-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mnl+GWmHSyNe2NHTzgFruxegRbNkCESgjCj6OK/JsRGBhhqKfBzTOubfkFOmpRfW Jj5ZDuoXer74jPRqArl6lg== 0000018675-97-000005.txt : 19970329 0000018675-97-000005.hdr.sgml : 19970329 ACCESSION NUMBER: 0000018675-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL MAINE POWER CO CENTRAL INDEX KEY: 0000018675 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 010042740 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05139 FILM NUMBER: 97566799 BUSINESS ADDRESS: STREET 1: 83 EDISON DR CITY: AUGUSTA STATE: ME ZIP: 04336 BUSINESS PHONE: 2076233521 10-K 1 CMPCO. 1996 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 1-5139 CENTRAL MAINE POWER COMPANY (Exact name of registrant as specified in its charter) Maine 01-0042740 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 83 Edison Drive, Augusta, Maine 04336 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (207) 623-3521 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Preferred Stock, 7 7/8% Series New York Stock Exchange Common Stock, $5 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: 6% Preferred Stock, $100 Par Value (Voting, Noncallable) (Title of class) Dividend Series Preferred Stock, $100 Par Value (Callable) (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K _x_. State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value of the voting stock held by non-affiliates of the Company was $360,772,712 on March 3, 1997 (based, in the case of the common stock of the Company, on the last reported sale price thereof on the New York Stock Exchange on March 3, 1997). (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. The number of shares of the Company's Common Stock, $5 par value (being the only class of common stock of the Company), outstanding on March 3, 1997, was 32,442,752 shares. DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated:(1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. Portions of the definitive proxy statement for the Company's 1997 Annual Meeting of Shareholders are incorporated by reference in Part III hereof. CENTRAL MAINE POWER COMPANY INFORMATION REQUIRED IN FORM 10-K Item Number Page Part I Item 1. Business 1 Item 2. Properties 12 Item 3. Legal Proceedings 19 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 4.1. Executive Officers of the Registrant 21 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 22 Item 6. Selected Financial Data 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 8. Financial Statements and Supplementary Data 42 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 81 Part III Item 10. Directors and Executive Officers of the Registrant 82 Item 11. Executive Compensation 82 Item 12. Security Ownership of Certain Beneficial Owners and Management 82 Item 13. Certain Relationships and Related Transactions 82 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 83 Signatures 85 FORWARD LOOKING INFORMATION In addition to the historical information contained herein, this report contains a number of "forward-looking statements", within the meaning of the Securities and Exchange Act of 1934. Such statements address future events and conditions concerning capital expenditures, earnings on assets, resolution and impact of litigation, regulatory matters, liquidity and capital resources, and accounting matters. Actual results in each case could differ materially from those projected in such statements, by reason of factors including, without limitation, electric utility restructuring, including the ongoing state and federal activities; future economic conditions; earnings retention and dividend payout policies; developments in the legislative, regulatory and competitive markets in which the Company operates; and other circumstances that could affect anticipated revenues and costs, such as unscheduled maintenance or repair requirements of nuclear and other facilities and compliance with laws and regulations. Nuclear investments and obligations, which are subject to increased regulatory scrutiny, and the amount of the expenditures and the timing of the return of the Maine Yankee generating plant to service could have a material effect on the Company's financial position. These and other factors are discussed in the Company's filings with the Securities and Exchange Commission, including this report. PART I Item 1. BUSINESS. Introduction General. Central Maine Power Company (the "Company") is an investor-owned Maine public utility incorporated in 1905. The Company is primarily engaged in the business of generating, purchasing, transmitting, distributing and selling electric energy for the benefit of retail customers in southern and central Maine and wholesale customers, principally other utilities. The Company is also diversifying into new lines of business, largely through its subsidiaries. See "Competition - Expansion of Lines of Business", below. Its principal executive offices are located at 83 Edison Drive, Augusta, Maine 04336, where its general telephone number is (207) 623-3521. The Company is the largest electric utility in Maine, serving approximately 521,000 customers in its 11,000 square-mile service area in southern and central Maine and having $967 million in consolidated electric operating revenues in 1996 (reflecting consolidation of financial statements with a majority-owned subsidiary, Maine Electric Power Company, Inc. ("MEPCO")). The Company's service area contains the bulk of Maine's industrial and commercial centers, including Portland (the state's largest city), South Portland, Westbrook, Lewiston, Auburn, Rumford, Bath, Biddeford, Saco, Sanford, Kittery, Augusta (the state's capital), Waterville, Fairfield, Skowhegan and Rockland, and approximately 943,000 people, representing about 77 percent of the total population of the state. The Company's industrial and commercial customers include major producers of pulp and paper products, producers of chemicals, plastics, electronic components, processed food, and footwear, and shipbuilders. Large pulp-and-paper industry customers account for approximately 62 percent of the Company's industrial sales and approximately 25 percent of total service-area sales. Nuclear Plant Outages. In 1996 the Company incurred substantially higher costs associated with its investments in nuclear generating units, particularly the 879-megawatt unit owned and operated by Maine Yankee Atomic Power Company ("Maine Yankee") in Wiscasset, Maine, (the "Maine Yankee Plant" or the "Plant") and expects even higher costs in 1997 to have a significant effect on the Company's financial results for 1997. For a complete discussion of the regulatory and operational problems causing such higher Maine Yankee costs, see "Maine Yankee Atomic Power Company," below, and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 1996 Results. The Company generated net earnings of $60.2 million in 1996, compared to net earnings of $38.0 million in 1995. The earnings applicable to common stock was $50.8 million, or $1.57 per share in 1996, compared to earnings applicable to common stock of $27.8 million, or $0.86 per share, in 1995. Electric operating revenues increased by $51.0 million, or 5.6 percent, to $967 million in 1996. Total service-area sales increased by 2.9 percent in 1996, with residential sales increasing by 1.0 percent, commercial sales increasing by 0.5 percent, industrial sales increasing by 4.0 percent, and the small wholesale and lighting category increasing by 58.9 percent. The primary factors in the service-area kilowatt-hour sales increase were residential customers' taking advantage of the Company's water heating program, increased sales in the pulp and paper industry, and the addition of a wholesale customer. The decreases in 1995 and 1994 were attributed to low economic growth, the loss of a major industrial customer in September 1994, energy management, and loss of sales due to conversions from electricity to alternative fuels for such purposes as space and water heating. In order to compete effectively in an increasingly competitive electric utility industry, the Company is pursuing a strategy based on stabilizing its price of electricity, in real terms, through the rest of the decade. To accomplish that goal, the Company in 1996 continued its efforts to control costs, which became a much greater challenge because of the nuclear plant outages, reduce its costs of non-utility purchased power, and expand its lines of business. Significant progress was made in stabilizing rates with the adoption effective January 1, 1995, of the Alternative Rate Plan (the "ARP"), which contains inflation-based price caps, additional pricing flexibility, and efficiency incentives. In addition, as a result of the ARP the Company was able to enter into five-year reduced-price contracts over the last two years with a number of its largest customers designed to ensure that those customers would remain on the Company's system over the five-year period. The Company has used the pricing flexibility provision in the ARP to provide new rates to approximately 19,000 customers, representing approximately 40 percent of annual kilowatt-hour sales and 27 percent of service-area revenues. The Company is actively supporting electric industry restructuring efforts now under consideration by the Maine Legislature. This is part of a national trend to change the electric industry over time into a more competitive industry. A primary goal of this effort is to provide customers with greater choices in the terms, conditions and suppliers of their electric power needs. While many aspects of the transition are uncertain, the transition to direct retail competition could have substantial impacts on the value of utility assets and on the ability of electric utilities to recover their costs through rates. Without effective action by legislators and regulators, utilities could find their above-market costs to be "stranded," or unrecoverable, in the new competitive setting. The Company has substantial exposure to cost stranding relative to its size. See "Competition" and "Restructuring and Strandable Costs," below, for more information on this subject. Maine Yankee, the ARP, restructuring, strandable costs, and other significant developments are discussed in succeeding sections of this report. In some cases more complete information is included in Management's Discussion and Analysis of Financial Condition and Results of Operations, which appears in Item 7 of this report, or in the Notes to Consolidated Financial Statements for the year ended December 31, 1996, which appear in Item 8 of this report. In those cases Item 7 and 8 should be read in conjunction with the sections below for a full discussion of the subjects covered in that manner. The following topics are discussed under the general heading of Business. Where applicable, the discussions make reference to the various other Items of this report. In addition, for further discussion of information required to be furnished in response to this Item, see Items 7 and 8. Topic Page Regulation and Rates 3 Competition 4 Restructuring and Strandable Costs 5 Non-utility Generation 5 Maine Yankee Atomic Power Company 6 Financing and Related Considerations 7 Environmental Matters Water Quality Control 9 Air Quality Control 9 Hazardous Waste Regulations 9 Electromagnetic Fields 10 Capital Expenditures 10 Employee Information 10 Regulation and Rates General. The Company is subject to the regulatory authority of the Maine Public Utilities Commission (the "MPUC" or the "PUC") as to retail rates, accounting, service standards, territory served, the issuance of securities maturing more than one year after the date of issuance, certification of generation and transmission projects and various other matters. The Company is also subject to the jurisdiction of the Federal Energy Regulatory Commission ("FERC") under Parts I, II and III of the Federal Power Act for some phases of its business, including licensing of its hydroelectric stations, accounting, rates relating to wholesale sales and to interstate transmission and sales of energy and certain other matters. Other activities of the Company from time to time are subject to the jurisdiction of various other state and federal regulatory agencies. The Maine Yankee Plant and the other nuclear facilities in which the Company has an interest are subject to extensive regulation by the federal Nuclear Regulatory Commission ("NRC"). The NRC is empowered to authorize the siting, construction and operation of nuclear reactors after consideration of public health, safety, environmental and antitrust matters. Under its continuing jurisdiction, the NRC may, after appropriate proceedings, require modification of units for which construction permits or operating licenses have already been issued, or impose new conditions on such permits or licenses, and may require that the operation of a unit cease or that the level of operation of a unit be temporarily or permanently reduced. The United States Environmental Protection Agency ("EPA") administers programs which affect the Company's thermal and hydroelectric generating facilities as well as the nuclear facilities in which it has an interest. The EPA has broad authority in administering these programs, including the ability to require installation of pollution-control and mitigation devices. The Company is also subject to regulation by various state, local and other federal authorities with regard to environmental matters and land use. For further discussion of environmental considerations as they affect the Company, see "Environmental Matters", below. Under the Federal Power Act, the Company's hydroelectric projects (including storage reservoirs) on navigable waters of the United States are required to be licensed by the FERC. The Company is a licensee, either by itself or in some cases with other parties, for 26 FERC-licensed projects, some of which include more than one generating unit. Thirteen licenses expired in 1993, one expires in 1997, and fourteen after 2000. The Company has filed all applications for relicensing the projects whose licenses were scheduled to expire in 1993 and has been authorized to continue to operate those projects pending action on relicensing by the FERC. Of the thirteen projects with licenses which expired in 1993, ten are operating under annual licenses, one project is operating under a new license issued in 1993, one license was allowed to expire, and one project was sold. New licenses may contain conditions that reduce operating flexibility and require substantial additional investment by the Company. The United States has the right upon or after expiration of a license to take over and thereafter maintain and operate a project upon payment to the licensee of the lesser of its "net investment" or the fair value of the property taken, and any severance damages, less certain amounts earned by the licensee in excess of specified rates of return. If the United States does not exercise its statutory right, the FERC is authorized to issue a new license to the original licensee, or to a new licensee upon payment to the original licensee of the amount the United States would have been obligated to pay had it taken over the project. The United States has not asserted such a right with respect to any of the Company's licensed projects. Rate Regulation. Effective January 1, 1995, rate regulation for the Company underwent a fundamental change with the implementation of the ARP, which replaced traditional regulation. Instead of rate changes based on the level of costs incurred and capital investments, the ARP provides for one annual adjustment of an inflation-based cap on each of the Company's rates, with no separate reconciliation and recovery of fuel and purchased-power costs. Under the ARP, the MPUC is continuing to regulate the Company's operations and prices, provide for continued recovery of deferred costs, and specify a range for its rate of return. The MPUC confirmed in its order approving the ARP that the ARP is intended to comply with the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation." See Note 3 of Consolidated Financial Statements for more information on the ARP. Competition General. In 1992 the United States Congress enacted the Energy Policy Act of 1992 (the "Policy Act"). The Policy Act was designed to encourage competition among electric utility companies, improve energy resource planning by utility companies, and encourage the development of alternative fuels and sources of energy. The Policy Act provides for, among other things, enhanced access to electric transmission to promote competition for wholesale purchasers and sellers. The Policy Act has combined with regulatory development to create new areas of competition for the Company, resulting in more options for its wholesale and retail customers. Even though the Company's customers are at present generally unable to seek direct service from another utility, some can curtail usage, switch fuels, install their own generation, cancel plans to expand their operations, or even leave the Company's service territory. In response to those threats, the Company has initiated several programs, including the implementation of special rates to maintain or increase employment at specific large customers' plants and incremental-energy rates to avoid losing specific groups of customers to other energy sources. In addition, the Company has redesigned some rates to encourage off-peak usage and discourage switching to alternative fuels. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Notes 3 and 4 to Consolidated Financial Statements for more information. Expansion of Lines of Business. The Company is also preparing for competition by expanding its business opportunities through subsidiaries that capitalize on core competencies. One such subsidiary, MaineCom Services ("MaineCom") is developing opportunities in expanding markets by arranging fiber-optic data service for bulk carriers, offering support for cable-TV or "super-cellular" personal-communication vendors, and providing other telecommunications services. The Company invested $10.7 million in MaineCom during 1996 to develop an interchange network from Portland, Maine, to various points in New Hampshire, Massachusetts and Connecticut. In addition, the Company has subsidiaries or divisions that provide energy-efficiency services, utility consulting (domestic and international) and research, engineering and environmental services, management of rivers and recreational facilities, locating of underground utility facilities and infrared photography, real estate brokerage and management, modular housing, and credit and collection services. All subsidiaries utilize skills of former Company employees and compete for business with other companies. In July 1996, the Company and Maine Electric Power Company, Inc. (MEPCO), a 78 percent-owned subsidiary of the Company, entered into option agreements with Maritimes and Northeast Pipeline, L.L.C. (M&N) in which the Company and MEPCO agreed to provide exclusive options to M&N to acquire property interests in certain transmission line rights of way to sections of M&N's proposed natural gas pipeline from the United States-Canada border at Woodland, Maine, to Dracut, Massachusetts. In November 1996, while the parties were still engaged in negotiating the terms of the proposed long-term arrangement, the options expired by their terms. Subsequent to the expiration the parties have met to discuss a long-term arrangement for use of the Company's and MEPCO's rights of way for the proposed pipeline, but the Company cannot predict whether final agreement on such an arrangement will be reached. Restructuring and Strandable Costs The enactment by Congress of the Policy Act accelerated planning by electric utilities, including the Company, for a transition to a more competitive industry. The functional areas in which competition will take place, the regulatory changes that will be implemented, and the resulting structure of both the industry and the Company are still uncertain, but regulatory, and in some states, legislative steps have already been taken toward competition in generation and non-discriminatory transmission access. A departure from traditional regulation could have substantial impacts on the value of utility assets and on the ability of electric utilities to recover their costs through rates. In the absence of full recovery, utilities would find their above-market costs to be "stranded," or unrecoverable, in the new competitive setting. The Company is pursuing efforts to mitigate its exposure to stranded costs through securitization of regulatory assets. For further discussion of this issue, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Non-utility Generation After enactment of the federal Public Utility Regulatory Policies Act of 1978 ("PURPA") and companion legislation in Maine, the Company became an industry leader in developing supplies of energy from non-utility generators ("NUGs"), including cogeneration plants and small power producers. These sources supplied 3.8 billion kilowatt-hours of electricity to the Company in 1996, representing 32 percent of total generation, a decrease from 37 percent in 1995 when Maine Yankee was out of service for most of the year. The Company's contracts with non-utility generators, however, which were entered into pursuant to the mandates of PURPA and vigorous state implementation of its policies, have contributed the largest part of the Company's increased costs and the resulting rate increases in recent years prior to implementation of the ARP in 1995, and constitute the largest part of the Company's strandable costs. PURPA provided substantial economic incentives to NUGs by allowing cogenerators and small power producers to sell their entire electrical output to an electric utility at the utility's avoided-cost rate, which has often been substantially higher than market rates, while purchasing their own electric energy requirements at the utility's established rate for that customer class. Thus the Company in a number of cases has been required to pay a higher price for energy purchased from a NUG than the NUG, which in some cases is a large customer of the Company, has paid the Company for the NUG's energy requirements. In addition, with the recent surplus of relatively low-cost power in the New England market, prices paid by the Company under NUG contracts have often been well above current wholesale market prices. The Company's NUG contracts generally have had terms of five to 30 years, and expiration dates ranging from 1997 to 2021. They require the Company to purchase the energy at specified prices per kilowatt-hour. As of December 31, 1996, facilities having 573 megawatts of capacity covered by these contracts were in service. The costs of purchases under all of these contracts amounted to $313.4 million in 1996, $314.4 million in 1995, and $373.5 million in 1994. Because of the upward price pressure resulting in large part from costs associated with its NUG contracts, the Company has taken steps to reduce those costs. In recent years the Company has reached agreement with a number of NUGs to buy out their contracts or to give the Company options to restructure their contracts through lump-sum or periodic payments. The Company restructured 40 contracts representing 316 megawatts of capacity that the Company believes should result in approximately $301 million in fuel savings over the next five years. Pursuant to one NUG contract buy-out, Aroostook Valley Electric Company ("AVEC"), a wholly-owned subsidiary of the Company, acquired a 33-megawatt wood-fired generating plant in Fort Fairfield, in northern Maine. AVEC reduced the operating costs of the plant and, after competitive bidding, was awarded a 12.5-megawatt contract to supply the Town of Houlton municipal electric utility, which is outside the Company's retail service territory, at wholesale for ten years starting January 1, 1996. In accordance with prior MPUC policy and the ARP, $113 million of buyout or restructuring costs since January 1992 has been included in Deferred Charges and Other Assets on the Company's balance sheet and will be amortized over their respective fuel savings periods. The Company will continue to seek opportunities to reduce its NUG costs, but cannot predict what level of additional savings it will be able to achieve. In October 1997 a contract with a major NUG supplier will expire, which should result in annual savings of approximately $25 million for the Company. Maine Yankee Atomic Power Company The Company owns a 38 percent stock interest in Maine Yankee, which owns and operates the Maine Yankee Plant and is entitled under a cost-based power contract to an approximately equal percentage of the Plant's output. The Plant has been in commercial operation since 1972 and, through 1994, generally produced power at a cost among the lowest in the country for nuclear plants. The Maine Yankee Plant was shut down for eleven months in 1995 for repairs to its steam generator tubes. The Plant returned to service in January 1996 at 90 percent of its operating capacity. On December 6, 1996, the plant was shut down for inspection and repairs, and is expected to remain out of service at least until August 1997. During this time, Maine Yankee must replace 92 fuel assemblies, conduct an intensive inspection of its steam generators, resolve cable-separation issues and other regulatory issues, as well as any additional issues that are discovered during the outage, and obtain the approval of the NRC to restart the plant. In addition, Maine Yankee will make use of the outage to inspect the Plant's steam generators, commencing approximately April 1, 1997, for deterioration beyond that which was repaired during the extended 1995 outage. Degradation of steam generators of the age and design of those in use in the Plant has been identified at other plants. If major repairs to, or replacement of, the steam generators were found to be necessary for continued operation of the Plant, Maine Yankee would review the economics of continued operation before incurring the substantial capital expenditures that would be required. On January 29, 1997, the NRC announced that it had placed the Plant on its "watch list" in "Category 2", which includes plants that display "weaknesses that warrant increased NRC attention", but which are not severe enough to warrant a shut-down order. Plants in category 2 remain in that category "until the licensee demonstrates a period of improved performance." The Plant is one of fourteen nuclear units on the watch list announced that day by the NRC, which regulates over 100 civilian nuclear power plants in the United States. On February 13, 1997, Maine Yankee and Entergy Nuclear, Inc. (Entergy), which is a subsidiary of Entergy Corporation, a Louisiana-based utility holding company and leading nuclear plant operator, entered into a contract under which Entergy is providing management services to Maine Yankee. At the same time, officials from Entergy assumed management positions, including President, at Maine Yankee. The Company will incur significantly higher costs in 1997 for its share of inspection, repairs and refueling costs at Maine Yankee and will also need to purchase replacement power while the Plant is out of service. While the amount of higher costs is uncertain, Maine Yankee has indicated that it expects it operations and maintenance costs to increase by up to approximately $45 million in 1997, before refueling costs. The Company's share of such costs based on its power entitlement of approximately 38 percent would be up to approximately $17 million. In addition, the Company estimates its share of the refueling costs will amount to approximately $15 million, of which $10.4 million has been accrued as of December 31, 1996. The Company has been incurring incremental replacement-power costs of approximately $1 million per week while the plant has been out of service and expects such costs to continue at approximately the same rate until the plant returns to service. The impact of these higher nuclear related costs on the Company will be a major obstacle to achieving satisfactory results in 1997, despite prudent control of other operating costs, and is likely to trigger the low earnings bandwidth provision of the ARP. Under the ARP, actual earnings for 1997 outside a bandwidth of 350 basis points, above or below a 10.68 percent rate of return allowance, triggers the profit sharing mechanism. A return below the low end of the range provides for additional revenue through rates equal to one-half of the difference between the actual earned rate of return and the 7.18 percent (10.68 - 3.50) low end of the bandwidth. While the Company believes that the profit sharing mechanism is likely to be triggered in 1997, it cannot predict the amount, if any, of additional revenues that may ultimately result. Higher nuclear-related costs are affecting other stockholders of Maine Yankee in varying degrees. Bangor Hydro-Electric Company, a Maine-based 7-percent stockholder, has cited its "deteriorating" financial condition and on March 19, 1997, eliminated its common-stock dividend for the quarter. Maine Public Service Company, a 5-percent stockholder, cited problems in satisfying financial covenants in loan documents and reduced its common-stock dividend substantially in early March 1997. Northeast Utilities (20-percent stock ownership through three subsidiaries), which is also adversely affected by the substantial additional costs associated with the three shut-down Millstone nuclear units and the permanently shut-down Connecticut Yankee unit, as well as an unfavorable utility deregulation plan in New Hampshire currently under appeal, announced on March 24, 1997, that its management was planning to recommend a suspension of its second-quarter common-stock dividend to its board of trustees. A default by a Maine Yankee stockholder in making payments under its power contract or capital funds agreement could have a material adverse effect on Maine Yankee, depending on the magnitude of the default, and would constitute a default under Maine Yankee's bond indenture and its two major credit agreements unless cured within applicable grace periods by the defaulting stockholder or other stockholders. The Company cannot predict, however, what effect, if any, the financial difficulties being experienced by some Maine Yankee stockholders will have on Maine Yankee or the Company. For a detailed discussion of the current Maine Yankee regulatory and operational issues, see Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" - "Maine Yankee Regulatory Issues." Financing and Related Considerations 1996 Financing Activity. During 1996 the Company issued $10 million of notes under its $150-million Medium-Term Note program at variable interest rates and an average life of five years. Notes in the amount of $34 million matured during the year, reducing the total of outstanding Medium-Term Notes at the end of 1996 to $68 million from $92 million at the end of 1995. The Company's Articles of Incorporation limit the amount of unsecured indebtedness the Company may incur without the consent of the holders of the Company's preferred stock to 20 percent of the Company's total capitalization. At the end of 1996, 20 percent of such capitalization amounted to $219 million. In 1989 holders of the Company's preferred stock consented to the issuance of unsecured Medium-Term Notes in an aggregate principal amount of up to $150 million outstanding at any one time, so such notes up to that amount are not included in the 20-percent limitation. The Company is proceeding with plans to seek the consent of the holders of its preferred stock to an additional $350 million of Medium-Term Notes, to $500 million outstanding at any one time, at its annual meeting of stockholders on May 15, 1997, in order to increase its financing flexibility in anticipation of industry restructuring and increased competition. The Company cannot predict whether such consent will be obtained. On October 23, 1996, the Company entered into a $125-million revolving credit facility with several banks, with The First National Bank of Boston and The Bank of New York as agents for the lenders, and terminated its 1986 and 1994 bank facilities. The new facility consists of two tranches, one a 364-day revolving-credit arrangement that matures on October 22, 1997, and the other a three-year revolving-credit arrangement that matures on October 23, 1999. At December 31, 1996, the Company had $7.5 million in outstanding loans under the new facility. Securities Ratings. On September 25, 1996, Duff & Phelps Credit Rating Co. ("D&P") placed the ratings of the Company's debt and preferred stock on "Rating Watch--Down." D&P stated that its action was due to uncertainty surrounding the Nuclear Regulatory Commission's investigations into the Maine Yankee, Connecticut Yankee and Millstone Unit No. 3 nuclear facilities, in which the Company has ownership interests." The rating agency recognized "positive strides" taken by the Company over the past few years in dealing with several challenges, but found that the Company's "troubled nuclear facilities situation casts a shadow on the Company's prospects for financial strengthening." On December 18, 1996, Moody's Investors Service ("Moody's") placed the Company's credit ratings under review for possible downgrade, due largely to the effect of its Maine Yankee-related costs. The current ratings assigned the Company's securities by the three major securities-rating agencies, Standard & Poor's Corp. ("S&P"), Moody's Investors Service and Duff & Phelps Credit Rating Co., are shown below: Mortgage Unsecured Commercial Preferred Bonds Notes Paper Stock S&P BB+ BB B B+ Moody's Baa2 Baa3 P2 Baa3 D&P BBB- BB+ D3 BB Environmental Matters In connection with the operation and construction of its facilities, various federal, state and local authorities regulate the Company regarding air and water quality, hazardous wastes, land use, and other environmental considerations. Such regulation sometimes requires review, certification or issuance of permits by various regulatory authorities. In addition, implementation of measures to achieve environmental standards may hinder the ability of the Company to conduct day-to-day operations, or prevent or substantially increase the cost of construction of generating plants, and may require substantial investment in new equipment at existing generating plants. Although no substantial investment is presently necessary, the Company is unable to predict whether such investment may be required in the future. Water Quality Control. The federal Clean Water Act provides that every "point source" discharger of pollutants into navigable waters must obtain a National Pollutant Discharge Elimination System ("NPDES") permit specifying the allowable quantity and characteristics of its effluent. Maine law contains similar permit requirements and authorizes the state to impose more stringent requirements. The Company holds all permits required for its plants by the Clean Water Act, but such permits may be reopened at any time to reflect more stringent requirements promulgated by the EPA or the Maine Department of Environmental Protection ("DEP"). Compliance with NPDES and state requirements has necessitated substantial expenditures and may require further substantial expenditures in the future. Air Quality Control. Under the federal Clean Air Act, as amended, the EPA has promulgated national ambient air quality standards for certain air pollutants, including sulfur oxides, particulate matter and nitrogen oxides. The EPA has approved a Maine implementation plan prepared by the DEP for the achievement and maintenance of these standards. The Company believes that it is in substantial compliance with the requirements of the Maine plan. The Clean Air Act also imposes stringent emission standards on new and modified sources of air pollutants. Maintaining compliance with more stringent standards, if they should be adopted, could require substantial expenditures by the Company. Although 1990 amendments to the Clean Air Act require, among other things, an aggregate reduction of sulfur dioxide emissions by United States electric utilities by the year 2000, the Company believes that the amendments will not have a material adverse effect on the Company's operations. In addition, state regulations restrict the sulfur content and other characteristics of the fuel oil burned at the Company's William F. Wyman Station in Yarmouth, Maine. The Company believes that it will continue to be able to obtain a sufficient supply of oil with the required specifications, subject to unforeseen events and the factors influencing the availability of oil discussed under Item 2, Properties, "Fuel Supply", below. Hazardous Waste Regulations. Under the federal Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the generation, transportation, treatment, storage and disposal of hazardous wastes are subject to EPA regulations. Maine has adopted state regulations that parallel RCRA regulations, but in some cases are more stringent. The notifications and applications required by the present regulations have been made. The procedures by which the Company handles, stores, treats, and disposes of hazardous waste products have been revised, where necessary, to comply with these regulations and with more stringent requirements on hazardous waste handling imposed by amendments to RCRA enacted in 1984. For a discussion of a continuing matter in which the Company has been named a potentially responsible party by the EPA with respect to the disposal of certain toxic substances, see Item 3, Legal Proceedings, under the caption "PCB Disposal", below. Electromagnetic Fields. Public concern has arisen in recent years as to whether electromagnetic fields associated with electric transmission and distribution facilities and appliances and wiring in buildings ("EMF") contribute to certain public health problems. This concern has resulted in some areas in opposition to existing or proposed utility facilities, requests for new legislative and regulatory standards, and litigation. On the basis of the scientific studies to date, the Company believes that no persuasive evidence exists that would prove a causal relationship or justify substantial capital outlays to mitigate the perceived risks. Although the Company has suffered no material effect as a result of this concern, the Company since 1988 has been compiling and disseminating through a regular periodic publication information on all related studies and published materials as a central clearing house for such information, as well as providing such information to its customers. The Company intends to continue to monitor all significant developments in this field. Capital Expenditures. The Company estimates that its capital expenditures for environmental purposes for the five years from 1992 through 1996 totaled approximately $21.3 million. The Company cannot presently predict the amount of such expenditures in the future, as such estimates are subject to change in accordance with changes in applicable environmental regulations. Employee Information A local union affiliated with the International Brotherhood of Electrical Workers (AFL-CIO) represents operating and maintenance employees in each of the Company's operating divisions, and certain office and clerical employees. At December 31, 1996, the Company had 1,655 full-time employees, of whom approximately 44 percent were represented by the union. At the end of 1990 the Company had 2,322 full-time employees. The reduction in the number of full-time employees from 1991 through 1996 was due largely to the implementation of an early-retirement program and other efficiency measures in 1991 and 1992, further staff reductions in the first quarter of 1994 in connection with the Company's restructuring and cost-reduction program and another early-retirement program in mid-1995. In April 1995 the Company and the union agreed to a three-year labor contract extension that provided for an annual wage increase of 2 percent on May 1, 1995, 2 percent on May 1, 1996, and a reopening of wage negotiations for the year commencing May 1, 1997. The wage negotiations are scheduled to start in early April 1997. Item 2. PROPERTIES. Existing Facilities The electric properties of the Company form a single integrated system which is connected at 345 kilovolts and 115 kilovolts with the lines of Public Service Company of New Hampshire at the southerly end and at 115 kilovolts with Bangor Hydro-Electric Company at the northerly end of the Company's system. The Company's system is also connected with the system of The New Brunswick Power Corporation and with Bangor Hydro-Electric Company, in each case through the 345-kilovolt interconnection constructed by MEPCO, a 78 percent-owned subsidiary of the Company. At December 31, 1996, the Company had approximately 2,293 circuit-miles of overhead transmission lines, 19,254 pole-miles of overhead distribution lines and 1,330 miles of underground and submarine cable. The maximum one-hour firm system net peak load experienced by the Company during the winter of 1996 was approximately 1,301 megawatts on January 3, 1996. At the time of the peak, the Company's net capability was 1,893 megawatts. The Company operates 30 hydroelectric generating stations, of which 29 are owned by the Company, with an estimated net capability of 369 megawatts, and it purchases an additional 74 megawatts of non-utility hydroelectric generation in Maine. The Company also operates one oil-fired steam-electric generating station, William F. Wyman Station in Yarmouth, Maine. The Company's share of William F. Wyman Station has an estimated net capability of 593 megawatts. The oil-fired station is located on tidewater, permitting waterborne delivery of fuel. The Company also has internal combustion generating facilities with an estimated aggregate net capability of 38 megawatts. The Company has ownership interests in five nuclear generating plants in New England. The largest is a 38-percent interest in the Maine Yankee plant in Wiscasset, Maine. In addition, the Company owns a 9.5 percent interest in Yankee Atomic Electric Company ("Yankee Atomic"), discussed below, which has permanently shut down its plant located in Rowe, Massachusetts, a 6 percent interest in Connecticut Yankee Atomic Power Company ("Connecticut Yankee"), discussed below, which has permanently shut down its plant in Haddam, Connecticut, and a 4 percent interest in Vermont Yankee Nuclear Power Corporation ("Vermont Yankee"), which owns an operating plant in Vernon, Vermont (collectively, with Maine Yankee, the "Yankee Companies"). In addition, pursuant to a joint ownership agreement, the Company has a 2.5 percent direct ownership interest in the Millstone 3 nuclear unit ("Millstone 3") in Waterford, Connecticut, which has been off-line for regulatory reasons since March 31, 1996. In December 1996, the Board of Directors of Connecticut Yankee Atomic Power Company voted to permanently shut down the Connecticut Yankee plant for economic reasons, and to decommission the plant. An economic analysis conducted by Connecticut Yankee estimated that the early closing of the plant would save over $100 million (net present value) over its remaining license life to the year 2007, compared with the costs of continued operation. The Company's 6-percent equity interest totaled approximately $6.4 million at December 31, 1996. The plant did not operate after July 22, 1996. The Company estimates its share of the cost of Connecticut Yankee's continued compliance with regulatory requirements, recovery of its plant investments, decommissioning and closing the plant to be approximately $45.8 million and has recorded a regulatory asset and a liability on the consolidated balance sheet. The Company is currently recovering through rates an amount adequate to recover these expenses. In 1993 the FERC approved a settlement agreement regarding the decommissioning plan, recovery of plant investment, and all issues with respect to the prudence of the decision to discontinue operation of the Yankee Atomic plant. The Company estimates its remaining share of the cost of Yankee Atomic's continued compliance with regulatory requirements, recovery of its plant investments, decommissioning and closing the plant, to be approximately $16.5 million. This estimate, which is subject to ongoing review and revision, has been recorded by the Company as a regulatory asset and a liability on the Company's balance sheet. As part of the MPUC's decision in the Company's 1993 base-rate case, the Company's current share of costs related to the deactivation of Yankee Atomic is being recovered through rates. The Company's share of the capacity of the three operating nuclear generating plants, as of December 31, 1996, amounted to the following: Maine Yankee 329 MW Vermont Yankee 19 MW Millstone 3 29 MW The Company is obligated to pay its proportionate share of the operating expenses, including depreciation and a return on invested capital, of each of the Yankee Companies referred to above for periods expiring at various dates to 2012. Pursuant to the joint ownership agreement for Millstone 3, the Company is similarly obligated to pay its proportionate share of the operating costs of Millstone 3. The Company is also required to pay its share of the estimated decommissioning costs of each of the Yankee Companies and Millstone 3. The estimated decommissioning costs are paid as a cost of energy in the amounts allowed in rates by the FERC. MEPCO owns and operates a 345-kilovolt transmission interconnection, completed in 1971, extending from the Company's substation at Wiscasset to the Canadian border where it connects with a line of The New Brunswick Power Corporation ("NB Power") under an interconnection agreement. MEPCO transmits power between NB Power and various New England utilities under separate agreements. NEPOOL, of which the Company is a member, contracted in connection with its Hydro-Quebec projects to purchase power from Hydro-Quebec. The contracts entitle the Company to 85.9 megawatts of capacity credit in the winter and 127.25 megawatts of capacity credit during the summer. The Company also entered into facilities-support agreements for its share of the related transmission facilities, with its share of the support responsibility and of associated benefits being approximately 7 percent of the totals. The Company is making facilities-support payments on approximately $28.8 million, its share of the construction cost for the transmission facilities incurred through December 31, 1996. Maine Yankee Decommissioning. Effective in 1988 Maine Yankee began collecting $9.1 million annually for decommissioning the Maine Yankee plant, based on a FERC-approved funding level of $167 million. In 1994, Maine Yankee, pursuant to FERC authorization, increased its annual collection to $14.9 million and reduced its return on common equity to 10.65 percent, for a total increase in rates of approximately $3.4 million. The increase in decommissioning collection was based on the estimated cost of decommissioning the Maine Yankee Plant, assuming dismantlement and removal, of $317 million (in 1993 dollars) based on a 1993 external engineering study. The estimated cost of decommissioning nuclear plants is subject to change due to the evolving technology of decommissioning and the possibility of new legal requirements. The market value of Maine Yankee's accumulated decommissioning funds was $163.5 million (including actual interest earned) as of December 31, 1996. Maine Yankee Low-Level Waste Disposal. The federal Low-Level Radioactive Waste Policy Amendments Act (the "Waste Act"), enacted in 1986, required operating disposal facilities to accept low-level nuclear waste from other states until December 31, 1992. Maine did not satisfy its milestone obligation under the Waste Act requiring submission of a site license application by the end of 1991, and therefore became subject to surcharges on its waste and did not have access to regulated disposal facilities after the end of 1992. Maine Yankee then began storing all low-level waste generated at an on-site storage facility. On July 1, 1995, however, the State of South Carolina restored access to its facility and Maine Yankee began to ship low-level waste to the South Carolina facility for disposal. The states of Maine, Texas and Vermont have been pursuing the implementation of a compact for the disposal of low-level waste at a site in Texas. The ratification bill for the compact is before Congress for consideration at its 1997 session. The compact provides for Texas to take Maine's low-level waste over a 30-year period for disposal at a planned facility in west Texas. In return, Maine would be required to pay $25 million, assessed to the Company by the State of Maine, payable in two equal installments, the first after ratification by Congress and the second upon commencement of operation of the Texas facility. In addition, Maine Yankee would be assessed a total of $2.5 million for the benefit of the Texas county in which the facility would be located and would also be responsible for its pro-rata share of the Texas governing commission's operating expenses. The Maine Low-Level Radioactive Waste Authority suspended its search for a suitable disposal site in Maine and, as of June 30, 1994, ceased operations. In the event the required ratification by Congress is not obtained, subject to continued NRC approval, Maine Yankee has said it will ship low-level waste offsite for disposal in South Carolina or other available sites as long as such sites are available, reserving its capacity to store approximately ten to twelve years' production of low-level waste at its facility at the Plant site. Subject to obtaining necessary regulatory approval, Maine Yankee could also build a second facility on the Plant site. Maine Yankee believes it is probable that it will have adequate storage capacity for such low-level waste available on-site, if needed, through the current licensed operating life of the Plant. The Company cannot predict whether the final required ratification of the Texas compact or other regulatory approvals required for on-site storage will be obtained, but Maine Yankee has stated that it intends to utilize its on-site storage facility as well as dispose of low-level waste at the South Carolina site or other available sites in the interim and continue to cooperate with the State of Maine in pursuing all appropriate options. Nuclear Insurance. The Price-Anderson Act is a federal statute providing, among other things, a limit on the maximum liability for damages resulting from a nuclear incident. Coverage for the liability is provided for by existing private insurance and retrospective assessments for costs in excess of those covered by insurance, up to $79.3 million for each reactor owned, with a maximum assessment of $10 million per reactor in any year. Based on the Company's stock ownership in four nuclear generating facilities and its 2.5 percent direct ownership interest in the Millstone 3 nuclear unit, the Company's retrospective premium could be as high as $6 million in any year, for a cumulative total of $47.6 million, exclusive of the effect of inflation indexing and a 5-percent surcharge in the event that total public liability claims from a nuclear incident should exceed the funds available to pay such claims. In addition to the insurance required by the Price-Anderson Act, the nuclear generating facilities mentioned above carry additional nuclear property-damage insurance. This additional insurance is provided from commercial sources and from the nuclear electric utility industry's insurance company through a combination of current premiums and retrospective premium adjustments. Based on current premiums and the Company's indirect and direct ownership in nuclear generating facilities, this adjustment could range up to approximately $7.7 million annually. For a discussion of issues relating to Maine Yankee's spent nuclear fuel disposal, see "Fuel Supply" - "Nuclear", below. Construction Program The Company's plans for improvements and expansion of generating, transmission and distribution facilities and power-supply sources are under continuing review. Actual construction expenditures depend on the availability of capital and other resources, load forecasts, customer growth, and general business conditions. Recent economic and regulatory considerations have led the Company to hold its planned 1996 capital investment outlays, including deferred demand-side management expenditures, to minimum levels. During the five-year period ended December 31, 1996, the Company's construction and acquisition expenditures amounted to $264.8 million (including investment in jointly-owned projects and excluding MEPCO). The program is currently estimated at approximately $56 million for 1997 and $246 million for 1998 through 2001. The following table sets forth the Company's estimated capital expenditures as discussed above: 1998- 1997 2001 Total Type of Facilities (Dollars in Millions) Generating Projects $ 8 $ 33 $ 41 Transmission 3 14 17 Distribution 27 124 151 General facilities and Other 18 75 93 Total $56 246 $302 Demand-side Management The Company's demand-side-management initiatives have included programs aimed at residential, commercial and industrial customers. Among the residential efforts have been programs that offer energy audits, low-cost insulation and weatherization packages, water heater wraps, energy-efficient light bulbs, and water heater cycling credits. Among the commercial and industrial efforts have been programs that offer rebates for efficient lighting systems and motors, energy-management loans, grants to customers who make efficiency improvements, and shared savings arrangements with customers who undertake qualifying conservation and load management programs. Actual demand-side management expenditures depend on such factors as availability of capital and other resources, load forecasts, customer growth, and general business conditions. Because of budget constraints, the Company is seeking to concentrate its efforts where the need and cost-effectiveness are the greatest, while continuing to honor contractual commitments. NEPOOL The Company is a member of the New England Power Pool (NEPOOL), which is open to all investor-owned, municipal and cooperative electric utilities in New England under a 1971 agreement that provides for coordinated planning and operation of approximately 99 percent of the electric power production, purchases and transmission in New England. The NEPOOL Agreement imposes obligations concerning generating capacity reserve and the use of major transmission lines, and provides for central dispatch of the region's facilities. On April 24, 1996, the Federal Energy Regulatory Commission (FERC) issued Order No. 888, which requires all public utilities that own, control or operate facilities used for transmitting electric energy in interstate commerce to file open access non-discriminatory transmission tariffs that offer both load-based, network and contract-based, point-to-point service, including ancillary service to eligible customers containing minimum terms and conditions of non-discriminatory service. This service must be comparable to the service they provide themselves at the wholesale level; in fact, these utilities must take wholesale transmission service they provide themselves under the filed tariffs. The order also permits public utilities and transmitting utilities the opportunity to recover legitimate, prudent and verifiable wholesale stranded costs associated with providing open access and certain other transmission services. It further requires public utilities to functionally separate transmission from generation marketing functions and communications. The intent of this order is to promote the transition of the electric utility industry to open competition. Order No. 888 also clarifies federal and state jurisdiction over transmission in interstate commerce and local distribution and provides for deference of certain issues to state recommendations. On July 9, 1996, the Company and MEPCO submitted compliance filings to meet the new pro forma tariff non-price minimum terms and conditions of non-discriminatory transmission. Since July 9, 1996, the Company and MEPCO have been transmitting energy pursuant to their filed tariffs, subject to refund. FERC subsequently issued Order No. 888-A which generally reaffirms Order No. 888 and clarifies certain terms. Also on April 24, 1996, FERC issued Order No. 889 which requires public utilities to functionally separate their wholesale power marketing and transmission operation functions and to obtain information about their transmission system for their own wholesale power transactions in the same way their competitors do through the Open Access Same-time Information System (OASIS). The rule also prescribed standards of conduct and protocols for obtaining the information. The standards of conduct are designed to prevent employees of a public utility engaged in marketing functions from obtaining preferential information. The Company participated in efforts to develop a regional OASIS, which was operational January 3, 1997. FERC subsequently approved a New England Power Pool-wide Open Access Tariff, subject to refund and issuance of further orders. The Company also participated in revising the New England Power Pool Agreement to comply with the new regulatory requirements. The revised agreement is pending FERC approval. Fuel Supply The Company's total kilowatt-hour production by energy source for each of the last two years and as estimated for 1997 (consistent with the actual mix for January 1997 with Maine Yankee off-line) is shown below. The 1997 estimate could change when, and if, Maine Yankee resumes operation. Actual Estimated Source 1996 1995 1997 Nuclear 19% 7% 2% Hydro 17 15 17 Oil 16 21 29 Non-utility 32 37 38 Other purchases 16 20 14 100% 100% 100% The 1997 estimated kilowatt-hour output from oil and purchased power may vary depending upon the relative costs of Company-generated power and power purchased through independent producers and other sources. Oil. The Company's William F. Wyman Station in Yarmouth, Maine, and its internal combustion electric generating units are oil-fired. The Company's last contract for the supply of fuel oil requirements at market prices was allowed to expire in 1993. Since then the Company has been purchasing its fuel-oil requirements on the open market. The average cost per barrel of fuel oil purchased by the Company during the five calendar years commencing with 1992 was $14.02, $13.12, $12.93, $16.16 and $18.18, respectively. A substantial portion of the fuel oil burned by the Company and the other member utilities of NEPOOL is imported. The availability and cost of oil to the Company, both under contract and in the open market, could be adversely affected by policies and events in oil-producing nations and other factors affecting world supplies and domestic governmental action. Nuclear. As described above, the Company has interests in a number of nuclear generating units. The cycle of production and utilization of nuclear fuel for such units consists of (1) the mining and milling of uranium ore, (2) the conversion of the resulting concentrate to uranium hexafluoride, (3) the enrichment of the uranium hexafluoride, (4) the fabrication of fuel assemblies, (5) the utilization of the nuclear fuel, and (6) the disposal of spent fuel. Maine Yankee has entered into a contract with the United States Department of Energy ("DOE") for disposal of its spent nuclear fuel, as required by the Nuclear Waste Policy Act of 1982, pursuant to which a fee of one dollar per megawatt-hour is currently assessed against net generation of electricity and paid to the DOE quarterly. Under this Act, the DOE was given the responsibility for disposal of spent nuclear fuel produced in private nuclear reactors. In addition, Maine Yankee is obligated to make a payment with respect to generation prior to April 7, 1983 (the date current DOE assessments began). Maine Yankee has elected under terms of this contract to make a single payment of this obligation prior to the first delivery of spent fuel to DOE, scheduled to begin no earlier than 1998. The payment will consist of $50.4 million (all of which Maine Yankee has previously collected from its customers, but for which a reserve was not funded), which is the approximate one-time fee charge, plus interest accrued at the 13-week Treasury Bill rate compounded on a quarterly basis from April 7, 1983, through the date of the actual payment. Current costs incurred by Maine Yankee under this contract are recoverable under the terms of its Power Contracts with its sponsoring utilities, including the Company. Maine Yankee has accrued and billed $63.8 million of interest cost for the period April 7, 1983, through December 31, 1996. Maine Yankee has formed a trust to provide for payment of its long-term spent fuel obligation, and is funding the trust with deposits at least semiannually which began in 1985, with currently projected semiannual deposits of approximately $1.8 million through December 1997. Deposits are expected to total approximately $73.2 million, with the total liability, including interest due at the time of disposal, estimated to be approximately $126.5 million at January 31, 1998. Maine Yankee estimates that trust fund deposits plus estimated earnings will meet this total liability if funding continues without material changes. Under the terms of a license amendment approved by the NRC in 1984, the present storage capacity of the spent fuel pool at the Maine Yankee Plant will be reached in 1999 and after 1996 the available capacity of the pool will not accommodate a full-core removal. After consideration of available technologies, Maine Yankee elected to provide additional capacity by replacing the fuel racks in the spent fuel pool at the Maine Yankee Plant for more compact storage and in March 1994 the NRC granted its authorization. Installation of the new racks began in 1996 and is expected to be completed during 1997. Maine Yankee believes that the replacement of the fuel racks will provide adequate storage capacity through the Maine Yankee Plant's licensed operating life. Maine Yankee has stated that it cannot predict with certainty whether or to what extent the storage capacity limitation at the plant will affect the operation of the plant or the future cost of disposal. Federal legislation enacted in December 1987 directed the DOE to proceed with the studies necessary to develop and operate a permanent high-level waste (spent fuel) disposal site at Yucca Mountain, Nevada. The legislation also provided for the possible development of a Monitored Retrievable Storage ("MRS") facility and abandoned plans to identify and select a second permanent disposal site. An MRS facility would provide temporary storage for high-level waste prior to eventual permanent disposal. In late 1989 the DOE announced that the permanent disposal site is not expected to open before 2010, although originally scheduled to open in 1998. Additional delays due to political and technical problems are probable. In 1994 several nuclear utilities sought a declaration from the United States Court of Appeals for the District of Columbia that existing federal legislation required the DOE to take responsibility for spent nuclear fuel in 1998. On July 23, 1996, the court held that the DOE is obligated "to start disposing of [spent nuclear fuel] no later than January 31, 1998," and in October 1996 the DOE said it would not appeal the decision. The Company cannot predict when or how the DOE will meet its responsibility. The Company has been advised by the companies operating nuclear generating stations in which the Company has an interest that each of those companies has contracted for certain segments of the nuclear fuel production and utilization cycle through various dates. Contracts for other segments of the fuel cycle will be required in the future, but their availability, prices and terms cannot now be predicted. Those companies have also advised the Company that they are assessing options generally similar to those described above with respect to Maine Yankee in connection with disposal of spent nuclear fuel. Item 3. LEGAL PROCEEDINGS. PCB Disposal The Company is a party in legal and administrative proceedings that arise in the normal course of business. In connection with one such proceeding, the Company has been named as a potentially responsible party and has been incurring costs to determine the best method of cleaning up an Augusta, Maine, site formerly owned by a salvage company and identified by the Environmental Protection Agency (EPA) as containing soil contaminated by polychlorinated biphenyls (PCBs) from equipment originally owned by the Company. In July 1994, the EPA approved changes to the remedy it had previously selected, the principal change being to adjust the soil cleanup standard to 10 parts per million from the standard of one part per million established in the EPA's 1989 Record of Decision, on the part of the site where PCBs were found in their highest concentration. The EPA stated that the purpose of adjusting the standard of cleanup was to accommodate the selected technology's current inability to reduce PCBs and other chemical components on the site to the original standard. In June 1995, after discussions between the Company and the EPA, design work on the selected remedy was suspended. On July 7, 1995, the Company formally requested that the EPA abandon that remedy for an already-designated alternative remedy that the Company believes could result in substantially lower costs. On October 10, 1995, the EPA approved the new remedy after determining that the old remedy was no longer feasible or cost-effective at the site. The new remedy involves transporting the contaminated soil to a secure off-site landfill. The Company believes that its share of the remaining costs of the cleanup under the new method could total approximately $2.7 million to $4.2 million. This estimate is net of an agreed partial insurance recovery and the 1993 court-ordered contribution of 41 percent from Westinghouse Electric Corp., but does not reflect any possible contributions from other insurance carriers the Company has sued, or from any other parties. The Company has recorded an estimated liability of $2.7 million and an equal regulatory asset, reflecting an accounting order to defer such costs and the anticipated ratemaking recovery of such costs when ultimately paid. In addition, the Company has deferred as a regulatory asset $5.1 million of costs incurred through December 31, 1996. The Company cannot predict with certainty the level and timing of the cleanup costs, the extent they will be covered by insurance, or the ratemaking treatment of such costs, but believes it should recover substantially all of such costs through insurance and rates. The Company also believes that the ultimate resolution of the legal and environmental proceedings in which it is currently involved will not have a material adverse effect on its financial condition. Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. Item 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT. The following are the present executive officers of the Company with all positions and offices held. There are no family relationships between any of them, nor are there any arrangements or understandings pursuant to which any were selected as officers. Name, Age, and Year First Became Officer Office David M. Jagger, 55, 1996 Chairman of the Board of Directors Charles H. Abbott, 61, 1996 Vice Chairman of the Board of Directors David T. Flanagan, 49, 1984 President and Chief Executive Officer, and Director Arthur W. Adelberg, 45, 1985 Vice President, Law and Power Supply Richard A. Crabtree, 50, 1978 Vice President, Retail Operations David E. Marsh, 49, 1986 Vice President, Corporate Services, Treasurer and Chief Financial Officer Curtis A. Mildner, 43, 1994 Vice President, Marketing Gerald C. Poulin, 55, 1984 Vice President, Generation and Technical Support Anne M. Pare, 43, 1996 Secretary and Clerk Each of the executive officers has for the past five years been an officer or employee of the Company except Messrs. Jagger and Abbott, who have been non-employee directors since 1988, and Mr. Mildner. Mr. Mildner joined the Company as Vice President, Marketing, on February 7, 1994. Prior to his employment by the Company, he had been employed since 1987 by Hussey Seating Company of Berwick, Maine, as Vice President, Marketing, and in related capacities. PART II Item 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock is traded on the New York Stock Exchange. As of December 31, 1996, there were 40,413 holders of record of the Company's common stock. Price Range of and Dividends on Common Stock Market Price Dividends High Low Declared 1996 First Quarter $16 1/4 $13 1/4 $0.225 Second Quarter 14 1/2 12 1/4 0.225 Third Quarter 13 7/8 11 5/8 0.225 Fourth Quarter 12 3/8 11 0.225 1995 First Quarter $14 1/8 $10 3/4 $0.225 Second Quarter 12 5/8 10 1/4 0.225 Third Quarter 13 1/2 11 0.225 Fourth Quarter 15 1/8 13 0.225 Under the most restrictive terms of the indenture securing the Company's General and Refunding Mortgage Bonds and of the Company's Articles of Incorporation, no dividend may be paid on the common stock of the Company if such dividend would reduce retained earnings below $29.6 million. At December 31, 1996, the Company's retained earnings were $72.5 million, of which $42.9 million was not so restricted. Future dividend decisions will be subject to future earnings levels and the financial condition of the Company and will reflect the evaluation by the Company's Board of Directors of then existing circumstances. Item 6. SELECTED FINANCIAL DATA. The following table sets forth selected consolidated financial data of the Company for the five years ended December 31, 1992 through 1996. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto included in Items 7 and 8 hereof. The selected consolidated financial data for the years ended December 31, 1992 through 1996 are derived from the audited consolidated financial statements of the Company. Selected Consolidated Financial Data (Dollars in Thousands, Except Per Share Amounts) 1996 1995 1994 1993 1992 Electric operating revenue $ 967,046 $ 916,016 $ 904,883 $ 893,577 $ 877,695 Net income (loss) 60,229 37,980 (23,265) 61,302 63,583 Long-term obligations 587,987 622,251 638,841 581,844 499,029 Redeemable preferred stock 53,528 67,528 80,000 80,000 40,750 Total assets 2,010,914 1,992,919 2,046,007 2,004,862 1,690,005 Earnings (loss) per common share $1.57 $0.86 $(1.04) $ 1.65 $1.85 Dividends declared per common share $0.90 $0.90 $0.90 $1.395 $1.56
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview In 1996, the Company experienced higher than normal costs associated with its investments in nuclear generating units, particularly the Maine Yankee nuclear plant, and incurred replacement-power costs due to unplanned nuclear-plant outages. While the return to service of the Maine Yankee nuclear plant in mid-January 1996 ended an 11-month consecutive outage, the plant's operating capacity was limited to 90% of its maximum production capacity during periods of operation in 1996 and unscheduled outages reduced the availability of the plant to less than 10 months of operation. The additional costs incurred by the Company under its power contract with Maine Yankee were approximately $3.6 million. Replacement-power costs associated with the reduced level of output and limited availability of the plant amounted to approximately $13.5 million for a total of $17.1 million or an earnings reduction of $0.31 per share, after tax, during 1996. The Company's 1996 financial results benefited by approximately $15.3 million, after tax, or $0.47 per share, as a result of non-recurring items related to a favorable resolution of federal income-tax issues with the Internal Revenue Service, a reduction in purchased power costs associated with an extended outage at a non-utility generator (NUG) under contracts to the Company, an energy-swap agreement with another utility that reduced purchased-power costs, and the affirmation of the rate recovery of a regulatory asset. Earnings per share in 1996 were $1.57, after recognizing the higher nuclear-related costs and benefits of non-recurring events, compared to $0.86 per share in 1995. The 1995 earnings per share included the recognition of $0.70 per share in Maine Yankee-related repair and replacement-power costs. The Maine Yankee nuclear plant was shut down on December 6, 1996, for inspection and repairs. Maine Yankee has notified the Company that, due to the need to replace 92 fuel assemblies, it will refuel the plant during the current outage. While the plant is out of service, Maine Yankee must, in addition to replacing the fuel assemblies, conduct an intensive inspection of its steam generators, resolve cable-separation and other regulatory issues, and obtain NRC approval to restart the plant. The Company believes the plant will be out of service at least until August 1997, but cannot predict when or whether all of the regulatory and operational issues will be satisfactorily resolved, or what effect the repairs and improvements to the plant will have on its operating economics. The Company will incur significantly higher costs in 1997 for its share of inspection, repairs and refueling costs at Maine Yankee, and will also need to purchase replacement power while the plant is out of service. While the amount of higher costs is uncertain, Maine Yankee has indicated that it expects its operations-and-maintenance costs to increase by up to approximately $45 million in 1997, before refueling costs. The Company's share of such costs, based on its power entitlement of approximately 38%, would be up to approximately $17 million. In addition, the Company estimates its share of the refueling costs will amount to approximately $15 million; $10.4 million has been accrued as of December 31, 1996. The Company has been incurring incremental replacement-power costs of approximately $1 million per week while the plant has been out of service and expects such costs to continue at approximately the same rate until the plant returns to service. The impact of these higher nuclear-related costs on the Company's 1997 financial results will be significant and is likely to trigger a low earnings bandwidth provision of the Alternative Rate Plan (ARP). Under the ARP, actual earnings for 1997 outside a bandwidth of 350 basis points, above or below the 10.68% rate of return allowance, triggers the profit sharing mechanism. A return below the low end of the range provides for additional revenue through rates equal to one-half of the difference between the actual earned rate of return and the 7.18% (10.68 - 3.50) low end of the bandwidth. While the Company believes the profit-sharing mechanism is likely to be triggered in 1997, it cannot predict the amount, if any, of additional revenues that may ultimately result. The ARP was structured to permit reasonable assurance of continued recovery of the cost of services, including past deferrals, provide a higher degree of price stability and predictability, and reduce regulatory costs while providing financial incentives for improved efficiencies and protection against significant unforeseen events. The Company declared dividends totaling $0.90 per share in 1996, unchanged from 1995 and 1994 levels. Dividend and capital structure policy will continue to be reviewed by management and the Board of Directors and will take into consideration such issues as sustainable long-term earnings, capital needs, business opportunities and business risk, the structure of the Company and the industry, and the overall need to assure that financial risk and business risk are aligned. In the near term, the Company anticipates significant downward pressure on its earnings capacity as a result of the higher cost and outages of the Maine Yankee and Millstone Unit No. 3 nuclear facilities. The capacity of the Company to attain earnings levels that support the current dividend are closely related to the performance and cost associated with the Company's Maine Yankee investment and power entitlement. Sustained nuclear-unit outages combined with higher nuclear operating costs in 1997 will be a major obstacle to achieving satisfactory results in 1997 despite prudent control of other operating costs. On a prospective basis, a contract with a major NUG representing 62.5 MW of capacity expires on October 31, 1997. Net annual savings due to the contract expiration would be approximately $25 million, with 1997 savings amounting to approximately $4 million. The Company continues to face the challenges of competition and industry restructuring, and must achieve and maintain financial performance and resources commensurate with both the provision of service demanded by customers and the obligation to achieve competitive returns on investor capital. The Company is aggressively addressing the challenges of restructuring, the pressure from competitive energy sources, customers' desire for choices and enhanced service, and nuclear-plant outages in 1997. The following long-term financial objectives are key to sustainable future earnings and growth and will be a major focus of our 1997 activities: 1. Continue increasing the efficiency of operations: cost management under price-cap regulation must replace the cost-plus culture encouraged by traditional regulation. 2. Focus on volume of sales as a revenue builder. 3. Align financial policies to changing business needs and risks; competition tends to increase business risk, which impacts the desired level of fixed-charge obligations. 4. Expand areas of investment for growth; open competition in electric energy could significantly reduce traditional sales-growth opportunities. 5. Recover the substantial investments made and costs being incurred for existing service obligations; open competition could strand these costs, absent a transition mechanism for recovery. Earnings and Dividends For 1996, the Company generated net income of $60.2 million, compared to $38.0 million in 1995, and a net loss of $23.3 million in 1994. Earnings applicable to common stock were $50.8 million in 1996 or $1.57 per share, compared to $27.8 million or $0.86 per share in 1995. In 1994, the loss applicable to common stock was $33.8 million or $1.04 per share. The Company benefited from higher sales, cost management initiatives, surplus power sales and certain non-recurring events during the year as discussed below. In addition, net income in 1996 reflects replacement power costs for unscheduled nuclear unit outages of approximately $18.5 million. Increased nuclear operations, maintenance and study costs to comply with NRC safety actions amounted to approximately $4.3 million in 1996. See "Maine Yankee Regulatory Issues" and "Other Nuclear Issues" for more information. Certain favorable one-time events took place in 1996. Due to a flood in the fall of 1996, a non-utility generator was temporarily forced out of service for an extended period. This enabled the Company to purchase replacement power at a lower cost for a savings of approximately $5.4 million. An energy-swap agreement signed in 1994 with Northeast Utilities allowed the Company to save approximately $6 million in purchased power costs. A settlement with the Internal Revenue Service on audits for the years 1988-1991 provided a decrease to income tax expense of approximately $4.8 million. The 1996 Maine Public Utilities Commission's (MPUC) Alternative Rate Plan (ARP) decision provided the Company recovery in rates for its workers' compensation regulatory asset of $6.4 million, which resulted in the reversal of a 1995 charge due to uncertainty about recovery in rates. Net income in 1995 reflects $29 million of replacement purchased-power energy expense and $10 million for the Company's share of sleeving repair costs during the extended shutdown at Maine Yankee. These two items reduced earnings applicable to common stock by $22.9 million after income taxes, or $0.70 per share. The loss in 1994 reflects the write-off of approximately $100 million ($60 million after taxes) of deferred balances in accordance with the MPUC order in the ARP proceeding discussed fully below under the caption "Alternative Rate Plan" and Note 3 to Consolidated Financial Statements, "Regulatory Matters - Alternative Rate Plan." This write-off had the effect of reducing earnings per share by $1.85. Absent the write-off, earnings for 1994 would have been $0.81 per share. Dividends declared per common share have remained at $0.90 on an annual basis for the three years ended December 31, 1996. Revenues and Sales Electric operating revenues increased by $51.0 million or 5.6% to $967.0 million in 1996, and by $11.1 million or 1.2% to $916.0 million in 1995. The components of the change in electric operating revenues are as follows: (Dollars in millions) 1996 1995 Revenues from Company service-area kilowatt-hour sales $15.0 $ 4.5 Revenues from non-territorial sales 33.4 (9.2) Other Company operating revenues 3.0 8.7 Maine Electric Power Company, Inc. fuel cost recovery and other revenues (0.4) 7.1 Total Change in Electric Operating Revenues $51.0 $11.1 Refer to "Alternative Rate Plan" below, for a discussion of new rates and their impact on revenues. The Company's service-area sales for the years 1996, 1995, and 1994 are shown in the following table: (Kilowatt-hours in millions) 1996 1995 1994 % % % KWH change KWH change KWH change Residential 2,829 1.0% 2,802 (2.0)% 2,860 (0.9)% Commercial 2,489 0.5 2,477 1.6 2,439 2.2 Industrial 3,689 4.0 3,547 (4.7) 3,720 (1.9) Wholesale and lighting 217 58.9 136 (8.7) 149 (3.5) Total Service- Area Sales 9,224 2.9% 8,962 (2.2)% 9,168 (0.5)%
The primary factors in the service-area kilowatt-hour sales increase were residential customers' taking advantage of the Company's water-heating programs, increased sales in the pulp and paper industry, and the addition of a wholesale customer. The decreases in 1995 and 1994 were attributed to low economic growth, the loss of a major industrial customer in September 1994, energy management, and loss of sales due to conversions from electricity to alternative fuels for such purposes as space and water heating. The average number of residential customers increased by 5,157 in 1996, 5,076 in 1995, and 4,679 in 1994, while average usage per residential customer declined slightly in 1996, 3.1% in 1995 and 1.9% in 1994. The 1996 increase in commercial sales reflect increases in the retail and wholesale trade and service sectors. Combined, these sectors comprise approximately 68% of commercial sales. Sales to all others in the commercial sector were lower than 1995. Sales to Maine Yankee increased by 4 million kilowatt hours in 1996, and by 14.7 million kilowatt hours in 1995 due to the Plant's operating capacity limit of 90% and extended outages in both periods. Industrial sales levels are significantly affected by sales to the pulp-and-paper industry, which accounts for approximately 62% of industrial sales and approximately 25% of total service-area sales. Sales to the pulp-and-paper sector increased by 3.7% in 1996 and decreased by 8.6% in 1995, and by 3.6% in 1994. The increase in 1996 reflects special arrangements the Company has made with several paper companies to back down some of their self-generation and buy electricity from the Company at a discounted rate. The 1995 and 1994 decreases reflect lower sales levels primarily due to the late-1994 loss of a major customer that had previously purchased approximately 280 million kilowatt-hours annually. Refer to "Alternative Rate Plan" and "Competition and Economic Development," below, and Note 4 to Consolidated Financial Statements, "Commitment's and Contingencies - Competition," for additional information regarding the loss of this customer and the Company's actions to preserve its remaining large-industrial-customer base and other customer groups. Sales to all other industrial customers as a group increased 4.5% in 1996, 2.7% in 1995, and 1.5% in 1994. Revenues from non-territorial sales were significantly higher in 1996 due to sales to an out-of-state utility impacted by nuclear plant outages. In March 1995, a contract with a power broker expired, resulting in a decrease of $9.2 million in 1995 in non-territorial sales. Alternative Rate Plan In December 1994, the MPUC approved a stipulation, signed by most of the parties to the Company's ARP proceeding, which took effect January 1, 1995. This follow-up proceeding to the Company's 1993 base-rate case was ordered by the MPUC in an effort to develop a five-year plan containing price-cap, profit-sharing, and pricing-flexibility components. The price-cap mechanism provides for adjusting the Company's retail rates annually on July 1, commencing in 1995, at a percentage combining (1) a price index, (2) a productivity offset, (3) a sharing mechanism, and (4) flow-through items and mandated costs. The price cap applies to all of the Company's retail rates, and includes fuel-and-purchased-power costs that previously had been treated separately. The components of the July 1, 1995, price-cap increase of 2.43% are the inflation index of 2.92%, reduced by a productivity offset of 0.5%, and increased by 0.01% for flow-through items and mandated costs. The components of the July 1, 1996, price-cap increase of 1.26% consisted of an inflation index of 2.55% and earnings sharing and mandated cost items of 0.64%, reduced by a productivity offset of 1.0%, and sharing of contract restructuring and buyout savings of 0.93%. As originally stated in the MPUC's order approving the ARP, operation under the ARP continues to meet the criteria of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71). As a result, the Company will continue to apply the provisions of SFAS No. 71 to its accounting transactions and to its financial statements. In 1994, the Company agreed in the ARP negotiations to record charges of approximately $100 million ($60 million, net of tax) against 1994 earnings. The Company believes the ARP provides the benefits of needed pricing flexibility to set prices between defined floor and ceiling levels in three service categories: (1) existing customer classes, (2) new customer classes for optional targeted services, and (3) special-rate contracts. The Company believes that the added flexibility will position it more favorably to meet the competition from other energy sources that has eroded segments of its customer base. Some price adjustments can be implemented upon 30-days' notice by the Company, while certain others are subject to expedited review by the MPUC. The Company has utilized this feature in providing new rates to approximately 19,000 customers representing approximately 40% of annual kilowatt-hour sales and 27% of service-area revenues. These reductions in rates were offered to customers after consideration of associated NUG cost reductions, savings from further NUG consolidations and other general cost reductions. The ARP also contains provisions to protect the Company and ratepayers against unforeseen adverse results from its operation. These include review by the MPUC if the Company's actual return on equity falls outside a designated range, a mid-period review of the ARP by the MPUC in 1997 (including possible modification or termination), and a "final" review by the MPUC in 1999 to determine whether or with what changes the ARP should continue after 1999. The Company will submit its 1997 compliance filing and mid-period review filing in March 1997. The MPUC decision on the mid-period review is expected by September 30, 1997. While the ARP provides the Company with an expanded opportunity to be rewarded for efficiency, it also presents the risk of reduced rates of return if costs rise unexpectedly, like those that have resulted from the recent outages at Maine Yankee, or if revenues from sales decline or are not adequate to fund costs. The Company believes the ARP continues to be a competitive advantage and does not plan to propose any significant change during the mid-period review. For a detailed discussion of the ARP, refer to Note 3 to Consolidated Financial Statements,"Regulatory Matters - Alternative Rate Plan," and "Meeting the Requirements of SFAS 71." Maine Yankee Regulatory Issues The Company owns 38% of the common stock of Maine Yankee and is responsible for an approximately equal percentage of its costs. The 879-megawatt Maine Yankee nuclear generating plant in Wiscasset, Maine (the Plant), like others with pressurized water reactors, had been experiencing degradation of its steam generator tubes. Until early 1995, this was believed to be limited to a relatively small number of tubes. During a refueling shutdown in February 1995, new inspection methods used by Maine Yankee revealed that approximately 60% of the Plant's 17,000 steam generator tubes appeared to have defects. Following a detailed analysis of safety, technical and financial considerations, Maine Yankee repaired the tubes by inserting and welding short reinforcing sleeves of an improved material in substantially all of the Plant's steam generator tubes. Repairs were completed in December 1995. The Company's approximately $10-million share of the repair costs adversely affected the Company's 1995 earnings by $0.18 per share, net of taxes, in spite of significant cost-reduction measures implemented by both the Company and Maine Yankee. In addition, the Company incurred incremental replacement-power costs during the outage totaling approximately $29 million, or $0.52 per share, net of taxes, for 1995. Also in December 1995, the Nuclear Regulatory Commission's (NRC) Office of the Inspector General (OIG) and its Office of Investigations (OI) initiated separate investigations of certain anonymous "whistleblower" allegations of wrongdoing by Maine Yankee and Yankee Atomic Electric Company (Yankee Atomic) in 1988 and 1989 in connection with operating license amendments. On May 9, 1996, the OIG, which was responsible for investigating only the actions of the NRC staff and not those of Maine Yankee or Yankee Atomic, issued its report. The report found deficiencies in the NRC staff's review, documentation, and communications practices in connection with the license amendments, as well as "significant indications of possible licensee violations of NRC requirements and regulations." Any such violations by Maine Yankee are within the purview of the OI investigation, which, with related issues, is being reviewed by the United States Department of Justice. A separate internal investigation commissioned by the boards of directors of Maine Yankee and Yankee Atomic and conducted by an independent law firm noted several areas that could have been improved, including regulatory communications, definition of responsibilities between Maine Yankee and Yankee Atomic, and documentation and tracking of regulatory compliance, but found no wrongdoing by Maine Yankee or Yankee Atomic or any of their employees. Issues raised by the anonymous allegations caused the NRC to limit the Plant to an operating level of approximately 90% of its full thermal capacity, pending resolution of those issues. The Company cannot predict the results of the investigations by the OI and Department of Justice. The December 1995 allegations caused the Plant's extended tube-sleeving outage to be further extended into January 1996, and the Plant returned to the 90% operating level on January 24. On June 7, 1996, the NRC formally notified Maine Yankee that it would conduct an "Independent Safety Assessment" (ISA) of the Plant as a "follow-on" to the OIG report and to provide an independent evaluation of the safety performance of Maine Yankee by a team of NRC personnel and contractors who were "independent of any recent or significant involvement with the licensing, regulation or inspection of Maine Yankee." The NRC conducted the ISA in the summer of 1996 and released its report on October 7, 1996. The detailed ISA report identified both deficiencies and strengths in Maine Yankee's performance, and concluded that overall performance at Maine Yankee was "adequate" for operation of the Plant. The ISA team stressed that the deficiencies noted in the report stemmed from two closely related root causes, specifically, (1) that economic pressure to be a low-cost energy provider had limited available resources to address corrective actions and some improvements, and (2) that lack of a "questioning culture" had resulted in a failure to identify or promptly correct significant problems in areas perceived by Maine Yankee to be of low safety significance. In a letter to Maine Yankee accompanying the ISA report, NRC Chairman Shirley Ann Jackson noted that although overall performance at Maine Yankee was considered adequate for operation, a number of significant weaknesses and deficiencies identified in the report would result in NRC violations. The letter also directed Maine Yankee to provide to the NRC its plans for addressing the root causes of the deficiencies noted in the ISA and identified the NRC offices that would be responsible for overseeing corrective actions and taking any appropriate enforcement actions against Maine Yankee. On December 10, 1996, Maine Yankee filed its formal response to the ISA report with the NRC. In the response, Maine Yankee indicated that it would spend substantial sums on improvements in several areas in 1997 to address the root causes and associated deficiencies noted in the report, and that the improvements would include physical and operating changes at the Plant, along with a 10% increase in staffing, primarily in the engineering and maintenance areas, and other changes. In a release accompanying the response, Maine Yankee stated that a "fundamental shift in corporate culture" would accompany the changes and that Maine Yankee would not seek to return the Plant to the 100% power level from its authorized 90% level until it had reviewed the margins on all the key safety systems at the Plant, which had been another matter of concern to the NRC. The Plant operated substantially at the 90% capacity level until July 20, 1996, when it was taken off-line after a comprehensive review by Maine Yankee of the Plant's systems and equipment revealed a need to add pressure-relief capacity to the Plant's primary component cooling system. On August 18, 1996, while the Plant was in the restart process, Maine Yankee conducted a review of its electrical circuitry testing procedures pursuant to a generic NRC letter to nuclear-plant licensees that was intended to ensure that every feature of every safety system be routinely tested. During the expanded review, Maine Yankee found a deficiency in an electrical circuit of a safety system and therefore elected to conduct an intensified review of other safety-related circuits to resolve immediately any questions as to the adequacy of related testing procedures. The Plant returned to the 90% operating level on September 3, 1996. On December 6, 1996, Maine Yankee took the Plant off-line to resolve cable-separation and other operational and design issues. On January 3, 1997, Maine Yankee announced that it would use the opportunity presented by that outage to inspect the Plant's 217 fuel assemblies, since daily monitoring had indicated evidence of a small number of defective fuel rods. As a result of the inspection, Maine Yankee determined that all of the assemblies manufactured by one supplier and currently in the reactor core (approximately one-third of the total) would have to be replaced before the Plant could be restarted. Maine Yankee will therefore keep the Plant off-line for refueling, which had previously been scheduled for late 1997. In addition, Maine Yankee will make use of the outage to inspect the Plant's steam generators, commencing approximately April 1, 1997, for deterioration beyond that which was repaired during the extended 1995 outage. Degradation of steam generators of the age and design of those in use in the Plant has been identified at other plants. If major repairs to, or replacement of, the steam generators were found to be necessary for continued operation of the Plant, Maine Yankee would review the economics of continued operation before incurring the substantial capital expenditures that would be required. In January, the NRC announced that it had placed the Plant on its "watch list" in "Category 2", which includes plants that display "weaknesses that warrant increased NRC attention", but which are not severe enough to warrant a shut-down order. Plants in category 2 remain in that category "until the licensee demonstrates a period of improved performance." The Plant is one of fourteen nuclear units on the watch list announced that day by the NRC, which regulates slightly over 100 civilian nuclear power plants in the United States. After year end, Maine Yankee and Entergy Nuclear, Inc. (Entergy), which is a subsidiary of Entergy Corporation, a Louisiana-based utility holding company and leading nuclear plant operator, entered into a contract under which Entergy is providing management services to Maine Yankee. At the same time, officials from Entergy assumed management positions, including President, at Maine Yankee. While the Plant remains out of service, Maine Yankee must, in addition to replacing the fuel assemblies and conducting an intensive inspection of its steam generators, resolve the cable-separation issues and other known regulatory issues, as well as any additional issues that are discovered during the outage. The Company must obtain the approval of the NRC to restart the Plant, following a mandated NRC process that includes an NRC-approved restart plan and opportunities for public participation. The Company believes the Plant will be out of service at least until August 1997, but cannot predict when or whether all of the regulatory and operational issues will be satisfactorily resolved or what effect the total of the repairs and improvements to the Plant will have on the economics of operating the Plant. The Company will incur significantly higher costs in 1997 for its share of inspection, repairs and refueling costs at Maine Yankee and will also need to purchase replacement power while the Plant is out of service. While the amount of higher costs is uncertain, Maine Yankee has indicated that it expects it operations and maintenance costs to increase by up to approximately $45 million in 1997, before refueling costs. The Company's share of such costs based on its power entitlement of approximately 38% would be up to approximately $17 million. In addition, the Company estimates its share of the refueling costs will amount to approximately $15 million, of which $10.4 million has been accrued as of December 31, 1996. The Company has been incurring incremental replacement-power costs of approximately $1 million per week while the plant has been out of service and expects such costs to continue at approximately the same rate until the plant returns to service. The impact of these higher nuclear related costs on the Company's 1997 financial results will be significant and is likely to trigger the low earnings bandwidth provision of the ARP. Under the ARP, actual earnings for 1997 outside a bandwidth of 350 basis points, above or below a 10.68% rate of return allowance, triggers the profit sharing mechanism. A return below the low end of the range provides for additional revenue through rates equal to one-half of the difference between the actual earned rate of return and the 7.18% (10.68 - 3.50) low end of the bandwidth. While the Company believes that the profit sharing mechanism is likely to be triggered in 1997, it cannot predict the amount, if any, of additional revenues that may ultimately result. Other Nuclear Issues On December 4, 1996, the Board of Directors of Connecticut Yankee Atomic Power Company voted to permanently shut down the Connecticut Yankee plant, for economic reasons, and to decommission the unit. The Company has a 6% equity interest in Connecticut Yankee, totaling approximately $6.4 million at December 31, 1996. The plant did not operate after July 22, 1996, causing the Company to incur replacement power costs of approximately $1.5 million in 1996. The Company estimates its share of the cost of Connecticut Yankee's continued compliance with regulatory requirements, recovery of its plant investments, decommissioning and closing the plant to be approximately $45.8 million and has recorded a regulatory asset and a liability on its consolidated balance sheet. The Company is currently recovering through rates an amount adequate to recover these expenses. The Company has a 2.5% ownership interest in Millstone Unit No. 3 which is operated by Northeast Utilities. This facility has been off-line since March 31, 1996 due to NRC concerns regarding license requirements and the Company cannot predict when it will return to service. Millstone Unit No. 3, along with two other units at the same site owned by Northeast Utilities, is on the NRC's "watch list" in "Category 3," which requires formal NRC action before a unit can be restarted. The Company estimates that it will incur approximately $300,000 to $500,000 in replacement power costs each month Millstone Unit No. 3 remains out of service. The Company incurred replacement power costs of $3.5 million in 1996. Environmental Actions The Company has been named by the Environmental Protection Agency (EPA) as a "potentially responsible party" (PRP) and has been incurring costs to determine the best method of cleaning up an Augusta, Maine, site formerly owned by a salvage company and identified by the EPA as containing soil contaminated by PCBs from equipment originally owned by the Company. The Company also has been named as a PRP at eleven former gas plant sites, six former waste oil sites, and two former pole treatment and storage locations. Refer to Note 4 to Consolidated Financial Statements, "Commitments and Contingencies - Legal and Environmental Matters," for a more detailed discussion of this matter. Industry Restructuring and Strandable Costs The Federal Energy Policy Act of 1992 accelerated planning by electric utilities, including the Company, for a transition to a more competitive industry. The functional areas in which competition will take place, the regulatory changes that will be implemented, and the resulting structure of both the industry and the Company are all uncertain, but regulatory steps have already been taken toward competition in generation and non-discriminatory transmission access. A departure from traditional regulation and industry restructuring, however, could have substantial impacts on the value of utility assets and on electric utilities' abilities to recover their costs through rates. In the absence of full recovery, utilities would find their above-market costs to be "stranded," or unrecoverable, in the new competitive setting. In January, 1996, the Company filed its recommendations for an orderly transition to competition and adequate reimbursement of its potentially strandable costs with the MPUC. In December 1996, the MPUC issued its Report and Recommended Plan for Electric Utility Restructuring in Maine. The major elements of the MPUC plan, which are similar in most, but not all, respects to the Company's proposal include: (1) By January 2000, investor owned utilities would transfer all generating assets to entities distinct from transmission and distribution (T&D) assets and obligations. (2) By January 2006, the Company would be required to divest all generation assets (except Maine Yankee). (3) By January 2000, investor-owned utilities would be required to transfer the rights to market power from all qualifying facilities contracts. (4) Contracts between investor-owned utilities and qualifying facilities would remain with the T&D company. (5) Beginning January 1, 2000, all customers would have the option to purchase power directly from power suppliers or from intermediaries such as load aggregators, power marketers or energy service companies. (6) Standard-offer service would be provided to customers who do not choose a competitive power provider and who cannot obtain power in the market on reasonable terms. (7) The MPUC would not regulate companies that produce or sell power once customers can purchase power in a competitive market. (8) T&D companies would continue to be regulated. T&D companies would have exclusive service territories and an obligation to connect customers to the power grid. (9) A "reasonable opportunity" to recover strandable costs would be achieved through the regulated rates of the T&D utilities. Amounts recovered could include costs of fulfilling obligations under contracts with NUGs, as well as investments (and returns thereon) and other obligations undertaken by the Company in fulfilling its legal duty to serve, with requirements for the Company to mitigate such costs where practicable. (10) The MPUC recommended that the Legislature fund low-income assistance programs; otherwise, these programs would continue to be funded through T&D company rates. (11) All companies selling power to retail customers in Maine would be required to include a minimum amount of renewable energy in their generation mix, and customers would continue to fund cost-effective energy efficiency programs through T&D rates. The Company has substantial exposure to cost stranding relative to its size. In its January 1996 filing, the Company estimated its net-present-value strandable costs could be approximately $2 billion as of January 1, 1996. These costs represent the excess costs of purchased-power obligations and the Company's own generating costs over the market value of the power, and the costs of deferred charges and other regulatory assets. Of the $2 billion, approximately $1.3 billion is related to above-market costs of purchased-power obligations, approximately $200 million is related to estimated net above-market cost of the Company's own generation, and the remaining $500 million is related to deferred regulatory assets. The MPUC also provided estimates of strandable costs for the Company, which they found to be within a wide range of a negative $445 million to a positive $965 million. These estimates were prepared using assumptions that differ from those used by the Company, particularly a starting date for measurement of January 1, 2000 versus a measurement starting date of January 1, 1996 utilized by the Company. The MPUC concluded that there is a high degree of uncertainty that surrounds stranded costs numbers, resulting from having to rely on projections and assumptions about future conditions. Given the inherent uncertainty and volatility of these projections, the Company believes that an annual estimation of stranded costs could serve to prevent significant over-or-under-collection beginning in the year 2000. Estimated strandable costs are highly dependent on estimates of the future market for power. Higher market rates lower stranded cost exposure, while lower market rates increase it. In addition to market-related impacts, any estimate of the ultimate level of strandable costs depends on state and federal regulations; the extent, timing and form that competition for electric service will take; the ongoing level of the Company's costs of operations; regional and national economic conditions; growth of the Company's sales; timing of any changes that may occur from state and federal initiatives on restructuring; and the extent to which regulatory policies ultimately address recovery of strandable costs. The estimated market rate for power is based on anticipated regional market conditions and future costs of producing power. The present value of future purchased-power obligations and the Company's generating costs reflects the underlying costs of those sources of generation in place today, with reductions for contract expirations and continuing depreciation. Deferred regulatory asset totals include the current uncollected balances and existing amortization schedules for purchased-power contract restructuring and buyouts negotiated by the Company to lessen the impact of these obligations, energy management costs, financing costs, and other regulatory promises. The Company expects its strandable-cost exposure to decline over time as the market price of power increases, non-utility generator (NUG) contracts expire, and regulatory assets are recovered. Major cost stranding would have a material adverse effect on the Company's financial position. The Company believes it is entitled to recover substantially all of its potential strandable costs, but cannot predict when or if open electric energy competition will occur in its service territory, or how much it might ultimately be allowed to recover through state or federal regulation, the future market price of electricity, or the timing or implementation of any formal recommendations in any regulatory or legislative proceedings dealing with such issues. The Company believes there are many uncertainties associated with any major restructuring of the electric utility industry in Maine. Among them are: the positions that will ultimately be taken by the Maine Legislature and the MPUC; the role and policies of the FERC in any restructuring involving the Company, the extent and effect of Congressional involvement; whether political consensus is attained; and the extent to which the Company will be permitted to recover its strandable costs. The Company is pursuing efforts to mitigate its exposure to stranded costs. One method of mitigation that is being actively pursued is securitization of stranded costs including regulatory assets, above market NUG costs and above market company owned generation costs. Pursuant to a future legislative mandate and subject to determination by the MPUC, a portion of existing revenues related to stranded costs would be assigned by the Company for repayment of these costs. The property right created by this assignment could be used as security by a trust to sell bonds, the proceeds of which could be used by the Company to refinance existing obligations. Similarly a portion of existing revenues could also be dedicated directly to payment of above market non-utility power contract obligations, reducing the risks for the suppliers as well as for the Company. Mitigation from this mechanism would result from lower cost financing of stranded costs, enhanced credit worthiness of the utility, which should further reduce the Company's costs, and from increased availability of low cost funds to finance additional purchased power contract restructuring efforts. Any mitigation achieved would be passed on to residential and small commercial customers through lower rates. The Company cannot predict when or if legislative support for the use of securitization may occur. Open-Access Transmission Service Ruling On April 24, 1996, the Federal Energy Regulatory Commission (FERC) issued Order No. 888, which requires all public utilities that own, control or operate facilities used for transmitting electric energy in interstate commerce to file open access non-discriminatory transmission tariffs that offer both load-based, network and contract-based, point-to-point service, including ancillary service to eligible customers containing minimum terms and conditions of non-discriminatory service. This service must be comparable to the service they provide themselves at the wholesale level; in fact, these utilities must take wholesale transmission service they provide themselves under the filed tariffs. The order also permits public utilities and transmitting utilities the opportunity to recover legitimate, prudent and verifiable wholesale stranded costs associated with providing open access and certain other transmission services. It further requires public utilities to functionally separate transmission from generation marketing functions and communications. The intent of this order is to promote the transition of the electric utility industry to open competition. Order No. 888 also clarifies federal and state jurisdiction over transmission in interstate commerce and local distribution and provides for deference of certain issues to state recommendations. On July 9, 1996, the Company and MEPCO submitted compliance filings to meet the new pro forma tariff non-price minimum terms and conditions of non-discriminatory transmission. Since July 9, 1996, the Company and MEPCO have been transmitting energy pursuant to their filed tariffs, subject to refund. FERC subsequently issued Order No. 888-A which generally reaffirms Order No. 888 and clarifies certain terms. Also on April 24, 1996, FERC issued Order No. 889 which requires public utilities to functionally separate their wholesale power marketing and transmission operation functions and to obtain information about their transmission system for their own wholesale power transactions in the same way their competitors do through the Open Access Same-time Information System (OASIS). The rule also prescribed standards of conduct and protocols for obtaining the information. The standards of conduct are designed to prevent employees of a public utility engaged in marketing functions from obtaining preferential information. The Company participated in efforts to develop a regional OASIS, which was operational January 3, 1997. FERC subsequently approved a New England Power Pool-wide Open Access Tariff, subject to refund and issuance of further orders. The Company also participated in revising the New England Power Pool Agreement, which is pending FERC approval. Competition and Economic Development The Company faces competition in several aspects of its traditional business and anticipates that competition will continue to put pressure on both sales and the price the Company can charge for its product. Alternative fuels and recent modifications to regulations that had restricted competition from suppliers outside of the Company's service territory have expanded customers' energy options. As a result, the Company continues to pursue retention of its customer base. This increasingly competitive environment has resulted in the Company's entering into contracts with its wholesale customers, as well as with certain industrial, commercial, and residential customers, to provide their energy needs at prices and margins lower than the current averages. Pursuant to the pricing-flexibility provisions of the ARP, the Company redesigned some rates to encourage off-peak usage and discourage switching to alternative fuels. These include water-heat and space-heat retention rates, Super-Saver rates, which discount off-peak usage, Diesel Deferral rates, Economic Development rates, and the Maine Made Incentive program, which target small businesses. In 1994, the Company lowered tariffs for its large general-service customers and executed separate five-year definitive agreements with 18 individual customers providing additional reductions. Approximately 40% of annual service area kilowatt-hour sales and 27% of annual revenues are covered under special tariffs allowed under the pricing flexibility provisions of the ARP. These reductions in rates were offered to customers after consideration of associated NUG cost reductions, savings from further NUG consolidations and other general cost reductions. Refer to Note 4 to Consolidated Financial Statements,"Commitments and Contingencies - Competition," for additional information. Non-Utility Generators In accordance with prior MPUC policy and the ARP, $113 million of buy-out or contract-restructuring costs incurred since January 1992 were included in Deferred Charges and Other Assets on the Company's balance sheet and will be amortized over their respective fuel savings periods. The Company restructured 40 contracts representing 316 megawatts of capacity that should result in approximately $301 million in fuel savings over the next five years. The Company also restructured a purchased power contract with a 20 megawatt waste-to-energy facility, which is estimated to save the Company approximately $20 million over the next five years. Refer to Note 6 to Consolidated Financial Statements, "Capacity Arrangements - Non-Utility Generators," for more information. On October 31, 1997, a contract with a major NUG from which the Company is obligated to purchase electricity at substantially above-market prices will expire. As a result, the Company expects annual operating income to increase by approximately $25 million. Two months of this benefit, or approximately $4 million, will be reflected in 1997 results. Expansion Of Lines Of Business The Company is also preparing for competition by expanding its business opportunities through subsidiaries that capitalize on core competencies. One such subsidiary, MaineCom Services, which was approved by the MPUC on July 13, 1995, is developing opportunities in expanding markets by arranging fiber-optic data service for bulk carriers, offering support for cable-TV or "super-cellular" personal-communication vendors, and providing other telecommunications consulting services. The Company invested $10.7 million in MaineCom during 1996 to develop an interchange network from Portland, Maine, to various points in New Hampshire, Massachusetts and Connecticut. In addition, the Company has subsidiaries or divisions that provide energy-efficiency services, utility consulting (domestic and international) and research, engineering and environmental services, management of rivers and recreational facilities, locating of underground utility facilities and infrared photography, real estate brokerage and management, modular housing, and credit and collections services. All subsidiaries utilize skills of former Company employees and compete for business with other companies. In July 1996, the Company and Maine Electric Power Company, Inc. (MEPCO), a 78%-owned subsidiary of the Company, entered into option agreements with Maritimes and Northeast Pipeline, L.L.C. (M&N) in which the Company and MEPCO agreed to provide exclusive options to M&N to acquire property interests in certain transmission line rights of way to sections of M&N's proposed natural gas pipeline from the United States-Canada border at Woodland, Maine, to Dracut, Massachusetts. In November 1996, while the parties were still engaged in negotiating the terms of the proposed long-term arrangement, the options expired by their terms. Subsequent to the expiration the parties have met to discuss a long-term arrangement for use of the Company's and MEPCO's rights of way for the proposed pipeline, but the Company cannot predict whether final agreement on such an arrangement will be reached. Expenses and Taxes The Company's fuel expense, comprising the cost of fuel used for company generation and the energy portion of purchased power (the largest expense category), was 49% of total operating expense in 1996, 51% in 1995, and 54% in 1994. Purchased-power energy expense includes costs associated with purchases from NUGs, which amounted to 74% of this expense category in 1996. Fuel expense fluctuates with changes in the price of oil, the level of energy generated and purchased, and changes in the Company's own generation mix. Through December 31, 1994, changes in fuel expense were provided rate treatment through a fuel clause. Under the ARP, effective January 1, 1995, fuel-expense recovery is subject to the annual index-based price change. Fuel cost decreases are generally retained by the Company. Fuel expense for MEPCO was fully recoverable through billing to MEPCO participants. See Note 3 to Consolidated Financial Statements, "Regulatory Matters - Open Access Transmission Service Ruling," for a discussion on FERC Order No. 888 and its effect on MEPCO's operations. The extended outages and reduced operating level at Maine Yankee (see"Maine Yankee Regulatory Issues") resulted in significant increases in fuel expense, including purchased-power energy and purchased-power capacity expense, and affected the Company's generation mix in 1996 and 1995. The Company replaced this power through short-term agreements. Purchased power expense in 1996 reflected savings of approximately $5.4 million related to a paper company's extended forced outage of its cogeneration facility due to a flood. Additional savings of approximately $6 million were achieved through a five-year capacity exchange arrangement with Northeast Utilities designed to reduce replacement power cost when either Maine Yankee or Northeast Utilities facilities are off-line. Although this agreement was suspended in 1995, Northeast Utilities owed the Company energy, which they delivered in 1996. The Company benefited by purchasing this power at rates lower than market rates. See Note 4 to Consolidated Financial Statements, "Commitments and Contingencies - Competition," for more information on this matter. The Company's oil-fired generation decreased to 16.3% of the Company's net generation in 1996, compared to 21.6% in 1995 net generation, and 12.1% in 1994. The NUG component of the energy mix decreased from 36.8% in 1995, to 31.4% in 1996, as a result of the ongoing efforts to reform the Company's NUG contracts and an extended forced outage at one NUG facility. The average price of NUG energy of 8.3 cents per kilowatt-hour is significantly higher than the Company's own cost of generation, and much higher than the price of energy on today's open market. The Company continues to try to moderate the cost of non-utility generation by pursuing renegotiation of contracts, by supporting legislative bills that would promote that objective, and by other means such as strict contract-term enforcement. Purchased-power capacity expense is the non-fuel operation, maintenance, and cost-of-capital expense associated with power purchases, primarily from the Company's share of the Yankee nuclear generating facilities. In 1996, purchased-power capacity expense increased by $15.2 million. Maine Yankee capacity expense decreased by $12.2 million in 1996 , due mainly to the 1995 $10-million steam-generator tube repair costs. 1996 costs increased primarily as a result of an accrual for the 1997 refueling outage that accounted for a year over year increase of $13 million. In addition, expense increased by $9.4 million resulting from the restructuring of a contract with a non-utility generator. This agreement significantly decreased the cost of purchased-power fuel resulting in a net savings in total purchased power costs. The level of purchased-power capacity expense also fluctuates with the timing of the maintenance and refueling outages at the other Yankee nuclear generating facilities in which the Company has equity interests. The cost of capacity increases during refueling periods. In December 1996, the Board of Directors of Connecticut Yankee Atomic Power Company announced a permanent shutdown of the Connecticut Yankee plant for economic reasons and their intent to decommission the plant. The Company has a 6% equity interest in Connecticut Yankee, totaling approximately $6.4 million at December 31, 1996. Purchased power capacity expense in 1996, 1995 and 1994 includes $11.5 million, $11.5 million, and $10 million, respectively, of costs related to this facility. During 1992, Yankee Atomic Electric Company, in which the Company is a 9.5% equity owner, discontinued power generation and prepared a plan for decommissioning. Purchased-power capacity expense in 1996, 1995, and 1994 contained approximately $4.8 million, $3.9 million, and $5.2 million, respectively, of costs related to this facility. Refer to Note 6 to Consolidated Financial Statements, "Capacity Arrangements - Power Agreements," and "Other Nuclear Issues" above for a more detailed discussion. The 1996 reduction in other operation and maintenance expense is attributed to the reversal of a reserve of $6.4 million established in 1995 for the Company's workers compensation regulatory asset for which recovery was not certain. In the June 1996 ARP decision, the MPUC approved recovery of this regulatory asset. Also in 1996, the Company increased the workers compensation obligation and charged the increase of $1.6 million to expense. As a result, a net year-over-year reduction of $11.2 million for workers compensation was recorded. The Company did incur an increase in distribution expenses of $4.1 million, mainly due to line-clearance activities. The Company has contractual obligations related to demand-side energy-management programs which increased expense by $2.8 million in 1996. Maintenance expense other than distribution increased $3.5 million, of which $1.4 million was for repairs at the Millstone Unit No. 3 nuclear facility. The 1995 other operation-and-maintenance expense increase reflects significantly higher charges totaling approximately $27.7 million for amortization and cost of purchased-power contract buy-outs. Also reflected is a one-time charge of $5.6 million related to a Special Retirement Offer (SRO) to all employees aged 50 or more who had at least five years of continuous service. The goal of the SRO was to help the Company achieve financial savings and make the organizational changes it needed to be an effective competitor in the energy marketplace. Approximately 200 employees accepted the SRO. The Company continued its reengineering effort that began in 1995 to analyze the financial controls and customer service sectors of the business. Employee teams have begun implementing solutions that are expected to yield improvements in work processes and result in cost savings. The Company is also continuing cost containment measures. Interest expense decreased in 1996 by $1.4 million due to lower levels of Medium-Term Notes and the repurchase of $11.5 million of Series N General and Refunding Mortgage Bonds. Long-term debt interest expense includes $1 million of accelerated amortization of loss on reacquired debt, as specified in the 1996 ARP. In 1995, interest expense included a full year's interest costs on the Company's October 1994 note to the Finance Authority of Maine to finance the buy-out of a major NUG contract, and lower interest cost from a decrease in the amount of Medium-Term Notes outstanding. Short-term interest costs over the period 1994 through 1996 fluctuated with the levels of rates and outstanding balances of short-term debt. In July 1996, the Company redeemed $14 million of its 8 7/8% Series Preferred Stock at par, under the mandatory and optional sinking-fund provisions of that series. This reduced dividends by approximately $700,000 in 1996. The Company reduced the level of Flexible Money Market Preferred Stock outstanding in 1995 by $5.5 million in anticipation of the 1999 sinking-fund requirement, thereby reducing dividends in 1995 by $300,000. State and federal income taxes fluctuate with the level of pre-tax earnings and the regulatory treatment of taxes by the MPUC. A settlement with the Internal Revenue Service on audits for the years 1988-1991 provided a decrease to income tax expense of approximately $4.8 million in 1996. The significant increase in income-tax expense for 1995 is due to the impact of the loss from the write-off of deferred balances in accordance with the MPUC's ARP order in 1994. See Note 2 to Consolidated Financial Statements, "Income Taxes," for more information. Liquidity and Capital Resources The MPUC approved increases in electric retail rates of 1.26% and 2.43% in 1996 and 1995, respectively, that produced additional cash pursuant to the price cap mechanism in the ARP. Increases in rates under the ARP were based on increases in the related price index, the sharing mechanism and provisions for certain mandated costs. Prior rate increases were provided to fund costs of fuel, energy-management programs, operations, maintenance, systems improvements, and investments in generation needed to ensure the Company's continued ability to provide reliable electric service. Approximately $141.7 million of cash was provided from net income after adding back non-cash items. Approximately $16.2 million of cash was used for fluctuations in working capital. Other operating activities, including the financing of deferred energy-management programs and the buy-out of NUG contracts, required cash resources. The level of cash balances and activity in capital investment programs have required little investment-related activity during 1996 and 1995. The issuance and redemption of Medium-Term Notes and the purchase of 8 7/8% Series Preferred Stock used $24 million and $14 million, respectively, of cash during 1996. Dividends paid on common stock were $29.2 million, while preferred-stock dividends were $9.8 million. Capital-investment activities, primarily construction expenditures, utilized $57.1 million in cash during 1996. Construction expenditures comprised approximately $6.3 million for generating projects, $3.0 million for transmission, $27.9 million for distribution, and $9.7 million for general facilities and other construction expenditures. The Company invested $12.1 million in subsidiaries in 1996, of which $10.7 million was in MaineCom Services. The Company estimates its capital expenditures for the period 1997 through 2001 at approximately $302 million. Actual capital expenditures will depend upon the availability of capital and other resources, load forecasts, customer growth, and general business conditions. During the five-year period, the Company also anticipates incurring approximately $462 million for sinking funds, and debt and equity maturities. The Company estimates that for the period 1997 through 2001, internally generated funds from operating activities should provide a substantial portion of the construction-program requirements. However, the availability at any particular time of internally generated funds for such requirements will depend on working-capital needs, market conditions, and other relevant factors. Replacement power costs and increased operation, maintenance and refueling costs for Maine Yankee will have a significant negative effect on cash and liquidity in 1997. The Company has been incurring incremental replacement-power costs of approximately $1 million per week while the plant has been out of service and expects such costs to continue at approximately the same rate until the plant returns to service. Maine Yankee has indicated that it expects its operations and maintenance costs to increase by up to approximately $45 million, before refueling costs. The Company's share of such costs would be up to approximately $17 million. In addition, the Company estimates its share of the refueling costs will amount to approximately $15 million. Internally generated funds from operating activities will not be sufficient to meet these demands. The Company also plans to utilize its Medium-Term Note program and revolving credit facilities, as described below, for these cash requirements. The Company's $150-million Medium-Term Note program was implemented to provide flexibility to meet financing needs and provide access to a broad range of debt maturities. As of December 31, 1996, $68 million of Medium-Term Notes were outstanding which, under the terms of the program, permits issuance of an additional $82 million of such notes. The Company is planning to seek the consent of its preferred stockholders to increase the capacity of the Medium-Term Note program from $150 million to $500 million at its annual meeting of stockholders on May 15, 1997, in order to increase its financing flexibility in anticipation of restructuring and increased competition. The Company cannot predict whether such consent will be obtained. In 1996, the Company deposited approximately $29.6 million in cash with the Trustee under the Company's General and Refunding Mortgage Indenture in satisfaction of the renewal and replacement fund and other obligations under the Indenture. The total of such cash on deposit with the Trustee as of December 31, 1996, was approximately $59.5 million. Under the Indenture such cash may be applied at any time, at the direction of the Company, to the redemption of bonds outstanding under the Indenture at a price equal to the principal amount of the bonds being redeemed, without premium, plus accrued interest to the date fixed for redemption. Such cash may also be withdrawn by the Company by substitution of allocated property additions or available bonds. To support its short-term capital requirements, on October 23, 1996 , the Company entered into a $125 million revolving credit facility with several banks, with The First National Bank of Boston and The Bank of New York acting as agents for the lenders. The credit facility has two tranches: a $75 million, 364-day revolving credit facility that matures on October 22, 1997, and a $50-million, 3-year revolving credit facility that matures on October 23, 1999. Both credit facilities require annual fees on the unused portion of the credit lines. The fees are based on the Company's credit ratings and allow for various borrowing options including LIBOR-priced, base-rate-priced and competitive-bid-priced loans. Access to commercial paper markets has been substantially reduced, if not precluded, as a result of downgrading of the Company's credit ratings. The amount of outstanding short-term borrowing will fluctuate with day-to-day operational needs, the timing of long-term financing, and market conditions. There was $7.5 million outstanding as of December 31, 1996, under this agreement. Factors That May Affect Future Results This management's discussion and analysis section contains forecast information items that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. All such forward-looking information is necessarily only estimated. There can be no assurance that actual results will not materially differ from expectations. Actual results have varied materially and unpredictably from past expectations. Factors that could cause actual results to differ materially include, among other matters, electric utility restructuring, including the ongoing state and federal activities; future economic conditions; earnings-retention and dividend-payout policies; developments in the legislative, regulatory, and competitive environments in which the Company operates; and other circumstances that could affect anticipated revenues and costs, such as unscheduled maintenance or repair requirements and compliance with laws and regulations. Nuclear investments and obligations, which are subject to increased regulatory scrutiny, and the amount of expenditures and the timing of the return of the Maine Yankee generating plant to service, could have a material effect on the Company's financial position. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Page Index to Financial Statements and Financial Statement Schedule Financial Statements: Management report on responsibility for financial reporting 43 Report of Independent Accountants 44 Consolidated Statement of Earnings for the three years ended December 31, 1996, 1995 and 1994 45 Consolidated Balance Sheet as of December 31, 1996 and 1995 46 Consolidated Statement of Cash Flows 48 Consolidated Statement of Capitalization and Interim Financing 50 Consolidated Statement of Changes in Common-Stock Investment 51 Notes to Consolidated Financial Statements 52 Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts 101 Report of Management The Management of Central Maine Power Company and its subsidiary is responsible for the consolidated financial statements and the related financial information appearing in this annual report. The financial statements are prepared in conformity with generally accepted accounting principles and include amounts based on informed estimates and judgments of management. The financial information included elsewhere in this report is consistent, where applicable, with the financial statements. The Company maintains a system of internal accounting controls that is designed to provide reasonable assurance that the Company's assets are safeguarded, transactions are executed in accordance with management's authorization, and the financial records are reliable for preparing the financial statements. While no system of internal accounting controls can prevent the occurrence of errors or irregularities with absolute assurance, management's objective is to maintain a system of internal accounting controls that meets its goals in a cost-effective manner. The Company has policies and procedures in place to support and document the internal accounting controls that are revised on a continuing basis. Internal auditors conduct reviews, provide ongoing assessments of the effectiveness of selective internal controls, and report their findings and recommendations for improvement to management. The Board of Directors has established an Audit Committee, composed entirely of outside directors, which oversees the Company's financial reporting process on behalf of the Board of Directors. The Audit Committee meets periodically with management, internal auditors, and the independent public accountants to review accounting, auditing, internal accounting controls, and financial reporting matters. The internal auditors and the independent public accountants have full and free access to meet with the Audit Committee, with or without management present, to discuss auditing or financial reporting matters. Coopers & Lybrand L.L.P., independent public accountants, has been retained to audit the Company's consolidated financial statements. The accompanying report of independent public accountants is based on their audit, conducted in accordance with generally accepted auditing standards, including a review of selected internal accounting controls and tests of accounting procedures and records. David T. Flanagan David E. Marsh President and Chief Executive Officer Vice President, Corporate Services, Treasurer and Chief Financial Officer REPORT OF INDEPENDENT ACCOUNTANTS To the Directors and Stockholders Central Maine Power Company We have audited the consolidated financial statements and the financial statement schedule of Central Maine Power Company and subsidiary listed in Item 8 and Item 14(a) of this Form 10-K. These financial statements and financial statements schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Central Maine Power Company and subsidiary as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Portland, Maine January 23, 1997 Consolidated Financial Statements Consolidated Statement of Earnings (Dollars in thousands, except per-share Year ended December 31, amounts) 1996 1995 1994 Electric Operating Revenues (Notes 1 and 3) $967,046 $916,016 $904,883 Operating expenses Fuel used for company generation (Notes 1 and 6) 16,827 18,702 14,783 Purchased power - energy (Notes 1 and 6) 407,926 408,072 430,874 Purchased power - capacity (Note 6) 108,720 93,489 77,775 Other operation 182,910 188,013 153,700 Maintenance 37,449 32,862 32,820 Depreciation and amortization (Note 1) 53,694 55,023 55,992 Federal and state income taxes (Note 2) 30,125 13,328 28,300 Taxes other than income taxes 27,861 27,885 25,512 Total Operating Expenses 865,512 837,374 819,756 Equity in Earnings of Associated Companies (Note 6) 6,138 7,217 5,109 Operating Income 107,672 85,859 90,236 Other income (expense) Allowance for equity funds used during construction (Note 1) 851 663 807 Other, net (Note 3) 5,255 7,170 (105,133) Income taxes (Notes 2 and 3) (1,897) (2,704) 42,443 Total Other Income (Expense) 4,209 5,129 (61,883) Income Before Interest Charges 111,881 90,988 28,353 Interest charges Long-term debt (Note 7) 47,966 50,307 46,213 Other interest (Note 7) 4,341 3,244 5,887 Allowance for borrowed funds used during construction (Note 1) (655) (543) (482) Total Interest Charges 51,652 53,008 51,618 Net income (loss) 60,229 37,980 (23,265) Dividends on preferred stock 9,452 10,178 10,511 Earnings (Loss) Applicable to Common Stock $ 50,777 $ 27,802 $(33,776) Weighted Average Number of Shares of Common Stock Outstanding 32,442,752 32,442,752 32,442,408 Earnings (Loss) Per Share of Common Stock $1.57 $0.86 $(1.04) Dividends Declared Per Share of Common Stock $0.90 $0.90 $ 0.90
The accompanying notes are an integral part of these financial statements. Consolidated Balance Sheet (Dollars in thousands) December 31 Assets 1996 1995 Electric property, at original cost (Notes 6 and 7) $1,644,434 $1,611,941 Less: accumulated depreciation (Notes 1 and 6) 598,415 560,078 Electric property in service 1,046,019 1,051,863 Construction work in progress (Note 4) 20,007 15,928 Nuclear fuel, less accumulated amortization of $9,035 in 1996 and $8,909 in 1995 1,157 1,391 Net electric property 1,067,183 1,069,182 Investments in associated companies, at equity (Notes 1 and 6) 67,809 54,669 Net Electric Property and Investments in Associated Companies 1,134,992 1,123,851 Current assets Cash and cash equivalents 8,307 57,677 Accounts receivable, less allowances for uncollectible accounts of $4,177 in 1996 and $3,313 in 1995: Service - billed 84,396 87,140 Service - unbilled (Notes 1 and 3) 45,721 41,798 Other accounts receivable 17,517 15,131 Prepaid income taxes (Note 2) 264 - Fuel oil inventory, at average cost 9,256 3,772 Materials and supplies, at average cost 12,172 12,772 Funds on deposit with trustee (Note 7) 59,512 29,919 Prepayments and other current assets 9,500 9,192 Total Current Assets 246,645 257,401 Deferred charges and other assets Recoverable costs of Seabrook 1 and abandoned projects, net (Note 1) 89,551 95,127 Yankee Atomic purchased-power contract (Note 6) 16,463 21,396 Connecticut Yankee purchased-power contract (Note 6) 45,769 - Regulatory assets - deferred taxes (Note 2) 239,291 235,081 Deferred charges and other assets (Notes 1 and 3) 238,203 260,063 Total Deferred Charges and Other Assets 629,277 611,667 Total Assets $2,010,914 $1,992,919 The accompanying notes are an integral part of these financial statements.
Stockholders' Investment and Liabilities Capitalization (see separate statement) (Note 7) Common-stock investment $ 511,578 $ 490,005 Preferred stock 65,571 65,571 Redeemable preferred stock 53,528 67,528 Long-term obligations 587,987 622,251 Total Capitalization 1,218,664 1,245,355 Current liabilities and interim financing Interim financing (see separate statement) (Note 7) 32,500 34,000 Sinking-fund requirements (Note 7) 9,375 10,455 Accounts payable 93,197 108,170 Dividends payable 9,512 9,823 Accrued interest 11,610 12,648 Accrued income taxes (Note 2) - 3,668 Miscellaneous current liabilities 21,342 13,870 Total Current Liabilities and Interim Financing 177,536 192,634 Commitments and Contingencies (Notes 4 and 6) Reserves and deferred credits Accumulated deferred income taxes (Note 2) 357,994 351,868 Unamortized investment tax credits (Note 2) 31,988 32,452 Yankee Atomic purchased-power contract (Note 6) 16,463 21,396 Connecticut Yankee purchased-power contract (Note 6) 45,769 - Regulatory liabilities - deferred taxes (Note 2) 52,616 50,366 Other reserves and deferred credits (Note 5) 109,884 98,848 Total Reserves and Deferred Credits 614,714 554,930 Total Stockholders' Investment and Liabilities $2,010,914 $1,992,919 The accompanying notes are an integral part of these financial statements. Consolidated Statement of Cash Flows (Dollars in thousands) Year ended December 31 1996 1995 1994 Operating Activities Net income (loss) $ 60,229 $ 37,980 $(23,265) Items not requiring (providing) cash: ARP-related charges (Note 3) - - 100,390 Depreciation 44,104 43,676 42,627 Amortization 34,881 37,196 32,790 Deferred income taxes and investment tax credits, net 3,318 (3,710) 11,022 Allowance for equity funds used during construction (851) (663) (807) Changes in certain assets and liabilities: Accounts receivable (3,565) (12,539) 5,175 Inventories (4,884) 595 4,230 Other current assets (308) (1,954) (1,391) Retail fuel costs - - 32,922 Accounts payable (16,862) 12,025 4,062 Accrued taxes and interest (4,970) 30,282 (25,311) Miscellaneous current liabilities 7,472 3,335 (2,602) Deferred energy-management costs (5,222) (4,075) (5,789) Maine Yankee outage accrual 8,280 (4,710) 8,197 Purchased-power contract buyouts (75) (13,405) (91,274) Other, net 3,961 11,495 (5,604) Net Cash Provided by Operating Activities 125,508 135,528 85,372 Investing Activities Construction expenditures (46,922) (44,867) (42,246) Investments in associated companies (12,059) (600) (2,004) Changes in accounts payable - investing activities 1,889 (1,655) (679) Net Cash Used by Investing Activities (57,092) (47,122) (44,929) Financing Activities Issuances: Mortgage bonds - - 25,000 Common stock - - 927 Medium-term notes 10,000 30,000 32,000 Other Long-Term Obligations 870 - - Finance Authority of Maine - - 66,429 Redemptions: Mortgage bonds (11,500) - - Preferred stock (14,000) (5,472) - Medium-term notes (34,000) (65,000) (43,000) Finance Authority of Maine (6,300) - - Short-term obligations, net 7,500 (8,000) (25,500) Other long-term obligations (1,780) (860) (860) Funds on Deposit with Trustee (29,593) - - Dividends: Common stock (29,220) (29,222) (29,222) Preferred stock (9,763) (10,287) (10,061) Net Cash Provided (Used) by Financing Activities (117,786) (88,841) 15,713 Net Increase (Decrease) in Cash and Cash Equivalents (49,370) (435) 56,156 Cash and cash equivalents, beginning of year 57,677 58,112 1,956 Cash and Cash Equivalents, end of year $ 8,307 $ 57,677 $ 58,112 Supplemental Cash-Flow Information: Cash paid during the year for: Interest (net of amounts capitalized) $47,835 $51,127 $44,874 Income taxes (net of amounts refunded of $0, $29,045 and $2,802 in respective years indicated) $32,632 $(11,994) $1,568
For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased having a maturity of three months or less to be cash equivalents. The accompanying notes are an integral part of these financial statements. Consolidated Statement of Capitalization and Interim Financing December 31 (Dollars in thousands) 1996 1995 Amount % Amount % Capitalization (Note 7) Common-stock investment: Common stock, par value $5 per share: Authorized - 80,000,000 shares Outstanding - 32,442,752 shares in 1996 and 1995 $ 162,214 $ 162,214 Other paid-in capital 276,818 276,287 Retained earnings 72,546 51,504 Total Common-Stock Investment 511,578 40.9% 490,005 38.3% Preferred Stock - not subject to mandatory redemption 65,571 5.2 65,571 5.1 Preferred Stock - subject to mandatory redemption 60,528 74,528 Less: current sinking fund requirements 7,000 7,000 Redeemable Preferred Stock - subject to mandatory redemption 53,528 4.3 67,528 5.3 Long-term obligations: Mortgage bonds 421,000 432,500 Less: unamortized debt discount 1,620 1,807 Total Mortgage Bonds 419,380 430,693 Medium-term notes 68,000 92,000 Less: unamortized debt discount - 8 Total Medium-Term Notes 68,000 91,992 Other long-term obligations: Lease obligations 36,283 38,112 Pollution-control facility and other notes 91,699 98,909 Total Other Long-Term Obligations 127,982 137,021 Less: Current Sinking Fund Requirements and Current Maturities 27,375 37,455 Total Long-Term Obligations 587,987 47.0 622,251 48.6 Total Capitalization 1,218,664 97.4 1,245,355 97.3 Interim financing (Note 7): Short-term obligations 7,500 - Current maturities of long-term obligations 25,000 34,000 Total Interim Financing 32,500 2.6 34,000 2.7 Total Capitalization and Interim Financing $1,251,164 100.0% $1,279,355 100.0%
The accompanying notes are an integral part of these financial statements. Consolidated Statement of Changes in Common-Stock Investment For the three years ended December 31, 1996 (Dollars in thousands) Amount at Other par value paid-in Retained Shares capital earnings Total Balance - December 31, 1993 32,379,937 $161,900 $274,343 $117,146 $553,389 Net loss (23,265) (23,265) Dividends declared: Common stock (29,213) (29,213) Preferred stock (10,511) (10,511) Cost for reacquired preferred stock 675 (675) Issues of common stock 62,815 314 613 927 Capital stock expense (4) (4) Balance - December 31, 1994 32,442,752 162,214 275,627 53,482 491,323 Net income 37,980 37,980 Dividends declared: Common stock (29,199) (29,199) Preferred stock (10,178) (10,178) Cost for reacquired preferred stock 581 (581) Shareholders Rights Plan redemption (324) (324) Capital stock expense 403 403 Balance - December 31, 1995 32,442,752 162,214 276,287 51,504 490,005 Net income 60,229 60,229 Dividends declared: Common stock (29,199) (29,199) Preferred stock (9,452) (9,452) Cost for reacquired preferred stock 536 (536) Capital stock expense (5) (5) Balance - December 31, 1996 32,442,752 $162,214 $276,818 $72,546 $511,578 The accompanying notes are an integral part of these financial statements.
Notes to Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies General Description Central Maine Power Company (the Company) is an investor-owned public utility primarily engaged in the sale of electric energy at the wholesale and retail levels to residential, commercial, industrial, and other classes of customers in the State of Maine. Financial Statements The consolidated financial statements include the accounts of the Company and its 78%-owned subsidiary, Maine Electric Power Company, Inc. (MEPCO). The Company accounts for its investments in associated companies not subject to consolidation using the equity method. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Regulation The rates, operations, accounting, and certain other practices of the Company and MEPCO are subject to the regulatory authority of the Maine Public Utilities Commission (MPUC) and the Federal Energy Regulatory Commission (FERC). Electric Operating Revenues Electric operating revenues include amounts billed to customers and estimates of unbilled sales and fuel costs. Through December 31, 1994, the Company's approved tariffs provided for the recovery of the cost of fuel used in Company generating facilities and purchased-power energy costs. The Company also collected interest on unbilled fuel and paid interest on fuel-related over-collections. Effective January 1, 1995, with the implementation of the Alternative Rate Plan (ARP), these costs are no longer subject to reconciliation through the annual fuel-cost adjustment. See Note 3, "Regulatory Matters - Alternative Rate Plan," for further information. Depreciation Depreciation of electric property is calculated using the straight-line method. The weighted average composite rate was 3.0% in each of 1996, 1995 and 1994. Allowance for Funds Used During Construction (AFC) An allowance for funds (including equity funds), a non-operating item, is capitalized as an element of the cost of construction. The debt component of AFC is classified as a reduction of interest expense, while the equity component, a non-cash item, is classified as other income. The average AFC rates applied to construction were 8.7% in 1996, 8.4% in 1995, and 8.9% in 1994. Asset Valuation The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective January 1, 1996. The standard requires impairment losses on long-lived assets to be recognized when an asset's book value exceeds its expected future cash flows (undiscounted and without interest). The new standard also imposes stricter criteria for retention of regulatory-created assets by requiring that such assets be probable of future recovery at each balance sheet date. The Company's adoption of this standard in 1996 had no impact on accompanying financial statements. However, this may change in the future as changes are made in the current regulatory framework or as competitive factors influence wholesale and retail pricing in the electric utility industry. Deferred Charges and Other Assets The Company defers and amortizes certain costs in a manner consistent with authorized or probable ratemaking treatment. The Company capitalizes carrying costs as a part of certain deferred charges, principally energy-management costs, and classifies such carrying costs as other income. The following table depicts the components of deferred charges and other assets at December 31, 1996, and 1995: (Dollars in thousands) 1996 1995 NUG contract buy-outs and restructuring (Note 6) $113,796 $126,485 Energy-management costs 35,986 36,224 Postretirement benefits (Note 5) 22,962 21,849 Financing costs 20,684 24,775 Environmental site clean-up costs (Note 4) 7,876 7,375 Non-operating property, net 7,176 7,486 Electric Lifeline Program 2,368 3,603 Other, including MEPCO 27,355 32,266 Total $238,203 $260,063 Certain costs are being amortized and recovered in rates over periods ranging from three to 30 years. Amortization expense for the next five years is shown below: (Dollars in thousands) Amount 1997 $26,790 1998 26,053 1999 23,910 2000 22,807 2001 19,304 Recoverable Costs of Seabrook I and Abandoned Projects The recoverable after-tax investments in Seabrook I and abandoned projects are reported as assets, pursuant to May 1985 and February 1991 MPUC rate orders. The Company is allowed a current return on these assets based on its authorized rate of return. In accordance with these rate orders, the deferred taxes related to these recoverable costs are amortized over periods of four to 10 years. As of December 31, 1996, substantially all deferred taxes related to Seabrook I have been amortized. The recoverable investments as of December 31, 1996, and 1995 are as follows: December 31 Recovery (Dollars in thousands) 1996 1995 periods ending Recoverable costs of: Seabrook I $141,084 $141,084 2015 Other Projects 57,491 57,491 2001 198,575 198,575 Less: accumulated amortization 108,209 102,248 Less: related income taxes 815 1,200 Total Net Recoverable Investment $ 89,551 $ 95,127 Note 2: Income Taxes The components of federal and state income-tax provisions (benefits) reflected in the Consolidated Statement of Earnings are as follow: Year ended December 31 (Dollars in thousands) 1996 1995 1994 Federal: Current $ 21,682 $ 15,965 $(18,579) Deferred 5,751 2,278 2,175 Investment tax credits, net (464) (1,715) (2,512) Regulatory deferred (623) (2,619) 8,379 Total Federal Taxes 26,346 13,909 (10,537) State: Current $ 7,022 $ 3,777 $ (6,586) Deferred (10) 343 3,003 Regulatory deferred (1,336) (1,997) (23) Total State Taxes 5,676 2,123 (3,606) Total Federal and State Income Taxes $ 32,022 $ 16,032 $(14,143) Federal and state income taxes charged to: Operating expenses $ 30,125 $ 13,328 $ 28,300 Other income 1,897 2,704 (42,443) $ 32,022 $ 16,032 $(14,143) Federal income tax, excluding federal regulatory deferred taxes, differs from the amount of tax computed by multiplying income before federal tax by the statutory federal rate. The following table reconciles the statutory federal rate to a rate determined by dividing the total federal income-tax expense by income before that expense: Year ended December 31 1996 1995 1994 Amount % Amount % Amount % (Dollars in thousands) Income tax expense at statutory federal rate $30,301 35.0% $18,161 35.0% $(11,831) 35.0% Permanent differences: Investment tax-credit amortization (1,482) (1.7) (1,613) (3.1) (1,613) 4.8 Dividend-received deduction (1,895) (2.2) (2,219) (4.3) (1,469) 4.3 Other, net (293) (0.3) (217) (0.4) (68) 0.2 26,631 30.8 14,112 27.2 (14,981) 44.3 Effect of timing differences for items which receive flow through treatment: Tax-basis repairs (1,229) (1.4) (891) (1.7) (924) 2.7 Depreciation differences flowed through in prior years 2,327 2.7 2,291 4.4 2,315 (6.8) Accelerated flowback of deferred taxes on loss on abandoned generating projects 1,708 1.9 1,873 3.6 2,051 (6.1) Deduction of removal costs (202) (0.2) (189) (0.4) (163) 0.5 Carrying costs, net 186 0.2 253 0.5 429 (1.3) Adjustment to tax accrual for change in rate treatment 300 0.3 - - 420 (1.2) Excess property taxes paid - - - - (116) 0.4 IRS audit resolution regarding depreciation methods (3,230) (3.7) - - - - Provision for deferred taxes relating to normalization of certain short-term timing differences* - - (2,545) (4.9) - - Other, net (145) (0.2) (995) (1.9) 432 (1.3) Federal Income Tax Expense and Effective Rate $26,346 30.4% $13,909 26.8% $(10,537) 31.2%
*During 1995, the Company adjusted the deferred tax balances for certain normalized items (Note 3). The Company and MEPCO record deferred income-tax expense in accordance with regulatory authority; they also defer investment and energy tax credits and amortize them over the estimated lives of the assets that generated the credits. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns as required under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). Under this method, effective January 1, 1993, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using the enacted tax rates in effect in the year in which the differences are expected to reverse. At-adoption adjustments to accumulated deferred taxes were required, as well as the recognition of a liability to ratepayers for deferred taxes established in excess of the amount calculated using income-tax rates applicable to future periods. Additionally, deferred taxes were recorded for the cumulative timing differences for which no deferred taxes had been recorded previously. Concurrently, the Company, in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71), recorded a regulatory asset representing its expectations that, consistent with current and expected ratemaking, it will collect these additional taxes recorded through rates when they are paid in the future. A valuation allowance has not been recorded at December 31, 1996, and 1995, as the Company expects that all deferred income tax assets will be realized in the future. Accumulated deferred income taxes consisted of the following in 1996 and 1995: (Dollars in thousands) 1996 1995 Deferred tax assets resulting from: Investment tax credits, net $ 22,050 $ 22,370 Regulatory liabilities 17,919 13,882 Alternative minimum tax 10,241 23,850 All other 26,588 22,545 76,798 82,647 Deferred tax liabilities resulting from: Property 288,370 273,565 Abandoned plant 61,729 65,573 Regulatory assets 85,508 96,577 435,607 435,715 Accumulated deferred income taxes, end of year, net $358,809 $353,068 Accumulated deferred income taxes, recorded as: Accumulated deferred income taxes $357,994 $351,868 Recoverable costs of Seabrook 1 and abandoned projects, net 815 1,200 $358,809 $353,068 Note 3: Regulatory Matters Alternative Rate Plan In December 1994, the MPUC approved a stipulation signed by most of the parties to the Company's ARP proceeding. This follow-up proceeding to the Company's 1993 base-rate case was ordered by the MPUC in an effort to develop a five-year plan containing price-cap, profit-sharing, and pricing-flexibility components. Although the ARP is a major reform, the MPUC is continuing to regulate the Company's operations and prices, provide for continued recovery of deferred costs, and specify a range for its authorized rate of return. The ARP was adopted effective January 1, 1995. The Company believes the ARP provides the benefits of needed pricing flexibility to set prices between defined floor and ceiling levels in three service categories: (1) existing customer classes, (2) new customer classes for optional targeted services, and (3) special-rate contracts. The Company believes that the added flexibility will position it more favorably to meet the competition from other energy sources. See Note 4 to Consolidated Financial Statements, "Commitments and Contingencies - Competition," for a discussion of actions taken by the Company under the ARP's pricing flexibility provisions. The ARP also contains provisions to protect the Company and ratepayers against unforeseen adverse results from its operation. These include review by the MPUC if the Company's actual return on equity falls outside a designated range, a mid-period review of the ARP by the MPUC in 1997 (including possible modification or termination), and a "final" review by the MPUC in 1999 to determine whether or with what changes the ARP should continue in effect after 1999. The Company will submit its 1997 compliance filing and the mid-period review filing in March 1997. The mid-period review decision is expected from the MPUC by September 30, 1997. The Company believes, as stated in the MPUC's order approving the ARP, that operation under the ARP continues to meet the criteria of SFAS No. 71. In its order, the MPUC reaffirmed the applicability of previous accounting orders allowing the Company to reflect amounts as deferred charges and regulatory assets. As a result, the Company will continue to apply the provisions of SFAS No. 71 to its accounting transactions and its future financial statements. The ARP contains a mechanism that provides price caps on the Company's retail rates to increase annually on July 1, commencing July 1, 1995, by a percentage combining (1) a price index, (2) a productivity offset, (3) a sharing mechanism, and (4) flow-through items and mandated costs. The price cap applies to all of the Company's retail rates, including the Company's fuel-and-purchased power cost, which previously had been treated separately. Under the ARP, fuel expense is no longer subject to reconciliation or specific rate recovery, but is subject to the annual indexed price-cap changes. A specified standard inflation index is the basis for each annual price-cap change. The inflation index is reduced by the sum of two productivity factors, a general productivity offset of 1.0%, (0.5% for 1995), and a second formula-based offset that started in 1996 intended to reflect the limited effect of inflation on the Company's purchased-power costs during the proposed five-year initial term of the ARP. The sharing mechanism will adjust the subsequent year's July price-cap change in the event the Company's earnings are outside a range of 350 basis points above or below the Company's allowed return on equity, starting at the 10.55% allowed return (1995) and indexed annually for changes in capital costs. Outside that range, profits and losses would be shared equally by the Company and ratepayers in computing the price-cap adjustment. This feature commenced with the price-cap change of July 1, 1996, and reflected 1995 results. The ARP also provides for partial flow-through to ratepayers of cost savings from non-utility generator contract buy-outs and restructuring, recovery of energy-management costs, penalties for failure to attain customer-service and energy-efficiency targets, and specific recovery of half the costs of the transition to Statement of Financial Accounting Standards No. 106, "Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106), the remaining 50% to be recovered through the annual price-cap change. The ARP also generally defines mandated costs that would be recoverable by the Company notwithstanding the index-based price cap. To receive such treatment, a mandated cost's revenue requirement must exceed $3 million and have a disproportionate effect on the Company or the electric-power industry. Effective July 1, 1995, the MPUC approved a 2.43% increase pursuant to the annual price-change provision in the ARP. The primary component of the increase was the inflation-index change of 2.92%, reduced by a productivity offset of 0.5%, and increased by .01% for flowthrough items and mandated costs. On June 28, 1996, the MPUC approved a 1.26% increase in rates under the ARP effective July 1, 1996. The components of the increase included the inflation-index of 2.55% and earnings sharing and mandated cost items of 0.64%, reduced by the productivity offset of 1.0% and sharing of contract restructuring and buyout savings of 0.93%. The Company agreed in the ARP negotiations to record charges in 1994 reflecting the write-off of approximately $100 million ($60 million, net of tax, or $1.85 per share) which consisted of undercollected balance of fuel and purchased power costs, unrecovered energy-management costs, unrecovered unbilled ERAM revenues and unrecovered deferred charges related to the possible extension of the operating life of one of the Company's generating stations. The $100-million charge was included in "Other income (expense) - Other, net" on the Consolidated Statement of Earnings. The $40-million tax impact was included in "Other income (expense) - Income taxes." These charges, with the other provisions of the ARP, lessen the impact of future price increases for MPUC-mandated and fuel-related costs. Restructuring The Maine Legislature in 1995 took action by Legislative Resolve (Resolve) to develop recommendations for the MPUC on the future structure of the electric utility industry in Maine. The Resolve stated that the findings of the MPUC would have no legal effect, but that the MPUC's study would"...provide information to the Legislature in order to allow the Legislature to make informed decisions when it evaluates those plans" In accordance with the Resolve, on December 31, 1996, the MPUC, pursuant to the mandate of the Maine Legislature, filed its Report and Recommended Plan for Utility Industry Restructuring (Restructuring Report). The Company believes there are many uncertainties associated with any major restructuring of the electric utility industry in Maine. Among them are: the actions that will be ultimately taken by the legislature and the MPUC; the role of the FERC in any restructuring involving the Company and the ultimate positions it will take on relevant issues within its jurisdiction; to what extent the United States Congress will become involved in resolving or redefining the issues through legislative action and, if so, with what results; whether the necessary political consensus can be reached on the significant and complex issues involved in changing the long-standing structure of the electric-utility industry; and, particularly with respect to the Company, to what extent utilities will be permitted to recover strandable costs. The Company has substantial exposure to cost stranding relative to its size. The Company estimated its net-present-value strandable costs could be approximately $2 billion as of January 1, 1996. These costs represent the excess costs of purchased-power obligations and the Company's own generating costs over the market value of the power, and the costs of deferred charges and other regulatory assets. Of the $2 billion, approximately $1.3 billion is related to above-market costs of purchased-power obligations, approximately $200 million is related to estimated net above-market cost of the Company's own generation, and the remaining $500 million is related to deferred regulatory assets. Meeting the Requirements of SFAS No. 71 The Company continues to meet the requirements of SFAS No. 71, as described above. The standard provides specialized accounting for regulated enterprises, which requires recognition of assets and liabilities that enterprises in general could not record. Examples of regulatory assets include deferred income taxes associated with previously flowed through items, NUG buyout costs, losses on abandoned plants, deferral of postemployment benefit costs, and losses on debt refinancing. If an entity no longer meets the requirements of SFAS No. 71, then regulatory assets and liabilities must be written off. The ARP provides incentive-based rates intended to recover the cost of service plus a rate of return on the Company's investment together with a sharing of the costs or earnings between ratepayers and the shareholders should the earnings be less than or exceed a target rate of return. The Company has received recognition from the MPUC that the rates implemented as a result of the ARP continue to provide specific recovery of costs deferred in prior periods. The MPUC's Restructuring Report submitted to the Legislature in December 1996 recognizes that a reasonable opportunity to recover strandable costs is essential to a successful transition to competition, with incentives for the Company to mitigate such costs where practicable. The Company is actively pursuing securitization of regulatory assets, which would provide further assurance of their recoverability. Open-Access Transmission Service Ruling On April 24, 1996, FERC issued Order No. 888, which requires all public utilities that own, control or operate facilities used for transmitting electric energy in interstate commerce to file open access non-discriminatory transmission tariffs that offer both load-based, network and contract-based, point-to-point service, including ancillary service to eligible customers containing minimum terms and conditions of non-discriminatory service. This service must be comparable to the service they provide themselves at the wholesale level; in fact, these utilities must take wholesale transmission service they provide themselves under the filed tariffs. The order also permits public utilities and transmitting utilities the opportunity to recover legitimate, prudent and verifiable wholesale stranded costs associated with providing open access and certain transmission services. It further requires public utilities to functionally separate transmission from generation marketing functions and communications. The intent of this order is to promote the transition of the electric utility industry to open competition. Order No. 888 also clarifies federal and state jurisdiction over transmission in interstate commerce and local distribution and provides for deference of certain issues to state recommendations. On July 9, 1996, the Company and MEPCO submitted its compliance filings to meet the new pro forma tariff non-price minimum terms and conditions of non-discriminatory transmission. Since July 9, 1996, the Company and MEPCO have been transmitting energy pursuant to their filed tariffs, subject to refund. FERC subsequently issued Order No. 888-A, which reaffirms Order No. 888 and clarifies certain terms. Also on April 24, 1996, FERC issued Order No. 889 which requires public utilities to functionally separate their wholesale power marketing and transmission operation functions and to obtain information about their transmission system for their own wholesale power transactions in the same way their competitors do through the Open Access Same-time Information System (OASIS). The rule also prescribed standards of conduct and protocols for obtaining the information. The standards of conduct are designed to prevent employees of a public utility engaged in marketing functions from obtaining preferential information. The Company participated in efforts to develop a regional OASIS, which was operational January 3, 1997. FERC subsequently approved a New England Power Pool-wide Open Access Tariff, subject to refund and issuance of further orders. The Company also participated in revising the New England Power Pool Agreement, which is pending FERC approval. Note 4: Commitments and Contingencies Construction Program The Company's plans for improving and expanding generating, transmission, distribution facilities, and power-supply sources are under continuing review. Actual construction expenditures will depend upon the availability of capital and other resources, load forecasts, customer growth, and general business conditions. The Company's current forecast of capital expenditures for the five-year period 1997 through 2001, are as follows: (Dollars in millions) 1997 1998-2001 Total Type of Facilities: Generating projects $ 8 $ 33 $ 41 Transmission 3 14 17 Distribution 27 124 151 General facilities and other 18 75 93 Total Estimated Capital Expenditures $56 $246 $302 Competition In September 1994, the Town of Madison's Department of Electric Works (Madison), a wholesale customer of the Company, began receiving power from Northeast Utilities (NU) as a result of a competitive bidding process available under the federal Energy Policy Act of 1992. Substantially all of the 45 megawatts involved supply the large paper-making facility of Madison Paper Industries (MPI) in Madison's service territory that had been served directly by the Company under a special service agreement with Madison during the preceding 12 years. The MPUC approved the stipulation filed by the Company, Madison, and NU, whereby the related MPUC and FERC regulatory proceedings were deemed to be settled among the parties, and the Company withdrew its request for compensation for stranded costs. In return, NU agreed to pay the Company $8.4 million over a seven-year period, MPI agreed to pay the Company $1.4 million over a three-year period, a transmission rate was agreed upon for the Company's transmission service to Madison commencing September 1, 1994, and the parties agreed that Madison would be supplied by NU through 2003, with Madison having an option for an additional five years. In addition, NU and the Company agreed to a five-year capacity exchange arrangement designed to achieve significant replacement-power cost savings for the Company when the Company's largest source of generation, the Maine Yankee Plant, is off-line, and provides Maine Yankee power to NU when certain NU facilities are shut down. The agreement provides more economic benefit to the Company than if it had under-bid NU for Madison's business, but less than if Madison stayed on the Company's system at the former rates. The Company records income under this contract as the amounts are received. Madison was the largest of the Company's three wholesale customers. The Company later reached agreement with its other two wholesale customers to continue to supply them at negotiated prices and margins that are lower than the previous averages. Subsequent to year end, these customers initiated a request for proposals to supply their energy needs after 1998. During 1994, the Company engaged in discussions with its large general-service customers. Those customers have alternative energy options that the Company believed needed to be addressed by lowering its applicable tariffs. In response to those discussions, in November 1994, the Company filed revised tariff schedules lowering prices 15% for its two high-voltage transmission-level rate classes. The Company then entered into five-year definitive agreements with 18 of these customers that lock-in non-cumulative rate reductions of 15% for the three years 1995 through 1997, 16% for 1998, and 18% for 1999, below the December 1, 1994, levels. These contracts also protect these customers from price increases that might otherwise be allowed under the ARP. The participating customers agreed to take electrical service from the Company for five years and not to switch fuels, install new self-generation equipment, or seek another supplier of electricity for existing electrical load during that period. New electrical load in excess of a stated minimum level could be served by other sources, but the Company could compete for that load. The Company believes that without offering the competitive pricing provided in the agreements, a number of these customers would be likely to install additional self-generation or take other steps to decrease their electricity purchases from the Company. The revenue loss from such a usage shift could have been substantial. The Company estimates that based on the rate reductions effective January 1, 1995, its gross revenues were approximately $27 million lower in 1995, and approximately $45 million lower in 1996, than would have been the case if these customers continued to pay full retail rates without reducing their purchases from the Company. However, these rate reductions were negotiated giving consideration to important related cost savings. Electricity price changes affect the cost of some NUG power contracts. The reduction in rates to large customers reduced purchased-power costs by approximately $20 million as a result of linkage between retail tariffs and some contract prices. Legal and Environmental Matters The Company is a party in legal and administrative proceedings that arise in the normal course of business. In connection with one such proceeding, the Company has been named a potentially responsible party (PRP) and has been incurring costs to determine the best method of cleaning up an Augusta, Maine, site formerly owned by a salvage company and identified by the Environmental Protection Agency (EPA) as containing soil contaminated by polychlorinated biphenyls (PCBs) from equipment originally owned by the Company. In 1995, the EPA approved a remedy to adjust the soil cleanup standard to 10 parts per million. The cleanup method using solvent extraction was found to be technically infeasable. On July 30, 1996, the EPA approved the off-site disposal of the contaminated soil to a EPA licensed secure landfill. The Company believes that its share of the remaining costs of the cleanup under the approved remedy could total approximately $2.7 million to $4.2 million. This estimate is net of an agreed partial insurance recovery and the 1993 court-ordered contribution of 41% from Westinghouse Electric Corp., but does not reflect any possible contributions from other insurance carriers the Company has sued, or from any other parties. The Company has recorded an estimated liability of $2.7 million and an equal regulatory asset, reflecting an accounting order to defer such costs and the anticipated ratemaking recovery of such costs when ultimately paid. In addition, the Company has deferred, as a regulatory asset, $5.1 million of costs incurred through December 31, 1996. The Company cannot predict with certainty the level and timing of the cleanup costs, the extent they will be covered by insurance, or their ratemaking treatment, but believes it should recover substantially all of such costs through insurance and rates. Other Environmental Sites The Company has been named as a PRP at eleven former manufactured gas plant sites, six former waste oil sites, and two former pole treatment and storage locations. The Company believes that its share of the investigation and cleanup and other costs associated with these sites could total approximately $0.9 million which was charged to income in 1996. The Company believes that the ultimate resolution of current legal and environmental proceedings will not have a material adverse effect on its financial condition. Nuclear Insurance The Price-Anderson Act (Act) is a federal statute providing, among other things, a limit on the maximum liability for damages resulting from a nuclear incident. The liability is provided for by existing private insurance and by retrospective assessments for costs in excess of that covered by insurance, up to $79.3 million for each reactor owned, with a maximum assessment of $10 million per reactor in any year. Based on the Company's indirect ownership in four nuclear-generation facilities (See Note 6, "Capacity Arrangements - Power Agreements") and its 2.5% ownership interest in the Millstone Unit No. 3 nuclear plant, the Company's retrospective premium could be as high as $6 million in any year, for a cumulative total of $47.6 million, exclusive of the effect of inflation indexing and a 5% surcharge in the event that total public liability claims from a nuclear incident should exceed the funds available to pay such claims. In addition to the insurance required by the Act, the nuclear generating facilities referenced above carry additional nuclear property-damage insurance. This additional insurance is provided from commercial sources and from the nuclear electric-utility industry's insurance company through a combination of current premiums and retrospective premium adjustments. Based on current premiums and the Company's indirect and direct ownership in nuclear generating facilities, this adjustment could range up to approximately $7.7 million annually. Note 5: Pension and Other Post-Employment Benefits Pension Benefits The Company has two separate non-contributory, defined-benefit plans that cover substantially all of its union and non-union employees. The Company's funding policy is to contribute amounts to the separate plans that are sufficient to meet the funding requirements set forth in the Employee Retirement Income Security Act (ERISA), plus such additional amounts as the Company may determine to be appropriate. Plan benefits under the non-union retirement plan are based on average final earnings, as defined within the plan, and length of employee service; benefits under the union plan are based on average career earnings and length of employee service. During 1995, the Company offered a Special Retirement Offer (SRO) to qualifying employees. Approximately 200 employees accepted the offer. The $7-million cost of the SRO was included in pension expense. As part of the SRO, the plans were amended to add five years to age and five years to credited service for all plan participants for purposes of eligibility and early retirement discounts. Early Retirement Incentive Program (ERIP) expenses for 1994 relate to a 1991 ERIP reflected in accordance with an MPUC accounting order. A summary of the components of net periodic pension cost for the non-union and union defined-benefit plans in 1996, 1995 and 1994 follows: 1996 1995 1994 (Dollars in Non- Non- Non- thousands) union Union union Union union Union Service cost - benefits earned during the period $2,334 $1,780 $2,014 $1,414 $2,367 $1,684 Interest cost on projected benefit obligation 5,225 3,852 5,653 3,889 5,469 3,816 Return on plan assets (8,168) (5,036) (16,135) (9,786) 2,336 1,397 Net amortization and deferral 2,911 1,536 10,030 6,028 (8,174) (5,311) Early Retirement Incentive Programs - - 3,859 3,141 992 1,457 Net Periodic Pension Cost $2,302 $2,132 $5,421 $4,686 $2,990 $3,043
Assumptions used in accounting for the non-union and union defined-benefit plans in 1996, 1995, and 1994 are as follows: 1996 1995 1994 Weighted average discount rate 7.50% 7.25% 8.25% Rate of increase in future compensation levels 4.5% 4.5% 5.0% Expected long-term return on assets 8.5% 8.5% 8.5% The following table sets forth the actuarial present value of pension-benefit obligations, the funded status of the plans, and the liabilities recognized on the Company's balance sheet at December 31, 1996, and 1995: 1996 1995 (Dollars in thousands) Non- Non- union Union union Union Actuarial present value of benefit obligations: Vested benefit obligation $62,461 $47,617 $64,916 $47,948 Accumulated benefit obligation 64,394 48,783 $64,916 $47,948 Projected benefit obligation 75,570 55,688 $77,939 $53,735 Plan assets at estimated market value (primarily stocks, bonds, and guaranteed annuity contracts) 77,996 48,091 73,973 45,061 Funded status - projected benefit obligation in excess of or (less than) plan assets (2,426) 7,597 3,966 8,674 Unrecognized prior service cost (1,785) (1,481) (1,940) (1,610) Unrecognized net gain 19,819 3,745 11,309 2,530 Unrecognized (net obligation) net asset (163) 1,675 (192) 1,945 Net Pension Liability Recognized in the Balance Sheet $15,445 $11,536 $13,143 $11,539
Savings Plan The Company offers an employee savings plan to all employees which allows participants to invest from 2% to 15% of their salaries among several alternatives. An employer contribution equal to 60% of the first 5% of the employees' contributions is initially invested in Company common stock. The Company's contributions to the savings-plan trust were $1.7 million in 1996, $1.6 million in 1995, and $1.8 million in 1994. Other Post-Employment Benefits In addition to pension and savings-plan benefits, the Company provides certain health-care and life-insurance benefits for substantially all of its retired employees. The MPUC approved a rulemaking on SFAS No. 106, effective July 20, 1993, that adopted the accrual method of accounting for the expected cost of such benefits during the employees' years of service, and authorized the establishment of a regulatory asset for the deferral of such costs until they are "phased-in" for ratemaking purposes. The effect of the change can be reflected in annual expenses over the active service life of employees or a period of 20 years, rather than in the year of adoption. The MPUC prescribes the maximum amortization period of the average remaining service life of active employees or 20 years, whichever is longer, for the transition obligation. The Company is utilizing a 20 year amortization period. Segregation in an external fund is required for amounts collected in rates. The Company is proposing initial funding of $3 million annually. Until amounts are funded, no return on assets will be reflected in postretirement benefit cost. As a result of the MPUC order, the Company records the cost of these benefits by charging expense in the period recovered through rates ($9.8 million in 1996, $6.7 million in 1995, and $5.5 million in 1994), with the excess over that amount of $1.1 million in 1996, $6.2 million in 1995 and $7.1 million in 1994, deferred for future recovery. The total amount defined as a regulatory asset as of December 31, 1996 was $23 million. Concurrent with the initial ARP price change, the Company began to phase in the cost of SFAS No. 106 over a three-year period, $3 million for the first year beginning July 1, 1995 and an additional $2.1 million for the year beginning July 1, 1996. The amounts deferred until that point are being amortized over the same period as the transition obligation. A summary of the components of net periodic postretirement benefit cost for the plan in 1996, 1995 and 1994 follows: (Dollars in thousands) 1996 1995 1994 Service cost $ 1,347 $ 846 $ 1,472 Interest on accumulated postretirement benefit obligation 5,720 7,389 6,712 Special retirement offer - 200 - Amortization of transition obligation 4,080 4,606 4,606 Amortization of prior service cost 35 42 - Amortization of gain (329) (188) (171) Postretirement benefits expense 10,853 12,895 12,619 Deferred postretirement benefits expense 1,056 6,204 7,108 Postretirement Benefit Expense Recognized in the Statement of Earnings $ 9,797 $ 6,691 $ 5,511 The following table sets forth the accumulated postretirement benefit obligation, the funded status of the plan, and the liability recognized on the Company's balance sheet at December 31, 1996 and 1995: (Dollars in thousands) 1996 1995 Accumulated postretirement benefit obligation: Retirees $ 51,815 $ 87,632 Fully eligible active plan participants 2,707 4,791 Other active plan participants 19,381 15,069 Total accumulated postretirement benefit obligation 73,903 107,492 Plan assets, at fair value 849 879 Accumulated postretirement benefits obligation in excess of plan assets 73,054 106,613 Unrecognized net gain (loss) 15,987 (2,511) Unrecognized prior service cost (5) (1,131) Unrecognized transition obligation (59,267) (78,303) Accrued Postretirement Benefit Cost Recognized in the Balance Sheet $ 29,769 $ 24,668 The assumed health-care cost-trend rates range from 5.7% to 6.8% for 1996, reducing to 5.0% overall over a period of 25 years. Rates range from 6.4% to 9.3% for 1995, reducing to 5.0% overall, over a period of 10 years. Rates range from 6.8% to 10.4% for 1994, reducing to 5.0% overall, over a period of 10 years. The effect of a one-percentage-point increase in the assumed health-care cost-trend rate for each future year would increase the aggregate of the service and interest-cost components of the net periodic postretirement benefit cost by $0.7 million and the accumulated postretirement benefit obligation by $8.9 million. Additional assumptions used in accounting for the postretirement benefit plan in 1996, 1995 and 1994 are as follows: 1996 1995 1994 Weighted-average discount rate 7.50% 7.25% 8.25% Rate of increase in future compensation levels 4.50% 4.50% 5.0% The Company is exploring alternatives for mitigating the cost of postretirement benefits and for funding its obligations. These alternatives include mechanisms to fund the obligation prior to actual payment of benefits, plan-design changes to limit future expense increases, and additional cost-control and cost-sharing programs. Effective September 1, 1996, the Company implemented a phase-out of the long-term care portion of its retiree medical plans. With the exception of one group of approximately 200 retirees, all benefits of this type will be eliminated by September 1, 2002. These changes decreased Plan liabilities by approximately $16 million, based on 1996 actuarial valuation results. Note 6: Capacity Arrangements Power Agreements The Company, through certain equity interests, owns a portion of the generating capacity and energy production of four nuclear generating facilities (the Yankee companies), two of which have been permanently shut down, and is obligated to pay its proportionate share of costs, which include fuel, depreciation, operation-and-maintenance expenses, a return on invested capital, and the estimated cost of decommissioning the nuclear plants. Pertinent data related to these power agreements as of December 31, 1996, are as follows: (Dollars in thousands) Maine Yankee Vermont Connecticut Yankee Yankee Yankee* Atomic* Ownership share 38% 4% 6% 9.5% Contract expiration date 2008 2012 1998 2000 Capacity (MW) 879 531 -- -- Company's share of: Capacity (MW) 329 19 -- -- Estimated 1996 costs $ 79,282 $ 6,525 $ 12,355 $ 4,896 Long-term obligations and redeemable preferred stock $ 94,559 $ 6,950 $ 10,447 $ -- Estimated decommissioning obligation $118,586 $ 13,150 $ 45,769 $16,463 Accumulated decommissioning fund $ 61,254 $ 5,474 $ 12,269 $11,408 * See following for discussion on Connecticut Yankee and Yankee Atomic Under the terms of its agreements, the Company pays its ownership share (or entitlement share) of estimated decommissioning expense to each of the Yankee companies and records such payments as a cost of purchased power. Effective August 16, 1988, Maine Yankee Atomic Power Company (Maine Yankee) began collecting $9.1 million annually for decommissioning. In 1994, Maine Yankee, pursuant to FERC authorization, increased its annual collection to $14.9 million and reduced its return on common equity to 10.65%, for a total increase in rates of approximately $3.4 million. The increase in decommissioning collection is based on the estimated cost of decommissioning the Maine Yankee Plant, assuming dismantling and removal, of $317 million (in 1993 dollars) based on a 1993 external engineering study. Accumulated decommissioning funds were $163.5 million as of December 31, 1996. The estimated cost of decommissioning nuclear plants is subject to change due to the evolving technology of decommissioning and the possibility of new legal requirements. The Maine Yankee Plant, like other pressurized water reactors, experienced degradation of its steam generator tubes, principally in the form of circumferential cracking, which, until early 1995, was believed to be limited to a relatively small number of tubes. During a refueling and maintenance shutdown in February 1995, Maine Yankee detected through new inspection methods that approximately 60% of the Plant's 17,000 steam generator tubes appeared to have defects. Following a detailed analysis of safety, technical and financial considerations, Maine Yankee repaired the tubes by inserting and welding short reinforcing sleeves of an improved material in substantially all of the Plant's steam generator tubes, which was completed in December 1995. The Company's approximately $10-million share of the repair costs adversely affected the Company's 1995 earnings by $0.18 per share, net of taxes, in spite of significant cost-reduction measures implemented by both the Company and Maine Yankee. In addition, the Company's incremental replacement-power costs during the outage totaled approximately $29 million, or $0.52 per share, net of taxes, for 1995. Also in December 1995, the Nuclear Regulatory Commission's (NRC) Office of the Inspector General (OIG) and its Office of Investigations (OI) initiated separate investigations of certain anonymous "whistleblower" allegations of wrongdoing by Maine Yankee and Yankee Atomic Electric Company (Yankee Atomic) in 1988 and 1989 in connection with operating license amendments. On May 9, 1996, the OIG, which was responsible for investigating only the actions of the NRC staff and not those of Maine Yankee or Yankee Atomic, issued its report on its investigation. The report found deficiencies in the NRC staff's review, documentation, and communications practices in connection with the license amendments, as well as "significant indications of possible licensee violations of NRC requirements and regulations." Any such violations by Maine Yankee are within the purview of the OI investigation, which, with related issues, is being reviewed by the United States Department of Justice. A separate internal investigation commissioned by the boards of directors of Maine Yankee and Yankee Atomic and conducted by an independent law firm noted several areas that could have been improved, including regulatory communications, definition of responsibilities between Maine Yankee and Yankee Atomic, and documentation and tracking of regulatory compliance, but found no wrongdoing by Maine Yankee or Yankee Atomic or any of their employees. Issues raised as a result of the anonymous allegations caused the NRC to limit the Plant to an operating level of approximately 90% of its full thermal capacity, pending resolution of those issues. The Company cannot predict the results of the investigations by the OI and Department of Justice. On January 11, 1996, Maine Yankee began start-up operations and was up to a 90% generation level on January 24, 1996. The Plant operated substantially at that level until July 20, 1996, when it was taken off-line after a comprehensive review by Maine Yankee of the Plant's systems and equipment revealed a need to add pressure-relief capacity to the Plant's primary component cooling system. On August 18, 1996, while the Plant was in the restart process, Maine Yankee conducted a review of its electrical circuitry testing procedures pursuant to a generic NRC letter to nuclear-plant licensees that was intended to ensure that every feature of every safety system be routinely tested. During the expanded review, Maine Yankee found a deficiency in an electrical circuit of a safety system and therefore elected to conduct an intensified review of other safety-related circuits to resolve immediately any questions as to the adequacy of related testing procedures. The Plant returned to the 90% operating level on September 3, 1996. On December 6, 1996, Maine Yankee took the Plant off-line to resolve cable-separation and associated issues. On January 3, 1997, Maine Yankee announced that it would use the opportunity presented by that outage to inspect the Plant's 217 fuel assemblies, since daily monitoring had indicated evidence of a small number of defective fuel rods. As a result of the inspection, Maine Yankee determined that all of the assemblies manufactured by one supplier and currently in the reactor core (approximately one-third of the total) have to be replaced. Maine Yankee will therefore keep the Plant off-line for refueling, which had previously been scheduled for late 1997. In addition, Maine Yankee will make use of the outage to inspect the Plant's steam generators for deterioration beyond that which was repaired during the extended 1995 outage. Degradation of steam generators of the age and design of those in use in the Plant has been identified at other plants. In January 1997, the NRC announced that it had placed the Plant on its "watch list" in "Category 2", which includes plants that display "weaknesses that warrant increased NRC attention", but which are not severe enough to warrant a shut-down order. Plants in category 2 remain in that category "until the licensee demonstrates a period of improved performance." The Plant is one of fourteen nuclear units on the watch list announced that day by the NRC, which regulates slightly over 100 civilian nuclear power plants in the United States. After year end, Maine Yankee and Entergy Nuclear, Inc. (Entergy), which is a subsidiary of Entergy Corporation, a Louisiana-based utility holding company and leading nuclear plant operator, entered into a contract under which Entergy is providing management services to Maine Yankee at the same time, officials from Entergy assumed management positions, including President, at Maine Yankee. The Maine Yankee nuclear plant was shut down on December 6, 1996, for inspection and repairs. While the plant is out service, Maine Yankee must, in addition to replacing the fuel assemblies, conduct an intensive inspection of its steam generators, resolve cable-separation issues and other regulatory issues, and obtain the approval of the NRC to restart the plant. The Company believes the plant will be out of service at least until August 1997, but cannot predict when or whether all of the regulatory and operational issues will be satisfactorily resolved or what effect the repairs and improvements to the plant will have on the economics of operating the plant. The Company will incur significantly higher costs in 1997 for its share of inspection, repairs and refueling costs at Maine Yankee and will also need to purchase replacement power while the plant is out of service. While the amount of higher costs is uncertain, Maine Yankee has indicated that it expects it operations and maintenance costs to increase by up to approximately $45 million in 1997, before refueling costs. The Company's share of such costs based on its power entitlement of approximately 38% would be up to approximately $17 million. In addition, the Company estimates its share of the refueling costs will amount to approximately $15 million, of which $10.4 million has been accrued as of December 31, 1996. The Company has been incurring incremental replacement-power costs of approximately $1 million per week while the plant has been out of service and expects such costs to continue at approximately the same rate until the plant returns to service. The impact of these higher nuclear related costs on the Company's 1997 financial results will be significant and is likely to trigger the low earnings bandwidth provision of the ARP. Under the ARP actual earnings for 1997 outside a bandwidth of 350 basis points, above or below a 10.68% rate of return allowance, triggers the profit sharing mechanism. A return below the low end of the range provides for additional revenue through rates equal to one-half of the difference between the actual earned rate of return and the 7.18% (10.68 - 3.50) low end of the bandwidth. While the Company believes that the profit sharing mechanism is likely to be triggered in 1997, it cannot predict the amount, if any, of additional revenues that may ultimately result. Condensed financial information on Maine Yankee Atomic Power Company is as follows: (Dollars in thousands) 1996 1995 1994 Earnings: Operating revenues $185,661 $205,977 $173,857 Operating income 17,150 18,527 16,223 Net income 8,106 8,571 8,573 Earnings applicable to common stock 6,637 7,057 7,014 Company's Equity Share of Net Earnings $ 2,522 $ 2,682 $ 2,665 Investment: Net electric property and nuclear fuel $222,360 $242,399 $254,820 Current assets 44,979 34,799 38,950 Deferred charges and other assets 334,722 303,760 256,140 Total Assets 602,061 580,958 549,910 Less: Redeemable preferred stock 18,000 18,600 19,200 Long-term obligations 223,572 224,185 226,491 Current liabilities 34,265 30,904 29,210 Reserves and deferred credits 255,472 236,653 208,100 Net Assets $ 70,752 $ 70,616 $ 66,909 Company's Equity in Net Assets $ 26,886 $ 26,834 $ 25,425 In December 1996, the Board of Directors of Connecticut Yankee Atomic Power Company announced a permanent shutdown of the Connecticut Yankee plant in Haddam, Connecticut, and decided to decommission the plant for economic reasons. An economic analysis conducted by Connecticut Yankee estimates that the early closing of the Plant would save over $100 million (net present value) over its remaining license life to the year 2007, compared with the costs of continued operation. The Company has a 6% equity interest in Connecticut Yankee, totaling approximately $6.4 million at December 31, 1996. The plant did not operate after July 22, 1996. The Company estimates its share of the cost of Connecticut Yankee's continued compliance with regulatory requirements, recovery of its plant investments, decommissioning and closing the plant to be approximately $45.8 million and has recorded a regulatory asset and a liability on the consolidated balance sheet. The Company is currently recovering through rates an amount adequate to recover these expenses. On February 26, 1992, the Board of Directors of Yankee Atomic Electric Company (Yankee Atomic) decided to permanently discontinue power operation at the Yankee Atomic Plant in Rowe, Massachusetts, and to decommission that facility. The Company relied on Yankee Atomic for less than 1% of the Company's system capacity. Its 9.5% equity investment in Yankee Atomic is approximately $2.2 million. On March 18, 1993, the FERC approved a settlement agreement regarding the Yankee Atomic decommissioning plan, recovery of plant investment, and all issues with respect to prudence of the decision to discontinue operation. The Company has estimated its remaining share of the cost of Yankee Atomic's continued compliance with regulatory requirements, recovery of its plant investments, decommissioning and closing the plant, to be approximately $16.5 million. This estimate, which is subject to ongoing review and revision, has been recorded by the Company as a regulatory asset and a liability on the accompanying consolidated balance sheet. As part of the MPUC's decision in the Company's 1993 base-rate case, the Company's current share of costs related to the deactivation of Yankee Atomic is being recovered through rates. The Company has approximately a 60% ownership interest in the jointly owned, Company-operated, 620-megawatt oil-fired W. F. Wyman Unit No. 4. The Company also has a 2.5% ownership interest in the Millstone Unit No. 3 nuclear plant operated by Northeast Utilities, and is entitled to approximately 29-megawatt share of that unit's capacity. The Company's share of the operating costs of these units is included in the appropriate expense categories in the Consolidated Statement of Earnings. The Company's plant in service, nuclear fuel, decommissioning fund, and related accumulated depreciation and amortization attributable to these units as of December 31, 1996, and 1995 were as follows: Wyman 4 Millstone 3 (Dollars in thousands) 1996 1995 1996 1995 Plant in service, nuclear fuel and decommissioning fund $116,372 $116,447 $112,040 $112,033 Accumulated depreciation and amortization 63,023 59,832 39,181 36,411
Millstone Unit No. 3 has been out of service since April, 1996, due to NRC concerns regarding operating license requirements and the Company cannot predict when it will return to service. The Company estimates that it will incur approximately $300,000 to $500,000 in replacement power costs each month Millstone Unit No. 3 remains out of service. The Company incurred replacement power costs of $3.5 million in 1996. Power-Pool Agreements The New England Power Pool, of which the Company is a member, has contracted in its Hydro-Quebec Projects to purchase power from Hydro-Quebec. The contracts entitle the Company to 85.9 megawatts of capacity credit in the winter and 127.25 megawatts of capacity credit during the summer. The Company has entered into facilities-support agreements for its share of the related transmission facilities. The Company's share of the support responsibility and of associated benefits is approximately 7%. The Company is making facilities-support payments on approximately $28.8 million, its remaining share of the construction cost for these transmission facilities incurred through December 31, 1996. These obligations are reflected on the Company's consolidated balance sheet as lease obligations with a corresponding charge to electric property. Non-Utility Generators The Company has entered into a number of long-term, non-cancelable contracts for the purchase of capacity and energy from non-utility generators (NUG). The agreements generally have terms of five to 30 years, with expiration dates ranging from 1997 to 2021. They require the Company to purchase the energy at specified prices per kilowatt-hour, which are often above market prices. As of December 31, 1996, facilities having 573 megawatts of capacity covered by these contracts were in-service. The costs of purchases under all of these contracts amounted to $313.4 million in 1996, $314.4 million in 1995, and $373.5 million in 1994. During 1996, the Company reached agreement with three NUGs to buy out contracts or to give the Company options to restructure their contracts through lump-sum or periodic payments. In accordance with prior MPUC policy and the ARP, at December 31, 1996, $113 million of buy-out or restructuring costs incurred since January 1992 were included in Deferred Charges and Other Assets on the Company's balance sheet and are amortized over their respective fuel savings periods. The Company's estimated contractual obligations with NUGs as of December 31, 1996, are as follows: (Dollars in Amount millions) 1997 $ 331 1998 291 1999 295 2000 294 2001 268 2002 - 2015 2,369 $3,848 In early 1996, the Company entered into a restructuring agreement with Maine Energy Recovery Company (MERC), a 20 megawatt waste to energy facility located in Biddeford, Maine. The agreement provides for a significant reduction in energy rates for energy sold to the Company and extended the previous power contract five years. In addition, the Company will make capacity payments to CL Power Sales One. Note 7: Capitalization and Interim Financing Retained Earnings Under terms of the most restrictive test in the Company's General and Refunding Mortgage Indenture and the Company's Articles of Incorporation, no dividend may be paid on the common stock of the Company if such dividend would reduce retained earnings below $29.6 million. At December 31, 1996, the Company's retained earnings were $72.5 million, of which $42.9 million were not so restricted. Mortgage Bonds Substantially all of the Company's electric-utility property and franchises are subject to the lien of the General and Refunding Mortgage. The Company's outstanding Mortgage Bonds may be redeemed at established prices plus accrued interest to the date of redemption, subject to certain refunding limitations. Bonds may also be redeemed under certain conditions at their principal amount plus accrued interest by means of cash deposited with the trustee under certain provisions of the mortgage indenture. In 1996, the Company deposited approximately $29.6 million in cash with the Trustee under the Company's General and Refunding Mortgage Indenture in satisfaction of the renewal and replacement fund and other obligations under the Indenture. The total of such cash on deposit with the Trustee as of December 31, 1996, was approximately $59.5 million. Under the Indenture such cash may be applied at any time, at the direction of the Company, to the redemption of bonds outstanding under the Indenture at a price equal to the principal amount of the bonds being redeemed, without premium, plus accrued interest to the date fixed for redemption. Such cash may also be withdrawn by the Company by substitution of allocated property additions or available bonds. Mortgage Bonds outstanding as of December 31, 1996, and 1995 were as follows: (Dollars in thousands) Interest Series Redeemed/maturity rate 1996 1995 Central Maine Power Company General and Refunding Mortgage Bonds: U 1998-April 15 7.54% $ 25,000 $ 25,000 S 1998-August 15 6.03 60,000 60,000 T 1998-November 1 6.25 75,000 75,000 O 1999-January 1 7 3/8 50,000 50,000 P 2000-January 15 7.66 75,000 75,000 N 2001-September 15 8.50 11,000 22,500 Q 2008-March 1 7.05 75,000 75,000 R 2023-June 1 7 7/8 50,000 50,000 Total Mortgage Bonds $421,000 $432,500
Limitations on Unsecured Indebtedness The Company's Articles of Incorporation limit certain unsecured indebtedness that may be outstanding to 20% of capitalization, as defined; 20% of defined capitalization amounted to $219 million as of December 31, 1996. Unsecured indebtedness, as defined, amounted to $96 million as of December 31, 1996. In May 1989, holders of the Company's preferred stock consented to the issuance of unsecured Medium-Term Notes in an aggregate principal amount of $150 million outstanding at any one time; the notes are therefore not subject to such limitations. Medium-Term Notes Under the terms of the Company's Medium-Term Note program, the Company may offer Medium-Term Notes up to an aggregate principal amount of $150 million. Maturities can range from nine months to 30 years; interest rates pertaining to such notes are established at the time of issuance. Interest on fixed-rate notes is payable on March 1 and September 1, while interest on floating-rate notes is payable on the dates indicated thereupon. Medium-Term Notes outstanding as of December 31, 1996, and 1995 were as follows: (Dollars in thousands) Maturity Interest rate 1996 1995 Series A: 2000 9.65% $ 5,000 $ 5,000 Series B: 1996-1998 4.92-7.98 23,000 57,000 Series C: 1997-2001 7.40-7.50 40,000 30,000 Total Medium-Term Notes $68,000 $92,000 Pollution-Control Facility and Other Notes Pollution-control facility and other notes outstanding as of December 31, 1996, and 1995 were as follows: (Dollars in thousands) Series Interest rate Maturity 1996 1995 Central Maine Power Company: Yarmouth Installment Notes 6 3/4% June 1, 2002 $10,250 $10,250 Yarmouth Installment Notes 6 3/4 December 1, 2003 1,000 1,000 Industrial Development Authority of the State of 7 3/8 May 1, 2014 11,000 11,000 New Hampshire Notes 7 3/8 May 1, 2014 8,500 8,500 Finance Authority of Maine 8.16 January 1, 2005 60,129 66,429 Maine Electric Power Company, Inc.: Promissory Notes Variable* July 1, 1996 - 1,730 Variable* November 1, 2000 820 Total Pollution-Control Facility and Other Notes $91,699 $98,909 *The average rate was 6.3% in 1996 and 6.7% in 1995. The bonds issued by the Industrial Development Authority of the State of New Hampshire are supported by loan agreements between the Company and the Authority. The bonds are subject to redemption at the option of the Company at their principal amount plus accrued interest and premium, beginning in 2001. In September 1994, the Finance Authority of Maine (FAME) approved the Company's application for funds to finance the contract buy-out of a NUG contract for a 32-megawatt wood fired generating plant in Fort Fairfield, Maine. On October 26, 1994, FAME issued $79.3 million of Taxable Electric Rate Stabilization Revenue Notes Series 1994A (FAME notes). FAME and the Company entered into a loan agreement under which the Company issued FAME a note for approximately $66.4 million, evidencing a loan in that amount. The proceeds of the loan, along with $13 million of the Company's own funds, were used to buy out the Fort Fairfield contract. Concurrently, the Company purchased all of the common stock of Aroostook Valley Electric Company (AVEC) for $2 million. On October 26, 1994, AVEC paid the former owners of the Fort Fairfield facility $2 million and took title to the facility. In connection with the FAME financing, AVEC granted FAME a mortgage on the facility. The remaining $12.9 million of FAME-notes proceeds was placed in a capital-reserve account. The amount in the capital-reserve account is equal to the highest amount of principal and interest on the FAME notes to accrue and come due in any year the FAME notes are outstanding. The amounts invested in the capital reserve account are initially invested in government securities designed to generate interest income at a rate equal to the interest on the FAME notes. Under the terms of the loan agreement, the Company is also responsible for or receives the benefit from the interest rate differential and investment gains and losses on the capital reserve account. Capital Lease Obligations The Company leases a portion of its buildings and equipment under lease arrangements, and accounts for certain transmission agreements as capital leases using periods expiring between 2006 and 2021. The net book value of property under capital leases was $33.1 million and $35.1 million at December 31, 1996, and 1995, respectively. Assets acquired under capital leases are recorded as electric property at the lower of fair-market value or the present value of future lease payments, in accordance with practices allowed by the MPUC, and are amortized over their contract terms. The related obligation is classified as other long-term debt. Under the terms of the lease agreements, executory costs are excluded from the minimum lease payments. Estimated future minimum lease payments for the five years ending December 31, 2001, together with the present value of the minimum lease payments, are as follows: (Dollars in thousands) Amount 1997 $ 5,619 1998 5,447 1999 5,276 2000 5,105 2001 4,934 Thereafter 56,298 Total minimum lease payments 82,679 Less: amounts representing interest 46,396 Present Value of Net Minimum Lease Payments $36,283 Sinking-Fund Requirements Consolidated sinking-fund requirements for long-term obligations, including capital lease payments and maturing debt issues, for the five years ending December 31, 2001, are as follows: (Dollars in thousands) Sinking fund Maturing debt Total 1997 $ 2,375 $ 25,000 $ 27,375 1998 9,212 178,000 187,212 1999 9,855 60,000 69,855 2000 10,520 80,000 90,520 2001 10,950 21,000 31,950 Operating Lease Obligations The Company has a number of operating-lease agreements primarily involving computer and other office equipment, land, and telecommunication equipment. These leases are noncancelable and expire on various dates through 2007. Following is a schedule by year of future minimum rental payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1996: (Dollars in thousands) Amount 1997 $4,277 1998 4,042 1999 3,278 2000 3,123 2001 3,099 Thereafter 1,936 $19,755 Rent expense under all operating leases was approximately $5 million, $5.7 million, and $7 million for the years ended December 31, 1996, 1995 and 1994, respectively. Disclosure of Fair Value of Financial Instruments The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable are discussed below. The carrying amounts of cash and temporary investments approximate fair value because of the short maturity of these investments. The fair value of redeemable preferred stock and pollution-control facility and other notes is based on quoted market prices as of December 31, 1996 and 1995. The fair value of long-term obligations is based on quoted market prices for the same or similar issues, or on the current rates offered to the Company based on the weighted average life of each class of instruments. The estimated fair values of the Company's financial instruments as of December 31, 1996, and 1995 are as follows: 1996 1995 Carrying Fair value Carrying Fair value (Dollars in thousands) amount amount Cash and temporary investments $ 8,307 $ 8,307 $ 57,677 $ 57,677 Redeemable preferred stock 60,528 57,228 74,528 75,117 Mortgage bonds 421,000 415,578 432,500 435,311 Medium-term notes 68,000 67,667 92,000 92,156 Pollution-control facility and other notes 91,699 91,791 98,909 99,694
Preferred Stock Preferred-stock balances outstanding as of December 31, 1996, 1995, and 1994 were as follows: Current shares (Dollars in thousands, except per-share amounts) outstanding 1996 1995 1994 Preferred Stock - Not Subject to Mandatory Redemption: $25 par value - authorized 2,000,000 shares; outstanding: None $ - $ - $ - $100 par value noncallable -authorized 5,713 shares; outstanding 6% voting 5,713 571 571 571 $100 par value callable - authorized 2,300,000* shares; outstanding: 3.50% series (redeemable at $101) 220,000 22,000 22,000 22,000 4.60% series (redeemable at $101) 30,000 3,000 3,000 3,000 4.75% series (redeemable at $101) 50,000 5,000 5,000 5,000 5.25% series (redeemable at $102) 50,000 5,000 5,000 5,000 7 7/8% series (optional redemption after 9/1/97, at $100) 300,000 30,000 30,000 30,000 Preferred Stock - Not Subject to Mandatory Redemption $65,571 $65,571 $65,571 Redeemable Preferred Stock - Subject to Mandatory Redemption: $100 par value callable - authorized 2,300,000*shares; outstanding: None $ - $ - $ - Flexible Money Market Preferred Stock, Series A - 7.999% (395,275 shares in 1996 and 1995; 450,000 shares in 1994) 395,275 39,528 39,528 45,000 8 7/8% series (redeemable at $102.958) 210,000 21,000 35,000 35,000 Redeemable Preferred Stock - Subject to Mandatory Redemption $60,528 $74,528 $80,000
*Total authorized $100 par value callable is 2,300,000 shares. Shares outstanding are classified as Not Subject to Mandatory Redemption and Subject to Mandatory Redemption. Sinking-fund provisions for the 8 7/8% Series Preferred Stock require the Company to redeem all shares at par plus an amount equal to dividends accrued to the redemption date on the basis of 70,000 shares annually commencing on July, 1996. The Company also has the non-cumulative right to redeem up to an equal amount of the respective number of shares annually, beginning in 1996, at par plus an amount equal to dividends accrued to the redemption date. The sinking-fund requirement for the five-year period ending December 31, 2000 is $7.0 million annually beginning in 1996. The Company redeemed $14 million of these shares at par in 1996 pursuant to the mandatory and optional sinking-fund provisions. Sinking-fund provisions for the Flexible Money Market Preferred Stock, Series A, 7.999%, require the Company to redeem all shares at par plus an amount equal to dividends accrued to the redemption date on the basis of 90,000 shares annually beginning in October 1999. The Company also has the non-cumulative right to redeem up to an equal number of shares annually beginning in 1999, at par plus an amount equal to dividends accrued to the redemption date. The sinking-fund requirement for the five-year period ending December 31, 2000, is $9 million annually beginning in 1999. In 1995, the Company purchased 54,725 shares on the open market that may be used to reduce the sinking-fund requirement in 1999. Interim Financing and Credit Agreements The Company uses funds obtained from short-term borrowing to provide initial financing for construction and other corporate purposes. To support its short-term capital requirements, on October 23, 1996 , the Company entered into a $125 million revolving credit facility with several banks, with The First National Bank of Boston and The Bank of New York acting as agents for the lenders. The credit facility has two tranches which consist of: a $75 million 364-day revolving credit facility which matures on October 22, 1997 and a $50-million 3-year revolving credit facility which matures on October 23, 1999. Both credit facilities require annual fees on the unused portion of the credit lines which are based on the Company's credit ratings and allow for various borrowing options including LIBOR-priced, base-rate-priced and competitive-bid-priced loans. The amount of outstanding short-term borrowing will fluctuate with day-to-day operational needs, the timing of long-term financing, and market conditions. There was $7.5 million outstanding as of December 31, 1996, under this credit agreement. Note 8: Quarterly Financial Data (Unaudited) Quarterly revenue variability increased after January 1, 1995, when the ARP replaced MPUC rules prescribing different revenue allocations for energy sold in winter versus non-winter months. Twelve-month results are unaffected by this reporting change. Unaudited, consolidated quarterly financial data pertaining to the results of operations are shown below. (Dollars in thousands, except per- share amounts) Quarter ended March 31 June 30 September 30 December 31 1996 Electric operating revenues $274,139 $216,358 $228,987 $247,562 Operating income 39,601 20,495 14,667 32,909 Net income 27,857 9,096 3,392 19,884 Earnings per common share* .78 .20 .04 .54 1995 Electric operating revenues $263,312 $202,584 $217,872 $232,248 Operating income 39,361 4,052 22,169 20,277 Net income (loss) 26,376 (8,619) 10,400 9,823 Earnings (loss) per common share* .73 (.34) .24 .23 1994 Electric operating revenues $241,026 $212,336 $233,543 $217,978 Operating income 26,233 26,609 25,652 11,742 Net income (loss) 11,416 15,307 14,083 (64,071) Earnings (loss) per common share* .27 .39 .35 (2.06)
*Earnings per share are computed using the weighted-average number of common shares outstanding during the applicable quarter. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. See the information under the heading "Election of Directors" in the registrant's definitive proxy material for its annual meeting of shareholders to be held on May 15, 1997, and Item 4.1, Executive Officers of the Registrant, above, both of which are hereby incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION. See the information under the heading "Board Committees, Meetings and Compensation" and the heading "Executive Compensation" in the registrant's definitive proxy material for its annual meeting of shareholders to be held on May 15, 1997, which is hereby incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. See the information under the heading "Security Ownership" in the registrant's definitive proxy material for its annual meeting of shareholders to be held on May 15, 1997, which is hereby incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. See the information under the heading, "Board Committees, Meetings and Compensation" in the registrant's definitive proxy material for its annual meeting of shareholders to be held on May 15, 1997, which is hereby incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) List of documents filed as part of this report: (1) Financial Statements and Supplementary Data See the Index to Financial Statements and Schedules under Item 8 in Part II hereof, where these documents are listed, on page 42. (2) Exhibits - see (c) below. (b) Reports on Form 8-K. The Company filed the following reports on Form 8-K during the last quarter of 1996 and thereafter to date: Date of Report Items Reported December 4, 1996 Item 5 The Company reported on Maine Yankee Atomic Power Company's response to the NRC's Independent Safety Assessment. The Board of Directors of Connecticut Yankee Atomic Power Company voted to permanently discontinue power operation at the Connecticut Yankee plant at Haddam, Connecticut ("CY Plant"), and to decommission the CY Plant, for reasons based on the economics of continuing to operate the unit. Date of Report Items Reported December 18, 1996 Item 5 On December 20, 1996, Maine Yankee Atomic Power Company announced that its President and Chief Executive Officer, Charles D. Frizzle, had submitted his registration to facilitate a broad restructuring effort. On December 18, 1996, Moody's Investors Service placed the credit ratings of the Company under review for possible downgrade. Date of Report Items Reported December 31, 1996 Item 5 The Company reported that on December 31, 1996, the MPUC issued its Report and Recommended Plan on Electric Utility Industry Restructuring. The Company reported the inspection of fuel assemblies and resolution of the cable-separation and associated issues at the Maine Yankee Atomic Power Company nuclear generating plant and that Maine Yankee and Entergy Corporation, a Louisiana-based utility holding company and nuclear plant operator, announced the signing of a memorandum of understanding for Entergy to provide management services to Maine Yankee. Date of Report Items Reported January 29, 1997 Item 5 On January 29, 1997, the NRC announced that it had placed the Plant on its "watch list," in "Category 2," which includes plants that display "weaknesses that warrant increased NRC attention," but which are not severe enough to warrant a shut-down order. The Company reported on a Maine-based group which had announced its intention to start gathering signatures aimed at a new referendum to force a permanent shutdown of the Maine Yankee Atomic Power Company Plant. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Augusta, and State of Maine on the 27th day of March, 1997. CENTRAL MAINE POWER COMPANY By David E. Marsh Vice President, Corporate Services, Treasurer, and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date President and Chief Executive Officer; Director March 27, 1997 David T. Flanagan (Principal Executive Officer) Vice President, Corporate Services, Treasurer, and March 27, 1997 David E. Marsh Chief Financial Officer (Principal Financial Officer) Comptroller March 27, 1997 Michael W. Caron (Principal Accounting Officer) Chairman of the Board of Directors March 27, 1997 David M. Jagger Vice Chairman of the Board of Directors March 27, 1997 Charles H. Abbott Director March 27, 1997 Charleen M. Chase Director March 27, 1997 E. James Dufour Director March 27, 1997 Duane D. Fitzgerald Director March 27, 1997 Robert H. Gardiner Director March 27, 1997 Peter J. Moynihan Director March 27, 1997 William J. Ryan Director March 27, 1997 Kathryn M. Weare Director March 27, 1997 Lyndel J. Wishcamper
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 CENTRAL MAINE POWER COMPANY File No. 1-5139 (Exact name of Registrant as specified in charter) EXHIBITS EXHIBIT INDEX The following designated exhibits, as indicated below, are either filed herewith or have heretofore been filed with the Securities and Exchange Commission under the Securities Act of 1933, the Securities Exchange Act of 1934 or the Public Utility Holding Company Act of 1935 and are incorporated herein by reference to such filings. Reference is made to Item 8 of this Form 10-K for a listing of certain financial information and statements incorporated by reference herein. Prior Exhibit Description of Exhibit No. Document SEC Docket No. EXHIBIT 2: PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION Not Applicable. EXHIBIT 3: ARTICLES OF INCORPORATION AND BY-LAWS Incorporated herein by reference: 3-1 Articles of Incorporation, as amended. Annual Report on Form 10-K 3.1 for year ended December 31, 1992 3-2 Bylaws, as amended. Filed herewith EXHIBIT 4: INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS Incorporated herein by reference: 4-1 General and Refunding Mortgage between the Company 2-58251 2.18 and The First National Bank of Boston, as Trustee, dated as of April 15, 1976, relating to the Series A Bonds. 4-2 First Supplemental Indenture dated as of March 15, 2-60786 2.19 1977 to the General and Refunding Mortgage. 4-3 Supplemental Indenture to the General and Annual Report on Form 10-K A Refunding Mortgage Indenture dated as of October for the year ended December 1, 1978 relating to the Series B Bonds. 31, 1978 4-4 Supplemental Indenture to the General and Quarterly Report on for the A Refunding Mortgage Indenture dated as of October quarter ended September 30, 1, 1979, relating to the Series C Bonds. 1979 4.10 Supplemental Indenture to the General and 33-9232 4.16 Refunding Mortgage Indenture dated as of December 1, 1986, relating to the Series I Bonds. 4.14 Indenture, dated as of August 1, 1989, between the 33-29626 4.1 Company and The Bank of New York, Trustee, relating to the Medium-Term Notes. 4.15 First Supplemental Indenture, dated as of August Current Report on Form 8-K 4.15 7, 1989, relating to the Medium-Term Notes, Series dated August 16, 1989 A, and supplementing the Indenture relating to the Medium-Term Notes. 4.15.1 Second Supplemental Indenture, dated as of January Current Report on Form 8-K 4.1 10, 1992, relating to the Medium-Term Notes, dated January 28, 1992 Series B, and supplementing the Indenture relating to the Medium-Term Notes. 4.15.2 Third Supplemental Indenture, dated as of December Annual Report on Form 10-K 4.15.2 15, 1994, relating to the Medium-Term Notes, for year ended December 31, Series C, and supplementing the Indenture relating 1994 to the Medium-Term Notes. 4.17 Supplemental Indenture to the General and Current Report on Form 8-K 4.1 Refunding Mortgage Indenture, dated as of dated September 17, 1991 September 15, 1991, relating to the Series N Bonds. 4.18 Supplemental Indenture to the General and Current Report on Form 8-K 1.2 Refunding Mortgage Indenture, dated as of December dated December 10, 1991 1, 1991, relating to the Series O Bonds. 4.19 Supplemental Indenture to the General and Annual Report on Form 10-K 4.19 Refunding Mortgage Indenture, dated as of December for year ended December 31, 15, 1992, relating to the Series P Bonds. 1992 4.20 Supplemental Indenture to the General and Current Report on Form 8-K 4.1 Refunding Mortgage Indenture, dated as of February dated March 1, 1993 15, 1993, relating to the Series Q Bonds. 4.21 Supplemental Indenture to the General and Current Report on Form 8-K 4.1 Refunding Mortgage Indenture, dated as of May 20, dated May 20, 1993 1993, relating to the Series R Bonds. 4.22 Supplemental Indenture to the General and Current Report on Form 8-K 4.1 Refunding Mortgage Indenture, dated as of August dated November 30, 1993 15, 1993, relating to the Series S Bonds. 4.23 Supplemental Indenture to the General and Current Report on Form 8-K 4.2 Refunding Mortgage Indenture, dated as of November dated November 30, 1993 1, 1993, relating to the Series T Bonds. 4.24 Supplemental Indenture to the General and Annual Report on Form 10-K 4.24 Refunding Mortgage Indenture, dated as of April for year ended December 31, 12, 1994, relating to the Series U Bonds. 1994 4.26 Supplemental Indenture to the General and Annual Report on Form 10-K 4.26 Refunding Mortgage Indenture, dated as of February for year ended December 31, 15, 1996, evidencing the succession of State 1995 Street Bank and Trust Company as Trustee EXHIBIT 9: VOTING TRUST AGREEMENT Not applicable. EXHIBIT 10: MATERIAL CONTRACTS Incorporated herein by reference: 10-1 Agreement dated April 1, 1968 between the Company 2-30554 4.27 and Northeast Utilities Service Company relating to services in connection with the New England Power Pool and NEPEX. 10-2 Form of New England Power Pool Agreement dated as 2-55385 4.8 of September 1, 1971 as amended to November 1, 1975. 10-3 Agreement setting forth Supplemental NEPOOL 2-50198 5.10 Understandings dated as of April 2, 1973. 10-4 Sponsor Agreement dated as of August 1, 1968 among 2-32333 4.27 the Company and the other sponsors of Vermont Yankee Nuclear Power Corporation. 10-5 Power Contract dated as of February 1, 1968 2-32333 4.28 between the Company and Vermont Yankee Nuclear Power Corporation. 10-6 Amendment to Exhibit 10.5 dated as of June 1, 1972. 2-46612 13-21 10-7 Capital Funds Agreement dated as of February 1, 2-32333 4.29 1968 between the Company and Vermont Yankee Nuclear Power Corporation. 10-8 Amendment to Exhibit 10.7 dated as of March 12, 70-4611 B-3 1968. 10-9 Stockholder Agreement dated as of May 20, 1968 2-32333 4.30 among the Company and the other stockholders of Maine Yankee Atomic Power Company. 10-10 Power Contract dated as of May 20, 1968 between 2-32333 4.31 the Company and Maine Yankee Atomic Power Company. 10-10.1 Amendment No. 1 to Exhibit 10-10 dated as of March Annual Report on Form 10-K 10-1.1 1, 1984. for the year ended December 31, 1985 of Maine Yankee Atomic Power company (File No. 1-6554) 10-10.2 Amendment No. 2 to Exhibit 10-10 dated as of Annual Report on Form 10-K 10-1.2 January 1, 1984. for the year ended December 31, 1985 of Maine Yankee Atomic Power Company (File No. 1-6554) 10-10.3 Amendment No. 3 to Exhibit 10-10 dated as of Annual Report on Form 10-K 10-1.3 October 1, 1984. for the year ended December 31, 1985 of Maine Yankee Atomic Power Company (File No. 1-6554) 10-10.4 Additional Power Contract between the Company and Annual Report on Form 10-K 10-1.4 Maine Yankee Atomic Power Company dated February for the year ended December 1, 1984. 31, 1985 of Maine Yankee Atomic Power Company (File No. 1-6554) 10-11 Capital Funds Agreement dated as of May 20, 1968 2-32333 4.32 between the Company and Maine Yankee Atomic Power Company. 10-11.1 Amendment No. 1 to Exhibit 10-11 dated as of Annual Report on Form 10-K 10-2.1 August 1, 1985. for the year ended December 31, 1985 of Maine Yankee Atomic Power Company (File No. 1-6554) 10-25 Agreement dated as of May 1, 1973 for Joint 2-48966 13-57 Ownership, Construction and Operation of New Hampshire Nuclear Units among Public Service Company of New Hampshire and certain other utilities, including the Company. 10-42 Twentieth Amendment to Exhibit 10-25 dated as of Annual Report on Form 10-K 10-42 September 19, 1986. for the year ended December 31, 1986 10-46 Participation Agreement, dated June 20, 1969 among 2-35073 4.23.1 Maine Electric Power Company, Inc., the Company and certain other utilities. 10-47 Power Purchase and Transmission Agreement dated 2-35073 4.23.2 August 1, 1969, among Maine Electric Power Company, Inc., the Company and certain other utilities, relating to purchase and transmission of power from The New Brunswick Electric Power Commission. 10-48 Agreement amending Exhibit 10-47 dated June 24, 2-37987 4.41 1970. 10-49 Agreement supplementing Exhibit 10-47 dated 2-51545 5.7.4 December 1, 1971. 10-50 Assignment Agreement dated March 20, 1972, between 2-51545 5.7.5 Maine Electric Power Company, Inc., and the New Brunswick Electric Power Commission. 10-51 Capital Funds Agreement dated as of September 1, 2-24123 4.19.1 1964 among Connecticut Yankee Atomic Power Company, the Company and certain other utilities. 10-52 Power Contract dated as of July 1, 1964 among 2-24123 4.19.2 Connecticut Yankee Atomic Power Company, the Company and certain other utilities. 10-53 Stockholder Agreement dated as of July 1, 1964 2-24123 4.19.3 among the stockholders of Connecticut Yankee Atomic Power Company, including the Company. 10-54 Connecticut Yankee Transmission Agreement dated as 2-24123 4.19.4 of October 1, 1964 among the stockholders of Connecticut Yankee Atomic Power Company, including the Company. 10-55 Agreements with Yankee Atomic Electric Company each dated June 30, 1959, as follows: 10-55.1 Stock Agreement. 2-15553 4.17.1 10-55.2 Power Contract. 2-15553 4.17.2 10.55.3 Research Agreement. 2-15553 4.17.3 10-56 Transmission Agreement with Cambridge Electric 2-15553 4.18 Light Company and other sponsoring stockholders of Yankee Atomic Electric Company. 10-57 Agreement for Joint Ownership, Construction and 2-52900 5.16 Operation of Wyman Unit No. 4 dated November 1, 1974 among the Company and certain utilities. 10-58 Amendment to Exhibit 10-57 dated as of June 30, 2-55458 5.48 1975. 10-59 Amendment to Exhibit 10-57 dated as of August 16, 2-58251 5.19 1976. 10-60 Amendment to Exhibit 10-57 dated as of December 2-68184 5.31 31, 1978. 10-61 Transmission Agreement dated November 1, 1974 2-54449 13-57 among the Company and certain other utilities, relating to Wyman Unit No. 4. 10-62 Sharing Agreement--1979 Connecticut Nuclear Unit 2-50142 2.43 dated September 1, 1973 among the Company and certain other utilities, relating to Millstone Unit No. 3. 10-63 Amendment to Exhibit 10-62 dated as of August 1, 2-51999 5.16 1974, relating to Millstone Unit No. 3. 10-64 Agreement dated as of February 25, 1977 among the 2-58251 5.24 Company, the Connecticut Light and Power Company, the Hartford Electric Light Company and Western Massachusetts Electric Company, relating to Millstone Unit No. 3. 10-70 Project Agreement dated December 5, 1984 among the Annual Report on Form 10-K 10-69 Company, the Cities of Lewiston and Auburn, Maine for the year ended December and certain other parties, relating to development 31, 1984 of hydro-electric plant. 10-73 Trust Indenture dated as of June 1, 1977 between 2-60786 5.27 the Town of Yarmouth and Casco Bank & Trust Company, as trustee, relating to the Town of Yarmouth's 6 3/4% Pollution Control Revenue Bonds (Central Maine Power Company, 1977 Series A). 10-74 Installment Sale Agreement dated as of June 1, 2-60786 5.28 1977 between the Town of Yarmouth and the Company. 10-75 Agreements Relating to $11,000,000 Floating/Fixed Rate Pollution Control Revenue Refunding Bonds: 10-75.1 Bond Purchase Agreement dated as of May 1, 1984. Quarterly Report on Form 28.3 10-Q for the quarter ended June 30, 1984 10-75.2 Loan Agreement dated as of May 1, 1984. Quarterly Report on Form 28.4 10-Q for the quarter ended June 30, 1984 10-76 Agreements Relating to $8,500,000 Floating/Fixed Rate Pollution Control Revenue Bonds: 10-76.1 Bond Purchase Agreement dated December 28, 1984. Annual Report on Form 10-K 10-77.1 for year ended December 31, 1984 10-76.2 Loan Agreement dated as of December 1, 1984. Annual Report on Form 10-K 10-77.2 for year ended December 31, 1984 10-77.1 Indenture of Trust dated as of March 14, 1988 Annual Report on Form 10-K 10-1.4 between Maine Yankee Atomic Power Company and for year ended December 31, Maine National Bank relating to decommissioning 1987, of Maine Yankee Atomic trust funds. Power Company (1-6554) 10-77.1(a) Amended and Restated Indenture of Trust dated as Annual Report on Form 10-K 10-6.1 of January 1, 1993 between Maine Yankee Atomic for year ended December 31, Power Company and The Bank of New York relating to 1992, of Maine Yankee Atomic decommissioning trust funds. Power Company (1-6554) 10-77.2 Indenture of Trust dated as of October 16, 1985 Annual Report on Form 10-K 10-7 between the Company and Norstar Bank of Maine for year ended December 31, relating to the spent fuel disposal funds. 1985, of Maine Yankee Atomic Power Company (1-6554) 10-78 Form of Agreement of Purchase and Sale dated Annual Report on Form 10-K 0.79 February 19, 1986 between the Company and Eastern for the year ended December Utilities Associates, relating to the sale of the 31, 1985 Company's Seabrook Project interest. 10-79 Addendum to Agreement of Purchase and Sale dated Quarterly Report on Form 2.1 June 23, 1986, among the Company, Eastern 10-Q for the quarter ending Utilities Associates and EUA Power Corporation, June 30, 1986 amending Exhibit 10-78. 10-80 Agreement, dated as of October 29, 1986, between Quarterly Report on Form 2.1 the Company and EUA Power Corporation, relating to 10-Q for the quarter ended the sale of the Company's interest in the Seabrook September 30, 1986 Project. 10-81 Credit Agreement, dated as of October 15, 1986, Quarterly Report on Form 2.2 among the Company, various banks and Continental 10-Q for the quarter ended Illinois National Bank and Trust Company of September 30, 1986 Chicago, as agent, establishing the terms of a $40 million unsecured credit facility. 10-86 Labor Agreement dated as of May 1, 1989 between Annual Report on Form 10-K 10.86 the Company (Northern, Western and Southern for the year ended December Division) and Local 1837 of the International 31, 1989 Brotherhood of Electrical Workers. 10-86.1 Agreement dated as of November 25, 1991 extending Annual Report on Form 10-K 10.86.1 Labor Contract. for year ended December 31, 1991 10-89 1987 Executive Incentive Plan, as amended January Annual Report on Form 10-K 10.89 20, 1993.* for year ended December 31, 1992 10-90 Deferred Compensation Plan for Non-Employee Annual Report on Form 10-K 10.90 Directors, as amended and restated effective for year ended December 31, February 1, 1992.* 1992 10-91 Retirement Plan for Outside Directors, as amended Annual Report on Form 10-K 10.91 and restated effective April 24, 1991.* for year ended December 31, 1992 10-92 Employment Agreement between the Company and Annual Report on Form 10-K 10.92 Matthew Hunter dated as of October 20, 1993.* for year ended December 31, 1993. 10-93 Central Maine Power Company Long-Term Incentive Annual Report on Form 10-K 10.93 Plan.* for year ended December 31, 1993. 10-94.1 Central Maine Power Company Supplemental Executive Annual Report on Form 10-K 10-94.1 Retirement Plan, as Amended and Restated Effective for year ended December 31, January 1, 1993, and as further Amended Effective 1995 January 1, 1996.* 10-95 Competitive Advance and Revolving Credit Facility Annual Report on Form 10-K 10.95 between the Company and Chemical Bank dated as of for year ended December 31, November 7, 1994. 1994 10-96.5 Employment Agreement between the Company and Annual Report on Form 10-K 10-96.5 Arthur W. Adelberg As Amended and Restated for year ended December 31, Effective December 9, 1994.* 1995 10-96.6 Employment Agreement between the Company and Annual Report on Form 10-K 10-96.6 Richard A. Crabtree As Amended and Restated for year ended December 31, Effective December 9, 1994.* 1995 10-96.7 Employment Agreement between the Company and Annual Report on Form 10-K 10-96.7 Gerald C. Poulin As Amended and Restated Effective for year ended December 31, December 9, 1994.* 1995 10-96.8 Employment Agreement between the Company and David Annual Report on Form 10-K 10-96.8 E. Marsh As Amended and Restated Effective for year ended December 31, December 9, 1994.* 1995 10-97 Employment Agreement between the Company and Annual Report on Form 10-K 10-97 David T. Flanagan dated December 29, 1995.* for year ended December 31, 1995 10-98 Credit Agreement dated as of October 23, 1996, Filed herewith between the Company and certain banks. *Management contract or compensatory plan or arrangement required to be filed in response to Item 14(c) of Form 10-K. EXHIBIT 11: STATEMENT RE COMPUTATION OF PER SHARE EARNINGS Not Applicable. EXHIBIT 12: STATEMENTS RE COMPUTATION OF RATIOS Not Applicable. EXHIBIT 13: ANNUAL REPORT TO SECURITY HOLDERS, FORM 10-Q OR QUARTERLY REPORT TO SECURITY HOLDERS Not Applicable. EXHIBIT 16: LETTER RE CHANGE IN CERTIFYING ACCOUNTANT Not Applicable. EXHIBIT 18: LETTER RE CHANGE IN ACCOUNTING PRINCIPLES Not Applicable. EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANT List of subsidiaries of registrant. Filed herewith EXHIBIT 22: PUBLISHED REPORT CONCERNING MATTERS SUBMITTED TO VOTE OF SECURITY HOLDERS Not Applicable. EXHIBIT 23: CONSENTS OF EXPERTS AND COUNSEL 23-1 Consent of Coopers & Lybrand to the incorporation Filed herewith by reference of their reports included or incorporated by reference herein in the Company's Registration Statements (File Number 33-36679, 33-39826, 33-44754, 33-51611 and 33-56939). EXHIBIT 24: POWER OF ATTORNEY Not Applicable. EXHIBIT 27: FINANCIAL DATA SCHEDULE Filed herewith EXHIBIT 28: INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY AUTHORITIES Not Applicable. EXHIBIT 99: ADDITIONAL EXHIBITS To be filed under cover of a Form 10-K/A amendment of this Form 10-K within 180 days after December 31, 1996, pursuant to Rule 15d-21 under the Securities Exchange Act of 1934: 99-1 and -2 Information, financial statements and exhibits required by Form 11-K with respect to certain employee savings plans maintained by the Company.
Central Maine Power Company Form 10-K - 1996 Schedule II Page 1 of 3 Central Maine Power Company VALUATION AND QUALIFYING ACCOUNTS For the Year Ended December 31, 1996 (Dollars in Thousands) Additions Charged Charged to Balance to costs other Balance at Beginning and accounts- Deductions at end Description of Period Expenses describe -describe of period Reserves deducted from assets to which they apply: Uncollectible accounts $ 3,313 $7,396 $ $6,532(A) $ 4,177 Reserves not applied against assets: Casualty and insurance $ 1,275 $ 798 $ $ 798(C) $ 1,275 Workers' compensation 6,400 2,820 270(B) 1,496(C) 7,994 Hazardous material clean-up 3,540 895 796(D) 3,639 Total $11,215 $4,513 $270 $3,090 $12,908
Notes: (A) Amounts charged off as uncollectible after deducting customers' deposits and recoveries of accounts previously charged off. (B) Amounts transferred to capital accounts. (C) Principally payments for various injuries and damages and expenses in connection therewith. (D) Amounts charged to regulatory asset account. Central Maine Power Company Form 10-K - 1996 Schedule II Page 2 of 3 Central Maine Power Company VALUATION AND QUALIFYING ACCOUNTS For the Year Ended December 31, 1995 (Dollars in Thousands) Additions Charged Charged to Balance to costs other Balance at Beginning and accounts- Deductions at end Description of Period Expenses describe -describe of period Reserves deducted from assets to which they apply: Uncollectible accounts $ 3,301 $4,407 $ $ 4,395(A) $ 3,313 Reserves not applied against assets: Casualty and insurance $ 1,275 $1,274 $273(B) $ 1,547(C) $ 1,275 Workers' compensation 6,400 6,400 Hazardous material clean-up 10,000 6,460(D) 3,540 Postemployment benefits 1,045 1,045(E) Compensation 2,344 2,344(E) - Interest on IRS issues 1,000 1,000(F) Total $22,064 $1,274 $273 $12,396 $11,215
Notes: (A) Amounts charged off as uncollectible after deducting customers' deposits and recoveries of accounts previously charged off. (B) Amounts charged to capital accounts. (C) Principally payments for various injuries and damages and expenses in connection therewith. (D) To adjust the estimated minimum liability balance for a change in clean-up method. (E) Amounts transferred to deferred credit account. (F) Reversal of reserve. Central Maine Power Company Form 10-K - 1996 Schedule II Page 3 of 3 Central Maine Power Company VALUATION AND QUALIFYING ACCOUNTS For the Year Ended December 31, 1994 (Dollars in Thousands) Additions Charged Charged to Balance to costs other Balance at Beginning and accounts- Deductions at end Description of Period Expenses describe -describe of period Reserves deducted from assets to which they apply: Uncollectible accounts $ 2,704 $4,924 $ $4,327(A) $ 3,301 Reserves not applied against assets: Casualty and insurance $ 1,075 $2,492 $ 548(B) $2,840(C) $ 1,275 Workers' compensation 6,400 6,400 Hazardous material clean-up 6,828 5,730(D) 2,558(E) 10,000 Postemployment benefits 1,045 1,045 Compensation 181 1,283 1,108(D) 228(B) 2,344 Interest on IRS issues 1,000 1,000 Total $14,484 $5,820 $7,386 $5,626 $22,064
Notes: (A) Amounts charged off as uncollectible after deducting customers' deposits and recoveries of accounts previously charged off. (B) Amounts charged to capital accounts. (C) Principally payments for various injuries and damages and expenses in connection therewith. (D) Amounts charged to regulatory asset account. (E) Amounts paid, charged against the reserve. EX-3.(II) 2 BY-LAWS BY-LAWS CENTRAL MAINE POWER COMPANY As Revised and Amended Through June 20, 1996 BY-LAWS of CENTRAL MAINE POWER COMPANY SECTION 1. ARTICLES OF INCORPORATION The name of the Company and its location shall be as set forth in the Articles of Incorporation (sometimes referred to in these By-Laws as the "Charter"). References in these By-Laws to the Articles of Incorporation or the Charter shall mean the Articles of Incorporation as from time to time in effect. References in these By-Laws to the Maine Business Corporation Act and to particular sections of said Act are to said Act and said sections as from time to time in effect. SECTION 2. STOCKHOLDERS' MEETINGS 2.1. Annual Meeting. An annual meeting of the stockholders for the purpose of electing Directors and transacting such other business as may properly come before the annual meeting shall be held on the third Thursday in May in each year, at such hour as may be fixed by the Chairman of the Board of Directors, by the President or by a majority of the members of the Board of Directors then in office. If that day be a legal holiday, the meeting shall be held on the next succeeding day not a legal holiday. Purposes for which an annual meeting is to be held, additional to the election of directors and those prescribed by law, by the Articles of Incorporation or by these By-Laws, may be specified by the Chairman of the Board of Directors, by the President or by a majority of the members of the Board of Directors then in office. 2.2. Special Meeting in Place of Annual Meeting. In case an annual meeting of the stockholders shall be omitted through inadvertence or otherwise, the business of such meeting may be transacted at a special meeting duly called in lieu thereof and any action taken at such special meeting shall have the same force and effect as if taken at the annual meeting, and in such case all references in these By-Laws to the annual meeting of the stockholders shall be deemed to refer to such special meeting. Any such special meeting shall be called as provided in Section 2.3. 2.3. Special Meetings. A special meeting of the stockholders may be called at any time by the Chairman of the Board of Directors, by the President, by a majority of the members of the Board of Directors then in office, unless otherwise provided by law, by the holders of not less than 10% of the outstanding shares of the Company entitled to vote at the meeting or as otherwise provided in the Articles of Incorporation. Each call of a special meeting shall state the place, date, hour and purposes of the meeting. 2.4. Organization of Meetings. At each meeting of the stockholders the Chairman of the Board of Directors, or in his absence the Vice Chairman of the Board of Directors, or in their absence the President, shall act as chairman of the meeting. Procedure at the meeting shall be established by the chairman of the meeting. 2.5. Place of Meetings. All meetings of the stockholders shall be held at the principal office of the Company in the State of Maine, Edison Drive, Augusta, Maine, or at such other place in the State of Maine as shall be fixed by the Chairman of the Board of Directors, by the President or by a majority of the members of the Board of Directors then in office. 2.6. Notice of Meetings. Written notice of each meeting of stockholders shall be given in accordance with the provisions of the Maine Business Corporation Act, including, without limitation, Section 604 of said Act, unless such notice shall be waived as provided in said Act, including, without limitation, Section 605 of said Act. 2.7. Quorum of Stockholders. At all stockholders' meetings, unless otherwise specifically provided in these By-Laws, a representation of shares entitled in the aggregate to a majority of the total votes to which the outstanding shares of capital stock of the Company of all classes are then entitled shall be necessary to constitute a quorum for the transaction of business other than (a) adjourning from time to time until a quorum shall be present, or (b) adjourning sine die, and for any such adjournment a majority vote of whatever stock shall be represented shall be sufficient; provided, that such quorum requirement shall be applicable to stockholders' meetings only when the outstanding Preferred Stock of all classes and series are not entitled to vote as a class for the election of a majority of the Directors of the Company; and, provided further, that, at stockholders' meetings when the outstanding Preferred Stock of all classes and series are entitled to vote as a class for the election of a majority of the Directors, the foregoing quorum requirement shall be reduced from a majority of such total votes to one-third of such total votes. When a quorum is present at any meeting, a majority of the votes to which stock represented thereat and voting is entitled shall, except when a larger vote is required by law, by the Charter or by these By-Laws, decide any question brought before such meeting. At all meetings of stockholders held: (i) for any of the purposes specified in Section B.6(b) of the Capital Stock Provisions of the Articles of Incorporation the presence in person or by proxy of the holders of shares, of the Common Stock and other stock having the general right to vote with the Common Stock, entitled in the aggregate to not less than one-third of the total votes to which all outstanding shares of such capital stock of the Company are then entitled, shall be required to constitute a quorum of such class for the election of Directors; and (ii) for any of the purposes specified in Section B.6(b) and in Section B.8 of the Capital Stock Provisions of the Articles of Incorporation, the presence in person or by proxy of the holders of a majority of the total number of shares of all classes and series of the Company's Preferred Stock then issued and outstanding shall be necessary to constitute a quorum of such classes, provided, for the purposes specified in said Section B.6(b), that if such quorum shall not have been obtained at such meeting, or at any adjournment thereof, within ninety (90) days from the date of such meeting as originally called, the presence in person or by proxy of the holders of one-third of the total number of shares of all classes and series of the Company's Preferred Stock then issued and outstanding shall then be sufficient to constitute a quorum of such classes. The absence of a quorum of the holders of stocks of either class shall not prevent the election at any such meeting, or any adjournment thereof, of Directors by the other such class, if the necessary quorum of the holders of stock of such other class is present in person or by proxy at such meeting. In the absence of a quorum of the holders of stocks of either class, a majority of those holders of the stocks of such class who are present in person or by proxy shall have power to adjourn such meeting from time to time (without notice, other than announcement at the meeting, if for thirty (30) days or less) until the requisite amount of holders of stock of such class shall be present in person or by proxy, but such adjournment shall not be made to a date beyond the date for the mailing of notice of the next annual meeting or special meeting in lieu thereof. 2.8. Voting. At all stockholders' meetings, holders of record of stock entitled to vote on any question or at any election shall be entitled to one vote for each share of stock held by them respectively, except that holders of Common Stock shall be entitled to one-tenth vote for each share of said stock held by them. In elections of Directors by the stockholders, when, and only when, the Preferred Stocks are not entitled to vote as a class for the election of a majority of the full Board of Directors, each stockholder having the right to vote shall be entitled to as many votes as pertain to his shares of stock multiplied by the number of Directors to be elected, and he may cast all such votes for a single Director or may distribute them among the number to be voted for, or any two or more of them, as he may see fit. Such vote may, in all cases, be given by proxy duly authorized in writing; but no proxy granted more than six months before the meeting, which shall be named therein, shall be accepted, and no proxy shall be valid after the final adjournment of such meeting. 2.9. Voting Inspectors. At all meetings of stockholders there shall be one or more voting inspectors as provided in the Maine Business Corporation Act, including, without limitation, Section 609 of said Act. SECTION 3. BOARD OF DIRECTORS 3.1. Number and Term of Office. Except as otherwise fixed in or pursuant to provisions of the Articles of Incorporation with respect to the right of the holders of any class or series of capital stock having a preference over Common Stock as to dividends or upon liquidation to elect Directors under specified circumstances, the Company shall have a Board of Directors consisting of not fewer than nine members nor more than eighteen members, the exact number (i) to be twelve persons upon adoption of this Section 3.1, subject to change exclusively by the Board of Directors as provided in this Section 3.1, and (ii) if to be changed from twelve persons to some other number not fewer than nine nor more than eighteen persons subsequent to the adoption of this Section 3.1, to be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized Directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). No person shall be a Director or executive officer of the Company who is also a director or executive officer of Central Vermont Public Service Corporation, of Public Service Company of New Hampshire, or of any corporation which may succeed to all or substantially all of the property and business of either. A majority of the Directors shall at all times be persons who are not employees of the Company. The provisions of this paragraph shall not apply to the election of Directors by the holders of Preferred Stock when, in accordance with the provisions of the Articles of Incorporation, they shall be entitled to elect the smallest number of Directors necessary to constitute a majority of the full Board of Directors. 3.2. Term of Directors, Vacancies and Resignations and Removals. Each Director shall hold office as provided in the Maine Business Corporation Act, including, without limitation, Section 704 of said Act. The term of office for each Director elected by the holders of the Preferred Stock of the Company as provided in Section B.6 of the Capital Stock Provisions of the Articles of Incorporation shall be as provided in said Section B.6. At the annual meeting of stockholders of the Company at which this Section 3.2 is adopted, the Directors shall be classified, with respect to the time for which they severally hold office, into three classes, Class I, Class II and Class III, as nearly equal in number as possible, Class I to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1988, Class II to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1989, and Class III to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1990, with the members of each class to hold office until their successors are elected and qualified. At each annual meeting of stockholders of the Company following the annual meeting of stockholders at which this Section 3.2 is adopted, the successors to the class of Directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders to be held in the third year following the year of their election. Except as otherwise fixed in or pursuant to provisions of the Articles of Incorporation with respect to the right of the holders of any class or series of capital stock having a preference over Common Stock as to dividends or upon liquidation to elect Directors under specified circumstances, newly created directorships resulting from any increase in the authorized number of Directors or any vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the Directors then in office, though less than a quorum of the Board of Directors, acting at a regular or special meeting. If any applicable provision of the Maine Business Corporation Act expressly confers power on stockholders to fill such a directorship at a special meeting of stockholders, such a directorship may be filled at such a meeting only by the affirmative vote of at least 80 percent of the combined voting power of all of the then outstanding shares of Voting Stock, voting together as a single class. Any Director elected in accordance with the two preceding sentences shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director's successor shall have been elected and qualified. If the number of authorized Directors is changed by resolution of the Board of Directors pursuant to this Section 3.2, any increase or decrease shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible, but in no case shall a decrease in the number of Directors shorten the term of any incumbent Director. Subject to any controlling provision of Maine law and subject to the right of the holders of any class or series of capital stock having a preference over Common Stock as to dividends or upon liquidation to elect Directors under specified circumstances, any Director, or the entire Board of Directors, may be removed from office at any time by the holders of the stock of all classes and series of the Company entitled to vote generally (the "Voting Stock"), but only for cause and only by the affirmative vote of the holders of at least 80 percent of the combined voting power of all of the then outstanding shares of the Voting Stock, voting together as a single class (it being understood that, for all purposes of these By-Laws, each share of the Voting Stock shall have the number of votes granted to it pursuant to these By-Laws or the Capital Stock Provisions of the Articles of Incorporation or any designation of the rights, powers and preferences of any class or series of the capital stock of the Company fixed in or made pursuant to the Articles of Incorporation). The Company must notify the Director of the grounds of his impending removal and the Director shall have an opportunity, at the expense of the Company, to present his defense to the stockholders by a statement which accompanies or precedes the Company's solicitation of proxies to remove him. The term "entire Board of Directors" as used in these By-Laws means the total number of Directors which the Company would have if there were no vacancies. 3.3. Powers. The business and affairs of the Company shall be managed by the Board of Directors. The Board of Directors may exercise all of the powers of the Company and do and perform, or cause to be done and performed, all such lawful acts and things as are not by law, by the Articles of Incorporation, or by these By-Laws, required to be exercised or done by the stockholders. 3.4. Committees. The Board of Directors, by a resolution adopted by a majority of the full Board of Directors, may designate from among its members an Executive Committee and other Committees, each consisting of two or more Directors, and may delegate to such Committee or Committees all the authority of the Board of Directors except those which by the Maine Business Corporation Act, including, without limitation, Section 713 of said Act, the Articles of Incorporation, or these By-Laws, may not be exercised by such Committee or Committees. Alternate members of such Committee or Committees may also be appointed as specified in said Section 713. Except as the Board of Directors may otherwise determine, the business of such Committee or Committees shall be conducted as nearly as may be in the same manner as is provided by these By-Laws for the conduct of business by the Board of Directors. Each such Committee shall report its actions to the Board of Directors. 3.5. Regular Meetings. A regular meeting of the Board of Directors may be held without call or notice immediately after and at the same place as the annual meeting of the stockholders. Other regular meetings of the Board of Directors may be held without call or notice if the time and place of such meetings are fixed by the Board of Directors, provided that notice of the first regular meeting following any such determination shall be given to each Director. 3.6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, by the President, or, if he is absent or is unable to act, by any Vice President, or by any two Directors. The person or persons calling the special meeting shall set the time and place thereof. Notice of each special meeting of the Board of Directors shall be given by the Clerk, the Secretary or the person or persons calling the meeting. It shall be sufficient notice to a Director of a special meeting to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any Director who signs a waiver of notice, either before or after the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of the meeting except as otherwise required by the Articles of Incorporation, these By-Laws or the Maine Business Corporation Act. 3.7. Action Without A Meeting. Action may be taken by the Board of Directors without a meeting as provided in the Maine Business Corporation Act, including, without limitation, Sections 708, 711 and 712 of said Act. 3.8. Quorum. At any meeting of the Directors a majority of the Directors then in office shall constitute a quorum for the transaction of business. The Directors present at a duly called or held meeting at which a quorum was once present may continue to do business at the meeting notwithstanding the withdrawal of enough Directors to leave less than a quorum. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice if the time and place to which it is adjourned are fixed and announced at such meeting. 3.9. Action by Vote. The vote of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless the vote of a greater number is required by the Articles of Incorporation, these By-Laws or the Maine Business Corporation Act. SECTION 4. OFFICERS AND AGENTS 4.1. Enumeration; Qualification. The officers of the Company shall consist of a Chairman of the Board of Directors, a President, one or more Vice Presidents, a Treasurer, a Clerk, a Secretary and such other officers, if any, as the Board of Directors from time to time may in their discretion elect or appoint. The President shall be elected from the Board of Directors, and the Chairman of the Board of Directors and any Vice Chairman of the Board shall be elected from those Directors who are not employees of the Company. The Clerk shall be a resident of the State of Maine. Any two or more offices may be held by the same person. Any officer may be required by the Board of Directors to give bond for the faithful performance of his duties to the Company in such amount and with such sureties as the Board of Directors may determine. 4.2. Powers. Subject to the Maine Business Corporation Act, the Articles of Incorporation and the other provisions of these By-Laws, each officer shall have such duties and powers as are usually incident to his respective office and such other duties and powers as may be prescribed from time to time by the Board of Directors. 4.3. Election. The Chairman of the Board of Directors, the President and the Clerk shall be elected annually by the Board of Directors at their first meeting following the annual meeting of the stockholders. Other officers may be elected or appointed by the Board of Directors at said meeting or at any other time. 4.4. Tenure. Except as otherwise provided by the Maine Business Corporation Act, by the Articles of Incorporation or by these By-Laws, the Chairman of the Board of Directors, the President and the Clerk shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until their respective successors are chosen and qualified, and each other officer shall hold office until the first meeting of the Directors following the next annual meeting of stockholders unless, in any case, a shorter period shall have been specified by the terms of his election or appointment, or until he sooner dies, resigns, is removed or becomes disqualified. SECTION 5. RESIGNATION, VACANCIES AND REMOVALS Any Director or officer may resign at any time by delivering his resignation in writing to the Chairman of the Board of Directors, the President or the Clerk or to a meeting of the Board of Directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time. Any vacancy, however occurring, in the office of any officer may be filled by the Board of Directors. The Board of Directors may remove any officer as provided in the Maine Business Corporation Act including, without limitation, Section 715 of said Act. SECTION 6. STOCK CERTIFICATES, TRANSFERS OF SHARES AND RECORD DATES 6.1. Stock Certificates. Each stockholder, upon payment in full for his shares, shall be entitled to a certificate certifying the number and the class and the designation of the series, if any, of the shares owned by him, in such form as shall, in conformity to law, be prescribed from time to time by the Board of Directors. Such certificate shall conform with the provisions of the Maine Business Corporation Act and be signed by any two of the President or any Vice President and by the Treasurer or any Assistant Treasurer, and may be sealed with the seal of the Company or a facsimile thereof. If the certificate is countersigned by the Clerk, a transfer agent or any assistant transfer agent, or registered by a registrar, other than the Company itself or an employee of the Company, any other signature on the certificate may be a facsimile. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Company with the same effect as if he were such officer at the date of its issue. 6.2. Loss of Certificates. In the case of the alleged loss or destruction or the mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms as the Directors may prescribe. 6.3. Transfer on Books. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the Company by the surrender to the Company or one of its transfer agents of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the Board of Directors or the particular transfer agent may reasonably require. Except as may be otherwise required by law, by the Articles of Incorporation or by these By-Laws, the Company shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the Company in accordance with the requirements of these By-Laws. It shall be the duty of each stockholder to notify the Company of his post office address. 6.4. Record Date. The Board of Directors may by resolution fix in advance a record date not exceeding sixty (60) days nor less than ten (10) full days prior to (a) the date of any stockholders' meeting for the purpose of determining stockholders entitled to notice of and to vote at such meeting and any adjournment thereof, or (b) the date of the payment of any dividend, other distribution, right or other benefit, including the issuance of rights to subscribe for securities, for the purpose of determining stockholders entitled to receive such dividend, other distribution, right or other benefit; and may by resolution, subject to such time limitations, fix a record date for any other proper purpose. SECTION 7. INDEMNIFICATION 7.1. To the extent permitted and in the manner provided by the Maine Business Corporation Act, the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer or employee of the Company or is or was serving at the request of the Company as a director, officer, trustee, partner, fiduciary, employee or agent of another corporation, partnership, joint venture, trust, pension or other employee benefit plan, or other enterprise, against expenses (including attorneys' fees), judgments, fines, assessments, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. Expenses incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding, as authorized in the specific case in the manner provided by the Maine Business Corporation Act, upon receipt of an undertaking by or on behalf of the person seeking indemnification to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Company. The foregoing rights of indemnification shall not be deemed exclusive of any other rights to which any person seeking indemnification may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, and shall continue as to a person who has ceased to be a director, officer, trustee, partner, fiduciary, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 7.2. The Company shall have power to purchase and maintain insurance, in such amounts as the Board of Directors may deem appropriate, on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, trustee, partner, fiduciary, employee or agent of another corporation, partnership, joint venture, trust, pension or other employee benefit plan, or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under applicable provisions of law. SECTION 8. AMENDMENTS These By-Laws may be altered, amended or repealed, except as may be otherwise expressly provided by law or in other sections of these By-Laws or in the Articles of Incorporation, at any annual or special meeting of the stockholders called for the purpose, of which the notice shall include the proposed action, by vote of stockholders holding shares entitled in the aggregate to a majority of the total votes to which the outstanding shares of capital stock of the Company of all classes are then entitled, except that in the case of the provisions of the first paragraph of Section 2.7 relating to the requirements for a quorum and in the case of the provisions of Section 2.8 relating to cumulative voting such vote shall be by the affirmative vote of stockholders holding shares entitled in the aggregate to two-thirds of the total votes to which the outstanding shares of capital stock of the Company of all classes are then entitled and except that in the case of the provisions of Section 2.8 relating to the rights of the Company's Preferred Stock to vote such vote shall be by the affirmative vote of two-thirds in interest of each class of the Company's Preferred Stock then outstanding which is affected by the change, voting separately as a class. These By-Laws may also be altered, amended or repealed by vote of a majority of the Board of Directors then in office, except that the Board of Directors shall not alter, amend or repeal the provisions of the first paragraph of Section 2.7 relating to the requirements for a quorum, the provisions of Section 2.8 relating to cumulative voting, the provisions of the second paragraph of Section 3.1 relating to the qualification of Directors, the provisions of the first paragraph of Section 3.1 relating to the number of Directors and the provisions of Section 3.2 relating to the classification and term of Directors, the filling of vacancies and the resignation and removal of Directors from office and any provision of this Section 8 pertaining to the foregoing sections. Notwithstanding any other provision in these By-Laws or any provision of law that might otherwise permit a lesser vote, but in addition to any affirmative vote of the holders of any particular class or series of stock required by law, the Articles of Incorporation or these By-Laws, the affirmative vote of the holders of at least 80 percent of the combined voting power of all of the then outstanding shares of Voting Stock (as defined in the Corporate Governance Provisions of the Articles of Incorporation) of the Company, voting together as a single class, shall be required to alter or repeal the first paragraph of Section 3.1 relating to the number of Directors and the provisions of Section 3.2 relating to the classification and term of Directors, the filling of vacancies and the resignation and removal of Directors from office and any provision of this Section 8 pertaining to the foregoing sections. SECTION 9. TITLES OF SECTIONS All titles of sections are inserted for convenience only, and are not a part of these By-Laws or to be used in the construction thereof. EX-10 3 CREDIT AGREEMENT Exhibit 10.98 CENTRAL MAINE POWER COMPANY CREDIT AGREEMENT Dated as of October 23, 1996 THE FIRST NATIONAL BANK OF BOSTON, Managing Agent THE BANK OF NEW YORK, Managing Agent TABLE OF CONTENTS Page 1. Definitions; Certain Rules of Construction...............................................................1 2. The Credits.............................................................................................20 2.1. Three-Year Revolving Credit....................................................................20 2.1.1. Three-Year Revolving Loan.............................................................20 2.1.2. Maximum Amount of Three-Year Revolving Credit.........................................20 2.1.3. Borrowing Requests....................................................................21 2.1.4. Three-Year Revolving Notes............................................................21 2.2. 364-Day Revolving Credit.......................................................................21 2.2.1. 364-Day Revolving Loan.................................................................21 2.2.2. Maximum Amount of 364-Day Revolving Credit............................................22 2.2.3. Borrowing Requests....................................................................22 2.2.4. 364-Day Revolving Notes...............................................................22 2.3. Competitive Auction Facility Credit............................................................22 2.3.1. Request by the Company................................................................23 2.3.2. Dissemination of Requests for Bids for Competitive Auction Facility Loans.............23 2.3.3. Bids for Competitive Auction Facility Loans...........................................24 2.3.4. Acceptance of Bids by the Borrower....................................................24 2.3.5. Funding by the New York Managing Agent; Competitive Auction Facility Loan Account, etc25 2.3.6. Prepayments in Respect of Competitive Auction Facility Loans..........................27 2.4. Application of Proceeds........................................................................27 2.4.1. Three-Year Revolving Loan.............................................................27 2.4.2. 364-Day Revolving Loan................................................................27 2.4.3. Competitive Auction Facility Loan.....................................................27 2.4.4. Specifically Prohibited Applications..................................................27 2.5. Nature of Obligations of Lenders to Make Extensions of Credit..................................27 2.5.1. Revolving Loans.......................................................................27 2.5.2. Competitive Auction Facility Loans....................................................27 2.6. Extension of Final Maturity Dates of the Revolving Loan........................................28 2.6.1. Three-Year Final Maturity Date........................................................28 2.6.2. 364-Day Final Maturity Date...........................................................28 3. Interest; Eurodollar Pricing Options; Fees..............................................................28 3.1. Interest on Revolving Loan.....................................................................28 3.2. Interest on Competitive Auction Facility Loans.................................................28 3.3. Eurodollar Pricing Options.....................................................................29 3.3.1. Election of Eurodollar Pricing Options................................................29 3.3.2. Notice to Lenders and Company.........................................................29 3.3.3. Selection of Eurodollar Interest Periods..............................................30 3.3.4. Additional Interest...................................................................30 3.3.5. Violation of Legal Requirements.......................................................31 3.3.6. Funding Procedure.....................................................................31 3.4. Facility Fees..................................................................................31 3.5. Changes in Circumstances; Yield Protection.....................................................31 3.5.1. Reserve Requirements, etc.............................................................31 3.5.2. Taxes.................................................................................32 3.5.3. Capital Adequacy......................................................................32 3.5.4. Regulatory Changes....................................................................33 3.5.5. Compensation Claims...................................................................33 3.5.6. Mitigation............................................................................33 3.6. Computations of Interest and Fees..............................................................33 4. Payment.................................................................................................34 4.1. Payment at Maturity............................................................................34 4.2. Contingent Required Prepayments for Excess Credit Exposure.....................................34 4.3. Voluntary Prepayments..........................................................................34 4.4. Reborrowing; Application of Payments, etc......................................................35 4.4.1. Reborrowing...........................................................................35 4.4.2. Order of Application..................................................................35 4.4.3. Payments for Lenders..................................................................35 5. Conditions to Extending Credit..........................................................................35 5.1. Conditions on Initial Closing Date.............................................................35 5.1.1. Officer's Certificate.................................................................35 5.1.2. Revolving Notes........................................................................36 5.1.3. Payment of Fees.......................................................................36 5.1.4. Legal Opinions........................................................................36 5.1.5. Termination of Prior Credit Agreements................................................36 5.1.6. Maine Public Utilities Commission.....................................................36 5.1.7. Proper Proceedings....................................................................37 5.1.8. General...............................................................................37 5.2. Conditions to Each Extension of Credit.........................................................37 5.2.1. Bring-Down of Representations and Warranties..........................................37 5.2.2. Material Adverse Change...............................................................37 5.2.3. Legality, etc.........................................................................38 5.2.4. Connecticut Waiver....................................................................38 6. General Covenants.......................................................................................38 6.1. Taxes and Other Charges; Accounts Payable......................................................38 6.1.1. Taxes and Other Charges...............................................................38 6.1.2. Accounts Payable......................................................................39 6.2. Conduct of Business, etc.......................................................................39 6.2.1. Types of Business.....................................................................39 6.2.2. Maintenance of Properties.............................................................39 6.2.3. Statutory Compliance..................................................................39 6.2.4. Amendments and Supplements.............................................................40 6.3. Insurance......................................................................................40 6.4. Financial Statements and Reports...............................................................40 6.4.1. Annual Reports........................................................................41 6.4.2. Quarterly Reports.....................................................................41 6.4.3. Other Reports.........................................................................42 6.4.4. Notice of Litigation, Defaults, etc...................................................43 6.4.5. ERISA Reports.........................................................................43 6.4.6. Other Information; Audit..............................................................44 6.5. Certain Financial Tests........................................................................44 6.5.1. Consolidated Net Worth................................................................44 6.5.2. Common Stock Investment to Total Capitalization.......................................44 6.5.3. Consolidated Operating Income to Consolidated Interest Expense........................44 6.6. Indebtedness...................................................................................44 6.7. Guarantees.....................................................................................46 6.8. Liens..........................................................................................46 6.9. Certain Investments............................................................................49 6.10. Asset Dispositions and Mergers.................................................................49 6.11. Negative Pledge Clauses........................................................................50 6.12. ERISA..........................................................................................50 6.13. Environmental Laws.............................................................................50 6.13.1. Compliance with Law and Permits......................................................50 6.13.2. Notice of Claims, etc................................................................50 7. Representations and Warranties..........................................................................51 7.1. Organization and Business......................................................................51 7.1.1. The Company...........................................................................51 7.1.2. Subsidiaries..........................................................................51 7.1.3. Qualification.........................................................................51 7.1.4. Capitalization........................................................................51 7.2. Financial Statements and Other Information; Material Agreements................................51 7.2.1. Financial Statements and Other Information............................................51 7.2.2. Material Agreements...................................................................52 7.3. Agreements Relating to Financing Debt..........................................................53 7.4. Changes in Condition...........................................................................53 7.5. Title to Assets................................................................................53 7.6. Operations in Conformity With Law, etc.........................................................53 7.7. Litigation.....................................................................................53 7.8. Authorization and Enforceability...............................................................53 7.9. No Legal Obstacle to Agreements................................................................54 7.10. Defaults.......................................................................................54 7.11. Licenses, etc..................................................................................55 7.12. Tax Returns....................................................................................55 7.13. Certain Business Representations...............................................................55 7.13.1. Labor Relations......................................................................55 7.13.2. Burdensome Obligations...............................................................55 7.14. Environmental Regulations......................................................................55 7.14.1. Environmental Compliance.............................................................55 7.14.2. Environmental Litigation.............................................................56 7.14.3. Hazardous Material...................................................................56 7.15. Pension Plans..................................................................................57 7.16. Foreign Trade Regulations; Government Regulation; Margin Stock.................................57 7.16.1. Foreign Trade Regulations............................................................57 7.16.2. Government Regulation................................................................57 7.17. Disclosure.....................................................................................57 8. Defaults................................................................................................57 8.1. Events of Default..............................................................................57 8.1.1. Payment...............................................................................57 8.1.2. Specified Covenants...................................................................58 8.1.3. Other Covenants.......................................................................58 8.1.4. Representations and Warranties........................................................58 8.1.5. Cross Default, etc....................................................................58 8.1.6. Enforceability, etc...................................................................59 8.1.7. Judgments.............................................................................59 8.1.8. ERISA.................................................................................59 8.1.9. Bankruptcy, etc.......................................................................59 8.2. Certain Actions Following an Event of Default..................................................60 8.2.1. Terminate Obligation to Extend Credit.................................................60 8.2.2. Specific Performance; Exercise of Rights..............................................60 8.2.3. Acceleration..........................................................................61 8.2.4. Enforcement of Payment; Credit Security; Setoff.......................................61 8.2.5. Cumulative Remedies...................................................................61 8.3. Annulment of Defaults..........................................................................61 8.4. Waivers........................................................................................61 9. Expenses; Indemnity.....................................................................................62 9.1. Expenses.......................................................................................62 9.2. General Indemnity..............................................................................62 10. Operations; Managing Agents.............................................................................63 10.1. Interests in Credits...........................................................................63 10.2. Roles of Managing Agents.......................................................................63 10.3. Managing Agents' Authority to Act, etc.........................................................63 10.4. Company to Pay New York Managing Agent, etc....................................................63 10.5. Lender Operations for Advances, etc............................................................64 10.5.1. Advances.............................................................................64 10.5.2. New York Managing Agent to Allocate Payments, etc....................................64 10.5.3. Delinquent Lenders; Nonperforming Lenders............................................65 10.6. Sharing of Payments, etc.......................................................................65 10.7. Amendments, Consents, Waivers, etc.............................................................66 10.8. Managing Agent's Resignation...................................................................67 10.9. Concerning the Managing Agents.................................................................68 10.9.1. Action in Good Faith, etc............................................................68 10.9.2. No Implied Duties, etc...............................................................68 10.9.3. Validity, etc........................................................................68 10.9.4. Compliance...........................................................................68 10.9.5. Employment of Agents and Counsel.....................................................69 10.9.6. Reliance on Documents and Counsel....................................................69 10.9.7. Managing Agents' Reimbursement.......................................................69 10.10. Rights as a Lender.............................................................................69 10.11. Independent Credit Decision....................................................................70 10.12. Indemnification................................................................................70 11. Successors and Assigns; Lender Assignments and Participations...........................................70 11.1. Assignments by Lenders.........................................................................71 11.1.1. Assignees and Assignment Procedures..................................................71 11.1.2. Terms of Assignment and Acceptance...................................................72 11.1.3. Register.............................................................................73 11.1.4. Acceptance of Assignment and Assumption..............................................73 11.1.5. Federal Reserve Bank.................................................................73 11.1.6. Further Assurances...................................................................73 11.2. Credit Participants............................................................................74 11.3. Replacement of Lender..........................................................................74 12. Confidentiality.........................................................................................76 13. Foreign Lenders.........................................................................................76 14. Notices.................................................................................................77 15. Course of Dealing; Amendments and Waivers...............................................................77 16. No Strict Construction..................................................................................78 17. Defeasance..............................................................................................78 18. Venue; Service of Process...............................................................................78 19. WAIVER OF JURY TRIAL....................................................................................79 20. General.................................................................................................79
EXHIBITS 2.1.4 - Form of Three-Year Revolving Note 2.2.4 - Form of 364-Day Revolving Note 2.3.1 - Form of Competitive Auction Facility Loan Bid Request 2.3.2 - Form of Invitation to Bid on Competitive Auction Facility Loan 2.3.3A - Form of Competitive Auction Facility Loan Bid 2.3.3B - Form of List of Competitive Auction Facility Loan Bids 2.3.4A - Form of List of Acceptances and Non-Acceptances of Competitive Auction Facility Loan Bids 2.3.4B - Form of Acceptance of Competitive Auction Facility Loan Bid 2.3.4C - Form of Non-Acceptance of Competitive Auction Facility Loan Bid 2.3.4D - Form of Notice of Competitive Auction Facility Loan 2.3.5 - Form of Competitive Auction Facility Note 5.1.1 - Form of Officer's Certificate 7.2.2 - Material Agreements 7.3 - Financing Debt 10.1 - Percentage Interests 11.1.1 - Form of Assignment and Acceptance CENTRAL MAINE POWER COMPANY CREDIT AGREEMENT This Agreement, dated as of October 23, 1996, is among Central Maine Power Company, a Maine corporation, the Lenders from time to time party hereto, The First National Bank of Boston, both in its capacity as a Lender and in its capacity as agent for itself and the other Lenders, and The Bank of New York, both in its capacity as a Lender and in its capacity as agent for itself and the other Lenders. The parties agree as follows: Definitions; Certain Rules of Construction. Certain capitalized terms are used in this Agreement and in the other Credit Documents with the specific meanings defined below in this Section 1. Except as otherwise explicitly specified to the contrary or unless the context clearly requires otherwise, (a) the capitalized term "Section" refers to sections of this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references to a particular Section include all subsections thereof, (d) the word "including" shall be construed as "including without limitation", (e) accounting terms not otherwise defined herein have the meaning provided under GAAP, (f) references to a particular statute or regulation include all rules and regulations thereunder and any successor statute, regulation or rules, in each case as from time to time in effect and (g) references to a particular Person include such Person's successors and assigns to the extent not prohibited by this Agreement and the other Credit Documents. References to "the date hereof" mean the date first set forth above. .0. "Affected Lender" is defined in Section 11.3. .1. "Affiliate" means, with respect to the Company (or any other specified Person), any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with the Company (or such specified Person), and shall include (a) any officer or director or general partner of the Company (or such specified Person) and (b) any Person of which the Company (or such specified Person) or any Affiliate (as defined in clause (a) above) of the Company (or such specified Person) shall, directly or indirectly, beneficially own either (i) at least 10% of the outstanding equity securities having the general power to vote or (ii) at least 10% of all equity interests. .2. "Agreement" means this Credit Agreement as from time to time amended, modified and in effect. .3. "Applicable Margin" means, for the 364-Day Revolving Loan, .55% per annum, and for the Three-Year Revolving Loan, the percentage per annum in the following table set opposite the applicable Rating Level: Rating Applicable Margin Level Level 1 .30% Level 2 .425% Level 3 .50% if (a)-less than 25% of the Maximum Amount of Three-Year Revolving Credit is outstanding or (b)-at least 25% but less than 50% of the Maximum Amount of Three-Year Revolving Credit is outstanding and the Rating by S&P is at least BBB- and the Rating by Moody's is at least Baa3 .625% if (a) at least 25% but less than 50% of the Maximum Amount of Three-Year Revolving Credit is outstanding and (b) without giving effect to the second-to-last sentence of the definition of "Rating Level" in Section 1.109, either the Rating by S&P is lower than BBB- or the Rating by Moody's is lower than Baa3 .75% if (a) 50% or more of the Maximum Amount of Three-Year Revolving Credit is outstanding and (b) the Rating by S&P is at least BBB- and the Rating by Moody's is at least Baa3 .875% if (a) 50% or more of the Maximum Amount of Three-Year Revolving Credit is outstanding and (b) either the Rating by S&P is lower than BBB- or the Rating by Moody's is lower than Baa3 Level 4 .65% if less than 25% of the Maximum Amount of Three-Year Revolving Credit is outstanding .775% if at least 25% but less than 50% of the Maximum Amount of Three-Year Revolving Credit is outstanding 1.025% if 50% or more of the Maximum Amount of Three-Year Revolving Credit is outstanding Level 5 .875% if less than 25% of the Maximum Amount of Three-Year Revolving Credit is outstanding 1.00% if at least 25% but less than 50% of the Maximum Amount of Three-Year Revolving Credit is outstanding 1.25% if 50% or more of the Maximum Amount of Three-Year Revolving Credit is outstanding For the purpose of calculating Applicable Margin, the aggregate amount of all outstanding Three-Year Competitive Auction Facility Loans shall be counted in the numerator in determining the percentage of the Maximum Amount of Three-Year Revolving Credit outstanding. .0. "Applicable Rate" means, at any date, the sum of: (a) (i) with respect to each portion of the Revolving Loan subject to a Eurodollar Pricing Option, the sum of the Applicable Margin plus the Eurodollar Rate with respect to such Eurodollar Pricing Option; (ii) with respect to each other portion of the Revolving Loan, the Base Rate; plus (b) an additional 2% effective on the day the New York Managing Agent notifies the Company that the interest rates hereunder are increasing as a result of the occurrence and continuance of an Event of Default under Section 8.1.1 until the earlier of such time as (i)-such Event of Default is no longer continuing or (ii)-such Event of Default is deemed no longer to exist, in each case pursuant to Section-8.3. .1. "Assignee" is defined in Section-11.1.1. .2. "Assignment and Acceptance" is defined in Section-11.1.1. .3. "Bank of Boston" means The First National Bank of Boston. .4. "Bank of New York" means The Bank of New York. .5. "Banking Day" means any day other than Saturday, Sunday or a day on which banks in Portland, Maine, New York, New York and Boston, Massachusetts are authorized or required by law or other governmental action to close and, if such term is used with reference to a Eurodollar Pricing Option, any day on which dealings are effected in the Eurodollars in question by first-class banks in the inter-bank Eurodollar markets in London, England. .6. "Bankruptcy Code" means Title-11 of the United States Code. .7. "Bankruptcy Default" means an Event of Default referred to in Section-8.1.9. .8. "Base Rate" means, on any date, the greater of (a)-the rate of interest announced by Bank of New York at the New York Office as its Base Rate or (b) the sum of 1/2% plus the Federal Funds Rate. .9. "Base Rate Advances" means advances under a Revolving Loan on which the applicable rate of interest is the Base Rate. .10. "Boston Managing Agent" means Bank of Boston, in its capacity as a Managing Agent hereunder. .11. "By-laws" means all written by-laws and all other similar constituent documents relating to the management, governance or internal regulation of any Person other than an individual, or interpretive of the Charter of such Person, all as from time to time in effect. .12. "Capitalized Lease" means any lease which is required to be capitalized on the balance sheet of the lessee in accordance with GAAP, including to the extent applicable Statement Nos. 13 and 98 of the Financial Accounting Standards Board. .13. "Capitalized Lease Obligations" means the amount of the liability reflecting the aggregate discounted amount of future payments under all Capitalized Leases calculated in accordance with GAAP, including to the extent applicable Statement Nos. 13 and 98 of the Financial Accounting Standards Board. .14. "Cash Equivalents" means: ( ) negotiable certificates of deposit, time deposits (including sweep accounts), demand deposits and bankers' acceptances having a maturity of nine months or less and issued by any United States financial institution having capital and surplus and undivided profits aggregating at least $100,000,000 and rated at least Prime-1 by Moody's or A-1 by S&P or issued by any Lender or Affiliate thereof; (a) corporate obligations having a maturity of nine months or less and rated at least Prime-1 by Moody's or A-1 by S&P or issued by any Lender; (b) any direct obligation of the United States of America or any agency or instrumentality thereof, or of any state or municipality thereof, (i)-which has a remaining maturity at the time of purchase of not more than one year or which is subject to a repurchase agreement with any Lender or Affiliate thereof (or any other financial institution referred to in clause (a)-above) exercisable within one year from the time of purchase and (ii) which, in the case of obligations of any state or municipality, is rated at least Aa by Moody's or AA by S&P; (c) any mutual fund or other pooled investment vehicle rated at least Aa by Moody's or AA by S&P which invests principally in obligations described above; and (d) any Investment by a Foreign Subsidiary in its local jurisdiction comparable to the items described above. .15. "CERCLA" means the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980. .16. "CERCLIS" means the federal Comprehensive Environmental Response Compensation Liability Information System List (or any successor document) issued under CERCLA. .17. "Charter" means the articles of organization, certificate of incorporation, statute, constitution, joint venture agreement, partnership agreement, trust indenture, limited liability company agreement or other charter document of any Person other than an individual, each as from time to time in effect. .18. "Closing Date" means the Initial Closing Date and each other date on which any extension of credit is made pursuant to Section-2.1 or 2.2 and the Competitive Auction Facility Loan Closing Dates. .19. "Code" means the federal Internal Revenue Code of 1986, as amended. .20. "Commitment" means, with respect to any Lender, such Lender's obligations to extend the credits contemplated by Section 2. The original Commitments are set forth in Exhibit 10.1 and the current Commitments are recorded from time to time in the Register. .21. "Company" means Central Maine Power Company, a Maine corporation. .22. "Competitive Auction Facility Loan" is defined in Section 2.3. .23. "Competitive Auction Facility Loan Accounts" is defined in Section 2.3.5. .24. "Competitive Auction Facility Loan Closing Date" is defined in Section 2.3.1. .25. "Competitive Auction Facility Loan Interest Payment Date" is defined in Section 2.3.1. .26. "Competitive Auction Facility Loan Maturity Date" is defined in Section 2.3.1. .27. "Competitive Auction Facility Note" is defined in Section 2.3.5. .28. "Competitive Auction Facility Rates" is defined in Section 2.3.3. .29. "Consolidated" and "Consolidating", when used with reference to any term, mean that term as applied to the accounts of the Company (or other specified Person) and all of its Subsidiaries (or other specified group of Persons), or such of its Subsidiaries as may be specified, consolidated (or combined) or consolidating (or combining), as the case may be, in accordance with GAAP and with appropriate deductions for minority interests in Subsidiaries. .30. "Consolidated Current Assets" means, at any date, all amounts carried as current assets on the balance sheet of the Company and its Subsidiaries determined in accordance with GAAP on a Consolidated basis. .31. "Consolidated Interest Expense" means, for any period, the aggregate amount of interest, including commitment fees, payments in the nature of interest under Capitalized Leases and net payments under Interest Rate Protection Agreements, accrued by the Company and its Subsidiaries (whether such interest is reflected as an item of expense or capitalized) in accordance with GAAP on a Consolidated basis. .32. "Consolidated Net Income" means, for any period, the net income (or loss) applicable to common stock of the Company and its Subsidiaries, determined in accordance with GAAP on a Consolidated basis; provided, however, that Consolidated Net Income shall not include: ( ) all amounts included in computing such net income (or loss) in respect of (i) the write-up of any asset after December 31, 1995 or (ii) the retirement of any Indebtedness or equity at less than face value after December 31, 1995; (a) extraordinary and nonrecurring gains; and (b) any after-tax gains or losses attributable to returned surplus assets of any Plan. .33. "Consolidated Net Worth" means, at any date, the total of stockholders' equity of the Company and its Subsidiaries determined in accordance with GAAP on a Consolidated basis; provided, however, that Consolidated Net Worth shall not include all amounts included in computing such Consolidated Net Worth in respect of (i) the write-up of any asset after December 31, 1995 or (ii) the retirement of any Indebtedness or equity at less than face value after December 31, 1995. .34. "Consolidated Operating Income" means, for any period, the total of: ( ) Consolidated Net Income; plus (b) all amounts deducted in computing such Consolidated Net Income in respect of: ( ) depreciation and amortization, (i) interest on, and commitment fees with respect to, Indebtedness (including payments in the nature of interest under Capitalized Leases and Interest Rate Protection Agreements), (ii) taxes based upon or measured by net income, and (iii) dividends on preferred stock. .35. "Credit Documents" means: ( ) this Agreement, the Notes, the Fee Letter, and each Interest Rate Protection Agreement provided by a Lender (or an Affiliate of a Lender) in connection with this Agreement and the Notes to the Company or any of its Subsidiaries, each as from time to time in effect; (a) all financial statements, reports, notices, mortgages, assignments, UCC financing statements and certificates delivered to either of the Managing Agents or any of the Lenders by the Company or any of its Subsidiaries in connection herewith or therewith; and (b) any other present or future agreement or instrument from time to time entered into among the Company or any of its Subsidiaries, on one hand, and the Managing Agents or all the Lenders, on the other hand, relating to, amending or modifying this Agreement or any other Credit Document referred to above or which is stated to be a Credit Document, each as from time to time in effect. .36. "Credit Obligations" means all present and future liabilities, obligations and Indebtedness of the Company owing to either of the Managing Agents or any Lender (or any Affiliate of a Lender) under or in connection with this Agreement or any other Credit Document, including obligations in respect of principal, interest, reimbursement obligations under Interest Rate Protection Agreements provided by a Lender (or an Affiliate of a Lender) in connection with this Agreement and the Notes, Facility Fees, amounts provided for in Sections-3.3.4, 3.5 and 9 and other fees, charges, indemnities and expenses from time to time owing hereunder or under any other Credit Document (whether accruing before or after a Bankruptcy Default). .37. "Credit Participant" is defined in Section 11.2. .38. "Default" means any Event of Default and any event or condition which with the passage of time or giving of notice, or both, would become an Event of Default and the filing against the Company or any of its Subsidiaries of a petition commencing an involuntary case under the Bankruptcy Code. .39. "Delinquency Period" is defined in Section-10.5.3. .40. "Delinquent Lender" is defined in Section-10.5.3. .41. "Delinquent Payment" is defined in Section-10.5.3. .42. "Domestic Subsidiary" means any Subsidiary that is not a Foreign Subsidiary. .43. "Environmental Laws" means all applicable federal, state or local statutes, laws, ordinances, codes, rules and regulations (including consent decrees and administrative orders) relating to public health and safety and protection of the environment, including OSHA. .44. "Equity Transaction" means any issuance by the Company or any of its Subsidiaries to any Person (other than the Company's or a Subsidiary's officers, employees and directors) of any shares of its capital stock, other equity interests or options, warrants or other purchase rights to acquire such capital stock or other equity interests. .45. "ERISA" means the federal Employee Retirement Income Security Act of 1974. .46. "ERISA Group Person" means the Company and any Person which is a member of the controlled group or under common control with the Company within the meaning of section 414 of the Code or section-4001(a)(14) of ERISA. .47. "Eurodollars" means, with respect to any Lender, deposits of United States Funds in a non-United States office or an international banking facility of such Lender. .48. "Eurodollar Basic Reference Rate" means, for any Eurodollar Interest Period, the rate of interest at which Eurodollar deposits in an amount comparable to the Percentage Interest of the Reference Lender in the portion of the Revolving Loan as to which a Eurodollar Pricing Option has been elected and which have a term corresponding to the Eurodollar Interest Period are offered to the Reference Lender by first-class banks in the London inter-bank market for deposits in United States dollars for delivery in immediately available funds at the Eurodollar Office on the first day of such Eurodollar Interest Period as determined by the Reference Lender at approximately 10:00 a.m. (New York time) two Banking Days prior to the date upon which such Eurodollar Interest Period is to commence (which determination by the Reference Lender shall, in the absence of manifest error, be conclusive). .49. "Eurodollar Interest Period" means any period, selected as provided in Section 3.3.1, of one, two, three or six months, commencing on any Banking Day and ending on the corresponding date in the subsequent calendar month so indicated (or, if such subsequent calendar month has no corresponding date, on the last day of such subsequent calendar month); provided, however, that subject to Section 3.3.3, if any Eurodollar Interest Period so selected would otherwise begin or end on a date which is not a Banking Day, such Eurodollar Interest Period shall instead begin or end, as the case may be, on the immediately preceding or succeeding Banking Day as determined by the New York Managing Agent in accordance with the then current banking practice in the inter-bank Eurodollar market with respect to deposits at the Eurodollar Office, which determination by the New York Managing Agent shall, in the absence of manifest error, be conclusive. .50. "Eurodollar Office" means a non-United States office or international banking facility of Bank of New York. .51. "Eurodollar Pricing Options" means the options granted pursuant to Section 3.3.1 to have the interest on any portion of the Revolving Loan computed on the basis of a Eurodollar Rate. .52. "Eurodollar Rate" for any Eurodollar Interest Period means the rate, rounded upward to the nearest 1/100%, obtained by dividing (a) the Eurodollar Basic Reference Rate for such Eurodollar Interest Period by (b)-an amount equal to 1 minus the Eurodollar Reserve Rate; provided, however, that if at any time during such Eurodollar Interest Period the Eurodollar Reserve Rate applicable to any outstanding Eurodollar Pricing Option changes, the Eurodollar Rate for such Eurodollar Interest Period shall automatically be adjusted to reflect such change, effective as of the date of such change to the extent required by the Legal Requirement implementing such change. .53. "Eurodollar Reserve Rate" means the stated maximum rate (expressed as a decimal) of all reserves (including any basic, supplemental, marginal or emergency reserve or any reserve asset), if any, as from time to time in effect, required by any Legal Requirement to be maintained by any Lender against (a) "Eurocurrency liabilities" as specified in Regulation D of the Board of Governors of the Federal Reserve System applicable to Eurodollar Pricing Options, (b) any other category of liabilities that includes Eurodollar deposits by reference to which the interest rate on portions of the Revolving Loan subject to Eurodollar Pricing Options is determined, (c)-the principal amount of or interest on any portion of the Revolving Loan subject to a Eurodollar Pricing Option, to the extent that such reserves arise by reason of Eurodollar funding, or (d) any other category of extensions of credit, or other assets, that includes loans subject to a Eurodollar Pricing Option by a non-United States office of any of the Lenders to United States residents, in each case without the benefits of credits for prorations, exceptions or offsets that may be available to a Lender. .54. "Event of Default" is defined in Section 8.1. .55. "Exchange Act" means the federal Securities Exchange Act of 1934, as amended. .56. "Facility Fee" means, for the 364-Day Revolving Loan, .20% per annum multiplied by the Maximum Amount of 364-Day Revolving Credit, and for the Three-Year Revolving Loan, the percentage per annum in the table below set opposite the applicable Rating Level, multiplied by the Maximum Amount of Three-Year Revolving Credit: Rating Level Facility Fee Rate Level 1 .15% Level 2 .20% Level 3 .25% Level 4 .35% Level 5 .425% .0. "FAME Loan Agreement" means the Loan Agreement dated as of October-19, 1994 between Finance Authority of Maine and the Company relating to the $79,300,000 Finance Authority of Maine Taxable Electric Rate Stabilization Revenue Notes, Series 1994A (Central Maine Power Company). .1. "Federal Funds Rate" means, for any day, the rate equal to the weighted average (rounded upward to the nearest 1/8%) of (a) the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, (a) as such weighted average is published for such day (or, if such day is not a Banking Day, for the immediately preceding Banking Day) by the Federal Reserve Bank of New York or (b) if such rate is not so published for such Banking Day, quotations received by the New York Managing Agent from three federal funds brokers of recognized standing selected by the New York Managing Agent. Each determination by the New York Managing Agent of the Federal Funds Rate shall, in the absence of manifest error, be conclusive. .2. "Fee Letter" is defined in Section 5.1.2. .3. "Final Maturity Date" means each of the Three-Year Final Maturity Date and the 364-Day Final Maturity Date. .4. "Financial Officer" of the Company (or other specified Person) means its chief executive officer, chief financial officer, chief operating officer, chairman, president or treasurer, or any of its vice presidents whose primary responsibility is for its financial affairs, all of whose incumbency and signatures have been certified to the Managing Agents by the secretary or other appropriate attesting officer of the Company (or such specified Person). .5. "Financing Debt" means each of the items described in clauses (a) through (f) of the definition of the term "Indebtedness" and, without duplication, any Guarantees of such items. .6. "Foreign Subsidiary" means each Subsidiary that is organized under the laws of, and conducting its business primarily in a jurisdiction outside of, the United States of America. .7. "Foreign Trade Regulations" means (a) any act that prohibits or restricts, or empowers the President or any executive agency of the United States of America to prohibit or restrict, exports to or financial transactions with any foreign country or foreign national, (b) the regulations with respect to certain prohibited foreign trade transactions set forth at 22 C.F.R. Parts 120-130 and 31 C.F.R. Part 500 and (c) any order, regulation or ruling relating to any of the foregoing. .8. "Funding Liability" means, without duplication, (a) any Eurodollar deposit which was used (or deemed by Section 3.3.6 to have been used) to fund any portion of the Revolving Loan subject to a Eurodollar Pricing Option, and (b) any portion of the Revolving Loan subject to a Eurodollar Pricing Option funded (or deemed by Section 3.3.6 to have been funded) with the proceeds of any such Eurodollar deposit. .9. "GAAP" means generally accepted accounting principles as from time to time in effect, including the statements and interpretations of the United States Financial Accounting Standards Board. .10. "General and Refunding Mortgage Indenture" means the General and Refunding Mortgage Indenture dated as of April 15, 1976 between the Company and Bank of Boston, as trustee (State Street Bank and Trust Company, successor trustee), as currently in effect and as hereafter supplemented and amended in a manner permitted under Section 6.2.4. .11. "Guarantee" means, with respect to the Company (or other specified Person): ( ) any guarantee by the Company (or such specified Person) of the payment or performance of, or any contingent obligation by the Company (or such specified Person) in respect of the complete or partial payment of, any Indebtedness of any primary obligor; (a) any other arrangement whereby credit is extended to a primary obligor on the basis of any promise or undertaking of the Company (or such specified Person) in writing, including any binding "comfort letter" or "keep well agreement" written by the Company (or such specified Person), to a creditor or prospective creditor of such primary obligor, to (i) pay the Indebtedness of such primary obligor, (ii) purchase an obligation owed by such primary obligor, (iii) pay for the purchase or lease of assets or services regardless of the actual delivery thereof or (iv) maintain the capital, working capital, solvency or general financial condition of such primary obligor; and (b) payment obligations, whether contingent or matured, of the Company (or such specified Person) with respect to letters of credit, bankers acceptances, surety bonds, other financial guarantees and Interest Rate Protection Agreements, in each case whether or not any of the foregoing are reflected on the balance sheet of the Company (or such specified Person) or in a footnote thereto; provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee and the amount of Indebtedness resulting from such Guarantee shall be the maximum amount that the guarantor may become obligated to pay in respect of the obligations (whether or not such obligations are outstanding at the time of computation). .12. "Hazardous Material" means any pollutant, toxic or hazardous material or waste, including any "hazardous substance" or "pollutant" or "contaminant" as defined in section 101(14) of CERCLA or any other Environmental Law or regulated as toxic or hazardous under RCRA or any other Environmental Law. .13. "Indebtedness" means all obligations, contingent or otherwise, of the Company (or other specified Person) for: ( ) borrowed money; (a) indebtedness evidenced by notes, debentures or similar instruments; (b) Capitalized Lease Obligations; (c) liabilities classified upon the balance sheet in accordance with GAAP representing the deferred purchase price of assets (other than ordinary trade accounts payable within six months after the incurrence thereof in the ordinary course of business); (d) payment obligations, whether contingent or matured, with respect to standby letters of credit, bankers acceptances, surety bonds, other financial guarantees and Interest Rate Protection Agreements, in each case supporting Indebtedness under clauses (a) through (d) above (without duplication of other Indebtedness supported or guaranteed thereby); and (e) all Guarantees in respect of Indebtedness of others. .14. "Indemnified Party" is defined in Section 9.2. .15. "Initial Closing Date" means October 23, 1996 or such other date agreed to by the Company and the Managing Agents. .16. "Interest Rate Protection Agreement" means any interest rate swap, interest rate cap, interest rate hedge or other contractual arrangement that converts variable interest rates into fixed interest rates, fixed interest rates into variable interest rates or other similar arrangements with respect to interest obligations. .17. "Investment" means, with respect to the Company (or other specified Person): ( ) any share of capital stock, partnership or other equity interest, evidence of Indebtedness or other security issued by any other Person; (a) any loan, advance or extension of credit to, or contribution to the capital of, any other Person; (b) any Guarantee of the Indebtedness of any other Person; (c) any acquisition of all, or any division or similar operating unit of, the business of any other Person or the assets comprising such business, division or unit; and (d) any other similar investment. The investments described in the foregoing clauses (a) through (e) shall be included in the term "Investment" whether they are made or acquired by purchase, exchange, issuance of stock or other securities, merger, reorganization or any other method; provided, however, that the term "Investment" shall not include (i) current trade and customer accounts receivable for property leased, goods furnished or services rendered in the ordinary course of business and payable in accordance with customary trade terms, (ii) deposits, advances or prepayments to suppliers for property leased or licensed, goods furnished and services rendered in the ordinary course of business, (iii) advances to employees for relocation and travel expenses, drawing accounts and similar expenditures, (iv) stock or other securities acquired in connection with the satisfaction or enforcement of Indebtedness or claims due to the Company (or such specified Person) or as security for any such Indebtedness or claim or (v) demand deposits in banks or similar financial institutions. In determining the amount of outstanding Investments: (A) the amount of any Investment shall be the cost thereof minus any returns of capital in cash on such Investment (determined in accordance with GAAP without regard to amounts realized as income on such Investment); (B) the amount of any Investment in respect of a purchase described in clause (d) above shall include the amount of any Financing Debt assumed in connection with such purchase or secured by any asset acquired in such purchase (whether or not any Financing Debt is assumed) or for which any Person that becomes a Subsidiary is liable on the date on which the securities of such Person are acquired; and (C) no Investment shall be increased as the result of an increase in the undistributed retained earnings of the Person in which the Investment was made or decreased as a result of an equity interest in the losses of such Person. .18. "Legal Requirement" means any present or future requirement imposed upon any of the Lenders or the Company and its Subsidiaries by any law, statute, rule, regulation, directive, order or decree (or any interpretation thereof by courts or of administrative bodies) of the United States of America, or each jurisdiction in which the Eurodollar Office is located or any state or political subdivision of any of the foregoing, or by any board, governmental or administrative agency, central bank or monetary authority of the United States of America, each jurisdiction in which the Eurodollar Office is located, or any political subdivision of any of the foregoing. Any such law, statute, rule, regulation, directive, order, decree or interpretation imposed on any of the Lenders not having the force of law shall be deemed to be a Legal Requirement for purposes of Section 3 if such Lender reasonably believes that compliance therewith is customary commercial practice. .19. "Lender" means each of the Persons listed as lenders on the signature page hereto, including Bank of Boston and Bank of New York, each in its capacity as a Lender, and such other Persons who may from time to time own a Percentage Interest in the Credit Obligations, but the term "Lender" shall not include any Credit Participant. .20. "Lien" means, with respect to the Company (or any other specified Person): ( ) any lien, encumbrance, mortgage, pledge, charge or security interest of any kind upon any property or assets of the Company (or such specified Person), whether now owned or hereafter acquired, or upon the income or profits therefrom; (a) the acquisition of, or the agreement to acquire, any property or asset upon conditional sale or subject to any other title retention agreement, device or arrangement (including a Capitalized Lease); and (b) the transfer of any tangible property or assets, other than in the ordinary course of business, for the purpose of creating collateral for the payment of previously outstanding Indebtedness in priority to payment of the general creditors of the Company (or such specified Person). .21. "Loan" means, collectively, the Revolving Loan and the Competitive Auction Facility Loans. .22. "Managing Agents" means Bank of Boston and Bank of New York in their capacity as managing agents for the Lenders hereunder, as well as their successors and assigns in such capacity pursuant to Section 10.8. .23. "Margin Stock" means "margin stock" within the meaning of Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. .24. "Material Adverse Change" means, since any specified date or from the circumstances existing immediately prior to the happening of any specified event, a material adverse change in (a) the financial condition, operations, properties or financial or business prospects of the Company (on an individual basis) or the Company and its Subsidiaries (on a Consolidated basis), whether as a result of (i) general economic conditions affecting the electric power industry, (ii) difficulties in obtaining supplies and raw materials, (iii) fire, flood or other natural calamities, (iv) environmental pollution, (v) regulatory changes, judicial decisions, war or other governmental action or (vi) any other event or development, whether or not related to those enumerated above or (b) the ability of the Company to perform its obligations under the Credit Documents or (c) the rights and remedies of the Managing Agents and the Lenders under the Credit Documents. .25. "Material Agreements" means the General and Refunding Mortgage Indenture, the FAME Loan Agreement and other financing documents evidencing Indebtedness permitted under Section 6.6. .26. "Maximum Amount of 364-Day Revolving Credit" is defined in Section 2.2.2. .27. "Maximum Amount of Three-Year Revolving Credit" is defined in Section 2.1.2. .28. "Moody's" means Moody's Investors Service, Inc. .29. "More Favorable Provision" is defined in Section 6.2.4. .30. "Multiemployer Plan" means, at any date, a "multiemployer plan" as defined in section 4001(a)(3) of ERISA, to which contributions have been made or are or were required to be made, by any ERISA Group Person within six years prior to such date. .31. "New York Managing Agent" means Bank of New York, in its capacity as a Managing Agent hereunder. .32. "New York Office" means the principal banking office of Bank of New York in New York, New York. .33. "1995 10-K" is defined in Section 7.2.1. .34. "Nonperforming Lender" is defined in Section 10.5.3. .35. "Notes" means collectively, the Revolving Notes and the Competitive Auction Facility Notes. .36. "OSHA" means the federal Occupational Safety and Health Act. .37. "Overdue Reimbursement Rate" means, at any date, the highest Applicable Rate then in effect. .38. "Payment Date" means (a) the last Banking Day of each March, June, September and December occurring after the Initial Closing Date and (b) the Final Maturity Date. .39. "PBGC" means the Pension Benefit Guaranty Corporation or any successor entity. .40. "Percentage Interest" means (a) at all times when no Event of Default under Section 8.1.1 and no Bankruptcy Default exists, the ratio that the respective Commitments of the Lenders bear to the total Commitments of all Lenders as from time to time in effect and reflected in the Register, and (b) at all other times, the ratio that the respective amounts of the outstanding Credit Obligations owing to the Lenders in respect of extensions of credit under Section 2 bear to the total outstanding Credit Obligations owing to all Lenders. .41. "Performing Lender" is defined in Section 10.5.3. .42. "Person" means any present or future natural person or any corporation, association, partnership, joint venture, limited liability, joint stock or other company, business trust, trust, organization, business or government or any governmental agency or political subdivision thereof. .43. "Plan" means, at any date, any pension benefit plan subject to Title IV of ERISA, other than a Multiemployer Plan, maintained, or to which contributions have been made or are required to be made, by any ERISA Group Person within six years prior to such date. .44. "Pre-Closing 1934 Act Reports" means the Company's Report on Form 10-K for fiscal year 1995, its Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996 and its Reports on Form 8-K dated January 12, February 1, April 19, August 21, September 6 and October 16, 1996, each as furnished to the Lenders prior to the date hereof. .45. "Prior Credit Agreements" means the $50,000,000 Credit Agreement dated as of October 15, 1986, as amended, among the Company, Continental Illinois National Bank and Trust Company of Chicago, as Agent, and the other lenders named therein and the $80,000,000 Competitive Advance and Revolving Credit Facility dated as of November 7, 1994, as amended, among the Company, Chemical Bank, as Agent, and the other lenders named therein. .46. "Rating" means, with respect to either Moody's or S&P, such agency's credit rating on the Company's outstanding General and Refunding Mortgage Bonds not entitled to external credit support or, if none of such General and Refunding Mortgage Bonds remain outstanding, on the unsecured long-term Indebtedness of the Company outstanding under the Company's Indenture dated as of August 1, 1989, as amended, not entitled to external credit support or if neither said Bonds or Indebtedness remain outstanding, such other senior secured or unsecured Indebtedness of the Company as the Managing Agents shall designate. .47. "Rating Level" means the category of the Ratings from time to time in effect, as determined with reference to the Ratings issued by both Moody's and S&P, as follows: ( ) "Level 1" means a BBB+ or higher Rating by S&P and a Baa1 or higher Rating by Moody's. (a) "Level 2" means a BBB or higher Rating by S&P and a Baa2 or higher Rating by Moody's. (b) "Level 3" means a BBB- or higher Rating by S&P and a Baa3 or higher Rating by Moody's. (c) "Level 4" means a BB+ or higher Rating by S&P and a Ba1 or higher Rating by Moody's. (d) "Level 5" means a BB or lower Rating by S&P and a Ba2 or lower Rating by Moody's. In the event that the Ratings qualify for more than one Rating Level, the Rating Level shall be the one with the lowest numerical designation. In the event that the Ratings by S&P and Moody's differ by one level, the Rating Level determined by the lower Rating shall apply. In the event that the Ratings by S&P and Moody's differ by more than one level, the Rating Level determined by raising the lower Rating by one level shall apply. Rating Levels will be redetermined upon any change in either the S&P Rating or the Moody's Rating. .48. "RCRA" means the federal Resource Conservation and Recovery Act, 42 U.S.C. ss 6901, et seq. .49. "Reference Lender" means Bank of New York. .50. "Register" is defined in Section 11.1.3. .51. "Replacement Lender" is defined in Section 11.3. .52. "Request Date" is defined in Section 2.3.1. .53. "Required Lenders" means, with respect to any approval, consent, modification, waiver or other action to be taken by the Managing Agents or the Lenders under the Credit Documents which requires action by the Required Lenders, such Lenders as own at least a majority of the Percentage Interests; provided, however, that with respect to any matters referred to in the proviso to Section 10.7, Required Lenders means such Lenders as own at least the respective portions of the Percentage Interests required by Section 10.7. .54. "Revolving Loan" means, collectively, the Three-Year Revolving Loan and the 364-Day Revolving Loan. .55. "Revolving Notes" means, collectively, the Three-Year Revolving Notes and the 364-Day Revolving Notes. .56. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill Corporation. .57. "Securities Act" means the federal Securities Act of 1933, as amended. .58. "Significant Subsidiary" means, at the time any determination thereof is to be made, any Subsidiary which (i) as of the end of the next preceding fiscal quarter had assets which comprised not less than 5% of the aggregate book value of the Consolidated assets of the Company and its Subsidiaries, determined in accordance with GAAP, as of the end of such quarter or (ii) for the period of four consecutive fiscal quarters most recently ended had operating income which comprised not less than 5% of the Consolidated Operating Income of the Company and its Subsidiaries for such period. .59. "Subsidiary" means any corporation of which the Company (or other specified Person) shall at the time, directly or indirectly through one or more of its Subsidiaries, own more than 50% of the outstanding capital stock (or other shares of beneficial interest) entitled to vote generally and any other Person whose financial statements are required to be included in the Consolidated financial statements of the Company in accordance with GAAP. .60. "Tax" means any present or future tax, levy, duty, impost, deduction, withholding or other charges of whatever nature at any time required by any Legal Requirement (a) to be paid by any Lender or (b) to be withheld or deducted from any payment otherwise required hereby to be made to any Lender, in each case on or with respect to its obligations hereunder, the Loan, any payment in respect of the Credit Obligations or any Funding Liability not included in the foregoing; provided, however, that the term "Tax" shall not include taxes imposed upon or measured by the net income of such Lender (other than withholding taxes) or franchise taxes. .61. "$10,000,000 Financing Debt" is defined in Section 8.1.5. .62. "364-Day Competitive Auction Facility Loan" means a Competitive Auction Facility Loan, the amount of which is to be applied against the Maximum Amount of 364-Day Revolving Credit. .63. "364-Day Final Maturity Date" means October 22, 1997 or such date to which this date is extended pursuant to Section 2.6.2. .64. "364-Day Revolving Loan" is defined in Section 2.2.4. .65. "364-Day Revolving Notes" is defined in Section 2.2.4. .66. "Three-Year Competitive Auction Facility Loan" means a Competitive Auction Facility Loan, the amount of which is to be applied against the Maximum Amount of Three-Year Revolving Credit. .67. "Three-Year Final Maturity Date" means October 22, 1999 or such date to which this date is extended pursuant to Section 2.6.1. .68. "Three-Year Revolving Loan" is defined in Section 2.1.4. .69. "Three-Year Revolving Notes" is defined in Section 2.1.4. .70. "United States Funds" means such coin or currency of the United States of America as at the time shall be legal tender therein for the payment of public and private debts. .71. "Unsecured Medium Term Notes" means unsecured Indebtedness of the Company denominated "Medium Term Notes" and issued or to be issued pursuant to the Company's Indenture, dated as of August 1, 1989, as amended. .72. "Wholly Owned Subsidiary" means any Subsidiary of which all of the outstanding capital stock (or other shares of beneficial interest) entitled to vote generally (other than directors' qualifying shares and, in the case of Foreign Subsidiaries, shares required by Legal Requirements to be held by foreign nationals) is owned by the Company (or other specified Person) directly, or indirectly through one or more Wholly Owned Subsidiaries. The Credits. The Credits Three-Year Revolving Credit.r Revolving Credit Three-Year Revolving Loan. Subject to all the terms and conditions of this Agreement and so long as no Default exists, from time to time on and after the Initial Closing Date and prior to the Three-Year Final Maturity Date the Lenders will, severally in accordance with their respective Commitments in the Three-Year Revolving Loan, make loans to the Company in such amounts as may be requested by the Company in accordance with Section 2.1.3. The sum of the aggregate principal amount of loans made under this Section 2.1.1 at any one time outstanding plus the Three-Year Competitive Auction Facility Loans shall in no event exceed the Maximum Amount of Three-Year Revolving Credit. In no event will the principal amount of loans at any one time outstanding made by any Lender pursuant to this Section 2.1 exceed such Lender's Commitment with respect to the Three-Year Revolving Loan. Maximum Amount of Three-Year Revolving Credit. The term "Maximum Amount of Three-Year Revolving Credit" means $50,000,000 minus the amount (in a minimum of $2,500,000 and in an integral multiple of $1,000,000 that is in excess of $2,500,000) by which $50,000,000 shall have been irrevocably reduced from time to time upon three business days' prior notice from the Company to the New York Managing Agent. Upon termination or reduction of the Maximum Amount of Three-Year Revolving Credit, the Company shall pay to the New York Managing Agent, for the account of the Lenders according to each's Percentage Interest, accrued Facility Fees (to the date of termination or reduction) on the terminated or reduced portion of the Maximum Amount of Three-Year Revolving Credit. Borrowing Requests. The Company may from time to time request a loan under Section 2.1.1 by providing to the New York Managing Agent a notice (which may be given by a telephone call if promptly confirmed in writing). Such notice must be not later than 10:30 a.m. (New York time) on the same Banking Day as the requested Closing Date for such loan (or on the third Banking Day prior to the requested Closing Date if any portion of such loan will be subject to a Eurodollar Pricing Option on the requested Closing Date). The notice must specify (a) the amount of the requested loan (which shall be not less than $1,000,000 and shall otherwise be an integral multiple of $500,000) and (b) the requested Closing Date therefor (which shall be a Banking Day). Upon receipt of such notice, the New York Managing Agent will promptly inform each other Lender (by telephone or otherwise). Each such loan will be made at the New York Office by depositing the amount thereof to the general account of the Company with the New York Managing Agent. Three-Year Revolving Notes. The aggregate principal amount of the loans outstanding from time to time under this Section 2.1 is referred to as the "Three-Year Revolving Loan". The Three-Year Revolving Loan shall be deemed owed to each Lender having a Commitment therein severally in accordance with such Lender's Percentage Interest therein, and all payments thereon shall be for the account of each Lender in accordance with its Percentage Interest therein. The Company's obligations to pay each Lender's Percentage Interest in the Three-Year Revolving Loan shall be evidenced by a separate note of the Company in substantially the form of Exhibit 2.1.4 (the "Three-Year Revolving Notes"), payable to each Lender in accordance with such Lender's Percentage Interest in the Three-Year Revolving Loan. 364-Day Revolving Credit.-Day Revolving Credit 364-Day Revolving Loan. Subject to all the terms and conditions of this Agreement and so long as no Default exists, from time to time on and after the Initial Closing Date and prior to the 364-Day Final Maturity Date the Lenders will, severally in accordance with their respective Commitments in the 364-Day Revolving Loan, make loans to the Company in such amounts as may be requested by the Company in accordance with Section 2.2.3. The sum of the aggregate principal amount of loans made under this Section 2.2.1 at any one time outstanding plus the 364-Day Competitive Auction Facility Loans shall in no event exceed the Maximum Amount of 364-Day Revolving Credit. In no event will the principal amount of loans at any one time outstanding made by any Lender pursuant to this Section 2.2 exceed such Lender's Commitment with respect to the 364-Day Revolving Loan. Maximum Amount of 364-Day Revolving Credit. The term "Maximum Amount of 364-Day Revolving Credit" means $75,000,000 minus the amount (in a minimum of $2,500,000 and in an integral multiple of $1,000,000 that is in excess of $2,500,000) by which $75,000,000 shall have been irrevocably reduced from time to time upon three business days' prior notice from the Company to the New York Managing Agent. Upon termination or reduction of the Maximum Amount of 364-Day Revolving Credit, the Company shall pay to the New York Managing Agent, for the account of the Lenders according to each's Percentage Interest, accrued Facility Fees (to the date of termination or reduction) on the terminated or reduced portion of the Maximum Amount of 364-Day Revolving Credit. Borrowing Requests. The Company may from time to time request a loan under Section 2.2.1 by providing to the New York Managing Agent a notice (which may be given by a telephone call if promptly confirmed in writing). Such notice must be not later than 10:30 a.m. (New York time) on the same Banking Day as the requested Closing Date for such loan (or on the third Banking Day prior to the requested Closing Date if any portion of such loan will be subject to a Eurodollar Pricing Option on the requested Closing Date). The notice must specify (a) the amount of the requested loan (which shall be not less than $1,000,000 and shall otherwise be an integral multiple of $500,000) and (b) the requested Closing Date therefor (which shall be a Banking Day). Upon receipt of such notice, the New York Managing Agent will promptly inform each other Lender (by telephone or otherwise). Each such loan will be made at the New York Office by depositing the amount thereof to the general account of the Company with the New York Managing Agent. 364-Day Revolving Notes. The aggregate principal amount of the loans outstanding from time to time under this Section 2.2 is referred to as the "364-Day Revolving Loan". The 364-Day Revolving Loan shall be deemed owed to each Lender having a Commitment therein severally in accordance with such Lender's Percentage Interest therein, and all payments thereon shall be for the account of each Lender in accordance with its Percentage Interest therein. The Company's obligations to pay each Lender's Percentage Interest in the 364-Day Revolving Loan shall be evidenced by a separate note of the Company in substantially the form of Exhibit 2.2.4 (the "364-Day Revolving Notes"), payable to each Lender in accordance with such Lender's Percentage Interest in the 364-Day Revolving Loan. Competitive Auction Facility Credit. As provided in this Section 2.3, the Company may request, and one or more Lenders, each acting in its sole and absolute discretion, may offer to make, loans on a competitive auction facility basis (each such loan made by any of the Lenders pursuant to this Section 2.3 being referred to as a "Competitive Auction Facility Loan"), which the Company may, in its sole and absolute discretion, agree to accept; provided, however, that in no event shall the sum of the aggregate Three-Year Competitive Auction Facility Loans at any one time outstanding plus the Three-Year Revolving Loan exceed the Maximum Amount of Three-Year Revolving Credit, and further provided that in no event shall the sum of the aggregate 364-Day Competitive Auction Facility Loans at any one time outstanding plus the 364-Day Revolving Loan exceed the Maximum Amount of 364-Day Revolving Credit. Request by the Company. Subject to all the terms and conditions of this Agreement and so long as no Default exists, the Company may, at any time prior to the Final Maturity Date, by telex or telecopy notice to the New York Managing Agent substantially in the form of Exhibit 2.3.1 received not later than 10:00 a.m. (New York time) on any Banking Day (the "Request Date"), request bids for loans pursuant to this Section 2.3 to be made on the following Banking Day (the "Competitive Auction Facility Loan Closing Date"), such request to specify: ( ) whether the proposed loans shall be Three-Year Competitive Auction Facility Loans or 364-Day Competitive Auction Facility Loans, (a) the aggregate amount of the proposed loans, which shall not be less than $1,000,000 and which shall otherwise be in integral multiples of $500,000, (b) the proposed maturity dates (each such date a "Competitive Auction Facility Loan Maturity Date") for such proposed loans (which maturity dates shall be not earlier than seven days following the applicable Competitive Auction Facility Loan Closing Date and not later than the earlier of (i) the 180th day following the applicable Competitive Auction Facility Loan Closing Date and (ii) the applicable Final Maturity Date) and, (c) the proposed dates (each such date a "Competitive Auction Facility Loan Interest Payment Date"), if any, prior to the applicable Competitive Auction Facility Loan Maturity Date on which accrued but unpaid interest shall be due and payable on the principal amount of such proposed loans; provided, however, that in the event the proposed Competitive Auction Facility Loan Maturity Date is more than 90 days after the proposed Competitive Auction Facility Loan Closing Date, the Company shall also pay accrued and unpaid interest on the proposed loans on the 90th day after the proposed Competitive Auction Facility Loan Closing Date. No more than 10 Eurodollar Pricing Options and Competitive Auction Facility Loans in the aggregate may be outstanding at any one time. Dissemination of Requests for Bids for Competitive Auction Facility Loans. Promptly upon receipt of each request submitted by the Company pursuant to Section 2.3.1, and in any event not later than 2:00 p.m. (New York time) on the applicable Request Date, the New York Managing Agent shall, by telex or telecopy notice (or by telephonic notice on a reasonable efforts basis, promptly confirmed by telex or telecopy) to each Lender in substantially the form of Exhibit 2.3.2, notify each Lender of such request, which notice shall constitute an invitation on behalf of the Company for each Lender to submit bids pertaining to the proposed Competitive Auction Facility Loans in accordance with Section 2.3.3. Bids for Competitive Auction Facility Loans. Each Lender may, in its sole and absolute discretion, respond to such invitation by submitting a bid by telex or telecopy notice to the New York Managing Agent no later than 10:00 a.m. (New York time) on the proposed Competitive Auction Facility Loan Closing Date. Such notice shall be in substantially the form of Exhibit 2.3.3A, which notice shall constitute an offer by such Lender to the Company to make Competitive Auction Facility Loans on the proposed Competitive Auction Facility Loan Closing Date in the principal amounts specified in the notice from such Lender, which principal amounts (a) may be for all or any portion of the proposed Competitive Auction Facility Loans, notwithstanding the Percentage Interest of such Lender in the Revolving Loan, (b) may be different principal amounts for different Competitive Auction Facility Loan Maturity Dates (subject to an over-all maximum) and (c) shall be an integral multiple of $500,000 maturing on the Competitive Auction Facility Loan Maturity Dates requested by the Company, with accrued and unpaid interest on the principal amount thereof to be due and payable on the Competitive Auction Facility Loan Interest Payment Dates, if any, requested by the Company, and on such Competitive Auction Facility Loan Maturity Dates, such interest to accrue at the rates per annum (which shall be in integral multiples of 1/100%) specified in such notice (the "Competitive Auction Facility Rates"). The New York Managing Agent shall disregard any bid (i) not submitted by 10:00 a.m. (New York time) on the proposed Competitive Auction Facility Loan Closing Date or (ii) not substantially in the form of Exhibit 2.3.3A, or not complete, or containing qualifying, conditional or similar language, or terms different from or in addition to those set forth in the pertinent request, and any late or non-conforming bid shall be deemed not to have been given for any purpose of this Agreement. The New York Managing Agent shall promptly, and in any event not later than 11:00 a.m. (New York time) on the proposed Competitive Auction Facility Loan Closing Date, by telephonic notice to the Company, confirmed in writing, forward to the Company in substantially the form of Exhibit 2.3.3B, all bids submitted in compliance with this Section 2.3.3. Notwithstanding the foregoing provisions of this Section 2.3.3, each of the Lenders constituting the Managing Agents shall submit its own bid, if any, to the Company by telex or telecopy not later than 9:45 a.m. (New York time) on the proposed Competitive Auction Facility Loan Closing Date. Acceptance of Bids by the Borrower. Not later than Noon (New York time) on the applicable Competitive Auction Facility Loan Closing Date, the Company shall by telex or telecopy notice to the New York Managing Agent in substantially the form of Exhibit 2.3.4A, indicate its acceptance or non-acceptance of each offer submitted pursuant to Section 2.3.3. In the case of acceptance, such notice shall be irrevocable and shall specify the aggregate principal amount of each offered Competitive Auction Facility Loan that is accepted. Such notice shall be deemed to constitute the certification of the Company that the closing conditions for such Competitive Auction Facility Loans contained in Section 5.2 (other than the delivery of an officer's certificate) have been satisfied. The Company may accept each such offer in whole or in part; provided, however, that (a) the aggregate principal amount of all Competitive Auction Facility Loans accepted and made on any Competitive Auction Facility Loan Closing Date may not exceed the applicable amount set forth in the applicable request, (b) the principal amount of each Competitive Auction Facility Loan shall be an integral multiple of $500,000, and (c) acceptance of offers for Competitive Auction Facility Loans with the same Competitive Auction Facility Loan Maturity Date may be made only on the basis of ascending quoted Competitive Auction Facility Rates; and provided, further, that if offers are made by two or more Lenders having the same Competitive Auction Facility Rate for a greater aggregate principal amount than the amount in respect of which offers at such rate are accepted, the principal amount of such Competitive Auction Facility Loans in respect of which such offers are accepted at such rate shall be allocated by the New York Managing Agent among such Lenders as nearly as possible (in integral multiples of $500,000) in proportion to the aggregate principal amount of such offers. Determinations by the New York Managing Agent of the amounts of Competitive Auction Facility Loans pursuant to the immediately preceding sentence shall be conclusive in the absence of manifest error. The New York Managing Agent shall, not later than 1:00 p.m. (New York time) on the Competitive Auction Facility Loan Closing Date, notify each Lender who submitted an offer for the particular loans requested pursuant to Section 2.3.1 whether any offer has been accepted (substantially in the form of Exhibit 2.3.4B) or rejected (substantially in the form of Exhibit 2.3.4C) and, if accepted, in what principal amount and maturity. In the event the Company fails to provide such notice to the New York Managing Agent by Noon (New York time) on the Competitive Auction Facility Loan Closing Date, the New York Managing Agent may conclusively presume that all such offers have been rejected by the Company and, in such event, the New York Managing Agent shall, not later than 1:00 p.m. (New York time), so notify each Lender which submitted an offer. Each time a Competitive Auction Facility Loan is made, the New York Managing Agent shall send a notice to the Company and each Lender in substantially the form of Exhibit 2.3.4D specifying the principal amount and maturity date of such Competitive Auction Facility Loan. .4. Funding by the New York Managing Agent; Competitive Auction Facility Loan Account, etc Funding by the New York Managing Agent; Competitive Auction Facility Loan Account, etc. Each Competitive Auction Facility Loan by any Lender will be made on the terms offered by such Lender and accepted by the Company in accordance with this Section 2.3 at the New York Office on the applicable Competitive Auction Facility Loan Closing Date by adding the amount thereof to the applicable Competitive Auction Facility Loan Accounts and either (a) by crediting the amount thereof to either the Three-Year Revolving Loan or the 364-Day Revolving Loan of the Company, as the Company specifies in its request under Section 2.3.1, for the account of the Lenders in accordance with their respective Percentage Interests therein or (b) if the Company shall have specified by written notice to the New York Managing Agent, by crediting the amount thereof to the general account of the Company with the New York Managing Agent at the New York Office. ( ) Competitive Auction Facility Loan Account. The New York Managing Agent will establish on its books separate loan accounts (the "Competitive Auction Facility Loan Accounts") for each Lender extending a Competitive Auction Facility Loan to the Company which the New York Managing Agent shall administer as follows: (i) the New York Managing Agent shall debit to the pertinent Competitive Auction Facility Loan Account the principal amount of all Competitive Auction Facility Loans from time to time made by such Lender to the Company and (ii) the New York Managing Agent shall credit to the pertinent Competitive Auction Facility Loan Account of the Lender for whose benefit payment is made, all payments made on account of the principal amount of Indebtedness evidenced by the pertinent Competitive Auction Facility Loan Account. Upon the request of any Lender, the Company shall issue a note in substantially the form of Exhibit 2.3.5 (a "Competitive Auction Facility Note") evidencing the Indebtedness evidenced by such Lender's Competitive Auction Facility Loan Account. (a) Maturity Date; Interest; Repayment. The stated maturity date of each Competitive Auction Facility Loan shall be the applicable Competitive Auction Facility Loan Maturity Date for such Competitive Auction Facility Loan. The Company will pay interest on the principal amount of each Competitive Auction Facility Loan at the applicable Competitive Auction Facility Rate (plus an additional 2% per annum effective on the day either Managing Agent notifies the Company that the interest rates hereunder are increasing as a result of the occurrence and continuation of an Event of Default under Section 8.1.1 until the earlier of such time as (x) such Event of Default is no longer continuing or (y) such Event of Default is deemed pursuant to Section 8.3 no longer to exist) for such Competitive Auction Facility Loan on each applicable Competitive Auction Facility Loan Interest Payment Date, if any, and on the applicable Competitive Auction Facility Loan Maturity Date for such Competitive Auction Facility Loan. Upon the maturity of any Competitive Auction Facility Loan, so long as either (i) no Event of Default then exists or (ii) the New York Managing Agent shall have received the consent of all the Lenders if an Event of Default then exists, the New York Managing Agent shall debit either the Three-Year Revolving Loan or the 364-Day Revolving Loan of the Company, as the Company specified in its request under Section 2.3.1, in the principal amount of such Competitive Auction Facility Loan for the account of the Lenders in accordance with their respective Percentage Interests and shall credit the same amount to the pertinent Competitive Auction Facility Loan Account. Prepayments in Respect of Competitive Auction Facility Loans. No Competitive Auction Facility Loan may be prepaid by the Company. Application of Proceeds.plication of Proceeds Three-Year Revolving Loan. Subject to Section 2.4.4, the Company will apply the proceeds of the Three-Year Revolving Loan for working capital and other lawful corporate purposes of the Company and its Subsidiaries. 364-Day Revolving Loan. Subject to Section 2.4.4, the Company will apply the proceeds of the 364-Day Revolving Loan for working capital and other lawful corporate purposes of the Company and its Subsidiaries. Competitive Auction Facility Loan. Subject to Section 2.4.4, the Company will apply the proceeds of the Competitive Auction Facility Loan for working capital and other lawful corporate purposes of the Company and its Subsidiaries. Specifically Prohibited Applications. The Company will not, directly or indirectly, apply any part of the proceeds of any extension of credit made pursuant to the Credit Documents to purchase or to carry Margin Stock, or to any transaction prohibited by the Foreign Trade Regulations or by the Credit Documents or to any transaction prohibited by other Legal Requirements applicable to the Lenders of which notice has been given by any Lender to the Company. Nature of Obligations of Lenders to Make Extensions of Credite Extensions of Credit Revolving Loans. The Lenders' obligations to make Revolving Loans under this Agreement are several and are not joint or joint and several. If on any Closing Date any Lender shall fail to perform its obligations under this Agreement, the aggregate amount of Commitments to make the extensions of credit under this Agreement shall be reduced by the amount of unborrowed Commitment of the Lender so failing to perform and the Percentage Interests shall be appropriately adjusted. Lenders that have not failed to perform their obligations to make the extensions of credit contemplated by Section 2 may, if any such Lender so desires, assume, in such proportions as such Lenders may agree, the obligations of any Lender who has so failed and the Percentage Interests shall be appropriately adjusted. The provisions of this Section 2.5 shall not affect the rights of the Company against any Lender failing to perform its obligations hereunder. Competitive Auction Facility Loans. The obligation to make a Competitive Auction Facility Loan shall be an obligation solely of the Lenders which offered to make such loan in accordance with Section 2.3 and whose offers were accepted thereunder. Extension of Final Maturity Dates of the Revolving Loan.of the Revolving Loan Three-Year Final Maturity Date. At the request of the Company (the first request to occur not earlier than 60 days prior to the second anniversary of the Initial Closing Date) and with the approval of all the Lenders, the Three-Year Final Maturity Date may be extended up to two times for additional periods of up to one year each. 364-Day Final Maturity Date. At the request of the Company and with the approval of all the Lenders, the 364-Day Final Maturity Date may be extended, each such succeeding 364-Day Final Maturity Date to be no later than the date which is 364 days after the preceding 364-Day Final Maturity Date. Interest; Eurodollar Pricing Options; Fees.ricing Options; Fees Interest on Revolving Loan. The Revolving Loan shall accrue and bear interest at a rate per annum which shall at all times equal the Applicable Rate. Prior to any stated or accelerated maturity of the Revolving Loan, the Company will, on each Payment Date, pay the accrued and unpaid interest on the portion of the Revolving Loan which was not subject to a Eurodollar Pricing Option. On the last day of each Eurodollar Interest Period or on any earlier termination of any Eurodollar Pricing Option, the Company will pay the accrued and unpaid interest on the portion of the Revolving Loan which was subject to the Eurodollar Pricing Option which expired or terminated on such date. In the case of any Eurodollar Interest Period longer than three months, the Company will also pay the accrued and unpaid interest on the portion of the Revolving Loan subject to the Eurodollar Pricing Option having such Eurodollar Interest Period at three-month intervals, the first such payment to be made on the last Banking Day of the three-month period which begins on the first day of such Eurodollar Interest Period. On the stated or any accelerated maturity of the Revolving Loan, the Company will pay all accrued and unpaid interest on the Revolving Loan, including any accrued and unpaid interest on any portion of the Revolving Loan which is subject to a Eurodollar Pricing Option. Upon the occurrence and during the continuance of an Event of Default, the Lenders may require accrued interest to be payable on demand or at regular intervals more frequent than each Payment Date. All payments of interest with respect to the Revolving Loan shall be made to the New York Managing Agent for the account of each Lender in accordance with such Lender's Percentage Interest. Interest on Competitive Auction Facility Loans. The Company will pay interest on each Competitive Auction Facility Loan to the New York Managing Agent for the benefit of the applicable Lender at the rate and on the dates specified in Section 2.3.5(b). Eurodollar Pricing Options.ollar Pricing Options Election of Eurodollar Pricing Options. Subject to all of the terms and conditions hereof and so long as no Default exists, the Company may from time to time, by irrevocable notice to the New York Managing Agent actually received not less than three Banking Days prior to the commencement of the Eurodollar Interest Period selected in such notice, elect to have such portion of the Revolving Loan as the Company may specify in such notice accrue and bear interest during the Eurodollar Interest Period so selected at the Applicable Rate computed on the basis of the Eurodollar Rate. In the event the Company at any time fails to elect a Eurodollar Pricing Option under this Section 3.3.1 for any portion of the Revolving Loan, then such portion of the Revolving Loan will accrue and bear interest at the Applicable Rate based on the Base Rate. No election of a Eurodollar Pricing Option shall become effective: ( ) if, prior to the commencement of any such Eurodollar Interest Period, the New York Managing Agent determines that (i) the electing or granting of the Eurodollar Pricing Option in question would violate a Legal Requirement, (ii) Eurodollar deposits in an amount comparable to the principal amount of the Revolving Loan as to which such Eurodollar Pricing Option has been elected and which have a term corresponding to the proposed Eurodollar Interest Period are not readily available in the inter-bank Eurodollar market, or (iii) by reason of circumstances affecting the inter-bank Eurodollar market, adequate and reasonable methods do not exist for ascertaining the interest rate applicable to such deposits for the proposed Eurodollar Interest Period; or (a) if any Lender shall have advised the New York Managing Agent by telephone or otherwise at or prior to noon (New York time) on the second Banking Day prior to the commencement of such proposed Eurodollar Interest Period (and shall have subsequently confirmed in writing) that, after reasonable efforts to determine the availability of such deposits, such Lender reasonably anticipates that deposits in an amount equal to the Percentage Interest of such Lender in the portion of the Revolving Loan as to which such Eurodollar Pricing Option has been elected and which have a term corresponding to the Eurodollar Interest Period in question will not be offered in the inter-bank Eurodollar market to such Lender. Notice to Lenders and Company. The New York Managing Agent will promptly inform each Lender (by telephone or otherwise) of each notice received by it from the Company pursuant to Section 3.3.1 and of the Eurodollar Interest Period specified in such notice. Upon determination by the New York Managing Agent of the Eurodollar Rate for such Eurodollar Interest Period or in the event such election shall not become effective, the New York Managing Agent will promptly notify the Company and each Lender (by telephone or otherwise) of the Eurodollar Rate so determined or why such election did not become effective, as the case may be. Selection of Eurodollar Interest Periods. Eurodollar Interest Periods shall be selected so that: ( ) the portion of the Revolving Loan subject to any Eurodollar Pricing Option shall be at least $2,500,000 and otherwise an integral multiple of $500,000; (a) no more than ten Eurodollar Pricing Options shall be outstanding at any one time; and (b) no Eurodollar Interest Period with respect to any part of the Revolving Loan subject to a Eurodollar Pricing Option shall expire later than the Final Maturity Date. Additional Interest. If any portion of the Revolving Loan subject to a Eurodollar Pricing Option is repaid, or any Eurodollar Pricing Option is terminated for any reason (including acceleration of maturity), on a date which is prior to the last Banking Day of the Eurodollar Interest Period applicable to such Eurodollar Pricing Option, the Company will pay to the New York Managing Agent for the account of each Lender in accordance with such Lender's Percentage Interest, in addition to any amounts of interest otherwise payable hereunder, an amount equal to the present value (calculated in accordance with this Section 3.3.4) of interest for the unexpired portion of such Eurodollar Interest Period on the portion of the Revolving Loan so repaid, or as to which a Eurodollar Pricing Option was so terminated, at a per annum rate equal to the excess, if any, of (a) the rate applicable to such Eurodollar Pricing Option minus (b) the rate of interest obtainable by the New York Managing Agent upon the purchase of debt securities customarily issued by the Treasury of the United States of America which have a maturity date approximating the last Banking Day of such Eurodollar Interest Period. The present value of such additional interest shall be calculated by discounting the amount of such interest for each day in the unexpired portion of such Eurodollar Interest Period from such day to the date of such repayment or termination at a per annum interest rate equal to the interest rate determined pursuant to clause (b) of the preceding sentence, and by adding all such amounts for all such days during such period. The determination by the New York Managing Agent of such amount of interest shall, in the absence of manifest error, be conclusive. For purposes of this Section 3.3.4, if any portion of the Revolving Loan which was to have been subject to a Eurodollar Pricing Option is not outstanding on the first day of the Eurodollar Interest Period applicable to such Eurodollar Pricing Option other than for reasons described in Section 3.3.1, the Company shall be deemed to have terminated such Eurodollar Pricing Option. Violation of Legal Requirements. If any Legal Requirement shall prevent any Lender from funding or maintaining through the purchase of deposits in the inter-bank Eurodollar market any portion of the Revolving Loan subject to a Eurodollar Pricing Option or otherwise from giving effect to such Lender's obligations as contemplated by Section 3.3, (a) the New York Managing Agent may by notice to the Company terminate all of the affected Eurodollar Pricing Options, (b) the portion of the Revolving Loan subject to such terminated Eurodollar Pricing Options shall immediately bear interest thereafter at the Applicable Rate computed on the basis of the Base Rate and (c) the Company shall make any payment required by Section 3.3.4. Funding Procedure. The Lenders may fund any portion of the Revolving Loan subject to a Eurodollar Pricing Option out of any funds available to the Lenders. Regardless of the source of the funds actually used by any of the Lenders to fund any portion of the Revolving Loan subject to a Eurodollar Pricing Option, however, all amounts payable hereunder, including the interest rate applicable to any such portion of the Revolving Loan and the amounts payable under Section 3.3.4 and 3.5, shall be computed as if each Lender had actually funded such Lender's Percentage Interest in such portion of the Revolving Loan through the purchase of deposits in such amount of the type by which the Eurodollar Basic Reference Rate was determined with a maturity the same as the applicable Eurodollar Interest Period relating thereto and through the transfer of such deposits from an office of the Lender having the same location as the Eurodollar Office to one of such Lender's offices in the United States of America. Facility Fees. In consideration of the Lenders' commitments to make the extensions of credit provided for in Section 2.1, the Company will pay to the New York Managing Agent for the account of the Lenders in accordance with the Lenders' respective Commitments in the Three-Year Revolving Loan, on each Payment Date and on the Three-Year Final Maturity Date, the applicable Facility Fees. In consideration of the Lenders' commitments to make the extensions of credit provided for in Section 2.2, the Company will pay to the New York Managing Agent for the account of the Lenders in accordance with the Lenders' respective commitments in the 364-Day Revolving Loan, on each Payment Date and on the 364-Day Final Maturity Date, the applicable Facility Fees. Changes in Circumstances; Yield Protection.ces; Yield Protection Reserve Requirements, etc. If any Legal Requirement shall (a) impose, modify, increase or deem applicable any insurance assessment, reserve, special deposit or similar requirement against any Funding Liability, (b) impose, modify, increase or deem applicable any other requirement or condition with respect to any Funding Liability, or (c) change the basis of taxation of Funding Liabilities (other than changes in the rate of taxes measured by the overall net income of such Lender) and the effect of any of the foregoing shall be to increase the cost to any Lender of issuing, making, funding or maintaining its respective Percentage Interest in any portion of the Revolving Loan subject to a Eurodollar Pricing Option, to reduce the amounts received or receivable by such Lender under this Agreement or to require such Lender to make any payment or forego any amounts otherwise payable to such Lender under this Agreement (other than any Tax or any reserves that are included in computing the Eurodollar Reserve Rate), then such Lender may claim compensation from the Company under Section 3.5.5. Taxes. All payments of the Credit Obligations shall be made without set-off or counterclaim and free and clear of any deductions, including deductions for Taxes, unless the Company is required by law to make such deductions. If (a) any Lender shall be subject to any Tax with respect to any payment of the Credit Obligations or its obligations hereunder or (b) the Company shall be required to withhold or deduct any Tax on any payment on the Credit Obligations, then such Lender may claim compensation from the Company under Section 3.5.5. Whenever Taxes must be withheld by the Company with respect to any payments of the Credit Obligations, the Company shall promptly furnish to the New York Managing Agent for the account of the applicable Lender official receipts (to the extent that the relevant governmental authority delivers such receipts) evidencing payment of any such Taxes so withheld. If the Company fails to pay any such Taxes when due or fails to remit to the New York Managing Agent for the account of the applicable Lender the required receipts evidencing payment of any such Taxes so withheld or deducted, the Company shall indemnify the affected Lender for any incremental Taxes and interest or penalties that may become payable by such Lender as a result of any such failure. In the event any Lender receives a refund of any Taxes for which it has received payment from the Company under this Section 3.5.2, such Lender shall promptly pay the amount of such refund to the Company, together with any interest thereon actually earned by such Lender. Capital Adequacy. If any Lender shall determine that compliance by such Lender with any Legal Requirement regarding capital adequacy of banks or bank holding companies has or would have the effect of reducing the rate of return on the capital of such Lender and its Affiliates as a consequence of such Lender's Commitment to make the extensions of credit contemplated hereby, or such Lender's maintenance of the extensions of credit contemplated hereby, to a level below that which such Lender could have achieved but for such compliance (taking into consideration the policies of such Lender and its Affiliates with respect to capital adequacy immediately before such compliance and assuming that the capital of such Lender and its Affiliates was fully utilized prior to such compliance) by an amount deemed by such Lender to be material, then such Lender may claim compensation from the Company under Section 3.5.5. Regulatory Changes. If any Lender shall determine that (a) any change in any Legal Requirement (including any new Legal Requirement) after the date hereof shall directly or indirectly (i) reduce the amount of any sum received or receivable by such Lender with respect to the Revolving Loan or the return to be earned by such Lender on the Revolving Loan, (ii) impose a cost on such Lender or any Affiliate of such Lender that is attributable to the making or maintaining of, or such Lender's Commitment to make, its portion of the Revolving Loan, or (iii) require such Lender or any Affiliate of such Lender to make any payment on, or calculated by reference to, the gross amount of any amount received by such Lender under any Credit Document (other than Taxes or income or franchise taxes), and (b) such reduction, increased cost or payment shall not be fully compensated for by an adjustment in the Applicable Rate, then such Lender may claim compensation from the Company under Section 3.5.5. Compensation Claims. Within 15 days after the receipt by the Company of a certificate from any Lender setting forth why it is claiming compensation under this Section 3.5 and computations (in reasonable detail) of the amount thereof, the Company shall pay to such Lender such additional amounts as such Lender sets forth in such certificate as sufficient fully to compensate it on account of the foregoing provisions of this Section 3.5, together with interest on such amount from the 15th day after receipt of such certificate until payment in full thereof at the Overdue Reimbursement Rate. The determination by such Lender of the amount to be paid to it and the basis for computation thereof hereunder shall, in the absence of manifest error, be conclusive. In determining such amount, such Lender may use any reasonable averaging and attribution methods. The Company shall be entitled to replace any such Lender in accordance with Section 11.3. Mitigation. Each Lender shall take such commercially reasonable steps as it may determine are not disadvantageous to it, including changing lending offices to the extent feasible, in order to reduce amounts otherwise payable by the Company to such Lender pursuant to Sections 3.3.4 and 3.5 or to make Eurodollar Pricing Options available under Sections 3.3.1 and 3.3.5. In addition, the Company shall not be responsible for costs (a) under Section 3.5 arising more than 90 days prior to receipt by the Company of the certificate from the affected Lender pursuant to such Section 3.5 or (b) under Section 3.3.4 arising from the termination of Eurodollar Pricing Options more than 90 days prior to the demand by the New York Managing Agent for payment under Section 3.3.4. Computations of Interest and Fees. For purposes of this Agreement, interest and Facility Fees (and any other amount expressed as interest or such fees) shall be computed on the basis of a 360-day year for actual days elapsed, except for interest on Base Rate Advances for so long as the Base Rate is applicable, which shall be computed on the basis of a 365- or 366-day year for actual days elapsed. If any payment required by this Agreement becomes due on any day that is not a Banking Day, such payment shall, except as otherwise provided in the Eurodollar Interest Period, be made on the next succeeding Banking Day. If the due date for any payment of principal is extended as a result of the immediately preceding sentence, interest shall be payable for the time during which payment is extended at the Applicable Rate. Payment. 3. Payment Payment at Maturity. Except as set forth in Section 2.3.5, on each Competitive Auction Facility Loan Maturity Date, the Company will pay to the New York Managing Agent for credit to the applicable Competitive Auction Facility Loan Account the outstanding principal amount of its Competitive Auction Facility Loan maturing on such date, together with all accrued and unpaid interest with respect thereto. On the Three-Year Final Maturity Date or any accelerated maturity of the Three-Year Revolving Loan, the Company will pay to the New York Managing Agent for the account of the Lenders an amount equal to the Three-Year Revolving Loan then due, together with all accrued and unpaid interest and fees with respect thereto. On the 364-Day Final Maturity Date or any accelerated maturity of the 364-Day Revolving Loan, the Company will pay to the New York Managing Agent for the account of the Lenders an amount equal to the 364-Day Revolving Loan then due, together with all accrued and unpaid interest and fees with respect thereto. Contingent Required Prepayments for Excess Credit Exposure. If at any time the Three-Year Revolving Loan exceeds the limits set forth in Section 2.1 or the 364-Day Revolving Loan exceeds the limits set forth in Section 2.2, the Company shall within one Banking Day pay the amount of such excess to the New York Managing Agent for the account of the Lenders. Voluntary Prepayments. In addition to the prepayments required by Section 4.2, the Company may from time to time prepay all or any portion of the Three-Year Revolving Loan or the 364-Day Revolving Loan (in an amount of at least $2,500,000 and otherwise any integral multiple of $1,000,000 that is in excess of $2,000,000, or such lesser amount as is then outstanding), without premium or penalty of any type (except as provided in Section 3.3.4 with respect to the early termination of Eurodollar Pricing Options). The Company shall give each Managing Agent in the case of prepayments of portions of the Revolving Loan bearing interest at the Base Rate, notice on or prior to 11:00 a.m., New York City time, on the Banking Day of such prepayment, and in the case of prepayments of portions of the Revolving Loan bearing interest at a rate determined by reference to the Eurodollar Rate, at least three Banking Days prior notice of its intention to prepay, specifying the date of prepayment, the total amount of the Three-Year Revolving Loan or the 364-Day Revolving Loan to be prepaid on such date and the amount of interest to be paid with such prepayment, which interest shall be all accrued interest on the amount prepaid up to the date of prepayment and shall include any payments required by Section 3.3.4. Competitive Auction Facility Loans may not be prepaid under this Section 4.3. Reborrowing; Application of Payments, etc.tion of Payments, etc. Reborrowing. The amounts of the Three-Year Revolving Loan prepaid pursuant to Section 4.2 or 4.3 may be reborrowed from time to time prior to the Three-Year Final Maturity Date in accordance with Section 2.1, subject to the limits and conditions set forth therein. The amounts of the 364-Day Revolving Loan prepaid pursuant to Section 4.2 or 4.3 may be reborrowed from time to time prior to the 364-Day Final Maturity Date in accordance with Section 2.2, subject to the limits and conditions set forth therein. Order of Application. Any prepayment of the Three-Year Revolving Loan pursuant to Section 4.2 or 4.3 shall be applied first to the portion of the Three-Year Revolving Loan not then subject to Eurodollar Pricing Options, then the balance of any such prepayment shall be applied to the portion of the Three-Year Revolving Loan then subject to Eurodollar Pricing Options, in the chronological order of the respective maturities thereof (or as the Company may otherwise specify in writing), together with any payments required by Section 3.3.4. Any prepayment of the 364-Day Revolving Loan pursuant to Section 4.2 or 4.3 shall be applied first to the portion of the 364-Day Revolving Loan not then subject to Eurodollar Pricing Options, then the balance of any such prepayment shall be applied to the portion of the 364-Day Revolving Loan then subject to Eurodollar Pricing Options, in the chronological order of the respective maturities thereof (or as the Company may otherwise specify in writing), together with any payments required by Section 3.3.4. Payments for Lenders. All payments of principal under the Revolving Loan shall be made to the New York Managing Agent for the account of the Lenders in accordance with the Lenders' respective Percentage Interests. Conditions to Extending Credit. to Extending Credit Conditions on Initial Closing Date. The obligations of the Lenders to make any extension of credit pursuant to Section 2 shall be subject to the satisfaction, on or before the Initial Closing Date, of the conditions set forth in this Section 5.1 as well as the further conditions in Section 5.2. If the conditions set forth in this Section 5.1 are not met on or prior to the Initial Closing Date, the Lenders shall have no obligation to make any extensions of credit hereunder. Officer's Certificate. The representations and warranties contained in Section 7 shall be true and correct on and as of the Initial Closing Date with the same force and effect as though made on and as of such date (except as to any representation or warranty which is limited to a specific earlier date); no Default shall exist on the Initial Closing Date; and the Company shall have furnished to the Managing Agents a certificate to these effects in substantially the form of Exhibit 5.1.1, signed by a Financial Officer. Revolving Notes. The Company shall have duly executed and delivered to the New York Managing Agent a Three-Year Revolving Note and a 364-Day Revolving Note for each Lender. Payment of Fees. The Company shall have paid to the New York Managing Agent all fees required to be paid on or prior to the Initial Closing Date by the separate agreement between each of the Managing Agents and the Company dated September 11, 1996 (the "Fee Letter"). Legal Opinions. On the Initial Closing Date, the Lenders shall have received from the following counsel their respective opinions with respect to the transactions contemplated by the Credit Documents, which opinions shall be in form and substance satisfactory to the Required Lenders: ( ) LeBoeuf, Lamb, Greene & MacRae, L.L.P., special counsel for the Company, as to matters the Lenders may reasonably request. (a) Corporate counsel of the Company, as to matters the Lenders may reasonably request. (b) Ropes & Gray, special counsel for the Managing Agents, as to matters the Managing Agents may reasonably request. The Company consents to the furnishing by its counsel of the foregoing opinions. Termination of Prior Credit Agreements. The Company shall have paid in full all principal, interest and other accrued and outstanding amounts under the Prior Credit Agreements, all commitments to extend further credit under the Prior Credit Agreements shall have been terminated, all Liens, if any, securing amounts owing under the Prior Credit Agreements shall have been released and the Prior Credit Agreements shall have become terminated and of no further force or effect (except for indemnity and similar provisions, if any, that by their terms survive the termination of the Prior Credit Agreements). Maine Public Utilities Commission. The Boston Managing Agent shall have received certified or attested copies of the Orders of the State of Maine Public Utilities Commission and any other regulatory authorities having jurisdiction, authorizing all borrowings hereunder, which shall be in full force and effect and not subject to appeal or rehearing. Proper Proceedings. This Agreement, each other Credit Document and the transactions contemplated hereby and thereby shall have been authorized by all necessary corporate or other proceedings. All necessary consents, approvals and authorizations of any governmental or administrative agency or any other Person of any of the transactions contemplated hereby or by any other Credit Document shall have been obtained and shall be in full force and effect; provided, however, that a waiver of jurisdiction by the Connecticut Department of Public Utility Control need not have been obtained on or prior to the Initial Closing Date. General. All legal and corporate proceedings in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Managing Agents and the Managing Agents shall have received copies of all documents, including certified copies of the Charter (Capital Stock Provisions) and By-Laws of the Company, records of corporate proceedings (including certified copies of the resolutions of the Board of Directors, or the Executive and Finance Committee thereof, authorizing the execution, delivery and performance of this Agreement and the Notes), certificates as to signatures and incumbency of officers and opinions of counsel, which either Managing Agent may have reasonably requested in connection therewith, such documents where appropriate to be certified by proper corporate or governmental authorities. Conditions to Each Extension of Credit. In addition to the conditions set forth in Section 5.1 being met on the Initial Closing Date, the obligations of the Lenders to make any extension of credit pursuant to Section 2 shall be subject to the satisfaction, on or before the Closing Date for such extension of credit, of the following conditions: Bring-Down of Representations and Warranties. The representations and warranties contained in Section 7 (excluding Sections 7.4(a) and 7.7) shall be true and correct on and as of such Closing Date with the same force and effect as though made on and as of such date (except as to any representation or warranty which is limited to a specific earlier date); no Default shall exist on such Closing Date prior to or immediately after giving effect to the requested extension of credit; and the Company's making of a borrowing request shall be deemed to constitute a representation on which the Managing Agents and the Lenders may rely that no Default exists on such Closing Date and that such representations and warranties are true and correct on and as of such Closing Date. Material Adverse Change. On any Closing Date on which the aggregate principal amount outstanding under either Revolving Loan is to be increased, no Material Adverse Change shall have occurred since the Initial Closing Date and the representations and warranties contained in Section 7.7 shall be true and correct on and as of such Closing Date; and the Company's making of a borrowing request shall be deemed to constitute a representation on which the Managing Agents and the Lenders may rely that no Material Adverse Change shall have occurred since the Initial Closing Date and that the representations and warranties contained in Section 7.7 are true and correct on as of such Closing Date. Legality, etc. The making of the requested extension of credit shall not (a) subject any Lender to any penalty or special tax (other than a Tax for which the Company is required to reimburse the Lenders under Section 3.5), (b) be prohibited by any Legal Requirement or (c) violate any credit restraint program of the executive branch of the government of the United States of America, the Board of Governors of the Federal Reserve System or any other governmental or administrative agency so long as any Lender reasonably believes that compliance therewith is in the best interests of such Lender. Connecticut Waiver. On or prior to such Closing Date, the Company shall have received a waiver of jurisdiction from the Connecticut Department of Public Utility Control waiving jurisdiction over the Company's authority to borrow hereunder; and corporate counsel of the Company shall have authorized the deletion from the opinion rendered pursuant to Section 5.1.4(b) hereof of any qualification relating to the failure to have obtained such waiver on or prior to the Initial Closing Date. General Covenants. The Company covenants that, until all of the Credit Obligations (other than indemnities, expense and similar obligations that survive the termination of this Agreement) shall have been paid in full and until the Lenders' commitments to extend credit under this Agreement and any other Credit Document shall have been irrevocably terminated, the Company and its Subsidiaries will comply with the following provisions: Taxes and Other Charges; Accounts Payable.ges; Accounts Payable Taxes and Other Charges. Each of the Company and its Significant Subsidiaries shall duly pay and discharge, or cause to be paid and discharged, before the same become in arrears, all taxes, assessments and other governmental charges imposed upon such Person and its properties, sales or activities, or upon the income or profits therefrom, as well as all claims for labor, materials or supplies which if unpaid might by law become a Lien upon any of its property; provided, however, that any such tax, assessment, charge or claim need not be paid if (a) the validity or amount thereof shall at the time be contested in good faith by appropriate proceedings or actions and if such Person shall, if required by GAAP, have set aside on its books adequate reserves with respect thereto, it being understood that each of the Company and its Subsidiaries shall pay or bond, or cause to be paid or bonded, all such taxes, assessments, charges or other governmental claims promptly upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor (except to the extent such proceedings have been dismissed or stayed) or (b) failure to comply has not resulted, and is not likely to result, in any Material Adverse Change. Accounts Payable. Each of the Company and its Significant Subsidiaries shall promptly pay when due, or in conformity with customary trade terms, all accounts payable incident to the operations of such Person not referred to in Section 6.1.1; provided, however, that any such accounts payable need not be paid if (a) the validity or amount thereof shall at the time be contested in good faith and if such Person shall, if required by GAAP, have set aside on its books adequate reserves with respect thereto or (b) failure to comply has not resulted, and is not likely to result, in any Material Adverse Change. Conduct of Business, etc.duct of Business, etc. Types of Business. The Company shall engage only in the businesses of (a) electric power generation, transmission and/or distribution and (b) other businesses related to those set forth in the foregoing clause (a) that are immaterial in relation to the foregoing businesses. The Subsidiaries of the Company shall engage only in the businesses described in the preceding sentence, other energy-related activities and other businesses that are immaterial in relation to the foregoing businesses. Maintenance of Properties. Each of the Company and its Significant Subsidiaries: ( ) shall keep its properties in such repair, working order and condition, and shall from time to time make such repairs, replacements, additions and improvements thereto, as are necessary for the efficient operation of its businesses and shall comply at all times in all material respects with all material franchises, licenses and leases to which it is party so as to prevent any loss or forfeiture thereof or thereunder, except where (i) compliance is at the time being contested in good faith by appropriate proceedings or actions or (ii) failure to comply has not resulted, and is not likely to result, in the aggregate in any Material Adverse Change; and (a) shall do all things necessary to preserve, renew and keep in full force and effect its legal existence; provided, however, that this Section 6.2.2(b) shall not prevent the merger, consolidation or liquidation of Significant Subsidiaries permitted by Section 6.10. Statutory Compliance. Each of the Company and its Significant Subsidiaries shall comply in all material respects with all valid and applicable statutes, laws, ordinances, zoning and building codes and other rules and regulations of the United States of America, of the states and territories thereof and their counties, municipalities and other subdivisions and of any foreign country or other jurisdictions applicable to such Person, except where (a) compliance therewith shall at the time be contested in good faith by appropriate proceedings or actions or (b) failure so to comply has not resulted, and is not likely to result, in the aggregate in any Material Adverse Change. Amendments and Supplements. The General and Refunding Mortgage Indenture shall not be amended so as to increase the aggregate principal amount of bonds which may be outstanding thereunder at any one time or so as to include financial covenants or events of default that are more restrictive than those included in the Credit Documents. In any transaction providing for Indebtedness in excess of $1,000,000, the Company shall not enter into or become bound by any credit agreement or other document or instrument which (i) contains financial covenants or events of default that are more restrictive or onerous on the Company than those covenants or events of default contained in this Agreement or (ii) provides for, or permits the exercise of, remedies upon the occurrence of an event of default thereunder which are not provided for in, or permitted to be exercised under or in respect of, this Agreement (each such covenant, event of default and provision described in the preceding clauses (i) and (ii) being herein called a "More Favorable Provision"), unless, prior to or simultaneously with the Company entering into or becoming bound by such credit agreement or other document or instrument, (x) the Company executes and delivers to the Lenders an amendment to this Agreement and such other documents and instruments as the Managing Agents shall reasonably request, in each case reasonably satisfactory in form and substance to the Managing Agents, which modify the provisions of this Agreement and the terms of the transactions contemplated hereby and by the Credit Documents so as to give the Lenders the benefit of each More Favorable Provision, and (y) the Company furnishes to the Lenders a copy of such credit agreement, or other document or instrument. Insurance. Each of the Company and its Significant Subsidiaries shall maintain with financially sound and reputable insurance companies insurance on its property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to each Lender, upon written request, full information as to the insurance carried. Financial Statements and Reports. Each of the Company and its Subsidiaries shall maintain a system of accounting in which correct entries shall be made of all transactions in relation to their business and affairs in accordance with generally accepted accounting practice. The fiscal year of the Company and its Subsidiaries shall end on December 31 in each year and the fiscal quarters of the Company and its Subsidiaries shall end on March 31, June 30, September 30 and December 31 in each year. Annual Reports. The Company shall furnish to the Lenders as soon as available, and in any event within 100 days after the end of each fiscal year, the Consolidated balance sheets of the Company and its Subsidiaries as at the end of such fiscal year, the Consolidated statements of income and Consolidated statements of changes in shareholders' equity and of cash flows of the Company and its Subsidiaries for such fiscal year (all in reasonable detail) and together, in the case of Consolidated financial statements, with comparative figures for the immediately preceding fiscal year, all accompanied by: ( ) Reports of Coopers & Lybrand LLP (or, if they cease to be auditors of the Company and its Subsidiaries, other independent certified public accountants of recognized national standing selected by the Company), containing no material qualification, to the effect that they have audited the foregoing Consolidated financial statements in accordance with generally accepted auditing standards and that such Consolidated financial statements present fairly, in all material respects, the financial position of the Company and its Subsidiaries covered thereby at the dates thereof and the results of their operations for the periods covered thereby in conformity with GAAP. (a) The statement of such accountants that they have caused this Agreement to be reviewed and that in the course of their audit of the Company and its Subsidiaries no facts have come to their attention that cause them to believe that any Default exists and in particular that they have no knowledge of any Default under Sections 6.5 through 6.13 or, if such is not the case, specifying such Default and the nature thereof. This statement is furnished by such accountants with the understanding that the examination of such accountants cannot be relied upon to give such accountants knowledge of any such Default except as it relates to accounting or auditing matters within the scope of their audit. (b) A certificate of the Company signed by a Financial Officer to the effect that such officer has caused this Agreement to be reviewed and has no knowledge of any Default, or if such officer has such knowledge, specifying such Default and the nature thereof, and what action the Company has taken, is taking or proposes to take with respect thereto and including computations showing compliance by the Company for and as of the end of such year with the requirements of Section 6.5. (c) Supplements to Exhibit 7.3 showing any material changes in the information set forth in such exhibit not previously furnished to the Lenders in writing, as well as any material changes in the Charter, Bylaws or incumbency of officers of the Company from those previously certified to the Managing Agents. Quarterly Reports. The Company shall furnish to the Lenders as soon as available and, in any event, within 55 days after the end of each of the first three fiscal quarters of the Company, the internally prepared Consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal quarter, the Consolidated statements of income and Consolidated statements of cash flows of the Company and its Subsidiaries for such fiscal quarter and for the portion of the fiscal year then ended (all in reasonable detail) and together, in the case of Consolidated statements, with comparative figures for the same period in the preceding fiscal year, all accompanied by: ( ) A certificate of the Company signed by a Financial Officer to the effect that such financial statements have been prepared in accordance with GAAP and present fairly, in all material respects, the financial position of the Company and its Subsidiaries covered thereby at the dates thereof and the results of their operations for the periods covered thereby, subject only to normal year-end audit adjustments and the addition of footnotes. (a) A certificate of the Company signed by a Financial Officer to the effect that such officer has caused this Agreement to be reviewed and has no knowledge of any Default, or if such officer has such knowledge, specifying such Default and the nature thereof and what action the Company has taken, is taking or proposes to take with respect thereto and including computations showing compliance by the Company for and as of the end of such quarter with the requirements of Section 6.5. (b) Supplements to Exhibit 7.3 showing any material changes in the information set forth in such exhibit not previously furnished to the Lenders in writing, as well as any material changes in the Charter, Bylaws or incumbency of officers of the Company from those previously certified to the Managing Agents. Other Reports. The Company shall promptly furnish to the Lenders: ( ) As soon as prepared and released, the Company's "Financial Perspective". (a) All reports furnished generally to the shareholders of the Company. (b) Such effective registration statements, definitive proxy statements and regular or periodic reports, including Forms S-1, S-2, S-3, S-4, 10-K, 10-Q and 8-K, as may be filed by the Company or any of its Subsidiaries with the Securities and Exchange Commission (other than filings and reports with respect to dividend reinvestment, employee benefits or other similar plans, and filings and reports pertaining to sales of or other transactions in securities of the Company or any Subsidiary by Persons other than the Company or such Subsidiary). (c) Any 90-day letter or 30-day letter from the federal Internal Revenue Service (or the equivalent notice received from state or other taxing authorities) asserting material tax deficiencies against the Company or any of its Subsidiaries. Notice of Litigation, Defaults, etc. The Company shall promptly furnish to the Lenders notice (which may be in the form of information in a document provided by the Company under Section 6.4.3 or other provisions hereof) of any litigation or any administrative or arbitration proceeding (a) which creates a material risk of resulting, after giving effect to any applicable insurance, in the payment by the Company and its Subsidiaries of more than $10,000,000 or (b) which results, or is likely to result, in a Material Adverse Change. Promptly upon acquiring knowledge thereof, the Company shall notify the Lenders of the existence of any Default, specifying the nature thereof and what action the Company or any Subsidiary has taken, is taking or proposes to take with respect thereto. Promptly upon acquiring knowledge thereof, the Company shall notify the Lenders of the existence of any Material Adverse Change, specifying the nature thereof and what action the Company or any Subsidiary has taken, is taking or proposes to take with respect thereto. ERISA Reports. The Company shall furnish to the Managing Agents within 30 days of the Company's preparation of, or receipt of, as applicable, the following items with respect to any Plan: ( ) any request for a waiver of the minimum funding standards or an extension of an amortization period, in each case under section 412 of the Code or section 302 of ERISA, (a) any notice to the PBGC of a reportable event (as defined in section 4043 of ERISA), unless the notice requirement with respect thereto has been waived by regulation, (b) any notice received by any ERISA Group Person that the PBGC has instituted or intends to institute proceedings to terminate any Plan pursuant to section 4042 of ERISA, or that any Multiemployer Plan is insolvent or in reorganization and, in either or both cases, in connection therewith, an ERISA Group Person has incurred or could reasonably be expected to incur material liability, (c) notice of the intent to terminate any Plan other than pursuant to section 4041(b) of ERISA, and (d) notice of the intention of any ERISA Group Person to withdraw, in whole or in part, from any Multiemployer Plan and, in connection therewith, that such ERISA Group Person could reasonably be expected to incur material liability. Other Information; Audit. From time to time at reasonable intervals upon request of any authorized officer of any Lender, each of the Company and its Subsidiaries shall furnish to the Lenders such other information regarding the business, assets, financial condition, income or prospects of the Company and its Subsidiaries as such officer may reasonably request, including copies of requested tax returns, licenses, agreements, leases and instruments to which any of the Company or its Subsidiaries is party. The Lenders' authorized officers and representatives shall have the right during normal business hours upon reasonable notice and at reasonable intervals to examine the books and records of the Company and its Subsidiaries, to make copies and notes therefrom for the purpose of ascertaining compliance with or obtaining enforcement of this Agreement or any other Credit Document. Certain Financial Tests.rtain Financial Tests Consolidated Net Worth. Consolidated Net Worth shall at all times equal or exceed the sum of (a) $450,000,000 plus (b) the amount by which (i) 100% of the proceeds to the Company (net of issuance costs) after the Initial Closing Date resulting from any Equity Transaction of the Company and its Subsidiaries as determined in accordance with GAAP by Coopers & Lybrand LLP (or, if they cease to be auditors of the Company and its Subsidiaries, other independent certified public accountants of recognized national standing selected by the Company) exceeds (ii) $5,000,000 plus (c) the amount by which (i) 100% of the Consolidated after-tax gain on sales of assets by the Company and its Subsidiaries after the Initial Closing Date as determined quarterly in accordance with GAAP by Coopers & Lybrand LLP (or, if they cease to be auditors of the Company and its Subsidiaries, other independent certified public accountants of recognized national standing selected by the Company) exceeds (iii) $5,000,000. Common Stock Investment to Total Capitalization. The "Common Stock Investment" of the Company and its Subsidiaries determined on a Consolidated basis in accordance with GAAP, and as shown on the Company's Consolidated balance sheet, shall at all times equal or exceed 35% of "Total Capitalization" of the Company and its Subsidiaries determined on a Consolidated basis in accordance with GAAP, as shown on the same balance sheet. Consolidated Operating Income to Consolidated Interest Expense. Consolidated Operating Income for each period of four consecutive fiscal quarters of the Company shall equal or exceed 200% of Consolidated Interest Expense for such period. Indebtedness. Neither the Company nor any of its Significant Subsidiaries shall create, incur, assume or otherwise become or remain liable with respect to any Indebtedness (or become contractually committed do so), except the following: .0. Indebtedness in respect of the Credit Obligations. .1. Guarantees permitted by Section 6.7. .2. Indebtedness secured by purchase money mortgages permitted by Section 6.8.8. .3. Indebtedness in respect of Capitalized Lease Obligations or secured by purchase money security interests permitted by Section 6.8.9; provided, however, that the aggregate principal amount of all Indebtedness permitted by this Section 6.6.4 at any one time outstanding shall not exceed $40,000,000. .4. Indebtedness of the Company consisting of debt subordinated to the prior payment of the Credit Obligations on terms approved by the holders of 66 _% of the principal amount of the Revolving Loan at the time outstanding. .5. Indebtedness outstanding on the date hereof and described in Exhibit 7.3 and (except with respect to the Prior Credit Agreements, which shall be terminated on the Initial Closing Date) all renewals and extensions thereof in an aggregate principal amount not in excess of the aggregate principal amount thereof outstanding immediately prior to such renewal or extension. .6. Indebtedness of the Company evidenced by General and Refunding Mortgage Bonds of the Company issued under the General and Refunding Mortgage Indenture, as it may be amended or supplemented in a manner permitted under Section 6.2.4. .7. Indebtedness of the Company in respect of its Unsecured Medium Term Notes, provided that the aggregate principal amount of all Indebtedness permitted by this Section 6.6.8 at any one time outstanding shall not exceed $150,000,000. .8. Indebtedness in respect of unsecured bank debt other than the Credit Obligations, provided that the aggregate principal amount of all Indebtedness permitted by this Section 6.6.9 at any one time outstanding shall not exceed $10,000,000; and further provided that the sum of the aggregate principal amount of all Indebtedness permitted by this Section 6.6.9 and by Section 6.6.10 and the principal amount of the Credit Obligations at any one time outstanding shall not exceed $130,000,000. .9. Indebtedness of the Company in respect of commercial paper, provided that the sum of the aggregate principal amount of all Indebtedness permitted by this Section 6.6.10 and by Section 6.6.9 and the principal amount of the Credit Obligations at any one time outstanding shall not exceed $130,000,000. .10. Unsecured long-term Indebtedness issued for the sole purpose of refunding permitted Indebtedness, provided that such long-term Indebtedness shall be supported by financial covenants no more restrictive than those contained in the General and Refunding Mortgage Indenture and shall not begin to amortize prior to 91 days following the latest Final Maturity Date in effect at the time of the issuance of such Indebtedness. Guarantees. Neither the Company nor any of its Significant Subsidiaries shall become or remain liable with respect to any Guarantee, including reimbursement obligations, whether contingent or matured, under letters of credit or other financial guarantees by third parties (or become contractually committed do to so), except the following: .0. Guarantees of the Credit Obligations. .1. Guarantees of Indebtedness permitted by Section 6.6. .2. Any Guarantee that is given, entered into or created in connection with or as an inducement to (i) the purchase or sale of capacity or energy (including support arrangements with respect to generating plants and transmission and distribution facilities, and contracts for the purchase of capacity and/or energy) or of fuel, (ii) the installation of energy-saving devices and taking of other energy-saving measures, and (iii) other operational matters in the ordinary course of business; provided, however, that no individual Guarantee permitted under this clause (iii) may present a liability or exposure to the Company or a Significant Subsidiary in an amount greater than $10,000,000; and provided, further, that this Section 6.7.3 shall not permit the giving, entering into or creation, after the date hereof, of any Guarantee (other than as required under contracts existing on the date hereof) providing support for the acquisition by the Company or a Significant Subsidiary of generating capacity or a generating plant (other than in connection with buyouts by the Company of non-utility generating operations, in connection with power purchases required by law or in connection with exchanges of capacity or plant entitlements within the ordinary course of ensuring an adequate power supply to mitigate the Company's risk, provided that no such exchange shall exceed three years in duration) which individually presents a liability or exposure to the Company or a Significant Subsidiary in an amount greater than $10,000,000. Liens. Neither the Company nor any of its Significant Subsidiaries shall create, incur or enter into, or suffer to be created or incurred or to exist, any Lien (or become contractually committed to do so), except the following: .0. Liens to secure taxes, assessments and other governmental charges, to the extent that payment thereof shall not at the time be required by Section 6.1. .1. Liens made (a) in connection with, or to secure payment of, workers' compensation, unemployment insurance, old age pensions or other social security, (b) in connection with casualty insurance maintained in accordance with Section 6.3, (c) to secure the performance of bids, tenders, contracts (other than contracts relating to Financing Debt) or leases, (d) to secure public or statutory obligations or surety or appeal bonds, (e) to secure indemnity, performance or other similar bonds in the ordinary course of business or (f) in connection with contested amounts to the extent that payment thereof shall not at that time be required by Section 6.1. .2. Liens in respect of judgments or awards, to the extent that such judgments or awards (a) have been in force for less than the applicable appeal period or (b) in respect of which the Company or any Subsidiary shall at the time in good faith be prosecuting an appeal or proceedings for review and, in the case of each of clauses (a) and (b), the Company or each Subsidiary shall have taken appropriate reserves therefor in accordance with GAAP and execution of such judgment or award shall not be levied. .3. Liens of carriers, warehouses, mechanics and similar Liens, which, in the case of any Lien material to the Company or a Significant Subsidiary, (a) are in existence fewer than 90 days from the date of creation thereof or (b) if in existence for 90 days or longer either (i) are not delinquent or (ii) are being contested in good faith by the Company or any Subsidiary in appropriate proceedings or actions (so long as, in the case of this clause (ii), the Company or such Significant Subsidiary shall, if required by GAAP, have set aside on its books adequate reserves with respect thereto); and deposits to obtain the release of such Liens. .4. Encumbrances consisting of or in the nature of (a) zoning restrictions, (b) easements, (c) reservations or restrictions on the use of tangible property, (d) landlords' and lessors' Liens on rented premises, (e) leases (other than Capitalized Leases) and restrictions on transfers or assignment of leases and (f) defects or irregularities (including any terms, conditions, agreements, covenants, exceptions and reservations expressed or provided in deeds or other agreements) in title thereto, which in each case do not materially impair the conduct of the business of the Company or any Significant Subsidiary. .5. Restrictions under federal and state securities laws on the transfer of securities. .6. Restrictions under Foreign Trade Regulations on the transfer or licensing of certain assets of the Company and its Significant Subsidiaries. .7. Liens constituting (a) purchase money Liens on electric property acquired in the ordinary course of business after the Initial Closing Date, and (b) the renewal, extension or refunding of any purchase money Lien referred to in the foregoing clause (a) in a principal amount not to exceed the principal amount thereof remaining unpaid immediately prior to such renewal, extension or refunding; provided, however, that each such purchase money Lien shall attach solely to the particular item of property so acquired (and any improvements thereon and, in case such item is affixed to land, such Lien may attach to such land and other land necessary for access to such property), and the principal amount of Indebtedness secured thereby shall not exceed the cost (including all such Indebtedness secured thereby, whether or not assumed) of such item of property to the Company or a Significant Subsidiary. .8. Liens constituting (a) purchase money Liens (including mortgages, conditional sales, Capitalized Leases and any other title retention or deferred purchase devices) in real property, interests in leases or tangible personal property (other than inventory) existing or created on or within 60 days after the date on which such property is acquired, and (b) the renewal, extension or refunding of any security interest referred to in the foregoing clause (a) in a principal amount not to exceed the principal amount thereof remaining unpaid immediately prior to such renewal, extension or refunding; provided, however, that (i) each such security interest shall attach solely to the particular item of property so acquired (and any improvements thereon and, in case such item is affixed to land, such Lien may attach to such land and other land necessary for access to such property), and the principal amount of Indebtedness (including Indebtedness in respect of Capitalized Lease Obligations) secured thereby shall not exceed the cost (including all such Indebtedness secured thereby, whether or not assumed) of such item of property to the Company or a Significant Subsidiary; and (ii) the aggregate principal amount of all Indebtedness secured by Liens permitted by this Section 6.8.9 shall not exceed the amount permitted by Section 6.6.4. .9. Liens securing obligations neither assumed by the Company or any Significant Subsidiary nor on account of which any of them customarily pays interest directly or indirectly, existing, either at the date hereof, or, as to property hereafter acquired, constructed or improved, at the time of acquisition, construction or improvement by the Company or a Significant Subsidiary. .10. Any right which any municipal or governmental body or agency may have by virtue of any franchise, license, contract or statute to purchase, or designate a purchaser of or order the sale of, any property of the Company or any Significant Subsidiary upon payment of reasonable compensation therefor, or to terminate any franchise, license or other rights or to regulate the property and business of the Company or any Significant Subsidiary. .11. The Lien of judgments covered by insurance, or upon appeal and covered, if necessary, by the filing of an appeal bond, or if not so covered, not exceeding at any one time $10,000,000 in aggregate amount. .12. Any Lien, moneys sufficient for the discharge of which have been deposited in trust with the trustee or mortgagee under the instrument evidencing such Lien, with irrevocable authority to such trustee or mortgagee to apply such moneys to the discharge of such Lien to the extent required for such purpose. .13. Rights reserved to or vested in others to take or receive any part of the gas, by-products of gas or steam or electricity generated or produced by or from any properties of the Company or any Significant Subsidiary or with respect to any other rights concerning supply, transportation or storage of a commodity which is used in the ordinary course of business. .14. The Lien of the General and Refunding Mortgage Indenture, Liens in effect on the date hereof imposed by the Finance Authority of Maine, and other Liens in effect on the date hereof, all as described on Exhibit 7.3. Certain Investments. Neither the Company nor any of its Subsidiaries shall (a) at any time, permit the aggregate book value of the assets of the Subsidiaries of the Company to exceed 10% of the aggregate book value of the Consolidated assets determined in accordance with GAAP or (b) acquire any ownership interest in any nuclear energy generating plants other than Investments in such plants outstanding, or required under contracts existing, on the date hereof. Asset Dispositions and Mergers. The Company shall not merge into or enter into a consolidation with another Person, or sell, transfer or otherwise dispose of (or pledge or assign) any accounts receivable (except for collection or enforcement in the ordinary course of business). The Company shall not sell, transfer, sell and lease back or otherwise dispose of other assets for an aggregate cumulative consideration in excess of $200,000,000 (or become contractually committed to do so), except the following: .0. The Company may sell, transfer or otherwise dispose of (a) inventory and Cash Equivalents in the ordinary course of business and (b) tangible assets no longer used or useful which are to be replaced in the ordinary course of business to the extent necessary by other tangible assets of equal or greater value. .1. Licensing of products and intangible assets for fair value in the ordinary course of business. .2. The Company may grant easements and other similar rights to use its real estate and properties. Negative Pledge Clauses. Neither the Company nor any of its Significant Subsidiaries shall enter into any agreement, instrument, deed or lease which prohibits or limits the ability of the Company or any of its Significant Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of their respective properties, assets or revenues, whether now owned or hereafter acquired, or which requires the grant of any collateral for such obligation if collateral is granted for another obligation, except the following: ( ) This Agreement, the other Credit Documents, the General and Refunding Mortgage Indenture and the FAME Loan Agreement. (a) Covenants in documents creating Liens permitted by Sections 6.8.8 and 6.8.9 prohibiting further Liens on the assets encumbered thereby. (b) Immaterial agreements, instruments, deeds and leases. ERISA. Except to the extent that a failure to do so does not result, and is not likely to result, in the Company or an ERISA Group Person incurring material liability, the Company and its Subsidiaries shall, and the Company shall use its best efforts to cause all ERISA Group Persons to, (a) comply, in all material respects, with the provisions of ERISA and the Code applicable to each Plan, and (b) meet all minimum funding requirements applicable to them with respect to any Plan pursuant to section 302 of ERISA or section 412 of the Code. Environmental Laws. Environmental Laws Compliance with Law and Permits. Each of the Company and its Significant Subsidiaries shall use and operate all of its facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws, except where (a) compliance shall at the time be contested in good faith by appropriate proceedings or actions or (b) failure so to comply has not resulted, or is not likely to result, in any Material Adverse Change. Notice of Claims, etc. Each of the Company and its Significant Subsidiaries shall as promptly as practicable notify each Managing Agent, and provide copies upon receipt, of all written claims, complaints, notices or inquiries from governmental authorities relating to the condition of its material facilities and properties or compliance with Environmental Laws with respect to such material facilities and properties. Representations and Warranties. In order to induce the Lenders to extend credit to the Company hereunder, the Company represents and warrants as follows: Organization and Business.nization and Business The Company. The Company is a duly organized and validly existing corporation, in good standing under the laws of Maine, with all power and authority, corporate or otherwise, necessary to (a) enter into and perform this Agreement and each other Credit Document to which it is party and (b) own its properties and carry on the business in all material respects as now conducted by it. Certified copies of the Charter (Capital Stock Provisions) and By-laws of the Company have been previously delivered to the Managing Agents and are correct and complete. Subsidiaries. Each Significant Subsidiary of the Company is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized, with all power and authority, corporate or otherwise, necessary to own its properties and carry on the business in all material respects as now conducted by it. Certified copies of the Charter and By-laws of each Significant Subsidiary of the Company have been previously delivered to the Managing Agents and are correct and complete. Qualification. Each of the Company and its Significant Subsidiaries is duly and legally qualified to do business as a foreign corporation or other entity and is in good standing in each state or jurisdiction in which such qualification is required and is duly authorized, qualified and licensed under all laws, regulations, ordinances or orders of public authorities, or otherwise, to carry on its business in the places and in the manner in which it is conducted, except for failures to be so qualified, in good standing, authorized or licensed which would not in the aggregate result, or be likely to result, in any Material Adverse Change. Capitalization. No options, warrants, conversion rights, preemptive rights or other statutory or contractual rights to purchase shares of common stock of any Significant Subsidiary now exist, nor has any Subsidiary authorized any such right, nor is any Significant Subsidiary obligated in any other manner to issue shares of its common stock. Financial Statements and Other Information; Material Agreements.; Material Agreements Financial Statements and Other Information. The Company has previously furnished to the Lenders copies of the following: ( ) The audited Consolidated balance sheets of the Company and its Subsidiaries as at December 31 in each of 1995, 1994 and 1993 and the audited Consolidated statements of income and the audited Consolidated statements of changes in shareholders' equity and of cash flows of the Company and its Subsidiaries for the fiscal years of the Company then ended. (a) The unaudited Consolidated balance sheet of the Company and its Subsidiaries as at June 30, 1996 and the unaudited Consolidated statements of income and of cash flows of the Company and its Subsidiaries for the portion of the fiscal year then ended. (b) The Company's report on 10-K for its fiscal year ended December 31, 1995, as filed with the Securities and Exchange Commission ("1995 10-K"). (c) The five-year financial and operational projections for the Company and its Subsidiaries dated February 22, 1996. The audited Consolidated financial statements (including the notes thereto) referred to in clause (a) above were prepared in accordance with GAAP and fairly present in all material respects the financial position of the Company and its Subsidiaries on a Consolidated basis at the respective dates thereof and the results of their operations for the periods covered thereby. The unaudited Consolidated financial statements referred to in clause (b) above were prepared in accordance with GAAP and fairly present in all material respects the financial position of the Company and its Subsidiaries at the respective dates thereof and the results of their operations for the periods covered thereby, subject to normal year-end audit adjustment and the addition of footnotes in the case of interim financial statements. Neither the Company nor any of its Subsidiaries has any known contingent liability material to the Company and its Subsidiaries on a Consolidated basis which is required to be, but is not, reflected in the balance sheets referred to in clauses (a) or (b) above (or delivered pursuant to Section 6.4.1 or 6.4.2) or in the notes thereto. The 1995 10-K contained all information required to be contained therein and otherwise complied in all material respects with the Exchange Act and the rules and regulations thereunder. Such 1995 10-K did not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading in the light of the circumstances under which they were made. Material Agreements. The Company has previously furnished to the Lenders correct and complete copies, including all exhibits, schedules and amendments thereto, of the Material Agreements, each as in effect on the date hereof, listed in Exhibit 7.2.2. Agreements Relating to Financing Debt. Exhibit 7.3, as from time to time hereafter supplemented in accordance with Sections 6.4.1 and 6.4.2, sets forth (a) the amounts (as of the dates indicated in Exhibit 7.3, as so supplemented) of all Financing Debt of the Company and its Significant Subsidiaries and (b) all Liens and Guarantees with respect to such Financing Debt. The Company has furnished the Lenders with correct and complete copies of any agreements described in clauses (a) and (b) above requested by the Required Lenders. Changes in Condition. Since December 31, 1995, (a) no Material Adverse Change not disclosed in the Pre-Closing 1934 Act Reports has occurred and (b) neither the Company nor any Significant Subsidiary has entered into any material transaction outside the ordinary course of business that is not disclosed in the Pre-Closing 1934 Act Reports or otherwise disclosed to the Lenders. Title to Assets. The Company and its Significant Subsidiaries have such title to, or interest in, all assets as is necessary for the operations of their business as now conducted by them, subject to no Liens except for Liens permitted by Section 6.8. Operations in Conformity With Law, etc. The operations of the Company and its Subsidiaries as now conducted are not in violation of, nor is the Company or its Subsidiaries in default under, any Legal Requirement presently in effect, except for such violations and defaults as do not and will not, in the aggregate, result, or be likely to result, in any Material Adverse Change. The Company has received no notice of any such violation or default and has no knowledge of any basis on which the operations of the Company or its Subsidiaries, as now conducted, would be held so as to violate or to give rise to any such violation or default. Litigation. No litigation, at law or in equity, or any proceeding before any court, board or other governmental or administrative agency or any arbitrator is pending or overtly threatened which would affect the Credit Obligations, and, except as disclosed in the Pre-Closing 1934 Act Reports, no litigation, at law or in equity, or any proceeding before any court, board or other governmental or administrative agency or any arbitrator is pending, or overtly threatened which, after giving effect to any applicable insurance, has resulted or is likely to result in a material adverse effect on the financial condition, operations or properties or financial or business prospects of the Company and its Subsidiaries or which seeks to enjoin the consummation, or which questions the validity, of any of the transactions contemplated by this Agreement or any other Credit Document. Except as disclosed in the Pre-Closing 1934 Act Reports, no judgment, decree or order of any court, board or other governmental or administrative agency or any arbitrator has been issued against or binds the Company or any of its Subsidiaries which has resulted, or is likely to result, in any Material Adverse Change. Authorization and Enforceability. The Company has taken all corporate action required to execute, deliver and perform this Agreement and each other Credit Document to which it is party. No consent of stockholders of the Company is necessary in order to authorize the execution, delivery or performance of this Agreement or any other Credit Document to which the Company is party. Each of this Agreement and each other Credit Document constitutes the legal, valid and binding obligation of the Company and is enforceable against the Company in accordance with its terms. No Legal Obstacle to Agreements. Neither the execution and delivery of this Agreement or any other Credit Document, nor the making of any borrowings hereunder, nor the consummation of any transaction referred to in or contemplated by this Agreement or any other Credit Document, nor the fulfillment of the terms hereof or thereof, has constituted or resulted in or will constitute or result in (it being understood that the Prior Credit Agreements will be concurrently terminated pursuant to Section 5.1.5): ( ) any breach or termination of the provisions of any agreement, instrument, deed or lease to which the Company or any of its Subsidiaries is a party or by which it is bound, or of the Charter or By-laws of the Company or any of its Subsidiaries (including without limitation any provision of the Charter of the Company restricting the issuance of unsecured debt securities); (a) the violation of any law, statute, judgment, decree or governmental order, rule or regulation applicable to the Company or any of its Subsidiaries; (b) the creation under any agreement, instrument, deed or lease of any Lien upon any of the assets of the Company or any of its Subsidiaries; or (c) any redemption, retirement or other repurchase obligation of the Company or any of its Subsidiaries under any Charter, By-law, agreement, instrument, deed or lease. All approvals, authorizations or other actions by, or declarations to or filings with, any governmental or administrative authority or any other Person, required to be obtained or made by the Company or any of its Subsidiaries as a condition to the execution, delivery and performance of this Agreement, the Notes or any other Credit Document, the transactions contemplated hereby or thereby or the making of any borrowing hereunder, have been obtained or made. Defaults. Neither the Company nor any of its Significant Subsidiaries is in default under any provision of its Charter or By-laws or of this Agreement or any other Credit Document. Neither the Company nor any of its Subsidiaries is in default under any provision of any agreement, instrument, deed or lease to which it is party or by which it or its property is bound so as to result, or be likely to result, in any Material Adverse Change. Neither the Company nor any of its Subsidiaries has violated any law, judgment, decree or governmental order, rule or regulation, in each case so as to result, or be likely to result, in any Material Adverse Change. Licenses, etc. The Company and its Significant Subsidiaries have all patents, patent applications, patent licenses, patent rights, trademarks, trademark rights, trade names, trade name rights, copyrights, licenses, franchises, permits, authorizations and other rights as are necessary for the conduct in all material respects of the business of the Company and its Significant Subsidiaries as now conducted by them. All of the foregoing are in full force and effect in all material respects, and each of the Company and its Significant Subsidiaries is in substantial compliance with the foregoing without any known conflict with the valid rights of others which has resulted, or is likely to result, in any Material Adverse Change. No event has occurred which permits, or after notice or lapse of time or both would permit, the revocation or termination of any such license, franchise or other right or which affects the rights of any of the Company and its Significant Subsidiaries thereunder so as to result, or be likely to result, in any Material Adverse Change. Tax Returns. Each of the Company and its Significant Subsidiaries has filed all material tax and information returns which are required to be filed by it and has paid, or made adequate provision for the payment of, all taxes which have or may become due pursuant to such returns or to any assessment received by it, other than taxes and assessments being contested by the Company and its Significant Subsidiaries in good faith by appropriate proceedings or actions and for which adequate reserves have been taken if required by GAAP. Neither the Company nor any of its Significant Subsidiaries knows of any material additional assessments or any basis therefor. The Company reasonably believes that the charges, accruals and reserves on the books of the Company and its Significant Subsidiaries in respect of taxes or other governmental charges are adequate. Certain Business Representations.iness Representations Labor Relations. No dispute or controversy between the Company or any of its Subsidiaries and any of their respective employees has resulted, or is likely to result, in any Material Adverse Change. Burdensome Obligations. Except as disclosed in the Pre-Closing 1934 Act Reports, neither the Company nor any of its Subsidiaries is party to or bound by any agreement, instrument, deed or lease or is subject to any Charter, By-law or other restriction, commitment or requirement which, in the opinion of the management of such Person, is so unusual or burdensome as in the foreseeable future to result, or be likely to result, in a Material Adverse Change. Environmental Regulations.ronmental Regulations Environmental Compliance. Except as disclosed in the Pre-Closing 1934 Act Reports, each of the Company and its Subsidiaries is in compliance in all material respects with the Clean Air Act, the Federal Water Pollution Control Act, the Marine Protection Research and Sanctuaries Act, RCRA, CERCLA and any other Environmental Law in effect in any jurisdiction in which any properties of the Company or any of its Subsidiaries are located or where any of them conducts its business, and with all applicable published rules and regulations of the federal Environmental Protection Agency and of any similar agencies in states or foreign countries in which the Company or its Subsidiaries conducts its business, except instances of non-compliance which in the aggregate have not resulted, and are not likely to result, in a Material Adverse Change. Environmental Litigation. Except as disclosed in the Pre-Closing 1934 Act Reports, no suit, claim, action or proceeding of which the Company or any of its Subsidiaries has been given notice or otherwise has knowledge is now pending before any court, governmental agency or board or other forum, or to the Company's or any of its Subsidiaries knowledge, threatened by any Person (nor to the Company's or any of its Subsidiaries' knowledge, does any factual basis exist therefor) for, and neither the Company nor any of its Subsidiaries have received written correspondence from any federal, state or local governmental authority with respect to: ( ) noncompliance by the Company or any of its Subsidiaries with any Environmental Law; (a) personal injury, wrongful death or other tortious conduct relating to materials, commodities or products used, generated, sold, transferred or manufactured by the Company or any of its Subsidiaries (including products made of, containing or incorporating asbestos, lead or other hazardous materials, commodities or toxic substances); or (b) the release into the environment by the Company or any of its Subsidiaries of any Hazardous Material generated by the Company or any of its Subsidiaries whether or not occurring at or on a site owned, leased or operated by the Company or any of its Subsidiaries; and which in the aggregate for clauses (a) and (b) and this clause (c) have not resulted, and are not likely to result, in a Material Adverse Change. Hazardous Material. Except as disclosed in the Pre-Closing 1934 Act Reports, any waste disposal or dump sites at which Hazardous Material generated by either the Company or any of its Subsidiaries has been disposed of directly by the Company or any of its Subsidiaries and all independent contractors to whom the Company or any of its Subsidiaries have delivered Hazardous Material, or to the Company's or any of its Subsidiaries' knowledge, where Hazardous Material finally came to be located, have not resulted, and are not likely to result, in a Material Adverse Change. Pension Plans. Each Plan and, without special inquiry to the knowledge of the Company, each Multiemployer Plan, is in material compliance with the applicable provisions of ERISA and the Code. Except to the extent that a failure to do so has resulted or could reasonably be expected to result in material liability of the Company, the minimum funding standards of section 412 of the Code and section 302 of ERISA have been met in connection with all Plans and, to the knowledge of the Company, no condition exists with respect to which the institution of proceedings to terminate any Plan under section 4042 of ERISA could reasonably be expected. To the knowledge of the Company without special inquiry, no Multiemployer Plan is currently insolvent or in reorganization or has been terminated within the meaning of ERISA, pursuant to which the Company has incurred or could reasonably be expected to incur material liability. Foreign Trade Regulations; Government Regulation; Margin Stock.ulation; Margin Stock Foreign Trade Regulations. Neither the execution and delivery of this Agreement or any other Credit Document, nor the making by the Company of any borrowings hereunder has constituted or resulted in or will constitute or result in the violation of any Foreign Trade Regulation. Government Regulation. The Company is not subject to regulation as a registered holding company under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940, as amended, the Interstate Commerce Act or any statute or regulation which regulates the incurring by the Company of the Credit Obligations except for regulation by the State of Maine Public Utilities Commission and the Federal Energy Regulatory Commission, which on or before the Initial Closing Date shall have authorized the execution and delivery of this Agreement and the Notes and shall, together with any necessary renewals, have authorized all borrowing hereunder. Disclosure. Neither this Agreement nor any other Credit Document to be furnished to the Lenders by or on behalf of the Company or any of its Subsidiaries in connection with the transactions contemplated hereby or by such Credit Document contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. Defaults.7. Defaults Events of Default. The following events are referred to as "Events of Default": Payment. The Company shall fail to make any payment in respect of: ( ) interest or any fee on or in respect of any of the Credit Obligations owed by it as the same shall become due and payable, and such failure shall continue for a period of two Banking Days; or (a) principal of any of the Credit Obligations owed by it as the same shall become due, whether at maturity or by acceleration or otherwise. Specified Covenants. The Company or any of its Subsidiaries shall fail to perform or observe any of the provisions of Section 6.2.2(b), the second sentence of Section 6.4.4 or Sections 6.5 through 6.11. Other Covenants. The Company or any of its Subsidiaries shall fail to perform or observe any other covenant, agreement or provision to be performed or observed by it under this Agreement or any other Credit Document, and such failure shall not be cured to the written satisfaction of the Required Lenders within 30 days after notice thereof by either Managing Agent or any Lender to the Company. Representations and Warranties. Any representation or warranty of or with respect to the Company or any of its Subsidiaries made to the Lenders or either Managing Agent in, pursuant to or in connection with this Agreement or any other Credit Document shall be materially false on the date as of which it was made. Cross Default, etc.fault, etc. ( ) The Company or any of its Subsidiaries shall fail to make any payment when due (after giving effect to any applicable grace periods) in respect of any Financing Debt (other than the Credit Obligations) outstanding in an aggregate amount of principal (whether or not due) exceeding $10,000,000 ("$10,000,000 Financing Debt"); (a) the Company or any of its Subsidiaries shall fail to perform or observe the terms of any agreement or instrument relating to such Financing Debt, and such failure shall continue, without having been duly cured, waived or consented to, beyond the period of grace, if any, specified in such agreement or instrument, and such failure shall permit the acceleration of $10,000,000 Financing Debt; (b) $10,000,000 Financing Debt of the Company or any of its Subsidiaries shall be accelerated prior to its stated maturity; or (c) any Lien on any property of the Company or any of its Subsidiaries securing $10,000,000 Financing Debt shall be enforced by foreclosure or similar action. Enforceability, etc. Any material provision of any Credit Document shall cease for any reason (other than the scheduled termination thereof in accordance with its terms) to be enforceable in accordance with its terms or in full force and effect, and such event shall not be rectified or cured to the written satisfaction of the Required Lenders within 30 days after notice thereof by either Managing Agent or any Lender to the Company. Judgments. A final judgment (a) which, with other outstanding final judgments against the Company and its Subsidiaries, exceeds an aggregate of $10,000,000 in excess of applicable insurance coverage shall be rendered against the Company or any of its Subsidiaries, or (b) which grants injunctive relief that results, or is likely to result, in a Material Adverse Change and in either case if, (i) within 30 days after entry thereof, such judgment shall not have been discharged or execution thereof stayed pending appeal or (ii) within 30 days after the expiration of any such stay, such judgment shall not have been discharged. ERISA. ERISA ( ) (i) a "reportable event" (as defined in section 4043 of ERISA) shall have occurred that reasonably could be expected to result in termination of a Plan or the appointment by the appropriate United States District Court of a trustee to administer any Plan or the imposition of a Lien in favor of a Plan; (ii) any ERISA Group Person shall fail to pay when due any amounts which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; (iii) a notice of intent to terminate a Plan shall be filed under Title IV of ERISA by any ERISA Group Person or administrator other than pursuant to section 4041(b) of ERISA; or (iv) the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any Plan or a proceeding shall be instituted by a fiduciary of any Plan against the Company to enforce section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; and (a) any one or more of the events or conditions specified in clauses (i) through (iv) of paragraph (a) of this Section 8.1.8 shall occur and result in, or be likely to result in, a Material Adverse Change. Bankruptcy, etc. The Company or any of its Significant Subsidiaries shall: ( ) commence a voluntary case under the Bankruptcy Code or authorize, by appropriate proceedings of its board of directors or other governing body, the commencement of such a voluntary case; (a) (i) have filed against it a petition commencing an involuntary case under the Bankruptcy Code that shall not have been dismissed within 60 days after the date on which such petition is filed, or (ii) file an answer or other pleading within such 60-day period admitting or failing to deny the material allegations of such a petition or seeking, consenting to or acquiescing in the relief therein provided, or (iii) have entered against it an order for relief in any involuntary case commenced under the Bankruptcy Code; (b) seek relief as a debtor under any applicable law, other than the Bankruptcy Code, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors, or consent to or acquiesce in such relief; (c) have entered against it under any law referred to in clause (c) above an order by a court of competent jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or approving its liquidation or reorganization as a debtor or any modification or alteration of the rights of its creditors or (iii) assuming custody of, or appointing a receiver or other custodian for, all or a substantial portion of its property; or (d) under any law referred to in clause (c) above, make an assignment for the benefit of, or enter into a composition with, its creditors, or appoint, or consent to the appointment of, or suffer to exist a receiver or other custodian for, all or a substantial portion of its property. Certain Actions Following an Event of Default. If any one or more Events of Default shall occur and be continuing, then in each and every such case: Terminate Obligation to Extend Credit. The Managing Agents on behalf of the Lenders may (and upon written request of the Required Lenders the Managing Agents shall) terminate the obligations of the Lenders to make any further extensions of credit under the Credit Documents by furnishing notice of such termination to the Company. Specific Performance; Exercise of Rights. The Managing Agents on behalf of the Lenders may (and upon written request of the Required Lenders the Managing Agents shall) proceed to protect and enforce the Lenders' rights by suit in equity, action at law and/or other appropriate proceeding, either for specific performance of any covenant or condition contained in this Agreement or any other Credit Document or in any instrument or assignment delivered to the Lenders pursuant to this Agreement or any other Credit Document, or in aid of the exercise of any power granted in this Agreement or any other Credit Document or any such instrument or assignment. Acceleration. The Managing Agents on behalf of the Lenders may (and upon written request of the Required Lenders the Managing Agents shall) by notice in writing to the Company declare all or any part of the unpaid balance of the Credit Obligations then outstanding to be immediately due and payable, and thereupon such unpaid balance or part thereof shall become so due and payable without presentation, protest or further demand or notice of any kind, all of which are hereby expressly waived; provided, however, that if a Bankruptcy Default shall have occurred, the unpaid balance of the Credit Obligations shall automatically become immediately due and payable. Enforcement of Payment; Credit Security; Setoff. The Managing Agents on behalf of the Lenders may (and upon written request of the Required Lenders the Managing Agents shall) proceed to enforce payment of the Credit Obligations in such manner as they may elect. The Lenders may offset and apply toward the payment of the Credit Obligations (and/or toward the curing of any Event of Default) any Indebtedness from the Lenders to the Company, including any Indebtedness represented by deposits in any account maintained with the Lenders. Cumulative Remedies. To the extent not prohibited by applicable law which cannot be waived, all of the Lenders' rights hereunder and under each other Credit Document shall be cumulative. Annulment of Defaults. Once an Event of Default has occurred, such Event of Default shall be deemed to exist and be continuing for all purposes of the Credit Documents until the Required Lenders or the Managing Agents (with the consent of the Required Lenders) shall have waived such Event of Default in writing, stated in writing that the same has been cured to such Lenders' reasonable satisfaction or entered into an amendment to this Agreement which by its express terms cures such Event of Default, at which time such Event of Default shall no longer be deemed to exist or to have continued. No such action by the Lenders or the Managing Agents shall extend to or affect any subsequent Event of Default or impair any rights of the Lenders upon the occurrence thereof. The making of any extension of credit during the existence of any Default or Event of Default shall not constitute a waiver thereof. Waivers. To the extent that such waiver is not prohibited by the provisions of applicable law that cannot be waived, the Company waives: ( ) all presentments, demands for performance, notices of nonperformance (except to the extent required by this Agreement or any other Credit Document), protests, notices of protest and notices of dishonor; (a) any requirement of diligence or promptness on the part of any Lender in the enforcement of its rights under this Agreement, the Notes or any other Credit Document; (b) any and all notices of every kind and description which may be required to be given by any statute or rule of law; and (c) any defense (other than indefeasible payment in full) which it may now or hereafter have with respect to its liability under this Agreement, the Notes or any other Credit Document or with respect to the Credit Obligations. Expenses; Indemnity. Expenses; Indemnity Expenses. Whether or not the transactions contemplated hereby shall be consummated, the Company will pay: ( ) all reasonable expenses of the Managing Agents (including the out-of-pocket expenses related to forming the group of Lenders and reasonable fees and disbursements of the counsel to the Managing Agents) in connection with the preparation and duplication of this Agreement and each other Credit Document, the transactions contemplated hereby and thereby and amendments, waivers, consents and other operations hereunder and thereunder; (a) all recording and filing fees and transfer and documentary stamp and similar taxes at any time payable in respect of this Agreement, any other Credit Document or the incurrence of the Credit Obligations; and (b) all other reasonable expenses incurred by the Lenders or the holder of any Credit Obligation in connection with the enforcement of any rights hereunder or under any other Credit Document, including costs of collection and reasonable attorneys' fees (including a reasonable allowance for the hourly cost of attorneys employed by the Lenders on a salaried basis) and expenses. General Indemnity. The Company shall indemnify the Lenders and the Managing Agents and hold them harmless from any liability, loss or damage resulting from the violation by the Company of Section 2.4. In addition, the Company shall indemnify each Lender, each Managing Agent, each of the Lenders' or the Managing Agents' directors, officers and employees, and each Person, if any, who controls any Lender or either Managing Agent (each Lender, each Managing Agent and each of such directors, officers, employees and control Persons is referred to as an "Indemnified Party") and hold each of them harmless from and against any and all claims, damages, liabilities and reasonable expenses (including reasonable fees and disbursements of counsel with whom any Indemnified Party may consult in connection therewith and all reasonable expenses of litigation or preparation therefor) which any Indemnified Party may incur or which may be asserted against any Indemnified Party in connection with the Indemnified Party's compliance with or contest of any subpoena or other process issued against it or any litigation or investigation, in each case involving this Agreement (but including any subpoenas or other process demanding disclosure of information provided to the Lenders in connection with this Agreement, even if such subpoena or other process arises in a context unrelated to this Agreement), any other Credit Document or any transaction contemplated hereby or thereby; provided, however, that the foregoing indemnity shall not apply to litigation commenced by the Company against the Lenders or the Managing Agents which seeks enforcement of any of the rights of the Company hereunder or under any other Credit Document and is determined adversely to the Lenders or the Managing Agents in a final nonappealable judgment or to the extent such claims, damages, liabilities and expenses result from a Lender's or either Managing Agent's gross negligence or willful misconduct. Operations; Managing Agents.ons; Managing Agents Interests in Credits. The Percentage Interest of each Lender in the Revolving Loan and the related Commitments shall be computed based on the maximum principal amount for each Lender as set forth in the Register, as from time to time in effect. The current Percentage Interests are set forth in Exhibit 10.1, which may be updated by the Boston Managing Agent from time to time to conform to the Register. Roles of Managing Agents. The Boston Managing Agent shall be responsible for documentation of the Loans and any amendments, waivers or modifications to this Agreement or the Notes and any documents and instruments in connection therewith. The New York Managing Agent shall be responsible for all disbursements and payments (subject to the obligations of the other Lenders hereunder), including arranging, pricing and making Loans, receiving payments of principal, interest, fees and other amounts payable from the Company. Except as expressly otherwise provided herein, both Managing Agents shall be entitled to receive all notices required to be provided hereunder by the Company and the Lenders. Managing Agents' Authority to Act, etc. Each of the Lenders appoints and authorizes Bank of Boston and Bank of New York to act for the Lenders as the Lenders' Managing Agents in connection with the transactions contemplated by this Agreement and the other Credit Documents on the terms set forth herein. In acting hereunder, the Boston Managing Agent is acting for the account of Bank of Boston to the extent of its Percentage Interest and for the account of each other Lender to the extent of the Lenders' respective Percentage Interests, the New York Managing Agent is acting for the account of Bank of New York to the extent of its Percentage Interest and for the account of each other Lender to the extent of the Lenders' respective Percentage Interests, and all action in connection with the enforcement of, or the exercise of any remedies (other than the Lenders' rights of set-off as provided in Section 8.2.4 or in any Credit Document) in respect of the Credit Obligations and Credit Documents shall be taken by the Managing Agents. Company to Pay New York Managing Agent, etc. The Company shall be fully protected in making all payments in respect of the Credit Obligations to the New York Managing Agent, in relying upon consents, modifications and amendments executed by the Managing Agents purportedly on the Lenders' behalf, and in dealing with the Managing Agents as herein provided. The New York Managing Agent may charge the accounts of the Company, on the dates when the amounts thereof become due and payable, with the amounts of the principal of and interest on the Loan, Facility Fees and all other fees and amounts owing under any Credit Document. Lender Operations for Advances, etc.ons for Advances, etc Advances. Prior to 12:00 noon (New York time) on each Closing Date, each Lender shall advance to the New York Managing Agent in immediately available funds such Lender's Percentage Interest in the portion of the Revolving Loan advanced on such Closing Date (and in the case of Competitive Auction Facility Loans, each Lender making a Competitive Auction Facility Loan shall advance to the New York Managing Agent in immediately available funds the amount of such Competitive Auction Facility Loan advanced on such Closing Date). If such funds are not received at such time, but all applicable conditions set forth in Section 5 have been satisfied, each Lender authorizes and requests the New York Managing Agent to advance for the Lender's account, pursuant to the terms hereof, the Lender's respective Percentage Interest in such portion of the Revolving Loan (or, in the case of a Competitive Auction Facility Loan, the amount of such Competitive Auction Facility Loan) and agrees to reimburse the New York Managing Agent in immediately available funds for the amount thereof prior to 2:00 p.m. (New York time) on the day any portion of the Revolving Loan (or a Competitive Auction Facility Loan) is advanced hereunder; provided, however, that the New York Managing Agent is not authorized to make any such advance for the account of any Lender who has previously notified the New York Managing Agent in writing that such Lender will not be performing its obligations to make further advances hereunder; and provided, further, that the New York Managing Agent shall be under no obligation to make any such advance. New York Managing Agent to Allocate Payments, etc. All payments of principal and interest in respect of the extensions of credit made pursuant to this Agreement, Facility Fees and other fees under this Agreement shall, as a matter of convenience, be made by the Company to the New York Managing Agent in immediately available funds. The share of each Lender shall be credited to such Lender by the New York Managing Agent in immediately available funds in such manner that the principal amount of the Credit Obligations to be paid shall be paid proportionately in accordance with the Lenders' respective Percentage Interests in such Credit Obligations, except as otherwise provided in this Agreement (including with respect to Competitive Auction Facility Loans). Under no circumstances shall any Lender be required to produce or present its Notes as evidence of its interests in the Credit Obligations in any action or proceeding relating to the Credit Obligations. Delinquent Lenders; Nonperforming Lenders. In the event that any Lender fails to reimburse the New York Managing Agent pursuant to Section 10.5.1 for the Percentage Interest (or Competitive Auction Facility Loan) of such Lender (a "Delinquent Lender") in any credit advanced by the New York Managing Agent pursuant hereto, overdue amounts (the "Delinquent Payment") due from the Delinquent Lender to the New York Managing Agent shall bear interest, payable by the Delinquent Lender on demand, at a per annum rate equal to (a) the Federal Funds Rate for the first three days overdue and (b) the sum of 2% plus the Federal Funds Rate for any longer period. Such interest shall be payable to the New York Managing Agent for its own account for the period commencing on the date of the Delinquent Payment and ending on the date the Delinquent Lender reimburses the New York Managing Agent on account of the Delinquent Payment and the accrued interest thereon (the "Delinquency Period"), whether pursuant to the assignments referred to below or otherwise. Upon notice by the New York Managing Agent, the Company will pay to the New York Managing Agent the principal (but not the interest) portion of the Delinquent Payment. During the Delinquency Period, in order to make reimbursements for the Delinquent Payment and accrued interest thereon, the Delinquent Lender shall be deemed to have assigned to the New York Managing Agent all interest, Facility Fees and other payments made by the Company under Section 3 that would have thereafter otherwise been payable under the Credit Documents to the Delinquent Lender. During any other period in which any Lender is not performing its obligations to extend credit under Section 2 (a "Nonperforming Lender"), the Nonperforming Lender shall be deemed to have assigned to each Lender that is not a Nonperforming Lender (a "Performing Lender") all principal and other payments made by the Company under Section 4 that would have thereafter otherwise been payable under the Credit Documents to the Nonperforming Lender. The New York Managing Agent shall credit a portion of such payments to each Performing Lender in an amount equal to the Percentage Interest of such Performing Lender divided by one minus the Percentage Interest of the Nonperforming Lender until the respective portions of the Revolving Loan owed to all the Lenders are the same as the Percentage Interests of the Lenders immediately prior to the failure of the Nonperforming Lender to perform its obligations under Section 2. The foregoing provisions shall be in addition to any other remedies the New York Managing Agent, the Performing Lenders or the Company may have under law or equity against the Delinquent Lender as a result of the Delinquent Payment or against the Nonperforming Lender as a result of its failure to perform its obligations under Section 2. Sharing of Payments, etc. Each Lender agrees that (a) if by exercising any right of set-off or counterclaim or otherwise, it shall receive payment of (i) a proportion of the aggregate amount due with respect to its Percentage Interest in the Revolving Loan which is greater than (ii) the proportion received by any other Lender in respect of the aggregate amount due with respect to such other Lender's Percentage Interest in the Revolving Loan and (b) if such inequality shall continue for more than 10 days, the Lender receiving such proportionately greater payment shall purchase participations in the Percentage Interests in the Revolving Loan held by the other Lenders, and such other adjustments shall be made from time to time (including rescission of such purchases of participations in the event the unequal payment originally received is recovered from such Lender through bankruptcy proceedings or otherwise), as may be required so that all such payments of principal and interest with respect to the Revolving Loan held by the Lenders shall be shared by the Lenders pro rata in accordance with their respective Percentage Interests; provided, however, that this Section 10.6 shall not impair the right of any Lender to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of Indebtedness of the Company other than the Company's Indebtedness with respect to the Revolving Loan. Each Lender that grants a participation in the Credit Obligations to a Credit Participant shall require as a condition to the granting of such participation that such Credit Participant agree to share payments received in respect of the Credit Obligations as provided in this Section 10.6. The provisions of this Section 10.6 are for the sole and exclusive benefit of the Lenders and no failure of any Lender to comply with the terms hereof shall be available to the Company as a defense to the payment of the Credit Obligations. Amendments, Consents, Waivers, etc. Except as otherwise set forth herein, the Managing Agents may (and upon the written request of the Required Lenders the Managing Agents shall) take or refrain from taking any action under this Agreement or any other Credit Document, including giving their written consent to any modification of or amendment to and waiving in writing compliance with any covenant or condition in this Agreement or any other Credit Document (other than an Interest Rate Protection Agreement) or any Default or Event of Default, all of which actions shall be binding upon all of the Lenders; provided, however, that: ( ) Except as provided below, without the written consent of the Lenders owning at least a majority of the Percentage Interests (other than Delinquent Lenders during the existence of a Delinquency Period so long as such Delinquent Lender is treated the same as the other Lenders with respect to any actions enumerated below), no written modification of, amendment to, consent with respect to, waiver of compliance with or waiver of a Default under, any of the Credit Documents (other than an Interest Rate Protection Agreement) shall be made. (a) Without the written consent of the Managing Agents, no written modification of or amendment to any of the Credit Documents shall be made which changes the duties of or the benefits to the Managing Agents or any other provision affecting the Managing Agents in such capacities. (b) Without the written consent of such Lenders as own 100% of the Percentage Interests (other than Delinquent Lenders during the existence of a Delinquency Period so long as such Delinquent Lender is treated the same as the other Lenders with respect to any actions enumerated below): ( ) No reduction shall be made in (A) the amount of principal of the Loan or (B) the interest rate on the Loan. (i) No change shall be made in the stated, scheduled time of payment of all or any portion of the Loan or interest thereon or fees relating to any of the foregoing payable to all of the Lenders and no waiver shall be made of any Default under Section 8.1.1. (ii) No increase shall be made in the amount, or extension of the term, of the stated Commitments beyond that provided for under Section 2. (iii) No alteration shall be made of the Lenders' rights of set-off contained in Section 8.2.4. (iv) No change shall be made in the definition of "Required Lenders" in this Agreement. (v) No amendment to or modification of this Section 10.7(c) shall be made. Managing Agent's Resignation. Either Managing Agent may resign at any time by giving at least 60 days' prior written notice of its intention to do so to each other of the Lenders and the Company. Upon any such resignation, the remaining Managing Agent shall automatically become agent with all the rights and responsibilities formerly held by both Managing Agents; provided, that if at such time there shall be only one Managing Agent or both Managing Agents shall be resigning simultaneously, the Required Lenders shall appoint a successor Managing Agent satisfactory to the Company and the resignation of the retiring Managing Agent shall take effect upon such appointment. If in a case to which the proviso to the preceding sentence shall apply, no successor Managing Agent shall have been so appointed and shall have accepted such appointment within 30 days after the retiring Managing Agent's notice of resignation, then the retiring Managing Agent may with the consent of the Company, which shall not unreasonably be withheld, appoint a successor Managing Agent which shall be a bank or trust company organized under the laws of the United States of America or any state thereof and having a combined capital surplus and undivided profit of not less than $100,000,000; provided, that any successor Managing Agent appointed under this sentence may be removed upon the written request of the Required Lenders, which request shall also appoint a successor Managing Agent satisfactory to the Company. Upon the acceptance of any appointment as agent hereunder by a remaining Managing Agent, such successor agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Managing Agent, and the retiring Managing Agent shall be discharged from all further duties and obligations under this Agreement. After any retiring Managing Agent's resignation hereunder as Managing Agent, the provisions of this Agreement shall continue to inure to the benefit of such Managing Agent as to any actions taken or omitted to be taken by it while it was Managing Agent under this Agreement. Concerning the Managing Agents.g the Managing Agents Action in Good Faith, etc. The Managing Agents and their officers, directors, employees and agents shall be under no liability to any of the Lenders or to any future holder of any interest in the Credit Obligations for any action or failure to act taken or suffered in good faith, and any action or failure to act in accordance with an opinion of its counsel shall conclusively be deemed to be in good faith. The Managing Agents shall in all cases be entitled to rely, and shall be fully protected in relying, on instructions given to the Managing Agents by the required holders of Credit Obligations as provided in this Agreement. No Implied Duties, etc. The Managing Agents shall have and may exercise such powers as are specifically delegated to the Managing Agents under this Agreement or any other Credit Document together with all other powers incidental thereto. The Managing Agents shall have no implied duties to any Person or any obligation to take any action under this Agreement or any other Credit Document except for action specifically provided for in this Agreement or any other Credit Document to be taken by the Managing Agents. Before taking any action under this Agreement or any other Credit Document, each Managing Agent may request an appropriate specific indemnity satisfactory to it from each Lender in addition to the general indemnity provided for in Section 10.12. Until such Managing Agent has received such specific indemnity, such Managing Agent shall not be obligated to take (although it may in its sole discretion take) any such action under this Agreement or any other Credit Document. Each Lender confirms that the Managing Agents do not have a fiduciary relationship to it under the Credit Documents. Each of the Company and its Subsidiaries party hereto confirms that neither the Managing Agents nor any other Lender has a fiduciary relationship to it under the Credit Documents. Validity, etc. Neither Managing Agent shall be responsible to any Lender or any future holder of any interest in the Credit Obligations (a) for the legality, validity, enforceability or effectiveness of this Agreement or any other Credit Document, (b) for any recitals, reports, representations, warranties or statements contained in or made in connection with this Agreement or any other Credit Document, (c) for the existence or value of any assets included in any security for the Credit Obligations, or (d) unless such Managing Agent shall have failed to comply with Section 10.9.1, for the perfection of any security for the Credit Obligations. Compliance. Neither Managing Agent shall be obligated to ascertain or inquire as to the performance or observance of any of the terms of this Agreement or any other Credit Document; and in connection with any extension of credit under this Agreement or any other Credit Document, the Managing Agents shall be fully protected in relying on a certificate of the Company as to the fulfillment by the Company of any conditions to such extension of credit. Employment of Agents and Counsel. Each Managing Agent may execute any of its duties as Managing Agent under this Agreement or any other Credit Document by or through employees, agents and attorneys-in-fact and shall not be responsible to any of the Lenders or the Company for the default or misconduct of any such agents or attorneys-in-fact selected by such Managing Agent acting in good faith. Such Managing Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder or under any other Credit Document. Reliance on Documents and Counsel. Each Managing Agent shall be entitled to rely, and shall be fully protected in relying, upon any affidavit, certificate, cablegram, consent, instrument, letter, notice, order, document, statement, telecopy, telegram, telex or teletype message or writing reasonably believed in good faith by such Managing Agent to be genuine and correct and to have been signed, sent or made by the Person in question, including any telephonic or oral statement made by such Person, and, with respect to legal matters, upon an opinion or the advice of counsel selected by such Managing Agent. Managing Agents' Reimbursement. Each of the Lenders severally agrees to reimburse the Managing Agents, in the amount of such Lender's Percentage Interest, for any reasonable expenses not reimbursed by the Company (without limiting the obligation of the Company to make such reimbursement): (a) for which the Managing Agents are entitled to reimbursement by the Company under this Agreement or any other Credit Document, and (b) after the occurrence of a Default, for any other reasonable expenses incurred by the Managing Agents on the Lenders' behalf in connection with the enforcement of the Lenders' rights under this Agreement or any other Credit Document; provided, however, that a Managing Agent shall not be reimbursed for any such expenses arising as a result of its gross negligence or willful misconduct. Rights as a Lender. With respect to any credit extended by them hereunder, Bank of Boston and Bank of New York each shall have the same rights, obligations and powers hereunder as any other Lender and may exercise such rights and powers as though each were not a Managing Agent, and unless the context otherwise specifies, Bank of Boston and Bank of New York shall each be treated in its individual capacity as though it were not a Managing Agent hereunder. Without limiting the generality of the foregoing, the Percentage Interests of Bank of Boston and Bank of New York shall be included in any computations of Percentage Interests. Bank of Boston and Bank of New York and their Affiliates may accept deposits from, lend money to, act as trustee for and generally engage in any kind of banking or trust business with the Company, any of its Subsidiaries or any Affiliate of any of them and any Person who may do business with or own an equity interest in the Company, any of its Subsidiaries or any Affiliate of any of them, all as if Bank of Boston and Bank of New York were not the Managing Agents and without any duty to account therefor to the other Lenders. Independent Credit Decision. Each of the Lenders acknowledges that it has independently and without reliance upon the Managing Agents, based on the financial statements and other documents referred to in Section 7.2, on the other representations and warranties contained herein and on such other information with respect to the Company and its Subsidiaries as such Lender deemed appropriate, made such Lender's own credit analysis and decision to enter into this Agreement and to make the extensions of credit provided for hereunder. Each Lender represents to the Managing Agents that such Lender will continue to make its own independent credit and other decisions in taking or not taking action under this Agreement or any other Credit Document. Each Lender expressly acknowledges that neither the Managing Agents nor any of their officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to such Lender, and no act by any Managing Agent taken under this Agreement or any other Credit Document, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by the Managing Agents. Except for notices, reports and other documents expressly required to be furnished to each Lender by the Managing Agents under this Agreement or any other Credit Document, the Managing Agents shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition, financial or otherwise, or creditworthiness of the Company or any Subsidiary which may come into the possession of the Managing Agents or any of their officers, directors, employees, agents, attorneys-in-fact or Affiliates. Indemnification. The holders of the Credit Obligations shall indemnify each Managing Agent and its officers, directors, employees and agents (to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so), pro rata in accordance with their respective Percentage Interests, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time be imposed on, incurred by or asserted against either Managing Agent or such Persons relating to or arising out of this Agreement, any other Credit Document, the transactions contemplated hereby or thereby, or any action taken or omitted by either Managing Agent in connection with any of the foregoing; provided, however, that the foregoing shall not extend to actions or omissions which are taken by either Managing Agent with gross negligence or willful misconduct. Successors and Assigns; Lender Assignments and Participations. Any reference in this Agreement or any other Credit Document to any of the parties hereto shall be deemed to include the successors and assigns of such party, and all covenants and agreements by or on behalf of the Company, the Managing Agents or the Lenders that are contained in this Agreement or any other Credit Document shall bind and inure to the benefit of their respective successors and assigns; provided, however, that (a) the Company and its Subsidiaries may not assign their rights or obligations under this Agreement or any other Credit Document except for mergers or liquidations permitted by Section 6.10, and (b) the Lenders shall be not entitled to assign their respective Percentage Interests in the credits extended hereunder or their Commitments except as set forth below in this Section 11. Assignments by Lenders.ssignments by Lenders Assignees and Assignment Procedures. Each Lender may (a) without the consent of the Managing Agents or the Company if the proposed assignee is a Federal Reserve Bank or is an Affiliate of any Lender or (b) otherwise with the consents of the Managing Agents and (so long as no Event of Default exists) the Company (which consents will not be unreasonably withheld), in compliance with applicable laws in connection with such assignment, assign to one or more commercial banks or other financial institutions (each, an "Assignee") all or a portion of its interests, rights and obligations under this Agreement and the other Credit Documents, including all or a portion of its Commitment, the portion of the Loan at the time owing to it and the Notes held by it ; provided, however, that: ( ) the aggregate amount of the portion of the Loan owing to the assigning Lender subject to each such assignment to any Assignee other than another Lender (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the New York Managing Agent) shall be not less than $5,000,000 and in integral multiples of $1,000,000 in excess thereof; and (i) the parties to each such assignment shall execute and deliver to the New York Managing Agent an Assignment and Acceptance (the "Assignment and Acceptance") substantially in the form of Exhibit 11.1.1, together with the Note subject to such assignment and a processing and recordation fee of $2,500 payable on a pro rata basis to the Managing Agents by the assigning Lender and the Assignee. Upon acceptance and recording pursuant to Section 11.1.4, from and after the effective date specified in each Assignment and Acceptance (which effective date shall be at least five Banking Days after the execution thereof unless waived by the Managing Agents): (A) the Assignee shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender shall, to the extent provided in such assignment, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.3.4, 3.5 and 9, as well as to any fees accrued for its account hereunder and not yet paid). Terms of Assignment and Acceptance. By executing and delivering an Assignment and Acceptance, the assigning Lender and Assignee shall be deemed to confirm to and agree with each other and the other parties hereto as follows: ( ) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Credit Document or any other instrument or document furnished pursuant hereto; (a) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company and its Subsidiaries or the performance or observance by the Company or any of its Subsidiaries of any of its obligations under this Agreement, any other Credit Document or any other instrument or document furnished pursuant hereto; (b) such Assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Section 7.2 or Section 6.4 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (c) such Assignee will independently and without reliance upon the Managing Agents, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (d) such Assignee appoints and authorizes the Managing Agents to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Managing Agents by the terms hereof, together with such powers as are reasonably incidental thereto; and (e) such Assignee agrees that it will perform in accordance with the terms of this Agreement all the obligations which are required to be performed by it as a Lender. Register. The New York Managing Agent shall maintain at the New York Office a register (the "Register") for the recordation of (a) the names and addresses of the Lenders and the Assignees which assume rights and obligations pursuant to an assignment under Section 11.1.1, (b) the Percentage Interest of each such Lender as set forth in Exhibit 10.1 and (c) the amount of the Loan owing to each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the Managing Agents and the Lenders may treat each Person whose name is registered therein for all purposes as a party to this Agreement. The Register shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. Acceptance of Assignment and Assumption. Upon its receipt of a completed Assignment and Acceptance executed by an assigning Lender and an Assignee together with the Note subject to such assignment, the processing and recordation fee referred to in Section 11.1.1 and (if required under clause (b) of Section 11.1.1) the written consent of the Company, the New York Managing Agent shall (a) accept such Assignment and Acceptance, (b) record the information contained therein in the Register and (c) give prompt notice thereof to the Company. Within five Banking Days after receipt of notice, the Company, at its own expense, shall execute and deliver to the New York Managing Agent, in exchange for the surrendered Note, a new Note to the order of such Assignee in a principal amount equal to the applicable Commitment and Loan assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment and Loan, a new Note to the order of such assigning Lender in a principal amount equal to the applicable Commitment and Loan retained by it. Such new Note shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note, and shall be dated the date of the surrendered Note which it replaces. Federal Reserve Bank. Notwithstanding the foregoing provisions of this Section 11, any Lender may at any time pledge or assign all or any portion of such Lender's rights under this Agreement and the other Credit Documents to a Federal Reserve Bank; provided, however, that no such pledge or assignment shall release such Lender from such Lender's obligations hereunder or under any other Credit Document. Further Assurances. The Company and its Subsidiaries shall sign such documents and take such other actions from time to time reasonably requested by an Assignee to enable it to share in the benefits of the rights created by the Credit Documents. Credit Participants. Each Lender may, without the consent of the Company or the Managing Agents, in compliance with applicable laws in connection with such participation, sell to one or more commercial banks or other financial institutions (each a "Credit Participant") participations in all or a portion of its interests, rights and obligations under this Agreement and the other Credit Documents (including all or a portion of its Commitment, the Loan and the Notes held by it); provided, however, that: ( ) such Lender's obligations under this Agreement shall remain unchanged; (a) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; (b) the Credit Participant shall be entitled to the benefit of the cost protection provisions contained in Sections 3.3.4, 3.5 and 9, but shall not be entitled to receive any greater payment thereunder than the selling Lender would have been entitled to receive with respect to the interest so sold if such interest had not been sold; and (c) the Company, the Managing Agents and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right as one of the Lenders to vote with respect to the enforcement of the obligations of the Company relating to the Loan and the approval of any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications, consents or waivers described in clause (c) of the proviso to Section 10.7). The Company agrees, to the fullest extent permitted by applicable law, that any Credit Participant and any Lender purchasing a participation from another Lender pursuant to Section 11.2 may exercise all rights of payment (including the right of set-off), with respect to its participation as fully as if such Credit Participant or such Lender were the direct creditor of the Company and a Lender hereunder in the amount of such participation. Replacement of Lender. In the event that any Lender or to the extent applicable, any Credit Participant (in each case, an "Affected Lender"): ( ) fails to perform its obligations to fund any portion of the Revolving Loan on any Closing Date when required to do so by the terms of the Credit Documents, or fails to provide its portion of any Eurodollar Pricing Option pursuant to Section 3.3.1 or on account of a Legal Requirement as contemplated by Section 3.3.5; (a) demands payment under the provisions of Section 3.5 in an amount the Company deems materially in excess of the amounts with respect thereto demanded by the other Lenders; (b) is required to but fails to deliver on a timely basis to the Company and the New York Managing Agent the forms required of foreign Lenders under Section 13 hereof; (c) refuses to consent to a proposed extension of a Final Maturity Date or a Competitive Auction Facility Loan Maturity Date that is consented to by the other Lenders; or (d) refuses to consent to a proposed amendment, modification, waiver or other action requiring consent of the holders of 100% of the Percentage Interests under Section 10.7(b) that is consented to by the other Lenders; then, so long as no Event of Default exists, the Company shall have the right to seek a replacement lender which is reasonably satisfactory to the Managing Agents (the "Replacement Lender"). The Replacement Lender shall purchase the interests of the Affected Lender in the Loan and its Commitment and shall assume the obligations of the Affected Lender hereunder and under the other Credit Documents upon execution by the Replacement Lender of an Assignment and Acceptance and the tender by it to the Affected Lender of a purchase price agreed between it and the Affected Lender (or, if they are unable to agree, a purchase price in the amount of the Affected Lender's Percentage Interest in the Revolving Loan or appropriate credit support for contingent amounts included therein, and all other outstanding Credit Obligations then owed to the Affected Lender). No assignment fee pursuant to Section 11.1.1(ii) shall be required in connection with such assignment. Such assignment by the Affected Lender shall be deemed an early termination of any Eurodollar Pricing Option to the extent of the Affected Lender's portion thereof, and the Company will pay to the Affected Lender any resulting amounts due under Section 3.3.4. Upon consummation of such assignment, the Replacement Lender shall become party to this Agreement as a signatory hereto and shall have all the rights and obligations of the Affected Lender under this Agreement and the other Credit Documents with a Percentage Interest equal to the Percentage Interest of the Affected Lender, the Affected Lender shall be released from its obligations hereunder and under the other Credit Documents, and no further consent or action by any party shall be required. Upon the consummation of such assignment, the Company, the Managing Agents and the Affected Lender shall make appropriate arrangements so that a new Revolving Note is issued to the Replacement Lender if it has acquired a portion of the Revolving Loan and, if the Replacement Lender so requests, a new Competitive Auction Facility Note is issued to the Replacement Lender if it has acquired a portion of the Competitive Auction Facility Loan. The Company shall sign such documents and take such other actions reasonably requested by the Replacement Lender to enable it to share in the benefits of the rights created by the Credit Documents. Until the consummation of an assignment in accordance with the foregoing provisions of this Section 11.3, the Company shall continue to pay to the Affected Lender any Credit Obligations as they become due and payable. Confidentiality. Each Lender will make no disclosure of confidential information furnished to it by the Company or any of its Subsidiaries unless such information shall have become public through no breach of such Lender's confidentiality obligation under this Section 12, except: ( ) in connection with operations under or the enforcement of this Agreement or any other Credit Document to Persons who have a reasonable need to be furnished such confidential information and who agree to comply with the restrictions contained in this Section 12 with respect to such information; (a) pursuant to any statutory or regulatory requirement or any mandatory court order, subpoena or other legal process; (b) to any parent or corporate Affiliate of such Lender or to any Credit Participant, proposed Credit Participant or proposed Assignee; provided, however, that any such Person shall agree to comply with the restrictions set forth in this Section 12 with respect to such information; (c) to its independent counsel, auditors and other professional advisors with an instruction to such Person to keep such information confidential; and (d) with the prior written consent of the Company, to any other Person. Foreign Lenders. If any Lender is not incorporated or organized under the laws of the United States of America or a state thereof, such Lender shall deliver to the Company and the New York Managing Agent the following: ( ) Two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor form, as the case may be, certifying in each case that such Person is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes; and (a) A duly completed Internal Revenue Service Form W-8 or W-9 or successor form, as the case may be, to establish an exemption from United States backup withholding tax. Each such Lender that delivers to the Company and the New York Managing Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to this Section 13 further undertakes to deliver to the Company and the New York Managing Agent two further copies of Form 1001 or 4224 and Form W-8 or W-9, or successor applicable form, or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company and the New York Managing Agent. Such Forms 1001 or 4224 shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes. The foregoing documents need not be delivered in the event any change in treaty, law or regulation or official interpretation thereof has occurred which renders all such forms inapplicable or which would prevent such Lender from delivering any such form with respect to it, or such Lender advises the Company that it is not capable of receiving payments without any deduction or withholding of United States federal income tax and, in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. Until such time as the Company and the New York Managing Agent have received such forms indicating that payments hereunder are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Company shall withhold taxes from such payments at the applicable statutory rate without regard to Section 3.5. Notices. Except as otherwise specified in this Agreement or any other Credit Document, any notice required to be given pursuant to this Agreement or any other Credit Document shall be given in writing. Any notice, consent, approval, demand or other communication in connection with this Agreement or any other Credit Document shall be deemed to be given if given in writing (including telex, telecopy or similar teletransmission) addressed as provided below (or to the addressee at such other address as the addressee shall have specified by notice actually received by the addressor), and if either (a) actually delivered in fully legible form to such address (evidenced in the case of a telex by receipt of the correct answer back) or (b) in the case of a letter, unless actual receipt of the notice is required by any Credit Document five days shall have elapsed after the same shall have been deposited in the United States mails, with first-class postage prepaid and registered or certified. If to the Company or any of its Subsidiaries, to it at its address set forth on the signature page of this Agreement, to the attention of the chief financial officer. If to any Lender or either Managing Agent, to it at its address set forth on the signature pages of this Agreement or in the Register, with a copy to each Managing Agent. Course of Dealing; Amendments and Waivers. No course of dealing between any Lender or either Managing Agent, on one hand, and the Company, on the other hand, shall operate as a waiver of any of the Lenders' or Managing Agents' rights under this Agreement or any other Credit Document or with respect to the Credit Obligations. The Company acknowledges that if the Lenders or the Managing Agents, without being required to do so by this Agreement or any other Credit Document, give any notice or information to, or obtain any consent from the Company, the Lenders and the Managing Agents shall not by implication have amended, waived or modified any provision of this Agreement or any other Credit Document, or created any duty to give any such notice or information or to obtain any such consent on any future occasion. No delay or omission on the part of any Lender or any Managing Agent in exercising any right under this Agreement or any other Credit Document or with respect to the Credit Obligations shall operate as a waiver of such right or any other right hereunder or thereunder. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. No waiver, consent or amendment with respect to this Agreement or any other Credit Document shall be binding unless it is in writing and signed by the Managing Agents or the Required Lenders. No Strict Construction. The parties have participated jointly in the negotiation and in the determination of the wording of this Agreement and the other Credit Documents with counsel sophisticated in financing transactions. In the event an ambiguity or question of intent or interpretation arises, this Agreement and the other Credit Documents shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement and the other Credit Documents. Defeasance. When all Credit Obligations have been paid, performed and reasonably determined by the Lenders to have been indefeasibly paid in full, and if at that time no Lender continues to be committed to extend any credit to the Company hereunder or under any other Credit Document, this Agreement and the other Credit Documents shall terminate. Thereupon, on the Company's demand and at its cost and expense, the Managing Agents shall execute proper instruments, acknowledging satisfaction of and discharging this Agreement and the other Credit Documents; provided, however, that Sections 3.3.4, 3.5, 9, 10.9.7, 10.12, 12, 18 and 19 shall survive the termination of this Agreement. Venue; Service of Process. The Company:rocess ( ) Irrevocably submits to the nonexclusive jurisdiction of the state courts of The Commonwealth of Massachusetts and to the nonexclusive jurisdiction of the United States District Court for the District of Massachusetts (to the extent such District Court has subject-matter jurisdiction) for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement or any other Credit Document or the subject matter hereof or thereof. (a) Waives to the extent not prohibited by applicable law that cannot be waived, and agrees not to assert, by way of motion, as a defense or otherwise, in any such proceeding brought in any of the above-named courts, any claim that it is not subject personally to the jurisdiction of such court, that its property is exempt or immune from attachment or execution, that such proceeding is brought in an inconvenient forum, that the venue of such proceeding is improper, or that this Agreement or any other Credit Document, or the subject matter hereof or thereof, may not be enforced in or by such court. The Company consents to service of process in any such proceeding in any manner at the time permitted by Chapter 223A of the General Laws of The Commonwealth of Massachusetts and agrees that service of process by registered or certified mail, return receipt requested, at its address specified in or pursuant to Section 14 is reasonably calculated to give actual notice. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE COMPANY, THE MANAGING AGENTS AND THE LENDERS WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF THE LENDERS, THE MANAGING AGENTS, OR THE COMPANY IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. The Company acknowledges that it has been informed by the Managing Agents that the provisions of this Section 19 constitute a material inducement upon which each of the Lenders has relied and will rely in entering into this Agreement and any other Credit Document, and that it has reviewed the provisions of this Section 19 with its counsel. Any Lender, any Managing Agent, or the Company may file an original counterpart or a copy of this Section 19 with any court as written evidence of the consent of the Company, the Managing Agents and the Lenders to the waiver of their rights to trial by jury. General. All covenants, agreements, representations and warranties made in this Agreement or any other Credit Document or in certificates delivered pursuant hereto or thereto shall be deemed to have been relied on by each Lender, notwithstanding any investigation made by any Lender on its behalf, and shall survive the execution and delivery to the Lenders hereof and thereof. The invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any other provision hereof. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. This Agreement and the other Credit Documents (including any related fee agreements with the Managing Agents or the Lenders) constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and with respect to such subject matter supersede all prior and contemporaneous understandings and agreements, whether written or oral. This Agreement may be executed in any number of counterparts which together shall constitute one instrument. This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts made and to be performed entirely within The Commonwealth of Massachusetts. Each of the undersigned has caused this Agreement to be executed and delivered by its duly authorized officer as an agreement under seal as of the date first above written. CENTRAL MAINE POWER COMPANY By ______________________________________ Title: 83 Edison Drive Augusta, Maine 04336 Telecopy: (207) 626-9588 THE FIRST NATIONAL BANK OF BOSTON By ______________________________________ Title: The First National Bank of Boston Energy & Utilities Division 100 Federal Street Boston, Massachusetts 02110 Telecopy: (617) 434-3652 Telex: 940581 THE BANK OF NEW YORK By _____________________________________ Title: The Bank of New York One Wall Street New York, New York 10286 Telecopy: (212) 635-7923 FLEET BANK OF MAINE By _____________________________________ Title: Fleet Bank of Maine Two Portland Square Portland, Maine 04101 Telecopy: (207) 874-5167 KEYBANK NATIONAL ASSOCIATION By _____________________________________ Title: KeyBank National Association Large Corporate Banking 127 Public Square MC: OH-01-27-0606 Cleveland, Ohio 44114-1306 Telecopy: (216) 689-4981 COOPERATIEVE-CENTRALE RAIFEISSEN-BOERLEENBANK, B.A., "RABOBANK NEDERLAND, NEW YORK BRANCH" By _____________________________________ Title: By _____________________________________ Title: Rabobank Nederland, New York Branch 245 Park Avenue New York, New York 10167 Telecopy: (212) 916-7837 THE SUMITOMO BANK, LTD., New York Branch By ______________________________________ Title: The Sumitomo Bank, Ltd., New York Branch 277 Park Avenue New York, New York 10172 Telecopy: (212) 224-5188 THE TOKAI BANK, LIMITED, New York Branch By ______________________________________ Title: The Tokai Bank, Limited, New York Branch 55 East 52nd Street New York, New York 10055 Telecopy: (212) 754-2170 EXHIBIT 2.1.4 THREE-YEAR REVOLVING NOTE $__________________ ____________ __, 199_ FOR VALUE RECEIVED, the undersigned Central Maine Power Company, a Maine corporation (the "Company"), hereby promises to pay to (the "Lender") or order, in accordance with the terms of the Credit Agreement hereinafter referred to, to the extent not sooner paid, on the Three-Year Final Maturity Date, DOLLARS ($ ) or such amount as may be advanced by the payee hereof under the Three-Year Revolving Loan with daily interest from the date hereof, computed as provided in such Credit Agreement, on the aggregate principal amount of such advances from time to time unpaid at the per annum rate applicable to such unpaid principal amount as provided in such Credit Agreement and to pay interest on overdue principal and, to the extent not prohibited by applicable law, on overdue installments of interest, fees and any other overdue amounts at the rate specified in such Credit Agreement, all such interest being payable at the times specified in such Credit Agreement, except that all accrued interest shall be paid at the stated or accelerated maturity hereof or upon the prepayment in full hereof. Payments hereunder shall be made to The Bank of New York, as New York Managing Agent for the payee hereof, One Wall Street, New York, New York 10286. This Note evidences borrowings under and is entitled to the benefits of and is subject to the provisions of the Credit Agreement dated as of October 23, 1996, as from time to time in effect, among the Company, The Bank of New York, for itself and as New York Managing Agent, The First National Bank of Boston, for itself and as Boston Managing Agent, and certain other Lenders from time to time party thereto (the "Credit Agreement"). The principal of this Note is prepayable in the amounts and under the circumstances set forth in the Credit Agreement, and may be prepaid in whole or from time to time in part, all as set forth in the Credit Agreement. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. In case an Event of Default (as defined in the Credit Agreement) shall occur, the entire principal amount of this Note may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement. This Note shall be governed by and construed in accordance with the laws of the The Commonwealth of Massachusetts applicable to contracts made and to be performed entirely within The Commonwealth of Massachusetts. The parties hereto, including the Company and all guarantors and endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note, except as specifically otherwise provided in the Credit Agreement, and assent to extensions of time of payment, or forbearance or other indulgence without notice. CENTRAL MAINE POWER COMPANY By_________________________ Title: EXHIBIT 2.2.4 364-DAY REVOLVING NOTE $__________________ ____________ __, 199_ FOR VALUE RECEIVED, the undersigned Central Maine Power Company, a Maine corporation (the "Company"), hereby promises to pay to (the "Lender") or order, in accordance with the terms of the Credit Agreement hereinafter referred to, to the extent not sooner paid, on the 364-Day Final Maturity Date, DOLLARS ($ ) or such amount as may be advanced by the payee hereof under the 364-Day Revolving Loan with daily interest from the date hereof, computed as provided in such Credit Agreement, on the aggregate principal amount of such advances from time to time unpaid at the per annum rate applicable to such unpaid principal amount as provided in such Credit Agreement and to pay interest on overdue principal and, to the extent not prohibited by applicable law, on overdue installments of interest, fees and any other overdue amounts at the rate specified in such Credit Agreement, all such interest being payable at the times specified in such Credit Agreement, except that all accrued interest shall be paid at the stated or accelerated maturity hereof or upon the prepayment in full hereof. Payments hereunder shall be made to The Bank of New York, as New York Managing Agent for the payee hereof, One Wall Street, New York, New York 10286. This Note evidences borrowings under and is entitled to the benefits of and is subject to the provisions of the Credit Agreement dated as of October 23, 1996, as from time to time in effect, among the Company, The Bank of New York, for itself and as New York Managing Agent, The First National Bank of Boston, for itself and as Boston Managing Agent, and certain other Lenders from time to time party thereto (the "Credit Agreement"). The principal of this Note is prepayable in the amounts and under the circumstances set forth in the Credit Agreement, and may be prepaid in whole or from time to time in part, all as set forth in the Credit Agreement. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. In case an Event of Default (as defined in the Credit Agreement) shall occur, the entire principal amount of this Note may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement. This Note shall be governed by and construed in accordance with the laws of the The Commonwealth of Massachusetts applicable to contracts made and to be performed entirely within The Commonwealth of Massachusetts. The parties hereto, including the Company and all guarantors and endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note, except as specifically otherwise provided in the Credit Agreement, and assent to extensions of time of payment, or forbearance or other indulgence without notice. CENTRAL MAINE POWER COMPANY By__________________________________ Title: r:\yearly\10k\1996\ex231.doc EXHIBIT 2.3.1 COMPETITIVE AUCTION FACILITY LOAN BID REQUEST Date: To: The Bank of New York, as New York Managing Agent under the Credit Agreement (as defined below) Re: Credit Agreement dated as of October 23, 1996, as from time to time in effect (the "Credit Agreement"), among Central Maine Power Company and certain Lenders for which The Bank of New York and The First National Bank of Boston are acting as Managing Agents. The undersigned hereby gives notice pursuant to Section 2.3.1 of the Credit Agreement that the undersigned requests bids from the Lenders with respect to the following Competitive Auction Facility Loan(s): Competitive Auction Facility Loan Closing Date1 (Date of Borrowing): ____________________ Designation of Competitive Auction Facility Loan(s) (either Three-Year or 364-Day): __________________ Principal Amount(s)2 Competitive Auction3 Competitive Auction4 of Requested Competitive Facility Loan Interest Facility Loan Auction Facility Loan(s) Payment Dates (if any) Maturity Date(s) Such Competitive Auction Facility Loan bids should offer a Competitive Auction Facility Rate. The sum of the aggregate principal amount of Three-Year Competitive Auction Facility Loans outstanding, after giving effect to the Three-Year Competitive Auction Facility Loans requested hereby, plus the Three-Year Revolving Loan will be $________.5 The sum of the aggregate principal amount of 364-Day Competitive Auction Facility Loans outstanding, after giving effect to the 364-Day Competitive Auction Facility Loans requested hereby, plus the 364-Day Revolving Loan will be $________.6 Aggregate number of Eurodollar Pricing Options and Competitive Auction Facility Loans outstanding, after giving effect to the Competitive Auction Facility Loans requested hereby.7 __________ Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. Very truly yours, CENTRAL MAINE POWER COMPANY By__________________________ Title: 1 Must be the Banking Day following the applicable Request Date. 2 Aggregate amount must be a minimum of $1,000,000, and if larger, in integral multiples of $500,000. 3 Must pay accrued and unpaid interest on the 90th day after the Competitive Auction Facility Loan Closing Date if the Competitive Auction Facility Loan Maturity Date is more than 90 days after the Competitive Auction Facility Loan Closing Date. 4 Not earlier than seven days following the applicable Competitive Auction Facility Loan Closing Date and not later than the earlier of (i) the 180th day following the applicable Competitive Auction Facility Loan Closing Date and (ii) the applicable Final Maturity Date. 5 Must not exceed the Maximum Amount of Three-Year Revolving Credit as determined by Section 2.1.2 of the Credit Agreement. 6 Must not exceed the Maximum Amount of 364-Day Revolving Credit as determined by Section 2.2.2 of the Credit Agreement. 7 Must not exceed 10. EXHIBIT 2.3.2 INVITATION TO BID ON COMPETITIVE AUCTION FACILITY LOAN Date: To: Lenders Participating in the Competitive Auction Facility Loan Bid Auction under the Credit Agreement Re: Invitation to Bid on Competitive Auction Facility Loan Pursuant to Section 2.3.2 of the Credit Agreement dated as of October 23, 1996, as from time to time in effect (the "Credit Agreement"), among Central Maine Power Company and certain Lenders for which The Bank of New York and The First National Bank of Boston are acting as Managing Agents, we are pleased on behalf of Central Maine Power Company to invite you to submit bids with respect to the following Competitive Auction Facility Loan(s): Competitive Auction Facility Loan Closing Date (Date of Borrowing): ____________________ Designation of Competitive Auction Facility Loan(s) (either Three-Year or 364-Day): __________________ Principal Amount(s) Competitive Auction Competitive Auction of Requested Competitive Facility Loan Interest Facility Loan Auction Facility Loan(s) Payment Dates (if any) Maturity Date(s) Such Competitive Auction Facility Loan bids should offer a Competitive Auction Facility Rate. Please respond to this invitation by no later than 10:00 a.m. (New York time) on the Competitive Auction Facility Loan Closing Date. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. Very truly yours, THE BANK OF NEW YORK, as New York Managing Agent under the Credit Agreement By____________________________________ Title: EXHIBIT 2.3.3A COMPETITIVE AUCTION FACILITY LOAN BID Date: The Bank of New York, as New York Managing Agent under the Credit Agreement (as defined below) One Wall Street New York, New York 10286 Attention: [insert] Re: Central Maine Power Company In response to your invitation on behalf of Central Maine Power Company (the "Borrower") dated ____________________, the undersigned (the "Bidding Lender") hereby submits the following Competitive Auction Facility Loan bid(s) with respect to the following Competitive Auction Facility Loan(s): 1. Bidding Lender: ____________________ 2. Person to contact at Bidding Lender: ____________________ 3. Competitive Auction Facility Loan Closing Date (Date of Borrowing): ____________________ 4. Designation of Competitive Auction Facility Loan(s) (either Three-Year or 364-Day): ____________________ 5. The undersigned hereby offers to make to the Borrower, on the Competitive Auction Facility Loan Closing Date specified above, the following Competitive Auction Facility Loan(s): Competitive Auction Principal Amount(s)1 Facility Loan Competitive Auction of Offered Competitive Interest Payment Facility Loan Competitive Auction2 Auction Facility Loan(s) Dates (if any) Maturity Date(s) Facility Rate(s)
The undersigned understands and agrees that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement dated as of October 23, 1996 as from time to time in effect (the "Credit Agreement"), among Central Maine Power Company and certain Lenders for which The Bank of New York and The First National Bank of Boston are acting as Managing Agents, obligates the undersigned to make the Competitive Auction Facility Loan(s) for which any offer(s) are accepted in whole or in part by the Borrower. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. Very truly yours, [NAME OF LENDER] By______________________________ Title: EXHIBIT 2.3.3B LIST OF COMPETITIVE AUCTION FACILITY LOAN BIDS Date: Central Maine Power Company 83 Edison Drive Augusta, Maine 04336 Attention: Manager of Treasury Operations Ladies and Gentlemen: Reference is made to the Credit Agreement dated as of October 23, 1996, as from time to time in effect (the "Credit Agreement"), among Central Maine Power Company and certain Lenders for which The Bank of New York and The First National Bank of Boston are acting as Managing Agents. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. Notice is hereby given that pursuant to Section 2.3.3 of the Credit Agreement, the following Lenders have offered to make to Central Maine Power Company on ____________________, the following Competitive Auction Facility Loan(s) in the amount(s) and at the rate(s) specified below: Lender(s): Designation of Competitive Auction Facility Loan(s) Principal Amount(s) of Offered Competitive Auction Facility Loan(s): $___________________ Competitive Auction Facility Loan Interest Payment Dates (if any) ____________________ Competitive Auction Facility Loan Maturity Date(s): Competitive Auction Facility Rate(s): ____________________% Very truly yours, THE BANK OF NEW YORK, as New York Managing Agent under the Credit Agreement By________________________________ Title: EXHIBIT 2.3.4A LIST OF ACCEPTANCES AND NON-ACCEPTANCES OF COMPETITIVE AUCTION FACILITY LOAN BIDS The Bank of New York, as New York Managing Agent under the Credit Agreement (as defined below) One Wall Street New York, New York 10286 Attention: [insert] Ladies and Gentlemen: Reference is made to (a) the Credit Agreement dated as of October 23, 1996, as from time to time in effect (the "Credit Agreement"), among Central Maine Power Company (the "Company") and certain Lenders for which you are acting as New York Managing Agent and (b) the bid notices (the "Bid Notices") received from you on [insert applicable Competitive Auction Facility Loan Closing Date]. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. [Pursuant to Section 2.3.4 of the Credit Agreement, the Company hereby irrevocably accepts the offer(s) of the Lender(s) specified below to make the following Competitive Auction Facility Loans: Lender(s): ____________________ Competitive Auction Facility Loan Closing Date: ____________________ Designation of Competitive Auction Facility Loan(s) (either Three-Year or 364-Day) ____________________ Principal Amount(s) of Offered Competitive Auction Facility Loan(s): $____________________ Competitive Auction Facility Rate(s): ____________________% Competitive Auction Facility Loan Maturity Date(s): ____________________ Competitive Auction Facility Loan Interest Payment Dates (if any): ____________________] [repeat for each accepted bid] [Except as provided above,] all offers to make Competitive Auction Facility Loans described in the Bid Notices are hereby rejected. Very truly yours, CENTRAL MAINE POWER COMPANY By__________________________ Title: EXHIBIT 2.3.4B ACCEPTANCE OF COMPETITIVE AUCTION FACILITY LOAN BIDS Date: To: Lenders Participating in the Competitive Auction Facility Loan Bid Auction under the Credit Agreement Reference is made to the Credit Agreement dated as of October 23, 1996, as from time to time in effect (the "Credit Agreement"), among Central Maine Power Company and certain Lenders for which The Bank of New York and The First National Bank of Boston are acting as Managing Agents. Pursuant to Section 2.3.4 of the Credit Agreement, notification has been received from Central Maine Power Company that it has accepted the following bids: Lender(s): ____________________ Designation of Competitive Auction Facility Loan(s) ____________________ Principal Amount(s) of Offered Competitive Auction Facility Loan(s): $____________________ Competitive Auction Facility Loan Interest Payment Dates (if any): ____________________ Competitive Auction Facility Loan Maturity Date(s): ____________________ Competitive Auction Facility Rate(s): ____________________% If your quote has been accepted, funds should be transferred to The Bank of New York [insert transfer instructions] and should be immediately available as of 2:30 p.m. (New York time) on _________________. Following are the Competitive Auction Facility Loan bids which were submitted by the Lenders in today's auction: Lender(s): ____________________ Designation of Competitive Auction Facility Loan(s) ____________________ Principal Amount(s) of Offered Competitive Auction Facility Loan(s): $____________________ Competitive Auction Facility Loan Interest Payment Dates (if any): ____________________ Competitive Auction Facility Loan Maturity Date(s): ____________________ Competitive Auction Facility Rate(s): ____________________% Very truly yours, THE BANK OF NEW YORK, as New York Managing Agent under the Credit Agreement By________________________________ Title: EXHIBIT 2.3.4C NON-ACCEPTANCE OF COMPETITIVE AUCTION FACILITY LOAN BIDS Date: To: Lenders Participating in the Competitive Auction Facility Loan Bid Auction under the Credit Agreement Reference is made to the Credit Agreement dated as of October 23, 1996, as from time to time in effect (the "Credit Agreement"), among Central Maine Power Company and certain Lenders for which The Bank of New York and The First National Bank of Boston are acting as Managing Agents. Pursuant to Section 2.3.4 of the Credit Agreement, notification has been received from the Company that it has not accepted any of the following bids: Lender(s): ____________________ Designation of Competitive Auction Facility Loan(s) ____________________ Principal Amount(s) of Offered Competitive Auction Facility Loan(s): $____________________ Competitive Auction Facility Loan Interest Payment Dates (if any): ____________________ Competitive Auction Facility Loan Maturity Date(s): ____________________ Competitive Auction Facility Rate(s): ____________________% Following are the Competitive Auction Facility Loan bids which were submitted by the Lenders in today's auction: Lender(s): ____________________ Designation of Competitive Auction Facility Loan(s) ____________________ Principal Amount(s) of Offered Competitive Auction Facility Loan(s): $____________________ Competitive Auction Facility Loan Interest Payment Dates (if any): ____________________ Competitive Auction Facility Loan Maturity Date(s): ____________________ Competitive Auction Facility Rate(s): ____________________% Very truly yours, THE BANK OF NEW YORK, as New York Managing Agent under the Credit Agreement By___________________________________ Title: EXHIBIT 2.3.4D NOTICE OF COMPETITIVE AUCTION FACILITY LOAN Date: Central Maine Power Company 83 Edison Drive Augusta, Maine 04336 Attention: Manager of Treasury Operations [Each Lender] [Address] Attention: Ladies and Gentlemen: Reference is made to the Credit Agreement dated as of October 23, 1996, as from time to time in effect (the "Credit Agreement"), among Central Maine Power Company and certain Lenders for which the undersigned is acting as New York Managing Agent. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. Pursuant to Section 2.3.4 of the Credit Agreement, the undersigned hereby notifies you that the following Competitive Auction Facility Loan(s) became effective on the date hereof: Designation of Principal Amount of Competitive Auction Competitive Auction Competitive Auction Facility Loan Facility Loans Facility Loan(s) Maturity Date(s) Very truly yours, THE BANK OF NEW YORK, as New York Managing Agent under the Credit Agreement By_______________________________ Title: EXHIBIT 2.3.5 COMPETITIVE AUCTION FACILITY NOTE No. ___ _______________, 199_ $_______________ New York, New York FOR VALUE RECEIVED, the undersigned Central Maine Power Company, a Maine corporation (the "Borrower"), hereby promises to pay to ______________________ (the "Holder") or order, on [insert Competitive Auction Facility Loan Maturity Date], ___________________________________ DOLLARS ($_______________) or, if less, the aggregate unpaid Competitive Auction Facility Loan made to the Borrower by the Holder, with daily interest from the date hereof, computed as provided in the Credit Agreement referred to below, on the principal amount of such Competitive Auction Facility Loan from time to time unpaid at a rate per annum of [insert Competitive Auction Facility Rate] plus an additional rate per annum on the occurrence and continuation of an Event of Default, as provided for in the Credit Agreement. Accrued interest shall be payable on [insert Competitive Auction Facility Loan Interest Payment Date, if any] [and on] [insert Competitive Auction Facility Loan Maturity Date] except that all accrued interest shall be paid at the accelerated maturity hereof or upon the prepayment in full hereof. Payments hereunder shall be made to The Bank of New York, as New York Managing Agent for the payee hereof, at One Wall Street, New York, New York 10286. This Note evidences a Competitive Auction Facility Loan under and is entitled to the benefits and subject to the provisions of the Credit Agreement dated as of October 23, 1996, as from time to time in effect (the "Credit Agreement"), among Central Maine Power Company and certain Lenders for which The Bank of New York and The First National Bank of Boston are acting as Managing Agents. The principal of this Note may be due and payable in whole or in part prior to the maturity date stated above and is subject to required prepayment in the amounts and under the circumstances set forth in the Credit Agreement. Other than in circumstances under which the Company is required under the Credit Agreement to prepay, the Company may not prepay any principal amount outstanding under this Note. This Note may not be assigned or otherwise transferred except in accordance with the Credit Agreement. In case an Event of Default (as defined in the Credit Agreement) shall occur, the entire principal amount of this Note may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement. This Note shall be governed by and construed in accordance with the laws of the The Commonwealth of Massachusetts applicable to contracts made and to be performed entirely within The Commonwealth of Massachusetts. The undersigned maker, and all guarantors and endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note, except as specifically otherwise provided in the Credit Agreement, and assent to extensions of time of payment or forbearance or other indulgence without notice. CENTRAL MAINE POWER COMPANY By__________________________________ Title: 1 Principal amount of bids may not exceed principal amount requested. Bids must be for a minimum of $1,000,000, and if larger, in integral multiples of $500,000. 2 Specify rate of interest per annum (each rounded to the nearest 1/100%). EXHIBIT 5.1.1 OFFICER'S CERTIFICATE Pursuant to Section 5.1.1 of the Credit Agreement dated as of October 23, 1996 among Central Maine Power Company, a Maine corporation (the "Company"), The First National Bank of Boston, for itself and as Boston Managing Agent, The Bank of New York, for itself and as New York Managing Agent, and certain other Lenders from time to time party thereto (the "Credit Agreement"), the Company certifies that (i) the representations and warranties contained in Section 7 of the Credit Agreement are true and correct on and as of the date hereof with the same force and effect as though originally made on and as of the date hereof (except as to any representation or warranty which is limited to a specific earlier date) and (ii) no Default exists on the date hereof. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. This certificate has been executed by a duly authorized Financial Officer this 23rd day of October, 1996. CENTRAL MAINE POWER COMPANY By_______________________________ Title: EXHIBIT 10.1 REVOLVING LOAN PERCENTAGE INTERESTS The Percentage Interest of each Lender in the Three-Year Revolving Loan and the 364-Day Revolving Loan, and the related Commitments, shall be computed based on the maximum principal amounts for each Lender as follows: Maximum Principal Maximum Principal Amount in Three Amount in 364 Year Revolving Loan Day Revolving Loan Percentage Interest Lender The Bank of New York $9,000,000 $13,500,000 18% The First National Bank of $9,000,000 $13,500,000 18% Boston Fleet Bank of Maine $8,000,000 $12,000,000 16% Rabobank Nederland, New $7,200,000 $10,800,000 14.4% York Branch KeyBank National $5,600,000 $8,400,000 11.2% Association The Sumitomo Bank, Ltd., $5,600,000 $8,400,000 11.2% New York Branch The Tokai Bank, Limited, $5,600,000 $8,400,000 11.2% New York Branch TOTAL $50,000,000 $75,000,000 100% EXHIBIT 11.1.1 ASSIGNMENT AND ACCEPTANCE This Agreement, dated as of ____________, 199_, is between _______________, a Lender under the Credit Agreement referred to below (the "Assignor"), and _______________ (the "Assignee"). For valuable consideration, the receipt of which is hereby acknowledged, the Assignor agrees with the Assignee as follows: Reference to Credit Agreement and Definitions. Reference is made to the Credit Agreement dated as of October 23, 1996, as from time to time in effect, among Central Maine Power Company, a Maine corporation (the "Company"), The First National Bank of Boston, for itself and as Boston Managing Agent, The Bank of New York, for itself and as New York Managing Agent, and certain other Lenders from time to time party thereto (the "Credit Agreement"). Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. 2. Assignment and Assumption. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, a __% interest in and to all the Assignor's interests, rights and obligations under the Credit Agreement and the other Credit Documents as of the Assignment Date (as defined below), including without limitation such percentage interest in the Commitment of the Assignor on the Assignment Date and such percentage interest in the Revolving Loan outstanding on the Assignment Date, together with such percentage interest in all unpaid interest with respect to the Revolving Loan and all fees arising pursuant to the Credit Agreement accrued to the Assignment Date (but excluding any Competitive Auction Facility Loan currently outstanding advanced by the Assignor). [If an assignment of a Competitive Auction Facility Loan or portion thereof is to be made, add appropriate language.] 3. Representations, Warranties, etc. 3.1. Assignor's Representations and Warranties. The Assignor: (a) represents that as of the date hereof, its Commitment is $____________ and the outstanding principal balance of its portion of the Revolving Loan is $___________ with respect to the 364-Day Revolving Loan and $___________ with respect to the Three-Year Revolving Loan; (b) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the other Credit Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or the other Credit Documents or any other instrument or document furnished pursuant thereto, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; and (c) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company and its Subsidiaries or the performance of any of the obligations of the Company under the Credit Agreement, any of the Credit Documents or any other instrument or document furnished pursuant hereto or thereto. 3.2. Assignee's Representations, Warranties and Agreements. The Assignee: (a) represents and warrants that it is legally authorized to enter into this Agreement; (b) confirms that it has received a copy of the Credit Agreement and certain other Credit Documents it has requested, together with copies of the most recent financial statements delivered pursuant to Section 6.4 or 7.2 of the Credit Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Agreement; (c) agrees that it will, independently and without reliance upon the Managing Agents, Assignor or any other Person which has become a Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and the other Credit Documents; (d) agrees that it will be bound by the provisions of the Credit Agreement and the other Credit Documents and will perform in accordance with their terms all the obligations which are required to be performed by it as a Lender; and (e) agrees to appoint and authorize the Managing Agents to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Managing Agents by the terms thereof, together with such powers as are reasonably incidental thereto. 4. Assignment Date. The effective date of this Agreement shall be ____________, 199_ (the "Assignment Date"). 5. Assignee Party to Credit Agreement; Assignor Release of Obligations. From and after the Assignment Date, (a) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Agreement, have the rights and obligations of a Lender thereunder and under the Credit Documents and (b) the Assignor shall, to the extent provided in this Agreement, relinquish its rights and be released from its obligations under the Credit Agreement and the other Credit Documents. 6. Notices. All notices and other communications required to be given or made to the Assignee under this Agreement, the Credit Agreement or any other Credit Documents shall be given or made at the address of the Assignee set forth on the signature page hereof or at such other address as the Assignee shall have specified to the Assignor, the Managing Agents and the Company in writing. 7. Further Assurances. The parties hereto agree to execute and deliver such other instruments and documents and to take such other actions as any party hereto may reasonably request in connection with the transactions contemplated by this Agreement. 8. General. This Agreement, the Credit Agreement and the other Credit Documents constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersede all current and prior agreements and understandings, whether written or oral. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. The invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or provision hereof. This Agreement may be executed in any number of counterparts, which together shall constitute one instrument, and shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, including as such successors and assigns all holders of any Credit Obligation. This Agreement shall be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the jurisdiction in which the principal office of the Assignor is located. Each of the Assignor and the Assignee has caused this Agreement to be executed and delivered by its duly authorized officer under seal as of the date first written above. [ASSIGNOR] By___________________________ Title: [ASSIGNEE] By_____________________________ Title: [Street Address City, State Zip Code] Telecopy: Telex: The foregoing is hereby consented to: THE FIRST NATIONAL BANK OF BOSTON, as Boston Managing Agent By____________________________________ Title: THE BANK OF NEW YORK, as New York Managing Agent By____________________________________ Title: CENTRAL MAINE POWER COMPANY By____________________________________ Title: EX-21 4 CMPCO. SUBSIDIARIES Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Percentage of Jurisdiction of Voting Stock Owned Name Incorporation by the Company Central Securities Corporation Maine 100.0 Cumberland Securities Corporation Maine 100.0 Maine Industries, Inc.* Maine 100.0 The Union Water-Power Company Maine 100.0 Maine Electric Power Company, Inc. Maine 78.3 Kennebec Hydro Resources, Inc. Maine 100.0 NORVARCO Maine 100.0 CMP International Consultants Maine 100.0 Aroostook Valley Electric Company Maine 100.0 MaineCom Services Maine 100.0 TeleSmart Maine 100.0 *Maine Industries, Inc. is inactive. EX-23 5 AUDITOR'S CONSENT Exhibit 23-1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Central Maine Power Company on Form S-3 (File Nos. 33-56939; 33-36679; 33-39826; 33-44754; 33-51611) of our report dated January 23, 1997, on our audits of the consolidated financial statements and financial statement schedule of Central Maine Power Company and subsidiary as of December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995, and 1994, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Portland, Maine March 25, 1997 EX-27 6 FDS
UT 1000 U.S.DOLLARS YEAR DEC-31-1996 JAN-1-1996 DEC-31-1996 1 PER-BOOK 1,067,183 67,809 246,645 629,277 0 2,010,914 162,214 276,818 72,546 511,578 53,528 65,571 553,434 7,500 0 0 25,645 7,000 34,553 1,730 750,375 2,010,914 967,046 30,125 835,387 865,512 107,672 4,209 111,881 51,652 60,229 9,452 50,777 29,199 30,220 125,508 1.57 1.57
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