixed Charges, earnings
have been calculated by adding back the provision for income taxes and fixed
charges. Fixed charges include total interest charges (without reduction for
the allowance for borrowed funds used during construction), the interest
portion of all rents and certain payments under a purchase power contract.
(4) The less than 1:1 ratio for 1993 was primarily the result of the write-down
of certain assets resulting from the stipulation filed with the New Mexico
Public Utility Commission recommending that electric retail rates be reduced
by $30 million. The fixed charge coverage deficiency aggregated
approximately $119 million for 1993.
(5) Total capitalization does not include the present value of the Company's
lease obligations for Palo Verde Nuclear Generating Station ("PVNGS") Units
1 and 2 and Eastern Interconnection Project as debt.
4
<PAGE> 15
USE OF PROCEEDS
On April 27, 1998, the Company requested the New Mexico Public Utility
Commission ("NMPUC") approval to issue up to $435 million principal amount of
SUNs to provide funds to refinance the lease debt associated with the sale and
leaseback portions of the Company's interests in PVNGS Units 1 and 2 ("Lease
Debt"). As of May 1, 1998, the Company held $277 million principal amount of
Lease Debt as an investment with the remaining $151 million principal amount of
Lease Debt held by the public in the form of Lease Obligation Bonds. The net
proceeds from such $435 million principal amount of SUNs would be applied in
accordance with NMPUC authorization, including the repayment of short-term debt.
Issuance of additional SUNs would require additional regulatory approval, and
the net proceeds from the issuance of any additional SUNs are expected to be
applied to general corporate purposes, except as may be set forth in the
applicable Prospectus Supplement.
DESCRIPTION OF SUNS
The SUNs will be issued under an Indenture (the "Indenture") between the
Company and The Chase Manhattan Bank, as trustee (the "Trustee"). The following
description of certain provisions of the Indenture and the SUNs summarizes the
material terms thereof but does not purport to be complete, and such summaries
are subject to the detailed provisions of the Indenture to which reference is
hereby made, including the definition of certain terms used herein and those
terms made a part of the Indenture by reference to the Trust Indenture Act of
1939 (the "Trust Indenture Act"), and for other information regarding the SUNs.
The Indenture is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Numerical references in parentheses below are to sections
in the Indenture. Wherever particular sections or defined terms of the Indenture
are referred to, such sections or defined terms are incorporated herein by
reference as part of the statement made, and the statement is qualified in its
entirety by such reference. Capitalized terms that are used and not otherwise
defined herein shall have the meanings assigned to them in the Indenture.
GENERAL
The Indenture provides for the issuance from time to time of SUNs by the
Company in an unlimited aggregate principal amount by specification in an
indenture supplemental to the Indenture or in a Board Resolution, or in an
Officer's Certificate pursuant to one or more indentures supplemental to the
Indenture or a Board Resolution. (Section 3.01) The SUNs may be issued in one or
more series, each of which series may be issued in one or more Tranches.
Reference is made to the applicable Prospectus Supplement relating to the
particular series of SUNs offered thereby for the following terms of the SUNs:
(i) the title of the SUNs of the series, which shall distinguish the SUNs of
such series from the SUNs of all other series; (ii) any limit upon the aggregate
principal amount of the SUNs of such series that may be authenticated and
delivered under the Indenture; (iii) the Person or Persons (without specific
identification) to whom interest on SUNs of such series, or any Tranche thereof,
shall be payable on any Interest Payment Date, if other than the Persons in
whose names such SUNs (or one or more Predecessor SUNs) are registered at the
close of business on the Regular Record Date for such interest; (iv) the date or
dates on which the principal of the SUNs of such series, or any Tranche thereof,
is payable or any formula or other method or other means by which such date or
dates shall be determined, by reference to an index or other fact or event
ascertainable outside of the Indenture or otherwise (without regard to any
provisions for redemption, prepayment, acceleration, purchase or extension); (v)
the rate or rates at which the SUNs of such series, or any Tranche thereof,
shall bear interest, if any (including the rate or rates at which overdue
principal shall bear interest, if different from the rate or rates at which such
SUNs shall bear interest prior to Maturity, and, if applicable, the rate or
rates at which overdue premium or interest shall bear interest, if any), or any
formula or other method or other means by which such rate or rates shall be
determined, by reference to an index or other fact or event ascertainable
outside of the Indenture or otherwise; the date or dates from which such
interest shall accrue; and the Interest Payment Dates on which such interest
shall be payable and the Regular Record Date, if any, for the interest payable
on such SUNs on any Interest Payment Date; (vi) the right, if any, to extend the
interest payment periods and the duration of such extension; (vii) the place or
places at which or methods by which (A) the principal of and premium, if any,
and interest, if any, on SUNs of such series, or any Tranche thereof, shall be
5
<PAGE> 16
payable, (B) registration of transfer of SUNs of such series, or any Tranche
thereof, may be effected, (C) exchanges of SUNs of such series, or any Tranche
thereof, may be effected and (D) notices and demands to or upon the Company in
respect of the SUNs of such series, or any Tranche thereof, and the Indenture
may be served; the SUN Registrar and any Paying Agent or Agents for such series
or any Tranche thereof; and if such is the case, that the principal of such SUNs
shall be payable without presentment or surrender thereof; (viii) the period or
periods within which, the price or prices at which and the terms and conditions
upon which any SUNs of such series, or any Tranche thereof, may be redeemed, in
whole or in part, at the option of the Company and, if other than by a Board
Resolution, the manner in which any election by the Company to redeem such SUNs
shall be evidenced; (ix) the obligation, if any, of the Company to redeem or
purchase any SUNs of such series, or any Tranche thereof, pursuant to any
sinking fund or analogous provisions or at the option of the Holder (as defined
herein) thereof and the period or periods within which, the price or prices at
which and the terms and conditions upon which any SUNs of such series, or any
Tranche thereof, shall be redeemed or purchased, in whole or in part, pursuant
to such obligation; (x) if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which SUNs of such series, or any Tranche
thereof, shall be issuable; (xi) if the amount of principal of or any premium or
interest on any SUNs of such series, or any Tranche thereof, may be determined
with reference to an index or pursuant to a formula, the manner in which such
amounts shall be determined to the extent not established pursuant to clause (v)
of this paragraph; (xii) if other than the currency of the United States of
America, the currency, currencies or currency units in which the principal of or
any premium or interest on any SUNs of such series, or any Tranche thereof,
shall be payable and the manner of determining the equivalent thereof in the
currency of the United States of America for any purpose; (xiii) if the
principal of or any premium or interest on any SUNs of such series, or any
Tranche thereof, is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies or currency units other than that or those in
which such SUNs are stated to be payable, the currency, currencies or currency
units in which the principal of or any premium or interest on such SUNs as to
which such election is made shall be payable, the periods within which and the
terms and conditions upon which such election is to be made and the amount so
payable (or the manner in which such amount shall be determined); (xiv) if other
than the entire principal amount thereof, the portion of the principal amount of
any SUNs of such series, or any Tranche thereof, which shall be payable upon
declaration of acceleration of the Maturity thereof; (xv) if the principal
amount payable at the Stated Maturity of any SUNs of such series, or any Tranche
thereof, will not be determinable as of any one or more dates prior to the
Stated Maturity, the amount which shall be deemed to be the principal amount of
such SUNs as of any such date for any purpose under the Indenture or under such
SUNs, including the principal amount thereof which shall be due and payable upon
any Maturity other than the Stated Maturity or which shall be deemed to be
Outstanding (as defined herein) as of any date prior to the Stated Maturity (or,
in any such case, the manner in which such amount deemed to be the principal
amount shall be determined); (xvi) if applicable, that the SUNs of such series,
or any Tranche thereof, in whole or any specified part, shall be defeasible
pursuant to the Defeasance provisions of the Indenture or that the SUNs of such
series, but not Tranches thereof alone, shall be defeasible pursuant to the
Covenant Defeasance provisions of the Indenture or both such sections and, if
other than by a Board Resolution, the manner in which any election by the
Company to defease such SUNs shall be evidenced; (xvii) if applicable, that any
SUNs of such series, or any Tranche thereof, shall be issuable in whole or in
part in the form of one or more Global SUNs and, in such case, the respective
Depositaries for such Global SUNs, the form of any legend or legends which shall
be borne by any such Global SUN and any circumstances in which any such Global
SUN may be exchanged in whole or in part for SUNs registered, and any transfer
of such Global SUN in whole or in part may be registered, in the name or names
of Persons other than the Depositary for such Global SUN or a nominee thereof;
(xviii) any addition to or change in the Events of Default which applies to any
SUNs of such series, or any Tranche thereof, and any change in the right of the
Trustee or the requisite Holders of such SUNs to declare the principal amount
thereof due and payable pursuant to the Indenture; (xix) any addition to or
change in the covenants set forth in the Indenture which applies to SUNs of such
series, or any Tranche thereof; and (xx) any other terms of such series, or any
Tranche thereof (which terms shall not be inconsistent with the provisions of
the Indenture). (Section 3.01)
All SUNs of any one series, or, if issued in Tranches thereof, any such
Tranche, shall be substantially identical except as to denomination and except
as may otherwise be determined in the manner provided for in
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the Indenture. With respect to SUNs of a series subject to a Periodic Offering,
the indenture supplemental to the Indenture or the Board Resolution which
establishes such series, or the Officer's Certificate pursuant to such
supplemental indenture or Board Resolution, as the case may be, may provide
general terms or parameters for SUNs of such series and provide either that the
specific terms of SUNs of such series, or any Tranche thereof, shall be
specified in a Company Order or that such terms shall be determined by the
Company or its agents in accordance with procedures specified in a Company Order
as contemplated by the Indenture. (Section 3.01)
The Indenture does not contain any restriction on the payment of dividends
or, except as set forth under "--Certain Covenants, --Restriction on Liens
and --Restrictions on Sale and Lease-Back Transactions," any financial
covenants. The SUNs will be unsubordinated and unsecured obligations of the
Company ranking equally with all existing and future unsubordinated and
unsecured obligations of the Company. Claims of Holders of SUNs will be
effectively subordinated to the claims of holders of secured debt of the Company
with respect to the collateral securing such claims. Currently the Company has
outstanding $111,000,000 of first mortgage bonds secured by the Company's owned
interest in PVNGS; no future bonds may be issued under the mortgage securing
such bonds.
REGISTERED GLOBAL SUNS
Unless otherwise specified in the applicable Prospectus Supplement, the
Depositary will act as securities depository for the SUNs and the SUNs will be
issued only as Registered Global SUNs registered in the name of Cede & Co. (the
Depositary's partnership nominee). Unless otherwise specified in the applicable
Prospectus Supplement, one or more Registered Global SUNs will be issued for the
SUNs representing the aggregate principal amount of such series of SUNs and will
be deposited with the Depositary. If, however, the aggregate principal amount of
any issue exceeds $200 million, one certificate will be issued with respect to
each $200 million of principal amount and an additional certificate will be
issued with respect to any remaining principal amount of such issue.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants (the "Direct
Participants") deposit with the Depositary. The Depositary also facilitates the
settlement among Direct Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in Direct Participants' accounts, thereby eliminating the
need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. The Depositary is owned by a
number of its Direct Participants and by The New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the Depositary's system is also available to others such
as securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either directly
or indirectly (the "Indirect Participants," and together with the Direct
Participants, the "Participants"). The rules applicable to the Depositary and
its Participants are on file with the Commission.
Purchases of SUNs within the Depositary's system must be made by or through
Direct Participants, which will receive a credit for the SUNs on the
Depositary's records. The ownership interest of each actual purchaser of each
SUN (a "Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' respective records. Beneficial Owners will not receive written
confirmation from the Depositary of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the Direct or Indirect
Participant through which the Beneficial Owner entered into the transaction.
Transfers of ownership interest in the SUNs are to be accomplished by entries
made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interest in SUNs except in the event that use of the book-entry system for the
SUNs is discontinued.
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To facilitate subsequent transfers, all SUNs deposited by Direct
Participants with the Depositary are registered in the name of Cede & Co. The
deposit of the SUNs with the Depositary and their registration in the name of
Cede & Co. effect no change in beneficial ownership. The Depositary has no
knowledge of the actual Beneficial Owners of the SUNs; the Depositary's records
reflect only the identity of the Direct Participants to whose accounts such SUNs
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the SUNs
of a series or Tranche are being redeemed, the Depositary's practice is to
determine by lot the amount of the interest of each Direct Participant in such
series or Tranche to be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the SUNs. Under its usual procedures, the Depositary mails an omnibus proxy (an
"Omnibus Proxy") to the Participants as soon as possible after the record date.
The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the SUNs are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and interest payments on the SUNs will be made
to Cede & Co., as nominee of the Depositary. The Depositary's practice is to
credit Direct Participants' accounts on the relevant payment date in accordance
with their respective holdings shown on the Depositary's records unless the
Depositary has reason to believe that it will not receive payment on such
payment date. Payments by participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers held in bearer form or registered in
"street-name," and will be the responsibility of such Participant and not of the
Depositary or the Company, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of principal, redemption premium,
if any, and interest, if any, to Cede & Co., as nominee of the Depositary, is
the responsibility of the Company or the respective trustees (with funds
furnished by the Company). Disbursement of such payments to Direct Participants
is the responsibility of the Depositary, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Registered Global SUNs will settle in immediately available funds in the
secondary trading market. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the SUNs.
The Depositary may discontinue providing its services as securities
depository with respect to the SUNs at any time by giving reasonable notice to
the Company. Under such circumstances and in the event that a successor
securities depository is not obtained, SUNs certificates are required to be
printed and delivered. In addition, the Company may decide to discontinue use of
the system of book-entry transfers through the Depositary (or a successor
securities depository). In that event, SUNs certificates will be printed and
delivered.
The Company will not have any responsibility or obligation to Participants
or the persons for whom they act as nominees with respect to the accuracy of the
records of the Depositary, its nominee or any Direct or Indirect Participant
with respect to any ownership interest in the SUNs, or with respect to payments
to or providing of notice for the Direct Participants, the Indirect Participants
or the Beneficial Owners.
So long as Cede & Co. is the registered owner of the SUNs, as nominee of
the Depositary, references herein to Holders of the SUNs shall mean Cede & Co.
or the Depositary and shall not mean the Beneficial Owners of the SUNs.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from the Depositary. Neither
the Company, the Trustee nor the underwriters, dealers or agents takes
responsibility for the accuracy or completeness thereof.
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CERTAIN COVENANTS
The following covenants apply to all series, or any Tranches thereof, of
SUNs:
Restrictions on Liens. The Indenture provides that so long as any SUNs are
outstanding, the Company will not issue, assume, or guarantee any Debt (as
defined herein) secured by any mortgage, security interest, pledge, or lien
(herein referred to as a "mortgage") of or upon any Operating Property (as
defined herein) of the Company, whether owned at the date of the Indenture or
thereafter acquired, without in any such case effectively securing the
Outstanding SUNs (as defined herein) (together with, if the Company shall so
determine, any other Debt of or guaranteed by the Company ranking senior to, or
equally with, the SUNs) equally and ratably with such Debt. This covenant shall
not apply in the case of any Debt secured by: (i) mortgages on any property
existing at the time of acquisition thereof; (ii) mortgages on property of a
corporation existing at the time such corporation is merged into or consolidated
with the Company, or at the time of a sale, lease, or other disposition of the
properties of such corporation or a division thereof as an entirety or
substantially as an entirety to the Company, provided that such mortgage as a
result of such merger, consolidation, sale, lease, or other disposition is not
extended to property owned by the Company immediately prior thereto; (iii)
mortgages on property to secure all or part of the cost of acquiring,
constructing, developing, or substantially repairing, altering, or improving
such property, or to secure indebtedness incurred to provide funds for any such
purpose or for reimbursement of funds previously expended for any such purpose,
provided such mortgages are created or assumed contemporaneously with, or within
eighteen (18) months after, such acquisition or completion of construction,
development, or substantial repair, alteration, or improvement or within six (6)
months thereafter pursuant to a commitment for financing arranged with a lender
or investor within such eighteen (18) month period; (iv) mortgages in favor of
the United States of America or any State thereof, or any department, agency, or
instrumentality or political subdivision of the United States of America or any
State thereof, or for the benefit of holders of securities issued by any such
entity, to secure any Debt incurred for the purpose of financing all or any part
of the purchase price or the cost of constructing, developing or substantially
repairing, altering, or improving the property subject to such mortgages; (v)
mortgages on any property (x) which, at any time subsequent to January 1, 1985
through the date of the Indenture, was leased to the Company, or, (y) pursuant
to the terms of any lease to the Company in effect at any time subsequent to
January 1, 1985 through the date of the Indenture, title to which would not have
been vested in the Company (assuming such lease remained in effect on the date
of determination as such lease was in effect immediately prior to the date of
the Indenture); or (vi) any extension, renewal or replacement (or successive
extensions, renewals, or replacements), in whole or in part, of any mortgage
referred to in the foregoing clauses (i) to (v), inclusive; provided, however,
that the principal amount of Debt secured thereby and not otherwise authorized
by said clauses (i) to (v), inclusive, shall not exceed the principal amount of
Debt, plus any premium or fee payable in connection with any such extension,
renewal, or replacement, so secured at the time of such extension, renewal, or
replacement. (Section 10.05(a)) Notwithstanding the foregoing, so long as any
SUNs are Outstanding, the Company may issue, assume, or guarantee Debt, or
permit to exist Debt, secured by mortgages which would otherwise be subject to
the foregoing restrictions up to an aggregate principal amount that, together
with the principal amount of all other Debt of the Company secured by mortgages
(other than mortgages permitted by the Indenture that would otherwise be subject
to the foregoing restrictions) and the Value of all Sale and Lease-Back
Transactions in existence at such time (other than certain Sale and Lease-Back
Transactions specified in the Indenture), does not exceed at the time the
greater of ten percent (10%) of Net Tangible Assets (as defined herein) or ten
percent (10%) of Capitalization. (Section 10.05(b)). Taking into account the
$111,000,000 of outstanding first mortgage bonds, the Company currently could
secure debt of up to approximately $102,000,000 without also equally and ratably
securing the SUNs.
Restrictions on Sale and Lease-Back Transactions. The Indenture provides
that so long as any SUNs are Outstanding, the Company will not enter into any
Sale and Lease-Back Transaction with respect to any Operating Property if, in
any case, the commitment by or on behalf of the purchaser is or was obtained
more than eighteen (18) months after the later of (i) the completion of the
acquisition, construction, or development of such Operating Property or (ii) the
placing in operation of such Operating Property or of such Operating Property as
constructed, developed, or substantially repaired, altered, or improved, unless
(x) the
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<PAGE> 20
Company would be entitled pursuant to the Indenture to issue, assume, or
guarantee Debt secured by a mortgage on such Operating Property without equally
and ratably securing the SUNs or (y) the Company would be entitled pursuant to
the Indenture, after giving effect to such Sale and Lease-Back Transaction, to
incur $1.00 of additional Debt secured by mortgages or (z) the Company shall
apply or cause to be applied, in the case of a sale or transfer for cash, an
amount equal to the net proceeds thereof (but not in excess of the net book
value of such Operating Property at the date of such sale or transfer) and, in
the case of a sale or transfer otherwise than for cash, an amount equal to the
fair value (as determined by the Board of Directors) of the Operating Property
so leased, to the retirement, within one hundred eighty (180) days after the
effective date of such Sale and Lease-Back Transaction, of Debt of the Company
ranking senior to, or equally with, the SUNs; provided, however, that the amount
to be applied to such retirement of Debt shall be reduced by an amount equal to
the principal amount, plus any premium or fee paid in connection with any
redemption in accordance with the terms of Debt voluntarily retired by the
Company within such one hundred eighty (180) day period, excluding retirement
pursuant to mandatory sinking fund or prepayment provisions and payments at
maturity. (Section 10.10) The Company's existing sale and lease-back
transactions regarding Units 1 and 2 of PVNGS and certain transmission
facilities, office buildings and other equipment are excluded from this
provision of the Indenture.
RESTRICTIONS ON MERGERS AND SALES OF ASSETS
Under the Indenture, the Company shall not consolidate with or merge into
any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, unless: (i) the Person formed by
such consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer, or which leases, the properties and assets
of the Company substantially as an entirety shall be a Person organized and
validly existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume, by an indenture
supplemental to the Indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal of
and any premium, and interest on all the SUNs and the performance or observance
of every covenant of the Indenture on the part of the Company to be performed or
observed; (ii) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company as a result of such
transaction as having been incurred by the Company at the time of such
transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have happened and be
continuing; and (iii) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and such supplemental
indenture comply with the Indenture and that all conditions precedent therein
provided for relating to such transaction have been complied with. (Section
8.01)
EVENTS OF DEFAULT
Events of Default defined in the Indenture with respect to the SUNs of any
series are: (i) the Company defaults in the payment of any interest upon any SUN
of that series when it becomes due and payable, and continuance of such default
for a period of 60 days; (ii) the Company defaults in the payment of the
principal of or any premium on any SUN of that series at its Maturity; (iii) the
Company defaults in the deposit of any sinking fund payment, when and as due by
the terms of a SUN of that series; (iv) the Company defaults in the performance
of or breaches any covenant or warranty of the Company in the Indenture (other
than a covenant or warranty a default in whose performance or whose breach is
elsewhere in this paragraph specifically dealt with or which has expressly been
included in the Indenture solely for the benefit of series of SUNs other than
that series), and continuance of such default or breach for a period of 90 days
after there has been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the Holders of a majority in
principal amount of the Outstanding SUNs of that series a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" under the Indenture, unless the
Trustee, or the Trustee and Holders of a principal amount of SUNs of such series
not less than the principal amount of SUNs the Holders of which gave such
notice, as the case may be, shall agree in writing to an extension of such
period prior to its expiration; provided, however, that the Trustee, or the
Trustee and the Holders of such principal amount of SUNs, as the case may be,
shall be
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deemed to have agreed to an extension of such period if corrective action is
initiated by the Company within such period and is being diligently pursued; (v)
the entry by a court having jurisdiction in the premises of (A) a decree or
order for relief in respect of the Company in an involuntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization or
other similar law or (B) a decree or order adjudging the Company a bankrupt or
insolvent, or approving as properly filed a petition by one or more persons
other than the Company seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under any applicable Federal or
State law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of any substantial part
of its property, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order for relief or any such other decree
or order unstayed and in effect for a period of 90 consecutive days; (vi) the
commencement by the Company of a voluntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree or order for relief in
respect of the Company in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law or
to the commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State law, or the
consent by it to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts generally as
they become due, or the authorization of such action by the Board of Directors;
or (vii) any other Event of Default provided with respect to SUNs of that
series. (Section 5.01)
The Indenture provides that if an Event of Default with respect to SUNs of
any series at the time Outstanding occurs and is continuing, then in every such
case the Trustee or the Holders of a majority in principal amount of the
Outstanding SUNs of that series may declare the principal amount of all the SUNs
of that series (or, if any SUNs of that series are Original Issue Discount SUNs,
such portion of the principal amount of such SUNs as may be specified by the
terms thereof) to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration
such principal amount (or specified amount) shall become immediately due and
payable; provided, however, that if an Event of Default shall have occurred and
be continuing with respect to more than one series of SUNs, the Trustee or the
Holders of not less than a majority in principal amount of the Outstanding SUNs
of all such series, considered as one class (and not the Holders of the SUNs of
any one of such series), may make such declaration of acceleration. (Section
5.02)
At any time after such a declaration of acceleration with respect to SUNs
of any series has been made and before a judgment or decree for payment of the
money due has been obtained by the Trustee, the related Event of Default and its
consequences will be automatically waived, resulting in an automatic rescission
and annulment of the acceleration of the SUNs if (i) the Company has paid or
deposited with the Trustee a sum sufficient to pay (A) all overdue interest on
all SUNs of that series, (B) the principal of (and premium, if any, on) any SUNs
of that series which have become due otherwise than by such declaration of
acceleration and any interest thereon at the rate or rates prescribed therefor
in such SUNs, (C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate or rates prescribed therefor in such
SUNs, and (D) all amounts due to the Trustee as provided in the Indenture; and
(ii) any other Event of Default with respect to SUNs of that series, other than
the non-payment of the principal of SUNs of that series which have become due
solely by such declaration of acceleration, has been cured or waived as provided
in the Indenture. No such rescission shall affect any subsequent Event of
Default or impair any right consequent thereon. (Section 5.02)
The Holders of not less than a majority in principal amount of the
Outstanding SUNs of any series may on behalf of the Holders of all the SUNs of
such series waive any past default under the Indenture with respect to such
series and its consequences, except a default (i) in the payment of the
principal of or any premium or interest on any SUN of such series, or (ii) in
respect of a covenant or provision of the Indenture which cannot be modified or
amended by supplemental Indenture without the consent of the Holder of each
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Outstanding SUN of such series affected, provided, however, that if any such
default shall have occurred and be continuing with respect to more than one such
series of SUNs, the Holders of a majority in aggregate principal amount of the
Outstanding SUNs of all such series, considered as one class, shall have the
right to waive such default, and not the Holders of the SUNs of any one such
series. Upon any such waiver, such default shall cease to exist, and any and all
Events of Default arising therefrom shall be deemed to have been cured, for
every purpose of the Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon. (Section
5.13)
If an Event of Default shall have occurred and be continuing in respect of
a series of SUNs, the Holders of a majority in principal amount of the
Outstanding SUNs of such series shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee, with respect to the
SUNs of such series; provided, however, that if an Event of Default shall have
occurred and be continuing with respect to more than one series of SUNs, the
Holders of a majority in aggregate principal amount of the Outstanding SUNs of
all such series, considered as one class, shall have the right to make such
direction, and not the Holders of the SUNs of any one of such series; and
provided, further, that (i) such direction shall not be in conflict with any
rule of law or with the Indenture; (ii) the Trustee may take any other action
deemed proper by the Trustee which is not inconsistent with such direction, and
(iii) subject to the provisions of the Indenture the Trustee shall have the
right to decline to follow any such direction if the Trustee in good faith
shall, by a Responsible Officer or Officers of the Trustee, determine that the
proceeding so directed would involve the Trustee in personal liability. (Section
5.12)
The Indenture provides that no Holder of any SUN of any series shall have
any right to institute any proceeding, judicial or otherwise, with respect to
the Indenture, or for the appointment of a receiver or trustee, or for any other
remedy thereunder, unless (i) such Holder has previously given written notice to
the Trustee of a continuing Event of Default with respect to the SUNs of that
series; (ii) the Holders of not less than a majority in aggregate principal
amount of the Outstanding SUNs of all series in respect of which an Event of
Default shall have occurred and be continuing, considered as one class, shall
have made written request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee under the Indenture; (iii) such
Holder or Holders have offered to the Trustee reasonable indemnity against the
costs, expenses and liabilities to be incurred in compliance with such request;
(iv) the Trustee for 60 days after its receipt of such notice, request and offer
of indemnity has failed to institute any such proceeding; and (v) no direction
inconsistent with such written request has been given to the Trustee during such
60-day period by the Holders of a majority in aggregate principal amount of the
Outstanding SUNs of all series in respect of which an Event of Default shall
have occurred and be continuing, considered as one class. (Section 5.07)
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that upon Company Request the Indenture shall cease
to be of further effect (except as to any surviving rights of registration of
transfer or exchange of SUNs therein expressly provided for), and the Trustee,
at the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of the Indenture, when (i) either (A) all SUNs
theretofore authenticated and delivered (other than (x) SUNs which have been
destroyed, lost or stolen and which have been replaced or paid and (y) SUNs for
whose payment money has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or discharged
from such trust) have been delivered to the Trustee for cancellation; or (B) all
such SUNs not theretofore delivered to the Trustee for cancellation (x) have
become due and payable, or (y) will become due and payable at their Stated
Maturity within one year, or (z) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company, in the case of (B)(x), (y) or (z) above, has deposited or caused to
be deposited with the Trustee as trust funds in trust for the purpose of making
the following payment, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such SUNs, money in an amount
sufficient to pay and discharge the entire indebtedness on such SUNs not
theretofore delivered to the Trustee for cancellation, for principal and any
premium and interest to the date of such deposit (in the case of SUNs
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which have become due and payable) or to the Stated Maturity or Redemption Date,
as the case may be; (ii) the Company has paid or caused to be paid all other
sums payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent therein provided for relating to the
satisfaction and discharge of the Indenture have been complied with.
Notwithstanding the satisfaction and discharge of the Indenture, the obligations
of the Company to compensate and reimburse the Trustee, the obligations of the
Company to any Authenticating Agent and the obligations under the Indenture of
the Trustee to apply the trust money and make repayments, shall survive. If the
Company shall have paid or caused to be paid the principal of and premium, if
any, and interest on any SUN, as and when the same shall have become due and
payable or the Company shall have delivered to the Trustee for cancellation any
outstanding SUN, such SUN shall cease to be entitled to any benefit under the
Indenture. (Section 4.01)
Upon the Company's exercise of its option to have the provisions described
in this paragraph (Defeasance) applied to any SUNs or the SUNs of any series, or
any Tranche thereof, as the case may be, the Company shall be deemed to have
been discharged from its obligations with respect to such SUNs as described in
this paragraph on and after the date the conditions as described in the second
paragraph below are satisfied (hereinafter called "Defeasance"). For this
purpose, such Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by such SUNs and to have
satisfied all its other obligations under such SUNs and the Indenture insofar as
such SUNs are concerned (and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging the same), subject to the following
provisions which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of such SUNs to receive, solely from the
trust fund described in the second paragraph below and as more fully set forth
in the Indenture, payments in respect of the principal of and any premium and
interest on such SUNs when payments are due, (ii) the Company's obligations with
respect to such SUNs under the sections of the Indenture dealing with temporary
notes; registration and registration of transfer and exchange; mutilated,
destroyed, lost and stolen notes; maintenance of office or agency; or money for
notes payments to be held in trust, and with respect to compensation and
reimbursement of the Trustee, (iii) the rights, powers, trusts, duties and
immunities of the Trustee under the Indenture and (iv) the provisions described
in this paragraph. Subject to compliance with the Article in the Indenture
regarding Defeasance and Covenant Defeasance, the Company may exercise its
option to have the provisions described in this paragraph (Defeasance) applied
to any SUNs notwithstanding the prior exercise of its option to have the
provisions described in the paragraph below (Covenant Defeasance) applied to
such SUNs. (Section 13.02)
Upon the Company's exercise of its option to have the provisions described
in this paragraph (Covenant Defeasance) applied to the SUNs or the SUNs of any
series, but not to Tranches thereof alone, as the case may be, (i) the Company
shall be released from its obligations under the sections of the Indenture
dealing with restrictions on liens, maintenance of properties and restrictions
on sale and lease-back transactions, and any covenants for the benefit of the
Holders of such SUNs provided pursuant to the Article of the Indenture setting
forth covenants and the sections of the Indenture dealing with entering into
supplemental indentures without the consent of Holders for the purpose of adding
covenants, securing the SUNs and establishing the form or terms of SUNs of any
series or Tranche and the section of the Indenture specifying Events of Default
and (ii) the occurrence of any event specified in the section of the Indenture
dealing with default in the performance, or breach, of any covenant or warranty
of the Company (with respect to specified sections of the Indenture) shall be
deemed not to be or result in an Event of Default with respect to such SUNs as
provided in the Indenture and described in this paragraph on and after the date
the conditions described in the paragraph below are satisfied (hereinafter
called "Covenant Defeasance"). For this purpose, such Covenant Defeasance means
that, with respect to such SUNs, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such specified section of the Indenture (to the extent so specified in the
case of default in the performance or breach of any covenant or warranty of the
Company), whether directly or indirectly by reason of any reference elsewhere
therein to any such section or by reason of any reference in any such section to
any other provision in the Indenture or in any other document, but the remainder
of the Indenture and such SUNs shall be unaffected thereby. (Section 13.03)
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<PAGE> 24
The Indenture provides that the following shall be the conditions to the
application of the Defeasance and Covenant Defeasance provisions, as the case
may be: (i) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such SUNs, (A) money in an amount, or (B) U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, money in an amount, or
(C) a combination of (A) and (B), in each case sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee to pay and discharge, the principal of
and any premium and interest on such SUNs on the respective Stated Maturities or
on any Redemption Date established as described in clause (ix) below, in
accordance with the terms of the Indenture and such SUNs. As used in this
paragraph, "U.S. Government Obligation" means (x) any security which is (1) a
direct obligation of the United States of America for the payment of which the
full faith and credit of the United States of America is pledged or (2) an
obligation of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case (1) or (2), is not callable or
redeemable at the option of the issuer thereof, and (y) any depositary receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as
custodian with respect to any U.S. Government Obligation which is specified in
clause (x) above and held by such bank for the account of the holder of such
depositary receipt, or with respect to any specific payment of principal of or
interest on any U.S. Government Obligation which is so specified and held,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depositary
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal or interest evidenced
by such depositary receipt; (ii) in the event of an election to have the
provisions of the Indenture relating to Defeasance apply to any SUNs or the SUNs
of any series, or any Tranche thereof, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (A) the Company
has received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the date of the Indenture, there has been a change in the
applicable Federal income tax law, in either case (A) or (B) to the effect that,
and based thereon such opinion shall confirm that, the Holders of such SUNs will
not recognize gain or loss for Federal income tax purposes as a result of the
deposit, Defeasance and discharge to be effected with respect to such SUNs and
will be subject to Federal income tax on the same amount, in the same manner and
at the same times as would be the case if such deposit, Defeasance and discharge
were not to occur; (iii) in the event of an election to have the provision of
the Indenture relating to Covenant Defeasance apply to the SUNs or the SUNs of
any series, but not Tranches thereof alone, as the case may be, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such SUNs will not recognize gain or loss for Federal income tax
purposes as a result of the deposit and Covenant Defeasance to be effected with
respect to such SUNs and will be subject to Federal income tax on the same
amount, in the same manner and at the same times as would be the case if such
deposit and Covenant Defeasance were not to occur; (iv) the Company shall have
delivered to the Trustee an Officers' Certificate to the effect that neither
such SUNs nor any other SUNs of the same series, as the case may be, if then
listed on any securities exchange, will be delisted as a result of such deposit;
(v) no event which is, or after notice or lapse of time or both would become, an
Event of Default with respect to such SUNs or any other SUNs shall have occurred
and be continuing at the time of such deposit or, with regard to certain
bankruptcy Events of Default, at any time on or prior to the 90th day after the
date of such deposit (it being understood that this condition shall not be
deemed satisfied until after such 90th day); (vi) such Defeasance or Covenant
Defeasance shall not cause the Trustee to have a conflicting interest within the
meaning of the Trust Indenture Act (assuming all SUNs are in default within the
meaning of such Act); (vii) such Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any other
agreement or instrument to which the Company is a party or by which it is bound;
(viii) such Defeasance or Covenant Defeasance shall not result in the trust
arising from such deposit constituting an investment company within the meaning
of the Investment Company Act of 1940 unless such trust shall be registered
under such Act or exempt from registration thereunder; (ix) if the SUNs are to
be redeemed prior to Stated Maturity (other than from mandatory sinking
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<PAGE> 25
fund payments or analogous payments), notice of such redemption shall have been
duly given pursuant to the Indenture or provision therefor satisfactory to the
Trustee shall have been made; and (x) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent with respect to such Defeasance or Covenant Defeasance
have been complied with. (Section 13.04)
MODIFICATION OF THE INDENTURE
The Indenture provides that without the consent of any Holders, the
Company, when authorized by a Board Resolution, and the Trustee, at any time and
from time to time, may enter into one or more indentures supplemental to the
Indenture, in form satisfactory to the Trustee, for any of the following
purposes: (i) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company in the
Indenture and in the SUNs; or (ii) to add to the covenants of the Company or
other provisions for the benefit of the Holders of all or any series of SUNs, or
any Tranche thereof (and if such covenants are to be for the benefit of less
than all series of SUNs or Tranches thereof, stating that such covenants are
expressly being included solely for the benefit of such series or Tranche or
Tranches) or to surrender any right or power conferred in the Indenture upon the
Company; or (iii) to add any additional Events of Default for the benefit of the
Holders of all or any series of SUNs, or any Tranche or Tranches thereof (and if
such additional Events of Default are to be for the benefit of less than all
series of SUNs or any Tranches thereof, stating that such additional Events of
Default are expressly being included solely for the benefit of such series or
Tranche or Tranches); or (iv) to add to or change any of the provisions of the
Indenture to such extent as shall be necessary to permit or facilitate the
issuance of SUNs in bearer form, registrable or not registrable as to principal,
and with or without interest coupons, or to permit or facilitate the issuance of
SUNs in uncertificated form; or (v) to change or eliminate any provision of the
Indenture or to add any new provision to the Indenture; provided, however, that
if such change, elimination or addition shall adversely affect the interests of
the Holders of SUNs of any series, or a Tranche thereof, Outstanding on the date
of such indenture supplemental to the Indenture in any material respect, such
change, elimination or addition shall become effective (a) with respect to such
series or Tranche only pursuant to the provisions described in the succeeding
paragraph or (b) when no SUN of such series or Tranche remains Outstanding; or
(vi) to secure the SUNs; or (vii) to establish the form or terms of SUNs of any
series or Tranche as permitted by the Indenture; or (viii) to evidence and
provide for the acceptance of appointment under the Indenture of a successor
Trustee with respect to the SUNs of one or more series and to add to or change
any of the provisions of the Indenture as shall be necessary to provide for or
facilitate the administration of the trusts thereunder by more than one Trustee;
or (ix) to cure any ambiguity, to correct or supplement any provision in the
Indenture which may be defective or inconsistent with any other provision
thereof, or to make any other changes to the provisions of the Indenture or to
add other provisions with respect to matters or questions arising under the
Indenture, provided that such other changes or additions shall not adversely
affect the interests of the Holders of SUNs of any series in any material
respect. Without limiting the generality of the foregoing, if the Trust
Indenture Act as in effect at the date of the Indenture or at any time
thereafter shall be amended and (A) if any such amendment shall require one or
more changes to any provisions of the Indenture or the inclusion therein of any
additional provisions, or shall by operation of law be deemed to effect such
changes or incorporate such provisions by reference or otherwise, the Indenture
shall be deemed to have been amended so as to conform to such amendment to the
Trust Indenture Act, and the Company and the Trustee may, without the consent of
any Holders, enter into an indenture supplemental thereto to effect or evidence
such changes or additional provisions; or (B) if any such amendment shall permit
one or more changes to, or the elimination of, any provisions of the Indenture
which, at the date of the execution and delivery of the Indenture or at any time
thereafter, are required by the Trust Indenture Act to be contained therein, the
Indenture shall be deemed to have been amended to effect such changes or
elimination, and the Company and the Trustee may, without the consent of any
Holders, enter into an indenture supplemental thereto to evidence such amendment
thereof. (Section 9.01)
The Indenture also contains provisions providing that with the consent of
the Holders of not less than a majority in aggregate principal amount of the
SUNs of all series then Outstanding, considered as one class, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by a Board
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<PAGE> 26
Resolution, and the Trustee may enter into one or more indentures supplemental
to the Indenture for the purpose of adding any provisions to, or changing in any
manner or eliminating any of the provisions of, the Indenture; provided,
however, that if there shall be SUNs of more than one series Outstanding under
the Indenture and if a proposed supplemental indenture shall directly affect the
rights of the Holders of SUNs of one or more, but less than all, of such series,
then the consent only of the Holders of a majority in aggregate principal amount
of the Outstanding SUNs of all series so directly affected, considered as one
class, shall be required; and provided further, that if the SUNs of any series
shall have been issued in more than one Tranche and if the proposed supplemental
indenture shall directly affect the rights of the Holders of SUNs of one or
more, but less than all, of such Tranches, then the consent only of the Holders
of a majority in aggregate principal amount of the Outstanding SUNs of all
Tranches so directly affected, considered as one class, shall be required; and
provided, further, that no such supplemental indenture shall: (i) change the
Stated Maturity of the principal of, or any installment of principal of or
interest on, any SUN, or reduce the principal amount thereof or the rate of
interest thereon (or the amount of any installment of interest thereon) or
change the method of calculating such rate or reduce any premium payable upon
the redemption thereof, or reduce the amount of the principal of an Original
Issue Discount SUN or any other SUN which would be due and payable upon a
declaration of acceleration of the Maturity thereof, or change the coin or
currency (or other property) in which any SUN or any premium or interest thereon
is payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), without, in any such case, the
consent of the Holder of such SUN, or (ii) reduce the percentage in principal
amount of the Outstanding SUNs of any series or Tranche, the consent of whose
Holders is required for any such supplemental indenture, or the consent of whose
Holders is required for any waiver of compliance with any provision of the
Indenture or of any default thereunder and its consequences, or reduce the
requirements for quorum or voting, without, in any such case, the consent of the
Holder of such SUN, or (iii) modify any of the provisions described in this
paragraph and the sections of the Indenture regarding waiver of past defaults
and waiver of certain covenants with respect to the SUNs of any series or any
Tranche thereof, except to increase any such percentage or to provide that
certain other provisions of the Indenture cannot be modified or waived without
the consent of the Holder of each Outstanding SUN affected thereby; provided,
however, that this clause shall not be deemed to require the consent of any
Holder with respect to changes in the references to the "Trustee". (Section
9.02)
A supplemental indenture which changes or eliminates any covenant or other
provision of the Indenture which has expressly been included solely for the
benefit of one or more particular series of SUNs or one or more Tranches
thereof, or which modifies the rights of the Holders of SUNs of such series or
Tranches with respect to such covenant or other provision, shall be deemed not
to affect the rights under the Indenture of the Holders of SUNs of any other
series or Tranche. It shall not be necessary for any Act of Holders under the
section of the Indenture described in this paragraph to approve the particular
form of any proposed supplemental indenture, but it shall be sufficient if such
Act shall approve the substance thereof. A waiver by a Holder of such Holder's
right to consent described in the preceding paragraph shall be deemed to be a
consent of such Holder. (Section 9.02)
INFORMATION CONCERNING THE TRUSTEE
The Trustee under the Indenture will be The Chase Manhattan Bank. The
Company maintains normal banking arrangements with The Chase Manhattan Bank. The
Chase Manhattan Bank also serves as trustee under an indenture for the holders
of certain other senior unsecured notes of the Company, (ii) serves as trustee
for the holders of two series of bonds secured by, among other things, the
Company's payments under its PVNGS leases (these bonds were issued by a party
unaffiliated with the Company), as well as trustee under the lease indentures
related to such leases, and (iii) has a commitment to lend the Company up to $50
million under a revolving credit agreement. The Chase Manhattan Bank also acts
as administrative agent and a letter of credit issuing bank under the revolving
credit agreement, and an affiliate of The Chase Manhattan Bank acted as arranger
under such revolving credit agreement. In addition, affiliates of The Chase
Manhattan Bank are the lessors with respect to three leases with the Company
relating to the sale and leaseback of portions of Unit 1 and Unit 2 of PVNGS.
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<PAGE> 27
Subject to the provisions in the Indenture and the applicable provisions of
the Trust Indenture Act: (i) the Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties; (ii) any request or direction of the Company mentioned in the
Indenture shall be sufficiently evidenced by a Company Request or Company Order,
or as otherwise expressly provided in the Indenture, and any resolution of the
Board of Directors shall be sufficiently evidenced by a Board Resolution; (iii)
whenever in the administration of the Indenture the Trustee shall deem it
desirable that a matter be proved or established prior to taking, suffering or
omitting any action under the Indenture, the Trustee (unless other evidence be
specifically prescribed in the Indenture) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate; (iv) the Trustee may consult with
counsel of its selection, and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it under the Indenture in good faith
and in reliance thereon; (v) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by the Indenture at the
request or direction of any Holder pursuant to the Indenture, unless such Holder
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction; (vi) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall (subject
to applicable legal requirements) be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney; (vii) the Trustee
may execute any of the trusts or powers under the Indenture or perform any
duties thereunder either directly or by or through agents or attorneys and the
Trustee shall not be responsible for any misconduct or negligence on the part of
any agent or attorney appointed with due care by it under the Indenture; and
(viii) except as otherwise provided in the Indenture the Trustee shall not be
charged with knowledge of any Event of Default with respect to the SUNs of any
series for which it is acting as Trustee unless either (A) a Responsible Officer
of the Trustee shall have actual knowledge of the Event of Default, or (B)
written notice of such Event of Default shall have been given to the Trustee by
the Company, any other obligor on the SUNs or by any Holder of such SUNs.
(Section 6.03)
The Indenture contains a covenant that the Company will file with the
Trustee and the Commission, and transmit to Holders, such information, documents
and other reports, and such summaries thereof, as may be required pursuant to
the Trust Indenture Act at the times and in the manner provided pursuant to such
Act; provided that any such information, documents or reports required to be
filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Trustee within 15 days after the same is so required to
be filed with the Commission. Delivery of such information, documents and
reports to the Trustee is for informational purposes only and the Trustee's
receipt of such shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
the Company's compliance with any of its covenants thereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates). (Section
7.04)
CERTAIN DEFINITIONS
The term "Debt" as defined in the Indenture means any outstanding debt for
money borrowed evidenced by notes, debentures, bonds or other securities.
The term "Net Tangible Assets" as defined in the Indenture means the amount
shown as total assets on the consolidated balance sheet of the Company, less the
following: (i) intangible assets including, but without limitation, such items
as goodwill, trademarks, trade names, patents, and unamortized debt discount and
expense and other regulatory assets carried as an asset on the Company's
consolidated balance sheet; and (ii) appropriate adjustments, if any, on account
of minority interests. Net Tangible Assets shall be determined in accordance
with generally accepted accounting principles and practices applicable to the
type of business in
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<PAGE> 28
which the Company is engaged and that are approved by the independent
accountants regularly retained by the Company, and may be determined as of a
date not more than sixty (60) days prior to the happening of the event for which
such determination is being made.
The term "Operating Property" as defined in the Indenture means (i) any
interest in real property owned by the Company and (ii) any asset owned by the
Company that is depreciable in accordance with generally accepted accounting
principles.
The term "Original Issue Discount SUN" as defined in the Indenture means
any SUN which provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration of the Maturity thereof.
The term "Outstanding" as defined in the Indenture when used with respect
to SUNs, means, as of the date of determination, all SUNs theretofore
authenticated and delivered under the Indenture, except: (i) SUNs theretofore
cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) SUNs
for whose payment or redemption money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the Holders of such SUNs;
provided that, if such SUNs are to be redeemed, notice of such redemption has
been duly given pursuant to the Indenture or provision therefor satisfactory to
the Trustee has been made; (iii) SUNs as to which Defeasance has been effected
pursuant to Section 13.02 of the Indenture; and (iv) SUNs which have been paid
pursuant to Section 3.06 of the Indenture or in exchange for or in lieu of which
other SUNs have been authenticated and delivered pursuant to the Indenture,
other than any such SUNs in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such SUNs are held by a bona fide
purchaser in whose hands such SUNs are valid obligations of the Company;
provided, however, that in determining whether or not the Holders of the
requisite principal amount of the SUNs Outstanding under the Indenture, or the
Outstanding SUNs of any series or Tranche, have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action under the Indenture as of any date or whether or not a quorum is present
at a meeting of Holders, (A) the principal amount of an Original Issue Discount
SUN (as defined herein) which shall be deemed to be Outstanding shall be the
amount of the principal thereof which would be due and payable as of such date
upon acceleration of the Maturity thereof to such date pursuant to Section 5.02
of the Indenture, (B) if, as of such date, the principal amount payable at the
Stated Maturity of a SUN is not determinable, the principal amount of such SUN
which shall be deemed to be Outstanding shall be the amount as specified or
determined as contemplated by Section 3.01 of the Indenture, (C) the principal
amount of a SUN denominated in one or more foreign currencies or currency units
which shall be deemed to be Outstanding shall be the U.S. dollar equivalent,
determined as of such date in the manner provided as contemplated by Section
3.01 of the Indenture, of the principal amount of such SUN (or, in the case of a
SUN described in clause (A) or (B) above, of the amount determined as provided
in such clause), and (D) SUNs owned by the Company or any other obligor upon the
SUNs or any Affiliate of the Company or of such other obligor (unless the
Company, such Affiliate or such obligor owns all SUNs Outstanding under the
Indenture, or all Outstanding SUNs of each such series and each such Tranche, as
the case may be, determined without regard to this clause (D)) shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent, waiver or other action, or upon such
determination as to the presence of a quorum, only SUNs which the Trustee
actually knows to be so owned shall be so disregarded. SUNs so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such SUNs and that the pledgee is not the Company or any other
obligor upon the SUNs or any Affiliate of the Company or of such other obligor.
The term "Sale and Lease-Back Transaction" as defined in the Indenture
means any arrangement with any Person providing for the leasing to the Company
of any Operating Property (except for temporary leases for a term, including any
renewal thereof, of not more than forty-eight (48) months), which Operating
Property has been or is to be sold or transferred by the Company to such person;
provided, however, Sale and Lease-back Transaction shall not include any
arrangement (i) first entered into prior to the date of the
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<PAGE> 29
Indenture and (ii) involving the exchange of any Operating Property for any
property subject to an arrangement specified in the preceding clause (i).
PLAN OF DISTRIBUTION
GENERAL
The Company may sell the SUNs being offered hereby: (i) directly to
purchasers; (ii) through agents; (iii) through dealers; (iv) through
underwriters; or (v) through a combination of any such methods of sale.
The distribution of the SUNs may be effected from time to time in one or
more transactions either: (i) at a fixed price or prices which may be changed;
(ii) at market prices prevailing at the time of sale; (iii) at prices related to
such prevailing market prices; or (iv) at negotiated prices.
Offers to purchase the SUNs may be solicited directly by the Company.
Offers to purchase SUNs may also be solicited by agents designated by the
Company from time to time. Any such agent, who may be deemed to be an
"underwriter" as that term is defined in the Securities Act, involved in the
offer or sale of the SUNs in respect of which this Prospectus is delivered will
be named, and any commissions payable by the Company to such agent will be set
forth, in the applicable Prospectus Supplement.
If a dealer is utilized in the sale of the SUNs in respect of which this
Prospectus is delivered, the Company will sell such SUNs to the dealer, as
principal. The dealer, who may be deemed to be an "underwriter" as that term is
defined in the Securities Act, may then resell such SUNs to the public at
varying prices to be determined by such dealer at the time of resale.
If an underwriter or underwriters are utilized in the sales of the SUNs,
the Company will execute an underwriting agreement with such underwriters at the
time of such sale and the name of the underwriters will be set forth in the
applicable Prospectus Supplement, which will be used by the underwriters to make
resales of the SUNs in respect of which this Prospectus is delivered to the
public. In connection with the sale of SUNs, such underwriters may be deemed to
have received compensation from the Company in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
SUNs for whom they may act as agents. Underwriters may also sell SUNs to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Any underwriting
compensation paid by the Company to underwriters in connection with the offering
and sale of SUNs, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
Prospectus Supplement.
Underwriters, dealers, agents and other persons may be entitled, under
agreements that may be entered into with the Company, to indemnification by the
Company against certain civil liabilities, including liabilities under the
Securities Act. Underwriters and agents may engage in transactions with, or
perform services for, the Company in the ordinary course of business.
LEGAL OPINIONS
The validity of the SUNs offered hereby will be passed upon for the Company
by Keleher & McLeod, P.A., Albuquerque, New Mexico, and, it is currently
anticipated, for any underwriters of SUNs by Winthrop, Stimson, Putnam &
Roberts, New York, New York. In giving their opinions, Winthrop, Stimson, Putnam
& Roberts and Keleher & McLeod, P.A. may rely as to matters of Arizona law upon
the opinion of Snell & Wilmer L.L.P., Phoenix, Arizona. Winthrop, Stimson,
Putnam & Roberts may rely as to all matters of New Mexico law upon the opinion
of Keleher & McLeod, P.A., and Keleher & McLeod, P.A. may rely as to all matters
of New York law upon the opinion of Winthrop, Stimson, Putnam & Roberts.
Winthrop, Stimson, Putnam & Roberts has rendered, and may in the future render,
legal services to the Company.
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EXPERTS
The consolidated financial statements of the Company at December 31, 1997
and 1996, and for each of the three years in the period ended December 31, 1997,
appearing in its Annual Report on Form 10-K for the fiscal year ended December
31, 1997, have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE
OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE OFFERED SUNS, NOR DO THEY CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE OFFERED SUNS TO ANY PERSON IN
ANY JURISDICTION TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING 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.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company........................... S-2
Recent Developments................... S-2
Use of Proceeds....................... S-5
Summary Financial and Operating
Information......................... S-6
Description of Offered SUNs........... S-7
Underwriting.......................... S-9
PROSPECTUS
Available Information................. 2
Incorporation of Certain Information
by Reference........................ 2
The Company........................... 3
Summary Financial and Operating
Information......................... 4
Use of Proceeds....................... 5
Description of SUNs................... 5
Plan of Distribution.................. 19
Legal Opinions........................ 19
Experts............................... 20
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$435,000,000
PUBLIC SERVICE COMPANY
OF NEW MEXICO
$300,000,000 7.10% SERIES A
SENIOR UNSECURED NOTES DUE 2005
$135,000,000 7.50% SERIES B
SENIOR UNSECURED NOTES DUE 2018
------------
PROSPECTUS SUPPLEMENT
DATED AUGUST 3, 1998
------------
SALOMON SMITH BARNEY
CHASE SECURITIES INC.
MORGAN STANLEY DEAN WITTER
CITICORP SECURITIES, INC.
J.P. MORGAN & CO.
BANCAMERICA ROBERTSON STEPHENS
CIBC OPPENHEIMER
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