EXHIBIT 99(b)
OFFER TO PURCHASE
FOR CASH
any and all first mortgage BONDS OF
SOUTHWESTERN PUBLIC SERVICE COMPANY
Dear Holder:
We understand that you may own certain of the following First Mortgage
Bonds (collectively, the "Bonds") of Southwestern Public Service Company, a New
Mexico corporation (the "Company"):
$130,200,000
First Mortgage Bonds, 7 1/4% Series due 2004
CUSIP No. 845743AY9
$49,000,000
First Mortgage Bonds, 6 1/2% Series due 2006
CUSIP No. 845743BD4
$25,950,000
First Mortgage Bonds, 8 1/4% Series due 2022
CUSIP No. 845743AZ6
$52,000,000
First Mortgage Bonds, 8 1/5% Series due 2022
CUSIP No. 845743BB8
$37,767,000
First Mortgage Bonds, 8 1/2% Series due 2025
CUSIP No. 845743BC6
As more fully described below, the Company is offering to purchase for cash
any and all of these outstanding Bonds through a continuous fixed spread tender
offer commencing at 9:00 a.m., New York City time, on July 24, 2000, and
expiring at 5:00 p.m., New York City time, on August 4, 2000, unless extended by
the Company (the "Tender Period"). Lehman Brothers Inc. ("Lehman Brothers") is
the dealer manager (the "Dealer Manager") in connection with the Offer (as
defined below).
The Company presently intends to defease, by the end of 2000, all Bonds not
tendered pursuant to the Offer or otherwise acquired by the Company. Defeasance
would result in the payment of the Bonds at 100% of their principal amount at
maturity for those Bonds that are not redeemable, and at the applicable
redemption price on the first redemption date for Bonds that are redeemable, as
the case may be. Interest on Bonds to be defeased would continue to be paid as
at present to but not including the date the Bonds are retired. Defeasance may
have adverse tax consequence to those holders whose Bonds are defeased. See
"Discharge of Obligations under the Indenture Following the Offer" and "United
States Federal Income Tax Consequences".
The Dealer Manager is:
LEHMAN BROTHERS
The date of this Offer to Purchase is July 24, 2000.
<PAGE>
The Offer to Purchase
The Company hereby offers to purchase, commencing at 9:00 a.m., New York
City time, on July 24, 2000, any and all of the Bonds tendered at the respective
purchase prices per $1,000 principal amount of the Bonds (collectively, the
"Purchase Prices") to be determined during the Tender Period as provided
immediately below, plus the amount of accrued and unpaid interest from the last
regular payments of semiannual interest to (but not including) the Settlement
Date (as defined below) (the "Offer").
<TABLE>
<CAPTION>
Latest Interest
Series of Bonds Payment Date
--------------- ---------------
<S> <C>
First Mortgage Bonds, 7 1/4% Series due 2004 (the "7 1/4% Bonds") July 15, 2000
First Mortgage Bonds, 6 1/2% Series due 2006 (the "6 1/2% Bonds") March 1, 2000
First Mortgage Bonds, 8 1/4% Series due 2022 (the "8 1/4% Bonds") July 15, 2000
First Mortgage Bonds, 8 1/5% Series due 2022 (the "8 1/5% Bonds") June 1, 2000
First Mortgage Bonds, 8 1/2% Series due 2025 (the "8 1/2% Bonds") February 15, 2000
</TABLE>
The "Settlement Date" in respect of any tendered Bonds will be either (i)
the third New York City business day following the date on which the holder of
Bonds (a "Holder") tenders such Bonds and the same are accepted for purchase in
accordance with the Offer (the "Tender Date") or (ii) if a Holder expressly
elects, August 9, 2000, the simultaneous settlement date with respect to the
Offer.
The "Purchase Prices" for the Bonds will be calculated as the prices
resulting from the yields to maturity based on the Retirement Date (as defined
below) of such Bonds (collectively, the "Tender Offer Yields") equal to the sum
of (i) the yields on the Reference U.S. Treasury Notes specified in the table
below, as calculated by Lehman Brothers in accordance with standard market
practice, based on the bid price for such Reference U.S. Treasury Notes at the
time a Holder agrees to tender such Bonds to the Company through Lehman
Brothers, as displayed on the relevant Reference Page of the Bloomberg
Government Pricing Monitor specified in the table below (or, if any relevant
price is not available on a timely basis on the Bloomberg Government Pricing
Monitor or is manifestly erroneous, such other recognized quotation service as
Lehman Brothers shall select in its sole discretion), plus (ii) the respective
Fixed Spread specified in the table below.
<TABLE>
<CAPTION>
Outstanding Reference U.S. Reference Fixed
Series of Bonds CUSIP No. Principal Amount Treasury Note Page Spread
--------------- --------- ---------------- ------------- --------- ------
<S> <C> <C> <C> <C> <C>
7 1/4% Bonds due 2004 845743AY9 $130,200,000 5.25% due 5/15/04 PX 5 +25 bp
6 1/2% Bonds due 2006 845743BD4 $49,000,000 5.625% due 2/15/06 PX 6 +40 bp
8 1/4% Bonds due 2022 845743AZ6 $25,950,000 6.25% due 6/30/02 PX 4 +35 bp
8 1/5% Bonds due 2022 845743BB8 $52,000,000 5.75% due 11/30/02 PX 5 +35 bp
8 1/2% Bonds due 2025 845743BC6 $37,767,000 7.50% due 2/15/05 PX 6 +50 bp
</TABLE>
"Retirement Date" means the earlier of (i) the first date on which the
Bonds are redeemable by the Company pursuant to the Indenture (as defined below)
and the relevant supplemental indenture (referred to below), if such Bonds are
subject to redemption, and (ii) the maturity date of such Bonds. Retirement
Dates are used because the Company presently intends to defease all Bonds that
are not tendered and accepted in the Offer, or otherwise acquired by the
Company. Once defeased, Holders will be paid (i) interest semi-annually, as paid
at present, to (but not including) the earlier of the first date on which such
Bonds may be redeemed and their maturity dates and (ii) principal at the earlier
of such first redemption date and maturity date.
2
<PAGE>
Lehman Brothers will determine the applicable Purchase Price for a tendered
Bond during the Tender Period by calculating, per $1,000 principal amount of
such Bond, the present value of (a) the principal amount payable at the relevant
Retirement Date , plus (b) all remaining payments of interest (excluding
interest accrued to the Settlement Date) up to but not including such Retirement
Date, discounted (assuming payment on the applicable Settlement Date) in
accordance with the assumptions and methodologies described in Schedule A
attached hereto, at an interest rate equal to the applicable Tender Offer Yield.
The applicable Purchase Price will be rounded to the nearest cent per $1,000
principal amount of Bonds. Examples of purchase price determinations for the
respective Bonds demonstrating the application of the assumptions and the
methodologies used in pricing the Offer for the Bonds are set forth in Schedules
B, C, D, E and F attached hereto.
"Reference U.S. Treasury Notes" refers to the respective United States
Treasury Notes specified in the table above, as displayed on the relevant
Reference Pages of the Bloomberg Government Pricing Monitor or, if any relevant
price is not available on a timely basis on the Bloomberg Government Pricing
Monitor or is manifestly erroneous, such other recognized quotation service as
Lehman Brothers shall select in its sole discretion. Although the current yields
on the Reference U.S. Treasury Notes will be taken in the manner noted above,
information regarding the closing yields on the Reference U.S. Treasury Notes
may also be found in The Wall Street Journal.
The yields of the Reference U.S. Treasury Notes of the 7 1/4% Bonds, 6 1/2%
Bonds, 8 1/4% Bonds, 8 1/5% Bonds and 8 1/2% Bonds as of 10:00 a.m., New York
City time, on July 20, 2000, were 6.39%, 6.34%, 6.46%, 6.46% and 6.35%,
respectively. Accordingly, the Tender Offer Yields and Purchase Prices per
$1,000 principal amount of 7 1/4% Bonds, 6 1/2% Bonds, 8 1/4% Bonds, 8 1/5%
Bonds and 8 1/2% Bonds, had they been subject to the Offer and tendered at such
time, would have been 6.64% and $1,020.83, 6.74% and $989.01, 6.81% and
$1,057.03, 6.81% and $1,063.63 and 6.85% and $1,094.49, respectively (assuming
the simultaneous settlement date is August 9, 2000). See Schedules B, C, D, E
and F.
The table below lists, for each series of Bonds, the respective maturity
dates and first redemption dates of such Bonds. All Bonds that are not tendered
and accepted in the Offer, or otherwise acquired by the Company, will be
defeased, as discussed above.
<TABLE>
<CAPTION>
Series of Bonds Maturity Date First Redemption Date
--------------- ------------- ---------------------
<S> <C> <C>
7 1/4% Bonds July 15, 2004 Not Applicable
6 1/2% Bonds March 1, 2006 Not Applicable
8 1/4% Bonds July 15, 2022 July 15, 2002
8 1/5% Bonds December 1, 2022 December 1, 2002
8 1/2% Bonds February 15, 2025 February 15, 2005
</TABLE>
Holders may ascertain the current yields on the respective Reference U.S.
Treasury Notes and the then applicable Purchase Prices for their Bonds by
contacting Hyonwoo Shin of Lehman Brothers at (800) 438-3242 or collect at (212)
528-7581 during business hours on any New York City business day during the
Tender Period. Lehman Brothers' determination of the Purchase Prices at any time
shall be conclusive and binding, absent manifest error.
Tenders will be accepted after 9:00 a.m. and before 5:00 p.m., New York
City time, on any New York City business day during the Tender Period, and at
such other times during the Tender Period subject to the discretion of Lehman
Brothers.
3
<PAGE>
Expiration of Offer, Payment for Bonds
The Offer will expire at 5:00 p.m., New York City time, on August 4, 2000,
unless extended by the Company (such date or the latest date to which the Offer
is extended being the "Expiration Date"). The Company expressly reserves the
right to extend the Offer on a daily basis for such period or periods as the
Company may determine in its sole discretion from time to time by making a
public announcement by press release to the Dow Jones News Service prior to 9:00
a.m., New York City time, on any date not later than the next business day
following the previously scheduled Expiration Date.
Payment for any Bonds purchased pursuant to the Offer will be made on the
"Settlement Date" which will be either (i) the third New York City business day
following the Tender Date or (ii) if a Holder expressly elects, August 9, 2000,
the simultaneous settlement date for the Offer, in accordance with the
procedures set forth below. Payment for Bonds purchased pursuant to the Offer
will be made in immediately available funds.
No Recommendation
NEITHER THE COMPANY NOR THE DEALER MANAGER MAKES ANY RECOMMENDATION THAT
ANY HOLDER TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF SUCH HOLDER'S
BONDS, AND NO ONE HAS BEEN AUTHORIZED BY EITHER OF THEM TO MAKE SUCH
RECOMMENDATION. HOLDERS MUST MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER
BONDS, AND, IF SO, THE PRINCIPAL AMOUNT OF BONDS TO TENDER.
Procedures for Tendering Bonds and Accepting this Offer
Subject to the terms of the Offer, tenders will be accepted after 9:00 a.m.
and before 5:00 p.m., New York City time, on any New York City business day
during the Tender Period. All tenders will be executed in the customary manner
of a corporate bond trade through Lehman Brothers. Please do not send your Bonds
to the Company or the Dealer Manager; rather, follow the tendering procedures
described herein.
If you have an account with the Dealer Manager and desire to tender all or
any portion of the principal amount of your Bonds, please contact your
representative at the Dealer Manager.
If you do not currently have an account with the Dealer Manager and desire
to tender all or any portion of the principal amount of your Bonds, the Company
requests that you handle this matter through your broker, dealer, commercial
bank, trust company or other financial institution (collectively, a "broker").
Holders will not be required to pay any fee or commission to the Dealer Manager
if such Holders have an account with the Dealer Manager. Holders may, however,
be required to pay fees or commissions if Holders use a broker other than the
Dealer Manager.
If any Holder has any questions regarding how to tender Bonds, please
contact Hyonwoo Shin of Lehman Brothers at (800) 438-3242 or collect at (212)
528-7581.
All questions as to the validity, form, eligibility (including time of
receipt), agreement to tender and acceptance of any tender of the Bonds shall be
determined by the Company, in its sole discretion, which determination shall be
conclusive and binding. The Company reserves the absolute right to reject, at
any time prior to payment of the Purchase Prices for any Bonds, any and all
tenders not in proper form or for which acceptance for purchase or payment of
the Bonds would, in the opinion of the Company's counsel, be unlawful. The
Company also reserves the absolute right to waive any defects in tender with
regard to any particular Bond. Neither the Company nor the Dealer Manager shall
be under any duty to give notification to tendering Holders of any defects or
irregularities in tenders, and none of them shall incur any liabilities for
failure to give any such notification.
4
<PAGE>
The acceptance of the Offer by a Holder pursuant to any one of the
procedures set forth above will constitute an agreement between the tendering
Holder and the Company in accordance with the terms and subject to the
conditions of the Offer. The acceptance of the Offer by a tendering Holder will
constitute an agreement by such Holder to deliver good and marketable title to
all Bonds tendered by such Holder on the appropriate Settlement Date free and
clear of all liens, charges, claims, encumbrances, interests or restrictions of
any kind. A tender of Bonds pursuant to this Offer becomes irrevocable by the
relevant Holder at the time of the tender.
Termination, Withdrawal and Amendment
To the extent legally permitted, the Company expressly reserves the
absolute right, in its sole discretion, to (i) waive any provision of the Offer,
(ii) amend any of the terms of the Offer, (iii) modify the applicable Purchase
Prices and (iv) terminate the Offer, and not accept for payment any Bonds not
yet accepted for payment upon the failure of any of the conditions specified
herein or otherwise. Except for a modification of the Purchase Prices, any
waiver, amendment, or modification to the Offer will apply only to those Bonds
which have not been accepted for purchase following their tender to the Company.
If the Company materially changes the terms of the Offer or modifies the
Purchase Prices, the Company will notify Holders, disseminate additional tender
offer materials and extend the Offer to the extent required by law. The terms of
any amendment or modification resulting in an extension of the Offer may vary
from the original Offer, depending on such factors as prevailing interest rates
and the principal amount of Bonds previously tendered or otherwise purchased.
The Company expressly reserves the right, in its sole discretion, to
terminate or withdraw the Offer at any time prior to the Expiration Date if any
of the following events shall occur and shall not have been waived by the
Company: (i) any general suspension or limitation of trading in, or limitation
on prices for, securities on any U.S. national securities exchange or the
over-the-counter market, or the setting of minimum prices for trading on such
exchange or market; (ii) any suspension of trading of any securities of the
Company on The New York Stock Exchange; (iii) the declaration of a banking
moratorium, or any suspension of payments in respect of banks, by federal or New
York authorities, or (iv) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by the United States
or any other substantial state, national or international calamity or emergency
which makes it impractical or inadvisable in the view of the Company for the
Company to continue with the Offer.
The right to terminate or withdraw the Offer upon the occurrence of any of
the foregoing events or otherwise may be asserted by the Company, in its sole
discretion, regardless of the circumstances giving rise to any such event or may
be waived by the Company in whole or in part at any time and from time to time
in the Company's sole discretion. The failure by the Company at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time. Notwithstanding any other provision of the Offer, the Company will
not be required to purchase or pay for any Bonds tendered if, before payment
therefor, any of the foregoing events shall have occurred.
Certain Terms of the Bonds
The following table presents a summary of certain terms of the Bonds and does
not purport to be complete and is qualified in its entirety by reference to the
Indenture (as defined below) and the respective supplemental indentures referred
to below pursuant to which each of the Bonds was issued. Holders are referred to
the Indenture, together with such respective supplemental indentures, and to the
Bonds for a more complete description of the Bonds.
5
<PAGE>
<TABLE>
<CAPTION>
Amount Semi-annual Maturity Date or First
Series of Bonds Outstanding Interest Payment Dates Redemption Date and Price1
--------------- ------------ ---------------------- --------------------------
<S> <C> <C> <C>
7 1/4% Bonds $130,200,000 January 1 and July 15 July 15, 2004 at 100.00%
6 1/2% Bonds $49,000,000 March1 and September1 March 1, 2006 at 100.00%
8 1/4% Bonds $25,950,000 January 15 and July 15 July 15, 2002 at 103.575%
8 1/5% Bonds $52,000,000 June 1 and December 1 December 1, 2002 at 104.038%
8 1/2% Bonds $37,767,000 February 15 and August 15 February 15, 2005 at 104.225%
</TABLE>
Governing Documents
Each series of the Bonds was issued under the Indenture of Mortgage and
Deed of Trust dated August 1, 1946 (the "Indenture") between the Company and The
Chase Manhattan Bank (as successor to Chemical Bank, as successor to The New
York Trust Company), as trustee (the "Trustee") and the respective supplemental
indentures listed below. The Company filed the Indenture as Exhibit 7-A to its
Registration Statement (File No. 2-6910).
The 7 1/4% Bonds were issued pursuant to the Indenture, as supplemented by
the Supplemental Indenture dated as of July 15, 1992 between the Company and the
Trustee. The Company filed this supplemental indenture as Exhibit 4(a) to its
Annual Report on Form 10-K for the fiscal year ended August 31, 1992.
The 6 1/2% Bonds were issued pursuant to the Indenture, as supplemented by
the Supplemental Indenture dated as of March 1, 1996 between the Company and the
Trustee. The Company filed this supplemental indenture as Exhibit 4(c) to its
Registration Statement on Form S-3 (File No. 333-05199).
The 8 1/4% Bonds were issued pursuant to the Indenture, as supplemented by
the Supplemental Indenture dated as of July 15, 1992 between the Company and the
Trustee. The Company filed this supplemental indenture as Exhibit 4(a) to its
Annual Report on Form 10-K for the fiscal year ended August 31, 1992.
The 8 1/5% Bonds were issued pursuant to the Indenture, as supplemented by
the Supplemental Indenture dated as of December 1, 1992 between the Company and
the Trustee. The Company filed this supplemental indenture as Exhibit 4 to its
Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 1993.
The 8 1/2% Bonds were issued pursuant to the Indenture, as supplemented by
the Supplemental Indenture dated as of February 15, 1995 between the Company and
the Trustee. The Company filed this supplemental indenture as Exhibit 4 to its
Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 1995.
Certain Effects of the Offer
Bonds purchased pursuant to the Offer will be delivered to the Trustee
for cancellation. The purchase of Bonds pursuant to the Offer will reduce the
aggregate principal amount of Bonds that otherwise might trade publicly, which
could adversely affect the liquidity and market value of the remaining Bonds
held by the public.
----------
1 Represents maturity date for Bonds which are not redeemable (7 1/4% Bonds
and 6 1/2 % Bonds) and the first redemption date for Bonds which are
redeemable (8 1/4% Bonds, 8 1/5% Bonds and 8 1/2% Bonds). Bonds will be
paid at the price shown (as a percentage of par) plus, in each case,
accrued interest to but excluding the retirement date.
6
<PAGE>
Following completion of the Offer, the Company reserves the right to
purchase additional Bonds, which have not been tendered and accepted pursuant to
the Offer, in the open market, in privately negotiated transactions, through
subsequent tender offers or otherwise. Any future purchases may be on the same
terms or on terms which are more or less favorable to Holders than the terms of
the Offer. The terms of any future purchases by the Company will depend on
various factors existing at that time.
Purpose of this Offer
The Company is an electric utility providing service to customers in
portions of Texas, New Mexico, Oklahoma and Kansas. Each of Texas and New Mexico
enacted legislation during 1999 that requires the Company to unbundle its
business activities into separate legal entities and take certain other action.
Therefore, the Company plans to separate its assets and operations into four
legal entities by the end of 2000 -- a power generation company, a regulated
transmission and distribution company, a retail electric provider and a customer
care company. Prior to this legal separation and transfer of assets from the
Company to new legal entities (which will be subsidiaries of New Century
Energies, Inc., the parent of the Company, or, Xcel Energy Inc. after the merger
of New Century Energies, Inc. into Northern States Power Company (which will be
renamed Xcel Energy Inc.)), the Company will be required to discharge its
obligations under the Indenture and each of the respective supplemental
indentures. The Company is making the Offer in connection with this
restructuring. For additional information regarding the restructuring and the
merger, see the Company's reports filed with the Securities and Exchange
Commission which are listed below under "Available Information and Incorporation
of Certain Documents by Reference."
Discharge of Obligations under the Indenture Following the Offer
The Indenture and each of the respective supplemental indentures under
which the Bonds have been issued permit the Company to defease its obligations
with respect to outstanding Bonds if the Company (i) pays to the Trustee cash
sufficient to discharge the Company's indebtedness and other sums payable with
respect to all outstanding Bonds, other than Bonds delivered by the Company to
the Trustee, and (ii) satisfies certain other conditions, including the delivery
of an opinion of counsel and an officers' certificate. Upon satisfaction and
discharge of the Indenture (including the supplemental indentures), the
Company's obligations with respect to the Bonds shall cease. The Company
presently intends to discharge its obligations with respect to the remaining
outstanding Bonds by defeasance. Although the Company has not yet set a date for
its Bonds to be defeased, it presently intends to defease such Bonds by the end
of 2000.
Upon defeasance, all rights of the Holders of defeased Bonds under the
Indenture (including each of the respective supplemental indentures) will cease,
except the right to receive payments of principal and interest on the Bonds when
due. Accordingly, the Holder of any Bond outstanding at the time of defeasance
will be entitled, during the period from defeasance to (but not including) the
date such Bonds are retired at maturity or upon redemption, as the case may be,
to receive interest at the same times and in the same amounts as at present and
100% of the principal amount of such Bonds at their respective maturities for
those Bonds that are not redeemable and, upon redemption, the applicable
redemption price for those Bonds that are redeemable. See "The Offer to
Purchase" and "Certain Terms of the Bonds". The consideration to be deposited by
the Company with the Trustee at the time of defeasance to defease Bonds under
the Indenture and each of the respective supplemental indentures will be held in
trust by the Trustee for the benefit of the Holder of the defeased Bonds, and
will be paid to such Holders when interest on such Bond, or the payment of
principal or redemption price, shall become due.
In addition, upon defeasance occurring and the Company being discharged
from its obligations under the Bonds and the Indenture (including the
supplemental indentures), Holders would be treated for United States federal
income tax purposes as having exchanged their Bonds for new debt instruments in
a taxable transaction. AS SUGGESTED BELOW, HOLDERS ARE URGED TO CONSULT WITH
THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF DEFEASANCE.
7
<PAGE>
United States Federal Income Tax Consequences
The following is a general summary of certain anticipated United States
federal income tax consequences of the sale of Bonds by the Holders to the
Company pursuant to the Offer. This discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations (including
proposed Treasury regulations) issued thereunder, Internal Revenue Service
("IRS") rulings and pronouncements and judicial decisions now in effect, all of
which are subject to change, possibly on a retroactive basis. This summary does
not deal with special classes of Holders such as banks, thrifts, real estate
investment trusts, regulated investment companies, insurance companies, dealers
in securities or currencies, tax-exempt investors, foreign Holders, or persons
who do not hold the Bonds as "capital assets" within the meaning of Section 1221
of the Code.
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES OF THE OFFER TO THEM IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
Sale of Bonds Pursuant to the Offer. The receipt of cash for the Bonds
pursuant to the Offer will be a taxable transaction. Accordingly, subject to the
market discount rules discussed below, a Holder will recognize capital gain or
loss in an amount equal to the difference between the amount of cash received
(except to the extent attributable to accrued interest on the Bonds) and the
Holder's tax basis in the Bonds surrendered. Such gain or loss will be long-term
capital gain or loss if the Holder has held the Bonds for more than one year.
Capital gains of individuals derived with respect to capital assets held for
more than one year are eligible for a reduced rate of taxation. The
deductibility of capital losses is subject to limitations. Any portion of the
payment received which is attributable to accrued interest on the Bonds will be
taxable as ordinary income to the Holder unless previously included in income.
A Holder that purchased Bonds at a "market discount" (i.e., at a price
below their face amount) may be subject to certain recharacterization rules with
respect to the gain, if any, recognized on a sale of the Bonds pursuant to the
Offer. In general, under the market discount rules, any gain recognized on the
sale of a Bond pursuant to the Offer will be treated as interest income (rather
than capital gain) to the extent of the accrued market discount (unless the
Holder had previously elected to include such market discount in income as it
accrued).
Backup Withholding. In order to avoid backup withholding, a Holder (other
than an exempt Holder) whose tendered Bonds are accepted for payment must
provide the Dealer Manager (as payor) with such Holder's correct taxpayer
identification number, which, in the case of a Holder who is an individual, is
his social security number (or certify that such Holder is awaiting a taxpayer
identification number), and certify that (i) the Holder has not been notified by
the IRS that such Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the IRS has notified the Holder that
he is no longer subject to backup withholding. The Dealer Manager will be
required to file information returns with the IRS reporting the gross proceeds
of the Offer to nonexempt Holders.
If the Dealer Manager is not provided with the correct taxpayer
identification number and certificate or other adequate basis for exemption, the
Holder may be subject to a $50 penalty imposed by the IRS and the gross proceeds
of the Offer paid to the Holder may be subject to a 31% backup withholding tax.
Any amount withheld under these rules will be creditable against the Holder's
federal income tax liability, and, if withholding results in an overpayment of
taxes, a refund may be applied for.
Defeasance of Non- Tendering Holders. Since the defeasance will terminate
all of the Company's legal obligations with respect to the Bonds, the Company
would likely be deemed to have exchanged the existing Bonds ("Old Bonds") for
new Bonds ("New Bonds") as a result of the defeasance. Under this
characterization,
8
<PAGE>
a non-tendering Holder would generally recognize a gain or loss on an "exchange"
because the exchange will likely not qualify as a tax-free recapitalization.
A Holder would generally recognize a capital gain or loss (subject to the
market discount rules discussed above) equal to the difference between the issue
price of the New Bonds (except to the extent attributable to accrued but unpaid
interest, which would be treated as ordinary income if not previously included
in the Holder's income) and the Holder's adjusted tax basis in the Old Bonds.
The issue price of the New Bonds would equal the fair market value of the Old
Bonds at the time of the defeasance if the New Bonds are not deemed publicly
traded for Federal income tax purposes (or alternatively, the fair market value
of the New Bonds if they are deemed to be publicly traded for Federal income tax
purposes).
Non-tendering Holders are urged to consult their tax advisors with regards
to tax consequences of a defeasance.
Available Information and Incorporation of Certain Documents by Reference
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports 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 Commission's Regional Offices located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, New York, New York 10048. Copies of such material may also be
obtained by mail from the Public Reference Branch of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web site (http://www.sec.gov) containing reports, proxy statements
and other information regarding registrants that file electronically with the
Commission.
The following documents heretofore filed by the Company (File No. 1-3789)
under the Exchange Act with the Commission are hereby incorporated herein by
reference:
(i) the Annual Report on Form 10-K for the fiscal year ended December 31,
1999 (included in the New Century Energies, Inc. combined Annual Report on Form
10-K for such year);
(ii) the Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2000 (included in the New Century Energies, Inc. combined Quarterly Report
for such quarter); and
(iii) the Current Reports on Form 8-K dated April 18, 2000 and May 30, 2000
(included in the New Century Energies Inc. combined Current Reports on Form
8-K).
Dealer Manager Fees
The Company has agreed to pay the Dealer Manager a fee based on the face
amount of Bonds purchased pursuant to the Offer and will reimburse the Dealer
Manager for its reasonable expenses incurred in connection with the Offer. The
Company has agreed to indemnify the Dealer Manager against certain liabilities
and expenses in connection with the Offer.
Other Matters
The Offer is being made to all Holders. However, the Offer is not
contingent upon the tender of any minimum principal amount of Bonds. The Offer
is not being made to Holders in any jurisdiction in which the making or
acceptance thereof would not be in compliance with the securities, blue sky or
other laws of such
9
<PAGE>
jurisdiction. In any jurisdiction in which the Offer is required to be made by a
licensed broker or dealer, the Offer is deemed to be made by the Dealer Manager
on behalf of the Company.
Information about the Offer will be available on the MCM "CORPORATEWATCH"
Service on Telerate -- Page 64165.
If you have any questions, please contact Hyonwoo Shin of Lehman Brothers
at (800) 438-3242 or collect at (212) 528-7581.
LEHMAN BROTHERS INC.
10
<PAGE>
SCHEDULE A
YLD = Tender Offer Yield expressed as a decimal number (to the nearest one
thousandth of one percent)
CPN = the nominal rate of interest payable on a Bond expressed as a decimal
number
N = the number of semiannual interest payments, based on the maturity date or
the first redemption date, as the case may be, from (but excluding) the
Settlement Date to (and including) such maturity or redemption date.
S = the number of days from and including the semiannual interest payment
date immediately preceding the Settlement Date up to, but not including,
the Settlement Date. The number of days is computed using the 30/360
day-count method.
exp = Exponentiate. The term to the left of "exp" is raised to the power
indicated by the term to the right of "exp".
RV = the assumed retirement value for each Bond per $1,000 principal amount of
a Bond.
PRICE = the applicable Purchase Price of a Bond per $ 1,000 principal amount of
a Bond. The Purchase Price is rounded to the nearest cent.
PRICE = RV
------------------------------------
(1+YLD/2) exp (N-S/180)
N 1,000 (CPN /2)
+ (sum of) ------------------------------------
k=1 (1 - YLD/2) exp (k - S/180)
- $1,000 (CPN/2) (S/180)
<PAGE>
SCHEDULE B
EXAMPLE OF PURCHASE PRICE DETERMINATION
This Schedule provides a hypothetical illustration of the Purchase Price of
the First Mortgage Bonds, 7 1/4% Series due 2004 based on hypothetical data, and
should therefore be used solely for the purpose of obtaining an understanding of
the calculation of the Purchase Price, as quoted at hypothetical rates and
times.
<TABLE>
<CAPTION>
First Mortgage Bonds, 7 1/4% Series due 2004
<S> <C>
Maturity Date: July 15, 2004
Reference Security: U.S. Treasury 5.25%, due May 15, 2004, as displayed on
the Bloomberg Government Pricing Monitor on Page PX 5
Fixed Spread: 0.25% (25 basis points)
Example:
Hypothetical Price Determination Date and Time: 10:00 a.m., New York City time, July 20, 2000
Assumed Payment Date: August 9, 2000
Assumed Reference Security Yield: 6.39%
Tender Offer Spread: 0.25%
YLD: 6.64%
CPN: 7.250%
N: 8
S: 24
RV: $1,000.00
Price: $1,020.83
Calculation:
$1,000.00 8 $1,000(.0725/2)
------------------------------------- + (sum of) ---------------------------
k=1
(1+ .0664/2) exp (8 - 24/180) (1+ .0664/2) exp (k - 24/180)
- $1,000 (.0725/2) * (24/180)
</TABLE>
<PAGE>
SCHEDULE C
EXAMPLE OF PURCHASE PRICE DETERMINATION
This Schedule provides a hypothetical illustration of the Purchase Price of
the First Mortgage Bonds, 6 1/2% Series due 2006 based on hypothetical data, and
should therefore be used solely for the purpose of obtaining an understanding of
the calculation of the Purchase Price, as quoted at hypothetical rates and
times.
<TABLE>
<CAPTION>
First Mortgage Bonds, 6 1/2% Series due 2006
<S> <C>
Maturity Date: March 1, 2006
Reference Security: U.S. Treasury 5.625%, due February 15, 2006, as
displayed on the Bloomberg Government Pricing Monitor
on Page PX 6
Fixed Spread: 0.40% (40 basis points)
Example:
Hypothetical Price Determination Date and Time: 10:00 a.m., New York City time, July 20, 2000
Assumed Payment Date: August 9, 2000
Assumed Reference Security Yield: 6.34%
Tender Offer Spread: 0.40%
YLD: 6.74%
CPN: 6.500%
N: 12
S: 158
RV: $1,000.00
Price: $989.01
Calculation:
$1,000.00 12 $1,000(.065/2)
------------------------------------- + (sum of) ---------------------------
k=1
(1+ .0674/2) exp (12 - 158/180) (1+ .0674/2) exp (k - 158/180)
- $1,000 (.065/2) * (158/180)
</TABLE>
<PAGE>
SCHEDULE D
EXAMPLE OF PURCHASE PRICE DETERMINATION
This Schedule provides a hypothetical illustration of the Purchase Price of
the First Mortgage Bonds, 8 1/4% Series due 2022 based on hypothetical data, and
should therefore be used solely for the purpose of obtaining an understanding of
the calculation of the Purchase Price, as quoted at hypothetical rates and
times.
<TABLE>
<CAPTION>
First Mortgage Bonds, 8 1/4% Series due 2022
<S> <C>
Maturity Date: July 15, 2022
First Redemption Date: July 15, 2002
Reference Security: U.S. Treasury 6.25%, due June 30, 2002, as displayed
on the Bloomberg Government Pricing Monitor on Page PX
4
Fixed Spread: 0.35% (35 basis points)
Example:
Hypothetical Price Determination Date and Time: 10:00 a.m., New York City time, July 20, 2000
Assumed Payment Date: August 9, 2000
Assumed Reference Security Yield: 6.46%
Tender Offer Spread: 0.35%
YLD: 6.81%
CPN: 8.250%
N: 4
S: 24
RV: $1,035.75
Price: $1,057.03
Calculation:
$1,000.00 4 $1,000(.0825/2)
------------------------------------- + (sum of) ---------------------------
k=1
(1+ .0681/2) exp (4 - 24/180) (1+ .0681/2) exp (k - 24/180)
- $1,000 (.0825/2) * (24/180)
</TABLE>
<PAGE>
SCHEDULE E
EXAMPLE OF PURCHASE PRICE DETERMINATION
This Schedule provides a hypothetical illustration of the Purchase Price of
the First Mortgage Bonds, 8 1/5% Series due 2022 based on hypothetical data, and
should therefore be used solely for the purpose of obtaining an understanding of
the calculation of the Purchase Price, as quoted at hypothetical rates and
times.
<TABLE>
<CAPTION>
First Mortgage Bonds, 8 1/5% Series due 2022
<S> <C> <C> <C>
Maturity Date: December 1, 2022
First Redemption Date: December 1, 2002
Reference Security: U.S. Treasury 5.75%, due November 30, 2002, as
displayed on the Bloomberg Government Pricing Monitor
on Page PX 5
Fixed Spread: 0.35% (35 basis points)
Example:
Hypothetical Price Determination Date and Time: 10:00 a.m., New York City time, July 20, 2000
Assumed Payment Date: August 9, 2000
Assumed Reference Security Yield: 6.46%
Tender Offer Spread: 0.35%
YLD: 6.81%
CPN: 8.200%
N: 5
S: 68
RV: $1,040.38
Price: $1,063.63
Calculation:
$1,000.00 5 $1,000(.082/2)
------------------------------------- + (sum of) ---------------------------
k=1
(1+ .0681/2) exp (5 - 68/180) (1+ .0681/2) exp (k - 68/180)
- $1,000 (.082/2) * (68/180)
</TABLE>
<PAGE>
SCHEDULE F
EXAMPLE OF PURCHASE PRICE DETERMINATION
This Schedule provides a hypothetical illustration of the Purchase Price of
the First Mortgage Bonds, 8 1/2% Series due 2025 based on hypothetical data, and
should therefore be used solely for the purpose of obtaining an understanding of
the calculation of the Purchase Price, as quoted at hypothetical rates and
times.
<TABLE>
<CAPTION>
First Mortgage Bonds, 8 1/2% Series due 2025
<S> <C>
Maturity Date: February 15, 2025
First Redemption Date: February 15, 2005
Reference Security: U.S. Treasury 7.50%, due February 15, 2005, as
displayed on the Bloomberg Government Pricing Monitor
on Page PX 6
Fixed Spread: 0.50% (50 basis points)
Example:
Hypothetical Price Determination Date and Time: 10:00 a.m., New York City time, July 20, 2000
Assumed Payment Date: August 9, 2000
Assumed Reference Security Yield: 6.35%
Tender Offer Spread: 0.50%
YLD: 6.85%
CPN: 8.500%
N: 10
S: 174
RV: $1,042.25
Price: $1,094.49
Calculation:
$1,000.00 10 $1,000(.085/2)
------------------------------------- + (sum of) ---------------------------
k=1
(1+ .0635/2) exp (10 - 174/180) (1+ .0635/2) exp (k - 174/180)
- $1,000 (.085/2) * (174/180)
</TABLE>
