-----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, J0OY/mtFDos21H2pM9pxKLIBKF5uuaeyQkH9f7rIMeChzm62FMxEgnFfFMjmR2II H6dWTbX7121H4i/Lya1uBQ== 0000950130-99-005594.txt : 20000211 0000950130-99-005594.hdr.sgml : 20000211 ACCESSION NUMBER: 0000950130-99-005594 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19990930 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL VERMONT PUBLIC SERVICE CORP CENTRAL INDEX KEY: 0000018808 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 030111290 STATE OF INCORPORATION: VT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-88175 FILM NUMBER: 99721025 BUSINESS ADDRESS: STREET 1: 77 GROVE ST CITY: RUTLAND STATE: VT ZIP: 05701 BUSINESS PHONE: 8027732711 S-4 1 FORM S-4 As filed with the Securities and Exchange Commission on September 30, 1999 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------- CENTRAL VERMONT PUBLIC SERVICE CORPORATION (Exact name of registrant as specified in its charter) Vermont 4911 03-0111290 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Classification Identification incorporation or organization) Code Number) Number) 77 Grove Street Rutland, Vermont 05701 (802) 773-2711 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Joseph M. Kraus 77 Grove Street Rutland, Vermont 05701 (802) 733-2711 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- Copies to: M. Douglas Dunn, Esq. Robert B. Williams, Esq. Milbank, Tweed, Hadley & McCloy LLP 1 Chase Manhattan Plaza New York, NY 10005 (212) 530-5000 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. |_| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| -------------------------- CALCULATION OF REGISTRATION FEE
==================================================================================================================================== Title of each class of securities to Amount to be Proposed maximum Proposed maximum Amount of be registered registered offering price per share aggregate offering price registration fee(1) - ------------------------------------------------------------------------------------------------------------------------------------ 8 1/8% Second Mortgage Bonds Due 2004 $75,000,000 100% $75,000,000 $20,850 ====================================================================================================================================
(1) In accordance with Rule 457(f)(2), the registration fee is calculated based on the book value of the Old Bonds to be exchanged, as of July 30, 1999. -------------------------- The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ The information in this prospectus is not complete and may be changed. We may not exchange these securities until the registration statement filed with the Securities and Exchange commission relating to these securities is effective. This prospectus is not an offer to exchange these securities and it is not soliciting an offer to exchange these securities in any state where the offer or exchange is not permitted. ================================================================================ Subject to Completion, dated September 30, 1999 PROSPECTUS $75,000,000 Central Vermont Public Service Corporation Offer to Exchange 8 1/8% Second Mortgage Bonds due 2004 For Any and All Outstanding 8 1/8% Second Mortgage Bonds due 2004 This prospectus and accompanying letter of transmittal relate to our proposed offer to exchange up to $75,000,000 aggregate principal amount of new 8-1/8% Second Mortgage Bonds due 2004 (the "New Bonds"), which will be freely transferable, for any and all outstanding 8-1/8% Second Mortgage Bonds due 2004 issued on July 30, 1999 (the "Old Bonds"), which have transfer restrictions. o The exchange offer expires at 5:00 p.m., New York City time, on 1999, unless extended. o The terms of the New Bonds are substantially identical to the Old Bonds, except for transfer restrictions, registration rights and liquidated damages. o All Old Bonds that are validly tendered and not validly withdrawn will be exchanged. o Tenders of Old Bonds may be withdrawn at any time prior to expiration of the exchange offer. o Holders of Old Bonds do not have any appraisal or dissenters' rights in connection with the exchange offer. Old Bonds not exchanged in the exchange offer will remain outstanding and be entitled to the benefits of the Indenture, but, except under limited circumstances, will have no further exchange or registration rights under the Registration Rights Agreement. o We do not intend to apply for listing of the New Bonds on any securities exchange or to arrange for them to be quoted on any quotation system. o The only conditions to completing the exchange offer are that the exchange offer not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission and no injunction, order or decree has been issued when would prohibit, prevent or materially impair our ability to proceed with the exchange offer. ------------------------- Please see "Risk Factors" beginning on page 16 for a discussion of factors you should consider in connection with the exchange offer. ------------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the New Bonds, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read this entire prospectus (and accompanying letter of transmittal and related documents) and any amendments or supplements carefully before deciding to exchange your securities. The date of this prospectus is _____ , 1999. ================================================================================ TABLE OF CONTENTS WHERE TO FIND MORE INFORMATION....................................2 FORWARD-LOOKING STATEMENTS........................................3 PROSPECTUS SUMMARY................................................4 RISK FACTORS.....................................................15 USE OF PROCEEDS..................................................25 CAPITALIZATION...................................................26 SELECTED CONSOLIDATED FINANCIAL DATA.............................27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................29 BUSINESS.........................................................44 REGULATION AND RATES.............................................48 ELECTRIC INDUSTRY RESTRUCTURING..................................51 OUR RESTRUCTURING PLAN...........................................54 DESCRIPTION OF OTHER INDEBTEDNESS AND PREFERRED STOCK............57 THE EXCHANGE OFFER...............................................59 DESCRIPTION OF THE NEW BONDS.....................................69 CERTAIN FEDERAL TAX CONSIDERATIONS..............................111 PLAN OF DISTRIBUTION............................................114 LEGAL MATTERS...................................................114 INDEPENDENT PUBLIC ACCOUNTANTS..................................114 WHERE TO FIND MORE INFORMATION In connection with the exchange offer, we have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, relating to the New Bonds to be issued in the exchange offer. As permitted by SEC rules, this prospectus omits information included in the registration statement. For a more complete understanding of this exchange offer, you should refer to the registration statement, including its exhibits. We are also subject to the information requirements of the Securities Exchange Act. Accordingly, we file annual, quarterly and current reports as well as other information with the Securities and Exchange Commission. The public may read and copy any reports or other information that we file with the SEC at the SEC's public reference room, Room 1024 at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. We have securities listed on the New York Stock Exchange. You can inspect and copy reports and other information about us at the NYSE's offices at 20 Broad Street, New York, New York. We are "incorporating by reference" information into this prospectus. This means that we are disclosing important information by referring to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information in this prospectus. This prospectus incorporates by reference the documents set forth below that we have previously filed with the SEC. These documents contain important information about us. SEC Filing (File No. 1-8222) Period/Date ---------------------------- ----------- Annual Report on Form 10-K Year ended December 31, 1998 Quarterly Report on Form 10-Q Quarter ended March 31, 1999 Quarterly Report on Form 10-Q Quarter ended June 30, 1999 You may also obtain a copy of these filings and the exchange offer registration statement at no cost by writing or telephoning us at the following address: Central Vermont Public Service Corporation 77 Grove Street Rutland, Vermont 05701 (802) 773-2711 Attention: Corporate Secretary You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with information that is different from this information. 1 FORWARD-LOOKING STATEMENTS This prospectus may contain statements regarding our assumptions, projections, expectations, intentions or beliefs about future events. These statements are intended as "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 and for purposes of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. We caution that these statements may and often do vary from actual results and the differences between these statements and actual results can be material. Accordingly, we cannot assure you that actual results will not differ materially from those expressed or implied by the forward-looking statements. Some of the factors that could cause actual events to differ materially from those expressed or implied in any forward-looking statement are: o our ability to recover stranded costs; o state and federal legislative and regulatory initiatives or proceedings that affect the recovery of our investments or that have an impact on rate structures and results of operation and cash flow; o the weather and other natural phenomena; o the timing and extent of changes in costs of labor and prices of commodities and interest rates; o changes in environmental and other laws and regulations to which we and our subsidiaries are subject or other external factors over which we have no control; o the results of financing efforts; o risks of ownership and decommissioning of nuclear facilities; o expansion and other growth opportunities; o technology advances in energy supply and distribution; o achievement of Year 2000 readiness; and o the effect of accounting policies issued periodically by accounting standard-setting bodies. These factors are discussed more completely in our filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 1998 and quarterly reports on Form 10-Q for the quarters ended March 31, and June 30, 1999, respectively, both of which are incorporated by reference into this prospectus. 2 - -------------------------------------------------------------------------------- PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus and is not complete and may not contain all the information that is important to you regarding the exchange offer. You should read the entire prospectus, including the "Risk Factors" section and the financial statements and footnotes thereto and other detailed information incorporated by reference into this prospectus, before making a decision to participate in the exchange offer. As used in this prospectus (unless otherwise noted or the context otherwise requires), (1) "our," "us," "we" and "Company" refer to Central Vermont Public Service Corporation and our subsidiaries and (2) "Bonds" refer to both the Old Bonds and the New Bonds. CENTRAL VERMONT PUBLIC SERVICE CORPORATION We are the largest electric utility in Vermont. Together with our subsidiaries, we engage principally in the purchase, production, transmission, distribution and sale of electricity. We serve over 140,000 customers in nearly three-quarters of the towns, villages and cities in Vermont, representing approximately 50% of the Vermont population. We operate in New Hampshire through our electric utility subsidiary, Connecticut Valley Electric Company Inc., or Connecticut Valley, which serves approximately 10,000 customers. Our consolidated operating revenues in 1998 were $303.8 million. Approximately 77% of our consolidated operating revenues were generated from our retail electric utility business in Vermont and approximately 7% were generated from our retail electric utility business in New Hampshire. Our principal executive offices are located at 77 Grove Street, Rutland, Vermont 05701. Our telephone number is (802) 773-2711. Our Vermont retail sales in 1998 of 2.1 million megawatt hours, or mWh, were approximately 41% residential, 40% commercial, 18% industrial and 1% other. Consolidated mWh sales in 1998 were 3.6 million. Consolidated mWh sales to retail and firm wholesale customers accounted for 63.4% of our total sales during 1998. The remaining sales were entitlement sales, sales to NEPOOL (the New England power pool), and short-term power sales. Entitlement sales occur when we sell a portion of the power to which we are entitled from a specific contract or generating plant. For 1998, our consolidated peak demand to serve our retail and firm wholesale customers was 420.6 megawatts or mW. We currently purchase approximately 86% of our retail and firm wholesale power needs under several contracts of varying duration. During 1998, over 35% of these power needs came from Vermont Yankee, an affiliated company which owns and operates a nuclear generating unit. During 1998, over 32% of our power needs came from Hydro-Quebec, one of the world's largest generators of hydroelectricity which is owned by the province of Quebec, Canada. Our remaining sources of power include purchase contracts with small power producers, purchases from NEPOOL and other contracted sources, as well as our own generation. Our purchased power portfolio includes a diversified mix of sources and fuel types to meet our long-term load growth while providing short and intermediate term opportunities to purchase or sell capacity and energy to reduce overall power costs. We generate approximately 14% of our retail and firm wholesale power needs through several wholly- and jointly-owned power plants. During 1998, our 20 wholly-owned hydroelectric plants accounted for approximately 9% of our overall retail and firm wholesale energy needs. Our jointly-owned nuclear and fossil fuel facilities, Millstone Unit #3 (nuclear), Wyman #4 (oil-fired) and Joseph C. McNeil (wood, gas and oil-fired), together accounted for approximately 5% of our 1998 total retail and firm wholesale power needs. We utilize our affiliate Vermont Electric Power Company, Inc., or VELCO, to transmit our power in the State of Vermont. We are the largest user of VELCO's transmission system. Our wholly- and partially-owned subsidiaries engage in the following energy and non-energy related businesses: o We own all of Connecticut Valley, a regulated utility, which distributes and sells electricity to approximately 10,000 customers in 13 communities bordering the Connecticut River in New Hampshire. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- o We own a 56.8% equity interest in VELCO, which owns and operates the high voltage electric transmission system in Vermont. o In addition to our 1.7% joint ownership in Millstone Unit #3, we own equity interests in various nuclear facilities, including 31.3% of Vermont Yankee Nuclear Power Corporation (Vermont Yankee), 2% of Connecticut Yankee Atomic Power Company (Connecticut Yankee), 2% of Maine Yankee Atomic Power Company (Maine Yankee), and 3.5% of Yankee Atomic Electric Company (Yankee Atomic). Connecticut Yankee, Maine Yankee and Yankee Atomic no longer operate and are in various stages of decommissioning. o We own all of Catamount Energy Corporation, or Catamount, which has investments in energy generation projects in the United States and Great Britain. o We own all of SmartEnergy Services, Inc., or SmartEnergy, which invests in unregulated energy and service related businesses. OUR RESTRUCTURING PLAN In order to improve our financial condition, enhance our ability to compete effectively in a changing electric utility industry and stabilize projected costs, we are pursuing a comprehensive financial restructuring plan known as our Restructuring Plan. The Restructuring Plan is consistent with the findings of the Working Group on Vermont's Electricity Future, or the Working Group, which was appointed by Vermont's Governor in July 1998 to make recommendations on restructuring the State's electric utility industry. We support the conclusions of the Working Group, which are described in more detail elsewhere in this offering memorandum. We are aggressively pursuing implementation of our Restructuring Plan which includes the following elements: o Retail choice: voluntarily giving up the exclusive right to supply power to our present electric customers, while retaining our rights as a distribution company, as part of a global settlement of regulatory issues. o Renegotiation of power purchase contracts: reducing our future cost of power by renegotiating power contracts, specifically those with Hydro-Quebec and the Vermont purchasing agent's contracts with small power producers which together represented nearly 38% of our 1998 net energy supply. We may seek to finance the cost of any auctions, buy-outs or buy-downs of power contracts through the future issuance of securities in the capital markets. o Contract and asset disposition: seeking to sell some or all of our power purchase contracts and generating assets, including our interest in the Vermont Yankee nuclear generating plant. Efforts to sell the Vermont Yankee plant and possibly purchase a portion of the power from the plant are under way. On September 22, 1999, we announced that we will seek, with the other Vermont Joint Owners, to auction the contract with Hydro-Quebec. o Cost-cutting: implementing cost-cutting measures to reduce cash flow requirements while maintaining safety and reliability standards. o Holding company: establishing a new holding company to help us better organize our businesses. o Industry consolidation: evaluating possible consolidation with other Vermont electric distribution companies. o Regulatory settlement: seeking a comprehensive regulatory settlement that leads to long-term financial stability. o Energy efficiency activities: creating a state sponsored "energy-efficiency utility" to take over most system-wide energy-efficiency services for electric customers. - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- While we cannot predict whether some or all of the elements of our Restructuring Plan will be implemented, we are pursuing implementation of our Restructuring Plan through negotiations with power suppliers, regulatory proceedings, legislative proceedings and other means. If approved by the Vermont Public Service Board, or PSB, the Vermont utility regulator, the tentative timetable calls for consummation of each element of the Restructuring Plan by mid-2000. See "Our Restructuring Plan" elsewhere in this offering memorandum. Pending implementation of the Restructuring Plan, we continue to address the regulatory and other challenges we face. The primary challenge to our financial strength results from uncertainties regarding the receipt of adequate and timely rate relief necessary to meet increased purchased power costs. Those costs have increased principally as a result of our long-term power purchase contract with Hydro-Quebec. These matters are discussed under the headings "Risk Factors--Our obligations under the VJO Power Contract with Hydro-Quebec may increase if a VJO member defaults" and "Business--VJO Power Contract with Hydro-Quebec." We have been unable in recent regulatory proceedings to recover the full amount of our purchased power costs related to the VJO Power Contract, which is discussed below. Our regulatory proceedings are discussed under the headings "Risk Factors--We face uncertainty relating to the resolution of our Vermont rate proceedings," "Risk Factors--We face uncertainty relating to the resolution of our New Hampshire rate proceedings" and "Regulation and Rates." These matters could have a material adverse impact on our financial condition. RECENT DEVELOPMENTS Ice Storm Arbitration with Hydro-Quebec During January 1998, a significant ice storm affected parts of New England, New York and the Province of Quebec, Canada. This storm damaged major components of the Hydro-Quebec transmission system over which power is supplied to Vermont under a power contract with Hydro-Quebec through the Vermont Joint Owners, known as the VJO, a consortium of Vermont utilities. The power contract between Hydro-Quebec and the VJO is referred to as the VJO Power Contract. The storm caused a 61-day interruption of a significant portion of scheduled contractual energy deliveries into Vermont. The ice storm's effect on Hydro-Quebec's transmission system caused the VJO to examine Hydro-Quebec's overall reliability and ability to deliver energy. The VJO believes Hydro-Quebec has been and remains unable to make available capacity with the degree of firmness required by the VJO Power Contract. That review prompted the VJO to initiate an arbitration proceeding. In the arbitration, the VJO is seeking to terminate its contractual obligation to purchase power from Hydro-Quebec, to recover damages associated with Hydro-Quebec's failure to comply with the VJO Power Contract, and to recover capacity payments made during the period of non-delivery. The results of the arbitration, which are expected in early 2000, cannot be predicted at this time. Possible Sale of Our Interest in the Vermont Yankee Nuclear Power Plant We and the other owners of Vermont Yankee are negotiating a sale of the plant to AmerGen Energy Company, which is an alliance of PECO Energy Company and British Energy. We've also received an unsolicited expression of interest from Entergy Nuclear, Inc. to buy Vermont Yankee's nuclear power plant. Vermont Yankee's owners, which includes us, are pursuing parallel negotiations with the two potential purchasers with the objective of reaching a definitive agreement, if possible. Although the sale is still being negotiated, we expect that if a sale occurs we may purchase a pro rata share of the power generated at the plant. The terms of any transaction may also include a limitation on our obligation to fund decommissioning costs and may also reduce our current operating risk. In the event negotiations are successful, the transaction would require the approval of federal regulators, including the Federal Energy Regulatory Commission, or the FERC, and the Nuclear Regulatory Commission, or the NRC, as well as state regulators. Consummation of the sale would also be conditioned upon receipt of acceptable regulatory, accounting and tax treatment of the transaction. - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- Possible Establishment of a New Holding Company In an effort to prepare for the likely deregulation of the electric utility industry in Vermont, we are pursuing a strategy of reorganizing into a new holding company structure. Under the proposed structure, we would become a subsidiary of a new holding company. Our two principal unregulated subsidiaries, Catamount and SmartEnergy, would become direct subsidiaries of this new holding company and would be our sister companies. We believe this holding company structure would facilitate our transition to a deregulated electricity market. On July 24, 1998, we filed a petition with the PSB for permission to reorganize in this manner. The petition is still pending. In addition to PSB approval, the proposed reorganization would require approval of federal regulators, including the SEC and the FERC, our shareholders, and state regulators in Connecticut and possibly other states. In any event, earnings from our unregulated subsidiaries would not necessarily be available to support the repayment of the New Bonds. See "Risk Factors--The Second Mortgage Indenture does not restrict our unregulated subsidiaries." Renewed Credit Facility and Liquidity A portion of the net proceeds of the Bond offering were used to repay $15 million of outstanding loans under our revolving credit facility and the remaining proceeds will be used for other general corporate purposes relative to our utility business. We also canceled our $40 million revolving credit facility. In addition, we recently extended until May 31, 2000 with renewal options through November 5, 2002, an aggregate of approximately $16.9 million of letters of credit which support outstanding development authority bonds. Our reimbursement obligations in respect of these letters of credit are secured by three new series of First Mortgage Bonds in an aggregate principal amount of approximately $16.9 million. Separately, we have a $12 million accounts receivable facility which matures in November 1999, which we intend to renew or replace at or before maturity. We expect to require additional financing by 2004, to refinance the New Bonds and to meet our working capital needs. See "Risk Factors--We may have insufficient liquidity to refinance the New Bonds at maturity." The above information about us is not comprehensive. More detailed information on the matters addressed in this summary are included elsewhere or incorporated by reference in this prospectus. For additional information about our business and affairs, including our consolidated financial statements and related notes, management's discussion and analysis, pending environmental, legal and regulatory proceedings and descriptions of a number of laws and regulations to which we are subject, you should refer to the documents incorporated by reference in this prospectus which are listed under the heading "Where to Find More Information." - -------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- SUMMARY OF THE EXCHANGE OFFER The form and terms of the New Bonds will be substantially identical to those of the Old Bonds except that the New Bonds will have been registered under the Securities Act. Therefore, the New Bonds will not be subject to transfer restrictions, registration rights and related liquidated damages provisions applicable to the Old Bonds. The Exchange Offer ................... We are offering to exchange an aggregate of $75.0 million principal amount of New Bonds for $75.0 million of Old Bonds. Old Bonds may only be exchanged in multiples of $1,000 principal amount. To be exchanged, an Old Bond must be properly tendered and accepted. Subject to conditions of the exchange offer, all outstanding Old Bonds that are validly tendered and not validly withdrawn will be exchanged for New Bonds issued on or promptly after the expiration date of the exchange offer. See "The Exchange Offer" and "The Exchange Offer-Certain Conditions to the Exchange Offer." Currently, there is $75.0 million aggregate principal amount of Old Bonds outstanding. No New Bonds are outstanding. Issuance of the Old Bonds; Registration Rights .................. The Old Bonds were issued and sold to the initial purchasers, Donaldson, Lufkin & Jenrette Securities Corporation and TD Securities (USA) Inc., on July 30, 1999. In connection with that sale, we executed and delivered the Registration Rights Agreement for the benefit of the bondholders. In the Registration Rights Agreement, we agreed to either: o commence an exchange offer under which the New Bonds, registered under the Securities Act with terms substantially identical to those of the Old Bonds, will be exchanged for the Old Bonds pursuant to an effective registration statement; or o cause the Old Bonds to be registered under the Securities Act pursuant to a resale shelf registration statement. If we do not comply with our obligations under the Registration Rights Agreement, we will be required to pay liquidated damages that will be payable twice yearly. See "The Exchange Offer." Expiration Date....................... The exchange offer will expire at 5:00 p.m., New York City time, on 1999, unless extended, in which case the term "expiration date" shall mean the latest date and time to which the exchange offer is extended. Conditions to the Exchange Offer...... We are not required to consummate the exchange offer if there is any pending or threatened action or proceeding or proposed or effective legislation or other law or rule that would make the exchange offer illegal, cause us to have to pay damages as a result of the exchange offer or delay or otherwise make it inadvisable to consummate the exchange offer. See "The Exchange Offer--Certain Conditions to the Exchange Offer." The exchange offer is not conditioned upon any minimum aggregate principal amount of Old Bonds being tendered for exchange. Other than applicable U.S. federal and state securities laws, we do not need to satisfy any additional regulatory requirements or obtain any regulatory approval to conduct the exchange offer. - -------------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- Procedures for Tendering Old Bonds.... If you want to tender your Old Bonds in the exchange offer, you must complete and sign a letter of transmittal and send it, together with the Old Bonds or a notice of guaranteed delivery and any other required documents, to The Bank of New York, as exchange agent, in compliance with the procedures for guaranteed delivery contained in the letter of transmittal. The letter of transmittal must be received by the exchange agent prior to 5 p.m. on the expiration date of the exchange offer. If your Old Bonds are registered in the name of a nominee and you wish to tender your Old Bonds in the exchange offer, you should instruct your nominee to promptly tender your Old Bonds on your behalf. Guaranteed Delivery Procedures........ If you wish to tender your Old Bonds and: o your Old Bonds are not immediately available; o you cannot deliver your Old Bonds or any of the other documents required by the letter of transmittal to the exchange agent prior to the expiration date of the exchange offer; or o you cannot complete the procedure for book-entry transfer on a timely basis; You may tender your Old Bonds according to the guaranteed delivery procedures detailed in the letter of transmittal. See "The Exchange Offer--Guaranteed Delivery Procedures." Withdrawal Rights..................... You may withdraw the tender of your Old Bonds by providing a written withdrawal notice to the Exchange Agent which must be received by the Exchange Agent prior to 5:00 p.m. on the expiration date. See "The Exchange Offer--Withdrawal Rights." Acceptance of the Old Bonds and Delivery of the New Bonds............. We will accept for exchange any and all Old Bonds by providing a written withdrawal notice to the Exchange Agent which must be received by the Exchange Agent prior to 5:00 p.m. on the expiration date. We will issue and deliver the New Bonds promptly following the expiration date of the exchange offer. See "The Exchange Offer--Terms of the Exchange Offer." Resale of the New Bonds............... Based on SEC no action letters, we believe that after the exchange offer you may offer and sell the New Bonds without registration under the Securities Act so long as: o You acquire the New Bonds in the ordinary course of business; o When the exchange offer begins you do not have an arrangement with another person to participate in a distribution of the New Bonds; and o You are not engaged in a distribution of, nor do you intend to distribute, the New Bonds; - -------------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- When you tender the Old Bonds we will ask you to represent to us that: o You are not an affiliate of ours within the meaning of Rule 405 of the Securities Act. o You will acquire the New Bonds in the ordinary course of business. o When the exchange offer begins you are not engaged in nor do you have plans with another person to be engage in a distribution of the New Bonds. If you are unable to make these representations, you will be required to comply with the registration and prospectus delivery requirements under the Securities Act in connection with any secondary resale transaction. If you are a broker-dealer and receive New Bonds for your own account, you may be deemed to be an "underwriter" within the meaning of the Securities Act, and you must acknowledge that you will deliver a prospectus if you resell the New Bonds. By acknowledging your intent and delivering a prospectus you will not be deemed to admit that your are an "underwriter" under the Securities Act. For a period of 180 days after the exchange offer is consummated or until the Old Bonds are resold, whichever comes first, we will make this prospectus available to any broker-dealer in connection with such a resale. See "Plan of Distribution." If necessary, we will cooperate with you to register and qualify the New Bonds for offer or sale without any restrictions or limitations under state "blue sky" laws. Consequences of Failure to Exchange... If you do not exchange your Old Bonds for the New Bonds pursuant to the exchange offer you will still be subject to the restrictions on transfer of your Old Bonds as contained in the legend on the Old Bonds. In general, you may not offer to sell or sell the Old Bonds, except pursuant to a registration statement under the Securities Act or any exemption from registration thereunder and in compliance with applicable state securities laws. Certain U.S. Federal Income Tax Considerations.................... The exchange of Old Bonds for New Bonds will not be a taxable event for United States federal income tax purposes. You will not recognize any taxable gain or loss or any interest income as a result of the exchange. Registration Rights Agreement ........ The exchange offer is intended to satisfy your registration rights under the Registration Rights Agreement. Those rights will terminate upon completion of the exchange offer. Use of Proceeds....................... We will not receive any proceeds from the issuance of New Bonds pursuant to the exchange offer. In consideration for issuing the New Bonds in exchange for the Old Bonds as described in this prospectus, we will receive, retire and cancel the Old Bonds. See "Use of Proceeds." Exchange Agent........................ The Bank of New York is the exchange agent for the exchange offer. - -------------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- DESCRIPTION OF THE NEW BONDS Issuer................................ Central Vermont Public Service Corporation New Bonds............................. $75.0 million in aggregate principal amount of our 8 1/8% Second Mortgage Bonds due 2004. Maturity Date......................... August 1, 2004. Interest Rate and Payment Dates....... Interest on the New Bonds will accrue at the rate of 8 1/8% per annum from July 30, 1999, payable semiannually in cash in arrears on February 1 and August 1 of each year, commencing February 1, 2000; provided that in the event the exchange offer is consummated on or after February 1, 2000, interest will accrue from February 1, 2000. Optional Redemption................... We may redeem the New Bonds at any time in whole or in part at our option upon not less than 30 nor more than 60 days' notice, by paying 100% of the principal amount thereof plus accrued and unpaid interest thereon plus the Make Whole Premium. Change of Control..................... If we experience a change of control, you will have the right to require us to purchase all or any part of your New Bonds at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. See "Risk Factors--We may not have sufficient funds to finance a 'change of control' offer." Security.............................. The New Bonds will be secured by a second mortgage lien on all of our utility property also subject to the lien of our existing First Mortgage. Ranking............................... The New Bonds will be secured obligations and will rank: o junior to our existing and future First Mortgage Bonds; o senior in right of payment to all of our existing and future unsecured obligations to the extent of the value of the assets securing the New Bonds, including liabilities and obligations in respect of power purchase contracts and stranded cost obligations associated with power purchase contracts; and o pari passu in right of payment with (1) all future indebtedness that is secured by a second mortgage lien on our utility property also subject to the lien of our existing First Mortgage and (2) Old Bonds that are not exchanged for New Bonds in the exchange offer. After the issuance of the New Bonds there will be $93.4 million of First Mortgage Bonds outstanding, all of which will be senior to the New Bonds. Prior to the maturity of the New Bonds, $41.0 million of First Mortgage Bonds will mature. We currently hold $10.0 million of retired First Mortgage Bonds. We plan to use all $51.0 million of these retired First Mortgage Bonds to meet renewal fund requirements under the First Mortgage. See "Description of New Bonds--Issuance of Additional First Mortgage Bonds." We expect the amount of - -------------------------------------------------------------------------------- 10 - -------------------------------------------------------------------------------- outstanding First Mortgage Bonds to decline from $93.4 million to $52.4 million by December 31, 2003. Due to the renewal fund requirements under the First Mortgage, we do not intend to issue any additional First Mortgage Bonds prior to the maturity of the New Bonds. Covenants............................. We will issue the New Bonds under the Second Mortgage Indenture. The supplemental indenture providing for the issuance of the New Bonds contains several covenants that will not be applicable at any time when the New Bonds are rated investment grade. See "Description of New Bonds--Changes in Covenants When New Bonds Rated Investment Grade." If applicable, these covenants will among other things, place limitations on our ability to: o Sell assets or merge with or into other companies; o Pay dividends, make distributions on or repurchase stock, and make investments; o Borrow money; o Enter into sale-leaseback transactions; o Enter into transactions with affiliates; and o Make payments for consents. The New Bonds are rated investment grade. Therefore, the only restrictive covenant that will apply when the New Bonds are issued will be a restriction on liens. The Second Mortgage Indenture contains other customary covenants. Trustee............................... The Bank of New York. You should refer to the section entitled "Risk Factors" for an explanation of certain risks of investing in the New Bonds. - -------------------------------------------------------------------------------- 11 - -------------------------------------------------------------------------------- SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands) The following table presents summary selected consolidated financial information about us as of the dates and for the periods indicated. The historical financial data as of the end of and for each of the three years in the period ended December 31, 1998, are derived from our audited consolidated financial statements incorporated by reference herein. The historical financial data as of and for the six months ended June 30, 1999 and June 30, 1998 are derived from our unaudited financial statements which, in the opinion of our management, contain all adjustments necessary for a fair presentation of the information presented. This table should be read together with the detailed financial and other information contained elsewhere or incorporated by reference in this prospectus.
Six Months Year Ended December 31, Ended June 30, ------------------------------------------- ---------------------- 1996 1997 1998 1998 1999 --------- --------- --------- --------- --------- (Unaudited) Statement of Operations Data: Operating revenues.......... $ 290,801 $ 304,732 $ 303,835 $ 150,364 $ 191,781(1) Operating income(2)......... 23,275 18,636 7,991 6,600 15,719 Total interest expense, net...................... 9,925 9,706 10,660 5,259 5,106 Net income.................. 19,442 16,340 3,983 4,812 13,146 Preferred stock dividend requirements............. 2,028 2,028 1,945 973 931 Other Financial Data: EBITDA(3)................... 63,128 60,471 45,312 17,801 34,349 Net cash provided by operating activities..... 43,007 41,974 21,743 6,938 32,899 Capital expenditures(4)..... 20,541 15,678 18,254 8,130 7,364 Ratio of earnings to fixed charges(5)......... 3.44x 3.77x 1.83x 1.01x 3.90x Ratio of EBITDA to interest expense......... 6.36x 6.23x 4.25x 3.38x 6.73x
As of December 31, 1998 As of June 30, 1999 ----------------------- ------------------- (Unaudited) (Unaudited) Balance Sheet Data: Cash and cash equivalents........................... $ 10,051 $ 19,277 Total assets........................................ 530,282 524,101 Total debt (incl. capital lease).................... 149,991 140,690 Common stock equity................................. 179,182 188,906 Preferred stock(6).................................. 26,054 26,054
- -------------------------------------------------------------------------------- 12 - -------------------------------------------------------------------------------- (1) Includes $6.2 million (pre-tax) collected during the period pursuant to the 4.7% temporary rate increase effective January 1, 1999, which is subject to adjustment pending the outcome of regulatory proceedings in Vermont, and other miscellaneous items. (2) After deduction of taxes on income. (3) EBITDA represents earnings before interest charges, taxes on income, depreciation, amortization, gains on asset sales, cash investment income and noncash transactions resulting from the regulatory disallowance of the recovery of power costs incurred. EBITDA is not defined by GAAP, and is presented here only to provide additional information about our ability to meet our future requirements for debt service and capital expenditures. EBITDA should not be considered an alternative to net income as an indicator of operating performance or an alternative to cash flow as a measure of liquidity. (4) Capital expenditures consist of construction and plant expenditures and energy efficiency expenditures not currently being recovered in rates. (5) For purposes of determining the ratio of earnings to fixed charges, (i) earnings consist of income before income taxes plus fixed charges; and (ii) fixed charges consist of interest charges on all indebtedness, including the portion of rental expense that is representative of the interest factor. (6) See "Description of Other Indebtedness and Preferred Stock--Preferred Stock" for additional information about our outstanding preferred stock. - -------------------------------------------------------------------------------- 13 RISK FACTORS The following information is qualified in its entirety by the more detailed information and the consolidated financial statements appearing elsewhere or incorporated herein by reference in this prospectus. There are Restrictions Upon Transfer and a Limited Trading Market for the Old Bonds We will issue New Bonds in exchange for the Old Bonds only after the exchange agent receives your Old Bonds. Therefore, you should allow sufficient time to ensure timely delivery of your Old Bonds. Neither we nor the exchange agent is under any duty to give notification of defects or irregularities with respect to your tender of the Old Bonds for exchange. If you do not tender your Old Bonds, or if you do tender your Old Bonds and they are not accepted, your Old Bonds will continue to be subject to the existing restrictions upon their transfer. Accordingly, after completion of the exchange offer, you will only be able to offer for sale, sell or otherwise transfer untendered Old Bonds as follows: o to the Company; o pursuant to a registration statement that has been declared effective under the Securities Act; o for so long as the Old Bonds are eligible for resale pursuant to Rule 144A under the Securities Act, to a person you reasonably believe is a qualified institutional buyer ("QIB") within the meaning of Rule 144A, that purchases for its own account or for the account of a QIB to whom notice is given that the transfer is being made in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A; o pursuant to offers and sales that occur outside the United States to foreign persons in transactions complying with the provisions of Regulation S under the Securities Act; o pursuant to any other available exemption from the registration requirements of the Securities Act. To the extent that Old Bonds are tendered and accepted in the exchange offer, the liquidity of the trading market for untendered Old Bonds could be adversely affected. See "The Exchange Offer." In addition, any holder of the Old Bonds who tenders in the exchange offer for the purpose of participating in a distribution of the New Bonds will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer who receives New Bonds for its own account in exchange for the Old Bonds, where such Old Bonds were acquired by such broker-dealer as a result of market-making activities or any other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Bonds. See "Plan of Distribution." Our obligations under the VJO Power Contract with Hydro-Quebec may increase if a VJO member defaults We are obligated to continue purchasing varying amounts of power from Hydro-Quebec until 2016 as a party to the VJO Power Contract with Hydro-Quebec through the Vermont Joint Owners, or VJO. Our remaining total commitment to purchase power under this contract is estimated, based on current power market forecasts, to be approximately $1.0 billion over the next 17 years. The VJO participation contract under which the VJO resells Hydro-Quebec power to the Vermont purchasing utilities, including ourselves, contains "step up" provisions providing that if any purchasing utility defaults on its purchase obligations, the other participants will assume responsibility for the defaulting party's share on a pro rata basis. Our obligation is approximately 46% of the total contract, and Green Mountain Power Corporation, another Vermont utility, is obligated to purchase approximately 38% of the power purchased by the VJO under the contract. A default by utilities that purchase power from the VJO, particularly the utilities with significant purchase obligations, could have a material adverse effect on our financial results. For example, if Green Mountain Power defaults, our financial viability would be threatened because our resulting "step up" obligation would exceed our financial resources. Many of the utilities that purchase power under the VJO Power Contract face regulatory and financial challenges similar to our own. We cannot predict 14 whether all of the utilities that purchase power under the VJO Power Contract will continue to meet their obligations. We face uncertainty relating to the resolution of our Vermont rate proceedings We face uncertainties regarding the receipt of adequate and timely rate relief necessary to meet increased purchased power costs. These increases in purchased power costs arise principally under the VJO Power Contract. Vermont regulations do not allow for changes in purchased power and fuel costs to be passed on to consumers through automatic rate adjustment clauses. Therefore, our practice is to review costs periodically and to request rate increases when warranted. We have been unable in recent regulatory proceedings to recover the full amount of our purchased power costs under the VJO Power Contract. We reached agreement with the Vermont Department of Public Service, or DPS, the consumer advocate in Vermont, regarding a retail rate increase request we filed in June 1998, providing for a temporary increase in our Vermont retail rates of 4.7% or $10.9 million on an annualized basis, beginning January 1, 1999. The June 1998 rate increase request was primarily intended to recover the cost of power purchases from Hydro-Quebec under the VJO Power Contract. The rate increase, which was approved by the PSB, is subject to a retroactive or prospective adjustment upon the resolution of issues relating to the VJO Power Contract, which issues we have appealed to the Vermont Supreme Court. A decision by the end of 1999 is possible. On July 8, 1999, Hydro-Quebec filed a Motion to Intervene in this rate case. We cannot predict what, if any, impact this filing will have or if the motion will be granted. See "Regulation and Rates--Vermont Retail Rate Proceedings." If we receive an unfavorable ruling from the Vermont Supreme Court and the PSB subsequently issues a rate order permanently adopting the disallowance methodology used in determining the temporary rate increase, or a similar methodology, for the duration of the VJO Power Contract, we would be required to take an immediate charge to pre-tax earnings of $205.0 million. Such an outcome would jeopardize our ability to continue as a going concern. See "Regulation and Rates--Vermont Retail Rate Proceedings." We face uncertainty relating to the resolution of our New Hampshire rate proceedings We are party to regulatory proceedings before the federal courts and the Federal Energy Regulatory Commission, or the FERC, as described below. We cannot predict the ultimate outcome of either proceeding at this time. An adverse outcome in either proceeding could materially and adversely effect our results of operations and financial condition. Federal Court proceedings. In February 1997, the New Hampshire Public Utilities Commission, or NHPUC, ordered Connecticut Valley, our subsidiary that conducts our distribution utility operations in New Hampshire, to terminate its wholesale rate schedule with us. The NHPUC subsequently found Connecticut Valley "imprudent" for not having previously taken steps to terminate the rate schedule and ordered that rates be reduced to market levels. We are seeking relief in federal court to reverse the NHPUC's decision. See "Regulation and Rates--New Hampshire Retail Rate Proceedings." The court's ruling on several summary judgment motions is expected to occur later this year. FERC proceedings. We have filed with the FERC seeking to recover stranded costs through an exit fee in connection with the cancellation of the Connecticut Valley rate schedule. The stranded cost obligation sought to be recovered, expressed on a net present value basis as of January 1, 1999, is approximately $48.0 million. The FERC administrative law judge's ruling on our request for recovery is expected later this year. The FERC will act on the judge's recommendations sometime thereafter. If we are unable to obtain an order authorizing the recovery of the costs sought in our FERC filing, we would be required to recognize a pre-tax loss under this contract totaling approximately $60.0 million. We would also be required to write-off approximately $4.0 million (pre-tax) in regulatory assets associated with our wholesale business. The cash flow shortfall from our revenues would be approximately $6.0 million (pre-tax) annually. 15 However, even if we obtain a FERC order authorizing the exit fee we have requested, if Connecticut Valley is unable to recover its costs by increasing the rates it charges its customers, Connecticut Valley would be required to recognize a loss of approximately $48.0 million (pre-tax). Our other stranded costs may not be recoverable Restructuring initiatives and regulatory pressures in our companies' service territories have created uncertainty with respect to future rates and the recovery of "stranded costs." Stranded costs are expenditures incurred, or commitments for future expenditures made, on behalf of customers with the expectation that such expenditures would be recoverable in the future through retail rates. Stranded costs might not be recoverable from customers in a fully competitive electric utility industry because our costs may be above retail prices paid by customers. We are vulnerable to stranded costs principally because of: o our long-term commitment to purchase power under the VJO Power Contract; o our investment in nuclear generating capacity; o significant regulatory assets, which are costs that have already been expended but have been deferred by state regulators for future collection from customers; and o our obligations under other power purchase contracts that are priced above the current market. As of December 31, 1998, based on the DPS's estimate known as the "low market price estimate," we have above-market power obligations with a combined net present value of approximately $500 million. Our financial strength and resulting ability to perform in a restructured environment will be negatively affected if we are unable to recover our power obligations, and a reasonable return on our power generation investments. Even if we are given the opportunity to recover a large portion of our stranded costs, our earnings prospects in a restructured environment will likely be affected in ways that we cannot now predict. Implementation of our restructuring plan is uncertain We have filed with the PSB a plan to permit retail access in our service territory and restructure Vermont's electric industry. See "Our Restructuring Plan." We believe that implementation of our Restructuring Plan is a critical element to improving our future financial performance and to providing our customers with more stable electric rates and the continuation of efficient and reliable electric service. We expect to formally submit our proposal regarding all elements of our Restructuring Plan to the PSB by the end of 1999. In the first session of the 1999-2000 Biennium of the Vermont legislature, restructuring initiatives were considered that, had they been enacted, could have impeded our ability to implement our Restructuring Plan, such as providing the legislature with veto power over the restructuring decisions of the PSB and providing a 10% rate reduction for all Vermont utility customers. We cannot determine whether these legislative initiatives or future restructuring legislation will be enacted in the second session of the 1999-2000 Biennium of the Vermont legislature. We also cannot predict the response of the PSB to our Restructuring Plan. If our Restructuring Plan is not implemented or its terms are materially and adversely changed because of legislative or regulatory initiatives, we could experience an adverse impact on our financial condition. We face uncertainty relating to the proposed Vermont electric industry restructuring Competition in the energy industry continues to grow as a result of legislative and regulatory initiatives, technological advances, relatively high electric rates in some regions of the country, including New England, surplus generating capacity and the increased availability of natural gas. Changes in the industry may place downward 16 pressure on power prices and increase customer choice through competition. In the second session of the 1999-2000 Biennium, convening January 4, 2000, it is expected that the Vermont Legislature will again debate deregulating our industry and opening it up to retail competition. See "Electric Industry Restructuring." If retail competition is implemented in Vermont or New Hampshire, we are unable to predict the impact of such competition on our future financial results. Some restrictive covenants contained in the Second Mortgage Indenture do not apply so long as the New Bonds are rated investment grade Several restrictive covenants (not including any covenants restricting liens) will not apply at any time that the New Bonds have an investment grade rating from Standard & Poor's Corporation, or S&P, or Moody's Investor Service, Inc., or Moody's. S&P has indicated that at the time of issuance, the New Bonds will be rated BBB- (an investment grade rating). Consequently, the New Bonds will not have the benefit of these covenants until such time, if ever, that S&P's rating of the New Bonds, if applicable, falls below BBB- or Moody's' rating of the New Bonds, if applicable, is also below investment grade. The Second Mortgage Indenture does not restrict our unregulated subsidiaries We own several unregulated subsidiaries which engage in various businesses including the development of independent power projects, the rental of water heaters and the provision of home maintenance and repair services. The covenants contained in the Second Mortgage Indenture generally do not apply to these subsidiaries and do not restrict our ability to sell or otherwise dispose of our interests in these subsidiaries. If we reorganize under a new holding company structure, our principal unregulated subsidiaries, Catamount and SmartEnergy, would cease to be our subsidiaries and would instead become our sister companies. In any event, earnings from their operations would not necessarily be available to support the repayment of the New Bonds. Several events of default do not apply to Connecticut Valley Until our investment in Connecticut Valley exceeds $12.0 million, several events with respect to Connecticut Valley, including bankruptcy, significant defaults under its debt obligations and significant judgments, will not constitute an Event of Default under the Second Mortgage Indenture. We may have insufficient liquidity to refinance the New Bonds at maturity Based on our current level of operations and current rate levels, after receipt of the proceeds of the offering and assuming (i) the continued receipt of the temporary 4.7% rate increase in Vermont and (ii) the renewal of our $12 million accounts receivable facility which matures in November 1999, we believe our cash flow from operations should be adequate to meet our future liquidity needs for the next four years. However, we will require new financing by 2004 to repay the New Bonds at maturity and to meet our working capital needs. We cannot assure you, however, that our business will generate sufficient cash flow from operations, that the temporary rate increase will remain at current levels or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness, including the New Bonds when due, or to fund our other liquidity needs during the next four years. The resolution of these uncertainties is, to a significant extent, subject to general economic, financial, competitive, legislative, regulatory, weather and other factors that are beyond our control. The type, timing and terms of financing that we may need will be dependent upon our cash needs, the availability of refinancing sources and the prevailing conditions in the financial markets. We cannot assure you that any sources will be available to us at any given time or that the terms of such sources will be favorable. 17 We will continue to have substantial leverage after the offering The following chart shows important information about our leverage. This information is adjusted for the completion of the offering as of the dates or at the beginning of the periods specified below and the application of the net proceeds as intended: As Adjusted At June 30, 1999 --------------------- (Dollars in millions) Total indebtedness (including capital lease obligations) $ 195.7 Total preferred stock .................................. 26.1 Stockholders' equity (excluding preferred stock) ....... 187.3 -------- Total capitalization ................................ $ 409.1 Total indebtedness to total capitalization ............. 47.8% As Adjusted For the Year Ended December 31, 1998 ------------------ Ratio of earnings to fixed charges...................... 1.36x Our indebtedness could have important consequences to you. For example, it could: o make it more difficult for us to satisfy our obligations with respect to the New Bonds; o make it more difficult to satisfy mandatory redemption requirements contained in our preferred stock; o increase our vulnerability to general adverse economic and industry conditions; o limit our ability to fund future working capital, capital expenditures and other general corporate requirements; o require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund common dividends, working capital, capital expenditures and other general corporate purposes; o limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and o limit, among other things, our ability to borrow additional funds because of the financial and other restrictive covenants under the terms of our indebtedness. Failure to comply with those covenants could result in defaults which, if not cured or waived, could have a material adverse effect on us. We will have additional borrowings available to us, even after the offering Under the terms of our First Mortgage and Second Mortgage Indentures, our letter of credit facilities and other debt instruments, we will be able to incur additional indebtedness in the future, subject to limitations contained in those instruments. See "Description of Other Indebtedness and Preferred Stock--Other Indebtedness." This debt may be either secured or unsecured. More specifically, we may seek to issue additional debt in connection with implementing our Restructuring Plan or in connection with auctioning, buying-out or buying-down above-market power purchase contracts. If new debt is added to our and our subsidiaries' current debt levels, we and they could face risks associated with additional leverage. We have significant financial obligations that are not reflected in our financial statements As a consequence of our investments in nuclear generating assets and electric transmission facilities, and our long-term power purchase agreements, we have significant financial obligations that are not reflected in our 18 financial statements. Through our investments in Vermont Yankee, Maine Yankee, Connecticut Yankee and Yankee Atomic, and our ownership of a portion of Millstone Unit #3, we are obligated to contribute to the capital requirements and to pay a portion of the operating costs and decommissioning expenses of these facilities, which is proportionate to our entitlement share of each facility's generation output. We also have financial obligations related to our ownership interest in VELCO. Although we own over 56% of VELCO, we are contractually restricted from exercising control over the company, and, as a result, VELCO's financials are not consolidated with our own. Finally, our long-term power purchase agreement with Hydro-Quebec obligates us to make payments through 2016. See "--The costs of decommissioning our partially-owned nuclear generating facilities could be greater than our current estimates." Current accounting rules may no longer apply to us in the future, causing extraordinary charges Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," or SFAS No. 71, allows regulated entities like us, in appropriate circumstances, to establish regulatory assets and liabilities, and thereby defer the income statement impact of some of our costs and revenues that are expected to be realized in future rates. We believe that we currently comply with the provisions of SFAS No. 71 for both our regulated Vermont service territory and FERC-regulated wholesale businesses. However, due to legal and regulatory actions, our regulated utility subsidiary in New Hampshire, Connecticut Valley, no longer accounts for its results of operations using SFAS 71. In the event we determine that we no longer meet the criteria for following SFAS No. 71 for our Vermont regulated utility business, the accounting impact would be an extraordinary, non-cash charge to operations of approximately $60.7 million (pre-tax) as of June 30, 1999. Criteria that would give rise to the discontinuance of SFAS No. 71 include (1) increased competition that restricts our ability to establish prices to recover specific costs or (2) a significant change in the manner in which rates are set by regulators from cost-of-service-based regulation to another form of regulation. SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," requires that any assets, including regulatory assets, that are no longer probable of recovery through future revenues, be revalued based on future cash flows. SFAS No. 121 requires that a rate-regulated enterprise recognize an impairment loss for the amount of costs excluded from probable recovery. As of June 30, 1999, based upon the regulatory environment within which we currently operate, SFAS No. 121 did not have an impact on our financial position or results of operations. Competitive influences or regulatory developments may adversely impact this status in the future. Because we are unable to predict what form possible future restructuring legislation may take, we cannot predict if or to what extent SFAS No. 71 or SFAS No. 121 will continue to be applicable in the future. Our business is subject to significant government regulation that we can neither predict nor control We are regulated in virtually all aspects of our utility business by various federal and state agencies. At the federal level, we are regulated by, among others, the Securities and Exchange Commission, the FERC and the Nuclear Regulatory Commission (NRC). The NRC is empowered to regulate the siting, construction and operation of nuclear reactors with respect to public health, safety, environmental and antitrust matters. Under its continuing jurisdiction, the NRC may, after appropriate proceedings, require modification of units for which operating licenses have already been issued, or impose new conditions on such licenses, and may require that the operation of a unit cease or that the level of generation of a unit be temporarily or permanently reduced. Also at the federal level, we are subject to federal legislation under the Public Utility Holding Company Act of 1935. Because we own a utility subsidiary, we fall under the act's definition of a holding company. However, we are currently exempt, under Rule 2 of the SEC's rules under the act, from all provisions of the act except for Section 9(a)(2), which relates to the acquisition of securities of public utility affiliates. At the state level, we are subject to comprehensive regulation by, among others, the PSB, the NHPUC and, for financing approvals, the Connecticut Department of Public Utility Control. 19 In recent years, there has been significant activity at both legislative and regulatory levels, throughout the United States, including New England, to change the nature of regulation of our industry. Existing and future government regulations may greatly influence how we operate our business, our business strategy and, ultimately, our financial viability. We cannot predict the future regulatory framework of our business. Municipalization is a possible threat to our business in some geographic areas One possible competitive threat we face is the potential for customers to acquire our assets through a process known as municipalization. Under both Vermont and New Hampshire law, municipalities are authorized to acquire the electric distribution facilities located within their boundaries. In Vermont, the exercise of such authority is conditioned upon an affirmative three-fifths vote of the legal voters in an election and upon the payment of just compensation including severance damages. Just compensation is determined either by negotiation between the municipality and the utility or, in the event the parties fail to reach an agreement, by the PSB after a hearing. If either party is dissatisfied, the statute allows them to appeal the Board's determination to the Vermont Supreme Court. There has been only one instance where the Vermont law has been invoked. In 1977, the Town of Springfield acted to acquire our distribution facilities in that community, but the action was subsequently discontinued by mutual agreement of the parties in 1985. In addition, in late 1994 the Select Board of the Town of Bennington considered whether to publicly hold a vote to acquire our facilities located in Bennington. By vote of the Selectors taken on January 9, 1995, however, the Town decided not to pursue the vote at that time. In New Hampshire, the exercise of such authority is conditioned upon a two-thirds vote of the governing body of a city or town and a confirming vote of the legal voters of such city or town within one year, and upon a determination of the value of the property proposed to be taken. Value is determined by negotiation or by the NHPUC after notice and hearing. An aggrieved party may appeal the NHPUC determination to the New Hampshire Supreme Court. In the summer of 1997, the City of Claremont, New Hampshire, engaged a consulting firm to conduct a study to determine Claremont's options under New Hampshire law including the possible municipalization of Connecticut Valley's service area located within its jurisdiction. The City Council appropriated approximately $750,000 for purposes of the study which has now been completed and the council recently voted to pursue municipalization. On August 25, 1999, the City Council narrowly approved a $50,000 public relations campaign in connection with the proposed municipalization. Most recently, on September 8, 1999, the City Council voted to reschedule the citizens' vote on municpalization which had been set for November, 1999. No new date for the citizens' vote has been set. No other municipality served by us, so far as we know, has taken any formal steps in an attempt to establish a municipal electric distribution system. We cannot predict whether efforts to municipalize portions of our service territory will be successful, and if so, what the impact will be on our financial condition. The costs of decommissioning our partially-owned nuclear generating facilities could be greater than our current estimates We have equity ownership interests in various nuclear generating facilities including: 31.3% of the common stock of Vermont Yankee; 2% of the outstanding common stock of Maine Yankee; 2% of the outstanding common stock of Connecticut Yankee; and 3.5% of the outstanding common stock of Yankee Atomic. We also own a 1.7% undivided interest in Millstone Unit #3, part of the Millstone Nuclear Power Station. Each of the Yankee companies and Millstone has engaged consultants to estimate the cost of decommissioning its nuclear generating unit. These estimates vary depending on the method of decommissioning, economic assumptions, site and unit specific variables, and other factors. Therefore, these estimates, as well as actual costs, are subject to change. Based on the most recent decommissioning estimate in 1997, our total share of the Millstone Unit #3 decommissioning costs at December 31, 1998 was $9.7 million. As of December 31, 1998, we have funded $3.2 million of these costs. Our share of remaining total costs with respect to Maine Yankee, Connecticut Yankee and 20 Yankee Atomic, which have discontinued their operations and are in varying stages of decommissioning, is estimated to be approximately $27.0 million. We believe that substantially all of our proportionate share of the Maine Yankee, Connecticut Yankee and Yankee Atomic decommissioning costs will be recovered through the regulatory process. Although we believe that the resolution of the premature retirement of these three plants will not have a material adverse effect on our financial condition, there can be no assurance that our percentage share of the decommissioning costs will not increase. Vermont Yankee is in the process of preparing an updated site decommissioning cost study. Preliminary results indicate that the new decommissioning estimate could exceed $500 million in 1998 dollars versus the current estimate of $406.8 million in 1998 dollars. We would be responsible for up to 35% of these estimated costs. In conformity with our Restructuring Plan, we are seeking to sell our interest in Vermont Yankee; even if the plant is sold we may continue to purchase power from the facility. See "Our Restructuring Plan." On February 25, 1999, the Board of Directors of Vermont Yankee granted an exclusive right to AmerGen Energy Co. to conduct a 120-day period of due diligence and negotiate a possible agreement to purchase the assets of Vermont Yankee. We have also received an unsolicited expression of interest from Entergy Nuclear, Inc., to buy Vermont Yankee's nuclear power plant. Vermont Yankee's owners, including us, are pursuing parallel negotiations with the two potential purchasers with the objective of reaching a definitive agreement, if possible. Our business is subject to stringent environmental laws, which are subject to change In recent years, public concern for the environment has resulted in increased governmental regulation of environmental matters. These environmental regulations are administered by local, state and Federal regulatory authorities and concern the impact of our generation, transmission, distribution, transportation and waste handling facilities on air, water, land and aesthetic qualities. We are subject to these regulations in the licensing and operation of the generation, transmission and distribution facilities in which we have an interest. We are required to comply with a number of statutes and regulations relating to protection of the environment and to the safety and health of the public and of the personnel in operating plants or engaged in the construction, operation and maintenance of our other facilities. Such statutes and regulations, which historically have changed from time to time, include regulation of hazardous materials associated with each plant, limitations on noise emissions from the plants, safety and health standards, and practices and procedures and requirements relating to the discharge of air and water pollutants. In addition, we could become liable for the investigation and removal of any hazardous materials that may be found on our property regardless of the sources of such hazardous materials. Failure to comply with any such statutes or regulations or any change in the requirements of such statutes or regulations could result in civil or criminal liability, imposition of cleanup liens and fines and large expenditures to bring such property into compliance. We cannot presently forecast the costs or other effects which environmental regulation may ultimately have upon our existing and proposed facilities and operations. We believe that, through the rate-making process, we should be able to recover these costs reasonably incurred and related to our utility operations, although there can be no assurance that we will be able to do so and there is substantial uncertainty as to the portion of those costs we can ultimately recover. In addition, not all of those costs are related to our current utility operations. Finally, restructuring of the Vermont electric utility industry would render significantly more uncertain our ability to recover our environmental regulatory costs. See Note 14 of the Notes to Consolidated Financial Statements for the year ended December 31, 1998 incorporated by reference in this offering memorandum. Secured lenders may face potential environmental liability Lenders that hold a security interest in real property may, in particular circumstances, be held liable under environmental laws for the costs of remediating or preventing releases or threatened releases of hazardous substances at the mortgaged property. While lenders that neither foreclose on nor participate in the management of a mortgaged property (as interpreted under applicable law) generally have not been subject to such liability, lenders that take possession of a mortgaged property or that participate in the management of a mortgaged property must carefully adhere to federal and state rules to avoid liability. In this regard, upon a default on the New Bonds or under the Second Mortgage Indenture, the Trustee or the holders of the New Bonds would need to evaluate the impact of 21 these potential liabilities before determining whether to foreclose on the mortgaged properties securing the New Bonds and exercising other available remedies. In addition, the Trustee may decline to foreclose upon the mortgaged properties or exercise remedies available to the extent that the Trustee does not receive indemnification to its satisfaction from the holders of the New Bonds. We face uncertainty in relicensing hydroelectric projects We are currently in the process of relicensing or preparing to license eight separate hydroelectric generating facilities under the Federal Power Act. These facilities, some of which are evaluated by the FERC as a single project, represent approximately 29.9 mW, or 72.4%, of our total hydroelectric nameplate capacity. In the new licenses, the FERC is expected to impose conditions designed to address the impact of the projects on fish and other environmental concerns. We are unable to predict the impact of imposition of such conditions, but capital expenditures and operating costs are expected to increase and net generation from these facilities will decrease in future periods. The value of your collateral may not be sufficient to repay the New Bonds The assets securing the New Bonds are not liquid and their value to you may be substantially less than their value to us. In addition, the value of your collateral may decline over time. Accordingly, we can give you no assurance: o as to the value or sufficiency of the collateral securing your New Bonds; o as to the amounts of proceeds from the sale, disposition or liquidation of any of the collateral upon the Trustee's exercise of remedies following an event of default under the New Bonds; or o that there would be sufficient proceeds upon the sale, disposition or liquidation of the collateral to repay the principal and accrued but unpaid interest, if any, on the New Bonds. Proceeds of any sale of the collateral may not be sufficient to repay all amounts due on the New Bonds. To the extent you are not repaid from the proceeds of the sale of the collateral, you would have only an unsecured claim against our remaining assets. Your security interest under the Second Mortgage is junior to the lien of the First Mortgage The Second Mortgage Indenture provides you with a security interest in our assets, to the extent described therein, but that security interest is subordinated to the security interests in favor of the holders of our outstanding First Mortgage Bonds. The holders of the First Mortgage Bonds generally have the exclusive right to control decisions relating to the enforcement of remedies. As a result, the holders of the Second Mortgage Bonds may not be able to force a sale of the collateral securing their Second Mortgage Bonds or otherwise independently pursue the remedies of a secured creditor under the Second Mortgage Bonds as long as the First Mortgage Bonds are outstanding. Holders of the First Mortgage Bonds may have interests that are different from the interests of holders of the Second Mortgage Bonds and they may elect not to pursue their remedies under the First Mortgage Indenture at a time when it would be advantageous for the holders of the Second Mortgage Bonds to do so. In addition, because the lien of our First Mortgage Indenture is superior to the lien of the Second Mortgage Indenture, holders of the First Mortgage Bonds would have a prior right in payment to the proceeds of the sale of any of their collateral. We may not have sufficient funds to finance a "change of control" offer Upon the occurrence of specific kinds of events that result in our experiencing a change of control, we will be required to offer to repurchase all outstanding New Bonds. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of New Bonds. In addition, important 22 corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a "Change of Control" under the Second Mortgage Indenture. See "Description of New Bonds--Repurchase at the Option of the Holders--Change of Control." 23 USE OF PROCEEDS We will not receive any proceeds in connection with the exchange offer. In consideration for issuing the New Bonds in exchange for the Old Bonds as described in this prospectus, we will receive, retire and cancel the Old Bonds. The net proceeds from the sale of the Old Bonds, before payment of expenses but including the initial purchasers' discount, were approximately $74,281,000. We used $15.0 million of the net proceeds to repay amounts outstanding under our revolving credit facility which has been terminated. We have used and will use the balance of the proceeds of the offering of the Second Mortgage Bonds to pay expenses associated with the issuance of the Old Bonds and the New Bonds and for general corporate purposes relating to our regulated utility business, including the repayment of $41.0 million of First Mortgage Bonds which mature between now and 2004. The remaining proceeds have been invested in short-term interest-bearing obligations until they are applied as discussed above. See "Description of Certain Other Indebtedness and Preferred Stock." 24 CAPITALIZATION The following table sets forth (i) our consolidated capitalization at June 30, 1999 and (ii) our capitalization adjusted to reflect the sale of the Second Mortgage Bonds and the use of the proceeds as discussed under "Use of Proceeds." This table should be read in conjunction with our audited consolidated financial statements and the related notes for the year ended December 31, 1998 and our unaudited consolidated financial statements and related notes for the quarter ended June 30, 1999, which are incorporated by reference in this prospectus.
As of June 30, 1999 ------------------- Actual As Adjusted(1) -------- -------------- (Unaudited) (Dollars in thousands) Cash and cash equivalents ............................. $ 19,277 $ 71,221 ======== ======== Short-term debt: Revolving Credit Facility(2) ..................... $ 20,000 $ 0 Accounts Receivable Facility(3) .................. 12,000 12,000 -------- -------- Total Short-term debt ............................ 32,000 12,000 -------- -------- Long-term debt (including current portion): First Mortgage Bonds ............................. $ 76,500 $ 76,500 8 1/8% Second Mortgage Bonds, due 2004 .......... 0 75,000 Development Authority Bonds(4) ................... 16,300 16,300 Other (various) .................................. 289 289 -------- -------- Total long-term debt ............................. 93,089 168,089 -------- -------- Capital Lease Obligations ............................. $ 15,601 $ 15,601 -------- -------- Cumulative Preferred stock (including current portion): Non-redeemable ................................... $ 8,054 $ 8,054 Redeemable ....................................... 18,000 18,000 -------- -------- Total cumulative preferred stock(5) .............. 26,054 26,054 -------- -------- Common stockholders' equity ........................... 188,906 187,301 -------- -------- Total Capitalization .................................. $355,650 $409,045 ======== ========
- ---------- (1) The information in this column reflects adjustments for the issuance of the Second Mortgage Bonds and the application of the proceeds thereof as of the first day of the year ended June 30, 1999. (2) The Revolving Credit Facility was terminated upon the initial issuance date of the Old Bonds. (3) The Accounts Receivable Facility is currently limited in aggregate principal amount to $12 million. (4) These bonds include $5.0 million of Millstone Pollution Control Bonds, $5.5 million of Seabrook Pollution Control Bonds and $5.8 million of East Barnet Hydroelectric Revenue Bonds, issued by development authorities in Connecticut, New Hampshire and Vermont, respectively. The bonds are secured by three outstanding letters of credit which in turn will be secured by the pledge of approximately $16.9 million of First Mortgage Bonds Series PP, QQ and RR due 2015, 2009 and 2013, respectively. (5) See "Description of Other Indebtedness and Preferred Stock--Preferred Stock" for additional information about our outstanding preferred stock. 25 SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands) The following table presents selected consolidated financial information about us as of the dates and for the periods indicated. The historical financial data as of the end of and for each of the five years in the period ended December 31, 1998, are derived from our audited consolidated financial statements incorporated by reference herein. The historical financial data as of and for the six months ended June 30, 1999 and June 30, 1998 are derived from our unaudited financial statements which, in the opinion of our management, contain all adjustments necessary for a fair presentation of the information presented. This table should be read together with the detailed financial and other information contained elsewhere or incorporated by reference in this prospectus.
Six Months Ended June 30, Year Ended December 31, -------- 1994 1995 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- ---- ---- (Unaudited) Statement of Operations Data: Operating revenues ................... $ 277,158 $ 288,277 $ 290,801 $ 304,732 $ 303,835 $ 150,364 $ 191,781(1) Operating expenses Operations Purchased power ............ 143,162 149,665 154,422 171,443 184,887 85,588 112,934 Production and transmission 21,122 20,883 20,941 22,417 23,383 11,354 10,760 Other operations ........... 40,691 42,116 38,098 40,909 44,110 22,853 23,234 Maintenance ..................... 12,245 12,874 14,918 15,333 15,613 7,654 7,040 Depreciation .................... 16,478 17,297 17,960 16,931 16,708 8,458 8,397 Other taxes, principally property Taxes ....................... 10,423 10,543 10,971 11,490 11,426 5,844 5,902 Taxes on income ................. 11,934 10,662 10,216 7,573 (283) 2,013 7,795 --------- --------- --------- --------- --------- --------- --------- Total operating expenses ........ 256,055 264,040 267,526 286,096 295,844 143,764 176,062 --------- --------- --------- --------- --------- --------- --------- Operating income(2) .................. 21,103 24,237 23,275 18,636 7,991 6,600 15,719 Other income and deductions(2) ....... 3,828 5,782 6,092 8,221 6,652 2,598 2,533 --------- --------- --------- --------- --------- --------- --------- Total operating and other income ..... 24,931 30,019 29,367 26,857 14,643 9,198 18,252 --------- --------- --------- --------- --------- --------- --------- Interest expense Interest on long-term debt ...... 9,611 9,544 9,473 9,337 9,868 4,944 3,866 Other interest .................. 657 798 615 400 831 329 1,261 Allowance for borrowed funds during construction ......... (137) (174) (163) (31) (39) (14) (21) --------- --------- --------- --------- --------- --------- --------- Total interest expense, net .......... 10,131 10,168 9,925 9,706 10,660 5,259 5,106 --------- --------- --------- --------- --------- --------- --------- Net income before extraordinary (charge)/credit .................. 14,800 19,851 19,442 17,151 3,983 3,939 13,146 Extraordinary (charge)/credit, net of taxes ............................ -- -- -- (811) --(6) 873 -- --------- --------- --------- --------- --------- --------- --------- Net income ........................... $ 14,800 $ 19,851 $ 19,442 $ 16,340 $ 3,983 $ 4,812 $ 13,146 Preferred stock dividend Requirements ..................... 2,138 2,028 2,028 2,028 1,945 973 931 --------- --------- --------- --------- --------- --------- --------- Earnings available for common stock ............................ $ 12,662 $ 17,823 $ 17,414 $ 14,312 $ 2,038 $ 3,839 $ 12,215 ========= ========= ========= ========= ========= ========= ========= Other Financial Data: EBITDA(3) ............................ $ 60,797 $ 65,455 $ 63,128 $ 60,471 $ 45,312 $ 17,801 $ 34,349 Net cash provided by operating Activities ....................... $ 49,426 $ 41,711 $ 43,007 $ 41,974 $ 21,743 $ 6,938 $ 32,899 Capital expenditures(4) .............. $ 28,780 $ 25,236 $ 20,541 $ 15,678 $ 18,254 $ 8,130 $ 7,364 Ratio of earnings to fixed charges(5) ....................... 3.43x 3.47x 3.44x 3.77x 1.83x 1.01x 3.90x Ratio of EBITDA to interest Expense .......................... 6.00x 6.44x 6.36x 6.23x 4.25x 3.38x 6.73x
As of December 31, As of June 30, 1999 1994 1995 1996 1997 1998 ------------------- ---- ---- ---- ---- ---- (Unaudited) Balance Sheet Data: Cash and cash equivalents ...... $7,559 $11,962 $6,365 $16,506 $10,051 $19,277 Total assets ................... 490,399 489,931 502,968 531,940 530,282 524,101 Total debt (incl. Capital lease) 156,365 153,032 144,443 147,243 149,991 140,690 Common stock equity ............ 170,784 179,760 186,469 187,123 179,182 188,906 Preferred Stock(7) ............. 28,054 28,054 28,054 27,054 26,054 26,054
- ---------- 26 (1) Includes $6.2 million (pre-tax) collected during the period pursuant to the 4.7% temporary rate increase effective January 1, 1999, which is subject to adjustment pending the outcome of regulatory proceedings in Vermont, and other miscellaneous items. (2) After deduction of taxes on income. (3) EBITDA represents earnings before interest charges, taxes on income, depreciation, amortization, gains on asset sales, cash investment income and noncash transactions resulting principally from the regulatory disallowance of the recovery of power costs incurred. EBITDA is not defined by GAAP, and is presented here only to provide additional information about our ability to meet our future requirements for debt service and capital expenditures. EBITDA should not be considered an alternative to net income as an indicator of operating performance or an alternative to cash flow as a measure of liquidity. (4) Capital expenditures consist of construction and plant expenditures and energy efficiency expenditures not currently being recovered in rates. (5) For purposes of determining the ratio of earnings to fixed charges, (i) earnings consist of income before income taxes plus fixed charges; and (ii) fixed charges consist of interest charges on all indebtedness, including the portion of rental expense that is representative of the interest factor. (6) Excludes approximately $9,000 of net extraordinary charges (after-tax) recorded in the twelve months ended December 31, 1998 but classified in "Other income and deductions." (7) See "Description of Other Indebtedness and Preferred Stock--Preferred Stock" for additional information about our outstanding preferred stock. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Six months ended June 30, 1999 compared with six months ended June 30, 1998 Earnings Overview Net income and earnings per share of common stock for the first six months ended June 30, 1999 were $12.2 million and $1.07 compared to $3.8 million and $.34 for the corresponding period last year. Improved net income and earnings per share of common stock for 1999 reflect the positive impact of a 4.7% temporary Vermont retail rate increase effective with service rendered January 1, 1999 as well as a 2.2% increase in retail mWh sales. The 1998 first six months reflects the positive impact of reversing Connecticut Valley's fourth quarter 1997 after-tax charges of $4.5 million, or $.39 per share of common stock. The major elements of the Consolidated Statement of Income are discussed below. Results of Operations Operating Revenues and mWh Sales A summary of mWh sales and operating revenues for the six months ended June 30, 1999 and 1998 (and the related percentage changes from 1998) is set forth below:
1999 1998 (Decrease) 1999 1998 (Decrease) ---------- ---------- ---------- ---------- ---------- ---------- Residential ............................ 274,697 264,461 3.9 % $ 38,693 $ 35,177 10.0 % Commercial ............................. 235,320 228,432 3.0 30,324 27,462 10.4 Industrial ............................. 115,181 109,888 4.8 11,276 10,095 11.7 Other retail ........................... 1,538 1,802 (14.7) 439 483 (9.1) --------- --------- --------- --------- Total retail sales ....................... 626,736 604,583 3.7 80,732 73,217 10.3 --------- --------- --------- --------- Resale sales: Six Months Ended June 30 ------------------------------------------------------------------------------------ mWh Percentage Revenues (000's) Percentage -------------------------- Increase -------------------------- Increase 1999 1998 (Decrease) 1999 1998 (Decrease) ---------- ---------- ---------- ---------- ---------- ---------- Residential ............................ 486,945 476,829 2.1 % $ 63,852 $ 59,605 7.1 % Commercial ............................. 463,434 452,768 2.4 54,028 50,643 6.7 Industrial ............................. 212,793 208,418 2.1 18,579 17,456 6.4 Other retail ........................... 3,109 3,565 (12.8) 888 969 (8.4) --------- --------- --------- --------- Total retail sales ....................... 1,166,281 1,141,580 2.2 137,347 128,673 6.7 --------- --------- --------- --------- Resale sales: Firm ................................... 1,346 1,125 19.6 79 37 113.5 Entitlement ............................ 181,260 135,756 33.5 9,947 10,263 (3.1) Other .................................. 1,488,584 314,170 373.8 42,256 8,821 379.0 --------- --------- --------- --------- Total resale sales ....................... 1,671,190 451,051 270.5 52,282 19,121 173.4 --------- --------- --------- --------- Other revenues ........................... -- -- -- 2,152 2,570 (16.3) --------- --------- --------- --------- Total sales ............................ 2,837,471 1,592,631 78.2 $ 191,781 $ 150,364 27.5 ========= ========= ========= =========
Retail mWh sales for the first six months of 1999 increased 2.2% compared to the first six months of 1998 reflecting a return to normal winter weather compared to 1998. Retail revenues increased $8.7 million, or 6.7% compared to last year. This variance is attributable to a $2.5 million impact of higher mWh sales in the first six months of 1999 as compared to the first six months of 1998 and $6.2 million resulting from the 4.7% temporary Vermont retail rate increase discussed above and other miscellaneous items. 28 For the first six months of 1999, entitlement mWh sales increased 33.5% while related revenues decreased 3.1% compared to the same period last year. These variances result from the Vermont Yankee extended refueling outage in 1998. Other 1999 resale sales increased 1,174,414 mWh and other resale revenues increased $33.4 million for the first six months of 1999 primarily as a result of our increased level of activity through our alliance with Virginia Power in jointly supplying wholesale power in the Northeast and Mid-Atlantic states. At the present time, however, we are discontinuing this alliance because we believe the risks associated with continuing this relationship outweigh the potential rewards. Other revenues decreased for the first six months of 1999 primarily due to lower revenues associated with transmission interconnection agreements partially offset by increased pole attachment rentals. Net Purchased Power and Production Fuel Costs The net cost components of purchased power and production fuel costs for the first six months ended June 30, 1999 and 1998 are as follows (dollars in thousands):
1999 1998 -------------------------- -------------------------- Units Amount Units Amount ---------- ---------- ---------- ---------- Purchased and produced: Capacity (mW) ........................... 917 $ 44,911 567 $ 47,115 Energy (mWh) ............................ 2,744,620 68,023 1,539,300 38,473 ---------- ---------- Total purchased power costs ....... 112,934 85,588 Production fuel (mWh) ................... 205,616 1,346 146,612 909 ---------- ---------- Total purchased power and production fuel costs 114,280 86,497 Less entitlement and other resales (mWh) 1,669,844 52,203 449,926 19,084 ---------- ---------- Net purchased power and production fuel costs . $ 62,077 $ 67,413 ========== ==========
Net purchased power and production fuel costs decreased $5.3 million, or 7.9% for the first half of 1999 compared to the first half of 1998 resulting from better performance at Millstone Unit #3 and Vermont Yankee nuclear power plant. Energy purchases increased $29.6 million for the first six months of 1999. These increases primarily relate to the Virginia Power Alliance and were offset by increases in other resale sales described above. In addition, the 1999 first half reflects the positive impact of $3.7 million (pre-tax) as the result of disallowed Hydro-Quebec power costs during the fourth quarter of 1998. The 1998 first half reflects the positive impact of reversing Connecticut Valley's fourth quarter 1997 charge of $5.5 million (pre-tax). Generating Units We own and operate 20 hydroelectric generating units and two oil-fired turbines and one diesel peaking unit with a combined nameplate capability of 73.7 mW. We have equity ownership interests in four nuclear generating companies: Vermont Yankee, a 514 mW nuclear unit of which we own 31.3%, Maine Yankee, an 847 mW nuclear unit of which we own 2%, Connecticut Yankee, a 582 mW nuclear unit of which we own 2%, and Yankee Atomic, a 173 mW nuclear unit of which we own 3.5%. Connecticut Yankee, Maine Yankee and Yankee Atomic no longer operate and are in various stages of decommissioning. In addition, we maintain joint-ownership interests in Joseph C. McNeil, a 53 mW wood, gas and oil-fired unit; Wyman #4, a 619 mW oil-fired unit; and Millstone Unit #3, an 1149 mW nuclear unit, which is a part of the Millstone Nuclear Power Station. Millstone Unit #3 and Connecticut Yankee are operated by Northeast Utilities (NU). 29 We are currently in the process of relicensing or preparing to license eight separate hydroelectric generating facilities under the Federal Power Act. These facilities, some of which are evaluated by the FERC as a single project, represent approximately 29.9 mW, or about 72.4% of our total hydroelectric nameplate capacity. In the new licenses, the FERC is expected to impose conditions designed to address the impact of the projects on fish and other environmental concerns. We are unable to predict the impact of the imposition of such conditions, but capital expenditures and operating costs are expected to increase and net generation from these projects will decrease in future periods. Merrimack Unit #2 Until contract termination on April 30, 1998, we purchased power and energy from Merrimack Unit #2 pursuant to a contract dated July 16, 1966 entered into by and between VELCO and Public Service Company of New Hampshire (PSNH). Pursuant to the contract, VELCO agreed to reimburse PSNH, in the proportion which the VELCO quota bears to the demonstrated net capability of the plant, for all fixed costs of the unit and operating costs of the unit incurred by PSNH, which are reasonable and cost-effective for the then-remaining term of the VELCO contract. In early 1998, PSNH took the Merrimack Unit #2 facility off line, shut it down and commenced a maintenance outage. In February, March and April of 1998, PSNH billed VELCO for costs to complete the maintenance outage. VELCO disputes the validity of a portion of the charges on grounds that the maintenance at the unit was performed to extend the life of the Merrimack plant beyond the term of the VELCO contract and that the maintenance charges were not reasonable and cost-effective for the remaining term of the VELCO contract. We estimate that the portion of the disputed charges allocable to us could be as much as $1.0 million (pre-tax). Nuclear Matters Millstone Unit #3 Millstone Unit #3 resumed operation in June 1998 after a lengthy outage and, accordingly, production fuel costs increased for the first half of 1999 compared to the first half of 1998. We remain actively involved with the other non-operating minority joint-owners of Millstone Unit #3. This group is engaged in various activities to monitor and evaluate NU and Northeast Utilities Service Co.'s efforts relating to Millstone Unit #3. On August 7, 1997, we and eight other non-operating owners of Millstone Unit #3 filed a demand for arbitration with Connecticut Light and Power Company and Western Massachusetts Electric Company, both NU affiliates, and lawsuits against NU and its trustees. The arbitration and lawsuits seek to recover costs associated with replacement power, operation and maintenance costs and other costs resulting from the lengthy outage of Millstone Unit #3. The non-operating owners claim that NU and two of its wholly-owned subsidiaries failed to comply with the NRC's regulations, failed to operate the facility in accordance with good operating practice and attempted to conceal their activities from the non-operating owners and the NRC. Based on the most recent decommissioning estimate in 1997, our total share of the Millstone Unit #3 decommissioning costs at December 31, 1998 was $9.7 million. As of December 31, 1998, we have funded $3.2 million of these costs. On September 15, 1999, NU announced that it intends to auction its nuclear plants, including Millstone Unit #3. We cannot predict at this time the effect of such an auction, if it occurs, on us or on the ongoing litigation. Maine Yankee On August 6, 1997, the Maine Yankee nuclear power plant was prematurely retired from commercial operation. We relied on Maine Yankee for less than 5% of our required system capacity. Future payments for the closing, decommissioning and recovery of the remaining investment in Maine Yankee are estimated to be approximately $715.0 million in 1998 dollars including a decommissioning obligation of $344.0 million. 30 On January 19, 1999, Maine Yankee and the active intervenors filed an Offer of Settlement with the FERC which the FERC has approved. As a result, all issues raised in the FERC proceeding, including recovery of anticipated future payments for closing, decommissioning and recovery of the remaining investment in Maine Yankee are resolved. Also resolved are the issues raised by the secondary purchasers, who purchased Maine Yankee power through agreements with the original owners, by limiting the amounts they will pay for decommissioning the Maine Yankee plant and by settling other points of contention affecting individual secondary purchasers. As a result, it is possible that we will not be able to recover approximately $500,000 of these costs. Connecticut Yankee On December 4, 1996, the Connecticut Yankee nuclear power plant was prematurely retired from commercial operation. We relied on Connecticut Yankee for less than 3% of our required system capacity. On August 31, 1998, a FERC administrative law judge recommended that the owners of Connecticut Yankee, including us, may collect from customers $350.0 million for decommissioning the Connecticut Yankee Nuclear Power Plant rather than the $426.7 million requested. The administrative law judge ruling is subject to approval by the FERC Commissioners. If approved, it is possible that we would not be able to recover approximately $1.5 million of decommissioning costs through the regulatory process. Yankee Atomic In 1992, the Yankee Atomic nuclear power plant was retired from commercial operation. We relied on Yankee Atomic for less than 1.5% of our system capacity. Maine Yankee, Connecticut Yankee and Yankee Atomic Decommissioning Costs Presently, substantially all of the costs billed to us by Maine Yankee, Connecticut Yankee and Yankee Atomic, including a provision for ultimate decommissioning of the units, are being collected from our customers through existing retail and wholesale rate tariffs. Our share of remaining costs with respect to Maine Yankee, Connecticut Yankee and Yankee Atomic's decisions to discontinue operation is estimated to be $14.6 million, $9.4 million and $2.0 million, respectively, at June 30, 1999. These amounts are subject to ongoing review and revisions and are reflected in the accompanying balance sheet both as regulatory assets and nuclear decommissioning liability (current and non-current). Although the estimated costs of decommissioning are subject to change due to changing technologies and regulations, we expect that the nuclear generating companies' liability for decommissioning, including any future changes in the liability, will be recovered in their rates over their operating or license lives. The decision to prematurely retire each of these nuclear power plants was based on economic analyses of the costs of operating them compared to the costs of closing them and incurring replacement power costs over the remaining period of the plants' operating licenses. We believe that based on the current regulatory process, substantially all of our proportionate share of Maine Yankee, Connecticut Yankee and Yankee Atomic decommissioning costs will be recovered through the regulatory process and, therefore, the ultimate resolution of the premature retirement of the three plants has not and should not have a material adverse effect on our earnings or financial condition. Vermont Yankee On October 9, 1996, the NRC issued an industry-wide information request to nuclear operators in the United States, including Vermont Yankee. The NRC was concerned that NRC inspections and reviews at a number of plants had turned up discrepancies between those plants' original designs and their actual configurations and operating procedures. The NRC required information from each plant, including Vermont Yankee, that would provide the NRC added confidence and assurance that the plants are operated and maintained within their design 31 basis and any deviations are reconciled in a timely manner. On February 14, 1997, Vermont Yankee filed its initial response with the NRC, concluding that "Vermont Yankee's overall performance in the areas of design and configuration control is fundamentally sound." The most recent Plant Performance Review (April 9, 1999) issued by the NRC states that (i) engineering programs, including Design Basis Documentation development were being implemented well, (ii) Design Basis Documentation item resolution presents a challenge to the engineering work force, and (iii) an inspection will be conducted in the future specifically looking at the resolution of Design Basis Documentation program identified discrepancies. Based on a conservative assessment, Vermont Yankee has informed the NRC that sufficient design analysis may not be available for an unlikely operating condition of the containment depressurization system. The issue is expected to be resolved with the completion of design analysis and no modification to the facility. The analysis will be complete in September 1999. This Design Basis Documentation project is expected to be completed in 2000. Our 35% share of the total cost for this project is expected to be between $5.5 million and $6.2 million. Such costs are being deferred by Vermont Yankee and amortized over the remaining license life of the plant. On February 25, 1999, the Board of Directors of Vermont Yankee granted an exclusive right to AmerGen Energy Co. to conduct a 120-day period of due diligence and negotiate a possible agreement to purchase the assets of Vermont Yankee. On July 16, 1999, the Board of Directors of Vermont Yankee delayed a decision on whether to sell the nuclear unit to AmerGen Energy Co. until August 2, 1999. On August 2, 1999 Vermont Yankee received an unsolicited expression of interest from Entergy Nuclear, Inc., to buy Vermont Yankee's nuclear power plant. Vermont Yankee's owners, including us, are pursuing parallel negotiations with the two potential purchasers with the objective of reaching a definitive agreement, if possible. Cogeneration/Small Power Qualifying Facilities A number of small power producers using hydroelectric, biomass, and refuse-burning generation are currently producing energy that we are purchasing. The majority of these purchases are made from a state appointed purchasing agent which purchases and redistributes the power to all Vermont utilities. For the first six months ended June 30, 1999, we received 100,689 mWh from these sources for which we paid $11.3 million. As a part of our initiative to cut power costs and restructure Vermont's utility industry, on August 3, 1999, we, Green Mountain Power, Citizens' Utilities and all of Vermont's 15 municipal utilities, filed a petition with the PSB requesting modification of the contracts between the independent power producers and the utilities. The petition is based on unique provisions of the existing contracts and PSB regulations that provide for modifications and alterations that serve the public interest. The petition outlines seven specific elements that, if implemented, could ultimately allow for the buy-out and buy-down of these contracts and reduce ratepayers' committed power costs. On September 3, 1999, the PSB responded to our petition by opening a formal investigation regarding these contracts. Production and Transmission As a result of a settled transmission contract dispute between NEPOOL, representing various New England utilities, and Hydro-Quebec, production and transmission expenses decreased approximately $600,000 for the first six months of 1999 compared to the first six months of 1998, partially offset by higher nuclear fuel costs related to Millstone Unit #3. 32 Maintenance The decrease in maintenance expenses of about $600,000 results primarily from the severe ice storm in January 1998 partially offset by increased maintenance costs related to Millstone Unit #3. See "Offering Memorandum Summary--Recent Developments--Ice Storm Arbitration with Hydro-Quebec." Income Taxes Federal and state income taxes fluctuate with the level of pre-tax earnings. The increase in total income tax expense for the first six months of 1999 results primarily from an increase in pre-tax earnings for the period. Extraordinary Credit The 1998 extraordinary credit net of taxes of approximately $900,000 represents a reversal of a charge of a like amount taken in the fourth quarter of 1997. Fiscal year 1998 compared with Fiscal year 1997 Earnings Overview Our 1998 net income was $4.0 million or $.18 per share of common stock, which equates to a 1.1% return on average common equity. Net income and earnings per share of common stock for 1998 compare to $16.3 million and $1.25 in 1997, and $19.4 million and $1.51 in 1996. The return on average common equity was 7.5% for 1997 and 9.4% for 1996. For 1998, net income and earnings per share of common stock for our utility business reflect the negative impact of increased operating costs, predominantly purchased power, and two regulatory actions. First, during April 1998, we agreed to toll the statutory period of time in which the PSB must act on our pending 6.6% rate increase request filed in September 1997. At the same time, we asked the Vermont Supreme Court to review the PSB's denial of our claim that the PSB is precluded from again litigating a number of VJO Power Contract and demand side management decisions. The appeal and associated stay of the rate case significantly delayed the date that new rates would have otherwise taken effect. As a result, our earnings for 1998 were adversely affected. Second, because of the October 27, 1998 retail rate increase settlement discussed in "Regulation and Rates," net income and earnings per share of common stock for 1998 include the negative impact of an after-tax disallowance of $4.3 million, or $.38 per share of common stock for our purchased power costs under the VJO Power Contract. Also, for 1998 net income and earnings per share of common stock for our utility business reflect the net effect at Connecticut Valley of charges taken during the fourth quarter of 1998 of $3.7 million, or $.32 per share of common stock, offset by the reversal of 1997 charges during the first quarter of 1998 of $4.5 million, or $.39 per share of common stock. These charges and reversal of charges are discussed below and in Notes 1 and 13 to the consolidated financial statements incorporated by reference in this offering memorandum. For 1997, net income and earnings per share of common stock for our utility business reflect a net of tax extraordinary charge of approximately $800,000 and $.07, respectively, associated with the discontinued application of SFAS No. 71 applied to Connecticut Valley. In addition, Connecticut Valley incurred an after-tax charge of $3.6 million and $.31 per share of common stock for disallowed power costs. For 1997, non-utility net income and earnings per share of common stock reflect a gain of $1.8 million and $.16, respectively, from the sale by Catamount of its 8.1% partnership interest in the NW Energy Williams Lake L.P. Project. In addition, 1997 net income and earnings per share of common stock reflected an after-tax gain of approximately $1.3 million and $.12, respectively, from sale of non-utility property. 33 Results of Operations The major elements of the Consolidated Statement of Income are discussed below. Operating Revenues and mWh Sales A summary of mWh sales and operating revenues for 1998, 1997 and 1996 is set forth below:
mWh Sales Revenue --------------------------------- --------------------------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- (Dollars in thousands) Residential ............ 930,666 945,199 957,733 $ 115,911 $ 116,314 $ 108,603 Commercial ............. 937,547 916,311 900,590 103,221 104,460 98,890 Industrial ............. 418,778 427,764 401,781 33,617 34,206 32,399 Other retail ........... 7,123 7,138 7,229 1,943 1,937 1,856 --------- --------- --------- --------- --------- --------- Total retail sales ....... 2,294,114 2,296,412 2,267,333 254,692 256,917 241,748 --------- --------- --------- --------- --------- --------- Resale sales: Firm ................. 2,284 1,051 1,717 94 46 81 Entitlement .......... 319,703 378,273 470,760 19,370 18,925 24,781 Other ................ 1,008,635 827,818 770,542 26,861 22,265 18,705 --------- --------- --------- --------- --------- --------- Total resale sales ..... 1,330,622 1,207,142 1,243,019 46,325 41,236 43,567 --------- --------- --------- --------- --------- --------- Other revenues ......... -- -- -- 2,818 6,579 5,486 --------- --------- --------- --------- --------- --------- Total ................ 3,624,736 3,503,554 3,510,352 $ 303,835 $ 304,732 $ 290,801 ========= ========= ========= ========= ========= =========
Year-to-year fluctuations in total retail mWh sales are primarily affected by customer growth, conservation and load management programs, as well as relative prices of alternate energy sources, weather patterns and conservation induced by price changes and income elasticity responses of customers. Compared to 1997, retail mWh sales for 1998 decreased 2,298 mWh and related revenues decreased $2.2 million, or .9% compared to 1997. The revenue decrease is primarily attributable to a modified rate design reflected in bills rendered since April 1, 1997. The modified rate design, which is revenue neutral on an annual basis, decreases prices charged during the winter months of December through March and increases prices during the remaining months of the year. Retail mWh sales for 1997 increased 1.3% compared to 1996 reflecting an improved Vermont economy. However, retail revenues increased $15.2 million or 6.3% over 1996 due to a $12.8 million increase in revenues resulting from the full year impact of a 5.5% retail rate increase effective June 1, 1996, 2% retail rate increase effective January 1, 1997, the positive impact of the modified rate design described above, and a 1.3% increase in retail mWh sales. For 1998, entitlement mWh sales decreased 15.5% compared to 1997. The decrease results primarily from the scheduled refueling and maintenance outage of the Vermont Yankee nuclear power plant. The outage, which reduced the plant's 1998 output, also reduced mWh sales. However, a portion of the higher costs of our share of Vermont Yankee's costs associated with the refueling and maintenance outage was passed on to entitlement customers resulting in an increase in entitlement revenues of $400,000, or 2.4%. Entitlement mWh sales and revenues decreased for 1997 compared to 1996 primarily due to the scheduled termination of several sales agreements in late 1996. Other resale sales increased 180,817 mWh and related revenues increased $4.6 million for 1998. The increase resulted primarily from short-term system capacity sales made by us and Virginia Power, with which we jointly supply wholesale power in the Northeast and Mid-Atlantic States. This increase is partially offset by lower sales to New England power pool, or NEPOOL. Other resale sales and revenues for 1997 increased 7.4% and 19%, respectively, due to increased sales to NEPOOL partially offset by a decrease in wholly-owned and jointly-owned units sales. 34 Other revenues decreased for 1998 due to a provision for rate refunds in New Hampshire of $2.7 million related to a Connecticut Valley fuel adjustment clause and purchased power cost adjustment associated with the December 3, 1998 Court of Appeals decision discussed in "Regulation and Rates," and to lower revenues associated with transmission interconnection agreements partially offset by increased pole attachment rentals. The increases in other revenues for 1997 resulted primarily from an increase in transmission revenues related to various transmission interconnection agreements. The table below summarizes the components of increases or decreases in revenues compared to the prior year: 1998 1997 ---- ---- (Dollars in thousands) Revenue increase (decrease) from: Retail mWh sales ........................... $ (90) $ 2,377 Retail rates ............................... (2,135) 12,792 Changes in firm resale sales ............... 48 (35) Changes in entitlement sales ............... 445 (5,856) Changes in other resale sales .............. 4,596 3,560 Changes in other revenues .................. (3,761) 1,093 -------- -------- Net increase over prior year ................... $ (897) $ 13,931 ======== ======== Power Resources We currently purchase approximately 86% of our retail and firm wholesale power needs under several contracts of varying duration. Firm wholesale consists solely of an approximate 1 mW sale to a small Vermont utility. During 1998, over 35% of our power needs came from Vermont Yankee, an affiliated company which owns and operates a nuclear generating unit from which we receive our entitlement share of the output. Our purchased power portfolio includes a diversified mix of sources and fuel types to meet our long-term load growth while providing short and intermediate term opportunities to purchase or sell capacity and energy to reduce overall power costs. A breakdown of our energy sources is shown below: Year Ended December 31, ----------------------------- 1998 1997 1996 ---- ---- ---- Nuclear generating companies ..... 36% 45% 46% Hydro-Quebec VJO ................. 32 35 29 Other Canadian imports ........... 5 6 9 PSNH-coal ........................ 3 14 12 Company-owned hydro .............. 9 8 9 Jointly-owned units .............. 4 2 3 Small power producers ............ 9 8 9 Other purchases/(sales), net ..... 2 (18) (17) --- --- --- 100% 100% 100% === === === In 1992, 1996 and 1997, the Boards of Directors of Yankee Atomic, Connecticut Yankee and Maine Yankee, respectively, decided to permanently discontinue operation of the Yankee Atomic, Connecticut Yankee and Maine Yankee nuclear power plants, and to decommission the facilities. For additional information in regard to the permanent shutdown of these nuclear power plants see "Nuclear Matters" above and Note 2 to the Consolidated Financial Statements incorporated by reference herein. The Vermont Yankee nuclear power plant, which provides approximately one-third of our required power supply, began a refueling outage on March 21, 1998 and returned to service on June 3, 1998. The refueling outage extended twenty-six days beyond the estimated forty-nine days. Vermont Yankee had no scheduled refueling outage in 1997 and had a scheduled refueling outage from September 7 through November 5, 1996. 35 During scheduled nuclear refueling outages, we purchase more costly replacement energy from other sources to satisfy energy needs. In accordance with current rate-making treatment, we defer and amortize to expense over their respective fuel cycles the incremental replacement energy and maintenance costs associated with the scheduled portion of refueling outages for the Vermont Yankee nuclear power plant and Millstone Unit #3 jointly-owned nuclear generating unit. During 1998, we incurred $3.1 million and $6.5 million for replacement energy and maintenance costs, respectively, of which $7.2 million in total was deferred. During 1996, we deferred $1.5 million and $6 million of replacement energy and maintenance costs, respectively. Under a long-term purchase power contract expiring in 2016, we receive varying amounts of capacity and energy from Hydro-Quebec. See Note 14 to the Consolidated Financial Statements incorporated by reference herein for further details related to the VJO Power Contract. Under long-term contracts, we purchase power from a number of small power producers who own qualifying facilities under the Public Utility Regulatory Policies Act of 1978. These qualifying facilities produce energy using hydroelectric, wood, biomass and refuse-burning generation. During 1998, we purchased 212,702 mWh of which 154,832 mWh was associated with the Vermont Electric Power Producers and 38,283 mWh is associated with a New Hampshire/Vermont solid waste plant which sells directly to Connecticut Valley. We expect to purchase an average of approximately 203,000 mWh of small power output in each year 1999 through 2003. Based on the forecast level of production, the total commitment in the next five years to purchase power from these qualifying facilities is estimated to be $113.7 million. We engage in purchases and sales with other electric utilities and with NEPOOL to take advantage of immediate pricing and other market conditions and to balance our needs with our resources. We also engaged in marketing activities with Virginia Power, with which we would jointly buy and sell wholesale power in the Northeast and Mid-Atlantic states. At the present time, however, we are discontinuing this alliance. These joint purchases are not included in the table above. The net cost components of purchased power and production fuel costs for the past three years were as follows:
1998 1997 1996 --------------------- --------------------- --------------------- Units Amount Units Amount Units Amount ----- ------ ----- ------ ----- ------ (Dollars in thousands) Purchased and produced: Capacity (mW) .......... 613 $ 104,740 527 $ 99,513 526 $ 86,431 Energy (mWh) ........... 3,478,860 80,147 3,470,235 71,930 3,445,259 67,991 --------- --------- --------- Total purchased power costs 184,887 171,443 154,422 Production fuel (mWh) .. 332,835 1,996 237,064 1,820 295,802 1,570 --------- --------- --------- Total purchased power and production fuel costs .... 186,883 173,263 155,992 Less entitlement and other resales (mWh) ... 1,328,338 (46,231) 1,206,091 (41,190) 1,241,302 (43,486) --------- --------- --------- Net purchased power and production fuel costs ....... 140,652 $ 132,073 $ 112,506 ========= ========= =========
For 1998, purchased capacity cost increased $5.2 million over 1997. This increase is the result of a $7.4 million disallowance of Hydro-Quebec power costs discussed below, $7.2 million of higher costs primarily associated with the VJO Power Contract, the Vermont Yankee extended outage and $1.6 million of disallowed power costs at Connecticut Valley. Offsetting this increase is the impact at Connecticut Valley totaling $11.0 million, associated with the reversal of a $5.5 million charge-off during 1998 and a charge-off during 1997 of $5.5 million. See "Electric Utility Restructuring" below and Note 13 to the Consolidated Financial Statements incorporated by reference herein for additional information. The increase in purchased capacity cost of $13.1 million for 1997 over 1996 resulted from $7.4 million in higher prices, $200,000 increase due to the amount of mW purchased and $5.5 million representing Connecticut Valley's estimated loss on power contracts for the twelve months following December 31, 1997 discussed below and in Note 13 to the Consolidated Financial Statements incorporated by reference herein. Pursuant to a PSB Accounting Order, during the first half of 1997, we reduced capacity costs by $5.8 million related to the VJO Power Contract for which a payment of $5.8 million was received from Hydro-Quebec on June 30, 1997. 36 Energy costs are directly related to the variable prices of oil, nuclear fuel and coal but, more importantly, to the proportion of our purchased energy that comes from each of these fuel sources. The increase in energy costs for 1998 resulted from an 11.1% or, $8.0 million, increase in unit costs of mWh purchased and a $200,000 increase due to the volume of mWh purchased. The price increases result primarily from the higher costs under the VJO Power Contract, increased purchases from small power producers and the Vermont Yankee extended outage. The increase in energy costs for 1997 resulted from a 5%, or $3.4 million increase in unit costs of mWh purchased and a 0.7%, or $500,000, increase due to the volume of mWh purchased. The price increase results primarily from the need to replace power due to the shutdown of Maine Yankee and Connecticut Yankee and the outage at Millstone Unit #3. For information related to recovery of costs associated with the premature retirement of the Maine Yankee and Connecticut Yankee nuclear power plants see Note 2 to the Consolidated Financial Statements incorporated by reference herein. We are responsible for paying our entitlement percentage of decommissioning costs for Vermont Yankee, Connecticut Yankee, Maine Yankee and Yankee Atomic as well as our joint ownership percentage of decommissioning costs for Millstone Unit #3. See Notes 2 and 14 to the Consolidated Financial Statements incorporated by reference herein. The staff of the SEC has questioned current accounting practices of the electric utility industry, including our own, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements of electric utilities. In response to these questions, the Financial Accounting Standards Board has agreed to review the industry-wide accounting for nuclear decommissioning costs. If current electric utility industry accounting practices for such decommissioning costs are changed, it is possible that annual expense provisions for decommissioning costs could increase, the total estimated costs for decommissioning could be recorded as a liability, and income from external decommissioning trusts could be reported as investment income instead of a reduction to decommissioning expense. We do not believe that such changes, if required, would have a material adverse effect on results of operations due to our ability to recover decommissioning costs through the regulatory process. See "Liquidity and Capital Resources--Competition" in our Annual Report on Form 10-K for the year ended December 31, 1998, for related information. Millstone Unit #3 resumed operation in June 1998 after a lengthy outage; accordingly, production fuel costs increased for 1998 compared to 1997. Also, due to increased generation at the Wyman #4 and the Joseph C. McNeil generating stations, production fuel costs increased for 1997 compared to 1996. Based on present commitments and contracts, we expect that net purchased power and production fuel costs will be approximately $127.0 million, $143.0 million and $143.0 million for the period 1999 through 2001, respectively. Production and Transmission Due to increased production costs, primarily related to Millstone Unit #3 and higher transmission costs, production and transmission expenses increased $1.5 million in 1997 compared to 1996. Other Operating Expenses Primarily due to increased legal and regulatory expenses, other operating expenses increased $3.2 million for 1998 compared to 1997. Other operating expenses, in 1997, increased $2.8 million compared to 1996 resulting primarily from increased amortization of conservation and load management costs combined with a decrease in deferral of conservation and load management costs. 37 Maintenance Expenses Maintenance expenses associated with our joint ownership interest in Millstone Unit #3 decreased for 1998 compared to 1997. However, this decrease was offset by an increase in maintenance expenses associated with our tree trimming program and expenses attributable to the severe ice storm in January 1998. The increase in maintenance expenses for 1997 compared to 1996 is due to increased Millstone Unit #3 maintenance costs. Income Taxes Federal and state income taxes fluctuate with the level of pre-tax earnings. These taxes decreased for 1998 and 1997 as a result of lower pre-tax earnings. Other Income, net Total other income, net decreased for 1998 compared to 1997 and increased in 1997 over 1996 as the result of gains of $5.0 million from non-recurring asset sales. Also, Other income, net for 1996 and 1997 include $2.3 million and $400,000 of expenses incurred in connection with the Gauley River Power project, currently under construction, in Summersville, West Virginia. Other Interest Expense Other interest expense increased for 1998 due to an increase in outstanding short-term debt offset somewhat by lower interest rates. Other interest expense declined for 1997 due to a decrease in short-term debt levels. Extraordinary Credit (Charge) As a result of legal and regulatory actions associated with Connecticut Valley, in 1997 we recorded an extraordinary charge of $800,000. See "Electric Utility Restructuring--New Hampshire" in our Annual Report on Form 10-K for the year ended December 31, 1998, which is incorporated by reference herein. Cash Dividends Declared--Common Due to an early common dividend declaration made in December 1997 for the quarterly dividend paid on February 13, 1998, common dividends declared decreased for 1998 compared to 1997 and increased for 1997 compared to 1996. LIQUIDITY AND CAPITAL RESOURCES First six months ended June 30, 1999 compared with six months ended June 30, 1998 Our liquidity is primarily affected by the level of cash generated from operations and the funding requirements of its ongoing construction and conservation and load management programs. Net cash flow provided by operating activities generated $32.9 million and $6.9 million for the first six months ended June 30, 1999 and 1998, respectively. The increase is primarily due to improved cash earnings, lower tax payments and the extended refueling outage at Vermont Yankee during 1998. We ended the first six months of 1999 with cash and cash equivalents of $19.3 million, an increase of $9.2 million from the beginning of the year. The increase in cash for the first six months of 1999 was the result of $32.9 million provided by operating activities, offset by $8.9 million used for investing activities and $14.8 million used for financing activities. 38 Operating Activities Net income, depreciation and deferred income taxes and investment tax credits provided $23.0 million. About $9.9 million of cash was provided by working capital and other operating activities. Investing Activities Construction and plant expenditures consumed approximately $5.8 million, while $3.1 million was used for energy-efficiency programs and non-utility investments. Financing Activities Dividends paid on common stock were $5.0 million while preferred dividends were $.5 million and reduction in capital lease obligations required $.5 million. Reduction in short-term debt was $8.8 million. The level of short-term borrowings fluctuates based on seasonal corporate needs, the timing of long-term financings and market conditions. Fiscal Year 1998 compared with Fiscal Year 1997 Our liquidity is primarily affected by the level of cash generated from operations and the funding requirements of its ongoing construction and conservation and load management programs. Net cash provided by operating activities generated $21.7 million in 1998, $42.0 million in 1997 and $43.0 million in 1996. We ended 1998 with cash and cash equivalents of $10.1 million, a decrease of $6.5 million from the beginning of the year. The decrease in cash for 1998 was the result of $21.7 million provided by operating activities, $18.4 million used for investing activities and $9.8 million used for financing activities. Operating Activities Net income, depreciation and deferred income taxes and investment tax credits provided $14.7 million. $7.0 million was provided from fluctuations in working capital and other operating activities. Investing Activities Construction and plant expenditures consumed $16.0 million while $5.3 million was used for conservation and load management programs and non-utility investments. $2.9 million was provided by a reduction in an escrow account to fund a non-utility investment. Financing Activities Dividends paid on common stock were $10.1 million, while preferred stock dividends were $1.9 million. Retirement of long-term debt and retirement of preferred stock required $20.5 million and $1.0 million, respectively, and reduction in capital lease obligations required $1.1 million. Short-term obligations and sale of common stock provided $24.3 million and $500,000, respectively. 39 Excluding allowance for funds used during construction, construction expenditures are estimated at $18.0 million, $16.0 million and $16.0 million for the years 1999 through 2001, respectively. Our level of short-term borrowings fluctuates based on seasonal corporate needs, the timing of long-term financings and market conditions. On June 3, 1996, our Board of Directors increased the quarterly dividend rate from $.20 to $.22 per share payable August 15, 1996. Through a common stock repurchase program initiated in 1994 and subsequently suspended in order to preserve capital for use in industry restructuring and other business purposes, we purchased 324,717 shares of our common stock in open market transactions during 1995, 1996 and 1997 at an average price of $13.19 per share. These transactions are recorded as treasury stock, at cost, in our Consolidated Balance Sheet. Our capital structure ratios (including amounts of long-term debt due within one year) for the past three years were as follows: December 31, ------------------------------- 1998 1997 1996 ---- ---- ---- Common stock equity ..................... 56% 54% 53% Preferred stock ......................... 8 8 8 Long-term debt .......................... 31 33 34 Capital lease obligations ............... 5 5 5 --- --- --- 100 100 100 === === === Liquidity and Capital Resources Generally On July 30, 1999 we sold $75.0 million aggregate principal amount of 8 1/8% Second Mortgage Bonds due 2004 at a price of 99.915% in accordance with Securities and Exchange Commission Rule 144A. We used $15.0 million of the net proceeds to repay amounts outstanding under our revolving credit facility which has been terminated. We have used and will use the balance of the proceeds of the offering of the Old Bonds to pay expenses associated with the issuance of the Old Bonds and for general corporate purposes relating to our regulated utility business and repayment of the $41.0 million of First Mortgage Bonds which mature between now and 2004. The remaining proceeds have been invested in short-term interest-bearing obligations until they are applied as discussed above. See "Description of Certain Other Indebtedness and Preferred Stock." See "Risk Factors--We may have insufficient liquidity to refinance the New Bonds at maturity." In addition, we recently extended until May 31, 2000 with renewal options through November 5, 2002, an aggregate of approximately $16.9 million of letters of credit which support outstanding development authority bonds. Our reimbursement obligations in respect of these letters of credit are secured by three new series of First Mortgage Bonds in an aggregate principal amount of approximately $16.9 million. Separately, we have a $12.0 million accounts receivable facility which matures in November 1999, which we may renew or replace at or before maturity. On March 12, 1999, Connecticut Valley was notified by Citizens Bank of New Hampshire that it would exercise appropriate remedies in connection with the violation of financial covenants associated with the $3.8 million loan agreement with Citizens Bank unless the violation was cured by April 11, 1999. To avoid default of this loan agreement, on April 6, 1999, pursuant to an agreement reached on March 26, 1999, we purchased from Citizens Bank the $3.8 million note. On February 2, 1999, Standard & Poor's Corporation lowered our corporate credit rating to triple-'B'-minus from triple-'B', the senior secured rating to triple-'B'-plus from single-'A'-minus, and the preferred stock rating to double-'B'-plus from triple-'B'-minus. In addition, the ratings were also placed on CreditWatch with negative implications. Standard & Poor's stated "the CreditWatch listing reflects the potentially adverse impact of pending legal and regulatory decisions that could seriously weaken our credit profile. The downgrades reflect increased business risk 40 and weakened financial measures as a result of recent regulatory decisions in Vermont and New Hampshire and an adverse ruling by the United States First Circuit Court of Appeals." Standard & Poor's also said "Resolution of the CreditWatch listing will depend on the outcome of the pending Federal Energy Regulatory Commission case and other legal proceedings at State and Federal levels, which could be resolved in 1999. Adequate rate relief and successful mitigation of high power costs through contract renegotiations or other methods are essential to stabilizing the ratings." On February 17, 1999, Standard & Poor's rating on our preferred stock was automatically reduced to BB in response to a global policy change in the way Standard & Poor's rates preferred stock. On July 16, 1999, Standard & Poor's assigned its triple-'B'-minus rating to our proposed $75.0 million second mortgage bonds. Concurrently, the Second Mortgage Bonds were placed on credit watch with negative implications. Standard & Poor's said "the second mortgage bonds are rated the same as our corporate credit rating, and not notched up, because Standard & Poor's projects that the value of our collateral will not substantially exceed the maximum combined amount of first and second mortgage bonds that could be outstanding under the terms of their respective indentures in a default scenario." Also on February 17, 1999, Duff & Phelps Credit Rating Co. placed our credit ratings on Rating Watch-Down due to the high level of regulatory and public policy uncertainty in Vermont and the recent unfavorable ruling by the United States Court of Appeals relating to Connecticut Valley. Duff & Phelps stated "recent negative rulings by the PSB regarding purchased power costs and the high level of uncertainty with public policy toward electric utilities in Vermont adds risk to the Company's financial profile going forward." Also on July 16, 1999 Duff & Phelps lowered the preferred stock rating to 'BB+' (Double-B-plus) from 'BBB-' (Triple-B-minus) to reflect the new $75.0 million issuance of second mortgage bonds. Duff & Phelps credit ratings remain at 'BBB' (Triple-B) for first mortgage bonds. Current credit ratings of our securities by Duff & Phelps and Standard & Poor's are as follows: Duff & Standard Phelps & Poor's ------ -------- Corporate Credit Rating............................ N/A BBB- First Mortgage Bonds............................... BBB BBB+ Second Mortgage Bonds.............................. BBB- BBB- Preferred Stock.................................... BB+ BB On November 12, 1998, Catamount, one of our wholly owned non-utility subsidiaries, replaced its $8.0 million credit facility with a $25.0 million revolving credit facility expiring November 11, 2002 which provides for up to $25.0 million in revolving credit loans and letters of credit. Catamount currently has a $1.2 million letter of credit outstanding to support obligations in connection with a debt service requirement in the Appomattox Cogeneration project and aggregated letters of credit of $11.0 million in support of construction and equity commitments for its Gauley River Power project. Financial obligations of our wholly-owned unregulated subsidiaries are non-recourse to the Company. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness, including the $75.0 million Second Mortgage Bonds when due, or to fund our other liquidity needs. Our ability to repay our indebtedness is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory, weather and other factors that are beyond our control. The type, timing and terms of future financing that we may 41 need will be dependent upon our cash needs, the availability of refinancing sources and the prevailing conditions in the financial markets. We cannot assure you that any sources will be available to us at any given time or that the terms of such sources will be favorable. ADDITIONAL ITEMS Catamount's after-tax earnings were $.9 million and $1.3 million for the first six months of 1999 and 1998, respectively. Catamount's after-tax earnings were $3.3 million, $4.1 million and $500,000 for 1998, 1997 and 1996, respectively. Earnings for 1997 include a net of tax gain of $1.8 million from the sale of NW Energy Williams Lake L.P. Also, results of operation for 1997 and 1996 include $400,000 and $2.3 million of pre-tax expenses related to the Gauley River project currently under construction in Summersville, West Virginia. SmartEnergy incurred losses of $.6 million and $.9 million for the first six months of 1999 and 1998, respectively. SmartEnergy incurred losses of $1.5 million and $700,000 for 1998 and 1997, respectively, and earnings of $300,000 for 1996. Year 2000 Information Many computer programs cannot distinguish between the year 2000 and the year 1900. Unless corrected, this programming error could create erroneous data or otherwise cause computer programs to malfunction. In order to address this problem for our own computer systems, we have utilized both internal and external resources, including outside consultants, to make our applications Year 2000 compliant. Inventory, assessment and remediation testing and implementation activities are now complete. As of June 30, 1999, we believe all our systems are Year 2000 compliant. However, our operations could still be adversely affected if a date-related system failure occurred with one of our major power suppliers, such as Hydro- Quebec or Vermont Yankee, with one of our other major suppliers, with Velco, or with other delivery systems outside of Vermont. Velco has indicated that it is Year 2000 ready. We have requested written reports from our power supply vendors regarding each company's status and based on responses to date, these power supply vendors have indicated that they are either currently compliant or expect to be compliant by the third quarter of 1999. We have also requested compliance information from other major vendors and suppliers, including those providing transmission and power delivery services outside of Vermont. While this process is not yet complete, based upon responses to date, many of those major vendors and suppliers have indicated that they will be Year 2000 compliant in a timely manner. There can be no guarantee, however, that these third parties will be successful in their compliance efforts or that their failure to remediate Year 2000 issues will not have a material adverse effect on us. We are part of the Northeast grid contingency plan which would go into effect immediately to provide electricity to our customers on a priority basis in the event of a power outage. We also have other contingency plans developed in the event of a failure of our transmission, generation, distribution, metering, telecommunications, information or public communications systems. We believe we will incur approximately $3.8 million of costs associated with making the necessary modifications to our centralized and non-centralized computer systems. As of June 30, 1999, approximately $3.6 million of these costs have been incurred. During the first quarter of 1998, we requested an Accounting Order from the PSB to defer these operating and maintenance costs. On August 31, 1998, the PSB issued an Accounting Order authorizing us to defer a portion of these costs and amortize them over a five-year period beginning January 1, 2000. Per PSB Order dated December 11, 1998, we are authorized to seek recovery of these costs through future regulatory proceedings. 42 BUSINESS We are the largest electric utility in Vermont. Together with our various wholly-owned and partially-owned subsidiaries, we are engaged in the purchase, production, transmission, distribution and sale of electricity as well as certain non-energy related businesses. We serve over 140,000 customers in nearly three-quarters of the towns, villages and cities in Vermont. Our revenues are primarily derived from retail activities in the State of Vermont and resale activities throughout the Northeast and Mid-Atlantic States. Our subsidiaries are engaged in various activities involving the generation, transmission and distribution of electricity. Connecticut Valley is our wholly-owned subsidiary that distributes and sells electricity to approximately 10,000 customers in 13 communities in New Hampshire bordering the Connecticut River. We maintain a diverse customer base, with minimal concentration of customer risk. In 1998, our five largest customers accounted for only 4.7% of consolidated revenues, and our single largest customer represented only 1.3% of consolidated revenues. We own 56.8% of the common stock and 46.6% of the preferred stock of VELCO, which owns and operates the high voltage transmission system in Vermont. In 1983, VELCO created a wholly-owned subsidiary, Vermont Electric Transmission Company, Inc., or VETCO, to finance, construct and operate the Vermont portion of the 450 KV HVDC transmission line connecting the Province of Quebec with Vermont and New England. We have equity ownership interests in various nuclear facilities including: 31.3% of the common stock of Vermont Yankee; 2% of the outstanding common stock of Maine Yankee; 2% of the outstanding common stock of Connecticut Yankee; and 3.5% of the outstanding common stock of Yankee Atomic. We also own a 1.73% undivided interest in Millstone Unit #3. Connecticut Yankee, Maine Yankee and Yankee Atomic no longer operate and are in various stages of decommissioning. Central Vermont Public Service Corporation-East Barnet Hydroelectric, Inc., one of our wholly-owned subsidiaries, was formed for the purpose of acquiring and constructing a hydroelectric project in East Barnet, Vermont, which became operational September 1, 1984 and has been leased and operated by us since its in-service date. Catamount Resources Corporation was formed for the purpose of holding our subsidiaries that invest in unregulated business opportunities. Catamount, a subsidiary of Catamount Resources Corporation, invests in unregulated energy generation projects in the United States and Great Britain. Currently, Catamount, through its wholly-owned subsidiaries, has interests in six operating independent power projects located in Glenns Ferry and Rupert, Idaho; Rumford, Maine; East Ryegate, Vermont; Thetford, England; and Hopewell, Virginia. In addition, Catamount has interests in a project under construction in Summersville, West Virginia and a project under development in Fort Dunlop, England. Another subsidiary of Catamount Resources Corporation, SmartEnergy, operates several unregulated energy and service related businesses. SmartEnergy was originally formed to engage in the sale of or rental of electric water heaters, energy efficient products and other related goods and services. SmartEnergy also owns 70% of Home Service Solutions, or HSS, which provides home and small business maintenance and repair services. HSS is currently operating in six U.S. cities, and is in the process of expanding into another nine, as part of a national roll-out program with Sam's Clubs, a division of WalMart. See "Risk Factors--The Second Mortgage Indenture does not restrict our unregulated subsidiaries." Power Resources We currently purchase approximately 86% of our retail and firm wholesale power needs under several contracts of varying duration. Firm wholesale consists solely of an approximate 1 mW sale to a small Vermont utility. During 1998, over 35% of our power needs came from Vermont Yankee, an affiliated company, which owns and operates a 43 nuclear generating unit from which we receive our entitlement share of the output. During this same time period, over 32% of these power needs came from Hydro-Quebec, one of the world's largest generators of hydroelectricity which is owned by the province of Quebec, Canada. Our remaining sources of power include purchase contracts with small power producers, purchases from NEPOOL, and other contracted sources, as well as our own generation. Our purchased power portfolio includes a diversified mix of sources and fuel types to meet our long-term load growth while providing short and intermediate term opportunities to purchase or sell capacity and energy to reduce overall power costs. The power required to serve our (including Connecticut Valley's) retail and firm wholesale customers was 2,488,581 mWh for the year ended December 31, 1998. The following tabulation shows the sources and amounts of the energy and capacity available to us for the year ended December 31, 1998.
Net Effective Capability 12 month Generated and Power Source Average Purchased - ------------ ----------- -------------------------- mW mWh Percentage ----- -------- ---------- Wholly- and Jointly-Owned Plants Hydro.......................................... 40.7 221,763 8.9% Diesel and Turbines............................ 28.9 1,258 0.1 Millstone #3................................... 8.2 59,291 2.4 Wyman #4....................................... 10.9 19,126 0.8 McNeil......................................... 10.5 31,396 1.3 Long-Term Power Contracts Vermont Yankee................................. 133.6(1) 884,455(1) 35.5 Hydro-Quebec VJO............................... 143.3(1) 799,493(1) 32.1 Small Power Producers.......................... 33.7 212,645 8.5 Merrimack #2................................... 15.7 73,116 2.9 ----- --------- ----- Total Owned and Long-Term Sources.................. 425.5 2,302,543 92.5 Other Sources/Uses Short-term Purchases........................... 1,209,024 Less Short-term Wholesale Sales and Other...... (1,022,986) Net........................................ 186,038 7.5 --------- ----- Net Power for Retail and Firm Wholesale Sales...... 2,488,581 100.0 ========= =====
- ---------- (1) Vermont Yankee purchases are net of Vermont Yankee entitlement sales of approximately 25 mW and 161,475 mWh to another utility. Hydro-Quebec purchases are net of sales back to Hydro-Quebec of 25 mW and 156,331 mWh. Wholly-Owned Plants. We own and operate 20 hydroelectric generating facilities in Vermont which have an aggregate nameplate capability of 44.7 mW and two oil-fired turbines and one diesel peaking unit with a combined nameplate capability of 29.0 mW. Jointly-Owned Plants. We have a joint ownership interest in the following generating and transmission plants, for which we are responsible for our share of the operating expenses. Name Fuel Type Ownership mW Entitlement - ---- --------- --------- -------------- Millstone #3.......................... Nuclear 1.73% 20 Wyman #4.............................. Oil 1.78% 11 Joseph C. McNeil...................... Various 20.00% 10.6 44 Equity Ownership in Plants. In 1966, we purchased 35% of the Vermont Yankee common stock and were entitled to receive a like percentage of the output of the unit. In late 1969 and early 1970, we sold at cost a combined total of 3.7% of our original equity investment and we currently resell at cost 3.9% of our entitlement. Our current equity ownership and net entitlement percentages are 31.3 and 31.1, respectively. Major Long-Term Purchases. Under various contracts, we purchase from Hydro-Quebec capacity and associated energy. Under the terms of these contracts, we are required to pay some fixed capacity costs whether or not energy purchases above a minimum level described in the contracts are made. Such minimum energy purchases must be made whether or not other less expensive energy sources might be available. Small Power Qualifying Facilities. A number of small producers using hydroelectric, biomass, and refuse-burning generation are currently producing energy that we are purchasing. The majority of these purchases are made from a state-appointed purchasing agent which purchases and redistributes the power to all Vermont utilities. For the year ended December 31, 1998, we received 212,645 mWh from these sources for which we paid $22,557,152. We have sufficient power under contract and through market purchases to supply our current franchise obligations. We expect to actively manage our portfolio of supply and demand side resources over the near-term, as we have in the past, to minimize net power costs for our customers and shareholders. The timing and nature of these events will be largely determined by future legislative and regulatory actions at the state and national levels. See "Risk Factors." VJO Power Contract with Hydro-Quebec We are purchasing varying amounts of power from Hydro-Quebec through 2016 as a party to a power contract with Hydro-Quebec entered into through the VJO, a consortium of Vermont utilities which includes us, Green Mountain Power, Citizens Utilities, Rochester Electric Light & Power and the Vermont Public Power Supply authority representing municipalities and a cooperative in Vermont. Our obligation is approximately 46% of the total contract, or approximately $1.0 billion over the next 17 years based on current power market forecasts. The VJO participation contract under which the VJO resells Hydro-Quebec power to the Vermont purchasing utilities, including ourselves, contains "step up" provisions providing that if any purchasing utility defaults on its purchase obligations, the other participants will assume responsibility for the defaulting party's share on a pro rata basis. See "Risk Factors--Our obligations under the VJO Power Contract with Hydro-Quebec may increase if a VJO member defaults." During January 1998, a significant ice storm affected parts of New York, New England and the Province of Quebec, Canada. This storm damaged major components of the Hydro-Quebec transmission system over which power is supplied to Vermont under the VJO Power Contract with Hydro-Quebec. This resulted in a 61-day interruption of a significant portion of scheduled contractual energy deliveries into Vermont. The ice storm's effect on Hydro-Quebec's transmission system caused the VJO to examine Hydro-Quebec's overall reliability and ability to deliver energy. The VJO believes Hydro-Quebec has been and remains unable to make available capacity with the degree of firmness required by the VJO Power Contract. That review has prompted the VJO to initiate an arbitration proceeding. In the arbitration, the VJO is seeking to terminate the contract, to recover damages associated with Hydro-Quebec's failure to comply with the contract, and to recover capacity payments made during the period of non-delivery. The results of the arbitration cannot be predicted at this time. On September 22, 1999, we announced that we will seek, with the other Vermont Joint Owners, to auction the contract with Hydro-Quebec. Transmission VELCO provides transmission services for the State of Vermont acting by and through the DPS, and for all of the electric distribution utilities in the State of Vermont and is reimbursed for its costs for the transmission of power for such entities. VELCO has 535 miles of transmission lines consisting primarily of 115 kV and greater. We, as the 45 largest electric distribution utility in Vermont, are the major user of VELCO's transmission system. VELCO also receives and delivers power to us and the other electric utilities (cooperative, municipal and investor-owned) in Vermont and transmits power for the Vermont utilities. We own a majority interest in the Class B common stock of VELCO, but our ability to control VELCO is limited by a Four-Party Agreement between us, VELCO, Green Mountain Power and Citizens Utilities, another Vermont utility. We also own several transmission lines. We have 7.5 miles of transmission lines of 120 kV and 606 miles of subtransmission lines, which are predominantly 34.5 and 46 kV. Proposed Formation of a Holding Company On July 24, 1998, we filed a petition with the PSB for permission to create a holding company that would have as direct subsidiaries us and our unregulated subsidiaries, Catamount and SmartEnergy. We believe that a holding company structure will facilitate our transition to a deregulated electricity market. The proposed holding company formation must also be approved by federal regulators, including the SEC and the FERC, and by our shareholders. Stranded Costs Currently, we are a party to: o power purchase agreements that require us to make capacity and/or energy payments to power suppliers or aggregating entities in exchange for capacity/electricity from those power suppliers; and o ownership agreements regarding our equity ownership in power producing facilities, including nuclear power plants, that provide for us to fund our pro rata share of operating expenses of the power producing investments in exchange for receiving our pro rata share of the power output from these investments. The cost of power under the power purchase agreements and the ownership agreements exceeds the current market cost of power within New England. We are addressing the increasing cost of power with measures including (i) negotiating modifications in the power purchase and ownership agreements and (ii) evaluating the divestiture of our generating assets and power purchase agreements. However, we cannot increase rates without the PSB's approval. Failure to recover costs through rates could impair our financial condition. We may not be able to reduce our operating costs to levels that would obviate the need for rate increases without impairing our ability to operate. See "Risk Factors--Our other stranded costs may not be recoverable." As a result of our above-market power costs and the uncertainty regarding our ability to recover these costs through rate increases, we are likely to have stranded costs related to the power purchase agreements, the ownership agreements and other elements of our business. Any inability to recover our cost of power and other stranded costs may affect our ability to generate an adequate return on our equity and invested capital. The above-market power costs of purchases from Hydro-Quebec, Vermont Yankee and small power producers would comprise the majority of our stranded costs. The stranded costs associated with these power sources should be evaluated in the context of their contribution to our overall power supply. In 1998, these power sources accounted for approximately 76% of our retail and firm wholesale energy needs. If Vermont's electric industry is deregulated, we intend to request that the State provide us with a competitive transition charge to recover stranded costs associated with our wholesale power purchase contracts and other stranded costs. See "Electric Industry Restructuring." 46 REGULATION AND RATES We recognize that adequate and timely rate relief is necessary if we are to maintain our financial strength, particularly since Vermont regulatory rules do not allow for changes in purchased power and fuel costs to be automatically passed on to consumers through rate adjustment clauses. We intend to continue our practice of periodically reviewing costs and requesting rate increases when warranted. Vermont Retail Rate Proceedings On September 22, 1997, we filed with the Public Service Board, or PSB, for a 6.6% or $15.4 million retail rate increase to become effective June 6, 1998 to offset the increasing cost of providing service. $14.3 million or 92.9% of the rate increase request was to recover contractual increases in the cost of power we purchase from Hydro-Quebec. At the same time, we also filed a request to eliminate the current differential between the rates we charge customers in the summer and the rates we charge customers in the winter and price electricity the same year-round. In response to our filing, the PSB decided to appoint an independent investigator to examine our decision to buy power from Hydro-Quebec. We made a filing with the PSB stating that the PSB as well as other parties should be barred from reviewing past decisions because the PSB already examined our decision to buy power from Hydro-Quebec in a 1994 rate case in which we were penalized for "improvident power supply management." During February 1998, the Department of Public Service, or DPS, filed testimony in opposition to our retail rate increase request. The DPS recommended that the PSB instead reduce our then current retail rates by 2.5% or $5.7 million. We sought, and the PSB granted, permission to stay this rate case and to file an interlocutory appeal of the PSB's denial of our motion to preclude a re-examination of our Hydro-Quebec contract in 1991. We recently argued our position before the Vermont Supreme Court. The Vermont Supreme Court has not rendered a decision. A decision by the end of 1999 is possible. We filed on June 12, 1998 with the PSB for a 10.7% retail rate increase that supplanted our September 22, 1997, 6.6% rate increase request, to be effective March 1, 1999. On October 27, 1998, we reached an agreement with the DPS regarding our June 1998 retail rate increase request providing for a temporary rate increase in our Vermont retail rates of 4.7% or $10.9 million on an annualized basis beginning January 1, 1999. The agreement was approved by the PSB on December 11, 1998. The 4.7% rate increase is subject to retroactive or prospective adjustment upon future resolution of the issue presently before the Vermont Supreme Court, which is described above. The agreement temporarily disallows approximately $7.4 million of our purchased power costs under the VJO Power Contract pending resolution of the issue before the Vermont Supreme Court. As a result of the agreement on our rate case, during the fourth quarter of 1998, we recorded a loss of approximately $7.4 million (pre-tax) for disallowed purchased power costs, representing our estimated under-recovery of power costs under the VJO Power Contract for calendar year 1999. This temporary $7.4 million disallowance was calculated using comparable methodology to that used by the PSB in the Green Mountain Power rate case on February 28, 1998. In that case, the PSB found Green Mountain Power's decision to commit to the VJO Power Contract in 1991 "imprudent" and that power purchased under it was not "used and useful." As a result, the PSB concluded that a portion of Green Mountain Power's current costs should not be imposed on Green Mountain Power's customers and were disallowed. Green Mountain Power is appealing that rate order to the Vermont Supreme Court. Should we receive a similar order from the PSB, we would experience a material adverse effect on our results of operations and financial condition. Assuming an unfavorable Vermont Supreme Court ruling and depending on the methodology used to determine the amount of any disallowance, the amount of any permanent disallowance could be more or less than the $7.4 million temporary disallowance. However, if we receive an unfavorable ruling from the Vermont Supreme Court and the PSB subsequently issues a rate order permanently adopting the disallowance methodology used to determine the temporary Hydro-Quebec disallowance described above, or a similar methodology, for the duration of the VJO Power Contract, we would not be able to recover approximately $205.0 million of power costs over the life of the contract, including $11.5 million in 2000, $11.6 million in 2001, $11.7 million in 2002, $11.9 in million 2003 and 47 $12.1 million in 2004. In such an event, we would be required to take an immediate charge to earnings of $205.0 million (pre-tax). Such an outcome could jeopardize our ability to continue as a going concern. New Hampshire Retail Rate Proceedings Federal Court Proceedings We sell firm power to Connecticut Valley under a wholesale rate schedule based on forecast volumes and power costs for each calendar year, which is reconciled to actual data annually. In February 1997, the New Hampshire Public Utilities Commission, or NHPUC, ordered Connecticut Valley to terminate the wholesale rate schedule with us. The NHPUC subsequently found Connecticut Valley "imprudent" for not having previously taken steps to terminate the rate schedule and ordered that rates be reduced to market levels. We are seeking relief in federal court to reverse the NHPUC's decision. To date rates have not been reduced below where they were as of December 1997. Along with other New Hampshire utilities we are also seeking injunctive relief in United States District Court against the NHPUC's efforts to restructure the New Hampshire electric utility industry generally. In April 1998, Connecticut Valley obtained a preliminary injunction which required the NHPUC to allow it to recover through retail rates a portion of its stranded costs and purchased power costs incurred pursuant to its FERC-authorized wholesale rate schedule. The Court of Appeals vacated the injunction, finding that Connecticut Valley had not demonstrated a sufficient probability of success to warrant preliminary relief. At the same time, the Court of Appeals indicated that rates could not be reduced below where they were as of December 1997. However, the Court of Appeals did uphold the preliminary injunction staying the NHPUC's plans to restructure the New Hampshire electricity industry. The matter has returned to the District Court for hearings on Connecticut Valley's motion for a permanent injunction against the NHPUC concerning restructuring. That hearing, as well as the court's ruling on several dispositive summary judgment motions, is likely to occur late this year. Connecticut Valley also purchases power from several small power producers who own qualifying facilities as defined by the Public Utility Regulatory Policies Act of 1978. In 1998, under long-term contracts with these qualifying facilities, Connecticut Valley purchased 41,477 mWh, of which 38,283 mWh were purchased from Wheelabrator Claremont Company, L.P., or Wheelabrator. Connecticut Valley has asserted before the FERC that Wheelabrator has not been a qualifying facility since the plant began operation. On February 11, 1998, the FERC issued an order denying Connecticut Valley's request for a refund of past purchased power costs and for lower future costs based on our petition. We filed a request for rehearing with the FERC on March 13, 1998 which was denied. Subsequently, Connecticut Valley appealed to the D.C. Circuit Court of Appeals which has yet to render a decision. FERC Proceedings In June 1997, we filed an application with the FERC to recover stranded costs in connection with our wholesale rate schedule with Connecticut Valley and a notice of cancellation of the Connecticut Valley rate schedule (contingent upon the recovery of the stranded costs that would result from the cancellation of this rate schedule). In December 1997, the FERC rejected our proposal to recover our stranded costs through the imposition of a surcharge on our transmission tariff, but indicated that it would consider an exit fee mechanism for collecting stranded costs. The FERC denied our motion for a rehearing regarding our surcharge proposal, so we filed a request with the FERC for an exit fee mechanism to collect the stranded costs resulting from the cancellation of our contract with Connecticut Valley. The stranded cost obligation sought to be recovered through an exit fee, expressed on a net present value basis as of January 1, 1999, is approximately $48.0 million. During April and May 1999, nine days of hearings were held at the FERC before an administrative law judge, who will determine, among other things, whether Connecticut Valley qualifies for an exit fee, and if so, the amount of Connecticut Valley's stranded cost obligation to be paid to us as an exit fee. The ruling of the administrative law judge is expected later this year, and the FERC will act on the judge's recommendations sometime thereafter. 48 If we are unable to obtain an order authorizing the recovery of costs in connection with our June 1997 FERC filing, we would be required to recognize a loss under this contract totaling approximately $60.0 million (pre-tax). We would also be required to write-off approximately $4.0 million (pre-tax) in regulatory assets associated with our wholesale business. The cash flow shortfall from our revenues would be approximately $6.0 million (pre-tax) annually. However, even if we obtain a FERC order authorizing the updated requested exit fee, if Connecticut Valley is unable to recover these costs by increasing its rates, Connecticut Valley would be required to recognize a loss under this contract of approximately $48.0 million (pre-tax). Proceedings relating to Connecticut Valley's Fuel Adjustment Clause and Purchased Power Cost Adjustment Connecticut Valley's retail rate tariffs, approved by the NHPUC, contain a Fuel Adjustment Clause, or FAC, and a Purchased Power Cost Adjustment, or PPCA. Under these clauses, Connecticut Valley recovers its estimated annual costs for purchased energy and capacity which are reconciled when actual data is available. Based on a motion by the City of Claremont, an intervenor, the NHPUC, in its order dated December 31, 1997, found that Connecticut Valley was imprudent for not terminating its wholesale power contract with us and ultimately ordered that we could only recover rates at the current market levels. Subsequently, the NHPUC, in deference to a temporary restraining order issued by a federal district court, allowed FAC and PPCA rates effective May 1, 1998 that would make us whole for 1997 undercollections, the 1998 undercollections incurred through April 30, 1998, and the increase in 1998 power costs. On the basis of estimates of costs for 1999 and reconciliations from 1998, the combined 1999 FAC and PPCA rates would have resulted in a decrease in revenues of approximately $2.3 million for 1999. The decrease was primarily caused by the elimination of the various undercollections from prior periods mentioned above. The City of Claremont filed a motion to determine the prudence of the 1999 power costs. However, by agreement of the parties, including the NHPUC, the hearing was limited to the mathematical calculation of the FAC and PPCA. An NHPUC order allowed the decrease. Following the lifting of the temporary restraining order, the NHPUC has ordered FAC and PPCA rates to be reduced to the levels prevailing on December 31, 1997. 49 ELECTRIC INDUSTRY RESTRUCTURING The electric utility industry is in a period of transition that may result in a shift away from rate making based on cost of service and return on equity to more market-based rates. Many states, including Vermont and New Hampshire, where we do business, are exploring new mechanisms to bring greater competition, customer choice and market influence to the industry while retaining the public benefits associated with the current regulatory system. Recently, there have been three primary sources of Vermont governmental activity in attempting to restructure the electric industry in Vermont: (a) the Governor's Working Group, created by the Governor of Vermont; (b) the PSB's Docket No. 6140, through which the PSB is considering restructuring proposals; and (c) Senate Bill 62 of the Vermont Senate, which calls for retail competition. The Working Group On July 22, 1998, the Governor of Vermont issued an Executive Order establishing the Working Group on Vermont's Electricity Future to lead a new effort to review the issues of potential restructuring of Vermont's electric industry. The Working Group was created to determine how restructuring the electric industry in Vermont could reduce both current and long-term electric costs for all classes of Vermont electric consumers. The Working Group was asked to provide a fact-based analysis of the options for electric industry restructuring and the impact of such industry changes on consumers and upon Vermont utilities. Further, the Working Group was directed by the Governor of Vermont to gather information on and evaluate the possible consequences of the current financial status of Vermont electric utilities. A report was issued by the Working Group on December 18, 1998. Key conclusions of its report were: o The bankruptcy of Vermont electric utilities should not be viewed as an appropriate means to reduce Vermont utilities' above-market power supply costs. o Vermont should restructure its electric industry by moving rapidly to retail choice whereby consumers would purchase power directly from competing power suppliers. o Vermont electric utilities should pursue power contract renegotiations through payments to buy down power contracts or buy-out power contracts. Financing for such payments should be obtained in the capital markets after a comprehensive regulatory process dealing with all of the elements of the restructuring of the Vermont electric utility industry. o The Vermont electric utilities should pursue auctions of their power generation assets and remaining power contracts. o Consolidation of existing electric utilities in Vermont (there are currently 22 utilities) should be considered in order to effect additional savings for utility customers. The Working Group noted that by March 1, 2000, most New Englanders outside Vermont will have a choice of their power supplier. While New England has the highest electricity rates in the nation, electricity costs in Vermont have been among the lowest in the region, although our rates are higher than the Vermont average. However, that advantage is eroding as other states in New England restructure their electric utility industries. Therefore, the Working Group noted that it is in the interest of Vermont ratepayers to have the benefit of a restructured electric utility industry as soon as possible. Public Service Board Docket No. 6140 On September 15, 1998, the PSB opened a formal proceeding in Docket No. 6140 with the goal of creating a regulatory environment and a procedural framework to call forth, for disciplined review, proposals for reducing current and future power costs in Vermont. The PSB intended that this proceeding would define one or more 50 acceptable courses for reform. All Vermont utilities were made parties to that proceeding. Subsequent to the PSB's announcement, preliminary position papers were filed and a series of technical conferences were convened with the PSB to recommend the scope of the investigation, potential courses for reform of Vermont's power supply and other matters associated therewith including the consideration of the Working Group's recommendations. As of this time, the PSB has yet to act on any proposal or recommendation made concerning the disposition of the matters in Docket No. 6140. As a companion proceeding to its investigation in Docket No. 6140, on January 19, 1999, the PSB issued an order opening a new contested case proceeding, Docket No. 6140-A, where it indicated that it intended to issue final, binding and appealable orders concerning matters related to the reform and restructuring of Vermont's electric utility industry. Initially, the PSB notified parties that it intended proceedings in Docket No. 6140-A to consider matters associated with the bankruptcy of one or more of the Vermont electric utilities. After an opportunity for comment, the focus of the proceeding was amended to first consider the principles, authority and proposals for reform of Vermont's electric power supply. These include issues associated with the scope and extent of the Board's authority to approve "securitization" and other financings proposed to be entered into in connection with the buy-out or buy-down of power contracts and the criteria to be applied by the PSB when considering voluntary utility restructuring proposals. By Order dated June 24, 1999 in Docket 6140-A, the PSB formally adopted the Vermont Principles on Electric Utility Restructuring. The Order explains that proposals to open utility franchise service areas to retail competition, including our Restructuring Plan, will only be approved if they can be found to satisfy the public good after due consideration is given to each of 14 Restructuring Principles. If one or more of the principles is not satisfied by the proposal, then the proponent must offer justification for the deficiency and demonstrate satisfaction of the statutory requirements. As such, the PSB stated that any filing proposing to open a franchise territory to retail choice would have to be supported, at a minimum, by an explanation of how that proposal fulfills the policy objectives established by the Vermont Principles on Electric Utility Restructuring. With regard to financing, no party to the investigation asked that the PSB clarify its authority or issue a declaratory ruling concerning the criteria to be considered when approving utility financings for the buy-out or buy-down of committed power contracts. During the investigation, both we and Green Mountain Power Corporation asserted that our anticipated refinancing approaches could be accomplished utilizing the existing Vermont and federal legislative regime that governs the regulation of electric utilities and that "securitization" style financings were not presently being contemplated. Because no party to the Docket contradicted these statements, the Board accepted our assertions and took no further action to evaluate specific utility financing proposals. In contrast VEPP, Inc., the PSB's purchasing agent for the purchase of power from qualifying facilities pursuant to PSB Rule 4.100, proposed to use administrative securitization to finance the reform of its power purchase contracts. However, at the request of all commenting parties, the PSB determined to withhold judgment on the issue as to whether the PSB had jurisdiction to authorize a VEPP financing until such time as a specific proposal was actually filed with the PSB. Toward this end, the PSB has stated that it will convene a workshop, independent of this Docket, to further discuss VEPP's financing proposal and to prepare for the opening of a possible rulemaking proceeding to amend Rule 4.100 on this topic. In the absence of any requests for further investigation or action to be filed within 30 days of the Docket No. 6140-a Order, this investigation will be closed by the PSB. Vermont Senate Bill 62 On April 3, 1997, Senate Bill 62 (S.62), an act relating to electric industry restructuring, was passed by the Vermont Senate. Pursuant to S.62, electric utility customers would have been entitled to purchase electricity in a competitive market place. Incumbent investor-owned electric utilities, including us, would have been required to separate their regulated distribution and transmission operations from the competitive generation and retail operations. S.62 provided for the recovery of a portion of an investor-owned utility's "above market costs" which became stranded on account of the introduction of competition within their service area. When considering the recovery of such amounts, S.62 would have required the PSB to weigh the goal of sharing net prudently incurred, discretionary above-market costs "evenly" between utilities and customers against other goals including preserving the continuing financial integrity of the existing utility and respecting the just interests of investors. 51 We believe that the unmodified provisions of S.62 would not have met the criteria for continuing application of SFAS No. 71. S.62 also created an incentive for us to take steps to close the Vermont Yankee nuclear power plant by conditioning the recovery of plant-related stranded costs on the decision of its owners to cease operations in 1998, unless the PSB agreed to allow the plant to run for up to two more refuelings to avoid power shortages or for other public interest reasons. To become law, S.62 also needed to pass the Vermont House of Representatives and be signed by the Governor of Vermont. Since the 1998 Legislative session adjourned in April 1998 and S.62 was not passed by the House and signed by the Governor, the bill did not become law and therefore died upon adjournment. Instead of considering S.62, the Vermont House of Representatives convened a special committee to study matters relating to the reform of Vermont's electric utility system in the summer of 1997. That committee issued a report and proposed legislation that would have provided for performance-based ratemaking but explicitly rejected retail choice. However, neither the House of Representatives nor the Vermont Senate acted on these reforms and the bill died upon adjournment. Therefore, at this time, it cannot be determined whether future restructuring legislation will be enacted in the current Biennium of the Vermont legislature. The first session of the 1999-2000 Biennium of the Vermont legislature adjourned on May 15, 1999 without reaching a consensus on electric utility restructuring. Several measures were considered by various committees of the House and the Senate, including securitization, authorization of retail choice, establishment of a legislative veto over any restructuring agreement reached between the PSB and the utilities, various mandated levels of rate reductions for customers paying stranded costs, and capturing for customers any or a portion of the gain from the sale of a utility's transmission and distribution assets. We expect the second session of the Biennium, which convenes on January 4, 2000, will be very active on restructuring issues. However, it cannot be predicted at this time whether restructuring legislation will be enacted in this Biennium. 52 OUR RESTRUCTURING PLAN We support the Working Group recommendations described above and believe that the restructuring of the electric industry is essential to improve our financial position, enhance our ability to effectively compete in a changing electric utility industry and stabilize projected costs. As a result, we are pursuing a comprehensive financial Restructuring Plan, a number of elements of which were included in a report that we and Green Mountain Power filed with the PSB in the first quarter of 1999 in connection with the proceedings in Docket No. 6140 described above. We are aggressively pursuing implementation of the Restructuring Plan which includes the following elements: o Retail choice: voluntarily giving up the exclusive right to supply power to our present electric customers, while retaining our rights as a distribution company, as part of a global settlement of regulatory issues. o Renegotiation of power purchase contracts: reducing our future cost of power by renegotiating power contracts, specifically those with Hydro-Quebec and the Vermont purchasing agent's contracts with small power producers which together represent nearly 38% of our 1998 net energy supply. We may seek to finance the cost of any buy-outs or buy-downs of power contracts through the future issuance of securities in the capital markets. On September 22, 1999, we announced that we will seek, with the other Vermont Joint Owners, to auction the contract with Hydro-Quebec. o Contract and asset disposition: seeking to sell power purchase contracts and generating assets, including our interest in the Vermont Yankee nuclear generating plant. Efforts to sell the Vermont Yankee plant and possibly purchase a portion of the power from the plant are already under way. o Cost-cutting: implementing cost-cutting measures to reduce cash flow requirements while maintaining safety and reliability standards. o Holding company: establishing a holding company to help us better organize our business. o Industry consolidation: evaluating possible consolidation with other Vermont electric distribution companies. o Regulatory settlement: seeking a comprehensive regulatory settlement that leads to long-term financial stability. o Energy efficiency activities: creating a state sponsored "energy-efficiency utility" to take over most system-wide energy-efficiency services for electric customers. We believe that implementation of our Restructuring Plan is a critical element to improving our future financial performance and to providing our customers with more stable electric rates and the continuation of efficient and reliable electric service. The key contingency to our Restructuring Plan is regulatory approval of a rate schedule that will allow us to recover the costs of the restructuring. See "--Rate Establishment." If the financial restructuring described in this section is completed in conjunction with the deregulation of Vermont's electric industry described in "Electric Industry Restructuring," we anticipate that our utility financial performance and prospects will improve significantly. Retail Choice We intend to file a petition with the PSB to establish retail access for our customers. The petition will: o confirm our consent to providing our retail customers their choice of power suppliers; o seek a PSB order relieving us of our obligation to supply capacity and energy to consumers; and 53 o establish us as the exclusive electric distribution provider within our service territory. We will also propose tariff amendments to establish open access and customer choice. All of these proposals would result in our giving up our current exclusive rights to serve present customers' electricity requirements, except for distribution services, and allow competitive electricity sales for our electric customers in Vermont, as part of a global settlement with our regulators. Renegotiation of Power Purchase Agreements We intend to reduce our future cost of power through the auction, buy-out or buy-down of the power purchase agreements with Hydro-Quebec and the Vermont purchasing agent's contracts with independent power producers. The power purchase agreements accounted for approximately 38% of our retail mWh needs in 1998. If we successfully auction, buy-out or buy-down these agreements, and appropriate regulatory approvals are obtained, we intend to seek to finance the payments made to power suppliers with securities issued in the capital markets. This aspect of the Restructuring Plan would effectively create an unsecured on-balance sheet liability, and possibly an off-balance sheet liability for Vermont's independent power producer contracts, for the repayment of debt incurred to fund auctions, buy-downs or buy-outs for the above-market costs of the power purchase agreements. We believe that a successful re-negotiation would result in improved operating cash flow that would be adequate to service the obligations related to the purchased agreements and fund our ongoing operations. Participants in the VJO, ourselves included, are now negotiating the terms under which the agreements obligating (i) the VJO to buy power from Hydro-Quebec and (ii) the VJO participants to buy their respective percentage commitments from the VJO can be restructured. There can be no assurances, however, that we will be successful in renegotiating these contracts or in completing the related financing. On August 3, 1999, the Company, Green Mountain Power, Citizens' Utilities and all of Vermont's 15 municipal utilities, filed a petition with the PSB requesting modification of the contracts between the independent power producers and the utilities. The petition is based on unique provisions of the existing contracts and PSB regulations that provide for modifications and alterations that serve the public interest. The petition outlines seven specific elements, that, if implemented, should ultimately allow for the buy-out and buy-down of these contracts and reduce ratepayers' committed power costs. On September 3, 1999, the PSB responded to our petition by opening a formal investigation regarding these contracts. Disposition of generating assets We are evaluating wholly-owned and jointly-owned generating sources to determine whether they should be sold, operated or shut down. On February 25, 1999, the Board of Directors of Vermont Yankee granted an exclusive right to AmerGen Energy Co. to conduct due diligence and negotiate a possible agreement to purchase the assets of Vermont Yankee. On July 16, 1999, the Board of Directors of Vermont Yankee delayed a decision on whether to sell the nuclear unit to AmerGen Energy Co. until August 2, 1999. On August 2, 1999 Vermont Yankee received an unsolicited expression of interest from Entergy Nuclear, Inc. to buy Vermont Yankee's nuclear power plant. Vermont Yankee's owners, which includes us, are pursuing parallel negotiations with the two potential purchasers with the objective of reaching a definitive agreement, if possible. Creation of an Energy-Efficiency Utility On April 30, 1999, we entered into a Memorandum of Understanding, or MOU, with the DPS for the creation of an energy-efficiency utility to provide state-wide demand-side management services. Subsequently, other Vermont utilities, as well as consumer interest groups, have endorsed the proposal. The MOU was filed with the 54 PSB on April 30, 1999 for approval in Docket No. 5980 which was opened by the PSB to investigate the DPS's proposed Statewide Energy Efficiency Plan. If approved by the PSB, the MOU would resolve all issues now outstanding in Docket No. 5980 including the governance structure for the energy-efficiency utility, the design of the energy-efficiency utility programs and services, and the energy efficiency utility budgets. The MOU also resolves all claims based on alleged actions or failures to act prior to January 1, 2000 that we failed to satisfy our demand-side management obligations to customers under Vermont law and regulations. The PSB is currently considering the approval of the MOU which is expected during the third quarter of 1999. If approved by the PSB, the new energy-efficiency delivery system would be in place beginning in the year 2000 and would replace most services now provided to customers by us. In May 1999, the legislature approved, and in June the Governor of Vermont signed, legislation supportive of the MOU. Consolidation We have signed individual confidentiality and cooperation agreements with Green Mountain Power, Citizens Utilities and Washington Electric Cooperative to permit an exchange of information to evaluate the possibility of consolidating Vermont utility operations. There have been no material developments as a result of these agreements. Cost-Cutting Opportunities We have been actively pursuing cost-cutting opportunities to improve our financial performance. We estimate that our number of employees will have been reduced by approximately 32% from 1993 through 2000. Rate Establishment If the realization of other elements of our Restructuring Plan begins, we will file petitions with the PSB for the establishment of rates that would provide for revenues in amounts sufficient to support the financings necessary to restructure our power supply portfolio in the above manner. It is essential that the PSB permit us to recover in rates an annual amount sufficient to cover our costs, including those incurred in connection with various components of the Restructuring Plan. 55 DESCRIPTION OF OTHER INDEBTEDNESS AND PREFERRED STOCK Upon the completion of the offering, in addition to the Second Mortgage Bonds, we (excluding our subsidiaries) will have the following indebtedness outstanding. First Mortgage Bonds We have issued First Mortgage Bonds, which are senior to the Second Mortgage Bonds, under the Mortgage of the Company, dated as of October 1, 1929, and indentures supplemental thereto, to Old Colony Trust Company, as trustee, as from time to time amended and supplemented, under which Mortgage State Street Bank and Trust Company is now serving as successor trustee. As of June 30, 1999, we had outstanding eight series of First Mortgage Bonds, in an aggregate principal amount of $76,500,000. At the present time, we do not intend to issue any additional First Mortgage Bonds other than as discussed below. The following table sets forth our upcoming obligations with respect to principal payments and mandatory sinking fund obligations on the First Mortgage Bonds outstanding as of June 30, 1999:
Principal Amount Due ------------------------------------------------ 1999 2000 2001 2002 2003 2004 ------- ------- ------ ------- ------- ---- (Dollars in thousands) Series of First Mortgage Bonds 9.20% Series FF........................ $ 7,500 9.26% Series GG........................ $3,000 9.97% Series HH........................ $3,000 $ 4,000 $4,000 $4,000 $ 3,000 8.91% Series JJ........................ 5.54% Series LL........................ $ 5,000 6.01% Series MM........................ $ 7,500 6.27% Series NN........................ 6.90% Series OO........................ Totals............................. $3,000 $16,500 $4,000 $7,000 $10,500 0
In addition to the eight series of First Mortgage Bonds outstanding as of June 30, 1999, concurrently with the issuance of the Old Bonds, we issued three new series of First Mortgage Bonds designated Series PP, QQ and RR with a total aggregate principal amount of approximately $16.9 million. These First Mortgage Bonds were issued as replacement security for our obligations in connection with approximately $16.9 million of outstanding letters of credit. These First Mortgage Bonds will be provided as replacement security only and do not increase our indebtedness. The First Mortgage constitutes a direct first mortgage lien on substantially all of our existing tangible utility property, which includes our fixed property and franchises, consisting principally of electric plants and systems, electric generating plants, electric transmission lines, electrical substations and switching stations, and electric distribution systems, and buildings, subject only to liens and encumbrances permitted under the First Mortgage. In general, all our tangible utility property acquired after the date of the Second Mortgage Indenture will continue to be subjected to the lien of the First Mortgage, which is senior to the lien of your New Bonds. 56 Other Indebtedness The following table summarizes our other significant credit obligations in place following the offering, including amounts outstanding and corresponding maturity dates: Amount Outstanding at Description of Obligation June 30, 1999 Maturity - ------------------------------------------------------------------------------ (in thousands) Tax-Exempt Revenue Bonds(1) New Hampshire Development Authority..................... $ 5,500 December 2009 Vermont Development Authority... 5,800 December 2013 Connecticut Development Authority 5,000 December 2015 Accounts Receivable Facility........ $12,000 November 1999 Capital Lease Obligations........... $15,601 December 2006 (phase I transmission facilities) December 2015 (phase II transmission facilities) - ---------- (1) We are obligated, in specified circumstances, to reimburse the issuer of the three letters of credit that support these development authority bonds pursuant to three reimbursement agreements and a guaranty. These agreements contain specified covenants applicable to us so long as the letters of credit or our related reimbursement obligations remain outstanding. Among these covenants is the requirement that we not permit our consolidated leverage ratio (i.e., the ratio of total indebtedness that is recourse to us to total capitalization of us and our consolidated subsidiaries) to be greater than 0.5 to 1.0. Preferred Stock As of June 30, 1999, we had outstanding 80,538 shares of non-redeemable preferred stock and 180,000 shares of 8.30% Series redeemable preferred stock. We are required to redeem $1.0 million of the 8.30% Series preferred stock each year at par through a mandatory sinking fund. We may also redeem at par up to an additional $1.0 million each year at our option. As of June 30, 1999, we had no other preferred or preference stock outstanding. 57 THE EXCHANGE OFFER We issued the Old Bonds on July 30, 1999 (the "Closing Date") to the initial purchasers in an offering to qualified institutional buyers under Rule 144A under the Securities Act. As a condition to the sale of the Old Bonds, the Company and the initial purchasers entered into the Registration Rights Agreement on the Closing Date. The registration statement, of which this prospectus is part, is intended to satisfy our obligation to conduct an exchange offer under the Registration Rights Agreement summarized below. This summary of provisions of the Registration Rights Agreement does not purport to be complete and reference is made to the provisions of the Registration Rights Agreement which has been filed as an exhibit to the registration statement and a copy of which is available as set forth in "Where to Find More Information." Pursuant to the Registration Rights Agreement, we agreed to file with the SEC an exchange offer registration statement on the appropriate form under the Securities Act with respect to the New Bonds. Upon the effectiveness of the exchange offer registration statement, we will offer to the holders of Old Bonds who are able to make specified representations the opportunity to exchange their Old Bonds for the New Bonds. If we are not permitted to consummate the exchange offer because the exchange offer is not permitted by applicable law or SEC policy, or any bondholder notifies us within the specified time period that it: o is prohibited by law or SEC policy from participating in the exchange offer; o may not resell the New Bonds acquired by it in the exchange offer to the public without delivering a prospectus and the prospectus contained in the exchange offer registration statement is not appropriate or available for such resales by such bondholder; or o is a broker-dealer and holds Old Bonds acquired directly from us or an affiliate of ours, we will use our reasonable best efforts to file with the SEC a shelf registration statement to cover resales of the Old Bonds by the bondholders who satisfy conditions relating to the provision of information in connection with the shelf registration statement. The Registration Rights Agreement, dated as of July 30, 1999, provides that we will: o file an exchange offer registration statement with the SEC on or prior to October 28, 1999; o use our reasonable best efforts to have the exchange offer registration statement declared effective by the SEC on or prior to February 25, 1999; o commence the exchange offer and use our reasonable best efforts to issue on or prior to 45 business days after the date on which the exchange offer registration statement was declared effective by the SEC, New Bonds in exchange for all Old Bonds tendered prior thereto in the exchange offer; and o if obligated, to use our reasonable best efforts to file a shelf registration statement with the SEC on or prior to 45 days after such filing obligation arises and to cause the shelf registration statement to be declared effective by the SEC on or prior to 90 days after we are required to file such shelf registration statement. If: o we fail to file with the SEC any of the registration statements required by the Registration Rights Agreement on or before the date specified for such filing; o any of such registration statement is not declared effective by the SEC on or prior to the date specified for such effectiveness; o we fail to consummate the exchange offer on or prior to the date specified with respect to the exchange offer registration statement; or 58 o any registration statement required by the Registration Rights Agreement is filed and declared effective but thereafter ceases to be effective or usable for its intended purpose; (each such event referred to in the clauses above a "Registration Default"), then we will pay liquidated damages to each bondholder, with respect to the first 90-day period immediately following the occurrence of the first Registration Default of a rate per annum equal to 0.25% of the principal amount of transfer restricted securities held by such holder. The rate of the liquidated damages will increase by an additional 0.25% per annum with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum rate of liquidated damages of 0.75% per annum of the principal amount of transfer restricted securities. We in no event are required to pay liquidated damages for more than one Registration Default at any given time. We will pay all accrued liquidated damages (as more fully set forth in the Indenture and the Old Bonds) on each Interest Payment Date. Following the cure of all Registration Defaults, liquidated damages will not accrue. Transfer Restricted Securities For purposes of the foregoing, transfer restricted securities means: each Old Bond until: o the date on which such Old Bond is exchanged for a New Bond which is entitled to be resold to the public by such bondholder without complying with the prospectus delivery requirements of the Securities Act; o the date on which such Old Bond has been disposed of in accordance with a shelf registration statement; or o the date on which such Old Bond is sold pursuant to Rule 144 under the Securities Act or may be sold without restrictions pursuant to Rule 144(k) under the Securities Act; and each New Bond held by a broker-dealer until the date on which such New Bond is disposed of by a broker-dealer as set forth under "Plan of Distribution" below. Terms of the Exchange Offer Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept any and all of the Old Bonds validly tendered and not withdrawn prior to the expiration date of the exchange offer. As of the date of this prospectus, $75.0 million aggregate principal amount of the Old Bonds is outstanding and no New Bonds are outstanding. This prospectus, together with the letter of transmittal, is first being sent on or about , to all bondholders known to us. Our obligation to accept the Old Bonds for exchange pursuant to the exchange offer is subject to the conditions as set forth under "-Certain Conditions to the Exchange Offer" below. We will issue $1,000 principal amount of New Bonds in exchange for each $1,000 principal amount of outstanding Old Bonds accepted in the exchange offer. Bondholders may tender some or all of their Old Bonds pursuant to the exchange offer. See "--Consequences of Failure to Exchange." However, the Old Bonds may be tendered only in integral multiples of $1,000. The New Bonds will evidence the same debt as the Old Bonds for which they are exchanged, and are entitled to the benefits of the Indenture. The form and terms of the New Bonds are the same as the form and terms of the Old Bonds, except that the New Bonds have been registered under the Securities Act. Therefore, the New Bonds will not bear legends restricting their transfer. Bondholders do not have any appraisal or dissenters' rights under the Indenture in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of Regulation 14E under the Exchange Act. 59 We shall be deemed to have accepted validly tendered Old Bonds when, as, and if we have given verbal or written notice of our acceptance to the exchange agent. The exchange agent will act as agent for the tendering bondholders for the purpose of receiving the New Bonds. If any tendered Old Bonds are not accepted for exchange because of an invalid tender, or the failure to satisfy other conditions to the exchange offer or otherwise, we will return such unaccepted tenders of Old Bonds without expense to the bondholder of the Old Bond, as promptly as practicable after the expiration date of the exchange offer. Bondholders whose Old Bonds are not tendered or are tendered but not accepted in the exchange offer will continue to hold such Old Bonds and will be entitled to all the rights and preferences and subject to the limitations applicable to the Old Bonds under the Indenture. Following completion of the exchange offer, the bondholders will continue to be subject to the existing restrictions upon transfer of the Old Bonds and we will have no further obligation to those bondholders to provide for the registration under the Securities Act of the Old Bonds held by them. To the extent that Old Bonds are tendered and accepted in the exchange offer, the trading market for untendered, and tendered but unaccepted, Old Bonds could be adversely affected. Bondholders who tender Old Bonds in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of Old Bonds pursuant to the exchange offer. We will pay all charges and expenses, other than applicable taxes, in connection with the exchange offer. See "-Fees and Expenses; Solicitation of Tenders." Expiration Date; Extensions; Amendments The term expiration date shall mean 5:00 p.m., New York City time on , unless we extend the exchange offer. If we do extend the exchange offer, the term expiration date shall mean the date and time to which the exchange offer is extended. In order to extend the expiration date of the exchange offer, we will notify the exchange agent of any extension by verbal or written notice, mail to the registered bondholders an announcement of that notice, and will make a release to the Dow Jones News Services prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date of the exchange offer. We reserve the right at our sole discretion: o to delay accepting any Old Bonds; o to extend the exchange offer; o to terminate the exchange offer and not accept the Old Bonds not previously accepted if any of the conditions set forth below under "-Certain Conditions to the Exchange Offer" shall have occurred and shall not have been waived by us, by giving oral or written notice of such delay, extension or termination to the exchange agent; or to amend the terms of the exchange offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the bondholders. If the exchange offer is amended in a manner determined by us to constitute a material change, we will promptly disclose such amendment by means of a prospectus supplement that will be distributed to all bondholders, and we will extend the exchange offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure to bondholders, if the exchange offer would otherwise expire during such five to ten business day period. During any extension of the expiration date of the exchange offer, all Old Bonds previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. We shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. 60 Interest on the New Bonds Interest accrues on the New Bonds at the rate of 8 1/8% per annum from July 30, 1999 and is payable in cash semiannually in arrears on February 1 and August 1 of each year, commencing February 1, 2000; provided that in the event the exchange offer is consummated on or after February 1, 2000, interest will accrue from February 1, 2000 and interest will be payable commencing on August 1, 2000. No interest will be payable on the Old Bonds on the date of the exchange for the New Bonds and therefore no interest will be paid thereon to the bondholders at such time. Procedures for Tendering the Old Bonds When a beneficial owner of Old Bonds tenders them to the Company as set forth below and the Company accepts the Old Bonds, the beneficial owner of the Old Bonds and the Company will be deemed to have entered into a binding agreement upon the terms and subject to the conditions set forth in this prospectus and the letter of transmittal. Except as set forth below, if you wish to tender the Old Bonds for exchange pursuant to the exchange offer, we must receive a properly completed and duly executed letter of transmittal, including all other documents required by such letter of transmittal, to the exchange agent at one of the addresses set forth below under "Exchange Agent" on or prior to the expiration date of the exchange offer. In addition: o the exchange agent must receive certificates for such Old Bonds along with the letter of transmittal; o the exchange agent must receive prior to the expiration date of the exchange offer a timely confirmation of a book-entry transfer of such Old Bonds into the exchange agent's account at the Depository Trust Company pursuant to the procedure for book-entry transfer described below; or o the bondholder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD BONDS, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE BONDHOLDER. IF SUCH DELIVERY IS BY MAIL, WE RECOMMEND THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. YOU SHOULD NOT SEND LETTERS OF TRANSMITTAL OR OLD BONDS TO US. Each signature on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Bonds surrendered for exchange pursuant thereto are tendered: o by a registered bondholder who has not completed the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" in the letter of transmittal; or o for the account of an eligible institution (as defined below). In the event that a signature on a letter of transmittal or a notice of withdrawal, as the case may be, is required to be guaranteed, such guarantee must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States or otherwise be an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If the Old Bonds are registered in the name of a person other than the person signing the letter of transmittal, the Old Bonds surrendered for exchange must be endorsed by, or be accompanied by, a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered bondholder with the signature thereon guaranteed by an Eligible Institution. If the letter of transmittal is signed by a person or persons other than the registered bondholder or bondholders, the Old Bonds must either be endorsed by the registered bondholder with signature guaranteed by an Eligible Institution or accompanied by appropriate powers of attorney 61 with signature guaranteed by an Eligible Institution. In either case, the Old Bonds must be signed exactly as the name or names of the registered bondholder or bondholders that appear on the Old Bonds. If a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another acting in a fiduciary or representative capacity signs the letter of transmittal or any Old Bonds or powers of attorney, the person signing should indicate in which capacity he or she is signing and, unless waived by us, submit proper evidence satisfactory to us of his or her authority to sign with the letter of transmittal. By tendering, each bondholder will represent to us that, among other things: o the New Bonds acquired pursuant to the exchange offer are being acquired in the ordinary course of business of the person receiving such New Bonds, whether or not that person is the bondholder; neither the bondholder nor any such other person has an arrangement or understanding with any person to participate in the distribution of such New Bonds; o if the bondholder is not a broker-dealer, or is a broker-dealer but will not receive New Bonds for its own account in exchange for the Old Bonds, neither the bondholder nor any such other person is engaged in or intends to participate in the distribution of such New Bonds; and neither the bondholder nor any such other person is an "affiliate" of ours, as defined under Rule 405 of the Securities Act. If the tendering bondholder is a broker-dealer that will receive New Bonds for its own account in exchange for Old Bonds that were acquired as a result of market-making activities or other trading activities, the bondholder may be deemed to be an "underwriter" within the meaning of the Securities Act and will be required to acknowledge that it will deliver a prospectus in connection with any resale of such New Bonds. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. DELIVERY OF DOCUMENTS TO US OR THE DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. We will determine in our sole discretion all questions as to the validity, form, eligibility (including time of receipt) and acceptance of the Old Bonds tendered for exchange, which determination shall be final and binding. We reserve the absolute right to reject any and all tenders of any particular Old Bonds not properly tendered or to not accept any particular Old Bonds which acceptance might, in our judgment or our counsel, be unlawful. We also reserve the absolute right in our sole discretion to waive any defects or irregularities or conditions of the exchange offer as to any particular Old Bonds either before or after the expiration date of the exchange offer (including the right to waive the ineligibility of any bondholder who seeks to tender Old Bonds in the exchange offer). The interpretation of the terms and conditions of the exchange offer as to any particular Old Bonds either before or after the expiration date of the exchange offer (including the letter of transmittal and its instructions) by us shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with the tenders of Old Bonds for exchange must be cured within a reasonable period of time as we shall determine. Neither the Company, the exchange agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Bonds for exchange, nor shall any of them incur any liability for failure to give such notification. Acceptance of the Old Bonds for Exchange; Delivery of the New Bonds Upon satisfaction or waiver of all of the conditions to the exchange offer, we will accept, promptly after the expiration date of the exchange offer, all Old Bonds properly tendered and will issue the New Bonds promptly after acceptance of the Old Bonds. See "--Certain Conditions to the Exchange Offer" below. For purposes of the exchange offer, we shall be deemed to have accepted properly tendered Old Bonds for exchange when, and if we have given verbal or written notice of our acceptance to the exchange agent. In all cases, issuance of the New Bonds for the Old Bonds that are accepted for exchange pursuant to the exchange offer will be made only after timely receipt by the exchange agent of the following: 62 o certificates for such Old Bonds or a timely confirmation of a book-entry transfer of such Old Bonds into the exchange agent's account at the Depository Trust Company pursuant to the book-entry transfer procedures described below; o a properly completed and duly executed letter of transmittal; and o all other required documents. If any tendered Old Bonds are not accepted for any reason set forth in the terms and conditions of the exchange offer or if certificates representing the Old Bonds are submitted for a greater principal amount than the bondholder desires to exchange, those unaccepted or non-exchanged Old Bonds will be returned without expense to the tendering bondholder thereof (or, in the case of Old Bonds tendered by book-entry transfer into the exchange agent's account at the Depository Trust Company pursuant to the book-entry transfer procedures described below, those non-exchanged Old Bonds will be credited to an account maintained with the Depository Trust Company) as promptly as practicable after the expiration or termination of the exchange offer. Book-Entry Transfer The exchange agent will make a request to establish an account with respect to the Old Bonds at the Depository Trust Company for purposes of the exchange offer promptly after the date of this prospectus. Any financial institution that is a participant in the Depository Trust Company's systems may make book-entry delivery of the Old Bonds by causing the Depository Trust Company to transfer such Old Bonds into the exchange agent's account at the Depository Trust Company in accordance with the Depository Trust Company's Automated Tender Offer Program ("ATOP") procedures for transfer. However, the exchange for the Old Bonds so tendered will only be made after timely confirmation of such book-entry transfer of Old Bonds into the exchange agent's account, and timely receipt by the exchange agent of an Agent's Message (as such term is defined in the next sentence) and any other documents required by the letter of transmittal on or prior to the expiration date of the exchange offer or pursuant to the guaranteed delivery procedures described below. The term "Agent's Message" means a message, transmitted by the Depository Trust Company and received by the exchange agent and forming a part of a timely confirmation of a book-entry transfer, which states that the Depository Trust Company has received an express acknowledgement from a bondholder tendering Old Bonds that are the subject of such timely confirmation of a book-entry transfer that such bondholder has received and agrees to be bound by the terms of the letter of transmittal, and that we may enforce such agreement against such bondholder. Guaranteed Delivery Procedures If a registered bondholder of the Old Bonds desires to tender such Old Bonds and the Old Bonds are not immediately available, or time will not permit such bondholder's Old Bonds or other required documents to reach the exchange agent before the expiration date of the exchange offer, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if: o the tender is made through an Eligible Institution; o prior to the expiration date of the exchange offer, the exchange agent receives from such Eligible Institution a properly completed and duly executed letter of transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by us (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the bondholder and the amount of Old Bonds tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates of all physically tendered Old Bonds, in proper form for transfer, or a timely confirmation of a book-entry transfer, as the case may be, and any other documents required by the letter of transmittal will be deposited by the Eligible Institution with the exchange agent; and 63 o the certificates for all physically tendered Old Bonds, in proper form for transfer, or a timely confirmation of a book-entry transfer, as the case may be, and all other documents required by the letter of transmittal, are received by the exchange agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. Withdrawal Rights You may withdraw your tender of the Old Bonds at any time prior to the expiration date of the exchange offer. For a withdrawal to be effective, the exchange agent must receive a written notice of withdrawal at the applicable address set forth below under "Exchange Agent." Any such notice of withdrawal must: o specify the name of the person having tendered the Old Bonds to be withdrawn; o identify the Old Bonds to be withdrawn (including the principal amount of such Old Bonds); and o (where certificates for Old Bonds have been transmitted) specify the name in which such Old Bonds are registered, if different from that of the withdrawing bondholder. If certificates for Old Bonds have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing bondholder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such bondholder is an Eligible Institution. If Old Bonds have been tendered pursuant to the procedure for book-entry transfer described above, any note of withdrawal must specify the name and number of the account at the Depository Trust Company to be credited with the withdrawn Old Bonds and otherwise comply with the procedures of such facility. We will determine all questions as to the validity, form and eligibility (including time of receipt) of such notices, which shall be final and binding on all parties. Any Old Bonds so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Old Bonds which have been tendered for exchange but which are not exchanged for any reason will be returned to the bondholder thereof without cost to such bondholder (or, in the case of Old Bonds tendered by book-entry transfer procedures described above, such Old Bonds will be credited to an account maintained with the Depository Trust Company for the Old Bonds) as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. You may retender your properly withdrawn Old Bonds by following one of the procedures described under "Procedures for Tendering the Old Bonds" above at any time on or prior to the expiration date of the exchange offer. Certain Conditions to the Exchange Offer Notwithstanding any other provision of the exchange offer, we shall not be required to accept for exchange, or to issue New Bonds in exchange for, any Old Bonds and may terminate or amend the exchange offer, if at any time before the acceptance of such Old Bonds for exchange or the exchange of the New Bonds for such Old Bonds, there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission: (1) seeking to restrain or prohibit the making or consummation of the exchange offer or any other transaction contemplated by the exchange offer, or assessing or seeking any damages as a result thereof; or (2) resulting in a material delay in our ability to accept for exchange or exchange some or all of the Old Bonds pursuant to the exchange offer; or (3) any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the exchange offer or any of the transactions contemplated by the exchange offer by any government or governmental authority, domestic or foreign; or 64 (4) any action shall have been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign; that in our sole judgment might directly or indirectly result in any of the consequences referred to in (1) or (2) above or, in our sole judgment, might result in the holders of New Bonds having obligations with respect to resales and transfers of New Bonds which exceed those described in this prospectus, or would otherwise make it inadvisable to proceed with the exchange offer. If we determine in good faith that any of the conditions are not met, we may: o refuse to accept any Old Bonds and return all tendered Old Bonds to exchanging bondholders; o extend the exchange offer and retain all Old Bonds tendered prior to the expiration of the exchange offer, subject, however, to the rights of bondholders to withdraw such Old Bonds (see "-Withdrawal Rights"); or o waive some of the unsatisfied conditions with respect to the exchange offer and accept all properly tendered Old Bonds which have not been withdrawn or revoked. If such waiver constitutes a material change to the exchange offer, we will promptly disclose such waiver by means of a prospectus supplement that will be distributed to all bondholders. Bondholders have specified rights and remedies against us under the Registration Rights Agreement, including specified liquidated damages, should we fail to consummate the exchange offer within a specified period of time, notwithstanding a failure due to the occurrence of any of the conditions stated above. Such conditions are not intended to modify those rights or remedies in any respect. The foregoing conditions are for our benefit and may be asserted by us in good faith regardless of the circumstances giving rise to such condition or may be waived by us in whole or in part at any time and from time to time in our discretion. The failure by us at any time to exercise the foregoing rights shall not be deemed a wavier of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Exchange Agent The Bank of New York has been appointed as exchange agent for the exchange offer. You should direct your questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal to the exchange agent addressed as follows: - -------------------------------------------------------------------------------- By overnight courier or by hand: By registered or certified mail: - -------------------------------------------------------------------------------- The Bank of New York The Bank of New York - -------------------------------------------------------------------------------- Corporate Trust Service Window 101 Barclay Street 7E - -------------------------------------------------------------------------------- Ground Level New York, NY 10286 - -------------------------------------------------------------------------------- 101 Barclay Street Attention: Enrique Lopez - -------------------------------------------------------------------------------- New York, NY 10286 Telephone: (212) 815-2742 - -------------------------------------------------------------------------------- Attention: Enrique Lopez Facsimile: (212) 815-6339/4699 - -------------------------------------------------------------------------------- Reorg Department, 7 East - -------------------------------------------------------------------------------- Telephone: (212) 815-2742 - -------------------------------------------------------------------------------- Facsimile: (212) 815-4699 - -------------------------------------------------------------------------------- IF YOU DELIVER TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMIT INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, IT WILL NOT BE A VALID DELIVERY. Fees and Expenses; Solicitation of Tenders We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by our officers and regular employees and our affiliates. 65 We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We, however, will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection with the exchange offer. The cash expenses to be incurred in connection with the exchange offer will be paid by us and are estimated in the aggregate to be $140,000 which includes fees and expenses of the exchange agent and Trustee plus accounting and legal fees. We will pay all transfer taxes, if any, applicable to the exchange of the Old Bonds pursuant to the exchange offer. If, however, certificates representing the New Bonds or the Old Bonds for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered bondholders tendered, or if a transfer tax is imposed for any reason other than the exchange of the Old Bonds pursuant to the exchange offer, then the tendering bondholder must pay the amount of any such transfer taxes (whether imposed on the registered holder or any other persons). If a tendering bondholder does not submit satisfactory evidence of payment of such taxes or exemption therefrom to the exchange agent, the amount of such transfer taxes will be billed directly to such tendering bondholder. We have not authorized any person to give any information or to make any representations in connection with the exchange offer other than those contained in this prospectus. If given or made, such information or representations should not be relied upon as having been authorized by us. Neither the delivery of this prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs since the respective dates as of which information is given in this prospectus. The exchange offer is not being made to (nor will tenders be accepted from or on behalf of) bondholders in any jurisdiction in which the making of the exchange offer or the acceptance of this prospectus would not be in compliance with the laws of such jurisdiction. Accounting Treatment We will record the New Bonds at the same carrying value as the Old Bonds, which is face value, as recorded in our accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized. The costs of the exchange offer will be expensed over the term of the New Bonds. Consequences of Failure to Exchange If you do not exchange your Old Bonds for New Bonds pursuant to the exchange offer, you will continue to be subject to the restrictions on transfer of such Old Bonds as set forth in the legend on the Old Bonds. In general, you may not offer to sell or sell the Old Bonds, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not intend to register the Old Bonds under the Securities Act. We believe that, based upon interpretations contained in no-action letters issued to third parties by the staff of the SEC, any bondholder may offer for resale, resell or otherwise transfer the New Bonds issued pursuant to the exchange offer in exchange for the Old Bonds (unless the bondholder is an "affiliate" of ours within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that: o the bondholder acquires the New Bonds in the ordinary course of its business; and o the bondholder has no arrangement with any person to participate in the distribution of such Old Bonds; and o each broker-dealer that receives New Bonds for its own account in exchange for Old Bonds must acknowledge that it will deliver a prospectus in connection with any resale of such New Bonds. See "Plan of Distribution." If any bondholder (other than a broker-dealer described in the preceding sentence) has any arrangement or understanding with respect to the distribution of the New Bonds to be acquired pursuant to the exchange offer, such bondholder could not rely on the applicable interpretations of the staff of the SEC and must comply with the 66 registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. In addition, to comply with the securities laws of various jurisdictions, if applicable, you may not offer or sell the New Bonds unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification is available and is complied with. 67 DESCRIPTION OF THE NEW BONDS You can find the definitions of many of the terms used in this description under the subheading "Certain Definitions." In this description, the word "Company" refers only to Central Vermont Public Service Company and not to any of its subsidiaries. The Company will issue the New Bonds under a Second Mortgage Indenture (the "Second Mortgage Indenture") between itself and The Bank of New York, as trustee (the "Trustee"). The Second Mortgage Indenture will be supplemented by a second supplemental indenture (the "Supplemental Indenture" and, together with the Second Mortgage Indenture, the "Second Mortgage"), in a public transaction registered under the Securities Act. The terms of the New Bonds include those stated in the Second Mortgage and those made part of the Second Mortgage by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The issuance of the New Bonds under the Supplemental Indenture will be based upon retired Old Bonds to be exchanged for New Bonds as contemplated in the Registration Rights Agreement (such exchange, the "Exchange Offer"). See "The Exchange Offer." The New Bonds will be secured by the Mortgaged Property. The following description is a summary of the material provisions of the Second Mortgage, as supplemented by the Supplemental Indenture. This summary does not purport to be complete and does not restate those agreements in their entirety. This summary is subject to, and qualified in its entirety by, reference to the provisions of the Second Mortgage and the Supplemental Indenture. We urge you to read the Second Mortgage and the Supplemental Indenture because they, and not this description, define your rights as holders of the New Bonds. Copies of the Second Mortgage and the Supplemental Indenture are available as described under "--Additional Information." Certain defined terms used in this description but not defined below under "--Certain Definitions" have the meanings assigned to them in the Second Mortgage and the Supplemental Indenture. Brief Description of the New Bonds The New Bonds: o are general obligations of the Company and not those of our subsidiaries; o are secured by a second priority mortgage lien on the Mortgaged Property; and o are effectively senior in right of payment to any future unsecured Indebtedness of the Company to the extent of the value of the Mortgaged Property. Principal, Maturity and Interest The Second Mortgage Indenture provides for the issuance by the Company of Second Mortgage Bonds with an unlimited maximum aggregate principal amount. The New Bonds represent the second series of Second Mortgage Bonds issued under the Second Mortgage in an aggregate principal amount of $75.0 million minus the outstanding aggregate principal amount of the Old Bonds that have not been accepted for exchange pursuant to the Exchange Offer. The New Bonds and all other series of Second Mortgage Bonds issued under the Second Mortgage are collectively referred to as "Second Mortgage Bonds." The Company will issue New Bonds in denominations of $1,000 and integral multiples of $1,000. The New Bonds will mature on August 1, 2004, unless we redeem the New Bonds earlier as discussed below. Interest on the New Bonds will accrue at the rate of 8 1/8% per annum and will be payable semi-annually in arrears on February 1 and August 1, commencing on February 1, 2000. The Company will make each interest payment to the Holders of record on the immediately preceding January 15 and July 15. Interest on the New Bonds will accrue from July 30, 1999 or, if interest has already been paid on the Old Bonds to be exchanged pursuant to the Exchange Offer for the corresponding New Bonds, from the date it was most recently paid thereon. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 68 Methods of Receiving Payments on the New Bonds The New Bonds will be issued in the form of one or more Global Bonds, in registered form, without coupons, in denominations of $1,000 or any integral multiple thereof as described under "--Book-Entry, Delivery and Form." The Global Bonds will be registered in the name of a nominee of DTC. Each Global Bond (and any New Bond issued in exchange therefor) will be subject to restrictions on transfer set forth therein as described under "--Book-Entry, Delivery and Form--Certificated Bonds." Except as set forth under "--Book-Entry, Delivery and Form--Certificated Bonds," owners of beneficial interests in a Global Bond will not be entitled to have New Bonds registered in their names, will not receive or be entitled to receive physical delivery of the New Bond and will not be considered the registered holder of the New Bond under the Second Mortgage. So long as New Bonds are held in the form of one or more Global Bonds, payments of principal, premium and interest will be payable through the facilities of DTC. Paying Agent and Registrar for the New Bonds The Trustee will initially act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without prior notice to the Holders, and the Company or any of its Subsidiaries may act as Paying Agent or Registrar. Transfer and Exchange A Holder may transfer or exchange New Bonds in accordance with the Second Mortgage. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Second Mortgage. The Company is not required to transfer or exchange any New Bond selected for redemption. Also, the Company is not required to transfer or exchange any New Bond for a period of 15 days before a selection of New Bonds to be redeemed. The registered Holder of a New Bond will be treated as the owner of it for all purposes. Security and Priority The New Bonds will be secured equally and ratably with all Second Mortgage Bonds of other series that may be issued in the future under the Second Mortgage Indenture by a second mortgage lien on substantially all of our tangible utility assets (but not any property of our subsidiaries). o We own our principal plants and properties, insofar as they constitute real estate, in fee. o We also own equity interests in the Vermont Yankee, Maine Yankee, Connecticut Yankee and Yankee Atomic nuclear generating plants (which equity interests are not a part of the security under the First Mortgage and Second Mortgage). o We have leases, easements or permits to operate our facilities located on property we do not own. o We have also obtained permits, grants, easements, licenses or franchises for our electric transmission and distribution systems, which are mostly located over or under highways, streets, other public places or property owned by others. The lien of the Second Mortgage is subject to Permissible Encumbrances and specified exceptions. We will probably acquire property after the Initial Issuance Date, which may be subject to the lien of the Second Mortgage and, to the extent described below, will also be subject to the prior lien of the First Mortgage Bonds. Such after-acquired property may also be subject to prior liens, subject to limitations under our First Mortgage and Second 69 Mortgage, which secure debt outstanding at the time of such acquisition in an amount not in excess of its Cost or fair market value, whichever is less, and to other Permissible Encumbrances. We own property excepted from the lien of the Second Mortgage. Excepted property under the First Mortgage and the Second Mortgage includes, among other things: o cash and securities (unless deposited with the respective trustees); o accounts receivable, contracts, leases and operating agreements; o equipment, materials, supplies and fuel held for sale or other disposition in the ordinary course of business or for consumption or use by us; o electricity, gas and other materials, products or services generated, manufactured, produced or purchased by us for sale or distribution or to be used by us; o telephone properties, leasehold interests and leasehold improvements; and o other real and personal property which is not used or to be used for one or more of the primary purposes of our business. The Trustee shall have a lien, senior to the Second Mortgage, on the Mortgaged Property for the payment of its reasonable compensation and expenses and for indemnity against liabilities. The lien of the First Mortgage ranks prior to the lien of the Second Mortgage. The aggregate principal amount of First Mortgage Bonds outstanding at June 30, 1999 was $76.5 million. The outstanding First Mortgage Bonds mature at various dates through 2031. See "Description of Other Indebtedness and Preferred Stock." Our reimbursement obligations in respect of three letters of credit aggregating approximately $16.9 million, which support three series of industrial development bonds, were, concurrently with the issuance of the Old Bonds, secured by a pledge of newly-issued First Mortgage Bonds, in an aggregate principal amount of approximately $16.9 million. These First Mortgage Bonds are referred to herein as the "Pledge Bonds." There are no other material prior liens on the Mortgaged Property. Additional First Mortgage Bonds may be issued in the future in accordance with the provisions of the First Mortgage described below under the heading "Issuance of Additional First Mortgage Bonds" subject to the restrictions on us contained in the terms of other indebtedness. At June 30, 1999, we could have issued up to $26.9 million of additional First Mortgage Bonds under the First Mortgage prior to the issuance of the Pledge Bonds. Agreements relating to the outstanding letters of credit currently contain restrictive covenants further limiting the amount of indebtedness we can incur. See "Description of Other Indebtedness and Preferred Stock--Other Indebtedness." As discussed under the heading "Issuance of Additional First Mortgage Bonds", we do not expect to issue additional First Mortgage Bonds prior to the maturity of the Second Mortgage Bonds. While First Mortgage Bonds are outstanding, the trustee under the First Mortgage shall have control over the utilization of remedies available with respect to the Mortgaged Property. Upon the occurrence and during the continuance of a Default or Event of Default the trustee under the First Mortgage (or if there are no First Mortgage Bonds outstanding, the Trustee) may sell the Mortgaged Property or any part thereof in accordance with the terms of the First Mortgage and any required regulatory approvals. All funds received by the Trustee for the benefit of the Holders of the New Bonds will be distributed by the Trustee in accordance with the provisions of the Second Mortgage. Subject to the priority of the First Mortgage and any required regulatory approvals, the Trustee will determine the circumstances and manner in which the Mortgaged Property shall be disposed of, including, but not limited to, the determination of whether to release all or any portion of the Mortgaged Property from the Lien created by the Second Mortgage and whether to foreclose on the Mortgaged Property following a Default or Event of Default. 70 Release and Substitution of Mortgaged Property Mortgaged Property may be released from the lien of the Second Mortgage: (1) if after such release, the fair market value of the remaining Mortgaged Property, including any Mortgaged Property to be acquired as a result of such release, equals or exceeds a sum equal to the aggregate principal amount of outstanding New Bonds, Old Bonds and Prior Lien Bonds, including First Mortgage Bonds, outstanding; or (2) if, subject to a 1% limitation during any 12-month period, the fair market value of the Mortgaged Property to be released is less than 1/2 of 1% of the aggregated principal amount of outstanding New Bonds, Old Bonds and Prior Lien Bonds, including First Mortgage Bonds, outstanding; or (3) on the basis of the deposit of cash, purchase money obligations, Governmental Obligations or Bondable Property acquired by us with the proceeds of, or otherwise in connection with, such release, or a waiver of the right to authenticate and deliver Second Mortgage Bonds on the basis of Second Mortgage Bonds or Prior Lien Bonds, including First Mortgage Bonds, which have been retired, purchased or acquired by us since the date of the Second Mortgage and have not theretofore been Bonded, or combination thereof. Withdrawal of Cash We may withdraw cash deposited with the Trustee in the amount of: (1) the lesser of the Cost or fair market value of Unbonded Bondable Property, after deducting the principal amount of all Prior Lien Bonds, including First Mortgage Bonds, which are (a) outstanding and secured by a Prior Lien on Bondable Property owned by us at the date of the Second Mortgage, (b) outstanding and secured by a Prior Lien on Bondable Property at the date of its acquisition by us after such date and (c) issued after the date of the Second Mortgage; or (2) the principal amount of Second Mortgage Bonds previously issued under the Second Mortgage and Prior Lien Bonds, including First Mortgage Bonds, in each case which have been retired or purchased or acquired by us, and which have not theretofore been Bonded. Issuance of Additional Second Mortgage Bonds The Second Mortgage permits us to issue additional Second Mortgage Bonds in a principal amount equal to the sum of: (1) the lesser of the Cost or fair market value of Unbonded Bondable Property, after deducting the principal amount of all Prior Lien Bonds, including First Mortgage Bonds, which are (a) outstanding and secured by a Prior Lien on Bondable Property owned by us at the date of the Second Mortgage, (b) outstanding and secured by a Prior Lien on Bondable Property at the date of its acquisition by us after such date and (c) issued after the date of the Second Mortgage; and (2) the principal amount of New Bonds, Old Bonds and Prior Liens Bonds, including First Mortgage Bonds, which we have retired, purchased or acquired since the date of the Second Mortgage or we are retiring, purchasing or acquiring, and which have not already been Bonded; and (3) the amount of cash deposited with the Trustee for such purpose. Bondable Property includes our electric generating, electric transmission and distribution properties; construction work in progress; property in the process of being purchased in which we have legal title; easements on property of others; fractional and undivided interests in property; engineering, financial, economic and legal and 71 other surveys, data processing equipment and software associated with the acquisition or construction of property; and property we own located on property others own, which we have the right to remove. We will issue the New Bonds on the basis of retired Old Bonds. In accordance with the limitations above, at June 30, 1999, after giving effect to the issuance of the Old Bonds, we could have issued approximately $59.5 million of additional Second Mortgage Bonds, subject to the restrictions on us contained in the terms of other indebtedness. See "Description of Other Indebtedness and Preferred Stock--Other Indebtedness." Subject to these additional restrictions and after giving effect to the issuance of the New Bonds and the Pledge Bonds, as of June 30, 1999, we could have issued approximately $20 million of additional Second Mortgage Bonds. Issuance of Additional First Mortgage Bonds So long as the requirements of the First Mortgage are met, we may issue additional First Mortgage Bonds to the extent of one or more of the following: (1) the amount of available previously retired First Mortgage Bonds; (2) 60% of the value of expenditures we make for additions and improvements to our property subject to the First Mortgage; (3) the amount of retired obligations secured by property we acquire; and (4) the amount of cash on deposit with the First Mortgage trustee. If First Mortgage Bonds are issued on the basis of (2) above, and in some cases under (1) above, we must meet a mortgage interest coverage test that requires us to have net earnings equal to at least twice the interest on all First Mortgage Bonds to be outstanding after an issuance. The First Mortgage provides that additional First Mortgage Bonds may not be issued on the basis of (2) above if the property that is to be the basis for issuance is subject to a Lien other than the lien of the First Mortgage. Therefore, we will not be permitted to issue Second Mortgage Bonds on the basis of (2) above so long as the lien of the Second Mortgage is in place. Furthermore, we do not have and do not expect to have prior to the maturity of the Second Mortgage Bonds, any obligations that would serve as a basis for issuance under (3) above. At the time we issued the Old Bonds, we issued approximately $16.9 million of Pledge Bonds on the basis of (1) above to secure our reimbursement obligations under letters of credit supporting outstanding development authority bonds. After the issuance of the Pledge Bonds, $10.0 million of previously retired First Mortgage Bonds is available as the basis for issuance of additional First Mortgage Bonds. Prior to the maturity of the Second Mortgage Bonds, we also expect to retire an additional $41.0 million of First Mortgage Bonds. The maximum amount of First Mortgage Bonds that can be outstanding at any time prior to the maturity of the Second Mortgage Bonds is $103.4 million. However, we are required to meet renewal fund requirements under the First Mortgage each year which we expect to meet with all available retired First Mortgage Bonds. Retired First Mortgage Bonds used to meet those requirements may not be used as the basis for issuance of additional First Mortgage Bonds. Therefore, we do not intend to issue any additional First Mortgage Bonds prior to the maturity of the Second Mortgage Bonds. Optional Redemption The New Bonds will be redeemable at the option of the Company at any time, in whole or in part, upon not less than 30 nor more than 60 days' notice, in cash at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon through the applicable redemption date plus the Make Whole Premium. 72 Selection and Notice If less than all of the New Bonds are to be redeemed at any time, the Trustee will select New Bonds for redemption on a pro rata basis. No New Bonds of $1,000 in principal amount or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of New Bonds to be redeemed at its registered address. Notices of redemption may not be conditional. If any New Bond is to be redeemed in part only, the notice of redemption that relates to that New Bond shall state the portion of the principal amount thereof to be redeemed. A new New Bond in principal amount equal to the unredeemed portion of the original New Bond will be issued in the name of the Holder thereof upon cancellation of the original New Bond. New Bonds called for redemption become due on the date fixed for redemption. On and after the redemption date, interest will cease to accrue on New Bonds or portions of them called for redemption. Mandatory Redemption The Company is not required to make mandatory redemption or sinking fund payments with respect to the New Bonds. Changes in Covenants when New Bonds Rated Investment Grade If at any time the New Bonds are rated BBB- (or the equivalent) or higher by S&P or Baa 3 (or the equivalent) or higher by Moody's (each a "Rating Event" and such date, the "Rating Event Date"), the covenants specifically listed under the captions: "Repurchase at the Option of Holders--Asset Sales other than Mortgaged Property Asset Sales;" "Repurchase at the Option of Holders--Mortgaged Property Asset Sales and Events of Loss;" "Certain Covenants--Restricted Payments;" "--Incurrence of Indebtedness;" "--Dividend and Other Payment Restrictions Affecting Regulated Subsidiaries;" "--Merger, Consolidation or Sale of Assets;" "--Sale and Leaseback Transactions;" "--Transactions with Affiliates;" and "--Payments for Consents" in this prospectus (collectively, the "Suspended Covenants") will not be applicable to the New Bonds; provided, however, if at any time after a Rating Event Date the New Bonds shall be rated lower than BBB- by S&P, if rated by S&P, and Baa 3 by Moody's, if rated by Moody's, the Suspended Covenants shall be automatically reinstated (the "Reinstated Covenants") and all events that occurred during any time that such covenants were suspended and that would have violated such covenants had such covenants been in effect shall be deemed not to constitute a Default or an Event of Default, as the case may be, and shall be deemed to have been in compliance with such covenants for all purposes; provided, further that thereafter all events occurring during any period in which the Suspended Covenants have been reinstated shall be required to be in compliance with the Reinstated Covenants. 73 Notwithstanding the foregoing, if S&P and Moody's cease to rate the New Bonds for reasons outside of the control of the Company, the Company may select a replacement rating agency that is a "nationally recognized statistical rating organization" within the meaning of rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, and the lowest investment grade credit rating from such replacement agency shall be substituted in the preceding paragraph for the determination of a Rating Event. There can be no assurance that a Rating Event Date will occur, or, if one occurs, that the New Bonds will continue to maintain an investment grade rating. Repurchase at the Option of Holders Change of Control If a Change of Control occurs, each Holder of New Bonds will have the right, at such Holder's option, to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of that Holder's New Bonds pursuant to a Change of Control Offer on the terms set forth in the Second Mortgage. In the Change of Control Offer, the Company will offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of New Bonds repurchased plus accrued and unpaid interest thereon, to the date of purchase. Within thirty days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase New Bonds on the Change of Control Payment Date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the Second Mortgage and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the New Bonds as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Second Mortgage, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the Second Mortgage by virtue of such compliance. On the Change of Control Payment Date, the Company will, to the extent lawful: (1) accept for payment all New Bonds or portions thereof properly tendered pursuant to the Change of Control Offer; (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all New Bonds or portions thereof so tendered; and (3) deliver or cause to be delivered to the Trustee the New Bonds so accepted together with an Officers' Certificate stating the aggregate principal amount of New Bonds or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of New Bonds so tendered the Change of Control Payment for such New Bonds, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new New Bond equal in principal amount to any unpurchased portion of the New Bonds surrendered, if any; provided that each such new New Bond will be in a principal amount of $1,000 or an integral multiple thereof. The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable regardless of whether any other provisions of the Second Mortgage are applicable. Except as described above with respect to a Change of Control, the Second Mortgage does not contain provisions that permit the Holders of the New Bonds to require that the Company repurchase or redeem the New Bonds in the event of a takeover, recapitalization or similar transaction. 74 The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Second Mortgage applicable to a Change of Control Offer made by the Company and purchases all New Bonds validly tendered and not withdrawn under such Change of Control Offer. The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the properties or assets of the Company and its subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of New Bonds to require the Company to repurchase such New Bonds as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its subsidiaries taken as a whole to another Person or group may be uncertain. The Change of Control purchase feature of the New Bonds may in specified circumstances make more difficult or discourage a takeover. The Change of Control purchase feature of the New Bonds is not the result of our knowledge of any specific effort to accumulate shares of our common stock or to obtain control of us by means of a merger, tender offer, solicitation or otherwise. Instead, the Change of Control purchase feature of the New Bonds is a term contained in many similar debt offerings and the terms of such feature result from negotiations between us and the Initial Purchasers when the Second Mortgage was established. In addition, our ability to purchase may be limited by financial resources and our inability to raise the required funds because of restrictions on the issuance of securities contained in other covenants applicable to the New Bonds. Asset Sales other than Mortgaged Property Asset Sales The Company will not, and will not permit any of its Regulated Subsidiaries to, consummate an Asset Sale, other than a Mortgaged Property Asset Sale, unless: (1) the Company (or the Regulated Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee in the event of any Asset Sale over $5.0 million); provided, that for purposes of an event set forth in clause (ii) of the definition of "Event of Loss," fair market value shall be the fair market value judicially determined by a court of competent jurisdiction, and (2) at least 75% of the consideration therefor received by the Company or such Regulated Subsidiary is in the form of cash or cash equivalents (provided that the requirement of this clause (2) shall not apply to Designated Asset Sales with an aggregate fair market value since the Initial Issuance Date of less than $5.0 million). For purposes of this provision, each of the following shall be deemed to be cash: (a) any liabilities (as shown on the Company's or such Regulated Subsidiary's most recent balance sheet) of the Company or any Regulated Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the New Bonds) that are assumed by the transferee of any such assets pursuant to an agreement that releases the Company or such Regulated Subsidiary from further liability and (b) any securities, notes or other obligations received by the Company or any such Regulated Subsidiary from such transferee that are converted within 180 days by the Company or such Regulated Subsidiary into cash (to the extent of the cash received). Within 360 days after the receipt of any Net Proceeds from an Asset Sale, other than a Mortgaged Property Asset Sale, the Company or any Regulated Subsidiary may apply such Net Proceeds to: 75 (1) the making of a capital expenditure or the acquisition of other property or assets, in each case which is used or useable in the regulated utility business of the Company or its Regulated Subsidiaries on the Initial Issuance Date or businesses reasonably related thereto; or (2) the repayment of outstanding Prior Lien Bonds. Pending the final application of any such Net Proceeds, the Company or such Regulated Subsidiary may temporarily reduce amounts available under revolving credit facilities or invest such Net Proceeds in any manner that is not prohibited by the Second Mortgage. Any Net Proceeds from Asset Sales other than Mortgaged Property Asset Sales that are not applied or invested as provided in the second sentence of this section will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $7.5 million, the Company or the applicable Regulated Subsidiary will be required to make an offer to all Holders of New Bonds (an "Asset Sale Offer") and all holders of additional Second Mortgage Bonds then outstanding to purchase the maximum principal amount of New Bonds and such additional Second Mortgage Bonds that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Second Mortgage. To the extent that the aggregate amount of New Bonds and such additional Second Mortgage Bonds tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company or its Regulated Subsidiaries may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of New Bonds and such additional Second Mortgage Bonds surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the New Bonds and additional Second Mortgage Bonds to be purchased on a pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Notwithstanding the foregoing, neither the Company nor any Regulated Subsidiary shall be obligated to make an Asset Sale Offer if such offer would violate an order, rule or regulation of a governmental authority with jurisdiction over the Company or any such Regulated Subsidiary; provided that the Company and such Regulated Subsidiary shall use their reasonable best efforts to vacate or modify such order to permit such Asset Sale Offer. Mortgaged Property Asset Sales and Events of Loss The Company will not engage in a Mortgaged Property Asset Sale unless: (1) such Mortgaged Property Asset Sale involves the Mortgaged Property in its entirety, or, if such Mortgaged Property Asset Sale involves less than all of the Mortgaged Property (a "Partial Mortgaged Property Asset Sale"), such Partial Mortgaged Property Asset Sale involves a single Mortgaged Property Asset Sale with a fair market value at the time of consummation of such Mortgaged Property Asset Sale not exceeding $10.0 million and is not part of a series of Mortgaged Property Asset Sales in any twelve month period with an aggregate value (measured as of the time of consummation of such sales) exceeding $10.0 million; provided, however, that any Mortgaged Property Asset Sale in contemplation of or as part of the restructuring of the Company in which the Company divests generation assets and/or power purchase agreements shall not be subject to the $10.0 million limitation in this clause (1); (2) the Company receives consideration in respect of and concurrently with such Mortgaged Property Asset Sale at least equal to the fair market value of such Mortgaged Property; (3) with respect to each such Mortgaged Property Asset Sale, the Company delivers an Officers' Certificate to the Trustee dated no more than 15 days prior to the date of consummation of the relevant Mortgaged Property Asset Sale, certifying that (a) such sale complies with clauses (1) and (2) above and (b) if the fair market value of the Mortgaged Property being sold exceeds $5.0 million, such fair market value was based on the opinion of an Independent Appraiser prepared contemporaneously with 76 such Mortgaged Property Asset Sale and which opinion, in such case, will be attached to the Officers' Certificate, as evidenced by copies of a resolution of the Board of Directors of the Company adopted in respect of and substantially concurrently with such Mortgaged Property Asset Sale; (4) 100% of such consideration is in cash or Cash Equivalents; and (5) the Net Proceeds therefrom shall be paid to the trustee under the First Mortgage to be held in accordance with the terms of the First Mortgage if any First Mortgage Bonds are then outstanding and, upon release of such Net Proceeds by such trustee, such Net Proceeds shall be paid directly to the Trustee pursuant to the Second Mortgage, to be held by the Trustee as additional Mortgaged Property. To the extent that such Net Proceeds are applied to the purchase of Bondable Property, such Bondable Property shall become subject to the Lien of the Second Mortgage and shall become additional Mortgaged Property. The Company, within 360 days from the date of consummation of such Mortgaged Property Asset Sale, may apply all of the Net Proceeds of a Mortgaged Property Asset Sale: (1) to purchase or otherwise invest in Bondable Property which shall become additional Mortgaged Property under the Second Mortgage; or (2) to repay outstanding Prior Lien Bonds. Any such Net Proceeds of a Mortgaged Property Asset Sale not so applied shall constitute "Excess Proceeds" and shall be applied, to the extent the Net Proceeds can be released from the First Mortgage and Second Mortgage, to make an Asset Sale Offer, in accordance with the terms of the second paragraph of the covenant entitled "Asset Sales other than Mortgaged Property Asset Sales." The Company shall use its reasonable best efforts to obtain the release of such Net Proceeds from the provisions of the First Mortgage and the Second Mortgage. If the Company suffers an Event of Loss with respect to Mortgaged Property: (1) the Net Proceeds therefrom shall be paid to the trustee under the First Mortgage to be held in accordance with the terms of the First Mortgage if any First Mortgage Bonds are then outstanding and, upon release of such Net Proceeds by such trustee, such Net Proceeds shall be paid directly to the Trustee pursuant to the Second Mortgage, to be held by the Trustee as additional Mortgaged Property; and (2) the Company shall take such actions, at its sole expense, as may be required to ensure that the Trustee, pursuant to Second Mortgage, has from the date of such deposit a Lien (ranking prior to all other Liens on the property other than the Lien of the First Mortgage) on such Net Proceeds pursuant to the terms of the Second Mortgage. As any portion or all of the Net Proceeds from any such Event of Loss are received by the Trustee, the Company may apply all of such amount or amounts, as received, together with all interest earned thereon, individually or in combination: (1) to purchase or otherwise invest in Bondable Property which shall become additional Mortgaged Property under the Second Mortgage; (2) to restore the relevant Mortgaged Property; or (3) to repay outstanding Indebtedness with Liens on the Mortgaged Property that rank prior in payment to the New Bonds. In the event that the Company elects to restore the relevant Mortgaged Property pursuant to the foregoing clause (2), within six months of receipt of such Net Proceeds from an Event of Loss, the Company shall: (1) give the Trustee irrevocable written notice of such election; and 77 (2) enter into a binding commitment to restore such Mortgaged Property, a copy of which shall be supplied to the Trustee, and shall have 12 months or as soon as is reasonably practicable from the date of such binding commitment to complete such restoration, which shall be carried out with due diligence. Any such Net Proceeds of an Event of Loss not so applied shall constitute "Excess Proceeds" and shall be applied to make an Asset Sale Offer in accordance with the terms of the second paragraph of this covenant. In the event that the Company decides pursuant to the foregoing provisions to apply any portion of the Net Proceeds from a Mortgaged Property Asset Sale or an Event of Loss to purchase or otherwise invest in Bondable Property: (1) the Company shall deliver an officers' Certificate to the Trustee dated no more than 30 days prior to the date of consummation of the relevant investment in Bondable Property, certifying that the purchase price for the amount of the investment in Bondable Property does not exceed the fair market value of such Bondable Property, and, if the fair market value of such Bondable Property exceeds $1.0 million, certifying that the fair market value of such Bondable Property was determined in good faith by the Board of Directors of the Company and, in the event the fair market value of such Bondable Property exceeds $5.0 million, was based on the opinion of an Independent Appraiser attached to the Officer's Certificate, as evidenced by copies of a resolution of the Board of Directors of the Company adopted in respect of and substantially concurrently with the investment in such Bondable Property; (2) the Trustee will release such certified purchase price to the Company, free of the Lien of the Second Mortgage; and (3) the Company shall take such actions, at its sole expense, as shall be required to permit the Trustee, pursuant to the Second Mortgage, to release such Net Proceeds, together with any interest thereon, from the lien of the Second Mortgage and to ensure that the Trustee has, from the date of such purchase or investment, a Lien ranking prior to all Liens (other than the Lien securing any outstanding First Mortgage Bonds and Permissable Encumbrances) on such Bondable Property under the Second Mortgage. Certain Covenants Restricted Payments The Company will not, and will not permit any of its Regulated Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any cash dividend or other distribution on account of the Company's or any of its Regulated Subsidiaries' Equity Interests, including, without limitation, any payment in connection with any merger or consolidation involving the Company, other than (a) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company and (b) any portion of a dividend or distribution by a Regulated Subsidiary of the Company that is payable to the Company or to any Regulated Subsidiary of the Company); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation in connection with any merger or consolidation involving the Company) from any Person other than the Company or a Regulated Subsidiary any Equity Interests of the Company, any of its Subsidiaries or any direct or indirect parent of the Company (other than the conversion or exchange of Equity Interests of the Company for other Equity Interests of the Company); (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness other than the First Mortgage Bonds or the Second Mortgage Bonds or Indebtedness payable to the Company, except at Stated Maturity; or (4) make any Restricted Investment (all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as "Restricted Payments"), 78 unless, at the time of and after giving effect to such Restricted Payments: (1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (2) except in the case of a Restricted Investment, the Company would, at the time of such Restricted Payment, and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have a Fixed Charge Coverage Ratio of not less than 2.5 to 1 (calculated as described below under the caption "--Incurrence of Indebtedness"); and (3) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Regulated Subsidiaries after the Initial Issuance Date (excluding Restricted Payments permitted by clauses (2), (3), (4), (6), (7), (8) or (9) of the next succeeding paragraph), is less than the sum of (a) 20% of the Consolidated Cash Flow of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the Initial Issuance Date through the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Cash Flow for such period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received by the Company after the Initial Issuance Date as a contribution to its common equity capital or from the issue or sale of Equity Interests (other than Disqualified Stock) of the Company or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus (c) to the extent that any Restricted Investment that was made after the Initial Issuance Date is sold for cash or Cash Equivalents or was otherwise liquidated or repaid for cash or Cash Equivalents, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (d) $15,000,000. Notwithstanding the foregoing: (A) nothing in this covenant shall prohibit or restrict any distribution of any Equity Interests (other than Disqualified Stock) of the Company or of any of its Unregulated Subsidiaries as part of a Holding Company Transaction; and (B) following a Holding Company Transaction, neither the Company nor any Regulated Subsidiary shall make a Restricted Payment other than a Restricted Investment unless: (1) such Restricted Payment is used to pay expenses incurred by the Holding Company or a wholly-owned subsidiary of the Holding Company in the ordinary course of business if, and only to the extent that, such expenses represent a cost of the Company or a Regulated Subsidiary incurred in the ordinary course of business; or (2) the proceeds of such Restricted Payment are utilized by the Holding Company solely to fund a pro rata distribution to the public shareholders of the Holding Company; and (C) The Company and its Regulated Subsidiaries shall not make any Restricted Investments other than Restricted Investments in an aggregate amount (a) equal to (i) for the period from the Initial Issuance Date through December 31, 1999, $1.0 million and (ii) thereafter, $2.0 million in any fiscal year and (b) not to exceed $10.0 million since the Initial Issuance Date, provided, that, if in any fiscal year the aggregate amount of any such Restricted Investments is less than the amount permitted in any fiscal year, the Company and its Regulated 79 Subsidiaries will be entitled, in any succeeding fiscal year, to make Restricted Investments in an amount equal to (a) $2.0 million plus (b) the aggregate amount of Restricted Investments that were permitted but not made in any earlier fiscal year (or portion thereof) after the Initial Issuance Date. The Company shall be permitted to make distributions to the Holding Company in an amount not to exceed, in any period, the amount of Restricted Investments permitted by clause (C) above, provided that such distributions shall reduce, dollar for dollar, the amount of Restricted Investments permitted to be made by the Company by clause (C) above. The preceding provisions will not prohibit: (1) so long as no Default shall have occurred and be continuing or would be caused thereby, the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Second Mortgage; (2) the redemption, repurchase, retirement, defeasance or other acquisition of any Indebtedness other than the First Mortgage Bonds or the Second Mortgage Bonds of the Company or of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to the Regulated Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock), provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3) (b) above; (3) the defeasance, redemption, repurchase or other acquisition of Indebtedness other than First Mortgage Bonds or Second Mortgage Bonds of the Company with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend by a Regulated Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (5) the repurchase, redemption, cancellation or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management, employees or directors pursuant to (i) any management, employee or director equity subscription agreement or stock option agreement or (ii) upon the death, disability or termination of employment of such members of management employees or directors; provided that the aggregate price paid for all such purchased, redeemed, acquired or retired Equity Interests shall not exceed $1,000,000 in any twelve-month period; (6) so long as no Default shall have occurred and be continuing or would be caused thereby, the payment of dividends, and the satisfaction of mandatory redemption obligations, in respect of any Preferred Stock outstanding on the Initial Issuance Date in accordance with the terms thereof in effect on such date; (7) the repayment of (a) revolving credit borrowings used to finance working capital needs or (b) other revolving credit facilities utilized to finance accounts receivable; (8) the utilization, in accordance with the terms of the Company's Dividend Reinvestment Plan or employee benefit plans, of any proceeds from dividends paid by the Company in respect of its Capital Stock permitted by this covenant to be made to purchase additional shares of the Company's Capital Stock for the benefit of the participants in such plan; and (9) payments to any direct or indirect parent corporation of the Company in respect of (A) federal income taxes for the tax periods for which a federal consolidated return is filed by such direct or indirect parent corporation of the Company for a consolidated group of which such direct or indirect parent corporation of the Company is the parent and the Company and its Subsidiaries are members, in an amount not to exceed the hypothetical federal income taxes that the Company would have paid if the Company and its Regulated Subsidiaries filed a separate consolidated return with the Company as the parent, taking into account carryovers 80 and carrybacks of tax attributes (including net operating losses) that would have been allowed if such separate consolidated return had been filed, (B) state income tax for the tax periods for which a state combined, consolidated or unitary return is filed by such direct or indirect parent corporation of the Company for a combined, consolidated or unitary group of which such direct or indirect parent corporation of the Company is the parent and the Company and its Subsidiaries are members, in an amount not to exceed the hypothetical state income taxes that the Company would have paid if the Company and its Regulated Subsidiaries had filed a separate combined, consolidated or unitary return taking into account carryovers and carrybacks of tax attributes (including net operating losses) that would have been allowed if such separate combined return had been filed and (C) capital stock, net worth, or other similar taxes (but for the avoidance of doubt, excluding any taxes based on net or gross income) payable by such direct or indirect parent corporation of the Company based on or attributable to its investment in or ownership of the Company and its Regulated Subsidiaries; provided, however, that in no event shall any such tax payment pursuant to this clause (9) exceed the amount of federal (or state, as the case may be) income tax that is, at the time the Company makes such tax payments, actually due and payable by such direct or indirect parent corporation of the Company to the relevant taxing authorities or to become due and payable within 30 days of such payment of the Company; provided, further, that for purposes of this clause (9), payments made by any Regulated Subsidiary to a Regulated Subsidiary or the Company which are in turn distributed by such Regulated Subsidiary or the Company to any direct or indirect parent corporation of the Company shall be disregarded. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued to or by the Company or such Regulated Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an Independent Appraiser if the fair market value exceeds $10.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this "Restricted Payments" covenant were computed, together with a copy of any fairness opinion or appraisal required by the Supplemental Indenture. Incurrence Of Indebtedness The Company will not, and will not permit any of its Regulated Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur"), any Indebtedness (including Acquired Debt) or issue any Disqualified Stock and the Company will not permit any of its Regulated Subsidiaries to issue any preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) and issue Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred or Disqualified Stock or preferred stock is issued would have been at least 2.50 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if such Indebtedness had been incurred or such Disqualified Stock or preferred stock had been issued at the beginning of such four-quarter period. The foregoing provisions will not apply to the incurrence of any of the following Indebtedness (collectively, "Permitted Debt"): (1) the existence of the Existing Indebtedness; (2) the incurrence by the Company of Indebtedness represented by the Old Bonds to be issued on the Initial Issuance Date and the New Bonds to be issued pursuant to this prospectus; (3) the incurrence by the Company or any of its Regulated Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, 81 plant or equipment used in the business of the Company or such Regulated Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (3), not to exceed $5.0 million at any time outstanding; (4) the incurrence by the Company or any of its Regulated Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Second Mortgage to be incurred under the first paragraph of this covenant or clauses (1), (2), (3) or (9) of this paragraph; (5) the incurrence by the Company or any of its Regulated Subsidiaries of intercompany Indebtedness between or among the Company and/or any of its Regulated Subsidiaries; provided, however, that: (a) if the Company is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the New Bonds, and (b) (i) any subsequent issuance or transfer of Equity Interests that results in any Person other than the Company or a Regulated Subsidiary being the obligee on such Indebtedness and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Regulated Subsidiary and that results in such Person being the obligee on such Indebtedness, shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Regulated Subsidiary, as the case may be, that was not permitted by this clause (5); (6) the incurrence by the Company or any of its Regulated Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging: (a) interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Second Mortgage to be outstanding; or (b) the cost of commodities purchased or received by the Company or any of its Regulated Subsidiaries in the ordinary course of business provided that, in the case of clause (b), the Net Termination Value of such Hedging Obligations shall not at any time exceed $3.0 million; (7) the accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued; (8) Indebtedness of the Company or any Regulated Subsidiary represented by performance bonds and letters of credit for the account of the Company or such Regulated Subsidiary, as the case may be, in order to provide security for workers' compensation claims and payment obligations in connection with self-insurance, in each case, that are incurred in the ordinary course of business in accordance with customary industry practice in amounts, and for the purposes, customary in the Company's industry; (9) the incurrence by the Company of unsecured Indebtedness after the Initial Issuance Date the proceeds of which are utilized to finance Power Contract Buyouts and related restructuring and transaction and financing costs; (10) the incurrence by a special purpose entity of Indebtedness in a Securitization Transaction that is without recourse to the Company or to any other Regulated Subsidiary of the Company or their assets (other than such special purpose entity and its assets and, as to the Company or any Regulated Subsidiary of the Company, other than pursuant to representations, warranties, covenants and indemnities customary for such transactions) and is not guaranteed by any such Person; (11) the incurrence by the Company or any of its Regulated Subsidiaries of Indebtedness under the Accounts Receivables Facility or any other similar accounts receivables facilities, including any refinancings or replacements thereof in an aggregate principal amount of Indebtedness not to exceed $15.0 million at any one time outstanding; 82 (12) the incurrence of Indebtedness by Connecticut Valley in an amount not to exceed $5.0 million at any time outstanding provided, however, that all net proceeds shall be applied to the repayment of the note in the original principal amount of $3.8 million issued by Connecticut Valley and owed to and held by the Company, until all amounts on such note are paid in full; or (13) the incurrence by the Company or any of its Regulated Subsidiaries of additional Indebtedness after the Initial Issuance Date in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $15.0 million. For purposes of determining compliance with this "Incurrence of Indebtedness" covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (13) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant. Liens The Company will not, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any Mortgaged Property, other than the following Liens: (a) Permissable Encumbrances; (b) Liens which rank prior in right of payment to the Lien on the Mortgaged Property securing the New Bonds, provided such Liens do not secure an amount of Indebtedness in excess of: (1) $103.4 million, minus; (2) the aggregate principal amount of Second Mortgage Bonds issued pursuant to and in accordance with clause (c)(2) below on the basis of the retirement, purchase or acquisition of Prior Lien Bonds; (c) Liens which rank equal in right of payment with the Lien on the Mortgaged Property securing the New Bonds, provided such Liens do not secure an amount of Indebtedness in excess of the sum of: (1) the lesser of the Cost or fair market value of Unbonded Bondable Property, after deducting the principal amount of all Prior Lien Bonds, including First Mortgage Bonds, which are (a) outstanding and secured by a Prior Lien on Bondable Property owned by the Company at the date of the Second Mortgage, (b) outstanding and secured by a Prior Lien on Bondable Property at the date of its acquisition by the Company after such date and (c) issued after the date of the Second Mortgage; and (2) the principal amount of Old Bonds, New Bonds and Prior Liens Bonds, including First Mortgage Bonds, which the Company has retired, purchased or acquired since the date of the Second Mortgage or the Company is retiring, purchasing or acquiring, and which have not already been Bonded; and (3) the amount of cash deposited with the Trustee for such purpose; (d) Liens on Mortgaged Property that rank junior in right of payment to the Lien of the Second Mortgage. The Company will not, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness on any asset now owned or hereafter acquired by the Company that does not constitute Mortgaged Property, other than the following Liens: (a) Liens on Equity Interests in Unregulated Subsidiaries; (b) Liens on Equity Interests or assets of Connecticut Valley securing Indebtedness in an aggregate principal amount not to exceed $5.0 million; 83 (c) Liens on any property acquired, constructed or improved by the Company after the date the Old Bonds were issued, and which are created or assumed contemporaneously with such acquisition, construction or improvement, or within 180 days after the completion thereof, to secure or provide for the payment of all or any part of the cost of such acquisition, construction or improvement (including related expenditures capitalized for federal income tax purposes in connection therewith); (d) Liens on any property existing at the time of acquisition thereof, whether by merger, consolidation, purchase, lease or otherwise (including Liens on property of a person existing at the time such person becomes a Regulated Subsidiary); provided that such Liens were not incurred in contemplation of the acquisition of such property and do not extend to any assets other than those of the Person merged into or consolidated with the Company or any Regulated Subsidiary or which becomes a Regulated Subsidiary of the Company in connection with such transaction; (e) Liens in favor of the United States of America or any state thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof or political entity affiliated therewith to secure partial, progress, advance or other payments, or other obligations, pursuant to any contract or statute or to secure any Indebtedness Incurred for the purpose of financing all or any part of the cost of acquiring, constructing or improving the property subject to such Liens (including Liens incurred in connection with pollution control, industrial revenue or similar financings); (f) Liens on property created, assumed or otherwise brought into existence in contemplation of the sale or other disposition of the underlying property, whether directly or indirectly, by way of share disposition or otherwise, provided, that 180 days from the creation of such Liens the Company must have disposed of such property and any Indebtedness secured by such Liens shall be without recourse to the Company; (g) Liens imposed by law, such as mechanics', workmen's, repairmen's, materialmen's, carriers', warehousemen's, vendors or other similar liens arising in the ordinary course of business, or governmental (federal, state or municipal) liens arising out of contracts for the sale of products or services by the Company, or deposits or pledges to obtain the release of any of the foregoing; (h) Liens arising out of pledges or deposits under workmen's compensation laws or similar legislation and Liens of judgments thereunder which are not currently dischargeable, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of money) or leases to which the Company is a party, or deposits to secure the Company's public or statutory obligations, or deposits in connection with obtaining or maintaining self insurance or to obtain the benefits of any law, regulation or arrangement pertaining to unemployment insurance, old age pensions, social security or similar matters, or deposits of cash or obligations of the United States of America to secure security, appeal or customs bonds to which the Company or any Regulated Subsidiary is a party, or deposits in litigation or other proceedings such as, but not limited to, interpleader proceedings; (i) Liens created by or resulting from any litigation or other proceeding which is being contested in good faith by appropriate proceedings, including Liens arising out of judgments or awards against the Company with respect to which the Company is in good faith prosecuting an appeal or proceeding for review, or Liens incurred by the Company for the purpose of obtaining a stay or discharge in the course of any litigation or other proceeding to which the Company is a party; (j) Liens for taxes or assessments or governmental charges or levies not yet due or delinquent or which are being contested in good faith by appropriate proceedings; (k) Liens consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property, and defects and irregularities in the title thereto, landlords' liens and other similar liens and encumbrances none of which interferes materially with the use of the property covered thereby in the ordinary course of the Company's business and which do not materially detract from the value of such properties; 84 (l) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Lien referred to in the foregoing clauses; provided, that (i) such extension, renewal or replacement Lien shall be limited to all or a part of the same property or Indebtedness that secured the Lien extended, renewed or replaced and (ii) the amount of Indebtedness secured by such Lien at such time is not increased; (m) Liens on accounts receivable of the Company or any Regulated Subsidiary securing Indebtedness incurred pursuant to clause (11) of the covenant entitled under "Incurrence of Indebtedness"; and (n) Liens on assets of a special purpose entity incurred in connection with a Securitization Transaction. Dividend and Other Payment Restrictions Affecting Regulated Subsidiaries The Company will not, and will not permit any of its Regulated Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Regulated Subsidiary to: (a) pay dividends or make any other distributions to the Company or any of its Regulated Subsidiaries (i) on its Capital Stock; or (ii) with respect to any other interest or participation in, or measured by, its profits; (b) pay any Indebtedness owed to the Company or any of its Regulated Subsidiaries; (c) make loans or advances to the Company or any of its Regulated Subsidiaries; or (d) transfer any of its properties or assets to the Company or any of its Regulated Subsidiaries. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (1) Existing Indebtedness as in effect on the Initial Issuance Date and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in such Existing Indebtedness, as in effect on the Initial Issuance Date; (2) applicable law or regulation; (3) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Regulated Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; (4) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practice; (5) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (d) in the prior paragraph to the extent applicable to the property so acquired; (6) any contract for the sale of 100% of the Capital Stock of a Regulated Subsidiary; 85 (7) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced; (8) Liens securing Indebtedness that limit the right of the debtor to dispose of the assets subject to such Lien; (9) Indebtedness or other contractual requirements of a special purpose entity in connection with a Securitization Transaction, provided that such restrictions apply only to such special purpose entity; (10) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business; (11) restrictions contained in the Indebtedness described in clause (12) of the definition of Permitted Debt in the covenant entitled "--Incurrence of Indebtedness"; (12) Indebtedness of a Regulated Subsidiary owed to and held by the Company; and (13) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Merger, Consolidation or Sale of Assets The Company may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Regulated Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (1) the corporation formed by such consolidation or surviving in such merger or the Person that acquires by sale, assignment, transfer, conveyance or other disposition, or that leases, such assets (in each such case, the "Successor Entity"), is a corporation organized and existing under the laws of the United States, any State thereof or the District of Columbia and expressly assumes the Company's obligations under the Second Mortgage and the New Bonds; (2) immediately before and after such transaction no Default or Event of Default exists; and (3) the Successor Entity (or the Company, in the case of a consolidation or merger in which the Company is the surviving entity) (a) has Consolidated Net Worth immediately after the transaction (but prior to any revaluation or recalculation of Consolidated Net Worth as of the date of the transaction relating to a carry-over basis (if any) of the assets acquired in the transaction (as determined in accordance with GAAP)) equal to or greater than the Consolidated Net Worth of the Company immediately prior to the transaction and (b) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, have a Fixed Charge Coverage Ratio of not less than 2.50 to 1 (calculated as described above under the caption "--Incurrence of Indebtedness)," provided, that the foregoing clause (3) shall not prevent a Holding Company Transaction. In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties of assets, in one or more related transaction, to any other Person. 86 Designation of Regulated and Unregulated Subsidiaries The Board of Directors may designate any Regulated Subsidiary to be an Unregulated Subsidiary if that designation would not cause a Default; provided that in no event shall the regulated utility business currently operated by the Company be transferred to or held by an Unregulated Subsidiary. If a Regulated Subsidiary is designated as an Unregulated Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Company and its Regulated Subsidiaries in the Subsidiary so designated will be deemed to be an Investment made as of the time of such designation and will either reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption "--Restricted Payments" or reduce the amount available for future Investments under one or more clauses of the definition of Permitted Investments, as the Company shall determine. That designation will only be permitted if such Investment would be permitted at that time and if such Regulated Subsidiary otherwise meets the definition of an Unregulated Subsidiary. The Board of Directors may redesignate any Unregulated Subsidiary to be a Regulated Subsidiary if the redesignation would not cause a Default. Sale and Leaseback Transactions The Company will not, and will not permit any of its Regulated Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or any Regulated Subsidiary may enter into a Sale and Leaseback Transaction if: (1) the Company or that Regulated Subsidiary, as applicable, could have incurred Indebtedness in an amount equal to the Attributable Debt relating to such Sale and Leaseback Transaction under the covenant described above under the caption "--Incurrence of Indebtedness;" (2) the gross cash proceeds of that Sale and Leaseback Transaction are at last equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and (3) the transfer of assets in that Sale and Leaseback Transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, the covenant described above under the caption "Repurchase at the Option of Holders--Asset Sales other than Mortgaged Property Asset Sales," and "Repurchase at the Option of Holders--Mortgaged Property Asset Sales and Events of Loss." The foregoing shall not prevent transactions between or among the Company and/or its Regulated Subsidiaries or Securitization Transactions. Transactions with Affiliates The Company will not, and will not permit any of its Regulated Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Regulated Subsidiary than those that would have been obtained in a comparable transaction by the Company or Regulated Subsidiary with an unrelated Person; and (2) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction involving aggregate consideration in excess of $2.5 million a resolution of the Board of Directors set forth in an officer's certificate certifying that such 87 Affiliate Transaction complies with clause (1) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (b) with respect to any Affiliate Transaction involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the Company or such Regulated Subsidiary of such Affiliate Transaction from a financial point of view issued by an Independent Appraiser. The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement entered into by the Company or any of its Regulated Subsidiaries in the ordinary course of business and consistent with past practices of the Company or such Regulated Subsidiary; (2) commercial transactions in the ordinary course of business for the provision of goods and services by the Company to any of its Subsidiaries or Affiliates (or, following a Holding Company Transaction, any Subsidiary or Affiliate of the Holding Company); provided that the consideration received by the Company is not less than the lower of cost to the Company of providing such goods and services or the fair market value of such goods and services; (3) transactions between or among the Company and/or its Regulated Subsidiaries; and (4) Restricted Payments permitted by the provisions of the Second Mortgage described above under the caption "--Restricted Payments." Payments For Consent Neither the Company nor any of it its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of the New Bonds for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Second Mortgage or such New Bonds unless such consideration is offered to be paid or agreed to be paid to all holders of the New Bonds that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Reports The Company shall file with the Trustee, within 15 days of filing them with the Commission, copies of the current, quarterly and annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 and 15(d) of the Exchange Act. If the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall nevertheless file with the Commission and the Trustee, on the date upon which it would have been required to file with the Commission, current, quarterly and annual financial statements, including any notes thereto (and with respect to annual reports, an auditor's report by a firm of established national reputation, upon which the Trustee may conclusively rely), and a "Management's Discussion and Analysis of Financial Condition and Results of Operation," both comparable to that which the Company would have been required to include in such current, quarterly and annual reports, information, documents or other reports on Forms 8-K, 10-Q and 10-K if the Company were subject to the requirements of Section 13 or 15(d) of the Exchange Act, provided that the Company shall not be required to register under the Exchange Act by virtue of this provision, if not otherwise required to do so. 88 Events of Default and Remedies Each of the following is an Event of Default: (1) default for 30 days in the payment when due of interest on the New Bonds; (2) default in payment when due of the principal of, or premium, if any, on the New Bonds; (3) at any time such covenants are applicable, failure by the Company or any of its Regulated Subsidiaries for 30 days after notice to comply with the covenants described under the captions "Repurchase at the Option of Holders--Mortgaged Property Asset Sales and Events of Loss," or "--Certain Covenants--Merger, Consolidation or Sale of Assets;" (4) failure by the Company or any of its Regulated Subsidiaries for 60 days after notice to comply with any of the other agreements in the Second Mortgage; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Regulated Subsidiaries (or the payment of which is guaranteed by the Company or any of its Regulated Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Second Mortgage (other than Indebtedness of a Regulated Subsidiary owed to and held by the Company), if that default: (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (6) failure by the Company or any of its Regulated Subsidiaries to pay final non-appealable judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days, provided, that this clause (6) will not apply to any judgment in favor of the Company against a Regulated Subsidiary; and (7) events of bankruptcy or insolvency with respect to the Company or any of its Regulated Subsidiaries. In the case of an Event of Default arising from events of bankruptcy or insolvency, with respect to the Company, any Regulated Subsidiary that is a Significant Subsidiary or any group of Regulated Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding New Bonds will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding New Bonds may declare all the New Bonds to be due and payable immediately. However, solely for purposes of determining whether an Event of Default arises under (5), (6) or (7) above, the term "Regulated Subsidiary" shall not include Connecticut Valley at any time that the Investment by the Company in Connecticut Valley (including amounts invested prior to the Initial Issuance Date) does not exceed $12.0 million. Holders of the New Bonds may not enforce the Second Mortgage or the New Bonds except as provided in the Second Mortgage. Subject to specified limitations, holders of a majority in principal amount of the then outstanding Second Mortgage Bonds may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the New Bonds notice of specified continuing Defaults or Events of Default (except a Default or Event of Default relating to the payment of principal, interest, payments of any sinking or analogous fund) if it determines that withholding notice is in their interest. 89 The Holders of a majority in aggregate principal amount of the Second Mortgage Bonds then outstanding by notice to the Trustee may on behalf of the Holders of all of the Second Mortgage Bonds waive any existing Default or Event of Default and its consequences under the Second Mortgage except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Second Mortgage Bonds. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of any premium that the Company would have been required to pay if the Company then had elected to redeem the New Bonds pursuant to the optional redemption provisions of the Supplemental Indenture, an equivalent premium shall become and be immediately due and payable to the extent permitted by law upon the acceleration of the New Bonds. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Second Mortgage. At any time the Suspended Covenants are in effect, upon becoming aware of any Default or Event of Default, the Company is required to deliver to the Trustee a statement specifying such Default or Event of Default. No Personal Liability of Directors, Officers, Employees and Stockholders No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the New Bonds, the Second Mortgage or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of New Bonds by accepting a New Bond waives and releases all such liability. The waiver and release are part of the consideration for issuance of the New Bonds. The waiver may not be effective to waive liabilities under the federal securities laws. Legal Defeasance and Covenant Defeasance The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding New Bonds ("Legal Defeasance") except for: (1) the rights of Holders of outstanding New Bonds to receive payments in respect of the principal of, or interest or premium on such New Bonds when such payments are due from the trust referred to below; (2) the Company's obligations with respect to the New Bonds concerning issuing temporary New Bonds, registration New Bonds, mutilated, destroyed, lost or stolen New Bonds and the maintenance of an office or agency for payment and money for security payments held in trust; (3) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith; and (4) the Legal Defeasance provisions of the Second Mortgage. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to covenants that are described in the Second Mortgage ("Covenant Defeasance") and thereafter any omission to comply with those covenants shall not constitute a Default or Event of Default with respect to the New Bonds. In the event Covenant Defeasance occurs, events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default and Remedies" will no longer constitute an Event of Default with respect to the New Bonds. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the New Bonds, cash in U.S. dollars, non-callable Governmental Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium on the outstanding New Bonds on the stated maturity or on the 90 applicable redemption date, as the case may be, and the Company must specify whether the New Bonds are being defeased to maturity or to a particular redemption date; (2) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the Second Mortgage, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding New Bonds will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding New Bonds will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) no Default or Event of Default shall have occurred and be continuing either: (a) on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); or (b) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Second Mortgage) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company must have delivered to the Trustee an Opinion of Counsel to the effect that, assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the deposit and assuming that no Holder is an "insider" of the Company under applicable bankruptcy law, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (7) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of New Bonds over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (8) the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Amendment, Supplement and Waiver The Supplemental Indenture Except as provided in the next two succeeding paragraphs, the Supplemental Indenture or the New Bonds may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the New Bonds then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, New Bonds), and any existing default or compliance with any provision of the Supplemental Indenture or the New Bonds may be waived with the consent of the Holders of a majority in principal amount of the then outstanding New Bonds (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, New Bonds). 91 Without the consent of each Holder affected, an amendment or waiver of the Supplemental Indenture or the New Bonds may not (with respect to any New Bonds held by a non-consenting Holder): (1) reduce the principal amount of New Bonds whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any New Bond or alter the provisions with respect to the redemption of the New Bonds (other than provisions relating to the covenants described above under the caption "--Repurchase at the Option of Holders"); (3) reduce the rate of or change the time for payment of interest on any New Bond; (4) waive a Default or Event of Default in the payment of principal of, or interest, or premium, if any, on the New Bonds (except a rescission of acceleration of the New Bonds by the Holders of at least a majority in aggregate principal amount of the New Bonds and a waiver of the payment default that resulted from such acceleration); (5) make any New Bond payable in money other than that stated in the New Bonds; (6) make any change in the provisions of the Supplemental Indenture relating to waivers of past Defaults or the rights of Holders of New Bonds to receive payments of principal of, or interest, or premium, if any, on the New Bonds; (7) waive a redemption payment with respect to any New Bond (other than a payment required by one of the covenants described above under the caption "--Repurchase at the Option of Holders"); or (8) make any change in the preceding amendment and waiver provisions. Notwithstanding the preceding, without the consent of any Holder of New Bonds, the Company and the Trustee may amend or supplement the Supplemental Indenture or the New Bonds: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated New Bonds in addition to or in place of certificated New Bonds; (3) to provide for the assumption of the Company's obligations to Holders of New Bonds in the case of a merger or consolidation or sale of all or substantially all of the Company's assets; (4) to make any change that would provide any additional rights or benefits to the Holders of New Bonds or that does not adversely affect the legal rights under the Second Mortgage of any such Holder; or (5) to comply with requirements of the Commission in order to effect or maintain the qualification of the Second Mortgage under the Trust Indenture Act. The Second Mortgage Indenture In addition to the amendment, supplement and waiver provisions contained within the Supplemental Indenture, the Second Mortgage Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of at least a majority in aggregate principal amount of the Second Mortgage Bonds then outstanding, to modify the Second Mortgage Indenture; provided that no such modification may, without the consent of each holder of outstanding Second Mortgage Bonds affected thereby, extend the fixed maturity of any Second Mortgage Bonds, or reduce the principal amount thereof, or reduce the rate or extend the time of interest thereon, or reduce any Make Whole Premium payable upon the redemption thereof. 92 The Second Mortgage Indenture also permits specified amendments, supplements and waivers without the consent of the holders of the Second Mortgage Bonds, including one or more supplemental indentures for the creation of any new series of Second Mortgage Bonds. Satisfaction of New Bonds The Second Mortgage will cease to be of further effect as to the New Bonds when: (1) either: (a) all New Bonds that have been authenticated (except lost, stolen or destroyed New Bonds that have been replaced or paid and New Bonds for the payment of which money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (b) all New Bonds that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Governmental Obligations, or a combination thereof, in such amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the New Bonds not delivered to the Trustee for cancellation for principal, premium and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which the Company is bound; (3) the Company has paid or caused to be paid all sums payable by it in respect of the New Bonds; and (4) the Company has delivered irrevocable instructions to the Trustee under the Second Mortgage to apply the deposited money toward the payment of the New Bonds at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction have been satisfied. Concerning the Trustee If the Trustee becomes a creditor of the Company, the Second Mortgage limits its right to obtain payment of claims in some cases, or to realize on property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The holders of a majority in principal amount of the then outstanding Second Mortgage Bonds will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to exceptions. The Second Mortgage provides that in case an Event of Default shall occur and be continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of its own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Second Mortgage at the request of any holder of Second Mortgage Bonds, unless such holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. 93 Additional Information Anyone who receives this prospectus may obtain a copy of the Second Mortgage, the Supplemental Indenture and Registration Rights Agreement without charge by writing to Central Vermont Public Service Corporation 77, Grove Street, Rutland, Vermont, Attention: Chief Financial Officer. Book-Entry, Delivery and Form Except as described in the next paragraph, the New Bonds will initially be issued in the form of one or more Global Bonds (the "Global Bonds"). The Global Bonds will be deposited on the date of the closing of this exchange offering with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC (such nominee being referred to herein as the "Global Bond Holder"). New Bonds that are issued as described below under "--Certificated Bonds" will be issued in the form of registered definitive certificates (the "Certificated Bonds"). Upon the transfer of Certificated Bonds, Certificated Bonds may, unless all Global Bonds have previously been exchanged for Certificated Bonds, be exchanged for an interest in the Global Bond representing the principal amount of New Bonds being transferred, subject to the transfer restrictions set forth in the Second Mortgage. DTC has advised the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers, banks, trust companies, clearing corporations and other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised the Company that, pursuant to procedures established by it: (1) upon deposit of the Global Bonds, DTC will credit the accounts of Participants designated by the Initial Purchasers with portions of the principal amount of the Global Bonds; and (2) ownership of these interests in the Global Bonds will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Bonds). So long as the Global Bond Holder is the registered owner of any New Bonds, the Global Bond Holder will be considered the sole Holder under the Second Mortgage of any New Bonds evidenced by the Global Bonds. Beneficial owners of New Bonds evidenced by the Global Bonds will not be considered the owners or Holders thereof under the Second Mortgage for any purpose, including with respect to the giving of any directions, instructions or approvals to the Trustee thereunder. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records of DTC or for maintaining, supervising or reviewing any records of DTC relating to the New Bonds. Payments in respect of the principal of, and interest and premium on a Global Bond registered in the name of the Global Bond Holder on the applicable record date will be payable by the Trustee to or at the direction of the Global Bond Holder in its capacity as the registered Holder under the Second Mortgage. Under the terms of the Second Mortgage, the Company and the Trustee will treat the Persons in whose names the New Bonds, including the Global Bonds, are registered as the owners thereof for the purpose of receiving payments and for all other 94 purposes. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for: (1) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interest in the Global Bonds or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Bonds; or (2) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the Company that its current practice, upon receipt of any payment in respect of securities such as the New Bonds (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of New Bonds will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the New Bonds, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. Certificated New Bonds Subject to specified conditions, any Person having a beneficial interest in a Global Bond may, upon prior written request to the Trustee, exchange such beneficial interest for New Bonds in the form of certificated New Bonds. Upon any such issuance, the Trustee is required to register such certificated New Bonds in the name of, and cause the same to be delivered to, such Person or Persons (or the nominee of any thereof). In addition, if: (1) DTC (a) notifies the Company that it is unwilling or unable to continue as depositary for the Global Bonds and the Company fails to appoint a successor depositary or (b) has ceased to be a clearing agency registered under the Exchange Act; (2) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of certificated New Bonds in lieu of a Global Bond; or (3) there shall have occurred and be continuing a Default or Event of Default with respect to the New Bonds; then, upon surrender by the Global Bond Holder of its Global Bond, New Bonds in such form will be issued to each person that the Global Bond Holder and DTC identify as being the beneficial owner of the related New Bonds. Neither the Company nor the Trustee will be liable for any delay by the Global Bond Holder or DTC in identifying the beneficial owners of New Bonds and the Company and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the Global Bond Holder or DTC for all purposes. Same Day Settlement and Payment The Company will make payments in respect of the New Bonds represented by the Global Bonds (including principal, premium, if any, and interest) by wire transfer of immediately available funds to the accounts specified by the Global Bond Holder. The Company will make all payments of principal, interest and premium, if any, with respect to certificated New Bonds by wire transfer of immediately available funds to the accounts specified by the Holders thereof holding more than $1.0 million of New Bonds or, if no such account is specified, or if such Holder 95 of certificated New Bonds holds $1.0 million or less of New Bonds, by mailing a check to each such Holder's registered address. The New Bonds represented by the Global Bonds are expected to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such New Bonds will, therefore, be required by DTC to be settled in immediately available funds. The Company expects that secondary trading in any certificated New Bonds will also be settled in immediately available funds. Certain Definitions Set forth below are defined terms used in the Second Mortgage. Reference is made to the Second Mortgage for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Accounts Receivable Facility" means that accounts receivable facility existing pursuant to the Receivables Purchase Agreement, dated as of November 29, 1998, between the Company and The First National Bank of Boston. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings. No Person (other than the Company or any Regulated Subsidiary of the Company) which makes, or in which a special purpose entity makes, an Investment in connection with a Securitization Transaction will be deemed to be an Affiliate of the Company or any of its Regulated Subsidiaries solely by reason of such Investment. "Appraiser" means a Person engaged in the business of appraising property competent to determine the fair market value of the particular property in question, and who or which, unless required to be independent, may be employed by or Affiliated with the Company. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets by the Company or any Regulated Subsidiary other than sales of inventory or other current assets in the ordinary course of business consistent with past practice; or (2) the issuance of Equity Interests in any of the Company's Regulated Subsidiaries or the sale of Equity Interests in any of its Regulated Subsidiaries; in the case of either clause (1) or (2), whether in a single transaction or a series of related transactions: (a) that have a fair market value in excess of $2.0 million; or (b) for Net Proceeds in excess of $2.0 million. 96 Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (1) a transfer of assets by the Company to a Regulated Subsidiary or by a Regulated Subsidiary to the Company or to another Regulated Subsidiary; (2) an issuance of Equity Interests by a Regulated Subsidiary to the Company or to another Regulated Subsidiary; (3) a Restricted Payment that is permitted by the Second Mortgage; (4) sales of property or equipment that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any of its Regulated Subsidiaries; (5) transactions involving the license, lease or sublease of any real or personal property in the ordinary course of business; (6) a transfer of Equity Interests in, or an issuance of Equity Interests of, (x) a Subsidiary of the Company that is not a Regulated Subsidiary or (y) any Person that is an Unregulated Subsidiary on the Initial Issuance Date; (7) sales of (i) assets of the type specified in the definition of "Securitization Transaction" to a special purpose entity and (ii) accounts receivable, in each case for the fair market value thereof, including cash in an amount at least equal to 75% of the book value thereof as determined in accordance with GAAP, it being understood that, for the purposes of this clause (7), notes received in exchange for the transfer of assets of the type specified in the definition of "Securitization Transaction" will be deemed cash if the special purpose entity or other payor is required to repay said notes as soon as practicable from available cash collections less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of the Company entered into as part of a Securitization Transaction; or (8) sales of Equity Interests in VELCO for fair market value, as evidenced by a resolution of the Board of Directors. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the board of directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Bondable Property" shall have the meaning set forth in the Second Mortgage. "Bonded" shall have the meaning set forth in the Second Mortgage. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (1) in the case of a corporation, corporate stock; 97 (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of twelve months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500.0 million; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Change of Control" means the occurrence of any of the following: (1) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all the assets of the Company and its Regulated Subsidiaries taken as a whole; (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of all classes of outstanding Voting Stock of the Company; or (4) the first day on which a majority of the members of the Board of Directors of the Company or of any Successor Entity (as defined under the caption "Merger, Consolidation, or Sale of Assets" above) are not Continuing Directors. Notwithstanding the foregoing, a "Change of Control" shall not include a "Holding Company Transaction." "Common Stock" means the Company's common stock, $1.00 par value. "Connecticut Valley" means Connecticut Valley Electric Company Inc., a New Hampshire corporation. 98 "Consolidated" means, with respect to the Company, the consolidation of the accounts of the Regulated Subsidiaries with those of the Company, all in accordance with GAAP (without duplication); provided, however, that "consolidation" will not include consolidation of the accounts of any Unregulated Subsidiary with the accounts of the Company. The term "consolidation" has a correlative meaning. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Utility Income of such Person for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Regulated Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Utility Income; plus (2) provision for taxes based on income or profits of such Person and its Regulated Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Utility Income; plus (3) consolidated interest expense of such Person and its Regulated Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Utility Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense (other than the amortization of the cost of Power Contract Buyouts after the Initial Issuance Date) to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Regulated Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Utility Income; minus (5) non-cash items increasing such Consolidated Utility Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the preceding, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Regulated Subsidiary of the Company shall be added to Consolidated Utility Income to compute Consolidated Cash Flow of the Company only to the extent that a corresponding amount would be permitted at the date of determination to be distributed to the Company by such Regulated Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Regulated Subsidiary or its stockholders. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of the following amounts (each determined in accordance with GAAP): (1) the consolidated equity of the common shareholders (or equity holders) of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock; less 99 (3) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the Initial Issuance Date in the book value of any asset owned by such Person or a Subsidiary of such Person. "Consolidated Utility Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Regulated Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income of any Person that is not a Regulated Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Wholly Owned Regulated Subsidiary thereof; (2) the Net Income of any Regulated Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Regulated Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Regulated Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (4) the cumulative effect of a change in accounting principles shall be excluded; (5) the Net Income of any Unregulated Subsidiary shall be excluded, whether or not distributed to the specified Person or one of its Subsidiaries; and (6) to the extent such amounts have not already been excluded in calculating Consolidated Utility Income, the amounts paid pursuant to clause (9) of the covenant entitled "--Restricted Payments" shall be excluded. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who: (1) was a member of such Board of Directors on the date of the Second Mortgage; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Designated Asset Sale" means an Asset Sale that is not a Mortgaged Property Asset Sale and that is designated as a Designated Asset Sale by the Board of Directors. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date of final maturity of the New Bonds. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "--Certain Covenants--Restricted Payments." 100 "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Event of Loss" means (i) the loss or destruction of or damage to any Mortgaged Property, (ii) the condemnation, seizure, confiscation, requisition of the use or taking by exercise of the power of eminent domain or otherwise of any Mortgaged Property or (iii) any consensual settlement in lieu of any event listed in clause (ii), in each case whether in a single event or a series of related events, that results in Net Proceeds from all sources in excess of $1.0 million. "Existing Indebtedness" means Indebtedness of the Company and its Regulated Subsidiaries in existence on the Initial Issuance Date, until such amounts are repaid, including, without limitation, up to $17.0 million of First Mortgage Bonds Series PP, QQ and RR to be issued on the Initial Issuance Date. "First Mortgage" means the Mortgage of the Company dated October 1, 1929, to State Street Bank and Trust Company, successor to Old Colony Trust Company, as Trustee, as from time to time amended and supplemented. "First Mortgage Bonds" means the securities and other Indebtedness authenticated and delivered from time to time pursuant to the First Mortgage. "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Regulated Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to hedging Obligations; plus (2) the consolidated interest of such Person and its Regulated Subsidiaries that was capitalized during such period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Regulated Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries, whether or not such guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Regulated Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Regulated Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Regulated Subsidiaries for such period to the Fixed Charges of such Person and its Regulated Subsidiaries for such period. In the event that the specified Person or any of its Regulated Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. 101 In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Regulated Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated on a pro forma basis in accordance with Regulation S-X under the Securities Act, but without giving effect to clause (3) of the proviso set forth in the definition of Consolidated Utility Income; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Regulated Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles in use at the Initial Issuance Date or, at the option of the Company, other generally accepted accounting principles which are in use at the time of their determination; in determining generally accepted accounting principles, the Company may, but shall not be required to, conform to any accounting order, rule or regulation of any regulatory authority having jurisdiction over the electric generating, transmission or distribution operations of the Company. "Governmental Obligations" means direct obligations of or obligations unconditionally guaranteed by the federal government or any political subdivision of the United States of America, any agency, department or any other administrative authority or instrumentality thereof, including, without limitation, any local or other governmental agency or other authority within the United States of America. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates; and (3) agreements in connection with commodities swaps or options. "Holding Company" means the corporation formed in a Holding Company Transaction which, immediately following such transaction, holds all of the Company's outstanding capital stock other than preferred stock. "Holding Company Transaction" means any transaction or series of transactions the result of which is that a holding company acquires all of the outstanding common stock of the Company, substantially as contemplated by the Company's holding company filing with the PSB as of the Initial Issue Date, provided, in no event shall a "Holding Company Transaction" include any transaction in which any portion of the business conducted by the Company or a Regulated Subsidiary, or any of the Capital Stock of a Regulated Subsidiary, is transferred to a Person other than the Company or a Regulated Subsidiary. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent, in respect of: 102 (1) borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) banker's acceptances; (4) Capital Lease Obligations; (5) the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Independent" means, when used with respect to any specified Person, a Person selected by the Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer or a Vice President of the Company and approved by the Trustee, who (i) is in fact independent, (ii) does not have any material direct financial interest or any material indirect financial interest in the Company or in any other obligor on the New Bonds or in any Affiliate of the Company or any such other obligor and (iii) is not connected with the Company or such other obligor as an Affiliate or an officer, employee, promoter, underwriter, trustee, or partner, director or Person performing similar functions. "Initial Issuance Date" means July 30, 1999. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Regulated Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Regulated Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Regulated Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Regulated Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "--Certain Covenants--Restricted Payments." The acquisition by the Company or any Regulated Subsidiary of the Company of a Person that holds an Investment in a third Person shall be deemed to be an Investment by the Company or such Regulated Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption "--Certain Covenants--Restricted Payments." "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, 103 including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in, except in connection with any Securitization Transaction, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Make Whole Premium" with respect to any New Bond shall mean with respect to any prepayment of such New Bond in circumstances requiring the payment of a Make Whole Premium, an amount equal to the excess of (a) the aggregate present value as of the date of such prepayment of the expected future cash flows of such New Bond (for the avoidance of doubt, such amounts shall include all principal and interest payable with respect to such New Bond) (exclusive of interest accrued to the date of prepayment) that, but for such prepayment, would have been payable if such prepayment had not been made, all determined by discounting such amounts at a rate which is equal to the Treasury Rate three days prior to prepayment plus 50 basis points over (b) the aggregate principal amount of the New Bond then to be prepaid. "Moody's" means Moody's Investor Service, Inc., or any successor to its securities ratings business. "Mortgaged Property" means all of the Company's property subject to the Lien of the Second Mortgage. "Mortgaged Property Asset Sale" means the sale, lease (other than an operating lease), conveyance or other disposition (each, a "Disposition") of any Mortgaged Property, including, without limitation, by means of an amalgamation, merger, consolidation or similar transaction (provided that Disposition of all or substantially all of the assets of the Company and its Regulated Subsidiaries taken as a whole will be governed by the provisions of the Second Mortgage described above under the caption "--Change of Control" or the provisions described above under the caption "--Merger, Consolidation or Sale of Assets" and not by the provisions of the covenant entitled "Mortgaged Property Asset Sales and Events of Loss"), or a series of related Dispositions by the Company or any of its Regulated Subsidiaries involving the Mortgaged Property, other than (1) the sale for fair market value of machinery, equipment, furniture, apparatus, tools or implements or other property that may be defective or may have become worn out or obsolete or no longer useful in the reasonable judgment of the Company in the operations of the Company; (2) the sale or exchange of property at the Company's operating facilities with an aggregate value not to exceed $2.0 million at any one time provided such property has been replaced by property of equal or greater value within 180 days of such sale or exchange. A Mortgaged Property Asset Sale shall not include the requisition of title to or the seizure, condemnation, forfeiture or casualty of any Mortgaged Property; or (3) the voluntary transfer, waiver or modification of the right to sell power to our customers within our franchise area (but not our rights as a distribution company) in contemplation of or as part of the restructuring of the Company. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Regulated Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Regulated Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Regulated Subsidiaries in respect of any Asset Sale or Mortgaged Property Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale or Mortgaged Property Asset Sale), net of the direct costs relating to such Asset Sale or Mortgaged Property Asset Sale, including, 104 without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than the First Mortgage Bonds and Second Mortgage Bonds, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Net Termination Value" shall mean the difference between (a) the aggregate amounts (if any) that would be required to be paid by the Company or any Regulated Subsidiary if such Hedging Obligation were terminated by reason of default relating to the Company or a Regulated Subsidiary, and (b) the aggregate amounts (if any) that the Company or any Regulated Subsidiary would be entitled to receive if such Hedging Obligations were terminated by reason of a default relating to the Company or any Regulated Subsidiary. The Net Termination Value shall be determined (a) as of the end of the most recent fiscal quarter ended or (b) as of the date such Hedging Obligation is entered into if it is entered into after the end of such fiscal quarter. "Non-Recourse Debt" means Indebtedness (1) as to which neither the Company nor any of its Regulated Subsidiaries (other than the special purpose entity incurring such Indebtedness, in the case of Indebtedness incurred in the ordinary course of business) (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unregulated Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Old Bonds and the New Bonds) of the Company or any of its Regulated Subsidiaries (other than the special purpose entity incurring such Indebtedness, in the case of Indebtedness incurred in the ordinary course of business), to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity; and (3) with respect to any such Indebtedness incurred after the Initial Issuance Date, the lenders have been notified of the non-recourse nature of the Indebtedness. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Operating Cash Flow" means, with respect to any Person for any period, the net cash provided by operating activities of such Person and its Regulated Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP. "Permissable Encumbrances" shall have the meaning set forth in the Second Mortgage Indenture. "Permitted Investments" means (1) an Investment by the Company or a Regulated Subsidiary in the Company or in a Regulated Subsidiary of the Company; (2) an Investment in Cash Equivalents; (3) an Investment by the Company or any Regulated Subsidiary in a Person, if as a result of such Investment (a) such Person becomes a direct or indirect Regulated Subsidiary of the Company or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Regulated Subsidiary of the Company; 105 (4) an Investment received in connection with the bankruptcy or reorganization of customers and suppliers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; and (5) the acquisition by the Company, a Regulated Subsidiary or a special purpose entity in connection with a Securitization Transaction of Equity Interests of a trust or other Person established by the Company, a Regulated Subsidiary or such special purpose entity to effect such Securitization Transaction; and any other Investment by the Company or a Subsidiary of the Company in a special purpose entity or any Investment by a special purpose entity in any other Person in connection with a Securitization Transaction provided, that such other Investment is in the form of a note or other instrument that the special purpose entity or other Person is required to repay as soon as practicable from available cash collections less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of the Company entered into as part of a Securitization Transaction. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Regulated Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Regulated Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest thereon and the amount of all expenses and premiums incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the New Bonds, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the New Bonds on terms at least as favorable to the Holders of New Bonds as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by the Company or by the Regulated Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Power Contract Buyout" means the termination, restatement or amendment of power purchase agreements of the Company or any Regulated Subsidiary pursuant to the terms of any settlement agreement approved by the PSB. "Preferred Stock" means any Capital Stock of the Company which by its terms has preference to common stock in right of dividends or other distributions or upon liquidation or dissolution. "Prior Lien" means any Lien on any Mortgaged Property existing both at and immediately prior to the time of the acquisition by the Company of such Mortgaged Property, or created as a purchase money mortgage on such Mortgaged Property at the time of its acquisition by the Company, in each case ranking prior to or on a parity with the Lien of the Second Mortgage. "Prior Lien Bonds" means the First Mortgage Bonds and any other bonds, notes or other Indebtedness (including the evidence thereof) secured by a Prior Lien. "PSB" means the Vermont Public Service Board. 106 "Regulated Subsidiary" means Connecticut Valley and East Barnet and any other Subsidiary of the Company that is not an Unregulated Subsidiary. "Restricted Investment" means an Investment other than a Permitted Investment. "Sale and Leaseback Transaction" means any form of lease arrangement in which the Company or a Regulated Subsidiary sells an asset to another Person in exchange for cash and then contracts to lease the asset for a specified term. "S&P" means Standard & Poor's Ratings Group or any successor to its securities ratings business. "Second Mortgage Bonds" means bonds of any series authenticated and delivered from time to time under the Second Mortgage. "Securitization Transaction" means a transaction in which the Company or any Regulated Subsidiary, pursuant to authorization of the PSB, if required by applicable law, or other appropriate governmental authorizations, transfers rights or other property to a Person formed as a special purpose entity in conjunction with a financing involving such Person of accounts receivable of such person or based on the Company's or such Regulated Subsidiary's right to collect a non-bypassable transition or similar charge or other transferred right or property; provided that all Indebtedness incurred in connection with any such transaction shall constitute Non-Recourse Indebtedness. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal (including mandatory sinking fund payments) was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Treasury Rate" shall mean at any time with respect to the New Bonds being prepaid (a) the yield reported on page C4 of the Bloomberg Financial Markets Service (or, if not available, any other nationally recognized trading screen reporting on-line intraday trading in United States government securities) at 11:00 a.m. (New York, New York time) for those actively traded United States government securities having a maturity (rounded to the nearest month) corresponding to the remaining Weighted Average Life to Maturity of the New Bonds being prepaid or (b) in the event that no nationally recognized trading screen reporting on-line intraday trading in United States government securities is available, Treasury Rate shall mean the weekly average of the yield to maturity on the United States Treasury obligations with a constant maturity (as compiled by and published in the most recently published issue of the United States Federal Reserve Statistical Release designated H.15(519) or its successor publication) most nearly equal to (by rounding to the nearest month) the Weighted Average Life to Maturity of the New Bonds then being prepaid. If no maturity exactly corresponding to such Weighted Average Life to maturity of such New Bonds shall appear therein, the weekly average yield for the two most closely corresponding published 107 maturities shall be calculated pursuant to the foregoing sentence and the Treasury Rate shall be interpolated or extrapolated, as the case may be, from such yields on a straight-line basis (rounding, in the case of relevant periods, to the nearest month). "Unbonded" as applied to Old Bonds, New Bonds, Prior Lien Bonds or Bondable Property means that such Old Bonds, New Bonds, Prior Lien Bonds or Bondable Property are not Bonded. "Unregulated Subsidiary" means (a) CV Realty, Catamount Resources, Catamount Energy, Smart Energy and VELCO and (b) any of their respective Subsidiaries and (c) any other Subsidiary of the Company that is designated by the Board of Directors as an Unregulated Subsidiary pursuant to a Board Resolution, but, in each case, only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Regulated Subsidiary of the Company (other than transactions permitted by clause (2) of the covenant entitled "Transactions with Affiliates") unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Regulated Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Regulated Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Regulated Subsidiaries; and (5) is not subject to federal or state regulation as a public utility company. Any designation of a Subsidiary of the Company as an Unregulated Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "--Certain Covenants--Restricted Payments." If, at any time, any Unregulated Subsidiary would fail to meet the preceding requirements as an Unregulated Subsidiary, it shall thereafter cease to be an Unregulated Subsidiary for purposes of the Second Mortgage and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Regulated Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness," the Company shall be in default of such covenant. The Board of Directors of the Company may at any time designate any Unregulated Subsidiary to be a Regulated Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Regulated Subsidiary of the Company of any outstanding Indebtedness of such Unregulated Subsidiary and such designation shall be permitted only if (1) such Indebtedness is permitted under the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. "Vermont Yankee" means Vermont Yankee Nuclear Power Corporation, a Vermont corporation, or the Company's interest therein, as the context may require. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: 108 (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. "Wholly-Owned Regulated Subsidiary" of any specified Person means a Regulated Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Regulated Subsidiaries of such Person. 109 CERTAIN FEDERAL TAX CONSIDERATIONS The following is a summary of the material United States federal income tax consequences resulting from the exchange offer and from the ownership of the New Bonds. It deals only with New Bonds held as capital assets and not with special classes of bondholders, such as dealers in securities or currencies, life insurance companies, tax exempt entities, and persons that hold a New Bond in connection with an arrangement that completely or partially hedges the New Bond. The discussion is based upon the Internal Revenue Code of 1986, as amended, and regulations, rulings and judicial decisions thereunder as of the date hereof. Such authorities may be repealed, revoked or modified so as to produce federal income tax consequences different from those discussed below. BONDHOLDERS TENDERING THEIR OLD BONDS OR PROSPECTIVE PURCHASERS OF NEW BONDS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX AND ANY STATE OR LOCAL INCOME OR FRANCHISE TAX CONSEQUENCES IN THEIR PARTICULAR SITUATIONS AND ANY CONSEQUENCES UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION. The exchange of New Bonds for the Old Bonds pursuant to the exchange offer will not be treated as an "exchange" for United States federal income tax purposes because the New Bonds will not be considered to differ materially in kind or extent from the Old Bonds. Rather, the New Bonds received by a bondholder will be treated as a continuation of the Old Bonds in the hands of such bondholder. As a result, there will be no United States federal income tax consequences to bondholders exchanging the Old Bonds for the New Bonds pursuant to the exchange offer. The bondholder must continue to include stated interest in income as if the exchange had not occurred. The adjusted basis and holding period of the New Bonds for any bondholder will be the same as the adjusted basis and holding period of the Old Bonds. Similarly, there would be no United States federal income tax consequences to a holder of Old Bonds that does not participate in the exchange offer. United States Holders For purposes of this discussion, a "United States Holder" means: (1) a citizen or resident of the United States; (2) a partnership, corporation or other entity created or organized in or under the law of the United States or of any State of the United States; (3) an estate the income of which is subject to United States federal income tax regardless of its source; (4) a trust, if either: (a) a court within the United States is able to exercise primary supervision over the administration of the trust, and one or more United States persons have the authority to control all substantial decisions of the trust; or (b) the trust was in existence on August 20, 1996 and elected to be treated as a United States person at all times thereafter; (5) any other person that is subject to United States federal income tax on interest income derived from a Bond as a result of such income being effectively connected with the conduct by such person of a trade or business within the United States; or (6) certain former citizens of the United States whose income and gain on the New Bonds will be subject to U.S. income tax. 110 Payments of Interest Interest on a New Bond will be taxable to a United States Holder as ordinary interest income at the time it is received or accrued, depending on the bondholder's method of accounting for tax purposes. Backup Withholding and Information Reporting In general, information reporting requirements will apply with respect to non-corporate United States Holders to payments of principal and interest on a New Bond and the proceeds of the sale of a New Bond before Maturity. A 31% "backup withholding" tax will apply to such payments if the United States Holder fails to provide an accurate taxpayer identification number or to report all interest and dividends required to be shown on its federal income tax returns. United States Alien Holders As used herein, a "United States Alien" is a person or entity that, for United States federal income tax purposes, is not a United States Holder. Payments to United States Aliens Under current United States federal income and estate tax law: (1) payments of principal and interest on a New Bond by us or any paying agent to a bondholder that is a United States Alien will not be subject to withholding of United States federal income tax, provided that the bondholder: (a) does not actually or constructively own 10% or more of the combined voting power of our stock; (b) is not a controlled foreign corporation related to us through stock ownership; and (c) provides a statement, under penalties of perjury (such as Form W-8BEN), to the Company that the holder is a United States Alien and provides its name and address; (2) a bondholder that is a United States Alien will not be subject to United States federal income tax on gain realized on the sale, exchange or redemption of such Bond, unless: (a) the gain is effectively connected with the conduct of a trade or business within the United States by the United States Alien; or (b) in the case of a United States Alien who is a nonresident alien individual and holds the New Bond as a capital asset, such holder is present in the United States for 183 or more days in the taxable year and certain other requirements are met; and (3) a New Bond will not be subject to United States federal estate tax as a result of the death of a bondholder who is not a citizen or resident of the United States at the time of death, provided that: (a) such bondholder did not at the time of death actually or constructively own 10% or more of the combined voting power of all classes of our stock; and, (b) at the time of such bondholder's death, payments of interest on such Bond would not have been effectively connected with the conduct by such bondholder of a trade or business in the United States. United States information reporting requirements and backup withholding tax will not apply to payments on a New Bond made outside the United States by us or any paying agent (acting in its capacity as such) to a 111 bondholder that is a United States Alien provided that a statement described in (1)(c) above has been received and neither we nor our paying agent has actual knowledge that the payee is not a United States Alien. Information reporting requirements and backup withholding tax will not apply to any payment of the proceeds of the sale of a New Bond effected outside the United States by a foreign office of a "broker" (as defined in applicable Treasury regulations), provided that such broker: (1) is a United States Alien; (2) derives less than 50% of its gross income for certain periods from the conduct of a trade or business in the United States; and (3) is not a controlled foreign corporation as to the United States (a person described in (1), (2) and (3) above being hereinafter referred to as a "foreign controlled person"). Payment of the proceeds of the sale of a New Bond effected outside the United States by a foreign office of any broker that is not a foreign controlled person will not be subject to backup withholding tax, but will be subject to information reporting requirements unless such broker has documentary evidence in its records that the beneficial owner is a United States Alien and certain other conditions are met, or the beneficial owner otherwise establishes an exemption. New regulations governing backup withholding and information reporting are generally scheduled to become effective for payments made after December 31, 2000. Rules under these regulations will have essentially the same substantive effect, but will unify current certification procedures and forms. 112 PLAN OF DISTRIBUTION This prospectus, as it may be amended or supplemented from time to time, may be used by a Broker-Dealer in connection with the resale of the New Bonds received in exchange for the Old Bonds where such Old Bonds were acquired for its own account as a result of market-making activities or other trading activities (other than where acquired directly from the Company or any "Affiliate," as defined in Rule 144 of the Securities Act). Each such Broker-Dealer that participates in the exchange offer that receives the New Bonds for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Bonds. We have agreed that for a period of 180 days after the exchange offer is consummated or until the Old Bonds are resold, whichever comes first, we will use our best efforts to make this prospectus, as amended or supplemented, available to any such Broker-Dealer for use in connection with any such resale. We will not receive any proceeds from any sale of New Bonds by Participating Broker-Dealers. New Bonds received by Broker-Dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Bonds or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Broker-Dealer and/or the purchasers of any such New Bonds. Any Broker-Dealer that resells New Bonds that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such New Bonds may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Bonds and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of one year after the expiration date of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any Broker-Dealer that requests such documents in the letter of transmittal. This prospectus has been prepared for use in connection with the exchange offer and may be used by the initial purchasers in connection with the offers and sales related to market-making transactions in the New Bonds. The initial purchasers may act as principals or agents in such transactions. Such sales will be made at prices related to prevailing market prices at the time of sale. We will not receive any of the proceeds of such sales. The initial purchasers have no obligation to make a market in the New Bonds and may discontinue their market-making activities at any time without notice, at their sole discretion. LEGAL MATTERS Opinions as to the validity of the New Bonds will be rendered for us by Joseph M. Kraus, Esq., our Senior Vice President and General Counsel, and by Milbank, Tweed, Hadley & McCloy LLP, our special counsel. Mr. Kraus is one of our full-time officers and owns 1,379 shares of our common stock directly and as a participant in various employee benefit plans. Milbank, Tweed, Hadley & McCloy LLP represents the Initial Purchasers or their affiliates from time to time in matters unrelated to the exchange offer. INDEPENDENT PUBLIC ACCOUNTANTS The consolidated financial statements and schedule, incorporated by reference in this prospectus and elsewhere in the registration statement, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in giving said reports. 113 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS Item 20. Indemnification of Directors and Officers Sections 8.50 through 8.56 of the Vermont Business Corporation Act, inter alia, generally empower a Vermont corporation to 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 by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Similar indemnity is authorized for such person against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of any such threatened, pending or completed action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and provided further that (unless a court of competent jurisdiction otherwise provides) such person shall not have been adjudged liable to the corporation. Any such indemnification may be made only as authorized in each specific case upon a determination by the shareholders or disinterested directors or by independent legal counsel in a written opinion that indemnification is proper because the indemnitee has met the applicable standard of conduct. Section 8.57 of the Vermont Business Corporation Act further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against such person, and incurred by such person in any such capacity, or arising out of that person's status as such, whether or not the corporation would otherwise have the power to indemnify that person under Section 8.50 through 8.56. The Registrant's By-laws provide that, to the extent legally permissible, the Registrant may indemnify any of its Directors, officers and employees who, as a result of such position, was or is a party or is threatened to be made a party to any contemplated, pending or completed action, suitor proceeding, whether civil, criminal, administrative or investigative and whether formal or informal against expenses, actually or reasonable incurred by him or her in connection with such action, suit or proceeding. Item 21. Exhibits and Financial Schedule Tables (a) Exhibits: A list of exhibits included as part of this registration statement is set forth in the Exhibit Index that immediately precedes such exhibits and is incorporated herein by reference. (b) Financial Statement Schedules: All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are not required, are inapplicable or the required information has already been provided elsewhere in the registration statement. (c) Certain Reports, Opinions or Appraisals: No such Reports, Opinions or Appraisals are applicable to this registration statement. II-1 Item 22. Undertakings (a) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d)of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes to file an application for the purpose of determining the eligibility of the Trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of such Act. (b) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within business one day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned Registrant hereby undertakes to supply by means of a post effective amendment all information concerning a transaction, and the company being acquired involved herein, that was not subject of and included in the registration statement when it became effective. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rutland, State of Vermont, September 30, 1999. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By: /s/ Francis J. Boyle - ------------------------------------------------------------ Francis J. Boyle Senior Vice President, Chief Financial Officer and Treasurer POWER OF ATTORNEY Each person whose signature appears below hereby authorizes and appoints Francis J. Boyle, Joseph M. Kraus and Kenneth C. Picton or any one of them, as his or her attorney-in-fact, with full power of substitution and resubstitution to sign and file on his or her behalf individually and in each such capacity stated below any and all amendments and post-effective amendments to this Registration Statement and any registration statement of the company relating to New Bonds filed after the date hereof pursuant to Rule 462(b) under the Securities Act of 1933, as amended, as fully as such person could do in person, hereby verifying and confirming all that said attorney-in-fact, or any one of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ----------------------------- ------------------------------------ ------------------ /s/ Robert H. Young President, Chief Executive Officer September 30, 1999 - ----------------------------- and Director (Principal Executive Robert H. Young Officer) /s/ Francis J. Boyle Senior Vice President, Chief September 30, 1999 - ----------------------------- Financial Officer and Treasurer Francis J. Boyle (Principal Financial Officer) /s/ James M. Pennington Vice President and Controller September 30, 1999 - ----------------------------- (Controller and Principal Accounting James M. Pennington Officer) /s/ Robert L. Barnett Director September 30, 1999 - ----------------------------- Robert L. Barnett /s/ Frederic H. Bertrand Director and Chairman of the Board September 30, 1999 - ----------------------------- Frederic H. Bertrand /s/ Rhonda L. Brooks Director September 30, 1999 - ----------------------------- Rhonda L. Brooks /s/ Robert G. Clarke Director September 30, 1999 - ----------------------------- Robert G. Clarke /s/ Luthor F. Hackett Director September 30, 1999 - ----------------------------- Luthor F. Hackett Director September 30, 1999 - ----------------------------- Patrick J. Martin /s/ Mary Alice McKenzie Director September 30, 1999 - ----------------------------- Mary Alice McKenzie /s/ Janice L. Scites Director September 30, 1999 - ----------------------------- Janice L. Scites
INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- -------------------------------------------------------------------- 4.1 Second Mortgage Indenture between the Registrant and The Bank of New York, as Trustee, dated as of July 15, 1999. 4.2 Form of Second Supplemental Indenture between the Registrant and The Bank of New York, as Trustee. 4.3 Form of Exchange Bond of the Registrant (included in Exhibit 4.2). 4.4 Registration Rights Agreement among the Registrant, Donaldson, Lufkin & Jenrette Securities Corporation and TD Securities (USA) Inc., dated as of July 30, 1999. 5 Legality Opinion of Milbank, Tweed, Hadley & McCloy LLP. 12 Statement Regarding Computation of Ratios of Earnings to Fixed Charges. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of Milbank, Tweed, Hadley & McCloy LLP (included in Exhibit 5) 24 Power of Attorney. (included on signature page) 25 Form T-1 Statement of Eligibility and Qualification, under the Trust Indenture Act of 1939, of The Bank of New York, as Trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. - ----------------- EX-4.1 2 SECOND MORTGAGE INDENTURE EXHIBIT 4.1 CENTRAL VERMONT PUBLIC SERVICE CORPORATION TO THE BANK OF NEW YORK, Trustee SECOND MORTGAGE INDENTURE Dated as of July 15, 1999 This Instrument Grants A Security Interest By A Utility This Instrument Contains After-Acquired Property Provisions
CROSS REFERENCE SHEET TO TRUST INDENTURE ACT OF 1939 Section of Act Section of Indenture -------------- -------------------- 310(a).......................................................... 7.04,14.01,14.14, 14.15,14.18 310(b).......................................................... 14.12 311(a) and (b).................................................. 14.11 312(a), (b) and (c)............................................. 17.01 313(a), (b), (c) and (d)........................................ 17.03 314(a).......................................................... 17.02 314(b).......................................................... 7.05 314(c)(1) and (2)............................................... 21.01(b) 314(c)(3)....................................................... Not applicable 314(d)(1)....................................................... 1.03, 10.03(b), 10.04(b), 10.05(a)(ii), 10.06(a)(iii) 314(d)(2)....................................................... 1.03, 10.05(a)(ii), 10.06(a)(iii) 314(d)(3)....................................................... 3.04(c), 3.04(d) 10.03(c), 10.05(a)(ii) and (iii) 314(e).......................................................... 21.01 (a) 315(a).......................................................... 14.01(c),14.02(a),14.07(a) 315(b).......................................................... 12.01(b) 315(c).......................................................... 14.01(b) 315(d).......................................................... 14.02 315(e).......................................................... 12.14(c) 316(a)(1)....................................................... 12.04,12.21 316(a)(2)....................................................... Omitted 316(a) last sentence............................................ 20.03 316(b).......................................................... 12.20 317(a).......................................................... 12.16(a),12.19 317(b).......................................................... 7.06(a) 318(a).......................................................... 21.04
TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS...................................................................5 Section 1.01. Trust Indenture Act....................................................5 Section 1.02. Construction of Accounting Terms.......................................6 Section 1.03. Definitions............................................................6 "Accountant".................................................................6 "Accountant's Certificate"...................................................6 "Accredited Investor Bonds"..................................................6 "Agent Members"..............................................................6 "Affiliate"..................................................................6 "Appraiser"..................................................................6 "Appraiser's Certificate"....................................................6 "Authorized Newspaper".......................................................6 "Authorized Officer".........................................................6 "Board" or "Board of Directors"..............................................6 "Bond Register"..............................................................7 "Bond Registrar".............................................................7 "Bondable Property"..........................................................7 "Bonded" or "Bonding"........................................................9 "Bonds"......................................................................9 "Business Day"..............................................................10 "Company"...................................................................10 "Corporate Trust Office"....................................................10 "Cost"......................................................................10 "Default"...................................................................10 "Depositary"................................................................10 "Described Property"........................................................10 "Engineer"..................................................................10 "Engineer's Certificate"....................................................11 "Event of Default"..........................................................11 "Excepted Property".........................................................11 "Exchange Act"..............................................................12 "Fair Value"................................................................12 "First Mortgage"............................................................12 "First Mortgage Bonds"......................................................13 "Generally Accepted Accounting Principles"..................................13 "Global Bonds"..............................................................13 "Governmental Obligations"..................................................13 "Holder"....................................................................13 "Indenture".................................................................13 "Independent"...............................................................13 "Investment Securities".....................................................13
"Legend".......................................................................................14 "Lien of this Indenture".......................................................................14 "Liquidated Damages"...........................................................................14 "Make Whole Premium"...........................................................................14 "Mortgaged Property"...........................................................................14 "Officer's Certificate"........................................................................14 "Officers' Certificate"........................................................................14 "Operating Bank"...............................................................................14 "Opinion of Counsel"...........................................................................14 "Outstanding"..................................................................................14 "Permissible Encumbrances".....................................................................15 "Person".......................................................................................17 "Pollution Control Facilities".................................................................17 "Primary Purposes of the Company's Business"...................................................17 "Prior Lien"...................................................................................17 "Prior Lien Bonds".............................................................................17 "Registered Bond"..............................................................................17 "Registered Holder"............................................................................17 "Responsible Officer"..........................................................................17 "Retired"......................................................................................18 "Rule 144A Global Bond"........................................................................18 "Securities Account"...........................................................................18 "Securities Intermediary"......................................................................18 "Supplemental Indenture".......................................................................18 "TIA"..........................................................................................18 "Trustee"......................................................................................18 "UCC"..........................................................................................18 "Unbonded".....................................................................................18 ARTICLE II FORMS, EXECUTION, REGISTRATIONS AND EXCHANGE OF BONDS................................................18 Section 2.01. Series and Form of Bonds.................................................................18 Section 2.02. Kinds and Denominations of Bonds.........................................................19 Section 2.03. Dates of and Interest on Bonds...........................................................19 Section 2.04. Printing, Execution and Authentication of Bonds..........................................19 Section 2.05. Global Bonds.............................................................................23 Section 2.06. Registration, Registration of Transfer and Exchange......................................24 Section 2.07. Temporary Bonds..........................................................................27 Section 2.08. Replacement of Stolen, Lost, Destroyed or Mutilated Bonds................................27 Section 2.09. Trustee's Certificate on Bonds...........................................................27 Section 2.10. CUSIP Numbers............................................................................27 Section 2.11. Cancellations............................................................................28 ARTICLE III ISSUANCE OF BONDS BASED ON BONDABLE PROPERTY........................................................28 Section 3.01. Bonds Issuable on Basis of Bondable Property.............................................28 Section 3.02. No Bonds Issuable on Basis of Bonded Bondable Property...................................28 Section 3.03. Bonds Issuable to Specified Percentage of Bondable Property..............................28
ii Section 3.04. Requirements for Issuance................................................................28 Section 3.05. Determination of Cost or Fair Value......................................................31 ARTICLE IV ISSUANCE OF BONDS BASED ON RETIRED BONDS PREVIOUSLY OUTSTANDING......................................31 Section 4.01. Requirements for Issuance................................................................31 Section 4.02. No Bonds Issuable on Basis of Bonded Bonds...............................................32 ARTICLE V ISSUANCE OF BONDS BASED ON DEPOSIT OF CASH WITH TRUSTEE...............................................32 Section 5.01. Requirements for Issuance................................................................32 Section 5.02. Application of Cash Deposited Under Section 5.01.........................................32 ARTICLE VI ISSUANCE OF BONDS BASED ON PRIOR LIEN BONDS..........................................................33 Section 6.01. Requirements for Issuance................................................................33 Section 6.02. No Bonds Issuable on Basis of Bonded Prior Lien Bonds....................................33 ARTICLE VII COVENANTS OF THE COMPANY............................................................................33 Section 7.01. Payment of Principal and Interest........................................................33 Section 7.02. Possession, Maintenance of Lien and Right to Mortgage....................................34 Section 7.03. Corporate Existence......................................................................34 Section 7.04. Appointment of Trustee...................................................................34 Section 7.05. Recordation of Indenture.................................................................34 Section 7.06. Paying Agents............................................................................35 Section 7.07. Payment of Taxes.........................................................................35 Section 7.08. Instruments of Further Assurance.........................................................35 Section 7.09. Books of Record and Account..............................................................36 Section 7.10. Maintenance of Mortgaged Property........................................................36 Section 7.11. Insurance................................................................................36 Section 7.12. Payments by Trustee......................................................................38 ARTICLE VIII PRIOR LIEN BONDS DEPOSITED WITH TRUSTEE............................................................38 Section 8.01. Requirements Upon Deposit of Prior Lien Bonds............................................38 Section 8.02. Principal of and Interest on Prior Lien Bonds............................................38 Section 8.03. Surrender of Prior Lien Bonds............................................................38 Section 8.04. Extension of Maturity of Prior Lien Bonds................................................39 Section 8.05. Trustee's Rights Upon an Event of Default................................................39 ARTICLE IX REDEMPTION OF BONDS..................................................................................39 Section 9.01. Certain Bonds Redeemable.................................................................39 Section 9.02. General Provisions and Mechanics of Redemption...........................................39 Section 9.03. Bonds Due on Redemption Date.............................................................40 Section 9.04. Moneys for Redemption Held in Trust......................................................40 Section 9.05. Partial Redemption of Registered Bond....................................................41
iii ARTICLE X POSSESSION, USE AND RELEASE OF MORTGAGED PROPERTY.....................................................41 Section 10.01. Company's Possession and Use............................................................41 Section 10.02. Actions Without Consent of Trustee......................................................41 Section 10.03. Release of Mortgaged Property if Fair Value Test Satisfied..............................42 Section 10.04. Release of Limited Amount of Mortgaged Property.........................................43 Section 10.05. Release of Mortgaged Property Not Subject to a Prior Lien...............................44 Section 10.06. Release of Mortgaged Property Subject to a Prior Lien...................................45 Section 10.07. Eminent Domain..........................................................................47 Section 10.08. Release of Governmental Obligations and Purchase Money Obligations......................48 Section 10.09. Substituted Property....................................................................48 Section 10.10. Receiver, Trustee, etc..................................................................48 Section 10.11. Suspension of Rights in Case of an Event of Default.....................................48 Section 10.12. Purchaser in Good Faith.................................................................49 ARTICLE XI APPLICATION OF FUNDS HELD BY TRUSTEE.................................................................49 Section 11.01. Withdrawal, Application or Use of Cash Held by Trustee..................................49 Section 11.02. Moneys to be Held in Trust; Investment Thereof..........................................51 ARTICLE XII DEFAULT AND REMEDIES................................................................................53 Section 12.01. Events of Default.......................................................................53 Section 12.02. Upon an Event of Default Trustee May Sell Mortgaged Property............................55 Section 12.03. Upon an Event of Default and Request of Holders of a Majority of Bonds, Trustee Must Declare Principal Due............................................................55 Section 12.04. Duty of Trustee to Act on Request of Holders of a Majority of Bonds.....................56 Section 12.05. Mortgaged Property May be Sold as an Entirety or in Parcels.............................56 Section 12.06. Notice of Sale..........................................................................56 Section 12.07. Adjournment of Sale.....................................................................57 Section 12.08. Interest of Purchaser and Company.......................................................57 Section 12.09. Trustee's Receipt Sufficient to Discharge Purchaser.....................................57 Section 12.10. Principal of Bonds to Become Due in Case of Sale........................................57 Section 12.11. Application of Sale Proceeds............................................................57 Section 12.12. Bonds May Be Applied Against Purchase Price.............................................58 Section 12.13. Company Not to Insist Upon or Plead Stay or Extension Law or Exercise Right of Redemption............................................................................58 Section 12.14. Holders Not to Institute Suit Without Request to Trustee, Trustee May Enforce Rights Without Possession of Bonds; Undertaking for Costs.............................59 Section 12.15. Remedies Cumulative.....................................................................60 Section 12.16. Covenant to Pay Trustee; Judgment by Trustee; Application of Moneys.....................60 Section 12.17. Appointment of Receiver.................................................................61 Section 12.18. Suits by Trustee to Protect Security....................................................61 Section 12.19. Trustee May File Proofs of Claims.......................................................61 Section 12.20. Holders' Rights at Maturity May Not be Impaired.........................................61 Section 12.21. Waiver of Past Events of Default by Holders.............................................61 Section 12.22. Undertaking for Costs...................................................................62
iv ARTICLE XIII EFFECT OF MERGER, CONSOLIDATION, CONVEYANCE AND LEASE..............................................62 Section 13.01. Company may Merge or Consolidate if no Impairment of Lien of this Indenture and with Assumption of Obligation by Successor............................................62 Section 13.02. Upon Merger or Consolidation Indenture not to Constitute Lien Upon Certain Properties; Successor Corporation to Confirm Prior Lien of this Indenture and Keep Mortgaged Property Identifiable..................................................62 Section 13.03. Rights of Successor Corporation.........................................................63 Section 13.04. Liens on Merged Entities................................................................64 ARTICLE XIV THE TRUSTEE.........................................................................................65 Section 14.01. Eligibility of Trustee and Acceptance of Trust..........................................65 Section 14.02. Extent of Trustee's Liability...........................................................65 Section 14.03. Recitals Deemed Made By Company.........................................................67 Section 14.04. Trustee Not Liable for Debts From Operation of Mortgaged Property; Trustee May Own Bonds.................................................................................67 Section 14.05. Trustee May Give Notices Incidental to Action by it.....................................67 Section 14.06. Notice by Trustee to Company............................................................67 Section 14.07. Trustee May Rely on Certificates and May Consult Counsel; Responsibility in Selection of Experts..................................................................68 Section 14.08. Moneys Deposited with Trustee to be Held in Trust; Interest on Such Moneys..............68 Section 14.09. Compensation of Trustee; Lien Therefor..................................................69 Section 14.10. Trustee May Rely on Matters Established by Officers' Certificate........................70 Section 14.11. Action to be Taken by Trustee who Becomes Creditor of Company...........................70 Section 14.12. Action to be Taken by Trustee in the Event of a Conflict of Interest....................70 Section 14.13. Resignation or Removal of Trustee.......................................................70 Section 14.14. Appointment of Successor Trustee........................................................71 Section 14.15. Appointment of Separate Trustee or Co-Trustee...........................................71 Section 14.16. Acceptance by Successor Trustee; Requirements of Predecessor Trustee Upon Retiring......73 Section 14.17. Merger or Consolidation of Trustee......................................................73 Section 14.18. Appointment of Successor Trustee by Company.............................................74 Section 14.19. Authenticating Agent....................................................................74 ARTICLE XV SUPPLEMENTAL INDENTURES..............................................................................75 Section 15.01. Provision for Supplemental Indentures...................................................75 Section 15.02. Requirements for Other Supplemental Indentures..........................................77 Section 15.03. Execution of Supplemental Indentures....................................................78 ARTICLE XVI MEETINGS OF BONDHOLDERS.............................................................................78 Section 16.01. Manner of Calling Meetings and Determination of Bonds Affected..........................78 Section 16.02. Calling of Meetings by Company or Holders...............................................79 Section 16.03. Persons Entitled to Vote at Meeting.....................................................79 Section 16.04. Conduct of Meetings; Regulations........................................................79 Section 16.05. Manner of Voting........................................................................80
v Section 16.06. Rights of Trustee or Holders Not to Be Hindered or Delayed..............................81 Section 16.07. Action By Written Consent...............................................................81 ARTICLE XVII BONDHOLDER LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE.......................................81 Section 17.01. Company to Furnish Holder Lists.........................................................81 Section 17.02. Company to Make Filings With Trustee and Otherwise Comply with TIA Section 314..........81 Section 17.03. Trustee to Furnish Reports to Holders and Otherwise Comply With TIA Section 313.........81 ARTICLE XVIII SATISFACTION AND DEFEASANCE.......................................................................82 Section 18.01. Effect of Payment of Indebtedness; Deposit of Moneys or Governmental Obligations in Certain Instances Deemed Payment......................................................82 Section 18.02. Unclaimed Moneys........................................................................82 ARTICLE XIX IMMUNITY OF INCORPORATORS, SUBSCRIBERS TO THE CAPITAL STOCK, STOCKHOLDERS, OFFICERS AND DIRECTORS..................................................................................83 Section 19.01. General Provision.......................................................................83 ARTICLE XX EVIDENCE OF RIGHTS OF BONDHOLDERS AND OWNERSHIP OF BONDS.............................................83 Section 20.01. Evidence of Action by Holders...........................................................83 Section 20.02. Inspection of Bonds.....................................................................84 Section 20.03. Bonds Owned by Company or Other Obligor or Affiliate Thereof Deemed Not to be Outstanding...........................................................................84 Section 20.04. Holder May Revoke Consent...............................................................85 ARTICLE XXI MISCELLANEOUS.......................................................................................85 Section 21.01. Certificates and Opinions...............................................................85 Section 21.02. Benefits of Indenture...................................................................85 Section 21.03. Successors and Assigns..................................................................86 Section 21.04. Conflict with TIA.......................................................................86 Section 21.05. TIA Construed as in Effect on Date Hereof...............................................86 Section 21.06. Titles, Table of Contents, Etc..........................................................86 Section 21.07. Counterparts............................................................................86 ARTICLE XXII CERTAIN MATTERS RELATING TO THE PROPERTY LOCATED IN THE STATE OF CONNECTICUT.......................86 Section 22.01. Prejudgment Remedy Waiver...............................................................86 Section 22.02. Trustee Agent...........................................................................87 ARTICLE XXIII CERTAIN MATTERS RELATING TO THE PROPERTY LOCATED IN THE STATE OF MAINE............................87 Section 23.01. Statutory Power of Sale.................................................................87 Section 23.02. Sealed Instrument.......................................................................87 Section 23.03. No Oral Modifications...................................................................87
vi
Section 23.04. No Waiver of Foreclosure........................................................87 Section 23.05. Trustee Agent...................................................................87 ARTICLE XXIV CERTAIN MATTERS RELATING TO THE PROPERTY LOCATED IN THE STATE OF NEW HAMPSHIRE.............88 Section 24.01. Statutory Power of Sale.........................................................88 Section 24.02. Extent of Mortgage and Security Interest........................................88 Section 24.03. Trustee Agent...................................................................88 ARTICLE XXV CERTAIN MATTERS RELATING TO THE PROPERTY LOCATED IN THE STATE OF VERMONT....................88 Section 25.01. Non-Judicial Power of Sale......................................................89 Section 25.02. Limitation on Attorney's Fees in Foreclosure....................................89 Section 25.03. Subsequent Indebtedness.........................................................89 Section 25.04. Trustee Agent...................................................................89 ARTICLE XXVI CERTAIN MATTERS RELATING TO THE PROPERTY LOCATED IN THE STATE OF NEW YORK..................89 Section 26.01. Section 254 of the RPL..........................................................89 Section 26.02. Section 291-f of the RPL........................................................89 Section 26.03. Trust Fund......................................................................89 Section 26.04. Commercial Property.............................................................90 Section 26.05. Transfer Tax....................................................................90 Section 26.06. Covenants in Addition to RPL....................................................90 Section 26.07. Trustee Agent...................................................................90 Section 26.08. Maximum Principal Amount........................................................90 Testimonium..............................................................................................91 Signatures and Seals.....................................................................................91 Acknowledgments..........................................................................................93 Schedule A..............................................................................................S-1
MORTGAGE INDENTURE, dated as of July 15, 1999, between CENTRAL VERMONT PUBLIC SERVICE CORPORATION, a Vermont corporation, having offices at 77 Grove Street, Rutland, Vermont 05701 and THE BANK OF NEW YORK, as Trustee, having offices at 101 Barclay Street, Floor 21 West, New York, New York 10286. WHEREAS, all capitalized terms used in this Indenture have the respective meanings set forth in Article I; and WHEREAS, the Company deems it necessary to borrow and, pursuant to this Indenture, to issue Bonds for its corporate purposes from time to time, and to mortgage and pledge the property hereinafter described to secure payment of the Bonds; and WHEREAS, all acts and things have been done and performed which are necessary to make this Indenture, when duly executed and delivered, a valid and binding mortgage for the security of all Bonds duly issued hereunder and Outstanding from time to time; and the execution and delivery of this Indenture have been in all respects duly authorized. NOW, THEREFORE, THIS INDENTURE WITNESSETH, that to secure the payment of the principal of, premium, if any, and interest on, and other fees, costs and expenses, if any, related to or arising under, all Bonds issued and Outstanding under this Indenture when payable in accordance with the provisions thereof and hereof, and to secure the performance by the Company of, and its compliance with, the covenants and conditions of this Indenture, and in consideration of the premises and of Ten Dollars paid to the Company by the Trustee, the Company does hereby grant, bargain, sell, warrant, release, convey, assign, transfer, mortgage, pledge, set over and confirm unto The Bank of New York, as Trustee, and to its successors in trust and to its assigns, all of the property, rights and interests in the Described Property (as defined below), and, other than Excepted Property, which is expressly excepted and excluded from the Lien of this Indenture, and subject to Article XIII, all of the property, rights and interests in property acquired by the Company after the date of the execution of this Indenture and used or to be used for one or more of the Primary Purposes of the Company's Business, which shall be and are as fully granted and conveyed by this Indenture and as fully embraced within the Lien of this Indenture as if such property, rights and interest in property were now owned by the Company and were specifically described herein and conveyed hereby; the Company expressly reserves the right, at any time and from time to time, by one or more Supplemental Indentures, to subject to the Lien and operation of this Indenture any part or all of the Excepted Property upon such terms and conditions and subject to such restrictions, limitations and reservations as may be set forth in such Supplemental Indenture or Indentures. THE DESCRIBED PROPERTY (A) The real property more particularly described herein and in Schedule A ---------- attached hereto, incorporated herein and made a part hereof (the "Land"); (B) TOGETHER WITH (1) all and singular the plants, rights, permits, franchises, privileges, easements and property, real, personal and mixed, together with the rents, issues and profits thereof, all as more particularly described in that certain Indenture of Mortgage dated as of October 1, 1929, but actually executed on October 24, 1929 (as from time to time amended and supplemented, the "First Mortgage"), recorded in Liber 150 of Mortgages, Page 51, Grafton County (New Hampshire) Registry of Deeds, Liber 616, Folio 484, Sullivan County (New Hampshire) Records, Vol. 234, Page 531, in the Office of the Secretary of State of Connecticut at Volume 51:M of the Railroad Mortgages, in the Office of the City Clerk of Rutland, Vermont at Book 51A, in Liber 150 of Mortgages, Page 51 in the Washington County Clerk's Office (New York), in the Office of the Secretary of State of the States of Vermont and Maine, and in the offices of the clerks of certain other towns, cities and counties in such states, and forty-one (41) duly recorded (where necessary) supplemental indentures thereto and in modification and confirmation thereof, and thereby or otherwise thereunder conveyed, pledged, assigned, transferred and mortgaged, or intended so to be (such descriptions in the First Mortgage being hereby made a part hereof to the same extent as if set forth herein at length), whether then or now owned or thereafter or hereafter acquired, except such of said properties or interests therein as may have been released or sold or disposed of in whole or in part as permitted by the provisions of the First Mortgage as heretofore supplemented and amended and (2) also, but without in any way limiting the generality of the foregoing, all of the right, title and interest of the Company in and to the franchises, rights, titles, interests, easements and properties described in Schedule A hereto attached and hereby made a part hereof as fully ---------- as if set forth herein at length it being the intention of the Company that the properties and interests subject to the lien of this Indenture are identical to the properties and interests subject to the lien of the First Mortgage, for so long as the First Mortgage shall be in effect; (C) TOGETHER WITH all right, title and interest, if any, which the Company may now have or hereafter acquire of whatever character whether as owner, lessee or otherwise, whether vested or contingent, in and to (1) the Land and all buildings, structures and improvements of every nature whatsoever now or hereafter situated on the Land (collectively, the "Buildings"), (2) all building materials, supplies and other property now or hereafter stored at or delivered to the Land or any other location for installation in or on the Land or any of the Buildings, and all fixtures, fittings, machinery, appliances, equipment, apparatus and furnishings now or hereafter attached to, and used or intended to be used in connection with, the Land, any of the Buildings or in connection with any construction or other work now or hereafter conducted in or on the Land or any of the Buildings, and all extensions, additions, improvements, betterments, renewals, substitutions and replacements to or of any of the foregoing, (all of the property described in this clause (2), being collectively referred to herein as the "Equipment"; the Buildings and the Equipment being collectively referred to herein as the "Improvements"); (D) TOGETHER WITH all proceeds, products, extensions, additions, improvements, betterments, renewals, substitutions, replacements, accessions, accretions and relictions of and to all or any part of the Premises (as defined below) or any other property encumbered by this Indenture; (E) TOGETHER WITH all right, title and interest of the Company, of whatever character (whether vested or contingent and whether now owned or hereafter acquired), in and to (1) all streets, roads and public places (whether open or proposed) now or hereafter adjoining or otherwise providing access to the Land, (2) the land lying in the bed of such streets, roads and public places, and (3) all other sidewalks, alleys, ways, passages, vaults, water courses, strips and 2 gores of land now or hereafter adjoining or used or intended to be used in connection with all or any part of the property described in paragraphs (A), (B), (C) and (D) hereof; (F) TOGETHER WITH all easements, rights-of-way and rights of use or passage (whether public or private), estates, interests, benefits, powers, rights (including, without limitation, any and all lateral support, drainage, slope, riparian, littoral, sewer, water, air, oil, gas, mineral and subsurface rights), privileges, claims, franchises, licenses, profits, rents, royalties, tenements, hereditaments, reversions, remainders and appurtenances of every nature whatsoever in any way now or hereafter belonging, relating or appertaining to all or any part of the property described in paragraphs (A), (B), (C), (D) and (E) hereof (all rights and interests described in clauses (A), (B), (C), (D), (E) and (F) being collectively referred to herein as the "Premises"); (G) TOGETHER WITH (1) any and all judgments, settlements, claims, awards, insurance proceeds and other proceeds and compensation, and any interest thereon (collectively, "Compensation"), now or hereafter made or payable in connection with (a) any casualty or other damage to all or any part of the property described in paragraphs (A), (B), (C), (D), (E) and (F) hereof, (b) any condemnation proceedings affecting any such property or any rights thereto or any interest therein, (c) any damage to or taking of any such property or any rights thereto or any interest therein arising from or otherwise relating to any exercise of the power of eminent domain (including, without limitation, any and all Compensation for change of grade of streets or any other injury to or decrease in the value of any such property), or (d) any conveyance in lieu of or under threat of any such taking, (2) any and all proceeds of any sale, assignment or other disposition of any such property or any rights thereto or any interest therein, (3) any and all proceeds of any other conversion (whether voluntary or involuntary) of any such property or any rights thereto or any interest therein into cash or any liquidated claim, and (4) any and all option rights, contract rights, permits, licenses, approvals, actions and rights in action now or hereafter arising from or relating to any such property (including, without limitation, all rights of the Company in and to insurance proceeds and any and all contracts and bonds relating to operation, maintenance, construction, renovation, restoration, repair, management or security of any such property); (H) TOGETHER WITH all leasehold estates, right, title and interest of the Company in any and all leases, subleases, management agreements, arrangements, concessions or agreements relating to the use or occupancy of the Premises or any portion thereof and all rents of and from all or any part of the foregoing whether now or hereafter payable or accruing (including, without limitation, any and all money and other consideration paid or payable from time to time by any and all tenants, licensees, occupants or other users of any such property), and all rights of the Company or any other Person to collect and receive the same; provided, however, that permission is hereby given to the Company, so long as no Event of Default (as hereinafter defined) shall have occurred, to collect and use such rents, but not before, they become due and payable, which permission shall terminate immediately, without the necessity of any action by the Trustee, upon the occurrence of any Event of Default; (I) TOGETHER WITH (1) all right, title and interest of the Company (whether as seller, purchaser or otherwise) in and to any and all agreements now or hereafter relating to any purchase, sale, occupancy or other transfer of all or any part of the property described in paragraphs (A), (B), (C), (D), (E), (F), (G) and (H) hereof (whether or not such purchase, sale, 3 occupancy or other transfer shall be completed), and (2) all right, title and interest of the Company (whether as lessor, lessee or otherwise) in and to any and all leases, subleases, use, occupancy and similar agreements (including, without limitation, oil, gas and mining leases) now or hereafter relating to all or any part of the property described in paragraphs (A), (B), (C), (D), (E) and (F) hereof (each being referred to in this paragraph as a "lease"), together with any and all guaranties and security of, for or otherwise relating to any such lease (including, without limitation, any and all right, title and interest of the Company in and to property of any tenant or other Person, whether such right, title and interest shall have arisen under applicable law or under any such lease or other arrangement) and together with all rent and other consideration (whether monetary or otherwise) now or hereafter payable or accruing under or in connection with any such lease (including, without limitation, any and all cancellation or termination payments and any and all damages payable in connection with any default), subject, however, to the conditional permission given to the Company to collect and use the rents, royalties, issues, profits, revenues, income and other benefits arising under any such lease as provided above and, so long as no Event of Default has occurred, to possess, control, manage, operate and otherwise deal with the property described in paragraphs (A), (B), (C), (D), (E), (F), (G) and (H) hereof; (J) TOGETHER WITH any and all right, title and interest of the Company in all reciprocal easement agreements, operating agreements and any other agreements affecting the Land and Improvements; and (K) TOGETHER WITH any and all further or greater estate, right, title, interest, claim and demand of the Company, of whatever character (whether vested or contingent and whether now owned or hereafter acquired), in and to any of the property described in the foregoing paragraphs or any rights or interests appurtenant thereto. BUT SPECIFICALLY RESERVING AND EXCEPTING (as the same were reserved and excepted from the lien of the First Mortgage) from this Indenture and the grant, conveyance, mortgage, transfer and assignment herein all Excepted Property. All of the property described in the paragraphs (A), (B), (C), (D), (E), (F), (G), (H), (I), (J) and (K) above, and each item of property therein described is collectively referred to in this Indenture as the "Described Property". TO HAVE AND TO HOLD all such properties, rights and interests in property granted, bargained, sold, warranted, released, conveyed, assigned, transferred, mortgaged, pledged, set over and confirmed or in which a security interest has been granted by the Company in this Indenture or intended or agreed to be so granted, together with all the appurtenances thereto, unto the Trustee and its successors and assigns forever. SUBJECT, HOWEVER, as to the properties, rights and interests in property severally embraced therein or affected thereby, to the First Mortgage for so long as any First Mortgage Bonds are outstanding, and to other Permissible Encumbrances; BUT IN TRUST, nevertheless, for the equal and proportionate benefit and security of all present and future holders of the Bonds issued hereunder and to be issued hereunder and secured by the Lien of this Indenture, and to secure the payment of the principal of, premium, if any, and 4 interest on, and other fees, costs and expenses, if any, related to or arising under, the Bonds issued and Outstanding under this Indenture when payable in accordance with the provisions thereof and hereof, and to secure the performance by the Company, of, and its compliance with, the covenants and conditions of this Indenture without any preference, priority or distinction of any one Bond over any other Bond by reason of priority in the issue or negotiation thereof or otherwise. PROVIDED, HOWEVER, and these presents are upon the condition, that if the Company shall pay or cause to be paid the principal of, premium, if any, and interest on, and other fees, costs and expenses relating to or arising under, the Bonds at the times and in the manner therein and herein provided, or shall provide, in the manner permitted hereby, for the payment thereof, and if the Company shall also pay or cause to be paid all other sums payable hereunder by it and perform all of the covenants and comply with all of the conditions of this Indenture, then this Indenture and the estate and rights hereby granted shall cease, determine and be void, otherwise to be and remain in full force and effect. IT IS HEREBY COVENANTED AND AGREED, by and between the Company and the Trustee, that all Bonds are to be authenticated, delivered and issued, and that all Mortgaged Property is to be held, subject to the further covenants, conditions, uses and trusts hereinafter set forth, and the Company, for itself and its successors and assigns, does hereby covenant and agree to and with the Trustee and its successors in trust, for the benefit of those who shall hold Bonds, as follows: ARTICLE I DEFINITIONS Section 1.01. Trust Indenture Act. ------------------- (a) Whenever this Indenture refers to a provision of the Trust Indenture Act of 1939, as amended ("TIA"), such provision is incorporated by reference in and made a part of this Indenture. The following TIA terms incorporated in this Indenture have the following meanings: "indenture securities" means the Bonds. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company or any other obligor on the Bonds. (b) All terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by a rule of the Securities and Exchange Commission have the meanings assigned to them in the TIA or such statute or rule as in force on the date of execution of this Indenture. 5 Section 1.02. Construction of Accounting Terms. -------------------------------- The accounting terms used in this Indenture shall be construed in accordance with Generally Accepted Accounting Principles. Section 1.03. Definitions. ----------- For purposes of this Indenture, the following terms have the following meanings: "Accountant" means the Chief Accounting Officer, Controller, Assistant Controller, Treasurer or Assistant Treasurer of the Company or a Person who is qualified to pass upon accounting matters, who or which need not be a certified or public accountant and, unless required to be Independent, may be employed by or Affiliated with the Company. "Accountant's Certificate" means a certificate signed by an Accountant. "Accredited Investor Bonds" has the meaning given in Section 2.04(d). "Agent Members" has the meaning give in Section 2.04(e)(i). "Affiliate" means a Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, another Person; "Affiliated" has a meaning correlative to the foregoing. "Appraiser" means a Person engaged in the business of appraising property competent to determine the Fair Value or fair market value of the particular property in question, and who or which, unless required to be Independent, may be employed by or Affiliated with the Company. "Appraiser's Certificate" means a certificate signed by an Appraiser; any Appraiser's Certificate which is relied upon by an Independent Engineer, for purposes of an Independent Engineer's Certificate, shall be signed by an Independent Appraiser. "Authorized Newspaper" means a newspaper of general circulation in the relevant area, printed in the English language and customarily published on each Business Day; whenever successive publications in an Authorized Newspaper are required by this Indenture, such publications may be made on the same or different days and in the same or in different Authorized Newspapers. "Authorized Officer" means the Chairman of the Board, Chief Executive Officer, the President, a Vice President, the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or an Assistant Secretary of the Company. "Board" or "Board of Directors" means (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the board of directors of the general partner of the partnership; and 6 (3) with respect to any other Person, the board or committee of such Person servicing a similar function. "Bond Register" has the meaning given in Section 2.06(a). "Bond Registrar" has the meaning given in Section 2.06(a). "Bondable Property" means the Mortgaged Property as of July 15, 1999, plus any property acquired or constructed by the Company which is included in the Mortgaged Property after July 15, 1999, subject to the following provisions: (i) Bondable Property: (A) need not consist of a specific or completed development, plant, betterment, addition, extension, improvement or enlargement, but may include construction work in progress and property in the process of purchase insofar as the Company shall have acquired legal title to such property, and may include the following: (1) fractional and other undivided interests of the Company in property owned jointly or in common with other Persons, whether or not there are with respect to such property, other agreements or obligations on the part of the Company, if there is an effective bar against partition of such property which would preclude the sale of such property by any or all of such other Persons or the holder or holders of any lien or liens on the interest of any of such other Persons in such property, without the consent of the Company; (2) engineering, economic, environmental, financial, geological and legal or other surveys, data processing equipment and software, preliminary to or associated with the acquisition or construction of property included or intended to be included in the Mortgaged Property; and (3) property located over, on or under property owned by other Persons, including governmental or municipal agencies, bodies or subdivisions, under permits, licenses, easements, franchises and other similar privileges, if the Company shall have the right to remove the same; and (B) may include renewals, replacements and substitution of property not excluded from this definition of Bondable Property; but (C) shall not include: (1) Excepted Property; or (2) going concern value or good will. 7 (ii) The "amount" of any Bondable Property means the lesser of the Cost or Fair Value of Bondable Property certified to the Trustee in an Engineer's Certificate (or in case such Fair Value shall not be required to be evidenced to the Trustee, the Cost thereof) minus, in the case of Bondable Property which is (A) owned by the Company subject to a Prior Lien on the date of this Indenture, or (B) acquired by the Company after July 15, 1999 subject to a Prior Lien (other than a Prior Lien to which such Bondable Property becomes subject, solely as a result of such acquisition, pursuant to an after-acquired property clause of such Prior Lien), the aggregate principal amount of the Prior Lien Bonds secured by such Prior Liens and (I) outstanding at July 15, 1999 and at the date of such acquisition, respectively, and (II) issued after such date, respectively. (iii) When any Bondable Property is certified to the Trustee in any Engineer's Certificate delivered with an application, and as a basis for the authentication and delivery of Bonds, the release of Mortgaged Property or the withdrawal of cash (except in the case of the release of Mortgaged Property, the withdrawal of cash representing the proceeds of insurance or the payment of or on account of obligations secured by purchase money mortgages, in each case on the basis of Bondable Property acquired or constructed within 90 days prior to the date of the application for such release or the receipt by the Trustee of such cash, or within 90 days subsequent to such application or receipt of cash), (A) there shall be deducted from the Cost or Fair Value of such Bondable Property, as the case may be (as evidenced in such application), an amount equal to the aggregate Cost of all Bondable Property retired on and after July 15, 1999, minus the aggregate Cost of all Bondable Property acquired or constructed by the Company which is included in the Mortgaged Property after such date, and has been Bonded as the basis for the withdrawal of cash pursuant to Section 11.01(a)(i)(B), and (B) there may, at the option of the Company, be added to such Cost or Fair Value, as the case may be, the sum of (1) all or any portion which the Company then elects to add to the total of (aa) the fair market value in cash, as set forth in an Appraiser's Certificate dated the date of such application, of the unpaid principal amount of any obligations (which are not in default) secured by purchase money mortgages and Governmental Obligations, plus (bb) any cash, then held by the Trustee, in either case representing the proceeds of insurance on, or of the release or other disposition of, Bondable Property retired; and (2) the principal amount of any Bonds which the Company then elects so to add, the right to the authentication and delivery of which under Article IV or Article VI shall have been waived as a basis for the release of Bondable Property retired 8 except to the extent that such Bondable Property shall have been released in accordance with Section 10.05 or 10.06; provided, however, that neither any reduction in the Cost or Fair Value of property recorded in an account of the Company nor the transfer of any amount from such an account to another such account shall be deemed to be Bondable Property retired. "Bonded" or "Bonding" as applied to Bonds, Prior Lien Bonds or Bondable Property means that such Bonds, Prior Lien Bonds or Bondable Property are within one or more of the following classes: (i) the aggregate amount of Bondable Property that has been used as a basis for the authentication and delivery of Bonds pursuant to Article III or the withdrawal of cash pursuant to Section 11.01; (ii) Bonds that have been used as a basis for the authentication and delivery of Bonds pursuant to Article IV or the withdrawal of cash pursuant to Section 11.01, and Bonds and Prior Lien Bonds paid, purchased or redeemed with moneys applied or used by the Trustee pursuant to Section 11.01; (iii) Bonds and Prior Lien Bonds that have been used as a basis for a waiver by the Company, pursuant to Section 10.05 or 10.06, of its right to the authentication and delivery of Bonds pursuant to Article IV or Article VI; (iv) Bonds, Prior Lien Bonds and Bondable Property that have been allocated or used as a basis for any credit or action or pursuant to any provision of, or retired through the operation of, any sinking, improvement, maintenance, replacement or analogous fund for any series of Bonds; provided, however, that any such Bonds, Prior Lien Bonds or Bondable Property so allocated or used shall be reinstated as Unbonded when all of the Bonds of the series of Bonds for the benefit of which such fund was established are retired; and provided, further, that Bondable Property shall not be deemed "Bonded" merely by virtue of its acquisition or extension in satisfaction of any Renewal Fund obligations under (and as defined in) the First Mortgage or any analogous provisions of any other Prior Lien; or (v) Prior Lien Bonds that have been (A) used as a basis for the authentication and delivery of Bonds pursuant to Article VI or the withdrawal of cash pursuant to Section 11.01, (B) used as a basis for the issuance of Prior Lien Bonds under such Prior Lien or (C) used as a basis for the release of property or the withdrawal of cash under any Prior Lien. All Bondable Property which shall be retired, abandoned, destroyed, released or otherwise disposed of shall be deemed Bondable Property retired, but as in this Indenture provided may at any time thereafter again become Bondable Property. "Bonds" means bonds authenticated and delivered under this Indenture. 9 "Business Day" means any day that is not a Saturday, Sunday or other day on which banks located in Rutland, Vermont or in the city where the Trustee maintains its principal office and place of business are required or authorized to be closed. "Company" means Central Vermont Public Service Corporation, a Vermont corporation, and its successors and assigns. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of the execution of this Indenture is located at 101 Barclay Street, Floor 21 West, New York, New York 10286. "Cost" means the actual cost to the Company of any property, which cost shall include (i) cash or its equivalent, including without limitation all costs and allowances for funds used during the construction thereof, and other deferred costs relating to such construction, but only to the extent permitted by Generally Accepted Accounting Principles or accounting orders from any governmental regulatory commission, (ii) the fair market value in cash (as of the date of delivery) of any securities delivered in connection with the acquisition of such property, (iii) the principal amount of any Prior Lien Bonds secured by a Prior Lien upon such property at the time of its acquisition unless such principal amount of Prior Lien Bonds has previously been used in determining the Cost of other property subject to such Prior Lien and (iv) the principal amount of any other indebtedness incurred or assumed in connection with the acquisition of such property; the Cost of property acquired by the Company without consideration or by in-kind exchange, or by merger, consolidation or dissolution shall be deemed to be the Fair Value thereof at the date of its acquisition. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Depositary" means, with respect to Bonds of any series for which the Company shall determine that such Bonds will be issued as a Global Bond, The Depository Trust Company, New York, New York, another clearing agency or any successor registered as a clearing agency under the Exchange Act or other applicable statute or regulation, which, in each case, shall be designated by the Company pursuant to either Section 2.04 or 2.06. "Described Property" has the meaning given in the granting clauses in this Indenture. "Engineer" means a Person engaged in the engineering business, and who or which, unless required to be Independent, may be employed by or Affiliated with the Company, except that an Independent Engineer shall sign Engineer's Certificates delivered in connection with the release of Mortgaged Property pursuant to Section 10.03, 10.04, 10.05, 10.06 or 10.07, if the Fair Value of the Mortgaged Property to be released and of all other Mortgaged Property released since the commencement of the then current calendar year, or the Fair Value of any purchase money obligations or Governmental Obligations included in the consideration for such release and of all other securities made a basis of any authentication and delivery of Bonds, withdrawal of cash or release of Mortgaged Property under this Indenture since the commencement of the then current calendar year, as set forth in Engineer's Certificates required pursuant to Article X 10 of this Indenture, is 10% or more of the aggregate principal amount of Bonds at the time Outstanding, unless the Fair Value of the Mortgaged Property to be released or of any purchase money obligations or Governmental Obligations included in the consideration for such release and of all other securities made a basis of any authentication and delivery of Bonds, withdrawal of cash or release of Mortgaged Property, as set forth in such Engineer's Certificate, is, in each case, less than $25,000 or less than 1% of the aggregate principal amount of Bonds at the time of Outstanding. "Engineer's Certificate" means a certificate signed by an Engineer. "Event of Default" means any event specified in Section 12.01(a) and, with respect to any series of Bonds, any event identified as an "Event of Default" in the supplemental indenture pursuant to which such series of Bonds are issued. "Excepted Property" means all of the following described property, whether now owned or hereafter acquired by the Company, except (so long as any First Mortgage Bonds are outstanding) to the extent subject to the lien of the First Mortgage: (i) all cash, shares of stock, bonds, notes and other obligations and securities not deposited, or required to be deposited, with the Trustee by the express provisions of this Indenture; (ii) all bills, notes and other instruments and accounts receivable, judgments, demands, general intangibles and choses in action, and all contracts, leases and operating agreements not pledged or required to be pledged with the Trustee; (iii) all merchandise, equipment, spare parts, tools, materials, supplies and fuel held for sale or other disposition in the ordinary course of business or for use or consumption in, or in the operation of, any properties of, or for the benefit of, the Company, or held in advance of use thereof for maintenance, replacement or fixed capital purposes; (iv) all electricity, gas, steam, water, ice and other materials, products or services generated, manufactured, produced, provided or purchased by the Company for sale or distribution or used or to be used by the Company; (v) all railcars, aircraft, watercraft, automobiles, buses, trucks, tractors, trailers and similar vehicles and movable equipment, and all components, spare parts, accessories, supplies and fuel used or to be used in connection with any of the foregoing; (vi) all office furniture and office equipment; (vii) the last day of the term of any lease or leasehold now owned or hereafter acquired by the Company which is specifically subjected to the Lien of this Indenture; (viii) all timber, crops, sand, gravel, rocks, earth, natural gas, oil, coal, uranium and other products or components of land and minerals, harvested, mined or 11 extracted from or otherwise separated from the earth, or lying or being upon, within or under any properties of the Company, including Mortgaged Property, and timber, crops, gravel, sand, rocks, earth, gas, oil, coal, uranium and other land and mineral rights, leases and royalties and income therefrom, and rights to explore for minerals; (ix) except as the same may be specifically subjected to the Lien of this Indenture, all nuclear fuel, cores and materials; (x) all satellites and other equipment and materials used or to be used in outer space; all business machines; all communications equipment; all computer equipment; all record production, storage and retrieval equipment; all telephone properties or equipment; and all components, spare parts, accessories, programs and supplies used or to be used in connection with any of the foregoing; (xi) all real or personal property which meets all of the following conditions: (A) is not specifically described in this Indenture, (B) is not specifically subjected or required to be subjected to the Lien of this Indenture by any express provision of this Indenture, and (C) is not used or to be used as an integral part of one or more of the Primary Purposes of the Company's Business, or in connection with the operation of any property specifically subjected or required to be subjected to the Lien of this Indenture by the express provisions of this Indenture; (xii) the Company's franchise to be a corporation; (xiii) all books and records; (xiv) Pollution Control Facilities; and (xv) so long as any First Mortgage Bonds remain Outstanding, all other property of the Company that is not subject to the lien of the First Mortgage. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Value" when applied to property means its fair value as determined without deduction for any Prior Liens upon such property, which fair value may be determined without physical inspection by use of accounting or engineering records and other data maintained by, or available to, the Company. "First Mortgage" means the Mortgage of the Company dated October 1, 1929, to Old Colony Trust Company, as Trustee, as from time to time amended and supplemented, under which Indenture State Street Bank and the Trust Company is now serving as second successor trustee, as more particularly described in paragraph (B) of the granting clauses in this Indenture. 12 "First Mortgage Bonds" means the securities and other Indebtedness issued from time to time pursuant to the First Mortgage. "Generally Accepted Accounting Principles" means generally accepted accounting principles in use at June 30, 1999, or, at the option of the Company, other generally accepted accounting principles which are in use at the time of their determination; in determining generally accepted accounting principles, the Company may, but shall not be required to, conform to any accounting order, rule or regulation of any regulatory authority having jurisdiction over the operations of the Company. "Global Bonds" has the meaning given in Section 2.04(e)(i). "Governmental Obligations" means direct obligations of or obligations unconditionally guaranteed by the federal government or any political subdivision of the United States of America, any agency, department or any other administrative authority or instrumentality thereof, including without limitation, any local or other governmental agency or other authority within the United States of America. "Holder" means the bearer of a definitive Bond or the Registered Holder of a Registered Bond. "Indenture" means this instrument and all Supplemental Indentures; all references to "herein", "hereof" and "hereunder" shall respectively mean in, of or under this Indenture. "Independent" when used with respect to any specified Person means a Person selected by the Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer or a Vice President of the Company and approved by the Trustee, who (i) is in fact independent, (ii) does not have any direct financial interest or any material indirect financial interest in the Company or in any other obligor on the Bonds or in any Affiliate of the Company or any such other obligor and (iii) is not connected with the Company or such other obligor as an Affiliate or an officer, employee, promoter, underwriter, trustee, partner, director or Person performing similar functions. "Investment Securities" means any of the following obligations or securities on which neither the Company nor any of its subsidiaries is the obligor: (a) bonds or other obligations of the United States of America; (b) interest bearing deposit accounts (which may be represented by certificates of deposit) in national or state banks having a combined capital and surplus of not less than $10,000,000, or savings and loan associations having total assets of not less than $40,000,000; (c) bankers' acceptances drawn on and accepted by commercial banks (which may include the Trustee) having a combined capital and surplus of not less than $10,000,000; (d) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, any state of the United States of America or the District of Columbia, or any political subdivision of any of the foregoing, which are rated in any of the three highest rating categories by a nationally recognized rating agency; (e) bonds or other obligations of any agency or instrumentality of the United States of America; (f) commercial or finance company paper which is rated in any of the three highest rating categories by a nationally recognized rating agency; (g) corporate debt securities rated in any of the three highest rating categories by a 13 nationally recognized rating agency; (h) repurchase agreements with banking or financial institutions having a combined capital and surplus of not less than $10,000,000 (which may include the Trustee) with respect to any of the foregoing obligations or securities; and (i) any other obligations or securities which may lawfully be purchased by the Trustee. "Legend" has the meaning given in Section 2.06(d). "Lien of this Indenture" means the lien created by this instrument (including the lien on property acquired after the date of the execution of this Indenture) and the lien created by any subsequent conveyance to the Trustee, whether made by the Company or any other Person, effectively constituting any property a part of the security held by the Trustee for the benefit of the holders of all Outstanding Bonds. "Liquidated Damages", if applicable to any series of Bonds, has the meaning given in the Supplemental Indenture pursuant to which such series of Bonds is issued. "Make Whole Premium", if applicable to any series of Bonds, has the meaning given in the Supplemental Indenture pursuant to which such series of Bonds is issued. "Mortgaged Property" means as of any particular time all of the property that is used or to be used for one or more of the Primary Purposes of the Company's Business, and any other property (including securities and cash held by the Trustee pursuant to this Indenture) which at such time is subject, or is intended by the terms of this Indenture to be subject, to the Lien of this Indenture, however created, including (i) all Described Property, and (ii) all of such property which is acquired by the Company after June 30, 1999 and (iii) all property described in Supplemental Indentures, but Mortgaged Property shall not include Excepted Property. "Officer's Certificate" means a certificate signed by the principal executive officer, principal financial officer or principal accounting officer of the Company. "Officers' Certificate" means a certificate signed by the Chairman of the Board, Chief Executive Officer, President, a Vice-President of the Company and the Chief Financial Officer, the Chief Accounting Officer, Treasurer, an Assistant Treasurer, the Controller or Assistant Controller of the Company. "Operating Bank" means the Person acting, at the time of determination, as the operating bank under this Agreement. The initial Operating Bank is the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company. "Outstanding" means as of any particular time with respect to Bonds, all Bonds which theretofore have been authenticated and delivered by the Trustee under this Indenture, except (i) Bonds theretofore paid, retired, redeemed, discharged or canceled, or Bonds for the purchase, payment or redemption of which moneys or Governmental Obligations in the necessary amount shall have been deposited with, or shall then be held by, the Trustee with irrevocable direction to apply such moneys or the proceeds of such Governmental Obligations to such purchase, payment or redemption, provided that, in the case of redemption, the notice required by Article IX shall 14 have been given or provided for to the satisfaction of the Trustee, (ii) Bonds deposited with or held in pledge by the Trustee under this Indenture, including any Bonds so held under any sinking, improvement, maintenance, replacement or analogous fund, and (iii) Bonds authenticated and delivered upon transfer of which or in exchange or substitution for and/or in lieu of which other Bonds have been authenticated and delivered. "Permissible Encumbrances" means as of any particular time any of the following: (i) the Lien of this Indenture and all liens and encumbrances junior thereto; (ii) liens for taxes or assessments by governmental bodies and liens for worker's compensation awards and similar obligations not yet due or the payment of which is being contested in good faith by the Company; (iii) any right of any municipal or other governmental body or agency, by virtue of any franchise, grant, license, permit, contract or statute, to occupy, purchase or designate a purchaser of, or to order the sale of, any Mortgaged Property upon payment of reasonable compensation therefor, or to modify or terminate any franchise, grant, license, permit, contract or other right, or to regulate the property and business of the Company; (iv) liens and charges incidental to construction or current operations of the Company which are not delinquent or, whether or not delinquent, are being contested in good faith by the Company; (v) easements, rights of way, restrictions, exceptions or reservations, and zoning ordinances, regulations and restrictions, with respect to any property or rights of way of the Company, which do not materially impair the use of such property or rights of way for the purposes for which such property or rights of way are held by the Company; (vi) irregularities in or defects of title to any property or rights of way of the Company, which do not materially impair the use of such property or rights of way for the purposes for which such property or rights of way are held by the Company; (vii) liens securing obligations neither (A) assumed by the Company nor (B) on account of which it customarily pays interest, directly or indirectly, existing upon real estate, or rights in or relating to real estate acquired by the Company for rights of way for lines, structures and appurtenances thereto; (viii) party-wall agreements and agreements for and obligations relating to the joint or common use of property owned solely by the Company or owned by the Company in common or jointly with one or more parties, provided such agreements or obligations do not materially interfere with the use of the property by the Company; (ix) liens securing indebtedness incurred by a Person, other than the Company, which indebtedness has been neither assumed nor guaranteed by the Company 15 nor on which it customarily pays interest, existing on property which the Company owns jointly or in common with such Person or such Person and others, if there is an effective bar against partition of such property, which would preclude the sale of such property by such other Person or the holder of such lien without the consent of the Company; (x) any attachment, judgment and other similar lien arising in connection with court proceedings (A) in an amount not in excess of the greater of $10,000,000 or 10% of the principal amount of the Outstanding Bonds at the time such attachment, judgment or lien arises, or (B) the execution of which has been stayed or which has been appealed and secured, if necessary, by an appeal bond; (xi) the burdens of any law or governmental rule, regulation, order or permit requiring the Company to maintain certain facilities or to perform certain acts as a condition of its occupancy or use of, or interference with, any public or private lands or highways or any river, stream or other waters; (xii) any duties or obligations of the Company to any federal, state or local or other governmental authority with respect to any franchise, grant, license, contract or permit which affects any Mortgaged Property; (xiii) liens in favor of a government or governmental entity securing (A) payments pursuant to a statute (other than taxes and assessments) or (B) indebtedness incurred to finance all or part of the purchase price or Cost of construction of the property subject to such lien; (xiv) any other liens or encumbrances of whatever nature or kind which, in the Opinion of Counsel, do not, individually or in the aggregate, materially impair the Lien of this Indenture or the security afforded thereby for the benefit of the Holders; (xv) any trustee's lien under this Indenture or the interest of the Trustee in any "securities entitlement" (as defined in Section 8- 102(1)(17) of the UCC) in any Securities Account established pursuant to this Indenture; (xvi) the lien of the First Mortgage; (xvii) any other Prior Lien if (A) at the time of the acquisition by the Company of the Mortgaged Property subject to such other Prior Lien, the Cost or Fair Value, whichever is less, of such Mortgaged Property is at least equal to the principal amount of the obligations secured by such other Prior Lien, (B) all other liens on such Mortgaged Property, except for Permissible Encumbrances, shall have been discharged at the time of such acquisition and (C) such other Prior Lien shall not attach to any other Mortgaged Property other than pursuant to an after- acquired property clause of such other Prior Lien; but, if the Company, as successor corporation, shall have executed a Supplemental Indenture relating thereto in accordance with Article XIII, the extension of such other Prior Lien to Mortgaged Property subsequently acquired by the Company shall be permitted notwithstanding the foregoing limitation; and (xviii) liens on any Excepted Property. 16 For the purpose of this Indenture, no mortgage or other lien on any property of the Company shall be considered as a "mortgage," "lien," "charge" or "encumbrance" if moneys or Governmental Obligations sufficient to pay or redeem the indebtedness secured by such mortgage or lien shall be held in trust for such purpose by the Trustee or by the trustee, mortgagee or other holder of such mortgage or lien; the sufficiency of such moneys or Governmental Obligations shall be evidenced to the Trustee by an Accountant's Certificate. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Pollution Control Facilities" means the facilities of the Company or its subsidiaries financed by certain development bonds, including the Millstone Pollution Control Bonds, the Seabrook Pollution Control Bonds and the East Barnet Hydroelectric Revenue Bonds, issued by development authorities in Connecticut, New Hampshire and Vermont, respectively. "Primary Purposes of the Company's Business" means either the production or furnishing, or the production and furnishing, and the purchase, sale, transmission and distribution, for or on behalf of itself or others, of electricity, water, steam or fuel in any form and for any purpose, or the furnishing of telephonic and other communication services or sewage services. "Prior Lien" means the First Mortgage and any other mortgage, lien, charge, encumbrance, security interest on or in, or pledge of, any Mortgaged Property existing both at and immediately prior to the time of the acquisition by the Company of such Mortgaged Property, or created as a purchase money mortgage on such Mortgaged Property at the time of its acquisition by the Company, in each case ranking prior to or on a parity with the Lien of this Indenture. "Prior Lien Bonds" means First Mortgage Bonds and all other indebtedness (including the evidences thereof), if any, secured by a Prior Lien. "Registered Bond" means any Bond registered as to both principal and interest or as to principal only in the Bond Register maintained pursuant to Section 2.06. "Registered Holder" means the Person or Persons in whose name or names the particular Registered Bond shall be registered on the books of the Company kept for that purpose in accordance with the terms of this Indenture. "Responsible Officer" shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. 17 "Retired" means as of any particular time Bonds and Prior Lien Bonds theretofore but after June 30, 1999, paid, retired, redeemed, canceled or otherwise discharged, or for the purchase, payment, retirement or redemption of which moneys or Governmental Obligations in the necessary amount shall have been deposited with, or shall then be held by, the Trustee with respect to Bonds, or the trustee or mortgagee under the Prior Lien which secures such Prior Lien Bonds, with respect to Prior Lien Bonds, in each case with irrevocable direction to apply such moneys or the proceeds of such Governmental Obligations to such purchase, payment, retirement or redemption; provided that, in the case of redemption of Bonds, the notice required by Article IX shall have been given or provided for to the satisfaction of the Trustee. "Rule 144A Global Bond" has the meaning given in Section 2.04(d). "Securities Account" means a securities account as defined in Section 8- 501(a) of the UCC maintained in the name of the Trustee as "entitlement holder" (as defined in Section 8-102(a)(7) of the UCC) on the books and records of the Operating Bank or another Securities Intermediary in the State of New York. "Securities Intermediary" means any "securities intermediary" of the Trustee as defined in 31 C.F.R. Section 357.2 or Section 8-102(a)(14) of the UCC. "Supplemental Indenture" means any supplemental indenture hereafter duly authorized and approved by the Board and entered into between the Company and the Trustee in accordance with this Indenture. "TIA" has the meaning given to such term in Section 1.01. "Trustee" means the Person named as Trustee in the first paragraph of this Indenture and any successor thereto pursuant to Section 14.14. "UCC" means the Uniform Commercial Code of the State of New York, as in effect from time to time. "Unbonded" as applied to Bonds, Prior Lien Bonds or Bondable Property means that such Bonds, Prior Lien Bonds or Bondable Property are not Bonded. ARTICLE II FORMS, EXECUTION, REGISTRATIONS AND EXCHANGE OF BONDS Section 2.01. Series and Form of Bonds. At the option of the Company, ------------------------ Bonds may be issued under this Indenture in one or more series and in an unlimited amount, the Bonds of each series to mature on such date or dates and bear interest, if any, at such rate or rates (which may be based on a formula or otherwise change from time to time prior to maturity of any such Bonds) as shall be set forth in a Supplemental Indenture authorized by the Board prior to the authentication of such Bonds. The form of each series of Bonds shall be set forth in a Supplemental Indenture. The Bonds of any one or more series may be expressed in one or more foreign languages, if also expressed in the English language. The English text shall govern the construction thereof and both or all texts shall constitute only a single obligation. The English 18 text of the definitive Bonds, Registered Bonds and the Trustee's authentication certificate shall be in the form set forth in a Supplemental Indenture; provided, however, that the form of each series of Bonds shall specify the descriptive title of such series of Bonds (which title shall contain the words "Mortgage Bond"), the designation of such series, the rate or rates of interest, if any, or the method by which such rate or rates are determined, to be borne by the Bonds of such series, the coin or currency, including composite currencies such as the European currency unit, in which payable (which need not be coin or currency of the United States of America), the date or dates of maturity, the dates for the payment of interest, and a place or places (which need not be in the United States of America) and the means (which may include mail) for the payment of principal of, premium, if any, and interest on such Bonds. Any series of Bonds to the extent issued in registered form may provide for record dates for the payment of interest. Any series of Bonds may also have such omissions or modifications or contain such other provisions not prohibited by this Indenture as may be set forth in a Supplemental Indenture. The Bonds of each series shall be issuable in registered form without coupons. Definitive Bonds shall be produced in such manner as shall be determined by the officers executing such Bonds, as evidenced by their execution thereof. Section 2.02. Kinds and Denominations of Bonds. Any series of Bonds may be -------------------------------- executed, authenticated and delivered originally as definitive Bonds and/or as Registered Bonds, of such denomination or denominations as may be specified in a Supplemental Indenture or a Board resolution. Section 2.03. Dates of and Interest on Bonds. Unless otherwise ------------------------------ specifically provided in a Supplemental Indenture with respect to a series of Bonds, each Registered Bond shall be dated as of the date of its authentication; provided, however, that if any Registered Bond shall be authenticated and delivered upon a transfer of, or in exchange for or in lieu of, any Bond or Bonds upon which interest is in Default, it shall be dated so that such Bond shall bear interest from the last preceding date to which interest shall have been paid on the Bond or Bonds in respect of which such Registered Bond shall have been delivered, unless otherwise specifically provided with respect to a series of Bonds. Unless other provisions (including, but not limited to, provisions establishing record dates for the payment of interest) are specifically provided in a Supplemental Indenture with respect to a series of Bonds, (a) the Registered Bonds of such series shall bear interest, if any, from the beginning of the interest period for such series during which such Bonds were authenticated, and (b) the first interest period for each series of Bonds shall begin on the date of their issuance. The definitive Bonds of each series, if any, shall be dated as of such date as may be set forth in a Supplemental Indenture and designated in the form of Bond established for such series. Section 2.04. Printing, Execution and Authentication of Bonds. (a) The ----------------------------------------------- Bonds shall, subject to the provisions of Section 2.07, be printed on steel engraved borders or fully or partially engraved, or legibly typed, as the proper officers of the Company may determine, and shall be signed on behalf of the Company by an Authorized Officer and need not be attested. The signature of the Authorized Officer upon the Bonds may be in the form of a facsimile signature of a present or any future Authorized Officer and may be imprinted or otherwise reproduced on the Bonds and for that purpose the Company may use the facsimile signature of any Person who shall have been an Authorized Officer, notwithstanding the fact that at the time the Bonds shall 19 be authenticated and delivered or disposed of that Person shall have ceased to be an Authorized Officer. (b) Only such Bonds as shall bear thereon a certificate of authentication substantially in the form established for such Bonds, executed manually by an authorized signatory of the Trustee, or by any Authenticating Agent with respect to such Bonds, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate executed by the Trustee, or by any Authenticating Agent appointed by the Trustee with respect to such Bonds, upon any Bonds executed by the Company shall be conclusive evidence that the Bond so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Bonds of any series executed by the Company to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Bonds, signed by an Authorized Officer, and the Trustee in accordance with such written order shall authenticate and deliver such Bonds. In authenticating such Bonds and accepting the additional responsibilities under this Indenture in relation to such Bonds, the Trustee shall be entitled to receive, and (subject to Section 14.01) shall be fully protected in relying upon (i) an Opinion of Counsel and (ii) an Officers' Certificate, each stating that the form and terms thereof have been established in conformity with the provisions of this Indenture. Each Opinion of Counsel and Officers' Certificate delivered pursuant to this Section 2.04 shall include all statements prescribed by Section 21.01(a). If all the Bonds of any series are not to be issued at one time, it shall not be necessary to deliver an Opinion of Counsel and Officers' Certificate at the time of issuance of each Bond, but such opinion and certificate shall be delivered at or before the time of issuance of the first Bond of such series to be issued. (c) Any of the Bonds may be issued with appropriate insertions, omissions, substitutions and variations, and may have imprinted or otherwise reproduced thereon such legend or legends, not inconsistent with the provisions of this Indenture, as may be required to comply with any law or with any rules or regulations pursuant thereto, or with the rules of any securities market in which the Bonds are admitted to trading, or to conform to general usage. (d) Bonds offered and sold in reliance on Rule 144A under the Securities Act ("Rule 144A") shall be issued in the form of one or more --------- permanent Global Bonds (the "Rule 144A Global Bonds") for each series of Bonds ---------------------- in definitive, fully registered form without interest coupons substantially in the form of the Bond in the relevant Supplemental Indenture with such legends as may be applicable thereto in accordance with the form of such Bond deposited with the Trustee, at the Corporate Trust Office, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Rule 144A Global Bonds with respect to any series of Bonds may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, and the Depositary or its nominee, as the case may be, as hereinafter provided. 20 Bonds offered and sold to institutions that are "accredited investors" within the meaning of Rule 501(a)(1), (2), (3) or (7) of the Securities Act in reliance on an exemption from registration under the Securities Act shall be issued in the form of certificated Bonds (the "Accredited Investor Bonds") in ------------------------- definitive, fully registered form without interest coupons substantially in the form of the Bond in the relevant Supplemental Indenture with such legends as may be applicable thereto, duly executed by the Company and authenticated and delivered by the Trustee as hereinafter provided. (e) (i) This Section 2.04(e)(i) shall apply only to Bonds in global form ("Global Bonds") deposited with the Depositary. ------------ The Company shall execute and the Trustee shall, in accordance with this Section 2.04(e)(i), authenticate and deliver Global Bonds for each series of Bonds that (a) shall be registered in the name of the Depositary for such Global Bonds or the nominee of such Depositary, (b) shall be deposited on behalf of Agent Members (as defined herein) with the Trustee as custodian for the Depositary and (c) shall bear legends substantially to the following effect: "UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF [INSERT NAME AND ADDRESS OF DEPOSITARY] TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY BOND IS REGISTERED IN THE NAME OF [INSERT NAME OF NOMINEE OF DEPOSITARY], OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF [INSERT NAME OF DEPOSITARY] (AND ANY PAYMENT IS MADE TO [INSERT NAME OF NOMINEE OF DEPOSITARY]) OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF [INSERT NAME OF DEPOSITARY]), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, [INSERT NAME OF NOMINEE OF DEPOSITARY], HAS AN INTEREST HEREIN". "TRANSFERS OF THIS BOND SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF [INSERT NAME OF DEPOSITARY] OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS BOND SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.06 OF THE INDENTURE REFERRED TO ON THE REVERSE HEREOF". Members of, or participants in, a Depositary ("Agent Members") shall ------------- have no rights under this Indenture with respect to any Global Bond held on their behalf by the Depositary or under any Global Bond, and the Depositary may be treated by the Company, the 21 Trustee, and any agent of the Company or the Trustee as the absolute owner of such Global Bond for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any security. (ii) This Section 2.04(e)(ii) shall apply only to Rule 144A Global Bonds, any certificated Bonds issued in accordance with Section 2.05 hereof in exchange therefore (and any certificated securities issued to qualified institutional buyers in exchange therefore) and to Accredited Investor Bonds. The Company shall execute and the Trustee shall, in accordance with this Section 2.04(e)(ii), authenticate and deliver Rule 144A Global Bonds, certificated Bonds issued in accordance with Section 2.05 hereof in exchange therefore (and any certificated securities issued to qualified institutional buyers in exchange therefore) and Accredited Investor Bonds for each series of Bonds that shall bear legends substantially to the following effect: "THIS BOND (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)(A "QIB"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS BOND EXCEPT (A) TO THE COMPANY (INCLUDING ANY OF THE COMPANY'S SUBSIDIARIES), (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND THE DELIVERY TO THE TRUSTEE OF SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF 22 THE SECURITIES ACT) OR (D) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS BOND OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. Section 2.05. Global Bonds. (a) Except for a transfer pursuant to the ------------ provisions of Section 2.06(b)(iii) hereof, portions of a Global Bond of any series deposited with the Depositary pursuant to Section 2.04 shall be transferred in certificated form to the beneficial owners thereof only if such transfer complies with Section 2.06 and (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Bond or if at any time such Depositary ceases to be a "clearing agency" registered under the Exchange Act and a successor depositary is not appointed by the Company within 90 days of such notice, (ii) a Default or Event of Default has occurred and is continuing with respect to the Bonds of such series and payment of principal thereof and interest thereon has been accelerated and the owners of beneficial interests in the Global Bonds with fractional undivided interests aggregating not less than a majority interest advise the Trustee, the Company and the Depositary through Agent Members in writing that the continuation of a book-entry system through the Depositary or its successors is no longer in their best interest or (iii) the Company, at its option, elects to cause the issuance of certificated bonds in lieu of such Global Bond and so notifies the Trustee in writing. (b) Portions of any Global Bond of any series that are transferable to the beneficial owners thereof pursuant to this Section 2.05 shall be surrendered by the Depositary to the Trustee at its New York office for registration of transfer, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such registration of transfer of each portion of such Global Bond, an equal aggregate principal amount of Bonds of such series of authorized denominations. Any portion of a Global Bond whose registration is transferred pursuant to this Section 2.05 shall be executed, authenticated and delivered in the denominations as specified in the relevant Supplemental Indenture pursuant to Section 2.02 and registered in such names as the Depositary shall direct. Any Bond of any series delivered in exchange for a portion of a Rule 144A Global Bond of such series shall bear the Legend regarding transfer restrictions applicable to Rule 144A Global Bonds set forth in the form of Bond in the relevant Supplemental Indenture. (c) Subject to the provisions of Section 2.04(e) above, the registered holder of any Global Bond may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Bonds of the applicable series. (d) In the event of the occurrence of any of the events specified in paragraph (a) of this Section 2.05, the Company shall promptly make available to the Trustee a reasonable 23 supply of certificated Bonds of each applicable series in definitive fully registered form without interest coupons. (e) The Global Bonds of each series issued and authenticated pursuant to the first paragraph of Section 2.04(b) (both before and after the expiration of the restricted period) and the Rule 144A Global Bonds of each series shall each be assigned separate securities identification numbers. Section 2.06. Registration, Registration of Transfer and Exchange. (a) The Company shall cause to be kept, at each office or agency to be designated by the Company for the purpose, a register or registers (each, the "Bond Register") in ------------- which, subject to such reasonable regulations as it may prescribe, it will register or cause to be registered, and will register or cause to be registered the transfer of, Bonds as in this Article provided. The Trustee is hereby appointed "Bond Registrar" for the purpose of registering Bonds and transfers of -------------- Bonds as herein provided. Any successor Bond Registrar shall be appointed as authorized by a Board resolution. If at any time the Trustee shall not be serving as Bond Registrar, at all reasonable times such Bonds Register shall be open for inspection by the Trustee. Upon due presentation for registration of transfer of any Bond at each such office or agency, the Company shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Bond or Bonds of the same series in authorized denominations for a like aggregate principal amount. Any Bond or Bonds may be exchanged for a Bond or Bonds of the same series in other authorized denominations, in an equal aggregate principal amount. Bonds to be exchanged shall be surrendered at the office or agency of the Company designated for such purpose in the Borough of Manhattan, the City and State of New York, and the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor the Bond or Bonds of the same series which the Holder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. All Bonds presented for registration of transfer, exchange, redemption or payment shall (if so required by the Company or the Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by, the Holder or its attorney duly authorized in writing. The Company or Trustee shall not be required to exchange or register a transfer of any Bonds of any series for a period of 15 days next preceding the first mailing of notice of redemption of Bonds of such series to be redeemed or any Bond of any series selected, called or being called for redemption except, in the case of any Bond of such series where public notice has been given that such Bond is to be redeemed in part, the portion thereof not so to be redeemed. All Bonds of any series issued upon any registration of transfer or exchange of Bonds shall be valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Bonds of such series surrendered upon such registration of transfer or exchange. 24 (b) Notwithstanding any provision to the contrary herein, so long as a Global Bond of any series remains outstanding and is held by or on behalf of the Depositary, transfers of a Global Bond of such series, in whole or in part, shall only be made (x) in the case of transfers of portions of a Global Bond of such series to beneficial owners thereof in certificated form, in accordance with Section 2.05, and (y) in all other cases, in accordance with this Section 2.06(b) (and subject, in each case, to the provisions of any Legend (as defined herein) imprinted on such Global Bond). The registered Holder of a Bond shall be treated as the owner of it for all purposes. (i) Transfers of Global Bonds as such. Subject to clauses (ii) through --------------------------------- (iv) of this Section 2.06(b), transfers of a Global Bond shall be limited to transfers of such Global Bond in whole, and not in part, to nominees of the Depositary or to a successor of the Depositary or such successor's nominee. (ii) Accredited Investor Bond to Rule 144A Global Bond. If a holder of ------------------------------------------------- an Accredited Investor Bond of any series wishes at any time to exchange its interest in such Bond for an interest in the Rule 144A Global Bond of such series or transfer its interest in such Bond to a Person who wishes to take delivery thereof in the form of an interest in the Rule 144A Global Bond of such series such holder may, subject to the rules and procedures of the Depositary, exchange or transfer or cause the exchange or transfer of such interest for an equivalent beneficial interest in the Rule 144A Global Bond of such series, in accordance with, and subject to, this clause (ii). Upon receipt by the Trustee, at the Corporate Trust Office of (A) instructions from the Depositary directing the Trustee to credit or cause to be credited a beneficial interest in the Rule 144A Global Bond of a series in an amount equal to the aggregate principal amount of the Accredited Investor Bond to be exchanged or transferred, such instructions to contain information regarding the Agent Member's account with the Depositary to be credited with such increase and (B) a certificate in the form attached to the relevant Supplemental Indenture given by the holder of such interest and stating that the Person exchanging or transferring such interest in the Accredited Investor Bond of such series reasonably believes that the Person acquiring such interest in the Rule 144A Global Bond is a "qualified institutional buyer" (as defined in Rule 144A) and is obtaining such beneficial interest in a transaction meeting the requirements of Rule 144A, the Trustee shall instruct the Depositary to cancel such Bond surrendered for transfer or exchange in accordance with Section 2.11 hereof, and the Trustee shall instruct the Depositary, concurrently with such cancellation, to increase the principal amount of the Rule 144A Global Bond of such series by the aggregate principal amount of the Accredited Investor Bond of such series to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Rule 144A Global Bond of such series equal to the aggregate principal amount of the cancelled Accredited Investor Bond of such series. (iii) Rule 144A Global Bond to Accredited Investor Bond. If a ------------------------------------------------- holder of a beneficial interest in the Rule 144A Global Bond of any series wishes at any time to exchange its interest in such Global Bond for an Accredited Investor Bond or transfer its interest in such Bond to a Person who wishes to take delivery thereof in the form of an Accredited Investor Bond of such series, such holder may, subject to the rules and 25 procedures of the Depositary, exchange or transfer or cause the exchange or transfer of such interest for an equivalent interest in an Accredited Investor Bond of such series, in accordance with, and subject to, this clause (iii). Upon receipt by the Trustee, at the Corporate Trust Office, of a certificate in the form attached to the relevant Supplemental Indenture given by the holder of such beneficial interest and stating that the Person exchanging or transferring such interest reasonably believes that the Person acquiring such interest in an Accredited Investor Bond of such series is an institution that is an "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and is obtaining such interest in a transaction exempt from the Securities Act, the Trustee shall instruct the Depositary to reduce the Rule 144A Global Bond of such series by the aggregate principal amount of the beneficial interest in such Global Bonds to be exchanged or transferred, and the Company shall execute, and the Trustee shall authenticate and deliver in the name of the Person specified in such instructions an Accredited Investor Bond of such series equal to the reduction in the principal amount of the Rule 144A Global Bond of such series. (iv) Other Exchanges. In the event that a Global Bond is exchanged for --------------- Bonds in definitive registered form without interest coupons pursuant to Section 2.05 hereof, such Bonds may be exchanged or transferred for one another only in accordance with such procedures as are substantially consistent with the provisions of clauses (ii) and (iii) above (including, without limitation, the certification requirements intended to insure that such exchanges or transfers comply with Rule 144A, Rule 144 and generally with the Securities Act, as the case may be) and as may be from time to time adopted by the Company and the Trustee. (c) Successive registrations and registrations of transfers and exchanges as aforesaid may be made from time to time as desired, and each such registration shall be noted on the Bond Register. No service charge shall be made for any registration of transfer or exchange of the Bonds, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith and any other amounts required to be paid by the provisions of the Bonds. (d) If Bonds are issued upon the registration of transfer, exchange or replacement of Bonds not bearing the legends required by the form of Bond in the relevant Supplemental Indenture hereto (collectively, the "Legend"), ------ the Bonds so issued shall not bear the Legend. If Bonds are issued upon the registration or transfer, exchange or replacement of Bonds bearing the Legend, or if a request is made to remove the Legend on a Bond, the Bonds so issued shall bear the Legend, or the Legend shall not be removed, as the case may be, unless there is delivered to the Company and the Trustee such satisfactory evidence, which may include an Opinion of Counsel of recognized standing licensed to practice law in the State of New York and experienced in matters involving the Securities Act, as may be reasonably required by the Company that neither the Legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A or Rule 144 or that such Bonds are not "restricted securities" within the meaning of Rule 144. Upon provision of such satisfactory evidence, the Trustee, at the direction of the Company, shall authenticate and deliver a Bond that does not bear the Legend. If a Legend is removed from the face of a Bond and the Bond is subsequently held by an affiliate of the Company, the Legend shall be reinstated. 26 Section 2.07. Temporary Bonds. There may be authenticated and delivered --------------- and issued from time to time in lieu of (or in exchange for) any definitive Bond or Bonds issued or issuable under this Indenture, one or more temporary Bonds substantially of the tenor of such definitive Bonds without coupons, and with or without the privilege of registration as to principal only, or as to both principal and interest, and such temporary Bond or Bonds may be in such denomination or denominations as may be specified in a Supplemental Indenture. Until a definitive Bond or Bonds are delivered in exchange therefor, the holder of each such temporary Bond or Bonds shall be entitled to the Lien and benefit of this Indenture. Upon the exchange by the Company of definitive Registered Bonds for temporary Bonds (which exchange the Company shall make on request of, and without charge to, the holder of temporary Bonds, when definitive Bonds are ready for delivery) such temporary Bond or Bonds shall be canceled by the Trustee. Unregistered temporary Bonds of any series shall bear interest from the beginning of the interest period for Bonds of that series during which such unregistered temporary Bonds were authenticated. The holder of one or more temporary Bonds may surrender and exchange them for cancellation in bearer form, or, if registered, accompanied by a written instrument or instruments of transfer, if required by the Company, duly executed by the registered holder or by the duly authorized attorney of such holder, at the office or agency of the Company designated by it, and shall be entitled to receive a temporary Bond or Bonds of the same series of like aggregate principal amount of such other denominations as may be specified in a Supplemental Indenture. Section 2.08. Replacement of Stolen, Lost, Destroyed or Mutilated Bonds. --------------------------------------------------------- Upon receipt by the Company and the Trustee of evidence satisfactory to them of the theft, loss, destruction or mutilation of any Outstanding Bond, and of indemnity satisfactory to them, and upon payment, if the Company or the Trustee shall require it, of a reasonable charge and upon reimbursement to the Company and the Trustee of all reasonable expense incident thereto, and upon surrender and cancellation of such Bond, if mutilated, the Company may execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor and of the same series in lieu of such stolen, lost, destroyed or mutilated Bond, or if any such Bond shall have matured or be about to mature, instead of issuing a substituted Bond the Company may pay the same. Any indemnity bond shall name as obligees the Company, the Trustee, and if requested by the Company, any paying agent. Section 2.09. Trustee's Certificate on Bonds. No Bond shall be secured by ------------------------------ this Indenture unless there shall be endorsed thereon the certificate of the Trustee that it is one of the Bonds (or temporary Bonds) of the series therein designated, herein described or provided for; and such certificate on any such Bond shall be conclusive evidence that such Bond has been duly authenticated and delivered by the Trustee and when delivered by the Company will be secured by this Indenture. Section 2.10. CUSIP Numbers. The Company in issuing the Bonds may, and in the case of Global Bonds pursuant to Section 2.05(e) shall, use "CUSIP" numbers (if then generally in use), and, if so used, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any -------- such notice may state that no representation is made as to the correctness of such numbers either as printed on the Bonds or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed 27 on the Bonds, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. Section 2.11. Cancellations. All Bonds surrendered for the purpose of ------------- payment, redemption, exchange or registration of transfer shall, if surrendered to the Company or any paying agent, be delivered to the Trustee for cancellation or, if surrendered to the Trustee, shall be cancelled by it, and no Bonds shall be issued in lieu thereof except as expressly required or permitted by any of the provisions of this Indenture. On request of the Company, the Trustee shall deliver to the Company cancelled Bonds held by the Trustee. All cancelled Bonds held by the Trustee shall be disposed of in accordance with the Trustee's policy of disposal of cancelled Bonds; provided that the Trustee shall not be required to destroy cancelled Bonds. If the Company shall otherwise acquire any of the Bonds, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Bonds unless and until the same are delivered to the Trustee for cancellation. ARTICLE III ISSUANCE OF BONDS BASED ON BONDABLE PROPERTY Section 3.01. Bonds Issuable on Basis of Bondable Property. The Trustee -------------------------------------------- shall, from time to time, upon the written order or orders of the Company signed by its Chairman of the Board, Chief Executive Officer, President or a Vice- President and its Secretary, an Assistant Secretary, its Chief Financial Officer, its Treasurer or an Assistant Treasurer, authenticate and deliver Bonds of one or more series, or any portion of a series, upon the basis of Bondable Property, but only in accordance with and subject to the conditions, provisions and limitations set forth in this Article III. Section 3.02. No Bonds Issuable on Basis of Bonded Bondable Property. No ------------------------------------------------------ Bonds shall be authenticated and delivered at any time under this Article III upon the basis of Bonded Bondable Property. Section 3.03. Bonds Issuable to Specified Percentage of Bondable Property. ----------------------------------------------------------- Bonds of any one or more series may be authenticated and delivered under this Article III in a principal amount not exceeding the aggregate amount of Unbonded Bondable Property at the time of such authentication and delivery. Section 3.04. Requirements for Issuance. No Bonds shall be authenticated ------------------------- or delivered under this Article III by the Trustee upon the basis of Bondable Property, until the Trustee shall have received the following: (a) A Board resolution authorizing proper officers of the Company to (i) request the Trustee to authenticate and deliver Bonds, (ii) approve the Supplemental Indenture pursuant to which such Bonds are to be issued, (iii) specify the principal amount of Bonds to be authenticated and delivered, the series thereof and any other matters with respect thereto required by this Indenture, and (iv) set forth instructions for the delivery of such Bonds; 28 (b) An Officers' Certificate stating that to the knowledge of the signers of such Officers' Certificate none of the events which constitute a Default or an Event of Default has occurred and is continuing; (c) An Engineer's Certificate, dated the date of such application, stating: (i) the amount, as of the date not more than 90 days prior to the date of such application, of Bondable Property made a basis for the application; (ii) that all such property is Bondable Property as defined in Section 1.03; (iii) that all such Bondable Property is desirable for use or is used in the proper conduct of the business of the Company; (iv) that such amount of Bondable Property is not then Bonded; (v) a brief description, with respect to any Bondable Property (which has not been included in Bondable Property that has previously been made the basis for an application under this Section 3.04) acquired, made or constructed in whole or in part through the delivery of securities, of the securities so delivered and stating the date of such delivery; (vi) that the Cost of such Bondable Property is a specified amount and, except as to Bondable Property for which a statement is to be made in an Independent Engineer's Certificate as provided in Section 3.04(d), that the Fair Value of such Bondable Property as of a date not more than 90 days prior to the date of such application is a specified amount; (vii) the amount required to be deducted in respect of Bondable Property under clause (iii)(A) of the definition of "Bondable Property" in Section 1.03 and the amount elected to be added under clause (iii)(B) of the definition of "Bondable Property" in Section 1.03; (viii) what part, if any, of such Bondable Property, which has not been included in Bondable Property that has previously been made a basis for an application under this Section 3.04, includes property which within six months prior to the date of acquisition thereof by the Company has been used or operated by others than the Company in a business similar to that in which it has been or is to be used or operated by the Company and showing whether or not the Fair Value thereof as of a date not more than 90 days prior to the date of such application is less than $25,000 and whether or not the Fair Value is less than 1% of the aggregate principal amount of the Bonds Outstanding at the date of such application; and (ix) that any property or rights of way included in such Bondable Property are not subject to any easements, rights of way, restrictions, exceptions or reservations or zoning ordinances, restrictions or regulations or irregularities in or defects 29 of title that materially impair the use of such property or rights of way for the purposes for which the same are held by the Company; (d) in case any Bondable Property, which has not been included in Bondable Property that has previously been made the basis for an application under this Section 3.04, is shown by the Engineer's Certificate provided for in Section 3.04(c) to include property which within six months prior to the date of acquisition thereof by the Company has been used or operated by others than the Company in a business similar to that in which it has been or is to be used or operated by the Company and such certificate does not show the Fair Value thereof, as of a date not more than 90 days prior to the date of such application, to be less than $25,000 or less than 1% of the aggregate principal amount of the Bonds Outstanding at the date of such application, an Independent Engineer's Certificate stating as to such Bondable Property and (at the option of the Company) as to any other Bondable Property included in the Engineer's Certificate provided for in Section 3.04(c), that the then aggregate Fair Value thereof, as of a date not more than 90 days prior to the date of such application, in the opinion of the signer of such Engineer's Certificate is a specified amount, and the Fair Value in the opinion of such signer of any Bondable Property so used or operated which has been subjected to the Lien of this Indenture since the commencement of the calendar year which includes the date of such application, as a basis for the authentication and delivery of Bonds, and as to which an Independent Engineer's Certificate has not previously been furnished to the Trustee; (e) in case any Bondable Property is shown by the Engineer's Certificate provided for in Section 3.04(c) to have been acquired, made or constructed in whole or in part through the delivery of securities, an Appraiser's Certificate stating the opinion of the signer of such Appraiser's Certificate of the fair market value in cash of such securities at the time of delivery thereof in payment for or for the acquisition of such Bondable Property; (f) an Opinion of Counsel stating the opinion of such Counsel: (i) to the effect that (except as to paving, grading and other improvements to, under or upon public highways, bridges, parks or other public property of analogous character) this Indenture is, or upon the delivery of, and/or the filing and/or recording in the proper places and manner of, the instruments of conveyance, assignment or transfer, if any, specified in said Opinion of Counsel, will be a valid lien on the Bondable Property made the basis of such application, subject to no lien thereon prior or equal to the Lien of this Indenture, except Permissible Encumbrances; (ii) to the effect that the Company has corporate authority to operate the Bondable Property in respect to which such application is made; and (iii) as to the general nature and extent of any Prior Liens existing upon any of such Bondable Property, and the principal amount of the then outstanding Prior Lien Bonds secured thereby, if any; 30 (g) an Opinion or Opinions of Counsel stating the opinion of such Counsel to the effect that: (i) such issue of the Bonds has been duly authorized by the Company; and (ii) such issue of the Bonds has been duly authorized by any and all governmental authorities the consent of which is requisite to the legal issue of such Bonds, specifying any official orders or certificates, or other documents, by which such consent is or may be evidenced, or that no consent of any governmental authority is requisite; (h) copies of the instruments of conveyance, assignment and transfer, if any, specified in the Opinion of Counsel provided for in Section 3.04(f); (i) copies of the orders or certificates, or other documents, if any, specified in the Opinion of Counsel provided for in Section 3.04(g); and (j) if, in order to render the Opinion of Counsel provided for in Section 3.04(f) or Section 3.04(g), counsel shall deem it necessary that additional facts or matters be stated in the Engineer's Certificate provided for in Section 3.04(c), then such Engineer's Certificate may state all such additional facts or matters as such counsel may request. In addition, in giving the Opinion of Counsel provided for in Section 3.04(f)(i), counsel may rely upon (A) opinions of special counsel for the Company and its subsidiaries, (B) opinions of in-house counsel for the Company's divisions and its subsidiaries, (C) title insurance policies, title insurance commitments and reports, lien search certificates and other similar evidences of the existence of liens on property and (D) certificates of officers and other representatives of the Company and its subsidiaries. Section 3.05. Determination of Cost or Fair Value. The Cost or Fair Value ----------------------------------- of any Bondable Property and the fair market value in cash of any securities delivered in payment therefor or for the acquisition thereof and the amounts of any deductions and any additions made in respect of Bondable Property pursuant to clause (ii) or clause (iii) of the definition of "Bondable Property" in Section 1.03 shall be determined for the purposes of this Article III by the certificates provided for in Section 3.04; in the case of Bondable Property subject to a Prior Lien, the Fair Value of such Bondable Property shall be determined as if such Bondable Property were free of such Prior Lien. ARTICLE IV ISSUANCE OF BONDS BASED ON RETIRED BONDS PREVIOUSLY OUTSTANDING Section 4.01. Requirements for Issuance. Subject to Section 4.03, the ------------------------- Trustee shall, from time to time, upon the written order or orders of the Company signed by its Chairman of the Board, Chief Executive Officer, President or a Vice-President and its Secretary, an Assistant Secretary, its Chief Financial Officer, its Treasurer or an Assistant Treasurer, authenticate and deliver Bonds of one or more series, or any portion of a series, in a principal amount equal to and 31 on the basis of the principal amount of any Retired Bonds, but only after the Trustee shall have received the following: (a) the Board resolution provided for in Section 3.04(a); (b) the Officers' Certificate provided for in Section 3.04(b); (c) an Officers' Certificate stating that Bonds theretofore authenticated and delivered under this Indenture of a specified principal amount (not less than the principal amount of Bonds for which such request for authentication and delivery is made under this Section 4.01), have been Retired or surrendered to the Trustee for cancellation (otherwise than upon exchanges or transfers of Bonds) or concurrently with the authentication and delivery of the Bonds requested will be Retired or surrendered to the Trustee for cancellation (otherwise then upon exchanges or transfers of Bonds), and further stating that no part of such principal amount of Bonds has theretofore been Bonded; (d) the Opinion or Opinions of Counsel provided for in Section 3.04(g); and (e) copies of the orders or certificates, or other documents, if any, specified in the Opinion of Counsel provided for in Section 4.01(d). Section 4.02. No Bonds Issuable on Basis of Bonded Bonds. No Bonds shall ------------------------------------------ be authenticated and delivered at any time under this Article IV upon the basis of Bonded Bonds. ARTICLE V ISSUANCE OF BONDS BASED ON DEPOSIT OF CASH WITH TRUSTEE Section 5.01. Requirements for Issuance. The Trustee shall, from time to ------------------------- time, upon the written order or orders of the Company signed by its Chairman of the Board, Chief Executive Officer, President or a Vice-President and its Secretary, an Assistant Secretary, its Chief Financial Officer, its Treasurer or an Assistant Treasurer, authenticate and deliver Bonds of one or more series, or any portion of a series, upon deposit with the Trustee by the Company of cash equal to the aggregate principal amount of the Bonds so requested to be authenticated and delivered, but only after the Trustee shall have received: (a) the Board resolution provided for in Section 3.04(a); (b) the Officers' Certificate provided for in Section 3.04(b); (c) the Opinion or Opinions of Counsel provided for in Section 3.04(g); and (d) copies of the orders or certificates, or other documents, if any, specified in the Opinion of Counsel provided for in Section 5.01(c). Section 5.02. Application of Cash Deposited Under Section 5.01. All cash ------------------------------------------------ deposited with the Trustee under Section 5.01 shall be held and applied in accordance with Article XI. 32 ARTICLE VI ISSUANCE OF BONDS BASED ON PRIOR LIEN BONDS Section 6.01. Requirements for Issuance. Subject to Section 6.02, the ------------------------- Trustee shall, from time to time, upon the written order or orders of the Company signed by its Chairman of the Board, Chief Executive Officer, President or a Vice-President and its Secretary, an Assistant Secretary, its Chief Financial Officer, its Treasurer or an Assistant Treasurer, authenticate and deliver Bonds in one or more series, or any portion of a series, in a principal amount equal to and on the basis of the principal amount of any Prior Lien Bonds purchased or acquired by the Company and deposited with the Trustee or Retired after June 30, 1999, but only after the Trustee shall have received the following: (a) the Board resolution provided for in Section 3.04(a); (b) the Officers' Certificate provided for in Section 3.04(b); (c) the Opinion or Opinions of Counsel provided for in Section 3.04(g); (d) copies of the orders or certificates, or other documents, if any, specified in the Opinion of Counsel provided for in Section 6.01(c); and (e) an Officers' Certificate stating that Prior Lien Bonds of a specified principal amount (not less than the principal amount of Bonds for which such request for authentication and delivery is made under this Section 6.01) have been Retired or concurrently with the authentication and delivery of the Bonds requested will be Retired or purchased or acquired by the Company and deposited with the Trustee, and further stating that no part of such principal amount of Prior Lien Bonds has theretofore been Bonded, accompanied by any such Prior Lien Bonds purchased or acquired by the Company, or a certificate of the trustee or mortgagee under such Prior Lien stating that such Prior Lien Bonds have not been used as a basis for the issuance of Prior Lien Bonds pursuant to such Prior Lien and that such Prior Lien Bonds have been purchased, paid, retired, redeemed, canceled or otherwise discharged, or that provision for such purchase, payment, retirement, redemption, cancellation or other discharge satisfactory to such trustee or mortgagee has been made, including the deposit of any necessary moneys or Governmental Obligations with such trustee or mortgagee. Section 6.02. No Bonds Issuable on Basis of Bonded Prior Lien Bonds. No ----------------------------------------------------- Bonds shall be authenticated and delivered at any time under this Article VI upon the basis of Bonded Prior Lien Bonds. 33 ARTICLE VII COVENANTS OF THE COMPANY Section 7.01. Payment of Principal and Interest. The Company will duly and --------------------------------- punctually pay the principal of, premium, if any, and interest on all Outstanding Bonds at the times and places and in the manner provided for in the Bonds and this Indenture. Section 7.02. Possession, Maintenance of Lien and Right to Mortgage. On ----------------------------------------------------- the date of the execution of this Indenture the Company is lawfully seized and possessed of all the Mortgaged Property in existence on such date, free and clear of all liens other than Permissible Encumbrances; the Company will maintain and preserve the Lien of this Indenture so long as any Bond is Outstanding subject to its right to create Prior Liens which are Permissible Encumbrances; and the Company has good right and lawful authority to mortgage the Mortgaged Property, as provided in and by this Indenture. Section 7.03. Corporate Existence. The Company will, subject to Article ------------------- XIII, at all times maintain its corporate existence and right to carry on business, and duly procure all renewals and extensions thereof, if and when any shall be necessary. Section 7.04. Appointment of Trustee. Whenever necessary to avoid or fill ---------------------- a vacancy in the office of Trustee, the Company will in the manner provided in Section 14.14 appoint a Trustee so that there shall be at all times a Trustee which shall at all times be a bank or trust company having its principal office and place of business in the United States of America and a corporation or association organized and doing business under the laws of the United States or of any State or the District of Columbia, with a combined capital and surplus of at least Twenty Million Dollars ($20,000,000), and authorized under such laws to exercise corporate trust powers and be subject to supervision or examination by Federal, State or District of Columbia authority. Section 7.05. Recordation of Indenture. The Company will cause this ------------------------ Indenture and all Supplemental Indentures or notices in respect thereof to be promptly recorded and filed and re-recorded and refiled in such manner and in such places as may be required by law in order fully to preserve and protect the security of the Holders and all rights of the Trustee, and will deliver to the Trustee: (a) promptly after the execution and delivery of this Indenture and of each Supplemental Indenture, an Opinion of Counsel either stating that in the opinion of such counsel this Indenture or such Supplemental Indenture or notice in respect thereof has been properly recorded and filed, so as to make effective the Lien of this Indenture intended to be granted hereby, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to make the Lien of this Indenture effective. It shall be sufficient to comply with this Section 7.05(a) if (i) such Opinion of Counsel states that this Indenture or such Supplemental Indenture or notice has been mailed or hand-delivered, or received for recording or filing in each jurisdiction in which it is required to be recorded or filed and that, in the opinion of such counsel (if such is the case), such receipt for recording or filing makes or will make effective the Lien of this Indenture intended to be created thereby, and (ii) such Opinion of Counsel is delivered to the Trustee within such time, following the date of the execution and 34 delivery of this Indenture or such Supplemental Indenture, as shall be practicable having due regard to the number and distance of the jurisdictions in which this Indenture or such Supplemental Indenture is required to be recorded or filed; (b) at least annually after the execution and delivery of this Indenture, an Opinion of Counsel either stating that in the opinion of such counsel such action has been taken, since the date of the most recent Opinion of Counsel furnished pursuant to this Section 7.05(b) or the first Opinion of Counsel furnished pursuant to Section 7.05(a), with respect to the recording, filing, re-recording and refiling of this Indenture and of each Supplemental Indenture and each notice with respect thereto, as is necessary to maintain the Lien of this Indenture and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to maintain such lien. Section 7.06. Paying Agents. (a) If the Company shall appoint one or more ------------- paying agents other than the Trustee, the Company will cause each such paying agent to execute and deliver to the Trustee an instrument in which such paying agent shall agree with the Trustee, subject to this Section 7.06, (i) that such paying agent shall hold in trust for the benefit of the Holders or the Trustee all sums held by such paying agent for the payment of the principal of, premium, if any, and interest on the Bonds; and (ii) that such paying agent shall give to the Trustee notice of any default by the Company in the making of any deposit with it for the payment of the principal of, premium, if any, or interest on the Bonds, and of any default by the Company in the making of any such payment; such paying agent shall not be obligated to segregate such sums from other funds of such paying agent except to the extent required by law, or unless otherwise directed by the Company. (b) If the Company acts as its own paying agent, the Company will, on or before each installment of principal of, premium, if any, or interest on the Bonds is required to be paid, set aside and segregate and hold in trust for the benefit of the Holders or the Trustee a sum sufficient to pay such principal, premium or interest on the Bonds and will notify the Trustee of such action, or of any failure to take such action. (c) Anything in this Section 7.06 to the contrary notwithstanding, the Company may at any time, for the purpose of obtaining a release or satisfaction of this Indenture or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by the Company or any paying agent as required by this Section 7.06, such sums to be held by the Trustee upon the trusts contained in this Indenture. (d) Anything in this Section 7.06 to the contrary notwithstanding, the holding of sums in trust as provided in this Section 7.06 is subject to Section 18.02. Section 7.07. Payment of Taxes. The Company will pay all taxes and ---------------- assessments and other governmental charges lawfully levied or assessed upon the Mortgaged Property, any income from the Mortgaged Property, or the interest of the Trustee in the Mortgaged Property, before the same shall result in the attachment of a lien on the Mortgaged Property and will use its commercially reasonable best efforts duly to observe and conform to all valid requirements of any governmental authority relative to any Mortgaged Property, and all covenants, terms and conditions upon or under which any Mortgaged Property is held; provided, however, that nothing in this Section 7.07 shall require the Company to use its commercially reasonable best efforts to observe or conform to any requirement of any governmental authority or to cause to be paid or 35 discharged, or to make provisions for, any such lien or charge, or to pay any such tax, assessment or governmental charge so long as the validity thereof shall be contested in good faith and by appropriate legal proceedings. Section 7.08. Instruments of Further Assurance. The Company will execute -------------------------------- and deliver such Supplemental Indenture or Indentures and such further instruments and do such further acts as may be necessary or proper to carry out more effectually the purposes of this Indenture and to make subject to the Lien of this Indenture any property (other than Excepted Property) hereafter acquired and intended or required to be so subject. Section 7.09. Books of Record and Account. The Company will keep proper --------------------------- books of record and account, in which full and correct entries shall be made of all dealings or transactions of or in relation to the Bonds and the business, properties and affairs of the Company in accordance with Generally Accepted Accounting Principles. The Company will furnish to the Trustee any and all information as the Trustee may reasonably request with respect to the performance by the Company of its covenants in this Indenture. Section 7.10. Maintenance of Mortgaged Property. The Company will cause --------------------------------- the Mortgaged Property to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on by the Company with the Mortgaged Property may be properly conducted at all times; provided, however, that nothing in this Section 7.10 shall prevent the Company from discontinuing the operation and maintenance of any Mortgaged Property if, in the judgment of the Company, such discontinuance is desirable in the conduct of its business, and, in the reasonable judgment of the Company, is not in any material respect adverse to the Holders. Section 7.11. Insurance. (a) The Company will keep or cause to be kept all --------- the Mortgaged Property insured with reasonable deductibles and retentions against loss by fire to the extent that property of similar character is usually so insured by companies similarly situated and operating like properties, by insurance companies which the Company believes to be reputable; or the Company will, in lieu of or supplementing such insurance in whole or in part, adopt some other method or plan of protection or, alone or in conjunction with any other Person or Persons, create an insurance fund to protect the Mortgaged Property against loss by fire. (b) Proceeds of any insurance or alternative method or plan of protection of the Company against losses of the kind specified in Section 7.11(a) shall, at the option of the Company, be paid to the Company, and the Company shall be under no obligation to use such proceeds to rebuild or repair damaged or destroyed Mortgaged Property to the extent that the Fair Value of all of the Mortgaged Property after the damage or destruction of Mortgaged Property with respect to which such proceeds are payable equals or exceeds an amount equal to the aggregate principal amount of Outstanding Bonds and Prior Lien Bonds outstanding, upon receipt by the Trustee of: 36 (i) an Engineer's Certificate stating that the Fair Value of the Mortgaged Property remaining after such damage or destruction of Mortgaged Property is a specified amount; and (ii) an Accountant's Certificate stating that the Fair Value of all of the Mortgaged Property, as certified in the Engineer's Certificate provided for in Section 7.11(b)(i), equals or exceeds an amount equal to the aggregate principal amount of Outstanding Bonds and Prior Lien Bonds outstanding. (c) If the Fair Value of all of the Mortgaged Property after such damage or destruction of Mortgaged Property does not equal or exceed an amount equal to the aggregate principal amount of Outstanding Bonds and Prior Lien Bonds outstanding, (i) the proceeds of such insurance paid with respect to any such loss shall be paid to the Trustee, as the interest of the Trustee may appear, or to the trustee or mortgagee under any Prior Lien upon the Mortgaged Property so destroyed or damaged, if the terms of such Prior Lien require such proceeds so to be paid; (ii) if the Company shall adopt such other method or plan, it will pay or cause to be paid to the Trustee on account of any loss sustained because of the destruction or damage of any Mortgaged Property by fire, an amount of cash equal to such loss less any amount otherwise paid with respect to such loss to the Trustee, or to the trustee or mortgagee under any such Prior Lien upon the Mortgaged Property so destroyed or damaged, if the terms of such Prior Lien require payments for such loss so to be paid (any amounts of cash so required to be paid by the Company pursuant to any such method or plan being deemed to be proceeds of insurance for the purposes of this Indenture); and (iii) to the extent any proceeds of insurance as set forth in this Section 3.07(c) are deposited with and subsequently released by the trustee or mortgagee under any Prior Lien upon the Mortgaged Property so destroyed or damaged to the Company, such proceeds shall then be paid by the Company to the Trustee to the extent that, but for the requirements of such Prior Lien, the Company would have been required under this Section to pay such amounts to the Trustee. (d) All moneys paid to the Trustee by the Company or received by the Trustee as proceeds of any insurance shall, subject to Section 7.11(b) and to the requirements of any Prior Lien, be held by the Trustee and, subject to such requirements, shall be paid by the Trustee to the Company to reimburse the Company for an equal amount spent for the purchase or other acquisition of property which becomes Mortgaged Property at the time of such purchase or acquisition, or in the rebuilding or renewal of the Mortgaged Property destroyed or damaged, upon receipt by the Trustee of (i) an Officers' Certificate requesting such reimbursement, (ii) an Accountant's Certificate stating the amounts so spent and the Cost of any Mortgaged Property so purchased or acquired, (iii) an Engineer's Certificate stating the nature of such rebuilding or renewal and the Fair Value of the Mortgaged Property so rebuilt or renewed, and (iv) an Opinion of Counsel to the effect that the Mortgaged Property so purchased, rebuilt or renewed is subject to the Lien of this Indenture to the same extent as was the Mortgaged Property so destroyed or damaged. (e) Any moneys not applied in accordance with Section 7.11(d) within 18 months after the receipt of such moneys by the Trustee, or in respect of which notice in writing of the intention of the Company to apply such moneys to the work of rebuilding or renewal then in progress and uncompleted shall not have been given to the Trustee by the Company within such 37 18 months, or which the Company shall at any time notify the Trustee is not to be so applied, shall be held and applied in accordance with Article XI. (f) There shall be delivered to the Trustee, on or before May 1 of each year and also whenever the Trustee shall make request therefor, a detailed statement, signed by the Treasurer or an Assistant Treasurer of the Company, of any fire insurance policies then outstanding and in force upon any Mortgaged Property, including the names of the insurance companies which have issued such policies and the amounts and expiration dates thereof, together with a detailed statement, signed by the Treasurer or an Assistant Treasurer of the Company, of any alternative method or plan of protection. Any such detailed statement shall be sufficient if it refers to the most recent statement delivered pursuant to this Section 7.11(f) and describes in detail the changes, if any, that have occurred since the date of such statement. Section 7.12. Payments by Trustee. The Trustee may, but shall not be ------------------- obligated to, make any payment that the Company in this Indenture agrees to make, upon any default by the Company in making such payment, and the Company covenants and agrees that it will repay to the Trustee any and all moneys that the Trustee so pays. ARTICLE VIII PRIOR LIEN BONDS DEPOSITED WITH TRUSTEE Section 8.01. Requirements Upon Deposit of Prior Lien Bonds. Each Prior --------------------------------------------- Lien Bond deposited with the Trustee shall be accompanied by appropriate instruments of transfer, and the Trustee may cause any or all registered Prior Lien Bonds deposited under this Article VIII to be registered in its name as Trustee, or otherwise, or in the name or names of its nominee or nominees. Section 8.02. Principal of and Interest on Prior Lien Bonds. All Prior --------------------------------------------- Lien Bonds received by the Trustee under this Article VIII shall be held as part of the Mortgaged Property for the protection and further security of the Bonds. Except during the continuance of an Event of Default, no payment of principal of, or premium, if any, or interest on any Prior Lien Bond, for which the Company is the obligor, held by the Trustee shall be made or demanded and the coupons thereto appertaining as they mature shall be canceled by the Trustee and delivered to the Company. Except during the continuance of an Event of Default, all moneys received by the Trustee (a) on account of the principal of or the premium, if any, or interest on any Prior Lien Bond, or (b) by reason of the sale or surrender of any Prior Lien Bond for cancellation pursuant to any sinking fund or analogous fund or other similar device for the retirement of Prior Lien Bonds, shall be paid by the Trustee to the Company. Section 8.03. Surrender of Prior Lien Bonds. (a) Except during the continuance of an Event of Default, the Trustee, on the written request of the Company, shall cause any Prior Lien Bonds held by it under this Article VIII to be canceled, and the obligations thereby evidenced to be satisfied and discharged, provided, however, that it shall have received notice from the trustee, mortgagee or other holder of the Prior Lien securing such Prior Lien Bonds, that such trustee, mortgagee or other holder will, on surrender of the Prior Lien Bonds so held by the Trustee, cause the Prior Lien securing the same to be satisfied and discharged. Upon similar 38 request the Trustee shall sell (on such terms as the Company shall designate) or surrender any Prior Lien Bonds held by it subject to this Article VIII to the trustee, mortgagee or other holder of the Prior Lien which secures such Prior Lien Bonds to be held uncanceled for the purposes of any sinking or analogous fund or other similar device for the retirement of such Prior Lien Bonds, provided, however, that if all of the property securing any Prior Lien Bonds deposited with the Trustee under this Article VIII shall have been released from the Lien of this Indenture, such bonds shall thereupon cease to be Prior Lien Bonds and shall be surrendered forthwith by the Trustee to the Company upon its written request. (b) Prior to any sale or surrender of Prior Lien Bonds by the Trustee in accordance with Section 8.03(a), there shall be delivered to the Trustee, an Appraiser's Certificate, made and dated not more than 90 days prior to the date of the Company's request for such sale or surrender, stating the fair market value in cash, in the opinion of the signer of such Appraiser's Certificate, of the Prior Lien Bonds to be sold or surrendered, and an Officers' Certificate stating that, in the opinion of the signers of such Officers' Certificate, the sale or surrender thereof will not impair the security under this Indenture. (c) Any moneys received by the Trustee on account of the principal of Prior Lien Bonds pursuant to Section 8.02 or upon the sale or surrender of Prior Lien Bonds pursuant to this Section 8.03 shall be held and applied in accordance with Article XI. Section 8.04. Extension of Maturity of Prior Lien Bonds. On the request of ----------------------------------------- the Company as evidenced by an Officers' Certificate, the Trustee shall permit the extension of the maturity of and/or any other modification of any Prior Lien Bonds held by the Trustee subject to this Article VIII and/or any modification of any Prior Lien. Section 8.05. Trustee's Rights Upon an Event of Default. Upon the ----------------------------------------- occurrence and during the continuance of an Event of Default, the Trustee may exercise any and all rights of a holder with respect to the Prior Lien Bonds then held by it under this Article VIII or may take any other action which shall in its judgment be desirable or necessary to avail itself of the security for such Prior Lien Bonds. ARTICLE IX REDEMPTION OF BONDS Section 9.01. Certain Bonds Redeemable. (a) Any Outstanding Bonds which ------------------------ are, by their terms, redeemable before maturity, at the option of the Company or pursuant to the provisions of this Indenture, may be redeemed at such times, in such amounts and at such prices as may be specified therein and in accordance with this Article IX. (b) The Company at its option may, at any time, redeem the Bonds of any series in accordance with the Supplemental Indenture pursuant to which the Bonds of such series were issued, in whole or in part, upon payment of a redemption price equal to the principal amount of the Bonds to be redeemed plus accrued and unpaid interest thereon, if any, plus, if such Supplemental Indenture so provides, the Make Whole Premium or similar premium, if any, 39 applicable to such Bonds, or for any other redemption price as may be specified in the Supplemental Indenture pursuant to which the Bonds of such series were issued. Section 9.02. General Provisions and Mechanics of Redemption. (a) If less ---------------------------------------------- than all of the Outstanding Bonds of any series are to be redeemed, the particular Bonds to be redeemed shall be selected by the Trustee from the Outstanding Bonds of such series which have not previously been called for redemption, by such method as the Trustee shall deem fair and appropriate, but special provisions for the selection of the particular Bonds to be redeemed within a particular series may be provided by a Supplemental Indenture. (b) Unless otherwise provided as to a particular series of Bonds, notice of the intention of the Company to redeem any Bonds which are not Registered Bonds shall be given to the holders of such Bonds, by or on behalf of the Company, by publication in one Authorized Newspaper in the Borough of Manhattan, the City and State of New York, and in one Authorized Newspaper in the city, if different, in which the Trustee maintains its principal office and place of business, once at least 30 and not more than 60 days prior to the date fixed for redemption. If less than all Bonds of any particular series are to be redeemed and unless otherwise provided as to a particular series of Bonds, the number of any Bonds to be redeemed shall be included in such notice and may be stated: individually; in groups from one number to another number, both inclusive, except such as shall have been previously called for redemption or otherwise retired; or in any other way satisfactory to the Trustee. (c) No notice of the intention of the Company to redeem Registered Bonds is required to be published in an Authorized Newspaper, but a copy of such notice shall be mailed to the holders of such Registered Bonds, not less than 30 nor more than 60 days before the date fixed for such redemption, at the last address appearing for each of such holders in the Bond Register maintained pursuant to Section 2.06. (d) If at the time of publication or mailing of any notice of redemption the Company shall not have irrevocably directed the Trustee to apply from moneys and/or Governmental Obligations deposited with the Trustee or held by it and available to be used for the redemption of Bonds sufficient to redeem all the Bonds called for redemption, such notice may state that it is subject to the receipt of such moneys and/or Governmental Obligations by the Trustee before the date fixed for redemption and such notice shall be of no effect unless such moneys and/or Governmental Obligations are so received before such date. (e) Failure duly to give notice of the intention of the Company to redeem any Bonds by publication and/or by mailing to the owner or holder of such Bond shall not affect the validity of the proceedings for the redemption of any other Bond. Section 9.03. Bonds Due on Redemption Date. Publication or mailing of the ---------------------------- notice of redemption, if required, having been completed as provided in Section 9.02(b) or 9.02(c) and the Company having before the redemption date specified in such notice irrevocably directed the Trustee to apply from moneys and/or Governmental Obligations deposited with the Trustee or held by it and available to be used for the redemption of Bonds, moneys and/or the proceeds from such Governmental Obligations in an amount sufficient to redeem all of the Bonds called for redemption, including accrued interest, and any Make Whole Premium, the Bonds called 40 for redemption shall become due and payable on such redemption date. Section 9.04. Moneys for Redemption Held in Trust. All moneys and/or ----------------------------------- Governmental Obligations held by the Trustee for the redemption of Bonds shall, subject to Section 18.02, be held in trust for the account of the holders of the Bonds so to be redeemed, and such moneys and/or the proceeds of such Governmental Obligations shall be paid to them respectively, upon presentation and surrender of such Bond. On and after such date fixed for redemption, if moneys and/or proceeds of Governmental Obligations in the necessary amount for the redemption of the Bonds to be redeemed shall be held by the Trustee for the purpose, such Bonds shall cease to bear interest and shall cease to be entitled to the Lien of this Indenture. Section 9.05. Partial Redemption of Registered Bond. If any Registered ------------------------------------- Bond shall be called for redemption in part only, the notice of such redemption shall specify the principal amount thereof to be redeemed, and such Registered Bond shall be presented for cancellation properly endorsed for transfer at or after the date fixed for the redemption thereof, and thereupon the payment with respect to such Bond shall be made upon surrender of such Bond so endorsed, and a Bond or Bonds for the unpaid balance of the principal amount of the Registered Bond so presented and surrendered shall be executed by the Company and authenticated and delivered by the Trustee without charge therefor to the holder thereof. ARTICLE X POSSESSION, USE AND RELEASE OF MORTGAGED PROPERTY Section 10.01. Company's Possession and Use. The Company shall be suffered ---------------------------- and permitted to possess, enjoy, use and operate the Mortgaged Property (except cash or securities paid to or deposited with or required by the express terms of this Indenture to be paid to or deposited with the Trustee) and to take and use any and all tolls, rents, revenues, earnings, interest, dividends, royalties, issues, income and profits thereof, as if this Indenture had not been made, with power in the ordinary course of business to alter, repair, change and add to its buildings, structures and any or all of its plant and equipment, constructed or owned or hereafter constructed or acquired by the Company, and hereby granted, bargained, sold, warranted, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed, to the Trustee, or intended so to be. Section 10.02. Actions Without Consent of Trustee. The Company may at any ---------------------------------- time and from time to time, without any release or consent by the Trustee: (a) sell or otherwise dispose of, free from the Lien of this Indenture, or abandon or otherwise retire, any personalty or fixtures which are part of the Mortgaged Property and which, in the judgment of the Company, shall have become old, inadequate, obsolete, worn out, unfit, unadapted, unserviceable, undesirable or unnecessary for use in the Company's operations; (b) cancel or make changes in or alterations of or substitutions for any and all leases; 41 (c) alter, change the location of, add to, repair and replace any and all transmission and distribution lines, substations, machinery, fixtures and other equipment; (d) cancel, make changes in or substitutions for or dispose of any and all rights of way (including easements and licenses); (e) surrender or assent to the modification of any franchise (including in that term any ordinances, indeterminate permits, licenses or other operating rights, however denominated, granted by Federal, State, municipal or other governmental authority) under which the Company may be operating if, in the judgment of the Company, it is advisable to do so; (f) abandon, or permit the abandonment of, the operation of any Mortgaged Property and surrender any franchises, as defined in Section 10.02(e), under which such Mortgaged Property is operated, if, in the judgment of the Company, the operation of such Mortgaged Property and such franchises is not, under the circumstances, necessary or important for the operation of the remaining Mortgaged Property, or whenever the Company deems such abandonment or surrender to be advisable for any reason; provided, however, that if the amount at which such property and all other properties so abandoned or surrendered during the same calendar year was originally charged to the fixed property accounts of the Company is 10% or more of the aggregate principal amount of the Bonds Outstanding immediately prior to such abandonment or surrender, there shall be furnished to the Trustee an Independent Engineer's Certificate to the effect that neither such operation nor such franchises are, under the circumstances, necessary or important for the operation of the remaining property of the Company or that such abandonment or surrender is advisable for some other specified reason, and in either case that such abandonment or surrender will not impair the security under this Indenture in contravention of the provisions hereof; and (g) grant or convey rights of way and easements over or in respect of any real Mortgaged Property owned by the Company, provided that such grant or conveyance will not, in the judgment of the Company, impair the usefulness of such real Mortgaged Property in the Company's operations. Section 10.03. Release of Mortgaged Property if Fair Value Test Satisfied. ---------------------------------------------------------- Subject to Section 10.11, the Trustee shall release from the Lien of this Indenture any Mortgaged Property if the Fair Value of all of the Mortgaged Property (excluding the Mortgaged Property to be released but including any Mortgaged Property to be acquired by the Company with the proceeds of, or otherwise in connection with, such release) equals or exceeds an amount equal to the aggregate principal amount of Outstanding Bonds and Prior Lien Bonds outstanding at the time of such release, upon receipt by the Trustee of: (a) an Officers' Certificate, dated the date of such release, requesting such release, describing in reasonable detail the Mortgaged Property to be released and stating the reason for such release; (b) an Engineer's Certificate, dated the date of such release, stating (i) that the signer of such Engineer's Certificate has examined such Officers' Certificate in connection with such release, (ii) the Fair Value, in the opinion of the signer of such Engineer's Certificate, of (A) all 42 of the Mortgaged Property, and (B) the Mortgaged Property to be released, in each case as of a date not more than 90 days prior to the date of such release, and (iii) that in the opinion of such signer, such release will not impair the security under this Indenture in contravention of the provisions hereof; (c) in the case any Bondable Property is being acquired by the Company with the proceeds of, or otherwise in connection with, such release, an Engineer's Certificate, dated the date of such release, as to the Fair Value, as of a date not more than 90 days prior to the date of such release, of the Bondable Property being so acquired (and if within six months prior to the date of acquisition by the Company of the Bondable Property being so acquired, such Bondable Property has been used or operated by a Person or Persons other than the Company in a business similar to that in which it has been or is to be used or operated by the Company, and the Fair Value to the Company of such Bondable Property, as set forth in such Certificate, is not less than $25,000 and not less than 1% of the aggregate principal amount of Bonds at the time Outstanding, such certificate shall be an Independent Engineer's Certificate); (d) an Accountant's Certificate, dated the date of such release, stating the aggregate principal amount of Outstanding Bonds and Prior Lien Bonds outstanding at the time of such release, and stating that the Fair Value of all of the Mortgaged Property (excluding the Mortgaged Property to be released but including any Bondable Property to be acquired by the Company with the proceeds of, or otherwise in connection with, such release) stated in the Engineer's Certificates filed pursuant to Section 10.03(b) and Section 10.03(c) equals or exceeds an amount equal to such aggregate principal amount; and (e) an Officers' Certificate, dated the date of such release, stating whether, and if so in what respect and to what extent, to the knowledge of the signers of such Officers' Certificate, there has occurred and is continuing an Event of Default. Section 10.04. Release of Limited Amount of Mortgaged Property. If the ----------------------------------------------- Company is unable, or elects not, to obtain, in accordance with Section 10.03, the release from the Lien of this Indenture of Mortgaged Property, subject to Section 10.11, the Trustee shall release from the Lien of this Indenture any Mortgaged Property if the Fair Value thereof, as shown by the Engineer's Certificate filed pursuant to Section 10.04(b), is less than 1/2 of 1% of the aggregate principal amount of Outstanding Bonds and Prior Lien Bonds outstanding at the time of such release, provided that the aggregate Fair Value of all Mortgaged Property released pursuant to this Section 10.04, as shown by all Engineer's Certificates filed pursuant to Section 10.04(b) in any period of 12 consecutive calendar months which includes the date of such Engineer's Certificate, shall not exceed 1% of the aggregate principal amount of the Outstanding Bonds and Prior Lien Bonds outstanding at the time of such release, upon receipt by the Trustee of: (a) an Officers' Certificate, dated the date of such release, requesting such release, describing in reasonable detail the Mortgaged Property to be released and stating the reason for such release; (b) an Engineer's Certificate, dated the date of such release, stating (A) that the signer of such Engineer's Certificate has examined such Officers' Certificate in connection with such release, (B) the Fair Value, in the opinion of the signer of such Engineer's Certificate, of such 43 Mortgaged Property to be released as of a date not more than 90 days prior to the date of such release, and (C) that in the opinion of such signer such release will not impair the security under this Indenture in contravention of the provisions hereof; (c) an Accountant's Certificate, dated the date of such release, stating the aggregate principal amount of Outstanding Bonds and Prior Lien Bonds outstanding at the time of such release, that 1/2 of 1% of such aggregate principal amount exceeds the Fair Value of the Mortgaged Property for which such release is applied for, and that 1% of such aggregate principal amount exceeds the aggregate Fair Value of all Mortgaged Property released from the Lien of this Indenture pursuant to this Section 10.04, as shown by all Engineer's Certificates filed pursuant to Section 10.04(b) in such period of 12 consecutive calendar months; and (d) an Officers' Certificate, dated the date of such release, stating whether, and if so in what respect and to what extent, to the knowledge of the signers of such Officers' Certificate, there has occurred and is continuing an Event of Default. Section 10.05. Release of Mortgaged Property Not Subject to a Prior Lien. --------------------------------------------------------- (a) If the Company is unable, or elects not, to obtain, in accordance with Section 10.03, the release from the Lien of this Indenture of Mortgaged Property which is not subject to a Prior Lien, the Company may, subject to Section 10.11, obtain the release of such Mortgaged Property from the Lien of this Indenture on the basis of cash, Governmental Obligations, purchase money obligations, Bondable Property acquired by the Company with the proceeds of, or otherwise in connection with, such release, or the waiver of the right to the authentication and delivery of Bonds as described in Section 10.05(a)(iii)(B), or a combination thereof, and the Trustee shall release such Mortgaged Property from the Lien of this Indenture, upon receipt by the Trustee of: (i) an Officers' Certificate, dated the date of such release, requesting such release, describing in reasonable detail the Mortgaged Property to be released, stating the reason for such release and stating the amount and character of the consideration to be received by the Company therefor; (ii) an Engineer's Certificate, dated the date of such release, stating (A) that the signer of such Engineer's Certificate has examined such Officers' Certificate in connection with such release, (B) the Fair Value, in the opinion of the signer of such Engineer's Certificate, of the Mortgaged Property to be released as of a date not more than 90 days prior to the date of such release, (C) the fair market value in cash, in the opinion of such signer (which opinion may be based on an Appraiser's Certificate), of any Governmental Obligations and purchase money obligations included in the consideration for such release and (D) that in the opinion of such signer such release will not impair the security under this Indenture in contravention of the provisions hereof; (iii) (A) an aggregate amount of Governmental Obligations and purchase money obligations having a fair market value in cash as evidenced by an Appraiser's Certificate, cash and evidence of the acquisition by the Company of Bondable Property with the proceeds of, or otherwise in connection with, such release (the amount of such Bondable Property shall be the Fair Value thereof as of a date not more than 90 days prior to the date of such release, as evidenced to the Trustee by an 44 Engineer's Certificate, dated the date of such release, and if within six months prior to the date of acquisition by the Company of the Bondable Property being so acquired such Bondable Property has been used or operated by a Person or Persons other than the Company in a business similar to that in which it has been or is to be used or operated by the Company, and the Fair Value to the Company of such Bondable Property, as set forth in such Certificate, is not less than $25,000 and not less than 1% of the aggregate principal amount of Bonds at the time Outstanding, such certificate, shall be an Independent Engineer's Certificate), not less than the Fair Value of the Mortgaged Property to be released, or (B) an Officers' Certificate, dated the date of such release, waiving the right of the Company to the authentication and delivery of an aggregate principal amount of Bonds up to the amount required by Section 10.05 (a)(iii)(A), on the basis of the retirement of previously Outstanding Bonds under Article IV or on the basis of the purchase or acquisition and deposit or the retirement of Prior Lien Bonds under Article VI, and stating the matters required to be stated in the Officers' Certificate provided for in Section 4.01(c) or Section 6.01(e), as the case may be, in either case appropriately modified to reflect that the action being taken is the waiver of the right to, rather than a request for, the authentication and delivery of Bonds, or if applicable, accompanied by the certificate of the trustee or mortgagee under the Prior Lien securing such Prior Lien Bonds provided for in Section 6.01(a) in lieu of stating the matters required to be stated in the Officers' Certificate provided for in Section 6.01(e), or (C) a combination of the items specified in Section 10.05(a)(iii)(A) and (B); (iv) in case any obligations secured by a purchase money mortgage upon the Mortgaged Property to be released are included in the consideration for such release and are delivered to the Trustee in connection with such release, an Opinion of Counsel, dated the date of such release, stating that such obligations are valid obligations and that any purchase money mortgage securing such obligations is closed and is, or upon recording or filing in designated places will be, sufficient to afford a valid lien upon the Mortgaged Property to be released from the Lien of this Indenture, subject to no lien prior thereto, except such liens, if any, as shall have existed thereon immediately prior to such release as Permissible Encumbrances; and (v) an Officers' Certificate, dated the date of such release, stating whether, and if so in what respect and to what extent, to the knowledge of the signers of such Officers' Certificate, there has occurred and is continuing an Event of Default. (b) Any cash received by the Trustee pursuant to this Section 10.05 shall be held and applied in accordance with Article XI. Section 10.06. Release of Mortgaged Property Subject to a Prior Lien. (a) ----------------------------------------------------- If the Company is unable, or elects not, to obtain, in accordance with Section 10.03, the release from the Lien of this Indenture of Mortgaged Property which is subject to a Prior Lien, subject to Section 10.11, the Trustee shall release such Mortgaged Property from the Lien of this Indenture if there has been or is being substituted for such Mortgaged Property, by delivery to the trustee, mortgagee or other holder of such Prior Lien and/or to the Trustee, an aggregate amount of Governmental Obligations and purchase money obligations having a fair market value in cash, cash and evidence of Bondable Property acquired by the Company with the proceeds of, or 45 otherwise in connection with, such release, or the waiver of the right to the authentication and delivery of Bonds as described in Section 10.06(a)(iv)(B), or a combination thereof, not less than the Fair Value of the Mortgaged Property to be released from the Lien of this Indenture, upon receipt by the Trustee of: (i) an Officers' Certificate, dated the date of such release, requesting such release, describing in reasonable detail the Mortgaged Property to be released, the Prior Lien to which such Mortgaged Property is subject, the amount of cash, Governmental Obligations or purchase money obligations to be delivered to, the Prior Lien trustee, mortgagee or other holder of such Prior Lien and/or to the Trustee, or both, and any Bondable Property acquired by the Company with the proceeds of, or otherwise in connection with, such release, in each case in substitution for such Mortgaged Property, and stating the reason for such release; (ii) an Opinion of Counsel, dated the date of such release, that the Mortgaged Property to be released from the Lien of this Indenture is subject to the Prior Lien described in the foregoing Officers' Certificate and that, based upon documents received by such counsel, the Company appears to have complied with all the terms and conditions for such release under such Prior Lien; (iii) an Engineer's Certificate, dated the date of such release, stating (A) that the signer of such Engineer's Certificate has examined such Officers' Certificate in connection with such release, (B) the Fair Value, in the opinion of such signer, of the Mortgaged Property to be released as of a date not more than 90 days prior to the date of such release, (C) the Fair Value in the opinion of such signer (which opinion may be based on an Appraiser's Certificate) of any Governmental Obligations and purchase money obligations included in the consideration for such release and (D) that, in the opinion of such signer, such release will not impair the security under this Indenture in contravention of the provisions hereof; (iv) (A) an aggregate amount of Governmental Obligations and purchase money obligations having a fair market value in cash as evidenced by an Appraiser's Certificate, cash and evidence of the acquisition by the Company of Bondable Property with the proceeds of, or otherwise in connection with, such release (the amount of such Bondable Property shall be the Fair Value thereof as of a date not more than 90 days prior to the date of such release, as evidenced to the Trustee by an Engineer's Certificate, dated the date of such release, and if within six months prior to the date of acquisition by the Company of the Bondable Property being so acquired such Bondable Property has been used or operated by a Person or Persons other than the Company in a business similar to that in which it has been or is to be used or operated by the Company, and the Fair Value to the Company of such Bondable Property, as set forth in such Certificate, is not less than $25,000 and not less than 1% of the aggregate principal amount of Bonds at the time Outstanding, such certificate, shall be an Independent Engineer's Certificate), not less than the excess, if any, of (1) the Fair Value, as specified in the Engineer's Certificate described in Section 10.06(a)(iii), of the Mortgaged Property to be released over (2) the aggregate amount of Governmental Obligations and purchase money obligations having a fair market value in cash as 46 evidenced by an Appraiser's Certificate and cash deposited with the trustee, mortgagee or other holder of such Prior Lien; or (B) an Officers' Certificate, dated the date of such release, waiving the right of the Company to the authentication and delivery of an aggregate principal amount of Bonds up to the amount required by Section 10.06(a)(iv)(A), on the basis of the retirement of previously Outstanding Bonds under Article IV or on the basis of the purchase or acquisition and deposit or the retirement of Prior Lien Bonds under Article VI, and stating the matters required to be stated in the Officers' Certificate provided for in Section 4.01(c) or Section 6.01(e), as the case may be, in either case appropriately modified to reflect that the action being taken is the waiver of the right to, rather than a request for, the authentication and delivery of Bonds, or if applicable, accompanied by the certificate of the trustee or mortgagee under the Prior Lien securing such Prior Lien Bonds provided for in Section 6.01(e) in lieu of stating the matters required to be stated in the Officers' Certificate provided for in Section 6.01(e), or (C) a combination of the items specified in Section 10.06(a)(iv)(A) and (B); (v) in case any obligations secured by a purchase money mortgage upon the Mortgaged Property to be released are included in the consideration for such release and are delivered to the Trustee in connection with such release, an Opinion of Counsel, dated the date of such release, stating that such obligations are valid obligations and that any purchase money mortgage securing such obligations is closed and is, or upon recording or filing in designated places will be, sufficient to afford a valid lien upon the Mortgaged Property to be released from the Lien of this Indenture, subject to no lien prior thereto, except such liens, if any, as shall have existed thereon immediately prior to such release as Permissible Encumbrances; and (vi) an Officers' Certificate, dated the date of such release, stating whether, and if so in what respect and to what extent, to the knowledge of the signers of such Officers' Certificate, there has occurred; and is continuing an Event of Default. (b) Any cash received by the Trustee pursuant to this Section 10.06 shall be held and applied in accordance with Article XI. Section 10.07. Eminent Domain. In case (a) any Mortgaged Property shall be -------------- taken by exercise of the power of eminent domain, or by similar right or power, or if any governmental authority shall exercise any right which it may now or hereafter have to purchase or designate a purchaser of, or order the sale of, all or any Mortgaged Property, or in case of any sale or conveyance of Mortgaged Property in lieu and in reasonable anticipation of any such event, and (b) the Company is unable, or elects not, to obtain, in accordance with Section 10.03, the release from the Lien of this Indenture of such Mortgaged Property, all net proceeds of each such taking, purchase or sale, or, in case of a sale or conveyance in anticipation thereof, an aggregate amount of Governmental Obligations or purchase money obligations having a fair market value in cash as evidenced by an Appraiser's Certificate and cash, not less than the Fair Value, as of a date not more than 90 days prior to the date of such release, as evidenced by an Engineer's Certificate, dated the date of such release, of the Mortgaged Property sold or conveyed, together with all net sums payable for any damage to any Mortgaged Property by or in connection with any such taking, purchase, sale or conveyance, to the extent not deposited under a Prior Lien with the 47 trustee, mortgagee or other holder of such Prior Lien, shall be deposited with the Trustee, to be held and applied in accordance with Article XI; provided that, to the extent such sums as set forth in this Section 10.07 are deposited with and subsequently released by the trustee or mortgagee under any Prior Lien, such proceeds shall then be paid by the Company to the Trustee to the extent that, but for the requirements of such Prior Lien, the Company would have been required under this Section 10.07 to deposit such amounts with the Trustee; and the Trustee (subject to Section 10.11) shall release the Mortgaged Property so taken, purchased, sold or conveyed upon being furnished with : (i) an Opinion of Counsel, dated the date of such release, to the effect that such Mortgaged Property has been lawfully taken, purchased or sold as aforesaid; or (ii) in case of any such sale or conveyance in anticipation of such taking, purchase or sale, a Board resolution to the effect that such sale or conveyance was in lieu and in reasonable anticipation of such taking, purchase or sale. Section 10.08. Release of Governmental Obligations and Purchase Money ------------------------------------------------------ Obligations. (a) Any Governmental Obligations and purchase money obligations - ----------- received or to be received by the Trustee under this Indenture in consideration for the release of any Mortgaged Property from the Lien of this Indenture by the Trustee, and the purchase money mortgage securing such purchase money obligations shall be released by the Trustee from the Lien of this Indenture and delivered or assigned to the Company, or as it shall request, upon payment by the Company to the Trustee of the unpaid principal of such Governmental Obligations or such purchase money mortgage and/or of the obligations thereby secured or at any time after the Trustee shall have received on account of the principal thereof an amount in cash equal to the aggregate principal amount of any such Governmental Obligations or such purchase money obligations to the extent made a basis of a credit in the application for the release from this Indenture of such Mortgaged Property. (b) Any cash received by the Trustee pursuant to this Section 10.08 shall be held and applied in accordance with Article XI. Section 10.09. Substituted Property. All rights and property (other than -------------------- cash) acquired by the Company by exchange or purchase to take the place of, or in consideration for, any Mortgaged Property surrendered, modified, released (other than pursuant to Section 10.05, Section 10.06 or Section 10.07) or sold, under this Indenture, shall forthwith and without further conveyance, transfer or assignment become subject to the Lien of this Indenture; but the Company, at the request of the Trustee from time to time, or without such request to the extent necessary to comply with any applicable legal requirements for the full protection of the Trustee and the Holders, will grant, bargain, sell, warrant, release, convey, assign, transfer, mortgage, pledge, set over and confirm any and all such property to the Trustee, by proper deeds or other instruments, which the Company will duly record and file, and rerecord and refile, in all places required for the proper protection of the Trustee and of the Holders, upon the trusts and for the purposes of this Indenture. Section 10.10. Receiver, Trustee, etc. In case a receiver or trustee of ----------------------- the Company, or of all or a substantial part of the Mortgaged Property or business of the Company, shall be lawfully 48 appointed, all acts or requests which the Company may do or make under the foregoing provisions of this Article X may be done or made by such receiver or trustee with the consent of the Trustee, which may give or withhold such consent from time to time in its uncontrolled discretion, subject to Section 14.01 and Section 14.02. In case the Trustee shall be in possession of the Mortgaged Property under this Indenture, the Trustee in its uncontrolled discretion, without any action or request by the Company or any receiver or trustee, and without hereby limiting any other right or power of the Trustee, may take any action authorized by this Indenture to be taken by the Company, by the Company and the Trustee or by the Trustee on the request of the Company. Section 10.11. Suspension of Rights in Case of an Event of Default. --------------------------------------------------- (a) At any time when an Event of Default has occurred and is continuing, the Company shall not have the right to exercise any privilege or to take any action permitted by this Article X (except under Sections 10.01 and 10.02) except to the extent that it shall have obtained the written consent of the Trustee; and the Trustee may, subject to Section 14.01 and Section 14.02, give or withhold such consent from time to time in its discretion. (b) For purposes of this Section 10.11, an Event of Default shall be deemed to have occurred and be continuing upon the occurrence of any of the events specified in Section 12.01 without awaiting the expiration of any period of grace or the giving of notice. Section 10.12. Purchaser in Good Faith. No purchaser in good faith of ----------------------- Mortgaged Property purporting to be released under any of the provisions of this Article X shall be bound to ascertain the authority of the Trustee to execute the release or to inquire as to any facts required by the provisions hereof for the exercise of such authority, or to see to the application of any purchase money. ARTICLE XI APPLICATION OF FUNDS HELD By TRUSTEE Section 11.01. Withdrawal, Application or Use of Cash Held by Trustee. ------------------------------------------------------ (a) Unless the Company is in default in the payment of any interest on any Bonds then Outstanding or any Event of Default shall have occurred and be continuing, any cash deposited with Trustee pursuant to Section 5.01 shall be held by the Trustee and such cash, and any other cash which, under any other provision of this Indenture (whether referred to as cash or moneys in any such provision), is required to be held and applied in accordance with this Article XI, may be withdrawn, used or applied as provided in this Section 11.01: (i) may be withdrawn from time to time by the Company to the extent of the lesser of the Cost or the Fair Value of Unbonded Bondable Property Bonded after making any deductions and additions in respect of Bondable Property pursuant to clauses (ii) or (iii) of the definition of "Bondable Property" in Section 1.03; (ii) may be withdrawn from time to time by the Company in an amount equal to the principal amount of Bonds which the Company shall have the right to have authenticated and delivered under Article IV or Article VI; 49 (iii) may, upon the request of the Company, be applied by the Trustee to the payment at maturity of any Outstanding Bonds or Prior Lien Bonds or to the redemption of any Outstanding Bonds or Prior Lien Bonds which are, by their terms, redeemable, of such series as may be designated by the Company; (iv) may be used by the Trustee for the purchase of Bonds or Prior Lien Bonds of such series as may be designated by the Company; provided, however, that none of such cash shall be applied to the payment of more than the principal amount of any Bonds or Prior Lien Bonds so purchased, except to the extent that the aggregate principal amount of all Bonds and Prior Lien Bonds theretofore, and all Bonds or Prior Lien Bonds then to be, so purchased, shall have exceeded the aggregate cost for principal, interest, brokerage and premium, if any, on all Bonds and Prior Lien Bonds theretofore, and on all Bonds or Prior Lien Bonds then to be, so purchased; and/or (v) may, with the consent of the Company, which consent shall not be unreasonably withheld, be applied by the Trustee from time to time to the payment of fees, charges and expenses of the Trustee in accordance with this Indenture. (b) Such cash shall, from time to time, be paid out or used or applied by the Trustee, as aforesaid, upon the request of the Company, and upon receipt by the Trustee of an Officers' Certificate stating that the Company is not in default in the payment of the interest on any Bonds then Outstanding and that no Event of Default has occurred and is continuing. In case such withdrawal of cash is, in whole or in part, based upon Unbonded Bondable Property as permitted under Section 11.01(a)(i), the Company shall comply with all applicable provisions of Article III as if such Unbonded Bondable Property were made a basis for the authentication and delivery of Bonds thereon equivalent in principal amount to the amount of the cash to be withdrawn on such basis; or in case the withdrawal of cash is, in whole or in part, based upon the right to the authentication and delivery of Bonds pursuant to Section 11.01(a)(ii), the Company shall comply with all applicable provisions of Article IV or Article VI, as the case may be, relating to such authentication and delivery; recognizing that, in each such case, the action being taken is the withdrawal of cash rather than the authentication and delivery of Bonds. (c) Any withdrawal of cash pursuant to Section 11.01(a)(i) or Section 11.01(a)(ii) shall operate as a waiver by the Company of its right to the authentication and delivery of Bonds upon the basis of which such cash was withdrawn, and such Bonds may not thereafter be authenticated and delivered hereunder on such basis, and the amount of any Bondable Property, Bonds or Prior Lien Bonds which have been made the basis for such withdrawal shall be Bonded. (d) Any obligation secured by a purchase money mortgage received by the Trustee under this Indenture in consideration for the release of any Mortgaged Property from the Lien of this Indenture may be released from the Lien of this Indenture at any time upon payment by the Company to the Trustee of the unpaid portion of the principal of such obligation; provided, however, at any time after the Trustee shall have received on account of the principal of any obligation secured by a purchase money mortgage on specified Mortgaged Property (from the Company, the obligor or otherwise), an amount in cash equal to the aggregate principal amount of such obligation to the extent made a basis of a credit in the application for the release from the 50 Lien of this Indenture of such Mortgaged Property, the Trustee shall deliver to the Company on the written request of an Authorized Officer the purchase money mortgage on such Mortgaged Property and all obligations secured thereby then held by the Trustee. (e) The principal of and interest on any Governmental Obligations and purchase money obligations secured by a purchase money mortgage held by the Trustee shall be collected by the Trustee as and when such principal and interest become payable. Unless the Company is in default in the payment of the interest on any Outstanding Bond or any Event of Default shall have occurred and be continuing, the interest received by the Trustee on any such obligations shall be paid over to the Company, and any payments received by the Trustee on account of the principal of any such obligations in excess of the amount of credit used by the Company in respect of such obligations upon the release of any Mortgaged Property from the Lien of this Indenture shall also be paid to the Company. (f) The Trustee shall have and may exercise all the rights and powers of an owner of obligations secured by purchase money mortgage held by the Trustee and of all substitutions therefor and, without limiting the generality of the foregoing, may collect and receive all insurance moneys payable to it under any provision thereof and apply the same in accordance with the provisions thereof, may consent to extensions thereof at a higher or lower rate of interest, may join in any plan or plans of voluntary or involuntary reorganization or readjustment or rearrangement and may accept and hold under this Indenture new obligations, stocks or other securities issued in exchange therefor under any such plan, and any discretionary action which the Trustee may be entitled to take in connection with any such obligations or substitutions therefor shall be taken, so long as no Event of Default has occurred and is continuing, in accordance with the request of the Company, evidenced by a Board resolution, and while an Event of Default is continuing, in the discretion of the Trustee. Section 11.02. Moneys to be Held in Trust; Investment Thereof. ---------------------------------------------- (a) Subject to Section 18.02, all moneys received by the Trustee shall, until withdrawn, used or applied as provided in this Indenture, be held in trust for the purposes for which they were paid, but need not be segregated from other funds except as directed by the Company or as and to the extent required by law. (b) After compliance with any applicable legal requirements, the Trustee may deposit all or any part of moneys received by it, in a certificate of deposit or otherwise, to its credit as Trustee in its own banking department or, with the consent of the Company, in any bank or trust company having a combined capital and surplus of not less than Twenty Million Dollars ($20,000,000); or the Trustee, after such compliance and subject to Section 11.02(g), may so deposit all or any part of such moneys, together with moneys of like nature held by it under other indentures and trust instruments, to its credit as Trustee of all moneys deposited in each such account. (c) When so directed by the Company, subject to clauses (f) and (g) of this Section 11.02, the Trustee shall invest all or any part of such moneys received by it in any Investment Securities; and the Trustee, when so directed by the Company, shall sell or repurchase all or any part of such Investment Securities. Such Investment Securities shall be held by the Trustee as part of the Mortgaged Property; provided, however, that the proceeds of 51 such Investment Securities representing interest shall be paid or credited to the Company and shall not constitute Mortgaged Property. If any such sale, or any payment on the maturity of any such Investment Securities held by the Trustee, shall produce a net sum less than the cost (including accrued interest) of such Investment Securities sold or paid, the Company will promptly pay to the Trustee such amount of cash as will, with the net proceeds of such sale or such payment, equal the cost (including accrued interest) of such Investment Securities so sold or paid; and if any such sale, or any payment at the maturity of any such Investment Securities held by the Trustee, shall produce a net sum greater than the cost (including accrued interest) of such Investment Securities so sold or paid the Trustee shall, if no Event of Default has occurred and is continuing, pay to the Company the amount of such excess. The Company will also pay to the Trustee all brokers' fees and other expenses incurred by the Trustee in connection with its investment of such moneys and the sale of such Investment Securities. In the event of a loss on the sale of such investments (after giving effect to any interest or other income thereon (except to the extent theretofore paid to the Company), the Trustee shall have no responsibility in respect of such loss except that the Trustee shall notify the Company of the amount of such loss and the Company shall promptly pay such amount to the Trustee to be credited as part of the moneys originally invested. (d) The Trustee hereby agrees to act as the Operating Bank hereunder. From time to time as called for by this Section 11.02 of the Indenture, the Operating Bank shall establish and maintain on the books and records of its office in New York, New York, and maintain in the name of the Trustee, each respective Securities Account to be established for the investment of moneys held by the Trustee under this Indenture to the extent required to be invested pursuant to Section 11.02(c) of this Indenture. In the event of any replacement of the Trustee under this Indenture, the successor trustee (or any other Person designated by the Trustee with the Company's consent) shall become the Operating Bank, concurrently with such succession, for all purposes of this Indenture. The Trustee, in its capacity as the Operating Bank, also agrees to cooperate with any replacement Operating Bank as to the transfer of any property in, or records relating to, any Securities Account maintained by it under this Indenture. (e) The Trustee, in its respective capacities as the Trustee and as the Operating Bank, hereby agrees that (i) all Investment Securities invested by the Trustee pursuant to Section 11.02(c) will be held in one or more accounts maintained in the Trustee's name with the Operating Bank, and each such account will be a Securities Account of which the Operating Bank is the Securities Intermediary and in respect of which the Trustee is the "entitlement holder" (as defined in Section 8-102(a)(7) of the UCC) of the "securities entitlement" (as defined in Section 8-102(a)(17) of the UCC) with respect to each "financial asset" (as defined in Section 8-102(a)(9) of the UCC) credited to such account, (ii) all cash required to be deposited in any such account, all Investment Securities and all other property acquired with cash credited to any such account will be credited to such account, (iii) all items of property (whether cash, Investment Securities, other investments, securities, instruments or other property) credited to each Securities Account will be treated as a "financial asset" (as defined in Section 8-102(a)(9) of the UCC) under Article 8 of the UCC, (iv) the Operating Bank's "securities intermediary's jurisdiction" (as defined in Section 8-110(e) of the UCC) with respect to each such account is the State of New York and (v) all securities, instruments and other property registered in or credited to any such Securities Account shall be payable to or to the order of, or registered in the name of, the Operating Bank or shall be endorsed to the Operating Bank or in blank, and in no case 52 whatsoever shall any financial asset credited to any Securities Account be registered in the name of the Company, payable to or to the order of the Company or specially endorsed to the Company except to the extent the foregoing have been specially endorsed by the Company to the Operating Bank or in blank. The Trustee agrees that it will hold (and will indicate clearly in the books and records that it holds) its "security entitlement" to the "financial asset" credited to each Securities Account in trust for the purposes for which all monies received by the Trustee for deposit into such Securities Account were paid. (f) The Trustee shall allow interest on any moneys held by it under this Indenture and deposited by it in its banking department, at the current rate or rates, if any, from time to time paid by it on similar deposits of like size and nature over like periods of time, unless in a particular instance the Trustee and the Company shall otherwise agree. Interest so allowed and interest received by the Trustee from deposits in other banks and trust companies of moneys which are a part of the Mortgaged Property made pursuant to Section 11.02(b), except as otherwise herein provided in respect of particular moneys, shall, if no Event of Default has occurred and is continuing, be paid or credited to the Company by the Trustee. (g) At the direction of the Company, the Trustee shall establish one or more accounts for the deposit and/or investment of moneys received by it, including a separate account from which all moneys payable by the Trustee on behalf of the Company shall be paid and into which moneys shall be deposited by the Company, or by the Trustee on behalf of the Company, from other accounts or investments held or managed by the Trustee, as needed, so that such account shall be operated with a zero balance. ARTICLE XII DEFAULT AND REMEDIES Section 12.01. Events of Default. (a) Each of the following events is an ----------------- "Event of Default": (i) default in the due and punctual payment of the principal of or premium, if any, on any Bond, when such principal or premium shall have become due and payable, whether at maturity, pursuant to any sinking fund or analogous fund, or by declaration or otherwise, which default shall have continued for a period of more than one day; (ii) default in the payment of any interest on any Bond, when and as the same shall have become due and payable, which default shall have continued for a period of 90 days; (iii) default in the payment of principal of, premium, if any, or interest on any Prior Lien Bond outstanding, continued beyond the period of grace, if any, specified in the Prior Lien securing payment of such principal, premium and interest; (iv) default in the due observance or performance of any other covenant or condition in this Indenture which is required to be kept or performed by the 53 Company, and which default shall have continued for the period of 90 days after written notice thereof shall have been given to the Company by the Trustee, or by the holders of not less than 30% in aggregate principal amount of the Outstanding Bonds; (v) by decree of a court of competent jurisdiction the Company is adjudicated a bankrupt or insolvent, or an order is made by such court for the winding up or liquidation of the affairs of the Company or approving a petition seeking reorganization or arrangement of the Company under the bankruptcy law or other law or statute of the United States of America or of any State, or, by order of such court, a trustee or liquidator or receiver is appointed for the Company or for the property of the Company, and any such decree or order shall continue in effect for a period of 90 days; (vi) the Company files a petition for voluntary bankruptcy, or consents to the filing of any such petition, or makes an assignment for the benefit of creditors, or consents to the appointment of a trustee or liquidator or receiver of the Company or of all or a substantial part of its Mortgaged Property, or files a petition or answer or consent seeking reorganization or arrangement under the bankruptcy law or other law, or statute of the United States of America or of any State, or consents to the filing of any such petition, or files a petition to take advantage of any debtors' act; and (vii) the occurrence of any default by the Company, continued beyond the period of grace, if any, under the terms of any indenture supplemental hereto or any Bond, if different from the Events of Default specified in this Section 12.01(a). (b) The Trustee shall, within 90 days after the occurrence thereof, give to the Holders, in the manner and to the extent provided in TIA Section 313(c), notice of all defaults known to the Trustee, unless such defaults shall have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 12.01 (b) being hereby defined to be the events specified in Section 12.01(a), not including any periods of grace provided for therein); but in the case of defaults of the character specified in Sections 12.01(a)(ii) and 12.01(a)(iv), no such notice shall be given until at least 60 days after the occurrence thereof, provided that, except in the case of default in the payment of the principal of or interest or Liquidated Damages, if any, on any of the Bonds or in the payment of any sinking or analogous fund installment and Liquidated Damages, the Trustee shall be protected in withholding such notice if and so long as the Board of Directors, the Executive Committee, or a trust committee of directors and/or Responsible Officers, of the Trustee in good faith determine that the withholding of such notice is in the interests of the Holders. (c) In each and every case of an Event of Default, and during the continuance thereof, the Trustee directly or by its agents or attorney may, to the extent permitted by law, enter upon the Mortgaged Property; may exclude the Company and its agents and employees wholly therefrom, either directly or by its receivers, agents, employees or attorneys; may use, operate, manage and control the Mortgaged Property, and conduct the business of the Mortgaged Property to the best advantage of the Holders; may make all necessary or proper repairs, renewals, replacements and useful alterations, additions, betterments and improvements to the Mortgaged Property as the Trustee may deem best; may manage and operate the Mortgaged Property and exercise all rights and powers of the Company in respect thereof, and be entitled to 54 collect and receive all tolls, earnings, income, rents, issues and profits thereof; and, after deducting all expenses incurred hereunder and all payments which may be made for taxes, assessments, insurance and prior or other proper charges upon the Mortgaged Property or any part thereof, as well as just and reasonable compensation for the services of the Trustee and for all agents and employees properly engaged by it, the Trustee shall apply the moneys arising as aforesaid, as follows: (i) in case none of the principal of or premium, if any, on the Bonds shall have become due, to the payment of any interest in default, in the order of the maturity of the installments of such interest, with interest thereon at the same rates, respectively, as were borne by the respective Bonds on which such interest shall be in default; such payments to be made ratably to the Persons entitled thereto, without discrimination or preference; (ii) in case the principal of or premium, if any, on any Bond shall have become due, at maturity by declaration or otherwise, first to the payment of the accrued interest (with interest on the overdue installments thereof at the same rates, respectively, as were borne by the respective Bonds on which such interest shall be in default) in the order of the maturity of such installments, and next, to the payment of the principal of and any premium, if any, due on all Outstanding Bonds; in every instance such payments to be made ratably to the Persons entitled to such payment without any discrimination or preference. (d) If the Trustee shall have entered, or shall have elected to enter, the Mortgaged Property, or in case a receiver of the Mortgaged Property shall have been appointed, or in case an Event of Default shall have occurred and be continuing, in each case as described in this Section 12.01, the Trustee shall be entitled to vote all shares of stock, if any, then subject to the Lien of this Indenture, and, for the benefit of the Holders, shall be entitled to collect and receive all dividends on all such shares of stock, and all sums payable for principal of, premium, if any, and interest on any Bonds or obligations which then shall be subject to the Lien of this Indenture, and to apply the moneys received in accordance with Section 12.01(c)(i) and Section 12.01(c)(ii); and, as holder of any shares of stock and of any such Bonds, to perform any and all acts, or to make or execute any and all transfers, requests, requisitions or other instruments, for the purpose of carrying out this Section 12.01, but if a receiver of any Mortgaged Property shall have been appointed and shall be in possession thereof, the Trustee from time to time in its discretion may, and if requested by the holders of a majority in aggregate principal amount of the Outstanding Bonds the Trustee shall, turn over to such receiver any part or all of the interest moneys and cash dividends declared and paid out of current earnings, so collected by the Trustee, and may cooperate with such receiver in managing and operating all of the properties and business of the Company in such manner as the Trustee shall deem to be in the best interests of the Holders. Section 12.02. Upon an Event of Default Trustee May Sell Mortgaged --------------------------------------------------- Property. Subject to the requirements of applicable law, in case of the - -------- occurrence and during the continuance of any Event of Default, the Trustee, directly or by its agents or attorneys, with or without entry upon the Mortgaged Property, in its discretion (a) may sell, subject to Prior Liens, to the highest and best bidder, all or any part of the Mortgaged Property of every kind and all right, title and interest therein and right of redemption thereof, which sale shall be made at public auction at 55 such place and at such time and upon such terms as the Trustee may fix and briefly specify in the notice of sale to be given as provided in this Indenture, or as may be required by law; or (b) may proceed to protect and to enforce the rights of the Trustee and of the Holders under this Indenture, by suit or suits in equity or at law, whether for the specific performance of any covenant or agreement in this Indenture, or in aid of the execution of any power granted by this Indenture, or for the foreclosure of this Indenture, or for the enforcement of any other appropriate legal or equitable remedy, as the Trustee, being advised by counsel, may deem most effectual to protect and enforce any of its rights or exercise of any of its duties hereunder. Section 12.03. Upon an Event of Default and Request of Holders of a ---------------------------------------------------- Majority of Bonds, Trustee Must Declare Principal Due. (a) In case of the occurrence and during the continuance of any Event of Default, the Trustee may, and upon the written request of the holders of a majority in aggregate principal amount of the Outstanding Bonds (or such other amount as may be specified with respect to any particular series of Bonds in the supplemental indenture pursuant to which such series of Bonds is issued, if an Event of Default shall have occurred and be continuing solely under clause (vii) of Section 12.01(a) with respect to such series of Bonds) shall, by notice in writing delivered to the Company, declare the principal of all Outstanding Bonds (including, but not limited to, the Bonds of such series) to be due and payable immediately, and upon any such declaration, the same shall be immediately due and payable, anything in this Indenture or in such Bonds contained to the contrary notwithstanding. This provision, however, is subject to the condition that if at any time after the principal of such Bonds shall have been so declared due and payable and before any sale of the Mortgaged Property shall have been made pursuant to this Article XII, the holders of a majority in aggregate principal amount of the Outstanding Bonds, by written notice to the Company and to the Trustee, may rescind such declaration and its consequences. No such rescission shall affect any subsequent default or impair any right consequent thereon. (b) In case the Trustee shall have proceeded to enforce any right under this Indenture by foreclosure, entry or otherwise, and such proceeding shall have been discontinued or abandoned because of a waiver, or for any other reason, or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored to their former positions and rights hereunder in respect of the Mortgaged Property; and all rights, remedies and powers of the Trustee shall continue as though no such proceeding had been taken. Section 12.04. Duty of Trustee to Act on Request of Holders of a Majority ---------------------------------------------------------- of Bonds. Upon the written request of the holders of a majority in aggregate - -------- principal amount of the Outstanding Bonds (determined as provided in Section 20.03), in case of the occurrence and during the continuance of any Event of Default, it shall be the duty of the Trustee, upon being indemnified as provided in Section 12.14, to take all steps necessary for the protection and enforcement of its rights and the rights of the Holders, and to exercise the powers of entry or sale conferred in this Indenture, or both, or to take appropriate judicial proceedings by action, suit or otherwise, as the Trustee shall deem most expedient in the interest of the Holders; but anything in this Indenture to the contrary notwithstanding, the holders of not less than 75% in aggregate principal amount of the Outstanding Bonds, from time to time shall have the right to direct and control the action of the Trustee in any proceedings under this Article XII. 56 Section 12.05. Mortgaged Property May be Sold as an Entirety or in --------------------------------------------------- Parcels. In the event of any sale, whether made under the power of sale herein - ------- granted, or under or by virtue of judicial proceedings, or of some judgment or decree of foreclosure and sale, subject to the requirements of applicable law, all of the Mortgaged Property, shall be sold as an entirety or in such parcels as the holders of a majority in aggregate principal amount of the Outstanding Bonds shall in writing request, or in absence of such request, as the Trustee may determine. Section 12.06. Notice of Sale. Notice of any sale of Mortgaged Property -------------- under this Indenture shall state the time when and the place where such sale is to be made, shall contain a brief general description of the Mortgaged Property to be sold, and shall be published in one Authorized Newspaper published in the City of Rutland, Vermont and in one Authorized Newspaper published in the Borough of Manhattan in the City and State of New York, at least once preceding such sale, the first publication in each such Authorized Newspaper to be made not less than twenty (20) days prior to the date of such sale, and such other notice as may be required by law shall also be given. Section 12.07. Adjournment of Sale. From time to time the Trustee, or ------------------- other Person acting in any sale of Mortgaged Property to be made under this Indenture, may adjourn such sale by announcement at the time and place appointed for such sale or for such adjourned sale or sales; and without further notice or publication, such sale may be made at the time and place to which such sale shall be so adjourned. Section 12.08. Interest of Purchaser and Company. (a) Upon the completion --------------------------------- of any sale of any Mortgaged Property under or by virtue of this Indenture, the Trustee shall execute and deliver to the purchaser a good and sufficient deed or other instruments conveying, assigning and transferring such Mortgaged Property. The Trustee and its successors are hereby appointed the attorneys of the Company, in its name and stead, to make all necessary conveyances, assignments and transfers of Mortgaged Property and for that purpose may execute all necessary deeds and instruments of conveyance, assignment and transfer, and may substitute one or more Persons with similar power, the Company hereby ratifying and confirming all that its said attorneys, or such substitute or substitutes, shall lawfully do by virtue hereof. Nevertheless, the Company, if so requested by the Trustee, shall join in the execution and delivery of such conveyances, assignments and transfers. (b) Any such sale of Mortgaged Property made under or by virtue of this Indenture, whether under the power of sale herein granted or pursuant to judicial proceedings, shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the Company, in and to the Mortgaged Property sold, and shall be a perpetual bar, both at law and in equity, against the Company, its successors and assigns, and against any and all Persons claiming or to claim the Mortgaged Property sold or any part thereof, from, through or under the Company or its successors or assigns. Section 12.09. Trustee's Receipt Sufficient to Discharge Purchaser. --------------------------------------------------- The receipt by the Trustee or other authorized Person of money paid for the purchase of Mortgaged Property shall be a sufficient discharge to any purchaser of such Mortgaged Property, and no such purchaser or the representative, grantee or assignee of such purchaser, after paying such purchase money and receiving such receipt, shall be affected by, or in any manner answerable for any loss, 57 misapplication or non-application of such purchase money, or be bound to inquire as to the authorization, necessity, expediency or regularity of such sale. Section 12.10. Principal of Bonds to Become Due in Case of Sale. In case ------------------------------------------------ of any sale of Mortgaged Property under this Article XII, whether under the power of sale granted in this Indenture or pursuant to judicial proceedings, the aggregate principal amount of the Outstanding Bonds, if not previously due, shall at once become due and payable, anything in such Bonds or in this Indenture to the contrary notwithstanding. Section 12.11. Application of Sale Proceeds. The purchase money received ---------------------------- by the Trustee from the sale of Mortgaged Property under the power of sale granted in this Indenture, or a sale pursuant to judicial proceedings under this Indenture, together with any other moneys which may be held by the Trustee under any provision of this Indenture as part of the Mortgaged Property, shall be applied as follows: First. To the payment of the costs and expenses of such sale, including reasonable compensation to the Trustee, its agents, attorneys and counsel, and of all expenses, liabilities or advances made or incurred by the Trustee under this Indenture, and to the payment of all taxes, assessments or Prior Liens, except any taxes, assessments or other Prior Liens subject to which such sale shall have been made. Second. To the payment of the whole amount then owing and unpaid upon the Outstanding Bonds, for principal of, premium, if any, and interest on such Outstanding Bonds, with interest accruing on the overdue principal, premium, if any, and installments of interest at the same rates respectively as were borne by the respective Bonds whereof the principal, premium, if any, or installments of interest may be overdue, and in case such proceeds shall be insufficient to pay in full the whole amount so due and unpaid upon such Bonds, then to the payment of such principal, premium, if any, and interest, without preference or priority, ratably according to the aggregate of such principal, premium, if any, and interest. Such payments shall be made on the date fixed by the Trustee, upon presentation of the Outstanding Bonds, stamping thereon the amount paid if such Bonds and coupons are only partly paid, and upon surrender thereof if fully paid. Third. To the payment of the surplus, if any, to the Company, its successors or assigns. Section 12.12. Bonds May Be Applied Against Purchase Price. In case of any ------------------------------------------- sale of any Mortgaged Property under this Article XII, whether under power of sale granted in this Indenture or pursuant to judicial proceedings, any Holder, or the Trustee, subject to Section 14.01 and Section 14.02, may bid for and purchase any Mortgaged Property, and, upon compliance with the terms of sale, may hold, retain, possess and dispose of such property in absolute right of such Holder or the Trustee, without further accountability, and shall be entitled, for the purpose of making settlement or payment for the Mortgaged Property purchased, to use and apply any Bonds by presenting such Bonds, in order that there may be credited thereon the sum apportionable and applicable thereto out of the net proceeds of such sale; and thereupon 58 such purchaser shall be credited on account of such purchase price with the sum apportionable and applicable out of such net proceeds to the payment of or as credit on the Outstanding Bonds so presented. Section 12.13. Company Not to Insist Upon or Plead Stay or Extension Law --------------------------------------------------------- or Exercise Right of Redemption. The Company will not, in the event of any sale of Mortgaged Property under this Article XII, insist upon or plead, or in any manner whatever claim or take the benefit or advantage of, any stay or extension law now or at any time in force, nor will it claim, take or insist upon any benefit or advantage from any law now or at any time in force, providing for the valuation or appraisement of Mortgaged Property, or any part thereof, prior to any sale thereof, or to the decree, judgment or order of any court of competent jurisdiction; nor, after any such sale, will the Company claim or exercise any right under any statute now or at any time made or enacted, or otherwise, to redeem the Mortgaged Property so sold, or any part thereof; and the Company hereby expressly waives all benefit and advantage of any such law, or laws, and covenants that it will not invoke or utilize any such law or laws in order to hinder, delay or impede the execution of any power herein granted and delegated to the Trustee, but the Company will permit the execution of every such power as though no such law or laws had been made or enacted. Section 12.14. Holders Not to Institute Suit Without Request to Trustee, --------------------------------------------------------- Trustee May Enforce Rights Without Possession of Bonds; Undertaking for Costs. - ----------------------------------------------------------------------------- (a) No holder of any Outstanding Bond shall have any right to institute any suit, action or proceeding in equity or at law for the foreclosure of this Indenture, or for the execution of any trust of the Indenture or for the appointment of a receiver or for any other remedy under this Indenture, unless (i) the holders of not less than 30% in aggregate principal amount of the Outstanding Bonds shall (A) have requested the Trustee in writing to take action in respect of such matter and shall have afforded to the Trustee a reasonable opportunity either to proceed to exercise the powers granted in this Indenture to the Trustee, or to institute such action, suit or proceeding in its own name and (B) have offered to the Trustee security and indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby, and (ii) the Trustee shall have refused or neglected to act on such notice, request and indemnity; such notification, request and offer of indemnity are hereby declared, in every such case, at the option of the Trustee, to be conditions precedent to the execution by the Trustee of its powers and trusts under this Indenture and to any action or cause of action the Trustee may take or possess for foreclosure or for the appointment of a receiver or any other remedy hereunder; it being understood and intended that no one or more holders of Outstanding Bonds shall have any right in any manner whatever to affect, disturb or prejudice the Lien of this Indenture by action of such one or more holders, or to enforce any right under this Indenture, except in the manner herein provided, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the ratable benefit of all holders of such Outstanding Bonds. (b) All rights of action under this Indenture may be enforced by the Trustee without the possession of any Bond or the production thereof at trial or other proceedings relative thereto, and any such suit or proceedings instituted by the Trustee shall be brought in its own name, and any recovery of judgment shall be for the ratable benefit of the holders of such Bonds. 59 (c) All parties to this Indenture agree, and each holder of any Bond by his, her or its acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit or an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but this Section 12.14(c) shall not apply to any suit instituted by the Trustee, to any suit instituted by the Holder or Holders holding more than 10% in aggregate principal amount of Outstanding Bonds, or to any suit instituted by any Holder for the enforcement of the payment of the principal of, premium, if any, or interest on any Bond on or after the respective due dates expressed in such Bond. Section 12.15. Remedies Cumulative. No remedy herein conferred upon or ------------------- reserved to the Trustee is intended to be exclusive of any other remedy or remedies; but each and every such remedy, shall be cumulative, and shall be in addition to every other remedy given hereunder, or now or hereafter existing at law or in equity or by statute. No delay or omission of the Trustee or Holders in exercising any right or power accruing upon any continuing Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default, or an acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient. Section 12.16. Covenant to Pay Trustee; Judgment by Trustee; Application --------------------------------------------------------- of Moneys. (a) In case (i) default shall be made in the payment of any interest - --------- on any Outstanding Bond and such default shall have continued for a period of 90 days or (ii) default shall be made in the payment of the principal of or premium, if any, on any Outstanding Bond when payable, whether upon the maturity of such Bond, or upon a declaration of maturity as authorized by this Indenture, or upon a sale as set forth in Section 12.10; then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Outstanding Bonds, the whole amount that then shall have become due and payable on all such Outstanding Bonds, for principal, premium, if any, or interest, as the case may be, with interest upon the overdue principal, premium, if any, and interest payable at the same rates respectively as were borne by the respective Bonds whereof the principal, premium, if any, or interest shall be overdue; and in the case the Company shall fail to pay the same forthwith upon such demand, the Trustee, in its own name and as the trustee of an express trust, shall be entitled to recover judgment against the Company for the whole amount so due and unpaid. (b) The Trustee shall be entitled to recover judgment as described in Section 12.16(a), either before, after or during the pendency of any proceedings for the enforcement of the Lien of this Indenture, and the right of the Trustee to recover such judgment shall not be affected by any entry or sale of Mortgaged Property, or by the exercise of any other right, power or remedy for the enforcement of this Indenture; and in case of a sale of Mortgaged Property, and of the application of the proceeds of such sale to the payment of the obligations secured by the Lien of this Indenture, the Trustee, in its own name and as trustee of an express trust, shall be entitled to enforce payment of and to receive all amounts then remaining due and unpaid upon any and all of the Outstanding Bonds for the benefit of the Holders, and shall be entitled to recover judgment for any portion of such obligations remaining unpaid, with interest. No recovery of any such 60 judgment by the Trustee, and no levy of execution of any such judgment upon any of the Mortgaged Property, or any other property, shall in any manner or to any extent affect the Lien of this Indenture upon any Mortgaged Property, or any rights, powers or remedies of the Trustee, or any lien, rights, powers or remedies of the Holders, but such lien, rights, powers and remedies of the Trustee and of the Holders shall continue unimpaired as before. (c) Any moneys received by the Trustee under this Section 12.16 shall be applied by the Trustee to the payment of the amounts then due and unpaid on the Outstanding Bonds in respect of which such moneys shall have been received, ratably and without any preference or priority of any kind, according to the amounts due and payable on such Bonds, at the date fixed by the Trustee for the distribution of such moneys, upon presentation of the several Bonds and stamping such payments thereon, if partly paid, and upon surrender thereof, if fully paid. Section 12.17. Appointment of Receiver. In case of the occurrence and ----------------------- during the continuance of any Event of Default, upon application of the Trustee, a receiver may be appointed to take possession of, and to operate, maintain and manage, the whole or any part of the Mortgaged Property, and the Company shall transfer and deliver to such receiver all such Mortgaged Property, wheresoever it may be situated; and in every case, when a receiver of the whole or of any part of such Mortgaged Property shall be appointed under this Section 12.17, or otherwise, the net income and profits of such Mortgaged Property shall be paid over to, and shall be received by, the Trustee, for the benefit of the Holders. This Section 12.17, however, is subject to the exclusive right of the Trustee, as pledgee, to retain the possession and control of any stocks, bonds, cash and indebtedness pledged or to be pledged with or held by the Trustee hereunder. Section 12.18. Suits by Trustee to Protect Security. The Trustee shall ------------------------------------ have power to institute and to maintain such suits and proceedings as it may be advised shall be necessary or expedient to prevent any impairment of the Lien of this Indenture by any acts of the Company, or of others, in violation of this Indenture or which are unlawful, or as the Trustee may be advised shall be necessary or expedient to preserve and to protect its interests and the security and interests of the Holders in respect of the Mortgaged Property, or in respect of the income, earnings, rents, issues and profits thereof, including power to institute and to maintain suits or proceedings to restrain the enforcement of, or compliance with, or the observance of, any legislative or other governmental enactment, rule or order which may be unconstitutional or otherwise invalid, if the enforcement of, or compliance with, or observance of, such enactment, rule or order would impair the Lien of this Indenture or be prejudicial to the interests of the Holders or of the Trustee. Section 12.19. Trustee May File Proofs of Claims. The Trustee may file --------------------------------- such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Holders allowed in any judicial proceedings relative to the Company, its creditors or the Mortgaged Property. Nothing contained in this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Bonds or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 61 Section 12.20. Holders' Rights at Maturity May Not be Impaired. ----------------------------------------------- Notwithstanding any other provision of this Indenture, the right of any holder of any Bond to receive payment of the principal of, premium, if any, and interest on such Bond, on or after the respective due dates expressed in such Bond, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such holder. Section 12.21. Waiver of Past Events of Default by Holders. The holders of ------------------------------------------- a majority in aggregate principal amount of Bonds Outstanding (determined as provided in Section 20.03) which would be affected by such waiver may, on behalf of the holders of all the Bonds so affected, waive any past Event of Default and its consequences, except (a) an Event of Default in the payment of the principal of, premium, if any, or interest on any Bond, (b) an Event of Default arising from the creation of any lien prior to or on a parity with the Lien of this Indenture, except Permissible Encumbrances or (c) an Event of Default in respect of the waiver of which a specific provision is otherwise made in this Indenture. Section 12.22. Undertaking for Costs. In any suit for the enforcement of --------------------- any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorney's fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 12.22 does not apply to a suit by the Trustee, a suit by a Holder hereof, or a suit by a Holder of more than 10% in principal amount of the then Outstanding Bonds. ARTICLE XIII EFFECT OF MERGER, CONSOLIDATION, CONVEYANCE AND LEASE Section 13.01. Company may Merge or Consolidate if no Impairment of Lien --------------------------------------------------------- of this Indenture and with Assumption of Obligation by Successor. Nothing in this Indenture shall prevent any consolidation or merger of the Company with or into, or any conveyance, transfer or lease, subject to the Lien of this Indenture, of all or substantially all of the Mortgaged Property to, any corporation lawfully entitled to acquire, lease or operate the Mortgaged Property; provided, however, and the Company covenants and agrees, that such consolidation, merger, conveyance, transfer or lease shall be upon terms which would fully preserve and in no respect create any Prior Lien (other than Permissible Encumbrances) on the Mortgaged Property, or impair the Lien or security of this Indenture, or any of the rights or powers of the Trustee or the Holders under this Indenture; and provided further, that any such lease shall be made expressly subject to immediate termination by the Company or by the Trustee at any time during the continuance of an Event of Default, and also by the purchaser of the Mortgaged Property so leased at any sale thereof under this Indenture, whether such sale is made under the power of sale conferred in this Indenture or judicial proceedings; and provided, further, that, upon any such consolidation, merger, conveyance or transfer, or upon any such lease the term of which extends beyond the date of maturity of any of the then Outstanding Bonds, the due and punctual payment of the principal of, premium, if any, and interest on all such Bonds according to their tenor and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company shall be expressly assumed in a Supplemental 62 Indenture executed with the Trustee and caused to be recorded by the corporation formed by such consolidation or surviving such merger, or acquiring all or substantially all the Mortgaged Property, or by the lessee under any such lease the term of which extends beyond the date of maturity of any of the then Outstanding Bonds. Section 13.02. Upon Merger or Consolidation Indenture not to Constitute -------------------------------------------------------- Lien Upon Certain Properties; Successor Corporation to Confirm Prior Lien of - ---------------------------------------------------------------------------- this Indenture and Keep Mortgaged Property Identifiable. (a) In the absence of - ------------------------------------------------------- an express grant by any such successor corporation, this Indenture shall not by reason of any such consolidation, merger, conveyance, transfer or lease or otherwise, constitute or become a lien upon, and the Mortgaged Property shall not include or comprise: (i) any property or franchises owned prior to such consolidation, merger, conveyance, transfer or lease by any corporation with or into which the Company or any successor corporation may be consolidated or merged or to which the Company or any successor corporation may make any such conveyance, transfer or lease, and which, prior to such consolidation, merger, conveyance, transfer or lease, were not subject to the Lien of this Indenture; and (ii) any property or franchises which may be purchased, constructed or otherwise acquired by any such successor corporation after the date of any such consolidation, merger, conveyance, transfer or lease; excepting only the property and franchises referred to in Section 13.02(b)(i) which shall be and become subject to the Lien of this Indenture, notwithstanding any such consolidation, merger, conveyance, transfer or lease. (b) In order to confirm of record the Lien of this Indenture and to preserve and protect the rights of the Holders hereunder, the Supplemental Indenture provided for in Section 13.01, if it does not contain an express grant by the successor corporation, as further security for all Bonds issued and to be issued hereunder, of all its property and franchises then owned and which it may thereafter acquire (other than Excepted Property) shall contain: (i) a grant by such successor corporation confirming the prior Lien of this Indenture upon the Mortgaged Property and subjecting to the Lien of this Indenture as a first lien, or as a lien subject only to liens (including any Prior Liens) affecting the property and franchises of the Company prior to such consolidation, merger, conveyance, transfer or lease, (A) all property and franchises which such successor corporation shall thereafter acquire or construct which shall form an integral part of, or be essential to the use or operation of, any property then or thereafter subject to the Lien of this Indenture, and (B) all renewals, replacements and additional property as may be purchased, constructed or otherwise acquired by such successor corporation from and after the date of such consolidation, merger, conveyance, transfer or lease, as the case may be, to maintain the Mortgaged Property in good repair, working order and condition as an operating system or systems; and (ii) a covenant by such successor corporation to keep the Mortgaged Property as far as practicable identifiable; and a stipulation that the Trustee shall not be 63 taken impliedly to waive, by accepting or joining in the Supplemental Indenture, any rights it would otherwise have. Section 13.03. Rights of Successor Corporation. In case the Company, as ------------------------------- permitted by Section 13.01, shall be consolidated with or merged into any other corporation or shall convey or transfer, subject to the Lien of this Indenture, all or substantially all the Mortgaged Property, the successor corporation formed by such consolidation, or into which the Company shall have been merged, or which shall have received a conveyance or transfer as aforesaid, and upon executing with the Trustee and causing to be recorded the Supplemental Indenture provided for in Section 13.01, shall succeed to and be substituted for the Company with the same effect as if such corporation had been named herein, and shall have and may exercise under this Indenture the same powers and rights as the Company, and, without in any way limiting or impairing by the enumeration of the following rights and powers the scope and intent of the foregoing, such corporation thereafter may cause to be executed, authenticated and delivered, either in its own name or in the name of the Company, such Bonds as might have been executed, issued and delivered by the Company after the date of such consolidation, merger, conveyance or transfer, and had such consolidation, merger, conveyance or transfer not occurred, and upon the order of such corporation in lieu of the Company, but subject to all the terms, conditions and restrictions prescribed in this Indenture concerning the authentication and delivery of Bonds, the Trustee shall authenticate and deliver any Bonds delivered to it for authentication which shall have been previously executed by the proper officers of the Company, and such Bonds as such corporation shall thereafter, in accordance with this Indenture, cause to be executed and delivered to the Trustee for such purpose, and such corporation shall also have and may exercise, subject to all applicable terms, conditions and restrictions prescribed in this Indenture, the rights and powers of the Company as to withdrawal of cash and release of Mortgaged Property from the Lien of this Indenture, which the Company might have exercised after the date of such consolidation, merger, conveyance or transfer, and had such consolidation, merger, conveyance or transfer not occurred. All of the Bonds so issued or delivered shall in all respects have the same legal right and security as the Bonds theretofore issued or delivered in accordance with the terms of this Indenture as though all of such Bonds had been authenticated and delivered at the date of the execution of this Indenture. As a condition precedent to the execution by such corporation and the authentication and delivery by the Trustee of any such Bonds, the withdrawal of cash or the release of Mortgaged Property from the Lien of this Indenture, under any provision of this Indenture on the basis of Bondable Property acquired, made or constructed by such corporation, the Supplemental Indenture provided for in Section 13.01, or a subsequent Supplemental Indenture, shall contain a conveyance or transfer and mortgage in terms sufficient to subject such property to the Lien of this Indenture; and provided further that the lien created thereby and the lien thereon shall have similar force, effect and standing as the Lien of this Indenture would have if the Company was not consolidated with or merged into such other corporation or did not convey or transfer, subject to the Lien of this Indenture, all or substantially all the Mortgaged Property, as aforesaid, to such corporation, and would itself on or after the date of such consolidation, merger, conveyance or transfer, acquire or construct such property, and in respect thereof request the authentication and delivery of Bonds or the withdrawal of cash or the release of Mortgaged Property from the Lien of this Indenture as provided in this Indenture. Section 13.04. Liens on Merged Entities. In case the Company, as permitted ------------------------ by Section 13.01, shall be consolidated with or merged into any other corporation, or shall convey 64 or transfer, subject to the Lien of this Indenture, all or substantially all of the Mortgaged Property as aforesaid, neither this Indenture nor the Supplemental Indenture with the Trustee to be executed and caused to be recorded by such corporation as provided in Section 13.01, shall, unless such Supplemental Indenture shall otherwise provide, become or be required to become or be a lien upon any of the properties or franchises then owned or thereafter acquired by such corporation (by purchase, consolidation, merger, donation, construction, erection or in any other way) except (a) those acquired by such corporation from the Company, and improvements, extensions and addition thereto and renewals and replacements thereof, (b) the property used by such corporation as a basis under any of the provisions of this Indenture for the authentication and delivery of Bonds, the withdrawal of cash, the release of Mortgaged Property from the Lien of this Indenture or otherwise, and (c) such franchises, repairs and property acquired, made or constructed by the successor corporation (i) to maintain, renew and preserve the franchises which are subject to the Lien of this Indenture, (ii) to maintain the Mortgaged Property as an operating system or systems in good repair, working order and condition, (iii) in rebuilding or renewal of any of the Mortgaged Property damaged or destroyed, or (iv) in replacement of or substitution for machinery, apparatus, equipment, frames, towers, poles, wire, pipe, implements or furniture, or any other fixtures or personalty, which are Mortgaged Property and which have become old, inadequate, obsolete, worn out, unfit, unadapted, unserviceable, undesirable or unnecessary for use in the operation of the Mortgaged Property. ARTICLE XIV THE TRUSTEE Section 14.01. Eligibility of Trustee and Acceptance of Trust. (a) The ---------------------------------------------- Trustee shall at all times be a bank or trust company eligible under Section 7.04 and have a combined capital and surplus of not less than Twenty Million Dollars ($20,000,000). If the Trustee publishes reports of condition at least annually, pursuant to law or to the requirement of any supervising or examining authority referred to in Section 7.04, then for the purposes of this Section 14.01 the combined capital and surplus of the Trustee shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) The Trustee hereby accepts the trust created by this Indenture. The Trustee and, if a separate or co-trustee is appointed pursuant to Section 14.15, such separate or co-trustee, undertakes prior to an Event of Default, and after the curing of all Events of Default which may have occurred, to perform such duties and only such duties as are specifically set forth in this Indenture, and, if an Event of Default has occurred and is continuing, to exercise such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. For purposes of this Section 14.01 and Section 14.02, an Event of Default shall be deemed cured when the act or omission or other event giving rise to such Event of Default shall have been cured, remedied or terminated. (c) The Trustee, upon receipt of evidence furnished to it by or on behalf of the Company pursuant to any provision of this Indenture, will examine such evidence to determine whether or not it conforms to the requirements of this Indenture. 65 Section 14.02. Extent of Trustee's Liability. (a) No provision of this ----------------------------- Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that (i) prior to an Event of Default, and after the curing of all Events of Default which may have occurred, the Trustee shall not be liable except for the performance of such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee but the duties and obligations of the Trustee, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, shall be determined solely by the express provisions of this Indenture; (ii) prior to an Event of Default, and after the curing of all Events of Default which may have occurred, and in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely upon certificates or opinions conforming to the requirements of this Indenture as to the truth of the statements and the correctness of the opinions expressed therein; (iii)no Trustee which is a corporation shall be personally liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of such Trustee unless it shall be proved that such Trustee was negligent in ascertaining pertinent facts and no Trustee who is an individual shall be personally liable for any error of judgment made in good faith by such individual unless it shall be proved that such individual was negligent in ascertaining the pertinent facts; (iv) the Trustee shall not be personally liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of a majority in aggregate principal amount of the Outstanding Bonds (determined as provided in Section 20.03) relating to the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; (v) the Trustee may execute any of the trusts or powers or perform any duties under this Indenture either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney, who is not, in either case, an employee of the Trustee, appointed with due care by it hereunder; (vi) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (vii) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of 66 indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, upon reasonable request and at all reasonable times, to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation; (viii) the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Bonds and this Indenture; and (ix) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. (b) The provisions of this Section 14.02 which have been made specifically applicable to the Trustee shall apply to the Trustee and, if a separate or co- trustee is appointed pursuant to Section 14.15, to any separate or co-trustee. Section 14.03. Recitals Deemed Made By Company. The recitals in this ------------------------------- Indenture and in the Bonds (except the Trustee's authentication certificate) shall be taken as the statements of the Company and the Trustee assumes no responsibility for the correctness of such statements. The Trustee makes no representations as to the condition, genuineness, validity or value of the Mortgaged Property, or any part thereof, or as to the title of the Company thereto, or as to the validity or adequacy of the security afforded thereby and hereby, or as to the validity of this Indenture or of the Bonds issued hereunder. The Trustee shall be under no responsibility or duty with respect to the disposition of any Bonds authenticated and delivered hereunder or the application of the proceeds thereof or the application of any moneys paid to the Company under any provision hereof. Section 14.04. Trustee Not Liable for Debts From Operation of Mortgaged -------------------------------------------------------- Property; Trustee May Own Bonds. (a) The Trustee and any separate or co-trustee - ------------------------------- shall not be personally liable in case of entry by it upon the Mortgaged Property for debts contracted or liability or damages incurred in the management or operation of Mortgaged Property. (b) The Trustee, any paying agent, bond registrar, or authenticating agent, in its individual or any other capacity, may become the holder, owner or pledgee of Bonds and, subject to Section 14.11 and Section 14.12, may otherwise deal with the Company with the same rights the Trustee would have if it were not Trustee, paying agent, bond registrar or authenticating agent. Section 14.05. Trustee May Give Notices Incidental to Action by it. --------------------------------------------------- Whenever it is provided in this Indenture that the Trustee shall take any action upon the happening of a 67 specified event or upon the fulfillment of any condition or upon the request of the Company or of Holders, the Trustee taking such action shall have full power to give any and all notices to do any and all acts and things incidental to such action. Section 14.06. Notice by Trustee to Company. Any notice or demand which by ---------------------------- any provision of this Indenture is required or permitted to be given or served by the Trustee on the Company shall be deemed to have been sufficiently given or served, for all purposes, five (5) days after being deposited first-class postage prepaid in a post office letter box addressed (until another address is filed by the Company with the Trustee for the purpose of this Section 14.06) to the Company at the following address: Central Vermont Public Service Corporation 77 Grove Street Rutland, Vermont 05701 Attention: Treasurer Section 14.07. Trustee May Rely on Certificates and May Consult Counsel; --------------------------------------------------------- Responsibility in Selection of Experts. (a) To the extent permitted by Section - -------------------------------------- 14.01 and Section 14.02: (i) the Trustee may rely and shall be protected in acting upon any Accountant's Certificate, Appraiser's Certificate, Officers' Certificate, Engineer's Certificate, Opinion of Counsel, Board resolution, certificate, opinion, notice, demand, request, waiver, consent, order, appraisal, report, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; and any request or direction of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate, a Board resolution or a written order signed by its Chairman of the Board, Chief Executive Officer, President or a Vice-President and by its Secretary, an Assistant Secretary, Chief Financial Officer, Treasurer or an Assistant Treasurer or, to the extent provided in this Indenture, by an Authorized Officer; and (ii) the Trustee may consult with counsel of its selection and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the Trustee hereunder in good faith and in accordance with the opinion of such counsel. (b) The Trustee shall not have any responsibility for the selection, appointment or approval of any expert for any purpose expressed in this Indenture, except that nothing in this Section 14.07 shall relieve the Trustee of its obligation to exercise reasonable care with respect to such selection, appointment or approval of experts who may furnish opinions or certificates to the Trustee pursuant to this Indenture. (c) Nothing in this Section 14.07 shall be deemed to modify the obligation of the Trustee to exercise during the continuance of an Event of Default the rights and powers vested in it by this Indenture with the degree of care and skill specified in Section 14.01. 68 Section 14.08. Moneys Deposited with Trustee to be Held in Trust; Interest ----------------------------------------------------------- on Such Moneys. (a) Subject to Section 18.02, all moneys received by the Trustee - -------------- whether as Trustee or paying agent shall, until withdrawn, used, invested or applied as provided in this Indenture, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. In accordance with Section 11.02, the Trustee may allow and credit to the Company interest on any moneys received by the Trustee hereunder at such rate, if any, as may be agreed upon by the Company and the Trustee from time to time and as may be permitted by law. (b) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it. Section 14.09. Compensation of Trustee; Lien Therefor. (a) The Company -------------------------------------- shall pay to the Trustee from time to time, and the Trustee shall be entitled to receive from the Company, compensation as shall be agreed to in writing by the Company and the Trustee for all services rendered by the Trustee in its execution of the trusts created by this Indenture and in its exercise and performance of any of the powers and duties of the Trustee hereunder, which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust, and the Company shall reimburse the Trustee for all appropriate advances made by the Trustee and shall pay to the Trustee from time to time its expenses and disbursements (including the reasonable compensation and the expenses and disbursements of all Persons not regularly in its employ and, to the extent permitted by law, of its counsel) incurred without negligence or bad faith. The Company also covenants to indemnify each of the Trustee and any predecessor Trustee for, and to hold it harmless against, any loss, liability or expense, including taxes (other than taxes based upon, measured by or determined by, the income of the Trustee) incurred without negligence or bad faith on the part of the Trustee and any predecessor Trustee and any predecessor Trustee, arising out of or in connection with the acceptance or administration of the trust created by this Indenture, including the costs and expenses of defending against any claim of liability in the premises. To secure the performance of the obligations of the Company under this Section 14.09, the Trustee shall have (in addition to any other rights under this Indenture) a lien prior to that of the Holders upon the Mortgaged Property, including all Mortgaged Property and funds held or collected by the Trustee. (b) If, and to the extent that, the Trustee and its counsel and other Persons not regularly in its employ do not receive compensation for services rendered, reimbursement of its or their advances, expenses and disbursements, or indemnity, as provided in Section 14.09(a), as the result of allowances made in any reorganization, bankruptcy, receivership, liquidation or other proceeding or by any plan of reorganization or readjustment of obligations of the Company, the Trustee shall be entitled, in priority to the Holders, to receive any distribution of any securities, dividends or other disbursements which would otherwise be made to the Holders in any such proceeding or proceedings and the Trustee is hereby constituted and appointed, irrevocably, the attorney-in-fact for the Holders and each of them to collect and receive, in their name, place and stead, such distributions, dividends or other disbursements, to deduct therefrom the amounts due to the Trustee, its counsel and other Persons not regularly in its employ on account of services rendered, advances, expenses and disbursements made or incurred, or 69 indemnity, and to pay and distribute the balance, pro rata, to the Holders. The Trustee shall have a lien upon any securities or other considerations to which the Holders may become entitled pursuant to any such plan of reorganization or readjustment of obligations, or in any such proceeding or proceedings; and the court or judge in any such proceeding or proceedings may determine the terms and conditions under which any such lien shall exist and be enforced. (c) If, and to the extent that the Trustee incurs expenses or renders services in connection with an Event of Default specified herein, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or state bankruptcy, insolvency or other similar law. (d) The provisions of this Section 14.09 shall survive the termination of this Indenture. Section 14.10. Trustee May Rely on Matters Established by Officers' ---------------------------------------------------- Certificate. Whenever in the administration of the trusts created by this - ----------- Indenture, prior to an Event of Default, or after the curing of an Event of Default, the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof is herein specifically prescribed) may to the extent permitted by Sections 14.01 and 14.02 be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such Officers' Certificate shall be full warrant to the Trustee for any action taken or suffered by it under this Indenture in reliance thereon. Section 14.11. Action to be Taken by Trustee who Becomes Creditor of ----------------------------------------------------- Company. The Trustee shall comply with TIA Section 311(a), excluding any - ------- creditor relationship listed in TIA Section 311(b). A trustee which has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. Section 14.12. Action to be Taken by Trustee in the Event of a Conflict of ----------------------------------------------------------- Interest. The Trustee shall comply with TIA Section 310(b); provided, however, - -------- that (i) there shall be excluded from the requirements of TIA Section 310(b)(1) all indentures which may be excluded pursuant to the proviso to TIA Section 310(b)(1); and (ii) the provisions of the first sentence of TIA Section 310(b)(9) shall not apply to any securities described in the second sentence of TIA Section 310(b)(9). Section 14.13. Resignation or Removal of Trustee. (a) The Trustee may at --------------------------------- any time resign and be discharged of the trusts created by this Indenture by giving written notice to the Company specifying the day upon which such resignation shall take effect and thereafter publishing notice thereof, in one Authorized Newspaper in the Borough of Manhattan, the City and State of New York, and in one Authorized Newspaper in the city, if different, in which the principal office of the Trustee is located, once each, and such resignation shall take effect upon the day specified in such notice unless previously a successor trustee shall have been appointed by the Holders or the Company in the manner provided in Section 14.14, and in such event such resignation shall take effect immediately on the appointment of such successor trustee, provided, however, that if all then Outstanding Bonds shall be Registered Bonds, no notice need be given 70 except by mail to all holders of Registered Bonds at the last address appearing for each of such holders in the Bond Register maintained pursuant to Section 2.06. This Section 14.13 shall not be applicable to resignations pursuant to TIA Section 310(b). (b) The Trustee may be removed at any time by an instrument or concurrent instruments in writing filed with such Trustee and signed and acknowledged by the holders of a majority in principal amount of the then Outstanding Bonds or by their attorneys-in-fact duly authorized. (c) In case at any time the Trustee shall cease to be eligible in accordance with Section 7.04 or Section 14.01, then the Trustee so ceasing to be eligible shall resign immediately in the manner and with the effect provided in this Section 14.13; and in the event that it does not resign immediately in such case, then it may be removed forthwith by an instrument or concurrent instruments in writing filed with the Trustee so ceasing to be eligible and either (i) signed by the Chairman of the Board, Chief Executive Officer, President or a Vice-President of the Company attested to by the Secretary or an Assistant Secretary of the Company or (ii) signed and acknowledged by the holders of a majority in principal amount of Outstanding Bonds or by their attorneys in fact duly authorized. Section 14.14. Appointment of Successor Trustee. (a) In case at any time -------------------------------- the Trustee shall resign or shall be removed (unless such Trustee shall be removed as provided in TIA Section 310(b) in which event the vacancy shall be filled as provided therein) or shall be adjudged a bankrupt or insolvent, or if a receiver of the Trustee or of its property shall be appointed, or if any public officer shall take charge or control of the Trustee, or of its property or affairs, for the purpose of rehabilitation, conservation or liquidation, or a vacancy shall be deemed to exist in the office of the Trustee for any other reason, the Company, by a Board resolution, shall promptly appoint a successor trustee. In case all or substantially all of the Mortgaged Property shall be in the possession of a receiver or trustee lawfully appointed, such receiver or trustee, by written instrument, may similarly appoint a successor to fill such vacancy until a new trustee shall be so appointed by the Holders. Within ninety (90) days after such resignation, removal or incapability or the occurrence of such vacancy, a successor Trustee may be appointed by act of the holders of a majority in aggregate principal amount of the Outstanding Bonds, delivered to the Company and the retiring Trustee, and the successor trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor trustee and supersede the successor trustee appointed by the Company or by such receiver or trustee. (b) The Company shall give notice of any appointment of a successor Trustee made by it or by act of the Holders in the manner provided in Section 14.13. (c) If in a proper case no appointment of a successor Trustee shall be made pursuant to Section 14.14(a) within ninety (90) days after a vacancy shall have occurred in the office of Trustee, any Holder or any retiring Trustee may apply to any court of competent jurisdiction to appoint a successor Trustee. Said court may thereupon after such notice, if any, as such court may deem proper and prescribe, appoint a successor Trustee. (d) If any Trustee resigns because of a conflict of interest as provided in Section 14.12 and a successor Trustee has not been appointed by the Company or the Holders or, if 71 appointed, has not accepted the appointment, within 30 days after the date of such resignation, the resigning Trustee may apply to any court of competent jurisdiction for the appointment of a successor Trustee. (e) Any Trustee appointed under this Section 14.14 as a successor Trustee shall be a bank or trust company eligible under Section 7.04 and Section 14.01 and qualified under Section 14.12. Section 14.15. Appointment of Separate Trustee or Co-Trustee. (a) At any --------------------------------------------- time or times, for the purpose of conforming to any legal requirements, restrictions or conditions in any State or jurisdiction in which any Mortgaged Property may be located, the Company and the Trustee shall have the power to appoint, and, upon the request of the Trustee, the Company shall for such purpose join with the Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Trustee, either to act as separate trustee or trustees, or co- trustee or co-trustees jointly with the Trustee, of all or any of the Mortgaged Property. In the event that the Company shall not have joined in such appointment within 15 days after the receipt by it of a request to do so, the Trustee alone shall have power to make such appointment. (b) Every separate trustee, every co-trustee and every successor trustee, other than any trustee which may be appointed as a successor to the original Trustee, shall, to the extent permitted by law, but to such extent only, be appointed subject to the following provisions and conditions, namely: (i) the rights, powers, duties and obligations conferred or imposed upon trustees hereunder or any of them shall be conferred or imposed upon and exercised or performed by the Trustee or by the Trustee and such separate trustee or separate trustees or co-trustee or co-trustees jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by such separate trustee or separate trustees or co-trustee or co-trustees; (ii) the Bonds shall be authenticated and delivered, and all powers, duties, obligations and rights conferred upon the Trustee in respect of the custody of all Bonds and other securities and of all cash pledged or deposited hereunder, shall be exercised solely by the original Trustee or its successors in the trust hereunder; and (iii) the Company and the Trustee, at any time by an instrument in writing executed by them jointly, may accept the resignation of or remove any separate trustee or co-trustee appointed under this Section 14.15 or otherwise, and, upon the request of the Trustee, the Company shall, for such purpose, join with the Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to make effective such resignation or removal. In the event that the Company shall not have joined in such action within 15 days after the receipt by it of a request so to do, the Trustee alone shall have power to accept such resignation or to remove any such 72 separate trustee or co-trustee. A successor to any separate trustee or co- trustee so resigned or removed may be appointed in the manner provided in this Section 14.15. (c) No trustee shall be personally liable by reason of any act or omission of any other trustee hereunder. (d) Any notice, request or other writing, by or on behalf of the Holders delivered to the original Trustee, or its successor in the trust hereunder, shall be deemed to have been delivered to all of the then trustees or co- trustees as effectually as if delivered to each of them. Every instrument appointing any trustee or trustees other than a successor to the original Trustee shall refer to this Indenture and the conditions expressed in this Article XIV and upon the acceptance in writing of such appointment, such trustee or trustees, or co-trustee or co-trustees, shall be vested with the estates or property specified in such instrument, either jointly with the original Trustee, its successor, or separately, as may be provided in such instrument subject to all the trusts, conditions and provisions of this Indenture; and every such instrument shall be filed with the original Trustee or its successor in the trust hereunder. Any separate trustee or trustees, or any co-trustee or co- trustees, may at any time by an instrument in writing constitute the original Trustee or its successor in the trust hereunder the agent or attorney in fact for such trustee, with full power and authority, to the extent which may be permitted by law, to do any and all acts and things and exercise any and all discretion authorized or permitted by such trustee, for and on behalf of such trustee, and in such trustee's name. In case any separate trustee or trustees or co-trustee or co-trustees, or a successor to any of them, shall die, become incapable of acting, resign or be removed, all the estates, property, rights, powers, trusts, duties and obligations of said separate trustee or co-trustee, so far as permitted by law, shall vest in and be exercised by the original Trustee or its successor in the trust hereunder, without the appointment of a new, trustee as successor to such separate trustee or co-trustee. Section 14.16. Acceptance by Successor Trustee; Requirements of ------------------------------------------------ Predecessor Trustee Upon Retiring. Any successor trustee appointed hereunder - --------------------------------- shall execute, acknowledge and deliver to the predecessor trustee, and also to the Company, an instrument accepting such appointment hereunder, and thereupon such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessor in trust hereunder, with like effect as if originally named as trustee herein; but the trustee ceasing to act shall nevertheless, on the written request of the Company, or of the successor trustee, or of the holders of not less than 10% in principal amount of the then Outstanding Bonds, execute, acknowledge and deliver such instruments of conveyance and further assurance and do such other things as may reasonably be required for more fully and certainly vesting and confirming in such successor trustee all the right, title and interest of the trustee to which such trustee succeeds in and to the Mortgaged Property and such rights, powers, trusts, duties and obligations, and the trustee ceasing to act shall also, upon like request, pay over, assign and deliver to the successor trustee any money or other Mortgaged Property, including any pledged securities which may then be in the possession of such trustee. If any deed, conveyance or instrument in writing from the Company is required by the new trustee for more fully and certainly vesting in and confirming to such new trustee such estates, properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the Company. 73 Section 14.17. Merger or Consolidation of Trustee. Any corporation into ---------------------------------- which the Trustee may be merged or with which it may be consolidated or any corporation resulting from any merger or consolidation in which the Trustee shall be a party or any corporation to which substantially all the business and assets of the Trustee may be transferred, provided such corporation shall be eligible under Section 7.04 and Section 14.01 and qualified under Section 14.12, shall be the successor trustee under this Indenture, without the execution or filing of any instrument or the performance of any further act on the part of the Company or any other trustee hereunder, anything herein to the contrary notwithstanding. In case any of the Bonds contemplated to be issued hereunder shall have been authenticated but not delivered, any such successor to the Trustee may, subject to the same terms and conditions as though such successor had itself authenticated such Bonds, adopt the certificate of authentication of the original Trustee or of any successor to it as trustee hereunder, and deliver the such Bonds so authenticated; and in case any of such Bonds shall not have been authenticated, any successor to the Trustee may authenticate such Bonds either in the name of any predecessor trustee or in the name of the successor trustee, and in all such cases such certificate shall have the full force which the certificate of the Trustee shall have; provided, however, that the right to authenticate Bonds in the name of the original Trustee shall apply only to its successor or successors by merger or consolidation or sale as aforesaid. Section 14.18. Appointment of Successor Trustee by Company. ------------------------------------------- Notwithstanding any other provision of this Indenture, by instrument executed by order of the Board and duly acknowledged by its proper officers, the Company may appoint any corporation eligible under Section 7.04 and Section 14.01 and qualified under Section 14.12 as Trustee in succession to the Trustee on the date of such appointment, and the corporation so appointed Trustee shall thereupon become successor Trustee hereunder. Section 14.19. Authenticating Agent. At any time there is any series of -------------------- Bonds issued hereunder listed on the New York Stock Exchange, there shall (unless (a) a successor to the Trustee appointed, qualified and acting as Trustee in accordance with the provisions of Section 14.14 shall have its principal corporate trust office in the Borough of Manhattan, City and State of New York or (b) an appointment of an authenticating agent is not required in order to comply with the rules of the New York Stock Exchange by virtue of the maintenance by the Trustee or any successor trustee of an office and/or other facilities in the Borough of Manhattan, City and State of New York, for the performance of the functions which would otherwise be required by such rules to be performed by an authenticating agent or for any other reason) be an authenticating agent for the Bonds. Such authenticating agent shall be appointed by the Trustee, shall be acceptable to the Company, and shall at all times be a corporation organized and doing business under the laws of the United States or of a State, authorized under such laws to act as authenticating agent, having a combined capital and surplus of at least Twenty Million Dollars ($20,000,000), and being subject to supervision or examination by Federal or State authority and, if there be such a corporation willing and able to act as authenticating agent on reasonable and customary terms, having its principal corporate trust office in the Borough of Manhattan, City and State of New York. If such corporation publishes reports of condition at least annually, pursuant to law, or to the requirements of any supervising or examining authority, then for the purposes of this Section 14.19 the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. 74 Any corporation into which any authenticating agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which any authenticating agent shall be a party, or any corporation succeeding to the corporate agency business of any authenticating agent, shall continue to be the authenticating agent without the execution or filing of any paper or any further act on the part of the Trustee or the authenticating agent. Any authenticating agent may at any time resign by giving written notice of resignation to the Trustee and the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible in accordance with the provisions of this Section 14.19, the Trustee promptly shall appoint a successor authenticating agent and shall give written notice of such appointment to the Company. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers, duties and responsibilities of its predecessor hereunder, with like effect as if originally named as authenticating agent herein. No successor authenticating agent shall be appointed unless eligible under the provisions of this Section 14.19. Any authenticating agent by the acceptance of its appointment shall be deemed to have agreed with the Company and the Trustee that: it will perform and carry out the duties of an authenticating agent as herein set forth, including among other things, the duty to authenticate and deliver bonds when presented to it in connection with exchanges or transfers of bonds (but not upon the original issue thereof or in cases of replacement of bonds mutilated, defaced, lost or stolen); it will furnish from time to time as requested by the Company or the Trustee appropriate records of all transactions carried out by it as authenticating agent and will furnish the Company or the Trustee such other information and reports as the Company or the Trustee may reasonably require; it is eligible for appointment as authenticating agent and will notify the Company and the Trustee promptly if it shall cease to be so eligible; it will indemnify the Trustee against any loss, liability or expense incurred by the Trustee and will defend any claims asserted against the Trustee by reason of any acts or failures to act of the authenticating agent but it shall have no liability for any action taken by it at the specific direction of the Trustee. The Company agrees to pay to the authenticating agent from time to time reasonable compensation for its services. ARTICLE XV SUPPLEMENTAL INDENTURES Section 15.01. Provision for Supplemental Indentures. ------------------------------------- Without the consent of any Holder, the Trustee and the Company, when authorized by a Board resolution, from time to time and at any time, may enter into Supplemental Indentures hereto which shall thereafter form a part hereof, for any one or more of the following purposes: 75 (a) to amplify or correct the description of any property conveyed or pledged or intended so to be by this Indenture, or to convey, transfer and assign to the Trustee and to subject to the Lien of this Indenture with the same force and effect as if included in the granting clause hereof, additional property and franchises, together with such other provisions as may be appropriate to express the respective rights of the Trustee and the Company in regard thereto; (b) to convey, transfer and assign to the Trustee and to subject to the Lien of this Indenture with the same force and effect as if included in the granting clause hereof, property of subsidiaries of the Company used or to be used for one or more purposes which if owned by the Company would constitute property used or to be used for one or more of the Primary Purposes of the Company's Business, which property shall for all purposes of this Indenture be deemed to be property of the Company, together with such other provisions as may be appropriate to express the respective rights of the Trustee and the Company in regard thereto; (c) to close this Indenture against the issue of additional Bonds or to add limitations on the amount, terms, provisions, authentication, delivery, issue and purposes of the issue of Bonds under this Indenture; (d) to provide for the issue of Bonds of any series, to add or omit provisions with respect to such series (including but not limited to provisions regarding covenants, events of default, remedies, mandatory or optional prepayment, amendments and modifications, and legal and covenant defeasance), and to establish the forms and provisions of the Bonds of such series, all in a manner not prohibited by the provisions of this Indenture; (e) to provide the terms and conditions of the exchange or conversion, at the option of the holders of Bonds of any series, of the Bonds of such series for or into Bonds of other series or stock or other securities of the Company or any other corporation; (f) to provide for alternative methods or forms for evidencing and recording the ownership of Bonds and matters related thereto; (g) to reflect changes in Generally Accepted Accounting Principles; (h) to change the words "Mortgage Bonds" to "First Mortgage Bonds" in the descriptive title of all Outstanding Bonds at any time after the discharge of the First Mortgage; (i) to comply with the rules or regulations of any national securities exchange on which any of the Bonds may be listed; (j) to modify the provisions of this Indenture to such extent as shall be necessary to continue the qualification of this Indenture under the TIA, or under any similar federal statute hereafter enacted; (k) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by such successor corporation of the covenants and obligations of the Company under this Indenture; to evidence the succession of a new trustee to any trustee hereunder; or to evidence the appointment and the terms of such appointment of any co-trustee or separate trustee appointed pursuant to the provisions of Section 14.15; 76 (l) to change, alter, modify, vary or eliminate any of the terms, provisions, restrictions or conditions of this Indenture; provided, however, that any such changes, alterations, modifications, variations or eliminations made in a Supplemental Indenture pursuant to this provision which would materially adversely affect the rights of the holders of any Bonds then Outstanding against the Company or its property shall be expressly stated in such Supplemental Indenture to become effective only when there are no Outstanding Bonds which were authenticated and delivered prior to the execution of such Supplemental Indenture for the purpose of relieving the Company from any of the obligations, conditions or restrictions herein contained or otherwise; and (m) to make such provision in regard to matters or questions arising under this Indenture as may be necessary or desirable and not inconsistent with this Indenture or for the purpose of supplying any omission, curing any ambiguity, or curing, correcting or supplementing any defective or inconsistent provision contained in this Indenture or for any other purpose not inconsistent with this Indenture and which will not materially impair the security of the same. Section 15.02. Requirements for Other Supplemental Indentures. (a) With ---------------------------------------------- the consent (evidenced as provided in Article XX) of the holders of a majority in aggregate principal amount of the Outstanding Bonds which would be affected by the action to be taken, and in case one or more of the series of Outstanding Bonds would be materially adversely affected by, the action to be taken, with the consent of the holders of not less than 60% (or such other amount as may be specified in the Supplemental Indenture pursuant to which the Bonds of such series were issued) in aggregate principal amount of such series so affected (which need not include 60% (or such other amount) of each such series), the Company, when authorized by a Board resolution, and the Trustee may, from time to time and at any time, enter into a Supplemental Indenture for the purpose of adding any provision to or changing in any manner or eliminating any provision of this Indenture or of modifying in any manner the rights of the holders of Bonds; provided, however, that anything in this Section 15.02 to the contrary notwithstanding, no such Supplemental Indenture shall, without the consent of the holder of each Outstanding Bond affected thereby, (i) extend the fixed maturity of any Bonds, change any terms of any sinking fund or analogous fund or conversion rights with respect to any Bonds, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof, or, subject to Article XII, limit the right of a holder of Bonds to institute suit for the enforcement of payment of principal of, premium, if any, or interest on such Bonds in accordance with the terms of such Bonds, or (ii) reduce the aforesaid percentage of Bonds, the holders of which are required to consent to any such Supplemental Indenture, or (iii) permit the creation by the Company of any Prior Lien other than Permissible Encumbrances (but no amendment of the First Mortgage nor any merger or consolidation, as permitted by Section 13.01, of the Company with any other Person owning property that is subject to a Prior Lien shall be deemed the creation of any Prior Lien). For the purposes of this Section 15.02, Bonds shall be deemed to be materially adversely affected by a Supplemental Indenture if such Supplemental Indenture materially adversely affects or materially diminishes the rights of holders thereof against the Company or against its property. The Trustee may in its discretion determine whether or not, in accordance with the foregoing, Bonds of any particular series would be materially adversely affected by any Supplemental Indenture and any such determination shall be conclusive upon the holders of Bonds of such series and all other series. Subject to Section 14.01 and Section 14.02, the Trustee shall not be liable for any such determination made in good faith. 77 (b) Upon the request of the Company, accompanied by a copy of a Board resolution authorizing the execution of any such Supplemental Indenture, and upon the filing with the Trustee of evidence of the consent of Holders as aforesaid, the Trustee shall join with the Company in the execution of such Supplemental Indenture. (c) It shall not be necessary for the consent of the Holders under this Section 15.02 to approve the particular form of any proposed Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. (d) The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided, that unless such consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date which is 90 days after such record date (unless a shorter period after such record date shall have been specified, in which case such shorter period shall apply), any such consent previously given shall automatically and without further action by any Holder be cancelled and of no further effect. Section 15.03. Execution of Supplemental Indentures. In executing, or ------------------------------------ accepting the additional trusts created by, any supplemental indenture permitted by this Article Fifteen or the modification thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. ARTICLE XVI MEETINGS OF BONDHOLDERS Section 16.01. Manner of Calling Meetings and Determination of Bonds ----------------------------------------------------- Affected. (a) The Trustee shall on request of the Company pursuant to a Board - -------- resolution or upon written request of the holders of a majority in aggregate principal amount of Outstanding Bonds call a meeting of Holders to be held at such time and at such place in either the Borough of Manhattan, the City and State of New York, or the city in which the principal office of the Trustee or the city in which the principal office of the Company is located, as the Trustee shall determine. Notice of every meeting of Holders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting and specifying each series of Bonds which would be affected by the proposed action, shall be published at least two times in one Authorized Newspaper in the Borough of Manhattan, the City and State of New York and in one Authorized Newspaper in the city in which the principal office of the Trustee is located, the first publication in each such Authorized Newspaper to be not less than 20 nor more than 60 days prior to the date fixed for such meeting (except that, if all the Bonds which would be affected by the proposed action are Registered Bonds, such publication need not be made) and shall be mailed not less than 30 days before such meeting (i) to each holder on a record date not more than 15 days prior to the date of such mailing of Registered Bonds which would be affected by the action proposed 78 to be taken at the meeting and then Outstanding, addressed to such holder at the address appearing on the Bond Register maintained pursuant to Section 2.06, (ii) if any of the Bonds which would be affected by the proposed action are not Registered Bonds, to each holder of any such Bond payable to bearer who shall have filed, within two years prior to the date of such mailing, with the Trustee an address for notices to be addressed to such holder and to all other such holders whose names and addresses are preserved at the time by the Trustee, as provided in TIA Section 312(a), (iii) to the Trustee addressed to it at 101 Barclay Street, Floor 21 West, New York, New York 10286, or at such other address as may be designated by the Trustee from time to time, and (iv) to the Company addressed to it at 77 Grove Street, Rutland, Vermont 05701, Attention: Treasurer, or at such other address as may be designated by the Company from time to time; provided, however, that the mailing of such notice to any Holder shall in no case be a condition precedent to the validity of any action taken at such meeting. (b) The Trustee may in its discretion determine whether or not Bonds of any particular series would be affected by the action proposed to be taken at a meeting and, if such action is the authorization of a Supplemental Indenture as provided in Section 15.02, whether or not such Bonds would be materially adversely affected, and any such determination shall be conclusive upon the holders of Bonds of such series and all other series. Subject to Section 14.01 and Section 14.02, the Trustee shall not be liable for any such determination made in good faith. Section 16.02. Calling of Meetings by Company or Holders. In case at any ----------------------------------------- time the Company, pursuant to a Board resolution, or the holders of a majority in aggregate principal amount of the Outstanding Bonds, shall have requested the Trustee to call a meeting of Holders, by written request setting forth in general terms the action proposed to be taken at such meeting, and the Trustee shall not have made the first publication of the notice of such meeting or mailed the notice of such meeting, if publication need not be made, within 20 days after receipt of such request, then the Company or the holders of Bonds in the amount above specified may determine the time and place in the Borough of Manhattan, the City and State of New York, or in the city in which the principal office of the Trustee or the city in which the principal office of the Company is located, for such meeting and may call such meeting by giving notice thereof as provided in Section 16.01. Section 16.03. Persons Entitled to Vote at Meeting. To be entitled to vote ----------------------------------- at any meeting of Holders a Person shall (a) be a holder of one or more definitive Bonds transferable by delivery of a series which would be affected by the proposed action; or (b) be a holder of one or more Registered Bonds of such a series (whether such Bonds are fully registered or registered only as to principal); or (c) be the holder of a certificate (with respect to one or more Bonds of such a series) then in effect and satisfactory to the Trustee issued pursuant to Section 20.01; or (d) be a Person appointed by an instrument in writing as a proxy for such a holder or holders of Bonds of such a series or for a holder of such a certificate, provided that no Person who holds a Bond which is excluded in the determination of the requisite amount concurring in any action as set forth in Section 20.03 shall be permitted to vote. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel, proxies and any representatives of the Trustee and its counsel, and any representatives of the Company and its counsel. 79 Section 16.04. Conduct of Meetings; Regulations. (a) Notwithstanding any -------------------------------- other provision of this Indenture, the Trustee on its own initiative or on request of the Company, may, or upon request of the holders of a majority in principal amount of the Outstanding Bonds shall, from time to time, make such reasonable regulations, and may vary such regulations, as it may deem advisable for any meeting of Holders, in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidences of the right to vote, and, except as otherwise provided in this Section 16.04 and in Section 16.05, such other matters concerning the conduct of the meeting as the Trustee may deem advisable. Except as otherwise permitted or required by any such regulations, the holding of Bonds shall be proved in the manner specified in Section 20.01 and the appointment of any proxy shall be proved in the manner specified in Section 20.01 or by having the signature of the Person executing the proxy witnessed or guaranteed by any bank, banker or trust company authorized by Section 20.01 to certify to the holding of Bonds which are transferable by delivery. (b) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by the Holders as provided in Section 16.02, in which case the Company or the Holders calling the meeting, as the case may be, shall in a similar manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the holders of a majority in principal amount of the Bonds represented at the meeting and entitled to vote. The Trustee shall appoint an alternate chairman and an alternate secretary of the meeting from among the Persons present and entitled to vote at such meeting, who shall, respectively, succeed to and serve as permanent chairman and permanent secretary of the meeting in the event the permanent chairman and/or the permanent secretary, as the case may be, for any reason is unable or fails to perform the functions of such office, including taking the actions provided for in Section 16.05(a). (c) Subject to Section 20.03, upon the submission of any resolution at any meeting, each Holder or proxy shall be entitled to one vote for each and every $1,000 principal amount of Outstanding Bonds held by such Holder or by the Holders represented by such proxy, as the case may be, the holders of which are entitled by this Article XVI to vote, provided, however, that no vote shall be cast or counted at any meeting in respect of any Bond challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Bonds held by such chairman or instruments in writing as aforesaid duly designating such chairman as the person to vote on behalf of other Holders. Any meeting of Holders duly called pursuant to Section 16.01 or Section 16.02 may be adjourned from time to time, and the meeting may be held as so adjourned, without further notice. Section 16.05. Manner of Voting. (a) The vote upon any action proposed to ---------------- be taken at such meeting, which action shall be submitted to the meeting in the form of a resolution, shall be by written ballots on which shall be subscribed the signatures of the Holders or their representatives by proxy and the serial number or numbers of the Bonds held or represented by them. The chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the 80 secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts, setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 16.01. The record shall show the serial numbers of the Bonds voting in favor of any resolution submitted in accordance with this Article XVI. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee. (b) Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 16.06. Rights of Trustee or Holders Not to Be Hindered or Delayed. ---------------------------------------------------------- Nothing in this Article XVI contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Holders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Holders under any provision of this Indenture or of the Bonds. Section 16.07. Action By Written Consent. -------------------------- Any action which may be taken at a meeting of Holders, including the authorization of a Supplemental Indenture as provided in Sections 15.02(a), may be taken without a meeting, without prior notice and without a vote, if such action is consented to in writing (evidenced as provided in Article XX) by the holders of Outstanding Bonds holding not less than the minimum aggregate principal amount of Outstanding Bonds which is necessary to authorize or take such action at a meeting of Holders. ARTICLE XVII BONDHOLDER LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE Section 17.01. Company to Furnish Holder Lists. The Company shall, so long ------------------------------- as any Bonds are Outstanding under this Indenture, furnish or cause to be furnished to the Trustee between March 1 and March 15 and between September 1 and September 15 of each year, commencing in the year 2000, and at such other times as the Trustee may request in writing, the information required by TIA Section 312(a), which the Trustee shall preserve as required by TIA Section 312(a). The Trustee shall also comply with TIA Section 312(b), but the Trustee, the Company and each Person acting on behalf of the Trustee or the Company shall have the protection of TIA Section 312(c). Section 17.02. Company to Make Filings With Trustee and Otherwise Comply --------------------------------------------------------- with TIA Section 314. The Company shall (a) file with the Trustee, within 15 - -------------------- days after it is required to file the same with the Securities and Exchange Commission, copies of the reports, information and documents (or portions thereof) required to be so filed pursuant to TIA Section 314(a), and (b) comply with the other provisions of TIA Section 314(a), including the provision of an Officer's Certificate pursuant to TIA Section 314(a)(4). Delivery of such reports, information 81 and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). Section 17.03. Trustee to Furnish Reports to Holders and Otherwise Comply ---------------------------------------------------------- With TIA Section 313. The Trustee shall (a) transmit within 60 days after June - -------------------- 30 in each year, beginning with the year 2000, to the Holders, a brief report dated as of such June 30 and complying with the requirements of TIA Section 313(a), and (b) comply with the other provisions of TIA Section 313. ARTICLE XVIII SATISFACTION AND DEFEASANCE Section 18.01. Effect of Payment of Indebtedness; Deposit of Moneys or ------------------------------------------------------- Governmental Obligations in Certain Instances Deemed Payment. (a) The Trustee - ------------------------------------------------------------ may, and upon request of the Company shall, satisfy and discharge the Lien of this Indenture and execute and deliver to the Company such deeds and instruments as shall be required to discharge the Lien of this Indenture, and reconvey and transfer to the Company the Mortgaged Property, whenever all indebtedness secured hereby shall have been paid or deemed to have been paid, including all proper charges of the Trustee hereunder, and thereupon the Holders shall have no rights under this Indenture except to payment of principal of, premium, if any, and interest on their Bonds. (b) Notwithstanding the satisfaction and discharge of this Indenture, the Trustee shall have an unsecured right to charge and be reimbursed by the Company for any reasonable expenditures and liabilities (incurred in good faith and without negligence by the Trustee) which it may thereafter incur. (c) Bonds for the payment of which and Bonds for the redemption of which, either moneys in the necessary amount or Governmental Obligations in an amount which, taking into account any reinvestment and proceeds thereof, will, in the opinion of an Accountant as certified to the Trustee in an Accountant's Certificate, provide moneys which, together with the moneys, if any, deposited with or held by the Trustee, shall be sufficient to pay when due the principal of, premium, if any, and interest due and to become due on such Bonds on the redemption or maturity date thereof and on the cash interest payment dates thereof, as the case may be, shall have been set apart by or deposited with the Trustee, with irrevocable direction to apply the same to such payment, subject to Section 18.02 and with or without any additional right given to the Holders to surrender their Bonds or obtain therefrom payment therefor prior to the redemption or maturity date, shall for all purposes under this Indenture, including satisfying the Lien of this Indenture, be deemed to have been paid; provided that in case of redemption the notice of such redemption shall have been given or arrangements shall have been made to the satisfaction of the Trustee that such notice will be given; provided, further, that with respect to Bonds of any series, the defeasance provisions, if any, of the supplemental indenture pursuant to which Bonds of such series were issued are complied with. 82 Section 18.02. Unclaimed Moneys. In case any moneys deposited with the ---------------- Trustee or any paying agent or proceeds of the investment in or sale of Governmental Obligations held in trust for the payment of principal of, premium, if any, or interest on any Bond remain unclaimed for two years after such principal, premium or interest has become due and payable, the Trustee or such paying agent shall so advise the Company and, upon receipt of a written request of the Company, shall pay over to or upon the written order of the Company said moneys, and thereupon the Trustee or such paying agent shall be released from any and all further liability with respect to the payment of such principal of or premium or interest on such Bond, and the holder of such Bond (subject to any applicable statute of limitations) shall be entitled as an unsecured creditor to seek the payment thereof from the Company unless an applicable abandoned property law designates another Person. ARTICLE XIX IMMUNITY OF INCORPORATORS, SUBSCRIBERS TO THE CAPITAL STOCK, STOCKHOLDERS, OFFICERS AND DIRECTORS Section 19.01. General Provision. No recourse under or upon any ----------------- obligation, covenant or agreement contained in this Indenture, or in any Bond or because of the creation of any indebtedness hereby secured, shall be had against any incorporator or any past, present or future subscriber to the capital stock, stockholder, officer, director, agent or representative of the Company or of any predecessor or successor corporation, as such, either directly or through the Company or any predecessor or successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise; it being expressly agreed and understood that this Indenture and the obligations hereby secured are solely corporate obligations, and that no such personal liability shall attach to, or be incurred by, such incorporators, subscribers to the capital stock, stockholders, officers, directors, agents or representations of the Company or of any predecessor or successor corporation, or any of them, as such, because of the incurring of the indebtedness hereby authorized, or under or by reason of any of the obligations, covenants or agreements contained in this Indenture or in any of the Bonds, or implied therefrom, and that any and all such personal liability of every name and nature, and any and all such rights and claims against every such incorporator, subscriber to the capital stock, stockholder, officer or director, agent or representative, as such, whether arising at common law or in equity, or created by rule of law, statute, constitution or otherwise, are expressly released and waived as a condition of, and as part of the consideration for, the execution of this Indenture and the issue of the Bonds secured hereby. ARTICLE XX EVIDENCE OF RIGHTS OF BONDHOLDERS AND OWNERSHIP OF BONDS Section 20.01. Evidence of Action by Holders. (a) Whenever in this ----------------------------- Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Bonds may take any action (including the making of any demand or request, the giving of any notice, waiver or consent, or the taking of any other action) the fact that at the time of taking any such action the holders of such specified percentage have joined therein may be evidenced (i) by any 83 instrument or any number of instruments of similar tenor executed by Holders in person or by attorney appointed in writing, or (ii) by the record of the Holders voting in favor thereof at any meeting of Holders duly called and held in accordance with the provisions of Article XVI, or (iii) by a combination of such instrument or instruments and any such record of such a meeting of Holders. (b) Proof of the execution of any such instrument, or of a writing appointing any such attorney, or of the holding by any Person of any of the Bonds shall, subject to Section 14.01, Section 14.02 and Section 14.07, be sufficient for any purpose of this Indenture (except as otherwise expressly provided) if made in the following manner: (i) the fact and date of the execution by any Person of any instrument or writing may be proved by the certificate of any notary public, or other officer authorized to take acknowledgments of deeds to be recorded in the jurisdiction in which such notary public or officer purports to act, that the Person signing such instrument or writing acknowledged to such notary public or officer the execution thereof, or by an affidavit of a witness to such execution sworn to before any such notary public or officer; (ii) the amount of Bonds transferable by delivery, and the series and serial numbers thereof, held by any Person, and the date of such Person's holding such Bonds, may be proved either by exhibiting such Bonds themselves or by a certificate executed by any trust company, bank, banker or other depositary wherever situated, if such certificate shall be deemed by the Trustee to be satisfactory, showing that at the date therein mentioned such Person had on deposit with or exhibited to such depositary, the Bonds described in such certificate. Each such certificate shall be dated and shall state that on the date thereof Bond or Bonds bearing a specified serial number or numbers were deposited with or exhibited to such depositary by the Person named in such certificate. No such certificate shall continue to be effective if (A) a certificate bearing a later date issued in respect of the same Bond shall be produced, or (B) the Bond specified in such certificate (or a Bond or Bonds issued in exchange or substitution for such Bond) shall be produced, or (C) the Bond specified in such certificate shall be registered as to principal or shall have been surrendered in exchange for a Registered Bond. The Trustee may nevertheless in its discretion require further proof in cases where it deems further proof desirable. The ownership of Registered Bonds shall be proved by the register or registers of the Company. The record of any Holders' meeting shall be proved in the manner provided in Section 16.05. Section 20.02. Inspection of Bonds. Neither the Company nor the Trustee ------------------- shall be bound to recognize any Person as the holder of a Bond unless and until such Bond is submitted for inspection, if required, and the title of such Person to such Bond satisfactorily established, if disputed. Section 20.03. Bonds Owned by Company or Other Obligor or Affiliate ---------------------------------------------------- Thereof Deemed Not to be Outstanding. In determining whether or not the holders of the requisite aggregate principal amount of Bonds have taken any action under this Indenture, Bonds which are owned by the Company or any other obligor on the Bonds or by any Affiliate of the Company or such obligor shall be disregarded and deemed not to be Outstanding for the purpose of any such 84 determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such action only Bonds which the Trustee knows are so owned shall be disregarded. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for purposes of this Section 20.03, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds and that the pledgee is not an Affiliate of the Company or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Trustee made upon the advice of counsel shall be full protection to the Trustee. Section 20.04. Holder May Revoke Consent. At any time prior to (but not ------------------------- after) the evidencing to the Trustee, as provided in Section 20.01, of the taking of any action by the holders of the percentage in aggregate principal amount of the Bonds specified in this Indenture in connection with such action, any holder of a Bond the serial number of which is shown by the evidence to be included in the Bonds the holders of which have taken such action may, by filing written notice with the Trustee at its principal office and upon proof of such holding as provided in Section 20.01, revoke such action so far as concerns such Bond. Except as aforesaid any such action taken by the holder of any Bond shall be conclusive and binding upon such holder and upon all future holders of such Bond (and any Bond issued in lieu thereof or exchanged therefor), irrespective of whether or not any notation of such action is made upon such Bond, and in any event, any action taken by the holders of the percentage in aggregate principal amount of the Bonds specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of all the Bonds. ARTICLE XXI MISCELLANEOUS Section 21.01. Certificates and Opinions. (a) Each certificate or opinion ------------------------- which is required by this Indenture to be delivered to the Trustee with respect to compliance with a condition or covenant contained in this Indenture (other than the Officer's Certificate delivered pursuant to Section 17.02(b)) shall include (i) a statement that the Person making such certificate or opinion has read such covenant or condition; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of such Person, such Person has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not in the opinion of such Person such condition or covenant has been complied with. (b) Every request or application by the Company for action by the Trustee shall be accompanied by an Officers' Certificate and an Opinion of Counsel stating in each case that in the opinion of the Person making such certificate or opinion the conditions precedent, if any, to such action, provided for in this Indenture (including any covenants the compliance with which constitutes a condition precedent), have been complied with. (c) The same officer or officers of the Company, or the same Engineer or counsel or other Person, as the case may be, need not certify to all the matters required to be certified under 85 the provisions of any Article or Section of this Indenture, but different officers, Engineers, counsel or other Persons may certify to different matters respectively. Section 21.02. Benefits of Indenture. Nothing in this Indenture, or any --------------------- Bond, expressed or implied, is intended, or shall be construed, to give to any Person, other than the Trustee, the Holders and the Company, any legal or equitable right, remedy, or claim under or in respect of this Indenture, or under any of its covenants, conditions or provisions; all of which are intended to be and are for the sole and exclusive benefit of the Trustee, the Holders and the Company. Section 21.03. Successors and Assigns. Whenever any Person is referred to ---------------------- in this Indenture, such reference shall be deemed to include the successors or assigns of such Person, and all the covenants and agreements in this Indenture contained by or on behalf of the Company or by or on behalf of the Trustee shall bind and inure to the benefit of the respective successors and assigns of the Company and the Trustee whether so expressed or not. Section 21.04. Conflict with TIA. If any provision of this Indenture ----------------- limits, qualifies or conflicts with another provision of this Indenture which is required to be included pursuant to any requirements of Sections 310 to 317, inclusive, of the TIA, such required provision shall control. Section 21.05. TIA Construed as in Effect on Date Hereof. Wherever ----------------------------------------- reference is made in this Indenture to the TIA, such reference is made to the TIA as it was in force on the date of the execution of this Indenture. Section 21.06. Titles, Table of Contents, Etc. The titles of the Articles, ------------------------------ Sections, the table of contents and the marginal annotations in this Indenture are included for convenience of reference only and shall not be deemed to be part of this Indenture. Section 21.07. Counterparts. This Indenture may be executed in several ------------ counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. ARTICLE XXII CERTAIN MATTERS RELATING TO THE PROPERTY LOCATED IN THE STATE OF CONNECTICUT Notwithstanding any provision hereof or of the Bonds to the contrary, with respect to any Mortgaged Property now or hereafter located in the State of Connecticut and encumbered by this Indenture, the following provision shall apply: Section 22.01. Prejudgment Remedy Waiver. THE COMPANY ACKNOWLEDGES THAT THE ISSUANCE OF THE BONDS IS A "COMMERCIAL TRANSACTION" AS DEFINED BY CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES AND, PURSUANT TO SECTION 52-278f OF SAID CONNECTICUT GENERAL STATUTES, WAIVES ANY RIGHT TO NOTICE AND HEARING UNDER SECTIONS 52-278Aa 86 THROUGH 52-278q OF THE CONNECTICUT GENERAL STATUTES, AS NOW OR HEREAFTER AMENDED, OR UNDER ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT REMEDIES THE BONDHOLDERS MAY EMPLOY TO ENFORCE THEIR RIGHTS AND REMEDIES IN CONNECTION WITH THE BONDS, THIS INDENTURE OR ANY OTHER DOCUMENTS SECURING THE BONDS. THE COMPANY AUTHORIZES THE BONDHOLDERS' ATTORNEY TO ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT SECURING A COURT ORDER. THE COMPANY ACKNOWLEDGES IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS COUNSEL. Section 22.02. Trustee Agent. The Trustee may, at the Company's expense, ------------- appoint an agent to perform its duties under this Article. ARTICLE XXIII CERTAIN MATTERS RELATING TO THE PROPERTY LOCATED IN THE STATE OF MAINE Notwithstanding any provision hereof or of the Bonds to the contrary, with respect to any Mortgaged Property now or hereafter located in the State of Maine and encumbered by this Indenture, the following provisions shall apply: Section 23.01. Statutory Power of Sale. In addition to the remedies set ----------------------- forth herein, the Holders and the Trustee shall have, to the fullest extent now or hereafter available, the Statutory Power of Sale pursuant to the applicable provisions of Titles 14 and 33 of the Maine Revised Statutes of 1964, as the same have been and shall be amended. The Company acknowledges that this Indenture is given primarily for a business, commercial or agricultural purpose. Section 23.02. Sealed Instrument. This Indenture is intended to take ----------------- effect as a sealed instrument. Section 23.03. No Oral Modifications. The Company confirms and --------------------- acknowledges its understanding that, pursuant to 10 M.R.S.A. (S)1146(2), to the extent applicable, no promise, contract, or agreement to lend money, extend credit, forbear from collection of a debt or make any other accommodation for the repayment of a debt for more than $250,000 may be enforced in court against the Holders unless the promise, contract or agreement is in writing and signed by the Trustee on behalf of the Holders. Section 23.04. No Waiver of Foreclosure. The Company agrees for itself, ------------------------ its successors and assigns, that the acceptance, before the expiration of the right of redemption and after the commencement of foreclosure proceedings of this Indenture, of insurance proceeds, eminent domain awards, rents or anything else of value required to be applied on or to the indebtedness secured hereby by Holders, the Trustee or any other person or party holding under the Holders, shall not constitute a waiver of such foreclosure, and this agreement by the Company shall be that agreement referred to in 14 M.R.S.A. (S)6204, as the same may be amended, as necessary to prevent such waiver of foreclosure. This agreement by the Company is intended to apply to the 87 acceptance and such application of any such proceeds, awards, rents and other sums or anything else of value whether the same shall be accepted from, or for the account of, the Company or from any other source whatsoever by the Holders, the Trustee or by any other person or party holding under the Holders at any time or times in the future while any liabilities of the Company, hereunder or under any Bonds, to the Holders shall remain outstanding. Section 23.05. Trustee Agent. The Trustee may, at the Company's expense, ------------- appoint an agent to perform its duties under this Article. ARTICLE XXIV CERTAIN MATTERS RELATING TO THE PROPERTY LOCATED IN THE STATE OF NEW HAMPSHIRE Notwithstanding any provision hereof or of the Bonds to the contrary, with respect to any Mortgaged Property now or hereafter located in the State of New Hampshire and encumbered by this Indenture, the following provisions shall apply: Section 24.01. Statutory Power of Sale. Upon the occurrence and during the ----------------------- continuance of any Event of Default, the Trustee and the Holders may, in addition to any other rights or remedies available to them under this Indenture, at law or in equity, take such action, without notice or demand, as it deems advisable to protect and enforce its rights against the Company and in and to the Mortgaged Property or any one or more of them, including, but not limited to, the following action, which may be pursued singly, concurrently or otherwise, at such time and in such order as the Holders may determine, in their sole discretion, without impairing or otherwise affecting any other rights or remedies of the Holders hereunder, at law or in equity: sell the Mortgaged Property or any part thereof and any or all estate, claim, demand, right, title and interest of the Company therein and rights of redemption thereof, pursuant to the STATUTORY POWER OF SALE in some place in any municipality in which any of the Mortgaged Property is located, at one or more sales, in whole or in parcels, in any order or manner, at such time and place, upon such terms and after such notice thereof as may be required or permitted by law, at the discretion of the Holders, and in the event of a sale, by foreclosure or otherwise, of less than all of the Mortgaged Property, this Indenture shall continue as a lien on the remaining portion of the Mortgaged Property. Section 24.02. Extent of Mortgage and Security Interest. Notice is hereby ---------------------------------------- given, for purposes of N.H. RSA Section 479-3, that the maximum amount that this Indenture secures with respect to any supplemental indenture is the principal amount provided for by such supplemental indenture (which may include future advances made thereunder provided that the amount outstanding under any such supplemental indenture does not exceed the maximum amount for which it provides), plus accrued interest thereon, plus any advances made to protect the Holders' interest in the Mortgaged Property, plus any applicable late charges and any costs or expenses incurred in foreclosure or in otherwise enforcing the Holders' rights hereunder or under such supplemental indenture. Section 24.03. Trustee Agent. The Trustee may, at the Company's expense, ------------- appoint an agent to perform its duties under this Article. 88 Article XXV CERTAIN MATTERS RELATING TO THE PROPERTY LOCATED IN THE STATE OF VERMONT Notwithstanding any provision hereof or of the Bonds to the contrary, with respect to any Mortgaged Property now or hereafter located in the State of Vermont and encumbered by this Indenture, the following provisions shall apply: Section 25.01. Non-Judicial Power of Sale. The Company hereby grants to -------------------------- the Trustee and the Holders a power of sale and, accordingly, the Holders shall have all rights and powers granted by Vermont law to the holder of a mortgage containing a power of sale, including, without limitation, the right, to the extent permitted by Vermont law, to foreclose the Company's equity of redemption upon a default under this mortgage, by exercising the power of sale without first commencing a foreclosure action or obtaining a foreclosure decree, and to give such notice and to do all other acts, including the giving of a foreclosure deed upon completion of the foreclosure sale, as permitted or required by Vermont law to foreclose a mortgage without judicial action. Section 25.02. Limitation on Attorney's Fees in Foreclosure. The Company -------------------------------------------- agrees that the Company's award of reasonable attorney's fees resulting from an enforcement, foreclosure, collection, or other proceeding in connection with the Holder's rights or remedies, or otherwise in connection with this loan, may exceed two percent of the total principal, interest, and costs due. Section 25.03. Subsequent Indebtedness. In addition to all other ----------------------- indebtedness and obligations described herein, this Indenture shall secure to the Holders the prompt payment and performance of any and all obligations of the Company to the Holders under or in connection with this Indenture and the Bonds, whether direct or indirect, absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising or acquired. Section 25.04. Trustee Agent. The Trustee may, at the Company's expense, ------------- appoint an agent to perform its duties under this Article. ARTICLE XXVI CERTAIN MATTERS RELATING TO THE PROPERTY LOCATED IN THE STATE OF NEW YORK Notwithstanding any provisions hereof or of the Bonds to the contrary, with respect to any Mortgaged Property now or hereafter located in the State of New York and encumbered by this Indenture, the following provisions shall apply: Section 26.01. Section 254 of the RPL. In the event of any conflict, ---------------------- inconsistency or ambiguity between the provisions of this Indenture and the Bonds, and the provisions of subsection 4 of Section 254 of the Real Property Law of New York, the provisions of this Indenture and the Bonds shall control. 89 Section 26.02. Section 291-f of the RPL. In addition to any other right or ------------------------ remedy contained herein or in this Indenture and the Bonds, the Holders shall have all of the rights against lessees of the Mortgaged Property or any part thereof as are set forth in Section 291-f of the Real Property Law of New York. Section 26.03. Trust Fund. This instrument is subject to the Trust Fund ---------- provisions of Section 13 of the Lien Law of New York. Section 26.04. Commercial Property. The Company represents and warrants ------------------- that this Indenture does not encumber real property principally improved or to be improved by one or more structures containing in the aggregate not more than six (6) residential dwelling units having their own separate cooking facilities. Section 26.05. Transfer Tax. (a) The Company covenants and agrees that, in the event of a sale of the Mortgaged Property or other transfer, it will duly complete, execute and deliver to the Holders contemporaneously with the submission to the applicable taxing authority or recording officer, all forms and supporting documentation required by such taxing authority or recording officer to estimate and fix any and all applicable state and local real estate transfer taxes, including, without limitation, any real estate transfer taxes payable under Article 31 of the New York State Tax Law or under Title 11, Chapter 21 of the Administration Code of the City of New York, if applicable, or any successor provisions thereto (collectively, "Transfer Taxes") by reason of such sale or other transfer or recording of the deed evidencing such sale or other transfer. This Section 15.5(b) shall apply only if this Indenture remains outstanding after any such sale or transfer. (b) The Company shall pay all Transfer Taxes that may hereafter become due and payable with respect to any transfer, and in default thereof the Holders may pay the same and the amount of such payment shall be added to this Indenture and, unless incurred in connection with a foreclosure of this Indenture, be secured by this Indenture. The provisions of this Section 25.05 shall survive any transfer and the delivery of the deed in connection with any transfer. Section 26.06. Covenants in Addition to RPL. All covenants hereof shall be ---------------------------- construed as affording to the Holders rights in addition to and not exclusive of the rights conferred under the provisions of Section 254, 271, 272 and 291-f of the Real Property Law of the State of New York or any other applicable Legal Requirement. Section 26.07. Trustee Agent. The Trustee may, at the Company's expense, ------------- appoint an agent to perform its duties under this Article. Section 26.08. Maximum Principal Amount. FOR PURPOSES OF ARTICLE 11 OF THE TAX LAW OF THE STATE OF NEW YORK, THIS INDENTURE IS INTENDED TO BE A TRUST MORTGAGE AS THAT TERM IS USED IN SECTION 259 OF THAT LAW. NOTWITHSTANDING ANY PROVISION SET FORTH HEREIN TO THE CONTRARY, THE AMOUNT WHICH AT THE TIME OF THE EXECUTION AND DELIVERY HEREOF HAS BEEN ADVANCED OR ACCRUED HEREON (EXCLUSIVE OF ANY 90 SUPPLEMENTS HERETO), OR WHICH IS NOW SECURED BY THIS INDENTURE (EXCLUSIVE OF ANY SUPPLEMENTS HERETO), IS ZERO. 91 IN WITNESS WHEREOF, said CENTRAL VERMONT PUBLIC SERVICE CORPORATION has caused this instrument to be signed, and its corporate seal attested by its Secretary to be hereunto affixed, by Francis J. Boyle, its Senior Vice President, Chief Financial Officer, Treasurer and Agent in that behalf duly authorized, and said THE BANK OF NEW YORK, to evidence its acceptance of the trust hereby created, has caused its corporate name to be hereunto affixed, and this instrument to be executed in its corporate name and its corporate seal to be hereto affixed by Iliana A. Arciprete, Assistant Treasurer, all as of the day and year first above written. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By FRANCIS J. BOYLE FRANCIS J. BOYLE Its: Senior Vice President, Chief Financial Officer, Treasurer and Agent Attest: JOSEPH M. KRAUS JOSEPH M. KRAUS Its: Secretary Signed, sealed and delivered on (Corporate Seal) behalf of Central Vermont Public Service Corporation in the presence of: KIMBERLY A. PRITCHARD KIMBERLY A. PRITCHARD PATRICIA C. MITIGUY PATRICIA C. MITIGUY 92 THE BANK OF NEW YORK as Trustee as aforesaid, By ILIANA A. ARCIPRETE ILIANA A. ARCIPRETE Its: Assistant Treasurer (Corporate Seal) Signed, sealed and delivered on behalf of The Bank of New York in the presence of: ANTHONY M. HITCHMAN ANTHONY M. HITCHMAN MICHELE L. RUSSO MICHELE L. RUSSO 93 STATE OF VERMONT ) ) ss. COUNTY OF RUTLAND ) On this 28th day of July, A.D. 1999, before me, a Notary Public in and for said State of Vermont, duly commissioned and acting as such, personally came Francis J. Boyle, Senior Vice President, Chief Financial Officer, Treasurer and Agent of said Central Vermont Public Service Corporation, to me personally known and known to me to be one of the persons named in and who executed the foregoing instrument, and who being duly sworn by me did depose and say: that he resides in Rutland Town, Vermont; that he is Senior Vice President, Chief Financial Officer, Treasurer and agent duly authorized of Central Vermont Public Service Corporation, a Vermont corporation and the Corporation described in and which executed the above instrument as party of the first part; that he knows the seal of said Corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order and authority of the Board of Directors of said Corporation, and that he signed his name thereto by like order and authority, and he acknowledged and declared that he executed the foregoing instrument and affixed the seal of said Central Vermont Public Service Corporation thereto as its Agent by order and authority of the Board of Directors of said Corporation, and acknowledged the same to be his free act and deed in said capacity, and the free act and deed of said Corporation in said capacity. WITNESS my hand and official seal the day and year aforesaid. ANNE M. MISEROCCHI ANNE M. MISEROCCHI, Notary Public My commission expires February 10, 2003 (Notarial Seal) 94 STATE OF NEW YORK ) ) ss. COUNTY OF NEW YORK ) On this 26th day of July, A.D. 1999, before me, a Notary Public in and for said State of New York, duly commissioned and acting as such, personally came Iliana A. Arciprete, Assistant Treasurer of said The Bank of New York, to me personally known and known to me to be one of the persons named in and who executed the foregoing instrument, and who being duly sworn by me did depose and say: that she resides at 51 Cedar Terrace, Staten Island, New York; that she is Assistant Treasurer and agent duly authorized of The Bank of New York, the Corporation described in and which executed the above instrument as party of the second part; that she knows the seal of said Corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order and authority of the Board of Directors of said Corporation, and that she signed her name thereto by like order and authority, and she acknowledged and declared that she executed the foregoing instrument and affixed the seal of said Corporation thereto as its Agent by order and authority of the Board of Directors of said Corporation, and acknowledged the same to be her free act and deed in said capacity, and the free act and deed of said Corporation in said capacity. And said Iliana A Arciprete, Assistant Treasurer of said The Bank of New York, further acknowledged that she accepted the trust herein created for, and on behalf of, said The Bank of New York, Trustee, upon the terms therein named. WITNESS my hand and official seal the day and year aforesaid. WILLIAM J. CASSELS WILLIAM J. CASSELS Notary Public My commission expires May 16, 2000 (Notarial Seal) 95 SCHEDULE A DESCRIPTION OF PROPERTIES. All land and premises, rights, privileges and easements conveyed or purported to have been conveyed to the Company in and by the following described deeds and the records thereof are hereby incorporated herein by reference: Properties acquired after January 28, 1998 or not previously described: None. Also, all property of every kind whatsoever, including land and premises, rights, privileges, easements, transmission lines, substations and distribution lines, in the following towns: IN NEW LONDON COUNTY, STATE OF CONNECTICUT: Waterford IN HARTFORD COUNTY, STATE OF CONNECTICUT: Berlin IN CUMBERLAND COUNTY, STATE OF MAINE: Yarmouth IN SULLIVAN COUNTY, STATE OF NEW HAMPSHIRE: Charlestown Cornish Plainfield Claremont Newport Unity IN CHESHIRE COUNTY, STATE OF NEW HAMPSHIRE: Chesterfield Hinsdale IN GRAFTON COUNTY, STATE OF NEW HAMPSHIRE: S-1 Bath Lyman Orford Haverhill Lyme Piermont IN WASHINGTON COUNTY, STATE OF NEW YORK: Granville Hampton IN RENSSELAER COUNTY, STATE OF NEW YORK: Hoosick IN ADDISON COUNTY, STATE OF VERMONT: Addison Leicester Ripton Bridport Lincoln Salisbury Bristol Middlebury Shoreham Cornwall Monkton Starksboro Ferrisburg New Haven Vergennes Goshen Orwell Weybridge Granville Panton Whiting Hancock IN BENNINGTON COUNTY, STATE OF VERMONT: Arlington Manchester Searsburg Bennington Peru Shaftsbury Dorset Pownal Sunderland Glastenbury Rupert Winhall Landgrove Sandgate Woodford IN CALEDONIA COUNTY, STATE OF VERMONT: Barnet Lyndon Walden Danville Ryegate Waterford Kirby St. Johnsbury Wheelock IN CHITTENDEN, COUNTY, STATE OF VERMONT: S-2 Buels Gore Essex Milton Burlington Huntington Underhill Colchester Jericho Westford IN ESSEX COUNTY, STATE OF VERMONT: Concord Guildhall Victory Granby Lunenburg IN FRANKLIN COUNTY, STATE OF VERMONT: Bakersfield Fletcher Richford Berkshire Franklin Sheldon Enosburg Georgia St. Albans City Fairfax Highgate St. Albans Town Fairfield Montgomery Swanton IN LAMOILLE COUNTY, STATE OF VERMONT: Belvidere Eden Johnson Cambridge Hyde Park IN ORANGE COUNTY, STATE OF VERMONT: Bradford Fairlee Thetford Braintree Newbury Tunbridge Brookfield Randolph Vershire Chelsea Strafford West Fairlee IN ORLEANS COUNTY, STATE OF VERMONT: Lowell Irasburg S-3 IN RUTLAND COUNTY, STATE OF VERMONT: Benson Middletown Springs Sherburne Brandon Mt. Holly Shrewsbury Castleton Mt. Tabor Sudbury Chittenden Pawlet Tinmouth Clarendon Pittsfield Wallingford Danby Pittsford Wells Fair Haven Poultney West Haven Hubbardton Proctor West Rutland Ira Rutland City Mendon Rutland Town IN WASHINGTON COUNTY, STATE OF VERMONT: Northfield Roxbury IN WINDHAM COUNTY, STATE OF VERMONT: Athens Guilford Stratton Brattleboro Jamaica Townshend Brookline Londonderry Vernon Dover Marlboro Wardsboro Dununerston Newfane Westminster Grafton Rockingham Windham IN WINDSOR COUNTY, STATE OF VERMONT: Andover Hartland Sharon Baltimore Ludlow Springfield Barnard Norwich Stockbridge Bethel Plymouth Weathersfield Bridgewater Pomfret Weston Cavendish Reading West Windsor Chester Rochester Windsor Hartford Royalton Woodstock S-4 EX-4.2 3 FORM OF SECOND SUPPLEMENTAL INDENTURE EXHIBIT 4.2 ================================================================================ ---------- Second Supplemental Indenture ---------- CENTRAL VERMONT PUBLIC SERVICE CORPORATION TO THE BANK OF NEW YORK, Trustee Dated as of ________ __, 1999 ---------- CREATING AN ISSUE OF MORTGAGE BONDS 8 1/8% SECOND MORTGAGE BONDS DUE 2004 ---------- SUPPLEMENTAL TO THE SECOND MORTGAGE INDENTURE DATED AS OF JULY 15, 1999 ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS.......................................................2 Section 1.01. Defined Terms...........................................2 "Accounts Receivable Facility"...................................2 "Acquired Debt"..................................................2 "Affiliate"......................................................2 "Appraiser"......................................................2 "Asset Sale".....................................................2 "Attributable Debt"..............................................3 "Board of Directors".............................................4 "Bondable Property"..............................................4 "Bonded".........................................................4 "Bonds of First Series"..........................................4 "Bonds of Second Series".........................................4 "Capital Lease Obligation".......................................4 "Capital Stock"..................................................4 "Cash Equivalents"...............................................4 "Catamount Energy"...............................................5 "Catamount Resources"............................................5 "Change of Control"..............................................5 "Change of Control Offer"........................................5 "Change of Control Payment"......................................5 "Change of Control Payment Date".................................5 "Common Stock"...................................................5 "Commission".....................................................5 "Connecticut Valley".............................................6 "Consolidated"...................................................6 "Consolidated Cash Flow".........................................6 "Consolidated Net Worth".........................................7 "Consolidated Utility Income"....................................7 "Continuing Directors"...........................................8 "CV Realty"......................................................8 "Default"........................................................8 "Designated Asset Sale"..........................................8 "Disqualified Stock".............................................8 "East Barnet"....................................................8 "Equity Interests"...............................................8 "Event of Loss"..................................................8 "Exchange Offer".................................................8 "Existing Indebtedness"..........................................9 "First Mortgage".................................................9 "First Mortgage Bonds"...........................................9 Page ---- "Fixed Charges"..................................................9 "Fixed Charge Coverage Ratio"....................................9 "GAAP"..........................................................10 "Governmental Obligations"......................................10 "Guarantee".....................................................10 "Hedging Obligations"...........................................11 "Holding Company"...............................................11 "Holding Company Transaction"...................................11 "Indebtedness"..................................................11 "Independent"...................................................12 "Initial Issuance Date".........................................12 "Investments"...................................................12 "Lien"..........................................................12 "Make Whole Premium"............................................12 "Moody's".......................................................13 "Mortgaged Property Asset Sale".................................13 "Net Income"....................................................13 "Net Proceeds"..................................................14 "Net Termination Value".........................................14 "Non-Recourse Debt".............................................14 "Obligations"...................................................14 "Operating Cash Flow"...........................................15 "Permissable Encumbrances"......................................15 "Permitted Investments".........................................15 "Permitted Refinancing Indebtedness"............................15 "Person"........................................................16 "Power Contract Buyout".........................................16 "Preferred Stock"...............................................16 "Prior Lien"....................................................16 "Prior Lien Bonds"..............................................16 "PSB"...........................................................16 "Registration Rights Agreement".................................16 "Regulated Subsidiary"..........................................16 "Restricted Investment".........................................16 "Sale and Leaseback Transaction"................................16 "Second Mortgage Bonds".........................................17 "Securitization Transaction"....................................17 "Significant Subsidiary"........................................17 "Smart Energy"..................................................17 "Standard & Poor's".............................................17 "Stated Maturity"...............................................17 "Subsidiary"....................................................17 "Successor Entity"..............................................17 "Treasury Rate".................................................17 "Unbonded"......................................................18 "Unregulated Subsidiary"........................................18 ii Page ---- "VELCO".........................................................18 "Vermont Yankee"................................................18 "Voting Stock"..................................................19 "Weighted Average Life to Maturity".............................19 "Wholly-Owned Regulated Subsidiary".............................19 ARTICLE II 8 1/8% SECOND MORTGAGE BONDS DUE 2004...........................20 Section 2.01. Bonds of Second Series.................................20 Section 2.02. Redemption; Make Whole Premium; Transfer and Exchange.............................................21 Section 2.03. Change of Control......................................21 Section 2.04. Form of Bonds..........................................23 Section 2.05. Bonds Exchangeable Upon Surrender......................23 Section 2.06. Authentication of Bonds................................23 Section 2.07. Definitive Bonds.......................................23 ARTICLE III COVENANTS......................................................23 Section 3.01. Payment of Bonds of Second Series......................23 Section 3.02. Maintenance of Office or Agency........................23 Section 3.03. Reports................................................24 Section 3.04. Compliance Certificate; Notice of Default..............24 Section 3.05. Payments For Consent...................................25 Section 3.06. Restricted Payments....................................25 Section 3.07. Dividend and Other Payment Restrictions Affecting Regulated Subsidiaries...............................29 Section 3.08. Incurrence of Indebtedness.............................31 Section 3.09. Asset Sales other than Mortgaged Property Asset Sales................................................34 Section 3.10. Mortgaged Property Asset Sales and Events of Loss......35 Section 3.11. Transactions with Affiliates...........................37 Section 3.12. Liens..................................................38 Section 3.13. Sale and Leaseback Transactions........................41 Section 3.14. Designation of Regulated and Unregulated Subsidiaries.........................................41 Section 3.15. Changes in Covenants when Bonds of Second Series Rated Investment Grade...............................42 ARTICLE IV EVENTS OF DEFAULT AND REMEDIES..................................42 Section 4.01. Events of Default......................................42 Section 4.02. Acceleration...........................................44 ARTICLE V THE TRUSTEE......................................................44 Section 5.01. Extent of Trustee's Liability..........................44 ARTICLE VI SUCCESSORS......................................................44 Section 6.01. Merger, Consolidation, or Sale of Assets...............44 ARTICLE VII LEGAL DEFEASANCE AND COVENANT DEFEASANCE.......................45 Section 7.01. Option to Effect Legal Defeasance or Covenant Defeasance...........................................45 Section 7.02. Legal Defeasance and Discharge.........................45 iii Page ---- Section 7.03. Covenant Defeasance....................................46 Section 7.04. Conditions to Legal or Covenant Defeasance.............46 Section 7.05. Deposited Money and Governmental Obligations to be Held in Trust; Other Miscellaneous Provisions........47 Section 7.06. Reinstatement..........................................48 ARTICLE VIII SATISFACTION OF BONDS OF SECOND SERIES........................48 Section 8.01. Satisfaction...........................................48 ARTICLE IX MISCELLANEOUS PROVISIONS........................................49 Section 9.01. Incorporation of the Terms of the Indenture............49 Section 9.02. Amendment of the Second Supplemental Indenture.........49 Section 9.03. Benefits of Indenture..................................50 Section 9.04. Successors and Assigns.................................51 Section 9.05. Headings...............................................51 Section 9.06. Counterparts...........................................51 EXHIBIT 1 - Form of Bond...................................................E-1 iv SECOND SUPPLEMENTAL INDENTURE (the "Second Supplemental Indenture"), dated as of ________ __, 1999, to a Second Mortgage Indenture, dated as of July 15, 1999 (the "Indenture", and, as it may be supplemented or amended from time to time, including, without limitation, by this Second Supplemental Indenture, the "Second Mortgage"), between CENTRAL VERMONT PUBLIC SERVICE CORPORATION, a Vermont corporation (the "Company"), having offices at 77 Grove Street, Rutland, Vermont 05701, and THE BANK OF NEW YORK, a New York banking corporation, as Trustee (the "Trustee"), having offices at 101 Barclay Street, Floor 21 West, New York, New York 10286. WHEREAS, the Company has heretofore executed and delivered to the Trustee the Indenture to secure Mortgage Bonds issued by the Company pursuant to the Indenture, unlimited in aggregate principal amount except as therein otherwise provided; WHEREAS, Sections 2.01 and 15.01 of the Indenture provide, among other things, that the Company and the Trustee may enter into supplemental indentures to provide for the issuance of bonds of any series and to establish the form and provisions of the bonds of such series, all in a manner not inconsistent with the provisions of the Indenture; WHEREAS, the Company and the Trustee did enter into the First Supplemental Indenture, dated as of July 15, 1999, to create a first series of bonds under the Indenture; WHEREAS, the Company did covenant with the initial purchasers of the first series of bonds to exchange such bonds under an exchange offer and pursuant to a registration statement filed with the Commission for registered bonds of the Company; WHEREAS, the Company desires in and by this Second Supplemental Indenture to create a second series of bonds to be issued under the Indenture for the purpose of consummating an exchange of such bonds for all outstanding bonds of first series under the Indenture; WHEREAS, the Company desires to, in and through this Second Supplemental Indenture, designate such second series, to set forth a maturity date, interest rate, form and other terms of such bonds, all substantially the same as the first series bonds except that such second series bonds shall be registered with the Commission; and WHEREAS, all acts and things necessary to make this Second Supplemental Indenture, when duly executed and delivered, a valid, binding and legal instrument in accordance with its terms and for the purposes herein expressed, have been done and performed; and the execution and delivery of this Supplemental Indenture have been in all respects duly authorized; NOW, THEREFORE, in consideration of the premises and in further consideration of the sum of Ten Dollars in lawful money of the United States of America paid to the Company by the Trustee at or before the execution and delivery of this Supplemental Indenture, the receipt whereof is hereby acknowledged, and of other good and valuable consideration, it is agreed by and between the Company and the Trustee as follows: ARTICLE I DEFINITIONS Section 1.01. Defined Terms. Unless otherwise defined herein, all capitalized terms used in this Second Supplemental Indenture have the respective meanings given to them in the Indenture. For purposes of this Second Supplemental Indenture, the following terms have the following meanings: "Accounts Receivable Facility" means that certain accounts receivable facility existing pursuant to the Receivables Purchase Agreement, dated as of November 29, 1998, between the Company and The First National Bank of Boston. "Acquired Debt" means, with respect to any specified Person: (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings; provided, further, that no Person (other than the Company or any Regulated Subsidiary of the Company) which makes, or in which a special purpose entity makes, an Investment in connection with a Securitization Transaction will be deemed to be an Affiliate of the Company or any of its Regulated Subsidiaries solely by reason of such Investment. "Appraiser" means a Person engaged in the business of appraising property competent to determine the fair market value of the particular property in question, and who or which, unless required to be Independent, may be employed by or Affiliated with the Company. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets by the Company or any Regulated Subsidiary other than sales of inventory or other current assets in the ordinary course of business consistent with past practice; or (2) the issuance of Equity Interests in any of the Company's Regulated Subsidiaries or the sale of Equity Interests in any of its Regulated Subsidiaries; in the case of either clause (1) or (2), whether in a single transaction or a series of related transactions: 2 (a) that have a fair market value in excess of $2,000,000 or (b) for Net Proceeds in excess of $2,000,000. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (1) a transfer of assets by the Company to a Regulated Subsidiary or by a Regulated Subsidiary to the Company or to another Regulated Subsidiary; (2) an issuance of Equity Interests by a Regulated Subsidiary to the Company or to another Regulated Subsidiary; (3) a Restricted Payment that is permitted by this Second Supplemental Indenture; (4) sales of property or equipment that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any of its Regulated Subsidiaries; (5) transactions involving the license, lease or sublease of any real or personal property in the ordinary course of business; (6) a transfer of Equity Interests in, or an issuance of Equity Interests of, (x) a Subsidiary of the Company that is not a Regulated Subsidiary or (y) any Person that is an Unregulated Subsidiary on the Initial Issuance Date; (7) sales of (a) assets of the type specified in the definition of "Securitization Transaction" to a special purpose entity and (b) accounts receivable, in each case for the fair market value thereof, including cash in an amount at least equal to 75% of the book value thereof as determined in accordance with GAAP, it being understood that, for the purposes of this clause (7), notes received in exchange for the transfer of assets of the type specified in the definition of "Securitization Transaction" will be deemed cash if the special purpose entity or other payor is required to repay said notes as soon as practicable from available cash collections less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of the Company entered into as part of a Securitization Transaction; or (8) sales of Equity Interests in VELCO for fair market value, as evidenced by a resolution of the Board of Directors. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. 3 "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the board of directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Bondable Property" shall have the meaning set forth in the Indenture. "Bonded" shall have the meaning set forth in the Indenture. "Bonds of First Series" means the first series of bonds issued and secured by the Indenture, designated as "8 1/8% Second Mortgage Bonds due 2004". "Bonds of Second Series" has the meaning given in Section 2.01. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of twelve months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500,000,000; 4 (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's or Standard & Poor's and in each case maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Catamount Energy" means Catamount Energy Corporation, a Vermont corporation. "Catamount Resources" means Catamount Resources Corporation, a Vermont corporation. "Change of Control" means the occurrence of any of the following: (1) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all the assets of the Company and its Regulated Subsidiaries taken as a whole; (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of all classes of outstanding Voting Stock of the Company; or (4) the first day on which a majority of the members of the Board of Directors of the Company or of any Successor Entity are not Continuing Directors. Notwithstanding the foregoing, a "Change of Control" shall not include a "Holding Company Transaction." "Change of Control Offer" shall have the meaning given in Section 2.03(a). "Change of Control Payment" shall have the meaning given in Section 2.03(a). "Change of Control Payment Date" shall have the meaning given in Section 2.03(a). "Common Stock" means the Company's common stock, $1.00 par value. "Commission" means the Securities and Exchange Commission. 5 "Connecticut Valley" means Connecticut Valley Electric Company Inc., a New Hampshire corporation. "Consolidated" means, with respect to the Company, the consolidation of the accounts of the Regulated Subsidiaries with those of the Company, all in accordance with GAAP (without duplication); provided, however, that "consolidation" will not include consolidation of the accounts of any Unregulated Subsidiary with the accounts of the Company. The term "consolidation" has a correlative meaning. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Utility Income of such Person for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Regulated Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Utility Income; plus (2) provision for taxes based on income or profits of such Person and its Regulated Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Utility Income; plus (3) consolidated interest expense of such Person and its Regulated Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Utility Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense (other than the amortization of the cost of Power Contract Buyouts after the Initial Issuance Date) to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Regulated Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Utility Income; minus (5) non-cash items increasing such Consolidated Utility Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the preceding, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash expenses of, a Regulated Subsidiary of the Company shall be added to Consolidated Utility Income to compute Consolidated Cash Flow of the Company only to the extent that a corresponding amount would be permitted at the date of determination to be distributed to the Company by such Regulated Subsidiary without prior 6 governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Regulated Subsidiary or its stockholders. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of the following amounts (each determined in accordance with GAAP): (1) the consolidated equity of the common shareholders (or equity holders) of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock; less (1) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the Initial Issuance Date in the book value of any asset owned by such Person or a Subsidiary of such Person. "Consolidated Utility Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Regulated Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income of any Person that is not a Regulated Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Wholly-Owned Regulated Subsidiary thereof; (2) the Net Income of any Regulated Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Regulated Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Regulated Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (4) the cumulative effect of a change in accounting principles shall be excluded; (5) the Net Income of any Unregulated Subsidiary shall be excluded, whether or not distributed to the specified Person or one of its Subsidiaries; and 7 (6) to the extent such amounts have not already been excluded in calculating Consolidated Utility Income, the amounts paid pursuant to Section 3.06(d)(ix) shall be excluded. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who: (1) was a member of such Board of Directors on the date of the Second Mortgage; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "CV Realty" means C.V. Realty, Inc., a Vermont corporation. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Designated Asset Sale" means an Asset Sale that is not a Mortgaged Property Asset Sale and that is designated as a Designated Asset Sale by the Board of Directors. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date of final maturity of the Bonds of Second Series. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 3.06. "East Barnet" means Central Vermont Public Service Corporation - East Barnet Hydroelectric, Inc., a Vermont corporation. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Event of Loss" means (i) the loss or destruction of or damage to any Mortgaged Property, (ii) the condemnation, seizure, confiscation, requisition of the use or taking by exercise of the power of eminent domain or otherwise of any Mortgaged Property or (iii) any consensual settlement in lieu of any event listed in clause (ii), in each case whether in a single event or a series of related events, that results in Net Proceeds from all sources in excess of $1,000,000. "Exchange Offer" has the meaning given in Section 2.01. 8 "Existing Indebtedness" means Indebtedness of the Company and its Regulated Subsidiaries in existence on the Initial Issuance Date, until such amounts are repaid, including, without limitation, up to $17,000,000 of First Mortgage Bonds Series PP, QQ and RR to be issued on the Initial Issuance Date. "First Mortgage" means the Mortgage of the Company dated October 1, 1929, to the State Street Bank and Trust Company, successor to Old Colony Trust Company, as Trustee, as from time to time amended and supplemented. "First Mortgage Bonds" means the securities and other Indebtedness authenticated and delivered from time to time pursuant to the First Mortgage. "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Regulated Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus (2) the consolidated interest of such Person and its Regulated Subsidiaries that was capitalized during such period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Regulated Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries, whether or not such guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Regulated Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Regulated Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Regulated Subsidiaries for such period to the Fixed Charges of such Person and its Regulated Subsidiaries for such period. In the event that the specified Person or any of its Regulated Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage 9 Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Regulated Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated on a pro forma basis in accordance with Regulation S-X under the Securities Act, but without giving effect to clause (3) of the proviso set forth in the definition of Consolidated Utility Income; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Regulated Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles in use at the Initial Issuance Date or, at the option of the Company, other generally accepted accounting principles which are in use at the time of their determination; in determining generally accepted accounting principles, the Company may, but shall not be required to, conform to any accounting order, rule or regulation of any regulatory authority having jurisdiction over the electric generating, transmission or distribution operations of the Company. "Governmental Obligations" means direct obligations of or obligations unconditionally guaranteed by the federal government or any political subdivision of the United States of America, any agency, department or any other administrative authority or instrumentality thereof, including without limitation, any local or other governmental agency or other authority within the United States of America. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. 10 "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates; and (3) agreements in connection with commodities swaps or options. "Holding Company" means the corporation formed in a Holding Company Transaction which, immediately following such transaction, holds all of the Company's outstanding capital stock other than preferred stock. "Holding Company Transaction" means any transaction or series of transactions the result of which is that a holding company acquires all of the outstanding common stock of the Company, substantially as contemplated by the Company's holding company filing with the PSB as of the Initial Issue Date, provided, in no event shall a "Holding Company Transaction" include any transaction in which any portion of the business conducted by the Company or a Regulated Subsidiary, or any of the Capital Stock of a Regulated Subsidiary, is transferred to a Person other than the Company or a Regulated Subsidiary. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent, in respect of: (1) borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) banker's acceptances; (4) Capital Lease Obligations; (5) the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any indebtedness of any other Person. 11 The amount of any Indebtedness outstanding as of any date shall be: (1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Independent" means, when used with respect to any specified Person, a Person selected by the Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer or a Vice President of the Company and approved by the Trustee, who (i) is in fact independent, (ii) does not have any material direct financial interest or any material indirect financial interest in the Company or in any other obligor on the Bonds of Second Series or in any Affiliate of the Company or any such other obligor and (iii) is not connected with the Company or such other obligor as an Affiliate or an officer, employee, promoter, underwriter, trustee, or partner, director or Person performing similar functions. "Initial Issuance Date" means July 30, 1999. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Regulated Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Regulated Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Regulated Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Regulated Subsidiary not sold or disposed of in an amount determined as provided in Section 3.06(e). The acquisition by the Company or any Regulated Subsidiary of the Company of a Person that holds an Investment in a third Person shall be deemed to be an Investment by the Company or such Regulated Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in Section 3.06(e). "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in, except in connection with any Securitization Transaction, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Make Whole Premium", with respect to any Bond of Second Series, means, with respect to any prepayment of such Bond of Second Series in circumstances requiring the 12 payment of a Make Whole Premium, an amount equal to the excess of (a) the aggregate present value as of the date of such prepayment of the expected future cash flows of such Bond of Second Series (for the avoidance of doubt, such amounts shall include all principal and interest payable with respect to such Bond of Second Series) (exclusive of interest accrued to the date of prepayment) that, but for such prepayment, would have been payable if such prepayment had not been made, all determined by discounting such amounts at a rate which is equal to the Treasury Rate three days prior to prepayment plus 50 basis points over (b) the aggregate principal amount of the Bond of Second Series then to be prepaid. "Moody's" means Moody's Investor Service, Inc., or any successor to its securities ratings business. "Mortgaged Property Asset Sale" means the sale, lease (other than an operating lease), conveyance or other disposition (each, a "Disposition") of any Mortgaged Property, including, without limitation, by means of an amalgamation, merger, consolidation or similar transaction (provided that the Disposition of all or substantially all of the assets of the Company and its Regulated Subsidiaries taken as a whole shall be governed by Section 2.03 and/or Section 6.01 and not by the provisions of Section 3.10), or a series of related Dispositions by the Company or any of its Regulated Subsidiaries involving the Mortgaged Property, other than (1) the sale for fair market value of machinery, equipment, furniture, apparatus, tools or implements or other property that may be defective or may have become worn out or obsolete or no longer useful in the reasonable judgment of the Company in the operations of the Company; (2) the sale or exchange of property at the Company's operating facilities with an aggregate value not to exceed $2,000,000 at any one time, provided such equipment has been replaced by equipment of equal or greater value within 180 days of such sale or exchange. A Mortgaged Property Asset Sale shall not include the requisition of title to or the seizure, condemnation, forfeiture or casualty of any Mortgaged Property; or (3) the voluntary transfer, waiver or modification of the right to sell power to the customers of the Company within its franchise (but not its rights as a distribution company) in contemplation of or as part of the restructuring of the Company. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Regulated Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Regulated Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). 13 "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Regulated Subsidiaries in respect of any Asset Sale or Mortgaged Property Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale or Mortgaged Property Asset Sale), net of the direct costs relating to such Asset Sale or Mortgaged Property Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than the First Mortgage Bonds and Second Mortgage Bonds, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Net Termination Value" shall mean the difference between (a) the aggregate amounts (if any) that would be required to be paid by the Company or any Regulated Subsidiary if such Hedging Obligation were terminated by reason of default relating to the Company or a Regulated Subsidiary, and (b) the aggregate amounts (if any) that the Company or any Regulated Subsidiary would be entitled to receive if such Hedging Obligations were terminated by reason of a default relating to the Company or any Regulated Subsidiary. The Net Termination Value shall be determined (a) as of the end of the most recent fiscal quarter ended or (b) as of the date such Hedging Obligation is entered into if it is entered into after the end of such fiscal quarter. "Non-Recourse Debt" means Indebtedness (1) as to which neither the Company nor any of its Regulated Subsidiaries (other than the special purpose entity incurring such Indebtedness, in the case of Indebtedness incurred in the ordinary course of business) (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unregulated Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Bonds of Second Series and bonds of First Series) of the Company or any of its Regulated Subsidiaries (other than the special purpose entity incurring such Indebtedness, in the case of Indebtedness incurred in the ordinary course of business), to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity; and (3) with respect to any such Indebtedness incurred after the Initial Issuance Date, the lenders have been notified of the non-recourse nature of the Indebtedness. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. 14 "Operating Cash Flow" means, with respect to any Person for any period, the net cash provided by operating activities of such Person and its Regulated Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP. "Permissable Encumbrances" shall have the meaning set forth in the Indenture. "Permitted Investments" means (1) an Investment by the Company or a Regulated Subsidiary in the Company or in a Regulated Subsidiary of the Company; (2) an Investment in Cash Equivalents; (3) an Investment by the Company or any Regulated Subsidiary in a Person, if as a result of such Investment (a) such Person becomes a direct or indirect Regulated Subsidiary of the Company or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Regulated Subsidiary of the Company; (4) an Investment received in connection with the bankruptcy or reorganization of customers and suppliers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; and (5) the acquisition by the Company, a Regulated Subsidiary or a special purpose entity in connection with a Securitization Transaction of Equity Interests of a trust or other Person established by the Company, a Regulated Subsidiary or such special purpose entity to effect such Securitization Transaction; and any other Investment by the Company or a Subsidiary of the Company in a special purpose entity or any Investment by a special purpose entity in any other Person in connection with a Securitization Transaction (provided, that such other Investment is in the form of a note or other instrument that the special purpose entity or other Person is required to repay as soon as practicable from available cash collections) less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of the Company entered into as part of a Securitization Transaction. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Regulated Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Regulated Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest thereon and the amount of all expenses and premiums incurred in connection therewith); 15 (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Bonds of Second Series, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Bonds of Second Series on terms at least as favorable to the Holders of Bonds of Second Series as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by the Company or by the Regulated Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Power Contract Buyout" means the termination, restatement or amendment of power purchase agreements of the Company or any Regulated Subsidiary pursuant to the terms of any settlement agreement approved by the PSB. "Preferred Stock" means any Capital Stock of the Company which by its terms has preference to common stock in right of dividends or other distributions or upon liquidation or dissolution. "Prior Lien" shall have the meaning set forth in the Indenture. "Prior Lien Bonds" means the First Mortgage Bonds and any other bonds, notes or other Indebtedness (including the evidence thereof) secured by a Prior Lien "PSB" means the Vermont Public Service Board. "Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of July 30, 1999, among the Company, Donaldson, Lufkin & Jenrette Securities Corporation and TD Securities (USA) Inc. "Regulated Subsidiary" means Connecticut Valley and East Barnet and any other Subsidiary of the Company that is not an Unregulated Subsidiary. "Restricted Investment" means an Investment other than a Permitted Investment. "Sale and Leaseback Transaction" means any form of lease arrangement in which the Company or a Regulated Subsidiary sells an asset to another Person in exchange for cash and then contracts to lease the asset for a specified term. 16 "Second Mortgage Bonds" means bonds of any series authenticated and delivered from time to time under the Second Mortgage. "Securitization Transaction" means a transaction in which the Company or any Regulated Subsidiary, pursuant to authorization of the PSB, if required by applicable law, or other appropriate governmental authorizations, transfers rights or other property to a Person formed as a special purpose entity in conjunction with a financing involving such Person of accounts receivable of such person or based on the Company's or such Regulated Subsidiary's right to collect a non-bypassable transition or similar charge or other transferred right or property; provided that all Indebtedness incurred in connection with any such transaction shall constitute Non-Recourse Indebtedness. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Smart Energy" means Smart Energy Services, Inc., a Vermont corporation. "Standard & Poor's" means Standard & Poor's Ratings Group or any successor to its securities ratings business. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal (including mandatory sinking fund payments) was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Successor Entity" shall have the meaning in Section 6.01. "Treasury Rate" means, at any time with respect to the Bonds of Second Series being prepaid, (a) the yield reported on page C4 of the Bloomberg Financial Markets Service (or, if not available, any other nationally recognized trading screen reporting on-line intraday trading in United States government securities) at 11:00 a.m. (New York, New York time) for those actively traded United States government securities having a maturity (rounded to the nearest month) corresponding to the remaining Weighted Average Life to Maturity of the Bonds of 17 Second Series being prepaid or (b) in the event that no nationally recognized trading screen reporting on-line intraday trading in United States government securities is available, Treasury Rate shall mean the weekly average of the yield to maturity on the United States Treasury obligations with a constant maturity (as compiled by and published in the most recently published issue of the United States Federal Reserve Statistical Release designated H.15(519) or its successor publication) most nearly equal to (by rounding to the nearest month) the Weighted Average Life to Maturity of the Bonds of Second Series then being prepaid. If no maturity exactly corresponding to such Weighted Average Life to maturity of such Bonds of Second Series shall appear therein, the weekly average yield for the two most closely corresponding published maturities shall be calculated pursuant to the foregoing sentence and the Treasury Rate shall be interpolated or extrapolated, as the case may be, from such yields on a straight-line basis (rounding, in the case of relevant periods, to the nearest month). "Unbonded" as applied to Bonds of First Series, Bonds of Second Series, Prior Lien Bonds or Bondable Property means that such Bonds of First Series, Bonds of Second Series, Prior Lien Bonds or Bondable Property are not Bonded. "Unregulated Subsidiary" means (a) CV Realty, Catamount Resources, Catamount Energy, Smart Energy and VELCO and (b) any of their respective Subsidiaries and (c) any other Subsidiary of the Company that is designated by the Board of Directors as an Unregulated Subsidiary pursuant to a Board Resolution, but, in each case, only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Regulated Subsidiary of the Company (other than transactions permitted by Section 3.11(b)) unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Regulated Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Regulated Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Regulated Subsidiaries; (5) is not subject to federal or state regulation as a public utility company. "VELCO" means Vermont Electric Power Company, Inc., a Vermont corporation. "Vermont Yankee" means Vermont Yankee Nuclear Power Corporation, a Vermont corporation, or the Company's interest therein, as the context may require. 18 "Voting Stock" of any Person as of any date means the Capital Stock of that Person that is at the time entitled to vote in the election of the Board of Directors of that Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. "Wholly-Owned Regulated Subsidiary" of any specified Person means a Regulated Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly-Owned Regulated Subsidiaries of such Person. 19 ARTICLE II 8 1/8% SECOND MORTGAGE BONDS DUE 2004 Section 2.01. Bonds of Second Series. There is hereby created a second series of bonds to be issued under and secured by the Indenture, to be designated as "8 1/8% Second Mortgage Bonds due 2004," of the Company ("Bonds of Second Series"). The issuance of the Bonds of Second Series hereunder shall be based upon retired Bonds of First Series previously outstanding, to be exchanged for Bonds of Second Series as contemplated by the Registration Rights Agreement (such offer, the "Exchange Offer"). The Bonds of Second Series shall be issued in an aggregate principal amount of $75,000,000 minus the outstanding aggregate principal amount of the Bonds of First Series that have not been tendered and accepted for exchange pursuant to the Exchange Offer. The Bonds of Second Series shall be registered bonds without coupons and shall be dated as described in Section 2.03 of the Indenture except that the Bonds of Second Series issued shall be dated on the expiration of the Exchange Offer. All Bonds of Second Series shall mature August 1, 2004; the principal of and interest and premium, if any, on the Bonds of Second Series shall be payable in lawful money of the United States of America; the place where such principal shall be payable shall be at the principal office of the Trustee in the Borough of Manhattan, City and State of New York (or at the principal office of any successor in trust); the place where interest and premium, if any, shall be payable shall be the office or agency of the Company in the Borough of Manhattan, City and State of New York, or by check mailed to the registered holders of the Bonds of Second Series, except as set forth below; the rate of interest shall be 8 1/8% per annum, payable semi-annually on the first day of February and the first day of August each year, commencing on February 1, 2000; interest on the Bonds shall accrue from the Initial Issuance Date or, if interest has already been paid on the Bonds of First Series to be exchanged pursuant to the Exchange Offer for the corresponding Bonds of Second Series from the date it was most recently paid, and shall be computed on a basis of a 360-day year comprised of twelve 30-day months; and the terms of redemption shall be as referred to in Section 2.02 of this Article II. The Company shall make all payments in respect of the Bonds of Second Series represented by the Global Bond (including principal, premium, if any, and interest) by wire transfer of immediately available funds to the account specified by the Global Bond Holder. The Company shall make all payments of principal, interest and premium, if any, with respect to Bonds of Second Series represented by certificated bonds by wire transfer of immediately available funds to the respective accounts specified in writing to the Paying Agent prior to the applicable record date by any Holders of not less than $1,000,000 in principal amount of the Bonds of Second Series or, if no such account is specified or if a Holder holds Bonds of Second Series in a lesser amount, by mailing a check to each such Holder's registered address. So long as there is no existing default in the payment on the Bonds of Second Series, the Person in whose name any Bonds of Second Series is registered at the close of business on any record date (as defined below) with respect to any interest payment date shall be entitled to receive the interest payable on such interest payment date, notwithstanding any transfer or exchange of such Bonds of Second Series subsequent to the record date and on or prior to such interest payment date, except as and to the extent the Company shall default in the payment of 20 the interest due on such interest payment date, in which case defaulted interest shall be paid to the Person in whose name such Bonds of Second Series is registered on the date of payment of such defaulted interest. As used in this Section 2.01, the term "default in the payment of interest" means failure to pay interest due on the applicable interest payment date disregarding any period of grace permitted by Section 12.01 of the Indenture, and the term "record date" with respect to each February 1 interest payment date means the January 15 immediately preceding such February 1, and with respect to each August 1 interest payment date means the July 15 immediately preceding such August 1. Section 2.02. Redemption; Make Whole Premium; Transfer and Exchange. The Bonds of Second Series will not be subject to any mandatory redemption, sinking fund or other obligation of the Company to amortize, redeem or retire the Bonds of Second Series. The Company shall have the right to redeem the Bonds of Second Series in whole or in part (if in part, on a pro rata basis), at any time and from time to time, upon not less than 30 nor more than 60 days' notice to holders of such Bonds of Second Series, in cash at a redemption price equal to 100% of the principal amount of the Bonds of Second Series to be redeemed, plus accrued and unpaid interest thereon through the applicable redemption date, plus the applicable Make Whole Premium. No bonds of $1,000 in principal amount or less shall be redeemed in part. In the event of any redemption of the Bonds of Second Series, neither the Company nor the Trustee shall be required to (i) register the transfer of or exchange any Bonds of Second Series during a period beginning at the opening of 15 days before any selection for redemption of such Bonds of Second Series and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all holders of Bonds of Second Series to be redeemed or (ii) register the transfer of or exchange any Bonds of Second Series so selected for redemption, in whole or in part, except the unredeemed portion of any Bonds of Second Series being redeemed in part. In the event that any Bondholder surrenders a Bond for repayment pursuant to a Change of Control, neither the Company nor the Trustee shall be required to register the transfer of or exchange of any such Bonds of Second Series except the portion, if any, of such Bonds of Second Series not to be so redeemed. In the case of any redemption of the Bonds of Second Series by the Trustee pursuant to this Second Supplemental Indenture, notice of redemption shall be given in a similar manner by the Trustee. Section 2.03. Change of Control. (a) If a Change of Control occurs, the Company shall make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Bonds of Second Series at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder stating: (i) that the Change of Control Offer is being made pursuant to this Section 2.03 and that all Bonds of Second Series tendered will be accepted for payment; (ii) the purchase price and the purchase date, which shall be no 21 earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (iii) that any Bond of Second Series not tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the Change of Control Payment, all Bonds of Second Series accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that Holders electing to have any Bonds of Second Series purchased pursuant to a Change of Control Offer will be required to surrender the Bonds of Second Series, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the form of Bonds of Second Series completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Bonds of Second Series delivered for purchase, and a statement that such Holder is withdrawing his election to have the Bonds of Second Series purchased; and (vii) that Holders whose Bonds of Second Series are being purchased only in part will be issued new Bonds of Second Series equal in principal amount to the unpurchased portion of the Bonds of Second Series surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Bonds of Second Series in connection with a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Second Mortgage, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the Change of Control provisions of the Second Mortgage by virtue of such compliance. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Bonds of Second Series or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Bonds of Second Series or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Bonds of Second Series so accepted together with an Officers' Certificate stating the aggregate principal amount of Bonds of Second Series or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Bonds of Second Series so tendered the Change of Control Payment for such Bonds of Second Series, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Bond of Second Series equal in principal amount to any unpurchased portion of the Bonds of Second Series surrendered by such Holder, if any; provided, that each such new Bond shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Second Mortgage applicable to a Change of Control Offer made by the Company and purchases all Bonds of Second Series validly tendered and not withdrawn under such Change of Control Offer. 22 Section 2.04. Form of Bonds. The Bonds of Second Series shall be registered bonds without coupons. Bonds of Second Series may be issued in denominations of $1,000 and shall be numbered consecutively from "R1" upward and in such integral multiples of $1,000 as the Company may authorize, appropriately numbered, the execution and delivery thereof to be conclusive evidence of such authorization. The form of Bonds of Second Series shall be substantially in the form of Exhibit 1 attached hereto (and any of the provisions of such Bond may be set forth on the reverse side thereof). Section 2.05. Bonds Exchangeable Upon Surrender. Bonds of Second Series shall be exchangeable upon surrender thereof at the principal office of the Trustee in the Borough of Manhattan, City and State of New York (or at the principal office of any successor in trust) for registered Bonds of Second Series without coupons of the same aggregate principal amount but of different authorized denomination or denominations, subject to Section 2.02 of this Article II. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents (including, but not limited to, those set forth on the form of Bonds of Second Series) and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Second Mortgage. Section 2.06. Authentication of Bonds. Until Bonds of Second Series in definitive form are ready for delivery, the Company may execute, and upon its request in writing the Trustee shall authenticate and deliver in lieu thereof, Bonds of Second Series in temporary form as provided in Section 2.07 of the Indenture. Section 2.07. Definitive Bonds. Definitive Bonds of Second Series may be in the form of fully engraved Bonds or Bonds printed or legibly typed. ARTICLE III COVENANTS So long as any Bonds of Second Series are Outstanding, subject to Section 3.15, the Company covenants and agrees as follows: Section 3.01. Payment of Bonds of Second Series. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Bonds of Second Series on the dates and in the manner provided in the Bonds of Second Series. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Regulated Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. Section 3.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City and State of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where the Bonds of Second Series may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Bonds of Second Series and this Second 23 Supplemental Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Bonds of Second Series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City and State of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company. Section 3.03. Reports. The Company shall file with the Trustee, within 15 days of filing them with the Commission, copies of the current, quarterly and annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 and 15(d) of the Exchange Act. If the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall nevertheless file with the Commission and the Trustee, on the date upon which it would have been required to file with the Commission, current, quarterly and annual financial statements, including any notes thereto (and with respect to annual reports, an auditor's report by a firm of established national reputation, upon which the Trustee may conclusively rely), and a "Management's Discussion and Analysis of Financial Condition and Results of Operation," both comparable to that which the Company would have been required to include in such current, quarterly and annual reports, information, documents or other reports on Forms 8-K, 10-Q and 10-K if the Company were subject to the requirements of Section 13 or 15(d) of the Exchange Act, provided that the Company shall not be required to register under the Exchange Act by virtue of this provision, if not otherwise required to do so. Section 3.04. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Regulated Subsidiaries during the preceding fiscal year has been made under the supervision of the signing officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under the Second Mortgage, and further stating, as to each such officer signing such certificate, that to the best of his or her knowledge either (i) no Default or Event of Default has occurred and is continuing, as of the date of such certificate, or (ii) if a Default or Event of Default shall have occurred and is continuing on such date, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto. 24 (b) At any time the Suspended Sections are applicable to the Bonds of Second Series pursuant to Section 3.15, upon becoming aware of any Default of Event of Default, the Company shall deliver to the Trustee a statement specifying such Default or Event of Default. Section 3.05. Payments For Consent. Neither the Company nor any of it its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of the Bonds of Second Series for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Second Mortgage or such Bonds of Second Series unless such consideration is offered to be paid or agreed to be paid to all holders of the Bonds of Second Series that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 3.06. Restricted Payments. (a) Subject to the other provisions of this Section 3.06, the Company shall not, and shall not permit any of its Regulated Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any cash dividend or other distribution on account of the Company's or any of its Regulated Subsidiaries' Equity Interests, including, without limitation, any payment in connection with any merger or consolidation involving the Company, other than (x) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company and (y) any portion of a dividend or distribution by a Regulated Subsidiary of the Company that is payable to the Company or to any Regulated Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation in connection with any merger or consolidation involving the Company) from any Person other than the Company or a Regulated Subsidiary any Equity Interests of the Company, any of its Subsidiaries or any direct or indirect parent of the Company (other than the conversion or exchange of Equity Interests of the Company for other Equity Interests of the Company); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness other than First Mortgage Bonds or Second Mortgage Bonds or Indebtedness payable to the Company, except at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payments: (1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and 25 (2) except in the case of a Restricted Investment, the Company would, at the time of such Restricted Payment, and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have a Fixed Charge Coverage Ratio of not less than 2.50 to 1 (calculated as described in Section 3.08); and (3) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Regulated Subsidiaries after the Initial Issuance Date (excluding Restricted Payments permitted by clause (ii), (iii), (iv), (vi), (vii), (viii) or (ix) of Section 3.06(d)), is less than the sum of (A) 20% of the Consolidated Cash Flow of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the Initial Issuance Date through the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Cash Flow for such period is a deficit, less 100% of such deficit), plus (B) 100% of the aggregate net cash proceeds received by the Company after the Initial Issuance Date as a contribution to its common equity capital or from the issue or sale of Equity Interests (other than Disqualified Stock) of the Company or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus (C) to the extent that any Restricted Investment that was made after the Initial Issuance Date sold for cash or Cash Equivalents or was otherwise liquidated or repaid for cash or Cash Equivalents, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus (D) $15,000,000. (b) Notwithstanding the foregoing: (i) nothing in this covenant shall prohibit or restrict any distribution of any Equity Interests (other than Disqualified Stock) of the Company or of any of its Unregulated Subsidiaries as part of a Holding Company Transaction; and (ii) following a Holding Company Transaction, subject to clauses (c) and (d) of this Section 3.06, neither the Company nor any Regulated Subsidiary 26 shall make a Restricted Payment other than a Restricted Investment unless: (A) such Restricted Payment is used to pay expenses incurred by the Holding Company or a wholly-owned subsidiary of the Holding Company in the ordinary course of business if, and only to the extent that, such expenses represent a cost of the Company or a Regulated Subsidiary incurred in the ordinary course of business; or (B) the proceeds of such Restricted Payment are utilized by the Holding Company solely to fund a pro rata distribution to the public shareholders of the Holding Company; and (iii) Subject to clauses (c) and (d) of this Section 3.06, the Company and its Regulated Subsidiaries shall not make any Restricted Investments other than Restricted Investments in an aggregate amount (a) equal to (i) for the period from the Initial Issuance Date through December 31, 1999, $1,000,000 and (ii) thereafter, $2,000,000 in any fiscal year and (b) not to exceed $10,000,000 since the Initial Issuance Date, provided, that, if in any fiscal year the aggregate amount of any such Restricted Investments is less than the amount permitted in any fiscal year, the Company and its Regulated Subsidiaries will be entitled, in any succeeding fiscal year, to make Restricted Investments in an amount equal to (a) $2,000,000 plus (b) the aggregate amount of Restricted Investments that were permitted but not made in any earlier fiscal year (or portion thereof) after the Initial Issuance Date. (c) The Company shall be permitted to make distributions to the Holding Company in an amount not to exceed, in any period, the amount of Restricted Investments permitted by Section 3.06(b)(iii), provided that such distributions shall reduce, dollar for dollar, the amount of Restricted Investments permitted to be made by the Company under Section 3.06(b)(iii). (d) Nothing in this Section 3.06 shall prohibit: (i) so long as no Default shall have occurred and be continuing or would be caused thereby, the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Second Mortgage; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any Indebtedness other than the First Mortgage Bonds or the Second Mortgage Bonds of the Company or of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to the Regulated Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock), provided that the amount of any such net cash proceeds that are 27 utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded Section 3.06(a)(3)(B); (iii) the defeasance, redemption, repurchase or other acquisition of Indebtedness other than First Mortgage Bonds or Second Mortgage Bonds of the Company with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a Regulated Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (v) the repurchase, redemption, cancellation or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management, employees or directors pursuant to (x) any management, employee or director equity subscription agreement or stock option agreement or (y) upon the death, disability or termination of employment of such members of management employees or directors; provided that the aggregate price paid for all such purchased, redeemed, acquired or retired Equity Interests shall not exceed $1,000,000 in any twelve-month period; (vi) so long as no Default shall have occurred and be continuing or would be caused thereby, the payment of dividends, and the satisfaction of mandatory redemption obligations, in respect of any Preferred Stock outstanding on the Initial Issuance Date in accordance with the terms thereof in effect on such date; (vii) the repayment of (x) revolving credit borrowings used to finance working capital needs or (y) other revolving credit facilities utilized to finance accounts receivable; (viii) the utilization, in accordance with the terms of the Company's Dividend Reinvestment Plan or employee benefit plans, of any proceeds from dividends paid by the Company in respect of its Capital Stock permitted by this covenant to be made to purchase additional shares of the Company's Capital Stock for the benefit of the participants in such plan; and (ix) payments to any direct or indirect parent corporation of the Company in respect of (A) federal income taxes for the tax periods for which a federal consolidated return is filed by such direct or indirect parent corporation of the Company for a consolidated group of which such direct or indirect parent corporation of the Company is the parent and the Company and its Subsidiaries are members, in an amount not to exceed the hypothetical federal income taxes that the Company would have paid if the Company and its Regulated Subsidiaries filed a separate consolidated return with the 28 Company as the parent, taking into account carryovers and carrybacks of tax attributes (including net operating losses) that would have been allowed if such separate consolidated return had been filed, (B) state income tax for the tax periods for which a state combined, consolidated or unitary return is filed by such direct or indirect parent corporation of the Company for a combined, consolidated or unitary group of which such direct or indirect parent corporation of the Company is the parent and the Company and its Subsidiaries are members, in an amount not to exceed the hypothetical state income taxes that the Company would have paid if the Company and its Regulated Subsidiaries had filed a separate combined, consolidated or unitary return taking into account carryovers and carrybacks of tax attributes (including net operating losses) that would have been allowed if such separate combined return had been filed and (C) capital stock, net worth, or other similar taxes (but for the avoidance of doubt, excluding any taxes based on net or gross income) payable by such direct or indirect parent corporation of the Company based on or attributable to its investment in or ownership of the Company and its Regulated Subsidiaries; provided, however, that in no event shall any such tax payment pursuant to this clause (ix) exceed the amount of federal (or state, as the case may be) income tax that is, at the time the Company makes such tax payments, actually due and payable by such direct or indirect parent corporation of the Company to the relevant taxing authorities or to become due and payable within 30 days of such payment of the Company; provided, further, that for purposes of this clause (ix), payments made by any Regulated Subsidiary to a Regulated Subsidiary or the Company which are in turn distributed by such Regulated Subsidiary or the Company to any direct or indirect parent corporation of the Company shall be disregarded. (e) For purposes of this Section 3.06, the amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued to or by the Company or such Regulated Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this Section 3.06 shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. The Board of Directors' determination shall be based upon an opinion or appraisal issued by an Independent Appraiser if the fair market value exceeds $10,000,000. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 3.06 were computed, together with a copy of any fairness opinion or appraisal required by this Second Supplemental Indenture. Section 3.07. Dividend and Other Payment Restrictions Affecting Regulated Subsidiaries. (a) The Company shall not, and shall not permit any of its Regulated Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance 29 or restriction on the ability of any Regulated Subsidiary to (i) pay dividends or make any other distributions to the Company or any of its Regulated Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits; (ii) pay any Indebtedness owed to the Company or any of its Regulated Subsidiaries; (iii) make loans or advances to the Company or any of its Regulated Subsidiaries; or (iv) transfer any of its properties or assets to the Company or any of its Regulated Subsidiaries. (b) However, Section 3.07(a) shall not apply to encumbrances or restrictions existing under or by reason of: (i) Existing Indebtedness as in effect on the Initial Issuance Date and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in such Existing Indebtedness, as in effect on the Initial Issuance Date; (ii) applicable law or regulation; (iii) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Regulated Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; (iv) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practice; (v) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in Section 3.07(a)(iv) to the extent applicable to the property so acquired; (vi) any contract for the sale of 100% of the Capital Stock of a Regulated Subsidiary; (vii) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced; (viii) Liens securing Indebtedness that limit the right of the debtor to dispose of the assets subject to such Lien; 30 (ix) Indebtedness or other contractual requirements of a special purpose entity in connection with a Securitization Transaction, provided that such restrictions apply only to such special purpose entity; (x) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business; (xi) restrictions contained in the Indebtedness described in Section 3.08(b)(xii); (xii) Indebtedness of a Regulated Subsidiary owed to and held by the Company; and (xiii) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Section 3.08. Incurrence of Indebtedness. (a) The Company shall not, and shall not permit any of its Regulated Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur"), any Indebtedness (including Acquired Debt) or issue any Disqualified Stock and the Company shall not permit any of its Regulated Subsidiaries to issue any preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) and issue Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred or Disqualified Stock or preferred stock is issued would have been at least 2.50 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if such Indebtedness had been incurred or such Disqualified Stock or preferred stock had been issued at the beginning of such four-quarter period. (b) The foregoing provisions shall not apply to the incurrence of any of the following Indebtedness (collectively, "Permitted Debt"): (i) the existence of the Existing Indebtedness; (ii) the incurrence by the Company of Indebtedness represented by the Bonds of First Series or the Bonds of Second Series in aggregate principal amount not to exceed $75,000,000 at any time outstanding; (iii) the incurrence by the Company or any of its Regulated Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Regulated Subsidiary, in an aggregate 31 principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (iii), not to exceed $5,000,000 at any time outstanding; (iv) the incurrence by the Company or any of its Regulated Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Second Mortgage to be incurred under Section 3.08(a) or clauses (i), (ii), (iii) or (ix) of this paragraph; (v) the incurrence by the Company or any of its Regulated Subsidiaries of intercompany Indebtedness between or among the Company and/or any of its Regulated Subsidiaries; provided, however, that: (A) if the Company is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Bonds of Second Series, and (B) (x) any subsequent issuance or transfer of Equity Interests that results in any Person other than the Company or a Regulated Subsidiary being the obligee on such Indebtedness and (y) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Regulated Subsidiary and that results in such Person being the obligee on such Indebtedness, shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Regulated Subsidiary, as the case may be, that was not permitted by this clause (v); (vi) the incurrence by the Company or any of its Regulated Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging: (x) interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Second Mortgage to be outstanding; or (y) the cost of commodities purchased or received by the Company or any of its Regulated Subsidiaries in the ordinary course of business provided that, in the case of clause (y), the Net Termination Value of such Hedging Obligations shall not at any time exceed $3,000,000; (vii) the accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this 32 covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued; (xiii) Indebtedness of the Company or any Regulated Subsidiary represented by performance bonds and letters of credit for the account of the Company or such Regulated Subsidiary, as the case may be, in order to provide security for workers' compensation claims and payment obligations in connection with self-insurance, in each case, that are incurred in the ordinary course of business in accordance with customary industry practice in amounts, and for the purposes, customary in the Company's industry; (ix) the incurrence by the Company of unsecured Indebtedness after the Initial Issuance Date the proceeds of which are utilized to finance Power Contract Buyouts and related restructuring and transaction and financing costs; (x) the incurrence by a special purpose entity of Indebtedness in a Securitization Transaction that is without recourse to the Company or to any other Regulated Subsidiary of the Company or their assets (other than such special purpose entity and its assets and, as to the Company or any Regulated Subsidiary of the Company, other than pursuant to representations, warranties, covenants and indemnities customary for such transactions) and is not guaranteed by any such Person; (xi) the incurrence by the Company or any of its Regulated Subsidiaries of Indebtedness under the Accounts Receivables Facility or any other similar accounts receivables facilities, including any refinancings or replacements thereof in an aggregate principal amount of Indebtedness not to exceed $15,000,000 at any one time outstanding; (xii) the incurrence of Indebtedness by Connecticut Valley in an amount not to exceed $5,000,000 at any time outstanding; provided, however, that all net proceeds shall be applied to the repayment of the note in the original principal amount of $3,800,000 issued by Connecticut Valley and owed to and held by the Company, until all amounts on such note are paid in full; or (xiii) the incurrence by the Company or any of its Regulated Subsidiaries of additional Indebtedness after the Initial Issuance Date in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $15,000,000. (c) For purposes of determining compliance with this Section 3.08, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xiii) of Section 3.08(b), or is entitled to be incurred pursuant to Section 3.08(a), the Company shall be permitted to classify such item of 33 Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 3.08. Section 3.09. Asset Sales other than Mortgaged Property Asset Sales. (a) The Company shall not, and shall not permit any of its Regulated Subsidiaries to, consummate an Asset Sale, other than a Mortgaged Property Asset Sale, unless: (i) the Company (or the Regulated Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee in the event of any Asset Sale over $5,000,000); provided, that for purposes of an event set forth in clause (ii) of the definition of "Event of Loss," fair market value shall be the fair market value judicially determined by a court of competent jurisdiction, and (ii) at least 75% of the consideration therefor received by the Company or such Regulated Subsidiary is in the form of cash or cash equivalents (provided that the requirement of this clause (ii) shall not apply to Designated Asset Sales with an aggregate fair market value since the Initial Issuance Date of less than $5,000,000). For purposes of this provision, each of the following shall be deemed to be cash: (A) any liabilities (as shown on the Company's or such Regulated Subsidiary's most recent balance sheet) of the Company or any Regulated Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Bonds of Second Series) that are assumed by the transferee of any such assets pursuant to an agreement that releases the Company or such Regulated Subsidiary from further liability and (B) securities, notes or other obligations received by the Company or any such Regulated Subsidiary from such transferee that are converted within 180 days by the Company or such Regulated Subsidiary into cash (to the extent of the cash received). (b) Within 360 days after the receipt of any Net Proceeds from an Asset Sale, other than a Mortgaged Property Asset Sale, the Company or any Regulated Subsidiary may apply such Net Proceeds to: (i) the making of a capital expenditure or the acquisition of other property or assets, in each case which is used or useable in the regulated utility business of the Company or its Regulated Subsidiaries on the Initial Issuance Date or businesses reasonably related thereto or (ii) the repayment of outstanding Prior Lien Bonds. (c) Pending the final application of any such Net Proceeds, the Company or such Regulated Subsidiary may temporarily reduce amounts available under revolving credit facilities or invest such Net Proceeds in any manner that is not prohibited by this Second Supplemental Indenture and the Second Mortgage. (d) Any Net Proceeds from Asset Sales other than Mortgaged Property Asset Sales that are not applied or invested as provided in Section 3.09(b) shall be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $7,500,000, the Company or the applicable Regulated Subsidiary will be required to make an offer to all Holders of Bonds of Second Series (an "Asset Sale Offer") and all holders of additional Second Mortgage Bonds then Outstanding to purchase the maximum principal amount of Bonds of Second Series and such additional Second Mortgage Bonds that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set 34 forth in the Second Mortgage. To the extent that the aggregate amount of Bonds of Second Series and such additional Second Mortgage Bonds tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company or its Regulated Subsidiaries may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Bonds of Second Series and such additional Second Mortgage Bonds surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Bonds of Second Series and additional Second Mortgage Bonds to be purchased on a pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Notwithstanding the foregoing, neither the Company nor any Regulated Subsidiary shall be obligated to make an Asset Sale Offer if such offer would violate an order, rule or regulation of a governmental authority with jurisdiction over the Company or any such Regulated Subsidiary; provided that the Company and such Regulated Subsidiary shall use their reasonable best efforts to vacate or modify such order to permit such Asset Sale Offer. Section 3.10. Mortgaged Property Asset Sales and Events of Loss. (a) The Company shall not engage in a Mortgaged Property Asset Sale unless (i) such Mortgaged Property Asset Sale involves the Mortgaged Property in its entirety, or, if such Mortgaged Property Asset Sale involves less than all of the Mortgaged Property (a "Partial Mortgaged Property Asset Sale"), such Partial Mortgaged Property Asset Sale involves a single Mortgaged Property Asset Sale with a fair market value at the time of consummation of such Mortgaged Property Asset Sale not exceeding $10,000,000 and is not part of a series of Mortgaged Property Asset Sales in any twelve month period with an aggregate value (measured as of the time of consummation of such sales) exceeding $10,000,000; provided, however, that any Mortgaged Property Asset Sale in contemplation of or as part of the restructuring of the Company in which the Company divests generation assets and/or power purchase agreements shall not be subject to the $10,000,000 limitation in this clause (i); (ii) the Company receives consideration in respect of and concurrently with such Mortgaged Property Asset Sale at least equal to the fair market value of such Mortgaged Property; (iii) with respect to each such Mortgaged Property Asset Sale, the Company delivers an Officers' Certificate to the Trustee dated no more than 15 days prior to the date of consummation of the relevant Mortgaged Property Asset Sale, certifying that (A) such sale complies with clauses (i) and (ii) above and (B) if the fair market value of the Mortgaged Property being sold exceeds $5,000,000, such fair market value was based on the opinion of an Independent Appraiser prepared contemporaneously with such Mortgaged Property Asset Sale and which opinion, in 35 such case, will be attached to the Officers' Certificate, as evidenced by copies of a resolution of the Board of Directors of the Company adopted in respect of and substantially concurrently with such Mortgaged Property Asset Sale; (iv) 100% of such consideration is in cash or Cash Equivalents; and (v) the Net Proceeds therefrom shall be paid to the trustee under the First Mortgage to be held in accordance with the terms of the First Mortgage if any First Mortgage Bonds are then outstanding and, upon release of such Net Proceeds by such trustee, such Net Proceeds shall be paid directly to the Trustee pursuant to the Second Mortgage, to be held by the Trustee as additional Mortgaged Property. To the extent that such Net Proceeds are applied to the purchase of Bondable Property, such Bondable Property shall become subject to the Lien of the Second Mortgage and shall become additional Mortgaged Property. (b) The Company, within 360 days from the date of consummation of such Mortgaged Property Asset Sale, may apply all of the Net Proceeds of a Mortgaged Property Asset Sale: (i) to purchase or otherwise invest in Bondable Property which shall become additional Mortgaged Property under the Second Mortgage; or (ii) to repay outstanding Prior Lien Bonds. (c) Any such Net Proceeds of a Mortgaged Property Asset Sale not so applied shall constitute "Excess Proceeds" and shall be applied, to the extent the Net Proceeds can be released from the First Mortgage and Second Mortgage, to make an Asset Sale Offer, in accordance with the terms of Section 3.09(b). The Company shall use its reasonable best efforts to obtain the release of such Net Proceeds from the provisions of the First Mortgage and the Second Mortgage. (d) If the Company suffers an Event of Loss with respect to Mortgaged Property: (i) the Net Proceeds therefrom shall be paid to the trustee under the First Mortgage to be held in accordance with the terms of the First Mortgage if any First Mortgage Bonds are then outstanding and, upon release of such Net Proceeds by such trustee, such Net Proceeds shall be paid directly to the Trustee pursuant to the Second Mortgage, to be held by the Trustee as additional Mortgaged Property; and (ii) the Company shall take such actions, at its sole expense, as may be required to ensure that the Trustee, pursuant to the Second Mortgage, has from the date of such deposit a Lien (ranking prior to all other Liens on the property other than the Lien of the First Mortgage) on such Net Proceeds pursuant to the terms of this Second Mortgage. (e) As any portion or all of the Net Proceeds from any such Event of Loss are received by the Trustee, the Company may apply all of such amount or amounts, as received, together with all interest earned thereon, individually or in combination: (i) to purchase or otherwise invest in Bondable Property which shall become additional Mortgaged Property under the Second Mortgage, (ii) to restore the relevant Mortgaged Property or (iii) to repay outstanding Indebtedness with Liens on the Mortgaged Property that rank prior in payment to the Bonds of Second Series. 36 (f) In the event that the Company elects to restore the relevant Mortgaged Property pursuant to Section 3.10(e)(ii), within six months of receipt of such Net Proceeds from an Event of Loss, the Company shall (i) give the Trustee irrevocable written notice of such election and (ii) enter into a binding commitment to restore such Mortgaged Property, a copy of which shall be supplied to the Trustee, and shall have 12 months or as soon as is reasonably practicable from the date of such binding commitment to complete such restoration, which shall be carried out with due diligence. Any such Net Proceeds of an Event of Loss not so applied shall constitute "Excess Proceeds" and shall be applied to make an Asset Sale Offer in accordance with Section 3.10(b). (g) In the event that the Company decides pursuant to the foregoing provisions to apply any portion of the Net Proceeds from a Mortgaged Property Asset Sale or an Event of Loss to purchase or otherwise invest in Bondable Property, (i) the Company shall deliver an Officers' Certificate to the Trustee dated no more than 30 days prior to the date of consummation of the relevant investment in Bondable Property, certifying that the purchase price for the amount of the investment in Bondable Property does not exceed the fair market value of such Bondable Property, and, if the fair market value of such Bondable Property exceeds $1,000,000, certifying that the fair market value of such Bondable Property was determined in good faith by the Board of Directors of the Company and, in the event the fair market value of such Bondable Property exceeds $5,000,000, was based on the opinion of an Independent Appraiser attached to the Officer's Certificate, as evidenced by copies of a resolution of the Board of Directors of the Company adopted in respect of and substantially concurrently with the investment in such Bondable Property; (ii) the Trustee will release such certified purchase price to the Company, free of the Lien of the Second Mortgage; and (iii) the Company shall take such actions, at its sole expense, as shall be required to permit the Trustee, pursuant to this Second Mortgage, to release such Net Proceeds, together with any interest thereon, from the lien of this Second Mortgage and to ensure that the Trustee has, from the date of such purchase or investment, a Lien ranking prior to all Liens (other than the Lien securing any outstanding First Mortgage Bonds and Permissible Encumbrances) on such Bondable Property under the Second Mortgage. Section 3.11. Transactions with Affiliates. (a) The Company shall not, and shall not permit any of its Regulated Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (i) such Affiliate Transaction 37 is on terms that are no less favorable to the Company or the relevant Regulated Subsidiary than those that would have been obtained in a comparable transaction by the Company or Regulated Subsidiary with an unrelated Person; and (ii) the Company delivers to the Trustee (A) with respect to any Affiliate Transaction involving aggregate consideration in excess of $2,500,000 a resolution of the Board of Directors set forth in an officer's certificate certifying that such Affiliate Transaction complies with clause (1) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (B) with respect to any Affiliate Transaction involving aggregate consideration in excess of $10,000,000, an opinion as to the fairness to the Company or such Regulated Subsidiary of such Affiliate Transaction from a financial point of view issued by an Independent Appraiser. (b) The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 3.11(a): (i) any employment agreement entered into by the Company or any of its Regulated Subsidiaries in the ordinary course of business and consistent with past practices of the Company or such Regulated Subsidiary; (ii) commercial transactions in the ordinary course of business for the provision of goods and services by the Company to any of its Subsidiaries or Affiliates (or, following a Holding Company Transaction, any Subsidiary or Affiliate of the Holding Company); provided that the consideration received by the Company is not less than the lower of cost to the Company of providing such goods and services or the fair market value of such goods and services; (iii) transactions between or among the Company and/or its Regulated Subsidiaries; and (iv) Restricted Payments permitted by Section 3.06. Section 3.12. Liens. (a) The Company shall not, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any Mortgaged Property, other than the following Liens: (i) Permissible Encumbrances; (ii) Liens which rank prior in right of payment to the Lien on the Mortgaged Property securing the Bonds of Second Series, provided such Liens do not secure an amount of Indebtedness in excess of: (i) $103,400,000, minus (ii) the aggregate principal amount of Second Mortgage Bonds issued pursuant to and in accordance with Section 3.12(a)(iii)(B) on the basis of the retirement, purchase or acquisition of Prior Lien Bonds; (iii) Liens which rank equal in right of payment with the Lien on the Mortgaged Property securing the Bonds of Second Series, provided such Liens do not secure an amount of Indebtedness in excess of the sum of: (A) the lesser of the Cost or fair market value of Unbonded Bondable Property, after deducting the principal amount of all Prior Lien Bonds, including First Mortgage Bonds, which are (1) Outstanding and secured by a Prior Lien on Bondable Property owned by the Company at the date of the Second Mortgage, (2) Outstanding and secured by a Prior Lien on Bondable Property at the date of its acquisition by the Company after such date and (3) issued after the date of the Second Mortgage; and (B) the 38 principal amount of Bonds of First Series and Prior Liens Bonds, including First Mortgage Bonds, which the Company has retired, purchased or acquired since the date of this Second Mortgage or the Company is retiring, purchasing or acquiring, and which have not already been Bonded; and (C) the amount of cash deposited with the Trustee for such purpose; and (iv) Liens on Mortgaged Property that rank junior in right of payment to the Lien of the Second Mortgage. (b) The Company shall not, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness on any asset now owned or hereafter acquired by the Company that does not constitute Mortgaged Property, other than the following Liens: (i) Liens on Equity Interests in Unregulated Subsidiaries; (ii) Liens on Equity Interests or assets of Connecticut Valley securing Indebtedness in an aggregate principal amount not to exceed $5,000,000; (iii) Liens on any property acquired, constructed or improved by the Company after the date the Bonds of First Series were issued, and which are created or assumed contemporaneously with such acquisition, construction or improvement, or within 180 days after the completion thereof, to secure or provide for the payment of all or any part of the cost of such acquisition, construction or improvement (including related expenditures capitalized for federal income tax purposes in connection therewith); (iv) Liens on any property existing at the time of acquisition thereof, whether by merger, consolidation, purchase, lease or otherwise (including Liens on property of a person existing at the time such person becomes a Regulated Subsidiary); provided that such Liens were not incurred in contemplation of the acquisition of such property and do not extend to any assets other than those of the Person merged into or consolidated with the Company or any Regulated Subsidiary or which becomes a Regulated Subsidiary of the Company in connection with such transaction; (v) Liens in favor of the United States of America or any state thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof or political entity affiliated therewith to secure partial, progress, advance or other payments, or other obligations, pursuant to any contract or statute or to secure any Indebtedness Incurred for the purpose of financing all or any part of the cost of acquiring, constructing or improving the property subject to such Liens (including Liens incurred in connection with pollution control, industrial revenue or similar financings); (vi) Liens on property created, assumed or otherwise brought into existence in contemplation of the sale or other disposition of the underlying property, 39 whether directly or indirectly, by way of share disposition or otherwise, provided, that 180 days from the creation of such Liens the Company must have disposed of such property and any Indebtedness secured by such Liens shall be without recourse to the Company; (vii) Liens imposed by law, such as mechanics', workmen's, repairmen's, materialmen's, carriers', warehousemen's, vendors or other similar liens arising in the ordinary course of business, or governmental (federal, state or municipal) liens arising out of contracts for the sale of products or services by the Company, or deposits or pledges to obtain the release of any of the foregoing; (viii) Liens arising out of pledges or deposits under workmen's compensation laws or similar legislation and Liens of judgments thereunder which are not currently dischargeable, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of money) or leases to which the Company is a party, or deposits to secure the Company's public or statutory obligations, or deposits in connection with obtaining or maintaining self insurance or to obtain the benefits of any law, regulation or arrangement pertaining to unemployment insurance, old age pensions, social security or similar matters, or deposits of cash or obligations of the United States of America to secure security, appeal or customs bonds to which the Company or any Regulated Subsidiary is a party, or deposits in litigation or other proceedings such as, but not limited to, interpleader proceedings; (ix) Liens created by or resulting from any litigation or other proceeding which is being contested in good faith by appropriate proceedings, including Liens arising out of judgments or awards against the Company with respect to which the Company is in good faith prosecuting an appeal or proceeding for review, or Liens incurred by the Company for the purpose of obtaining a stay or discharge in the course of any litigation or other proceeding to which the Company is a party; (x) Liens for taxes or assessments or governmental charges or levies not yet due or delinquent or which are being contested in good faith by appropriate proceedings; (xi) Liens consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property, and defects and irregularities in the title thereto, landlords' liens and other similar liens and encumbrances none of which interferes materially with the use of the property covered thereby in the ordinary course of the Company's business and which do not materially detract from the value of such properties; (xii) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Lien referred to in the 40 foregoing clauses; provided, that (i) such extension, renewal or replacement Lien shall be limited to all or a part of the same property or Indebtedness that secured the Lien extended, renewed or replaced and (ii) the amount of Indebtedness secured by such Lien at such time is not increased; (xiii) Liens on accounts receivable of the Company or any Regulated Subsidiary securing Indebtedness incurred pursuant to Section 3.08(b)(xi); and (xiv) Liens on assets of a special purpose entity incurred in connection with a Securitization Transaction. Section 3.13. Sale and Leaseback Transactions. (a) The Company will not, and will not permit any of its Regulated Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or any Regulated Subsidiary may enter into a Sale and Leaseback Transaction if: (i) the Company or that Regulated Subsidiary, as applicable, could have incurred Indebtedness in an amount equal to the Attributable Debt relating to such Sale and Leaseback Transaction under Section 3.08; (ii) the gross cash proceeds of that Sale and Leaseback Transaction are at last equal to the fair market value, as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and (iii) the transfer of assets in that Sale and Leaseback Transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with Section 3.09 and Section 3.10. (b) The foregoing shall not prevent transactions between or among the Company and/or its Regulated Subsidiaries or Securitization Transactions. Section 3.14. Designation of Regulated and Unregulated Subsidiaries. (a) The Board of Directors may designate any Regulated Subsidiary to be an Unregulated Subsidiary if that designation would not cause a Default; provided that in no event shall the regulated utility business currently operated by the Company be transferred to or held by an Unregulated Subsidiary. If a Regulated Subsidiary is designated as an Unregulated Subsidiary, the aggregate fair market value of all Outstanding Investments owned by the Company and its Regulated Subsidiaries in the Subsidiary so designated will be deemed to be an Investment made as of the time of such designation and will either reduce the amount available for Restricted Payments under the first paragraph of Section 3.06 or reduce the amount available for future Investments under one or more clauses of the definition of Permitted Investments, as the Company shall determine. That designation will only be permitted if such Investment would be permitted at that time and if such Regulated Subsidiary otherwise meets the definition of an Unregulated Subsidiary. The Board of Directors may redesignate any Unregulated Subsidiary to be a Regulated Subsidiary if the redesignation would not cause a Default. (b) Any designation of a Subsidiary of the Company as an Unregulated Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such 41 designation complied with the conditions within the definition of "Unregulated Subsidiary" and was permitted by Section 3.06. If, at any time, any Unregulated Subsidiary would fail to meet the preceding requirements as an Unregulated Subsidiary, it shall thereafter cease to be an Unregulated Subsidiary for purposes of the Second Mortgage and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Regulated Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 3.08, the Company shall be in default of such Section. The Board of Directors of the Company may at any time designate any Unregulated Subsidiary to be a Regulated Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Regulated Subsidiary of the Company of any outstanding Indebtedness of such Unregulated Subsidiary and such designation shall be permitted only if (1) such Indebtedness is permitted under Section 3.08, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. Section 3.15. Changes in Covenants when Bonds of Second Series Rated Investment Grade. (a) If at any time the Bonds of Second Series are rated BBB- (or the equivalent) or higher by Standard & Poor's or Baa 3 (or the equivalent) or higher by Moody's (each, a "Rating Event" and such date, the "Rating Event Date"), Sections 3.04(b), 3.05, 3.06, 3.07, 3.08, 3.09, 3.10, 3.11, 3.13 and 6.01 in this Second Supplemental Indenture (collectively, the "Suspended Sections") shall not be applicable to the Bonds of Second Series; provided, however if at any time after a Rating Event Date the Bonds of Second Series shall be rated lower than BBB- by Standard & Poor's, if rated by Standard & Poor's, and Baa 3 by Moody's, if rated by Moody's, the Suspended Sections shall be automatically reinstated (the "Reinstated Sections") and all events that occurred during any time that such sections were suspended and that would have violated such sections had such sections been in effect shall be deemed not to constitute a Default or an Event of Default, as the case may be, and shall be deemed to have been in compliance with such sections for all purposes; provided, further that thereafter all events occurring during any period in which the Suspended Sections have been reinstated shall be required to be in compliance with the Reinstated Sections. (b) Notwithstanding the foregoing, if Standard & Poor's and Moody's cease to rate the Bonds of Second Series for reasons outside of the control of the Company, the Company may select a replacement rating agency that is a "nationally recognized statistical rating organization" within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, and the lowest investment grade credit rating from such replacement agency shall be substituted in the preceding paragraph for the determination of a Rating Event. ARTICLE IV EVENTS OF DEFAULT AND REMEDIES Section 4.01. Events of Default. The occurrence of any of the following events shall be an "Event of Default" with respect to the Bonds of Second Series: 42 (a) the Company defaults in the payment when due of interest on the Bonds of Second Series and such default continues for a period of 30 days; (b) the Company defaults in the payment when due of principal of or premium, if any, on the Bonds of Second Series when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise; (c) the Company or any of its Regulated Subsidiaries fails to comply with any of the provisions of Section 3.10 or 6.01 at any time such covenants are applicable for 30 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Bonds of Second Series then Outstanding voting as a single class; (d) the Company fails to observe or perform any other covenant or other agreement in the Second Mortgage for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Bonds of Second Series then Outstanding voting as a single class; (e) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Regulated Subsidiaries (or the payment of which is guaranteed by the Company or any of its Regulated Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of the Second Mortgage (other than Indebtedness of a Regulated Subsidiary owed to and held by the Company), if that default (i) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (ii) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5,000,000 or more; (f) failure by the Company or any of its Regulated Subsidiaries to pay final non-appealable judgments aggregating in excess of $5,000,000, which judgments are not paid, discharged or stayed for a period of 60 days, provided, that this clause (f) shall not apply to any judgment in favor of the Company against a Regulated Subsidiary; (g) any event of the type described in clauses (v) or (vi) of Section 12.01(a) of the Indenture shall occur with respect to the Company or any of its Regulated Subsidiaries that are Significant Subsidiaries or any group of Regulated Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, in each case continued beyond the period of grade specified therein; and (h) the occurrence of any other Event of Default under (and as defined in) the Indenture. Notwithstanding the foregoing, solely for purposes of determining whether an Event of Default has occurred under clause (e), (f) or (g) of this Section 4.01, the term "Regulated Subsidiary" shall not include Connecticut Valley at any time that the Investment by the 43 Company in Connecticut Valley (including amounts invested prior to the Initial Issuance Date) does not exceed $12,000,000. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of any premium that the Company would have been required to pay if the Company then had elected to redeem the Bonds of Second Series pursuant to the optional redemption provisions of this Second Supplemental Indenture, an equivalent premium shall become and be immediately due and payable to the extent permitted by law upon the acceleration of the Bonds of Second Series. Section 4.02. Acceleration. Subject to the Indenture, if any Event of Default (other than an Event of Default specified in clause (g) of Section 4.01 hereof with respect to the Company, any Regulated Subsidiaries that are Significant Subsidiaries or any group of Regulated Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then Outstanding Bonds of Second Series may declare all the Bonds of Second Series to be due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (g) of Section 4.01 hereof occurs with respect to the Company, any of its Regulated Subsidiaries that are Significant Subsidiaries or any group of Regulated Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all Outstanding Bonds of Second Series shall be due and payable immediately without further action or notice. ARTICLE V THE TRUSTEE Section 5.01. Extent of Trustee's Liability. The Trustee shall not be responsible in any manner whatsoever for, or in respect of, the validity or sufficiency of this Second Supplemental Indenture or the due execution hereof by the Company, or for, or in respect of, the recitals and statements contained herein, all of which recitals and statements are made solely by the Company. Except as herein otherwise provided, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed, by the Trustee by reason of this Second Supplemental Indenture other than as set forth in the Indenture; and this Second Supplemental Indenture is executed and accepted on behalf of the Trustee, subject to all the terms and conditions set forth in the Indenture, as fully to all intents as if the same were herein set forth at length. ARTICLE VI SUCCESSORS Section 6.01. Merger, Consolidation, or Sale of Assets. So long as any Bonds of Second Series are Outstanding, the Company shall not, directly or indirectly: (a) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (b) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Regulated Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (i) the corporation formed by such consolidation or 44 surviving in such merger or the Person that acquires by sale, assignment, transfer, conveyance or other disposition, or that leases, such assets (in each such case, the "Successor Entity"), is a corporation organized and existing under the laws of the United States, any State thereof or the District of Columbia and expressly assumes the Company's obligations under the Second Mortgage and the Bonds of Second Series; (ii) immediately before and after such transaction no Default or Event of Default exists; and (iii) the Successor Entity (or the Company, in the case of a consolidation or merger in which the Company is the surviving entity) (a) has Consolidated Net Worth immediately after the transaction (but prior to any revaluation or recalculation of Consolidated Net Worth as of the date of the transaction relating to a carry-over basis (if any) of the assets acquired in the transaction (as determined in accordance with GAAP)) equal to or greater than the Consolidated Net Worth of the Company immediately prior to the transaction; and (b) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, have a Fixed Charge Coverage Ratio of not less than 2.50 to 1 (calculated in accordance with Section 3.08), provided, that the foregoing clause (3) shall not prevent a Holding Company Transaction. In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties of assets, in one or more related transaction, to any other Person. ARTICLE VII LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 7.01. Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 7.02 or 7.03 hereof be applied to all Outstanding Bonds of Second Series upon compliance with the conditions set forth below in this Article VII. Section 7.02. Legal Defeasance and Discharge. Upon the Company's exercise under Section 7.01 hereof of the option applicable to this Section 7.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 7.04 hereof, be deemed to have been discharged from its obligations with respect to all Outstanding Bonds of Second Series on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the Outstanding Bonds of Second Series, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 7.05 hereof and the other Sections of the Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Bonds of Second Series and the Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of Outstanding Bonds of Second Series to receive solely from the trust fund described in Section 7.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Bonds of Second Series when such payments are due, (b) the Company's obligations with respect to such Bonds of Second Series under Sections 7.04(a) and 7.04(b) of this Second Supplemental Indenture hereof, (c) the rights, powers, trusts, duties and immunities 45 of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article VII. Subject to compliance with this Article VII, the Company may exercise its option under this Section 7.02 notwithstanding the prior exercise of its option under Section 7.03 hereof. Section 7.03. Covenant Defeasance. Upon the Company's exercise under Section 7.01 hereof of the option applicable to this Section 7.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 7.04 hereof, be released from its obligations under the covenants and agreements contained in Section 2.03, Article III, and clause (d) of Section 4.01 hereof with respect to the Outstanding Bonds of Second Series on and after the date on which the conditions set forth in Section 7.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Bonds of Second Series shall thereafter be deemed not "Outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder (it being understood that such Bonds of Second Series shall not be deemed Outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the Outstanding Bonds of Second Series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant or agreement, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or agreement or by reason of any reference in any such covenant or agreement to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 4.01 hereof, but, except as specified above, the remainder of this Second Supplemental Indenture and such Bonds of Second Series shall be unaffected thereby. In addition, upon the Company's exercise under Section 7.01 hereof of the option applicable to this Section 7.03 hereof, subject to the satisfaction of the conditions set forth in Section 7.04 hereof, the events described in clauses (c) through (f) and (h) of Section 4.01 hereof shall not constitute Events of Default. Section 7.04. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 7.02 or 7.03 hereof to the Outstanding Bonds of Second Series: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of Bonds of Second Series, cash in United States dollars, non-callable Governmental Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of an Independent Accountant, to pay the principal of, or interest and premium, if any, on the Outstanding Bonds of Second Series on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Bonds of Second Series are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 7.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (ii) since the date of the Second Mortgage, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such 46 Opinion of Counsel shall confirm that, the Holders of the Outstanding Bonds of Second Series will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 7.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the Outstanding Bonds of Second Series will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing either: (i) on the date of such deposit (other than a Default or Event of Default resulting from borrowing of funds to be applied to such deposit); or (ii) insofar as Section 4.01(g) hereof is concerned, at any time in the period ending on the 91st day after the date of such deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Second Mortgage) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect, assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the deposit and assuming that no Holder is an "insider" of the Company under applicable bankruptcy law, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Bonds of Second Series over any other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 7.05. Deposited Money and Governmental Obligations to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 18.02 of the Indenture, all money and non-callable Governmental Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 7.05, the "Trustee") pursuant to Section 7.04 hereof in respect of the Outstanding Bonds of Second Series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Bonds of Second Series and the Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Bonds of Second Series of all sums due and to become due thereon in respect of principal, 47 premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Governmental Obligations deposited pursuant to Section 7.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Bonds of Second Series. Anything in this Article VII or in Article XI of the Indenture to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Governmental Obligations held by it as provided in Section 7.04 hereof which, in the opinion of an Independent Accountant expressed in an Accountant's Certificate delivered to the Trustee (which may be the opinion delivered under Section 7.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 7.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Governmental Obligations in accordance with Section 7.02 or 7.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under the Indenture and the Bonds of Second Series shall be revived and reinstated as though no deposit had occurred pursuant to Section 7.02 or 7.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 7.02 or 7.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Bond of Second Series following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Bonds of Second Series to receive such payment from the money held by the Trustee or Paying Agent and, to the extent of each such payment, the Trustee shall release from the Lien of the Second Mortgage and deliver and pay to the Company the amounts determined pursuant to the last paragraph of Section 7.05. ARTICLE VIII SATISFACTION OF BONDS OF SECOND SERIES Section 8.01. Satisfaction. The Second Mortgage shall cease to be of further effect as to the Bonds of Second Series when (a) either: (i) all Bonds of Second Series that have been authenticated (except lost, stolen or destroyed Bonds of Second Series that have been replaced or paid and Bonds of Second Series for the payment of which money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (ii) all Bonds of Second Series that have not been delivered to the Trustee for cancellation have become due an payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Governmental Obligations, or a combination thereof, in such amounts as shall be sufficient, without consideration of any reinvestment of 48 interest, to pay and discharge the entire indebtedness on the Bonds of Second Series not delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (b) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit shall not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which the Company is bound; (c) the Company has paid or caused to be paid all sums payable by it in respect of the Bonds of Second Series; and (d) the Company has delivered irrevocable instructions to the Trustee under the Second Mortgage to apply the deposited money toward the payment of the Bonds of Second Series at maturity or the redemption date, as the case may be. The Company shall deliver an Officers' Certificate and an Opinion of Counsel to the Trustee confirming that all conditions precedent set forth in this Section 8.01 have been satisfied promptly upon the satisfaction of such conditions. ARTICLE IX MISCELLANEOUS PROVISIONS Section 9.01. Incorporation of the Terms of the Indenture. Except insofar as herein otherwise expressly provided, all the provisions, definitions, terms and conditions of the Indenture, as amended, shall be deemed to be incorporated in, and made a part of, this Second Supplemental Indenture; and the Indenture as supplemented and amended by this Second Supplemental Indenture is in all respects ratified and confirmed; and the Indenture, as amended, and this Second Supplemental Indenture shall be read, taken and construed as one and the same instrument. Section 9.02. Amendment of the Second Supplemental Indenture. (a) Except as provided in the next two succeeding paragraphs, the Supplemental Indenture or the Bonds of Second Series may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Bonds of Second Series then Outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Bonds of Second Series), and any existing default or compliance with any provision of the Second Supplemental Indenture or the Bonds of Second Series may be waived with the consent of the Holders of a majority in principal amount of the then Outstanding Bonds of Second Series (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Bonds of Second Series). (b) Without consent of each Holder affected, an amendment or waiver of the Second Supplemental Indenture or the Bonds of Second Series may not (with respect to any Bonds of Second Series held by a non-consenting Holder): (i) reduce the principal amount of the Bonds of Second Series the Holders of which must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Bond of Second Series or alter the provisions with respect to the redemption of the 49 Bonds of Second Series (other than provisions of or relating to Sections 2.03, 3.09 and 3.10); (iii) reduce the rate of or change the time for payment of interest on any Bond of Second Series; (iv) waive a Default or Event of Default in the payment of principal of, or interest or premium, if any, on the Bonds of Second Series (except a rescission of acceleration of the Bonds of Second Series by the Holders of at least a majority in aggregate principal amount of the Bonds of Second Series and a waiver of the payment default that resulted from such acceleration); (v) make any Bond of Second Series payable in money other than that stated in the Bonds of Second Series; (vi) make any change in the provisions of the Second Supplemental Indenture relating to waivers of past Defaults or the rights of Holders of Bonds of Second Series to receive payments of principal of, interest, if any, or premium, if any, on the Bonds of Second Series; (vii) waive a redemption payment with respect to any Bond of Second Series (other than a payment required by Section 2.03, 3.09 or 3.10); or (viii) make any change in the preceding amendment and waiver provisions. (c) Notwithstanding the preceding, without the consent of any Holder of Bonds of Second Series, the Company and the Trustee may amend or supplement the Second Supplemental Indenture or the Bonds of Second Series; (i) to cure any ambiguity, defect or inconsistency; (ii) to provide for uncertificated Bonds in addition to or in place of certificated Bonds; (iii) to provide for the assumption of the Company's obligations to Holders of Bonds of Second Series in the case of a merger or consolidation or sale of all or substantially all of the Company's assets; (iv) to make any change that would provide any additional rights or benefits to the Holders of Bonds of Second Series or that does not adversely affect the legal rights under the Second Mortgage of any such Holder; or (v) to comply with requirements of the Commission in order to effect or maintain the qualification of the Second Mortgage under the TIA. Section 9.03. Benefits of Indenture. Nothing in this Second Supplemental Indenture is intended, or shall be construed, to give to any Person, other than the parties hereto and the 50 holders of Bonds of Second Series issued and to be issued under, and secured by, the Indenture, any legal or equitable right, remedy or claim under or in respect of this Second Supplemental Indenture, or under any covenant, condition or provision herein contained, all the covenants, conditions and provisions of this Second Supplemental Indenture being intended to be, and being, for the sole and exclusive benefit of the parties hereto and of the holders of Bonds of Second Series issued and to be issued under the Indenture and secured thereby. Section 9.04. Successors and Assigns. All covenants, stipulations and agreements in this Second Supplemental Indenture contained by or on behalf of the Company shall bind and (subject to the provisions of the Second Mortgage) inure to the benefit of its successors and assigns, whether so expressed or not. Section 9.05. Headings. The headings of the several Articles of this Second Supplemental Indenture are inserted for convenience of reference and shall not be deemed to be any part hereof. Section 9.06. Counterparts. This Second Supplemental Indenture may be executed in any number of counterparts, and each of such counterparts when so executed shall be deemed to be an original; but all such counterparts shall together constitute but one and the same instrument. 51 IN WITNESS WHEREOF, said CENTRAL VERMONT PUBLIC SERVICE CORPORATION has caused this instrument to be signed, and its corporate seal attested by its Secretary to be hereunto affixed, by __________, its _________ and Agent in that behalf duly authorized, and said THE BANK OF NEW YORK, to evidence its acceptance of the trust hereby created, has caused its corporate name to be hereunto affixed, and this instrument to be executed in its corporate name and its corporate seal to be hereto affixed by _____________________, ___________________, all as of the day and year first above written. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By ________________________ Name: Title: Attest: By ________________________ Name: Title: Signed, sealed and delivered on (Corporate Seal) behalf of Central Vermont Public Service Corporation in the presence of: _________________________ Name: Title: _________________________ Name: Title: 52 THE BANK OF NEW YORK as Trustee as aforesaid, By ________________________ Name: Title: (Corporate Seal) Signed, sealed and delivered on behalf of The Bank of New York in the presence of: _________________________ Name: Title: _________________________ Name: Title: 53 STATE OF VERMONT ) ) ss. COUNTY OF RUTLAND ) On this ___ day of _______, A.D. 1999, before me, a Notary Public in and for said State of Vermont, duly commissioned and acting as such, personally came __________________________________________, ______ and Agent of said Central Vermont Public Service Corporation, to me personally known and known to me to be one of the persons named in and who executed the foregoing instrument, and who being duly sworn by me did depose and say: that he resides in ____________, Vermont; that he is ____________________ and Agent duly authorized of Central Vermont Public Service Corporation, a Vermont corporation and the Corporation described in and which executed the above instrument as party of the first part; that he knows the seal of said Corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order and authority of the Board of Directors of said Corporation, and that he signed his name thereto by like order and authority, and he acknowledged and declared that he executed the foregoing instrument and affixed the seal of said Central Vermont Public Service Corporation thereto as its Agent by order and authority of the Board of Directors of said Corporation, and acknowledged the same to be his free act and deed in said capacity, and the free act and deed of said Corporation in said capacity. WITNESS my hand and official seal the day and year aforesaid. _______________________ Name: Notary Public My commission expires __________ (Notarial Seal) 54 STATE OF NEW YORK ) ) ss. COUNTY OF NEW YORK ) On this ___ day of ________, A.D. 1999, before me, a Notary Public in and for said State of New York, duly commissioned and acting as such, personally came _____________, __________________ of said The Bank of New York, to me personally known and known to me to be one of the persons named in and who executed the foregoing instrument, and who being duly sworn by me did depose and say: that she resides at _______________________________________; that he/she is __________________ and agent duly authorized of The Bank of New York, the Corporation described in and which executed the above instrument as party of the second part; that he/she knows the seal of said Corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order and authority of the Board of Directors of said Corporation, and that he/she signed his/her name thereto by like order and authority, and he/she acknowledged and declared that he/she executed the foregoing instrument and affixed the seal of said Corporation thereto as its Agent by order and authority of the Board of Directors of said Corporation, and acknowledged the same to be his/her free act and deed in said capacity, and the free act and deed of said Corporation in said capacity. And said _____________________, ___________________ of said The Bank of New York, further acknowledged that she accepted the trust herein before created for, and on behalf of, said The Bank of New York, Trustee, upon the terms therein named. WITNESS my hand and official seal the day and year aforesaid. ______________________ Name: Notary Public My commission expires ___________ (Notarial Seal) 55 EXHIBIT 1 Form of Bond Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. THIS BOND OF SECOND SERIES IS A GLOBAL BOND AS REFERRED TO IN THE INDENTURE HEREINAFTER REFERENCED AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. CENTRAL VERMONT PUBLIC SERVICE CORPORATION 8 1/8% Second Mortgage Bonds due 2004 (Series B) No. [R-001] $[_________] CUSIP 155771 AQ 1 CENTRAL VERMONT PUBLIC SERVICE CORPORATION promises to pay to Cede & Co. or registered assigns, the principal sum of $[________] ([__________________________] DOLLARS) on August 1, 2004. E-1 Interest Payment Dates: February 1 and August 1 Record Dates: January 15 and July 15 Reference is hereby made to the further provisions of this Bond of Second Series set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been manually executed by or on behalf of the Trustee under the Indenture, this Bond of Second Series shall not be entitled to any benefits under the Indenture, or be valid or obligatory for any purpose. E-2 IN WITNESS WHEREOF, CENTRAL VERMONT PUBLIC SERVICE CORPORATION has caused this Bond of Second Series to be duly executed. Dated: _______, _____ CENTRAL VERMONT PUBLIC SERVICE CORPORATION By:_____________________________________ Robert H. Young President and Chief Executive Officer (SEAL) E-3 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Bonds of Second Series referred to in the within-mentioned Second Mortgage. Dated: _______, ____ THE BANK OF NEW YORK, as Trustee By: __________________________________ Name: Authorized Signatory E-4 REVERSE OF BOND 8 1/8% Second Mortgage Bonds due 2004 (Series B) (the "Bonds of Second Series") Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Central Vermont Public Service Corporation, a Vermont corporation (the "Company"), promises to pay interest on the principal amount of this Bond of Second Series at a rate of 8 1/8% per annum, until maturity, payable semi-annually in arrears on February 1 and August 1 each year, commencing on February 1, 2000. The Company shall make each interest payment to the Holders of record on the immediately preceding January 15 and July 15. Interest on the Bonds of Second Series will accrue from July 30, 1999, or, if interest has already been paid on the Bonds of First Series to be exchanged pursuant to the Exchange Offer for the corresponding Bonds of Second Series, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The terms of redemption shall be pursuant to Section 2.02 of the Second Supplemental Indenture, as defined below. 2. METHOD OF PAYMENT. So long as there is no existing default in the payment on the Bonds of Second Series, the Company will pay to the Person in whose name any Bonds of Second Series is registered at the close of business on any record date (as defined in Section 2.01 of the Second Supplemental Indenture) with respect to any interest payment date the interest payable on such interest payment date, notwithstanding any transfer or exchange of such Bonds of Second Series subsequent to the record date and on or prior to such interest payment date, except as and to the extent the Company shall default in the payment of the interest due on such interest payment date, in which case the Company will pay defaulted interest to the Person in whose name such Bonds of Second Series is registered on the date of the payment of such defaulted interest. The term "default in the payment of interest" means the failure to pay interest due on the applicable interest payment date disregarding any period of grace permitted by Section 12.01 of the Indenture. The principal of and interest and premium, if any, on the Bonds of Second Series shall be payable in lawful money of the United States of America; the place where such principal shall be payable shall be at the principal office of the Trustee in the Borough of Manhattan, City and State of New York (or at the principal office of any successor in trust); the place where interest and premium, if any, shall be payable shall be the office or agency of the Company in the Borough of Manhattan, City and State of New York, or by check mailed to the registered holders of the Bonds of Second Series, except as set forth below; provided that all payments by the Company of principal of, or interest and premium, if any, on (a) the Bonds E-5 of Second Series represented by the Global Bond shall be paid by wire transfer of immediately available funds to the account specified by the Global Bond Holder and (b) the Bonds of Second Series represented by certificated bonds shall be paid (i) by wire transfer of immediately available funds to the respective accounts specified in writing to the Paying Agent prior to the applicable record date by any Holders of not less than $1,000,000 in principal amount of the Bonds of Second Series and (ii) by check to the registered address of each Holder of $1,000,000 or less in principal amount of the Bonds of Second Series, or if no such account is specified. 3. PAYING AGENT, REGISTRAR AND EXCHANGE AGENT. Initially, The Bank of New York, the Trustee under the Second Mortgage, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Bank of New York will also act as Exchange Agent pursuant to the Exchange Offer. 4. SECOND MORTGAGE INDENTURE AND SECOND SUPPLEMENTAL INDENTURE. The Company issued the Bonds of Second Series under a Second Mortgage Indenture dated as of July 15, 1999 (the "Indenture") and a Second Supplemental Indenture thereto, dated as of ________, 1999 (the "Second Supplemental Indenture"), each between the Company and the Trustee. The Indenture and the Second Supplemental Indenture, as they may be further amended or supplemented from time to time, are collectively referred to herein as the "Second Mortgage." The terms of the Bonds of Second Series include those stated in the Second Mortgage and those made part of the Second Mortgage by reference to the Trust Indenture Act of 1939, as amended (the "TIA"). The Bonds of Second Series are subject to all such terms, and Holders are referred to the Second Mortgage and the TIA for a statement of such terms. To the extent any provision of this Bond of Second Series conflicts with the express provisions of the Second Mortgage, the provisions of the Second Mortgage shall govern and be controlling. The Bonds of Second Series are secured obligations of the Company limited to an aggregate principal amount of $75,000,000, minus the outstanding aggregate principal amount of the Bonds of First Series that have not been accepted for exchange pursuant to the Exchange Offer. 5. OPTIONAL REDEMPTION. The Company shall have the option to redeem the Bonds of Second Series in whole or in part (if in part, on a pro rata basis), at any time and from time to time, upon not less than 30 nor more than 60 days' notice to Holders of such Bonds of Second Series, in cash at a redemption price equal to 100% of the principal amount of the Bonds of Second Series to be redeemed plus accrued and unpaid interest thereon through the applicable redemption date, plus the applicable Make Whole Premium. No bonds of $1,000 in principal amount or less shall be redeemed in part. "Make Whole Premium," with respect to any Bond of Second Series shall mean, with respect to any prepayment of such Bond of Second Series in circumstances requiring the E-6 payment of a Make Whole Premium, an amount equal to the excess of (A) the aggregate present value as of the date of such prepayment of the expected future cash flows of such Bond of Second Series (for the avoidance of doubt, such amounts shall include all principal and interest payable with respect to such Bond of Second Series) (exclusive of interest accrued to the date of prepayment) that, but for such prepayment, would have been payable if such prepayment had not been made, all determined by discounting such amounts at a rate which is equal to the Treasury Rate three days prior to prepayment plus 50 basis points over (B) the aggregate principal amount of the Bond of Second Series then to be prepaid. For purposes of this definition the below listed terms shall be defined as follows: "Treasury Rate" means, at any time with respect to the Bonds of Second Series being prepaid, (a) the yield reported on page C4 of the Bloomberg Financial Markets Service (or, if not available, any other nationally recognized trading screen reporting on-line intraday trading in United States government securities) at 11:00 a.m. (New York, New York time) for those actively traded United States government securities having a maturity (rounded to the nearest month) corresponding to the remaining Weighted Average Life to Maturity of the Bonds of Second Series being prepaid or (b) in the event that no nationally recognized trading screen reporting on-line intraday trading in United States government securities is available, Treasury Rate shall mean the weekly average of the yield to maturity on the United States Treasury obligations with a constant maturity (as compiled by and published in the most recently published issue of the United States Federal Reserve Statistical Release designated H.15(519) or its successor publication) most nearly equal to (by rounding to the nearest month) the Weighted Average Life to Maturity of the Bonds of Second Series then being prepaid. If no maturity exactly corresponding to such Weighted Average Life to maturity of such Bonds of Second Series shall appear therein, the weekly average yield for the two most closely corresponding published maturities shall be calculated pursuant to the foregoing sentence and the Treasury Rate shall be interpolated or extrapolated, as the case may be, from such yields on a straight-line basis (rounding, in the case of relevant periods, to the nearest month). "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (A) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (B) the then outstanding principal amount of such Indebtedness. 6. MANDATORY REDEMPTION. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Bonds of Second Series. E-7 7. REPURCHASE AT OPTION OF HOLDER. (a) If a Change of Control occurs, each Holder of Bonds of Second Series will have the right, at such Holder's option, to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of that Holder's Bonds of Second Series pursuant to a Change of Control Offer on the terms set forth in the Second Mortgage. In the Change of Control Offer, the Company will offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of Bonds of Second Series repurchased plus accrued and unpaid interest thereon, to the date of purchase. Within thirty days following any Change of Control, the Company shall mail a notice to each Holder offering to repurchase Bonds of Second Series on the Change of Control Payment Date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the Second Mortgage and described in such notice. (b) Pursuant to Section 3.09 of the Second Supplemental Indenture, when the aggregate amount of Excess Proceeds exceeds $7,500,000, the Company or the applicable Regulated Subsidiary will be required to make an offer to all Holders of Bonds of Second Series (an "Asset Sale Offer") and all holders of additional Second Mortgage Bonds then Outstanding to purchase the maximum principal amount of Bonds of Second Series and such additional Second Mortgage Bonds that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest to the date of purchase, in accordance with the procedures set forth in the Second Mortgage. To the extent that the aggregate amount of Bonds of Second Series and such additional Second Mortgage Bonds tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company or its Regulated Subsidiaries may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Bonds of Second Series and such additional Second Mortgage Bonds surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Bonds of Second Series and additional Second Mortgage bonds to be purchased on a pro rata basis. Upon completion of such Asset Sale Offer, the amount or Excess Proceeds shall be reset at zero. Notwithstanding the foregoing, neither the Company nor any Regulated Subsidiary shall be obligated to make an Asset Sale Offer if such offer would violated an order, rule or regulation of a governmental authority with jurisdiction over the Company of any such Regulated Subsidiary; provided that the Company and such Regulated Subsidiary shall used their reasonable best efforts to vacate or modify such orders to permit such Asset Sale Offer. 8. NOTICE OF REDEMPTION. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Bonds of Second Series to be redeemed at its registered address. Notices of redemption may not be conditional. If any Bond of Second Series is to be redeemed in part only, the notice of redemption that relates to that Bond of Second Series shall state the portion of the principal amount thereof to be redeemed. A new Bond of Second Series in principal amount equal to the unredeemed portion of the original Bond of Second Series will be issued in the name of the Holder thereof upon cancellation of the original Bond of Second Series. Bonds of Second Series E-8 called for redemption become due on the date fixed for redemption. On and after the redemption date, interest will cease to accrue on Bonds or portions of them called for redemption. No Bonds of Second Series of $1,000 in principal amount or less shall be redeemed in part. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Bonds of Second Series are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of the Bonds of Second Series may be registered and Bonds of Second Series may be exchanged as provided in the Second Mortgage. The Company is not required to transfer or exchange any Bonds of Second Series selected for redemption. Also, the Company is not required to transfer or exchange any Bonds of Second Series for a period of 15 days before a selection of Bonds of Second Series to be redeemed. 10. PERSONS DEEMED OWNERS. The registered Holder of a Bond of Second Series may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Second Supplemental Indenture or the Bonds of Second Series may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Bonds of Second Series then Outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer for, Bonds of Second Series), and any existing default or compliance with any provision of the Second Supplemental Indenture or the Bonds of Second Series may be waived with the consent of the Holders of a majority in principal amount of the then Outstanding Bonds of Second Series (including, without limitation, consents obtained in connection with a purchase of, or tender offer for, Bonds of Second Series). Notwithstanding the preceding, without the consent of any Holder of Bonds of Second Series, the Company and the Trustee may amend or supplement the Second Supplemental Indenture or the Bonds of Second Series (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Bonds of Second Series in addition to or in place of certificated Bonds of Second Series; (c) to provide for the assumption of the Company's obligations to Holders of the Bonds of Second Series in case of a merger or consolidation or sale of all or substantially all of the Company's assets; (d) to make any change that would provide any additional rights or benefits to the Holders of the Bonds of Second Series or that does not adversely affect the legal rights under the Second Mortgage of any such Holder; or (e) to comply with the requirements of the Securities and Exchange Commission in order to effect or maintain the qualification of the Second Mortgage under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. The occurrence of any of the following events shall be an "Event of Default" with respect to the Bonds of Second Series: (a) default for 30 days in the payment when due of interest on the Bonds of Second Series; (b) default in payment when due of the principal of, or premium, if any, on the Bonds of Second Series; (c) at any time such E-9 covenants are applicable, failure by the Company or any of its Regulated Subsidiaries to comply with the provisions of Sections 3.10 or 6.01 under the Second Supplemental Indenture at any times such Sections are applicable for 30 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Bonds of the Second Series the Outstanding voting as a single class; (d) failure by the Company or any of its Regulated Subsidiaries for 60 days after notice to comply with any of the other covenants or agreements in the Second Mortgage for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of Bonds of Second Series then Outstanding voting as a single class; (e) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Regulated Subsidiaries (or the payment of which is guaranteed by the Company or any of its Regulated Subsidiaries), whether such Indebtedness or guarantee now exists or is created after the date of the Second Mortgage (other than Indebtedness of a Regulated Subsidiary owed to and held by the Company), if that default: (A) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (B) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5,000,000 or more; (f) failure by the Company or any of it Regulated Subsidiaries to pay final non-appealable judgments aggregating in excess of $5,000,000, which judgments are not paid, discharged or stayed for a period of 60 days, provided, that this clause (f) shall not apply to any judgment in favor of the Company against a Regulated Subsidiary; (g) certain events of bankruptcy or insolvency with respect to the Company or its Regulated Subsidiaries and (h) certain other events of default described in the Indenture. In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Regulated Subsidiary that is a Significant Subsidiary, or any group of Regulated Subsidiaries that, taken together, would constitute a Significant Subsidiary, all Outstanding Bonds of Second Series will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing the Trustee or the Holders of at least 25% in principal amount of the then Outstanding Bonds of Second Series may declare all the Bonds of Second Series to be due and payable immediately. Notwithstanding the foregoing, solely for purposes of determining whether an Event of Default has occurred under clause (e), (f) or (g) above, the term "Regulated Subsidiary" shall not include Connecticut Valley at any time that the Investment by the Company in Connecticut Valley (including amount invested prior to the Initial Issuance Date) does not exceed $12,000,000. Holders of the Bonds of Second Series may not enforce the Second Mortgage or the Bonds of Second Series except as provided in the Second Mortgage. Subject to certain limitations, holders of a majority in principal amount of the then Outstanding Second Mortgage Bonds may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Bonds of Second Series notice of certain continuing Defaults or Events of E-10 Default (except a Defaults or Events of Default relating to the payment of principal, interest, payments of any sinking or analogous fund) if it determines that withholding notice is in their interest. The Holders of a majority of aggregate principal amount of the Second Mortgage Bonds then Outstanding by notice to the Trustee may on behalf of the Holders of all of the Second Mortgage Bonds waive any existing Default or Event of Default and its consequences under the Second Mortgage except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Second Mortgage Bonds. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of any premium that the Company would have been required to pay if the Company then had elected to redeem the Bonds of Second Series pursuant to the optional redemption provisions of the Second Supplemental Indenture, an equivalent premium shall become and be immediately due and payable to the extent permitted by law upon the acceleration of the Bonds of Second Series. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Second Mortgage. At any time certain Suspended Sections are in effect, upon becoming aware of any Default or Event of Default, the Company is required to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. If the Trustee becomes a creditor of the Company, the Second Mortgage limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Securities and Exchange Commission for permission to continue, or resign. 14. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Bonds of Second Series, the Second Mortgage or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of a Bonds of Second Series by accepting such Bond of Second Series waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Bonds of Second Series. 15. AUTHENTICATION. This Bond of Second Series shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. E-11 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Bonds of Second Series and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Bonds of Second Series or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. This Bond of Second Series shall be deemed to be governed by and construed in accordance with the laws of the State of New York. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Second Supplemental Indenture. Requests may be made to: Central Vermont Public Service Corporation 77 Grove Street Rutland, Vermont 05701 Attention: Chief Financial Officer E-12 ASSIGNMENT FORM To assign this Bond of Second Series, fill in the form below: (I) or (we) assign and transfer this Bond of Second Series to: ______________________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ______________________________________________ to transfer this Bond of Second Series on the books of the Company. The agent may substitute another to act for him. Date:_______________________ Your Signature: _________________________________________ (Sign exactly as your name appears on the face of this Bond) Signature Guarantee:__________________________________ E-13 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Bond of Second Series purchased by the Company pursuant to Section 2.03, 3.09 or 3.10 of the Second Supplemental Indenture, check the appropriate box below: |_| Section 2.03 |_| Section 3.09 |_| Section 3.10 If you want to elect to have only part of the Bond of Second Series purchased by the Company pursuant to Section 2.03, Section 3.09 or Section 3.10 of the Second Supplemental Indenture, state the amount you elect to have purchased: $__________________ Date:_________________ Your Signature: _________________________________________ (Sign exactly as your name appears on the face of this Bond) Tax Identification No.:____________________________ Signature Guarantee:__________________________________ E-14 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL BOND The following exchanges of a part of this Global Bond for an interest in another Global Bond or for a Definitive Bond, or exchanges of a part of another Global Bond or Definitive Bond for an interest in this Global Bond, have been made:
Principal Amount of Amount of Amount of decrease in increase in this Global Bond Signature of Date of Principal Amount of Principal Amount of following such decrease Authorized Signatory Exchange this Global Bond this Global Bond (or increase) of Trustee - -------- ---------------- ---------------- ------------- ----------
E-15 EX-4.4 4 REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.4 - -------------------------------------------------------------------------------- A/B EXCHANGE REGISTRATION RIGHTS AGREEMENT Dated as of July 30, 1999 by and among Central Vermont Public Service Corporation and Donaldson, Lufkin & Jenrette Securities Corporation TD Securities (USA) Inc. - -------------------------------------------------------------------------------- This Registration Rights Agreement (this "Agreement") is made and entered into as of July 30, 1999, by and among Central Vermont Public Service Corporation, a Vermont corporation (the "Company"), and Donaldson, Lufkin & Jenrette Securities Corporation and TD (USA) Securities Inc. (each an "Initial Purchaser" and, collectively, the "Initial Purchasers"), each of whom has agreed to purchase the Company's 8 1/8% Transfer Restricted Second Mortgage Bonds due 2004 (the "Initial Bonds") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated July 21, 1999 (the "Purchase Agreement"), by and among the Company and the Initial Purchasers. In order to induce the Initial Purchasers to purchase the Initial Bonds, the Company has agreed to provide the registration rights set forth in this Agreement. Each of the execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers set forth in Section 3 of the Purchase Agreement. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them the Second Mortgage Indenture, dated as of July 15, 1999, as supplemented by the First Supplemental Indenture thereto, dated as of July 15, 1999), between the Company and The Bank of New York, as Trustee, relating to the Initial Bonds and the Exchange Bonds (the "Second Mortgage Indenture", as supplemented by the First Supplemental Indenture, the "Second Mortgage"). The parties hereby agree as follows: SECTION 1 DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Act: The Securities Act of 1933, as amended. Affiliate: As defined in Rule 144 of the Act. Broker-Dealer: Any broker or dealer registered under the Exchange Act. Certificated Securities: Definitive Bonds, as defined in the Second Mortgage. Closing Date: The date hereof. Commission: The Securities and Exchange Commission. Consummate: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (a) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Exchange Bonds to be issued in the Exchange Offer, (b) the maintenance of such Exchange Offer Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the period required pursuant to Section 3(b) hereof and (c) the delivery by the Company to the Registrar under the Second Mortgage of Exchange Bonds in the same aggregate principal amount as the aggregate principal amount of Initial Bonds tendered by Holders thereof pursuant to the Exchange Offer. Consummation Deadline: As defined in Section 3(b) hereof. Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended. Exchange Bonds: The Company's 8 1/8% Second Mortgage Bonds due 2004 to be issued pursuant to the Second Mortgage: (i) in the Exchange Offer or (ii) as contemplated by Section 4 hereof. Exchange Offer: The exchange and issuance by the Company of a principal amount of Exchange Bonds (which shall be registered pursuant to the Exchange Offer Registration Statement) equal to the outstanding principal amount of Initial Bonds that are tendered by such Holders in connection with such exchange and issuance. Exchange Offer Registration Statement: The Registration Statement relating to the Exchange Offer, including the related Prospectus. Exempt Resales: The transactions in which the Initial Purchasers propose to sell the Initial Bonds to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act. Filing Deadline: As defined in Sections 3(a) and 4(a) hereof. Holders: As defined in Section 2 hereof. Prospectus: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Recommencement Date: As defined in Section 6(d) hereof. Registration Default: As defined in Section 5 hereof. Registration Statement: Any registration statement of the Company relating to (a) an offering of Exchange Bonds pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, in each case, (i) that is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. Rule 144: Rule 144 promulgated under the Act. Shelf Registration Statement: As defined in Section 4 hereof. Suspension Notice: As defined in Section 6(d) hereof. TIA: The Trust Second Mortgage Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Second Mortgage. 2 Transfer Restricted Securities: Each (A) Initial Bond, until the earliest to occur of (i) the date on which such Initial Bond is exchanged in the Exchange Offer for an Exchange Bond which is entitled to be resold to the public by the Holder thereof without complying with the prospectus delivery requirements of the Act, (ii) the date on which such Initial Bond has been disposed of in accordance with a Shelf Registration Statement, or (iii) the date on which such Initial Bond is sold pursuant to Rule 144 under the Act or may be sold without restrictions pursuant to Rule 144(k) under the Act and each (B) Exchange Bond held by a Broker Dealer until the date on which such Exchange Bonds is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including the delivery of the Prospectus contained therein). SECTION 2 HOLDERS A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. SECTION 3 REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permitted by applicable federal law or applicable interpretations of the Commission staff (after the procedures set forth in Section 6(a)(i) below have been complied with), the Company shall (i) cause the Exchange Offer Registration Statement to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 90 days after the Closing Date (such 90th day being the "Filing Deadline"), (ii) use its reasonable best efforts to cause such Exchange Offer Registration Statement to become effective at the earliest possible time, but in no event later than 210 days after the Closing Date (such 210th day being the "Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause it to become effective, (B) file, if applicable, a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings, if any, in connection with the registration and qualification of the Exchange Bonds to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting (i) registration of the Exchange Bonds to be offered in exchange for the Initial Bonds that are Transfer Restricted Securities and (ii) resales of Exchange Bonds by Broker-Dealers that tendered into the Exchange Offer Initial Bonds that such Broker-Dealer acquired for its own account as a result of market making activities or other trading activities (other than Initial Bonds acquired directly from the Company or any of its Affiliates) as contemplated by Section 3(c) below. (b) The Company shall use its reasonable best efforts to cause the Exchange Offer Registration Statement to be effective continuously, and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 Business Days. The Company shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the Exchange Bonds shall be included in the Exchange Offer Registration Statement. The Company shall use its reasonable best 3 efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 45 business days thereafter (such 45th day being the "Consummation Deadline"). (c) The Company shall include a "Plan of Distribution" section in the Prospectus contained in the Exchange Offer Registration Statement and indicate therein that any Broker-Dealer who holds Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly from the Company or any Affiliate of the Company), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of Distribution" section shall also contain all other information with respect to such sales by such Broker-Dealers that the Commission may require in order to permit such sales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer, except to the extent required by the Commission as a result of a change in policy, rules or regulations after the date of this Agreement. See the Shearman & Sterling no-action letter (available July 2, 1993). Because such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with its initial sale of any Exchange Bonds received by such Broker-Dealer in the Exchange Offer, the Company shall permit the use of the Prospectus contained in the Exchange Offer Registration Statement by such Broker-Dealer to satisfy such prospectus delivery requirement. To the extent necessary to ensure that the prospectus contained in the Exchange Offer Registration Statement is available for sales of Exchange Bonds by Broker-Dealers, the Company agrees to use its reasonable best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented, amended and current as required by and subject to the provisions of Section 6(a) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of 180 days from the Consummation Deadline or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold pursuant thereto. The Company shall provide sufficient copies of the latest version of such Prospectus to such Broker-Dealers, promptly upon request, and in no event later than one Business Day after such request, at any time during such period. SECTION 4 SHELF REGISTRATION (a) Shelf Registration. If (i) the Exchange Offer is not permitted by applicable law or Commission policy (after the Company has complied with the procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer Restricted Securities shall notify the Company within 20 Business Days following the Consummation Deadline that (A) such Holder was prohibited by law or Commission policy from participating in the Exchange Offer or (B) such Holder may not resell the Exchange Bonds acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (C) such Holder is a Broker-Dealer and holds Initial Bonds acquired directly from the Company or any of its Affiliates, then the Company shall: 4 (x) use its reasonable best efforts to file, on or prior to 45 days after the earlier of (i) the date on which the Company determines that the Exchange Offer Registration Statement cannot be filed as a result of clause (a)(i) above and (ii) the date on which the Company receives the notice specified in clause (a)(ii) above, (such earlier date, the "Filing Deadline"), a shelf registration statement pursuant to Rule 415 under the Act (which may be an amendment to the Exchange Offer Registration Statement (the "Shelf Registration Statement")), relating to all Transfer Restricted Securities, and (y) shall use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective on or prior to 90 days after the Filing Deadline for the Shelf Registration Statement (such 90th day, the "Effectiveness Deadline"). If, after the Company has filed an Exchange Offer Registration Statement that satisfies the requirements of Section 3(a) above, the Company is required to file and make effective a Shelf Registration Statement solely because the Exchange Offer is not permitted under applicable federal law (i.e., clause (a)(i) above), then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above; provided that, in such event, the Company shall remain obligated to meet the Effectiveness Deadline set forth in clause (y). To the extent necessary to ensure that the Shelf Registration Statement is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 4(a), the Company shall use its reasonable best efforts to keep any Shelf Registration Statement required by this Section 4(a) continuously effective, supplemented and amended as required by and subject to the provisions of Sections 6(b) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least two years (as extended pursuant to Section 6(c)(i)) following the Closing Date, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Shelf Registration Statement have been sold pursuant thereto. (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 days after receipt of a request therefor, the information specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act and such other information as the Company may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to liquidated damages pursuant to Section 5 hereof unless and until such Holder shall have provided all such information. Each selling Holder agrees to promptly furnish additional information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. SECTION 5 LIQUIDATED DAMAGES If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the applicable Effectiveness 5 Deadline, (iii) the Exchange Offer has not been Consummated on or prior to the Consummation Deadline or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded within 2 Business Days by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective within 5 Business Days of filing such post-effective amendment to such Registration Statement (each such event referred to in clauses (i) through (iv), a "Registration Default"), then the Company hereby agrees to pay liquidated damages to each Holder of Transfer Restricted Securities affected thereby, with respect to the first 90-day period immediately following the occurrence of the first Registration Default, at a rate per annum equal to 0.25% of the principal amount of the Transfer Restricted Securities. The rate of the liquidated damages will increase by an additional 0.25% per annum with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum rate for all Registration Defaults of 0.75% per annum of the principal amount of Transfer Restricted Securities; provided that the Company shall in no event be required to pay liquidated damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable in the case of (iv) above, the liquidated damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. All accrued liquidated damages shall be paid to the Holders entitled thereto, in the manner provided for the payment of interest in the Second Mortgage, on each Interest Payment Date, as more fully set forth in the Second Mortgage and the Bonds. Notwithstanding the fact that any securities for which liquidated damages are due cease to be Transfer Restricted Securities, all obligations of the Company to pay liquidated damages with respect to such securities shall survive until such time as such obligations with respect to such securities shall have been satisfied in full. Notwithstanding the foregoing, if the Company has complied with its obligations under Section 6 of this Agreement, no Holder of Initial Bonds shall be entitled to receive any liquidated damages with respect to such Initial Bonds if a Holder of such Initial Bonds was, at any time while the Exchange Offer was pending, eligible to exchange, and did not validly tender, such Initial Bonds for Exchange Bonds in the Exchange Offer. SECTION 6 REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Company shall (x) comply with all applicable provisions of Section 6(c) below, (y) use its reasonable best efforts to effect such exchange and to permit the resale of Exchange Bonds by Broker-Dealers that tendered in the Exchange Offer Initial Bonds that such Broker-Dealer acquired for its own account as a result of its market making activities or other trading activities (other than Initial Bonds acquired directly from the Company or any of its Affiliates) being sold in accordance 6 with the intended method or methods of distribution thereof, and (z) comply with all of the following provisions: (i) If, following the date hereof there has been announced a change in Commission policy with respect to exchange offers such as the Exchange Offer, that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Company hereby agrees to seek a no-action letter or other favorable decision from the Commission allowing the Company to Consummate an Exchange Offer for such Transfer Restricted Securities. The Company hereby agrees to use its reasonable best efforts to pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Company hereby agrees to take all such other reasonable actions as may be requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (A) participating in telephonic conferences with the Commission, (B) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursuing a resolution (which need not be favorable) by the Commission staff. (ii) As a condition to its participation in the Exchange Offer, each Holder of Transfer Restricted Securities (including, without limitation, any Holder who is a Broker-Dealer) shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an Affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Bonds to be issued in the Exchange Offer and (C) it is acquiring the Exchange Bonds in its ordinary course of business. As a condition to its participation in the Exchange Offer each Holder using the Exchange Offer to participate in a distribution of the Exchange Bonds shall acknowledge and agree that, if the resales are of Exchange Bonds obtained by such Holder in exchange for Exchange Bonds acquired directly from the Company or an Affiliate thereof, it (1) could not, under Commission policy as in effect on the date of this Agreement, rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (including, if applicable, any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company shall provide a supplemental letter to the Commission (A) stating that the Company is registering the Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as interpreted in the Commission's letter to 7 Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action letter obtained pursuant to clause (i) above, (B) including a representation that the Company has not entered into any arrangement or understanding with any Person to distribute the Exchange Bonds to be received in the Exchange Offer and that, to the best of the Company's information and belief, each Holder participating in the Exchange Offer is acquiring the Exchange Bonds in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Exchange Bonds received in the Exchange Offer and (C) any other undertaking or representation required by the Commission as set forth in any no-action letter obtained pursuant to clause (i) above, if applicable. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company shall (i) comply with all the provisions of Section 6(c) below and use its reasonable best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company will prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof. (c) General Provisions. In connection with any Registration Statement and any related Prospectus required by this Agreement, the Company shall: (i) use its reasonable best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein not misleading or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company shall file promptly an appropriate amendment to such Registration Statement curing such defect, and, if Commission review is required, use its best efforts to cause such amendment to be declared effective as soon as practicable; (ii) prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as the case may be; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in 8 accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise each Holder promptly and, if requested by such Holder, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its reasonable best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) subject to Section 6(c)(i), if any fact or event contemplated by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, but without limiting the Company's obligations under Section 5 hereof, the Company may postpone taking action with respect to a supplement or amendment with respect to a Shelf Registration Statement or Prospectus contained therein for a reasonable period of time, but in no event shall such period exceed 30 days, after the occurrence of any fact or event contemplated by Section 6(c)(iii)(D) if, in the good faith opinion of the Board of Directors of the Company, as evidenced by a resolution of the Board of Directors, effecting the registration would adversely affect a material impending financing, acquisition or disposition of assets or stock, merger or other comparable transaction or would require the Company to make public disclosure of information which would not otherwise then be required and which would have a material adverse effect upon the Company or its shareholders; provided that the Company shall not delay such action pursuant to the foregoing more than one in any 12-month period. 9 (v) furnish to each selling Holder named in any Registration Statement or Prospectus in connection with such exchange or sale, if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such selling Holders in connection with such sale, if any, for a period of at least five Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which such selling Holders shall reasonably object within five Business Days after the receipt thereof. A selling Holder shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading or fails to comply with the applicable requirements of the Act; provided, however, that a selling Holder shall not be deemed to have reasonably objected to such filing if the material misstatement or omission or failure to comply with applicable requirements of the Act results from the fact that such material misstatement or omission is based upon information relating to any of the selling Holders furnished to the Company by any of the selling Holders. (vi) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to each selling Holder in connection with such exchange or sale, if any, make the Company's representatives available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as such selling Holders may reasonably request; (vii) make available, at reasonable times, for inspection by each selling Holder and any attorney or accountant retained by such selling Holders, all financial and other records and pertinent corporate documents of the Company and cause the Company's officers, directors and employees to supply all information reasonably requested by any such selling Holder, attorney or accountant in connection with such Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; provided that such Persons shall first agree in writing with the Company that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such Persons, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of such Registration Statement or the use of any Prospectus), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard such information by such Person or (iv) such information becomes available to such Persons from a source other than the Company and its subsidiaries and such source is not known, after due inquiry, by such Person to be bound by a confidentiality agreement, provided, further, that the foregoing investigation shall be coordinated on behalf of such Persons by one representative designated by and on 10 behalf of such Persons and any such confidential information shall be available from such representative to such Persons so long as any Person agrees to be bound by such confidentiality agreement; (viii) if requested by any selling Holders in connection with such exchange or sale, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (ix) furnish to each selling Holder in connection with such exchange or sale, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference) provided that the provisos under Section 6(c)(vii) shall not apply to such documents to the extent that the Company has requested confidential treatment from the Commission with respect to any of such documents; (x) deliver to each selling Holder without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Company hereby consents to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each selling Holder in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (xi) enter into such agreements (including underwriting agreements) and make such representations and warranties and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any applicable Registration Statement contemplated by this Agreement as may be reasonably requested by any Holder of Initial Bonds in connection with any sale or resale pursuant to any applicable Registration Statement. In such connection, the Company shall: (A) upon request of any selling Holder, furnish (or in the case of paragraphs (2) and (3), use its reasonable best efforts to cause to be furnished) to each selling Holder, upon the effectiveness of the Shelf Registration Statement, as the case may be: (1) a certificate, dated such date, signed on behalf of the Company by (x) the President or any Vice President and (y) a principal financial or accounting officer of the Company, confirming, as of the date thereof, the matters set forth in Sections 9(a) and 9(b) of the Purchase Agreement and such other similar matters as such selling Holders may reasonably request; 11 (2) an opinion, dated the date of effectiveness of the Shelf Registration Statement of counsel for the Company covering matters similar to those set forth in paragraph (e) of Section 9 of the Purchase Agreement and such other matters as such selling Holder may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company and has considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing (relying as to materiality to the extent such counsel deems appropriate upon the statements of officers and other representatives of the Company and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the shelf Registration Statement, at the time such Registration Statement or any post-effective amendment thereto became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Registration Statement as of its date contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial and statistical data included in the Shelf Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter as of the date of effectiveness of the Shelf Registration Statement, from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 9(h) of the Purchase Agreement; and (B) deliver such other documents and certificates as may be reasonably requested by the selling Holders to evidence compliance with the matters covered in clause (A) above and with any customary conditions contained in any agreement entered into by the Company pursuant to this clause (xi); 12 (xii) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the state securities or Blue Sky laws of such jurisdictions as the selling Holders may reasonably request in writing and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that the Company shall be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits, other than as to matters and transactions relating to the Registration Statement or to taxation, in any jurisdiction where it is not now so subject; (xiii) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Securities in such denominations and such names as the selling Holders may request at least 2 Business Days prior to such sale of Transfer Restricted Securities; (xiv) use its reasonable best efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xii) above; (xv) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Trustee under the Second Mortgage with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depository Trust Company; (xvi) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders with regard to any applicable Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in paragraph (c) of Rule 158 under the Act); (xvii) cause the Second Mortgage to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement and, in connection therewith, cooperate with the Trustee and the Holders to effect such changes to the Second Mortgage as may be required for such Second Mortgage to be so qualified in accordance with the terms of the TIA; and execute and use its reasonable best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Second Mortgage to be so qualified in a timely manner; and 13 (xviii) provide promptly to each Holder, upon request, each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (d) Restrictions on Holders. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of the notice referred to in Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a "Suspension Notice"), such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (in each case, the "Recommencement Date"). Each Holder receiving a Suspension Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Company with more recently dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Suspension Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Suspension Notice to the date of delivery of the Recommencement Date. SECTION 7 REGISTRATION EXPENSES (a) All expenses incident to the Company's performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) all reasonable fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates, if applicable, for the Exchange Bonds to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all reasonable fees and disbursements of counsel for the Company and the Holders of Transfer Restricted Securities (subject to paragraph (b) of this Section 7); (v) all application and filing fees in connection with listing the Exchange Bonds on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). Notwithstanding the foregoing or anything in this Agreement to the contrary, each Holder of Initial Bonds being registered shall pay all commissions, placement agent fees and underwriting discounts and commissions with respect to any Initial Bonds sold by it. The Company will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. 14 (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities who are tendering Initial Bonds in the Exchange Offer and/or selling or reselling Initial Bonds or Exchange Bonds pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8 INDEMNIFICATION (a) The Company agrees to indemnify and hold harmless each Holder, its directors, officers and each Person, if any, who controls such Holder (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from and against any and all losses, claims, damages, liabilities, judgments (including without limitation, any reasonable legal or other expenses incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company to any Holder or any prospective purchaser of Exchange Bonds or registered Initial Bonds, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Company by any of the Holders; and provided, further, that with respect to any such untrue statement in or omission from, or alleged untrue statement of a material fact contained in or alleged omission from any such Registration Statement or preliminary prospectus (or amendment or supplement thereto), the indemnity agreement contained in this Section 8(a) shall not inure to the benefit of any such Holder to the extent that any such loss, claim, damage, liability or judgment results from the fact that both (A) a copy of the Prospectus was not sent or given to such person or prior to the written confirmation of the sale of Bonds to such person and (B) the untrue statement in or omission or alleged untrue statement or alleged omission from the Registration Statement or preliminary prospectus was corrected in the Prospectus (unless, in either case, such failure to deliver the Prospectus was a result of non-compliance by the Company with Section 6(c)(x) hereof). (b) Each Holder of Transfer Restricted agrees, severally and not jointly, to indemnify and hold harmless the Company, and its directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company, to the same extent as the foregoing indemnity from the Company set forth in section (a) above, but only with reference to information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any Registration Statement. In no event shall any Holder, its directors, officers or any Person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any 15 damages that such Holder, its directors, officers or any Person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying person") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all reasonable fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required to assume the defense of such action pursuant to this Section 8(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Holder). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by a majority of the Holders, in the case of the parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with the indemnifying party's written consent or (ii) effected without the indemnifying party's written consent if the settlement is entered into more than thirty Business Days after the indemnifying party shall have received a written request from the indemnified party for reimbursement for the reasonable fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. 16 (d) To the extent that the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company, on the one hand, and of the Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by the Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and judgments referred to above shall be deemed to include, subject to the limitations set forth in Section 8(a), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8, no Holder, its directors, its officers or any Person, if any, who controls such Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(c) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each Holder hereunder and not joint. SECTION 9 RULE 144A AND RULE 144 The Company agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 17 13 or 15 (d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. SECTION 10 MISCELLANEOUS (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Sections 3 and 4 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Sections 3 and 4 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Company has not previously entered into any agreement granting any registration rights with respect to its securities to any Person. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) in the case of Section 5 hereof and this Section 10(c)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities and (ii) in the case of all other provisions hereof, the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding Transfer Restricted Securities held by the Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose Transfer Restricted Securities are being tendered pursuant to the Exchange Offer, and that does not affect directly or indirectly the rights of other Holders whose Transfer Restricted Securities are not being tendered pursuant to such Exchange Offer, may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities subject to such Exchange Offer. (d) Third Party Beneficiary. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: 18 (i) if to a Holder, at the address set forth on the records of the Registrar under the Second Mortgage, with a copy to the Registrar under the Second Mortgage; and (ii) if to the Company: Central Vermont Public Service Corporation 77 Grove Street Rutland Vermont 05701 Telecopier No.: 802-747-1913 Attention: Chief Financial Officer With a copy to: Milbank, Tweed, Hadley & McCloy LLP 1 Chase Manhattan Plaza New York, NY 10005-1413 Telecopier No.:212-530-5219 Attention: Robert B. Williams All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Second Mortgage. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders; provided, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Purchase Agreement or the Second Mortgage. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 19 (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 20 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. CENTRAL VERMONT PUBLIC SERVICE CORPORATION By: /s/ Kent R. Brown --------------------------------- Name: Kent R. Brown Title: Senior Vice President DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ John Rice ------------------------------ Name: John Rice Title: Senior Vice President TD SECURITIES (USA) INC. By: /s/ Thomas W. Regan, Jr. ------------------------------ Name: Thomas W. Regan, Jr. Title: Managing Director 21 EX-5 5 LEGALITY OPINION OF MILBANK, TWEED, HADLEY & MCCLOY LLP EXHIBIT 5 [Letterhead of Milbank, Tweed, Hadley & McCloy LLP] September 30, 1999 Central Vermont Public Service Corporation 77 Grove Street Rutland, Vermont 05701 Re: Central Vermont Public Service Corporation Proposed Exchange Offer Ladies and Gentlemen: We are acting as counsel to Central Vermont Public Service Corporation, a Vermont corporation (the "Company"), in connection with the Company's proposed offer to exchange its Series B 8 1/8% Second Mortgage Bonds due 2004 (the "New Bonds") for its outstanding Series A 8 1/8% Second Mortgage Bonds due 2004 which were issued under the Second Mortgage Indenture (the "Indenture") dated as of July 15, 1999, between the Company and The Bank of New York, as Trustee, as supplemented by the First Supplemental Indenture thereto. The New Bonds will be issued pursuant to the Indenture, as supplemented by a Second Supplemental Indenture between the Company and The Bank of New York, as Trustee. In connection with the proposed exchange offer, the Company proposes to file a registration statement on Form S-4 (the "Registration Statement") with the Securities and Exchange Commission for the purpose of registering the New Bonds under the Securities Act of 1933, as amended. We have examined originals, or copies certified to our satisfaction, of such corporate records of the Company, certificates of public officials, certificates of officers and representatives of the Company and other documents as we have deemed necessary as a basis for the opinions hereinafter expressed. In our examination we have assumed the genuineness of all signatures and the authenticity of all documents submitted to us a originals and the conformity with the originals of all documents submitted to us as copies. As to various questions of fact material to such opinions we have, when relevant facts were not independently established, relied upon certifications by officers of the Company and other appropriate persons and statements contained in the Registration Statement. Based on the foregoing and having regard to legal considerations which we deem relevant, and subject to the proposed additional proceedings being taken as now contemplated by us as your counsel and as contemplated by the Indenture and the Second Supplemental Indenture prior to the issuance of the New Bonds in exchange for the Old Bonds, we are of the opinion that the New Bonds will, upon the issuance of the New Bonds in exchange for the Old Bonds in the manner described in the Registration Statement, assuming due authorization, execution and delivery under Vermont law, constitute the valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as (x) may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or transfer or similar laws of general applicability affecting the enforcement of creditors' rights generally, and (y) the enforceability thereof may be limited by the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing. We do not express any opinion as to matters governed by any laws other than the laws of the State of New York and the Federal laws of the United States of America. We consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to our name in the Registration Statement under "Legal Matters." Very truly yours, /s/Milbank, Tweed, Hadley & McCloy LLP RBW/ABP 2 EX-12 6 STATEMENT RE: COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES EXHIBIT 12 CENTRAL VERMONT PUBLIC SERVICE CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
6 months 6 months 1994 1995 1996 1997 1998 06/30/98 06/30/99 ------ ------ ------ ------ ------ -------- -------- Net Income 14,800 19,851 19,442 16,340 3,983 4,812 13,146 Plus (Minus): Income Taxes 11,409 10,907 10,219 9,163 146 1,951 8,057 Write-offs and Reversals 4,189 424 0 6,700 6,261 (6,700) (3,900) ------ ------ ------ ------ ------ ------ ------ Net Income before taxes and extraordinary items 30,398 31,182 29,661 32,203 10,390 63 17,303 Fixed Charges: Interest 10,267 10,342 10,088 9,737 10,699 5,273 5,127 Lease Interest 2,259 2,282 2,065 1,905 1,813 915 842 ------ ------ ------ ------ ------ ------ ------ Total Fixed Charges 12,526 12,624 12,153 11,642 12,512 6,188 5,969 Income before taxes, extraordinary items and fixed charges 42,924 43,806 41,814 43,845 22,902 6,251 23,272 Ratio of earnings to fixed charges 3.43 3.47 3.44 3.77 1.83 1.01 3.90
EX-23.1 7 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our reports dated February 25, 1999 (except with respect to the matter discussed in Note 18, as to which the date is March 26, 1999) included in Central Vermont Public Service Corporation's Form 10-K for the year ended December 31, 1998 and to all references to our Firm included in this registration statement. /s/ Arthur Andersen LLP Boston, Massachusetts September 29, 1999 EX-25 8 FORM T-1 STATEMENT OF ELIGIBILTY & QUALIFICATION EXHIBIT 25 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ------------- THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ------------- CENTRAL VERMONT PUBLIC SERVICE CORPORATION (Exact name of obligor as specified in its charter) Vermont 03-0111290 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 77 Grove Street Rutland, Vermont 05701 (Address of principal executive offices) (Zip code) ------------- 8-1/8% Second Mortgage Bonds due 2004 (Title of the indenture securities) ================================================================================ 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -2- EXHIBIT 25 SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 29th day of September, 1999. THE BANK OF NEW YORK By: /s/ MARY LAGUMIA ---------------------------------- Name: MARY LAGUMIA Title: ASSISTANT VICE PRESIDENT - -------------------------------------------------------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 1999, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts ASSETS In Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin .......................................... $5,597,807 Interest-bearing balances ................................... 4,075,775 Securities: Held-to-maturity securities ................................. 785,167 Available-for-sale securities ............................... 4,159,891 Federal funds sold and Securities purchased under agreements to resell ...................................................... 2,476,963 Loans and lease financing receivables: Loans and leases, net of unearned income ..................................................... 38,028,772 LESS: Allowance for loan and lease losses ............................................... 568,617 LESS: Allocated transfer risk reserve .................................................... 16,352 Loans and leases, net of unearned income, allowance, and reserve ............................. 37,443,803 Trading Assets ................................................ 1,563,671 Premises and fixed assets (including capitalized leases) ......................................... 683,587 Other real estate owned ....................................... 10,995 Investments in unconsolidated subsidiaries and associated companies ................................................... 184,661 Customers' liability to this bank on acceptances outstanding ..................................... 812,015 Intangible assets ............................................. 1,135,572 Other assets .................................................. 5,607,019 ----------- Total assets .................................................. $64,536,926 =========== LIABILITIES Deposits: In domestic offices ......................................... $26,488,980 Noninterest-bearing ......................................... 10,626,811 Interest-bearing ............................................ 15,862,169 In foreign offices, Edge and Agreement subsidiaries, and IBFs ........................... 20,655,414 Noninterest-bearing ......................................... 156,471 Interest-bearing ............................................ 20,498,943 Federal funds purchased and Securities sold under agreements to repurchase ............................................... 3,729,439 Demand notes issued to the U.S.Treasury ................................................ 257,860 Trading liabilities ........................................... 1,987,450 Other borrowed money: With remaining maturity of one year or less ............................................... 496,235 With remaining maturity of more than one year through three years .......................... 465 With remaining maturity of more than three years ........................................... 31,080 Bank's liability on acceptances executed and outstanding .................................... 822,455 -4- EXHIBIT 25 Subordinated notes and debentures ............................. 1,308,000 Other liabilities ............................................. 2,846,649 ----------- Total liabilities ............................................. 58,624,027 =========== EQUITY CAPITAL Common stock .................................................. 1,135,284 Surplus ....................................................... 815,314 Undivided profits and capital reserves .................................................... 4,001,767 Net unrealized holding gains (losses) on available-for-sale securities .................................................. (7,956) Cumulative foreign currency translation adjustments ..................................... (31,510) ----------- Total equity capital .......................................... 5,912,899 ----------- Total liabilities and equity capital .......................... $64,536,926 =========== I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Reyni Alan R. Griffith Directors Gerald L. Hassell - -------------------------------------------------------------------------------- EX-99.1 9 FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1 LETTER OF TRANSMITTAL CENTRAL VERMONT PUBLIC SERVICE CORPORATION OFFER TO EXCHANGE ITS 8 1/8% SECOND MORTGAGE BONDS DUE 2004 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS OUTSTANDING 8 1/8% SECOND MORTGAGE BONDS DUE 2004 PURSUANT TO THE PROSPECTUS DATED ________ ___, 1999 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ________ ___, 1999, UNLESS THE OFFER IS EXTENDED THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: THE BANK OF NEW YORK BY MAIL: OVERNIGHT DELIVERY/HAND: The Bank of New York The Bank of New York 101 Barclay Street 7E Corporate Trust Service Window; Ground Level New York, NY 10286 101 Barclay Street Attn: Reorg. Dept. New York, NY 10286 Enrique Lopez Attn: Reorg. Dept. 7E Enrique Lopez TO CONFIRM BY TELEPHONE OR FOR INFORMATION: (212) 815-2742 FACSIMILE TRANSMISSIONS: (212) 815-6339/4699 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. Capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus (as defined below). This Letter of Transmittal is to be completed by holders of the Old Bonds (as defined below) if either Old Bonds are to be forwarded herewith or if tenders of Old Bonds are to be made by book-entry transfer to an account maintained by The Bank of New York (the "Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the procedures set forth in "The Exchange Offer-Procedures for Tendering the Old Bonds" in the Prospectus. -1- Holders of Old Bonds whose certificates (the "Certificates") for such Old Bonds are not immediately available or who cannot deliver their Certificates and all other required documents to the Exchange Agent on or prior to the expiration date (as defined in the Prospectus) or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Old Bonds according to the guaranteed delivery procedures set forth in "The Exchange Offer-Procedures for Tendering the Old Bonds" in the Prospectus. DELIVERY OF DOCUMENTS TO THE COMPANY OR DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. ALL TENDERING HOLDERS COMPLETE THIS BOX:
======================================================================================== DESCRIPTION OF OLD BONDS TENDERED - ---------------------------------------------------------------------------------------- Please Print Name and Address of Registered Holder Principal Amount of Old Bonds Principal Old Bonds Tendered Tendered (Please Fill in Certificate (Attach additional (if Amount of Old Bonds Less if Blank) Number(s)* List if Necessary) Than All)** - ----------------- ----------- ------------------ ----------------------------- - ---------------------------------------------------------------------------------------- TOTAL AMOUNT TENDERED: - ---------------------------------------------------------------------------------------- * Need not be completed by book-entry holders. ** Old Bonds may be tendered in whole or in part in denominations of $1,000 and integral multiples thereof. ========================================================================================
BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY: |_| CHECK HERE IF TENDERED OLD BONDS ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution_____________________________________________ DTC Account Number________________________________________________________ Transaction Code Number___________________________________________________ |_| CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED OLD BONDS ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name of Registered Holder(s)______________________________________________ Window Ticket Number (if any)_____________________________________________ Date of Execution of Notice of Guaranteed Delivery________________________ Name of Institution Which Guaranteed Delivery_____________________________ If Guaranteed Delivery is to be made By Book-Entry Transfer: Name of Tendering Institution_____________________________________________ DTC Account Number________________________________________________________ Transaction Code Number___________________________________________________ |_| CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD BONDS ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE. |_| CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD BONDS FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name______________________________________________________________________ Address___________________________________________________________________ -2- EXHIBIT 99.1 Ladies and Gentlemen: The undersigned hereby tenders to Central Vermont Public Service Corporation (the "Company"), the above described aggregate principal amount of the Company's 8 1/8% Second Mortgage Bonds Due 2004 (the "Old Bonds") in exchange for a like aggregate principal amount of the Company's 8 1/8% Second Mortgage Bonds Due 2004 (the "New Bonds") which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), upon the terms and subject to the conditions set forth in the Company's prospectus dated ________ ___, 1999 (as the same may be amended or supplemented from time to time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of Transmittal (which, together with the Prospectus, constitute the "Exchange Offer"): Subject to and effective upon the acceptance for exchange of all or any portion of the Old Bonds tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to or upon the order of the Company all right, title and interest in and to such Old Bonds as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as agent of the Company in connection with the Exchange Offer) with respect to the tendered Old Bonds, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the Prospectus, to (i) deliver Certificates for Old Bonds to the Company together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Company, upon receipt by the Exchange Agent, as the undersigned's agent, of the New Bonds to be issued in exchange for such Old Bonds, (ii) present Certificates for such Old Bonds for transfer, and to transfer the Old Bonds on the books of the Company, and (iii) receive for the account of the Company all benefits and otherwise exercise all rights of beneficial ownership of such Old Bonds, all in accordance with the terms and conditions of the Exchange Offer. THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD BONDS TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD BONDS TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD BONDS TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER. -3- The names(s) and address(es) of the registered holder(s) of the Old Bonds tendered hereby should be printed above, if they are not already set forth above, as they appear on the Certificates representing such Old Bonds. The Certificate number(s) and the Old Bonds that the undersigned wishes to tender should be indicated in the appropriate boxes above. If any tendered Old Bonds are not exchanged pursuant to the Exchange Offer for any reason, or if Certificates are submitted for more Old Bonds than are tendered or accepted for exchange, Certificates for such nonexchanged or nontendered Old Bonds will be returned (or, in the case of Old Bonds tendered by book-entry transfer, such Old Bonds will be credited to an account maintained at DTC), without expense to the tendering holder, promptly following the expiration or termination of the Exchange Offer. The undersigned understands that tenders of Old Bonds pursuant to any one of the procedures described in "The Exchange Offer-Procedures for Tendering the Old Bonds" in the Prospectus and in the instructions hereto will, upon the Company's acceptance for exchange of such tendered Old Bonds, constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Old Bonds tendered hereby. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the New Bonds be issued in the name(s) of the undersigned or, in the case of a book-entry transfer of the Old Bonds, that such New Bonds be credited to the account indicated above maintained at DTC. If applicable, substitute Certificates representing the Old Bonds not exchanged or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of Old Bonds, will be credited to the account indicated above maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery Instructions," please deliver New Bonds to the undersigned at the address shown below the undersigned's signature. BY TENDERING OLD BONDS AND EXECUTING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT: (1) THE NEW BONDS ACQUIRED PURSUANT TO THE EXCHANGE OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON RECEIVING SUCH NEW BONDS, WHETHER OR NOT THAT PERSON IS THE UNDERSIGNED; (2) NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON HAS AN ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION OF SUCH NEW BONDS; (3) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, OR IS A BROKER-DEALER BUT WILL NOT RECEIVE NEW BONDS FOR ITS OWN ACCOUNT IN EXCHANGE FOR THE OLD BONDS, NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON IS ENGAGED IN OR INTENDS TO PARTICIPATE IN THE DISTRIBUTION OF SUCH NEW BONDS; AND (4) NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE" OF THE COMPANY, AS DEFINED UNDER RULE 405 OF THE SECURITIES ACT. -4- THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A BROKER-DEALER (A "PARTICIPATING BROKER-DEALER") IN CONNECTION WITH THE RESALE OF THE NEW BONDS RECEIVED IN EXCHANGE FOR THE OLD BONDS WHERE SUCH OLD BONDS WERE ACQUIRED FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES. EACH PARTICIPATING BROKER-DEALER THAT PARTICIPATES IN THE EXCHANGE OFFER THAT RECEIVES THE NEW BONDS FOR ITS OWN ACCOUNT PURSUANT TO THE EXCHANGE OFFER BY TENDERING SUCH OLD BONDS AND EXECUTING THIS LETTER OF TRANSMITTAL AGREES THAT IT WILL DELIVER A PROSPECTUS IN CONNECTION WITH ANY RESALE OF SUCH NEW BONDS. HOWEVER, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A PARTICIPATING BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT. THE COMPANY HAS AGREED THAT FOR A PERIOD OF THE SHORTER OF 180 DAYS AFTER THE EXCHANGE OFFER IS CONSUMMATED AND WHEN THE NEW BONDS ARE RESOLD, THE COMPANY WILL USE ITS BEST EFFORTS TO MAKE THE PROSPECTUS, AS AMENDED OR SUPPLEMENTED, AVAILABLE TO ANY PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH RESALE. IN THAT REGARD, EACH PARTICIPATING BROKER-DEALER, BY TENDERING SUCH OLD BONDS AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW BONDS PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW BONDS MAY BE RESUMED, AS THE CASE MAY BE. All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. Except as stated in the Prospectus, this tender is irrevocable. -5- ================================================================================ HOLDER(S) SIGN HERE (See Instructions 2, 5 and 6) (Please Complete Substitute Form W-9 on Page 14) (Bondholder's Signature(s) Must be Guaranteed if Required by Instruction 2) Must be signed by registered holder(s) exactly as name(s) appear(s) on Certificate(s) for the Old Bonds hereby tendered or on a security position listing, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith (including such opinions of counsel, certifications and other information as may be required by the Company or the trustee for the Old Bonds to comply with the restrictions on transfer applicable to the Old Bonds). If signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or another acting in a fiduciary representative capacity, please set forth the signer's full title. See Instruction 5. ________________________________________________________________________________ ________________________________________________________________________________ (SIGNATURE(S) OF HOLDER(S)) Date______________________________________________________________________, 1999 Name(s)_________________________________________________________________________ ________________________________________________________________________________ (PLEASE PRINT) Capacity (full title)___________________________________________________________ ADDRESS_________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone Number__________________________________________________ ________________________________________________________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 2 AND 5) ________________________________________________________________________________ (AUTHORIZED SIGNATURE) Date______________________________________________________________________, 1999 Name of Firm____________________________________________________________________ Capacity (full title)___________________________________________________________ (PLEASE PRINT) Address_________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (include zip code) Area Code and Telephone Number__________________________________________________ ================================================================================ -6- ================================================================================ SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 5 and 6) (See Instructions 1, 5 and 6) To be completed ONLY if the New Bonds To be completed ONLY if New Bonds are are to be issued in the name of to be sent to someone other than the someone other than the registered registered holder of the Old Bonds holder of the Old Bonds whose name(s) whose name(s) appear(s) above, or such appear(s) above. registered holder(s) at an address other than that shown above. Issue: Send: Old Bonds not tendered Old Bonds not tendered New Bonds, to: New Bonds, to: Name(s) ______________________________ Name(s)_______________________________ Address ______________________________ Address_______________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ (INCLUDE ZIP CODE) (INCLUDE ZIP CODE) Area Code and Telephone Number________ Area Code and Telephone Number________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ (TAX IDENTIFICATION OR SOCIAL (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)) SECURITY NUMBER(S)) ================================================================================ -7- INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed if either (a) Certificates are to be forwarded herewith or (b) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer-Procedures for Tendering Old Bonds" in the Prospectus. Certificates, or timely confirmation of a book-entry transfer of such Old Bonds into the Exchange Agent's account at DTC, as well as this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein on or prior to the expiration date. Old Bonds may be tendered in whole or in part in the principal amount of $1,000 and integral multiples of $1,000. Holders who wish to tender their Old Bonds and (i) whose Old Bonds are not immediately available or (ii) who cannot deliver their Old Bonds, this Letter of Transmittal and all other required documents to the Exchange Agent on or prior to the expiration date or (iii) who cannot complete the procedures for delivery by book-entry transfer on a timely basis, may tender their Old Bonds by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer-Procedures for Tendering the Old Bonds" in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Company, must be received by the Exchange Agent on or prior to the expiration date; and (iii) the Certificates (or a timely confirmation of a book-entry transfer) representing all tendered Old Bonds, in proper form for transfer, together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent within five New York Stock Exchange, Inc. trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in "The Exchange Offer-Guaranteed Delivery Procedures" in the Prospectus. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile or mail to the Exchange Agent, and must include a guarantee by an Eligible Institution in the form set forth in such Notice. For Old Bonds to be properly tendered pursuant to the guaranteed delivery procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the expiration date. As used herein and in the Prospectus, "Eligible Institution" means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution," including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association. THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. -8- The Company will not accept any alternative, conditional or contingent tenders. Each tendering holder, by execution of a Letter of Transmittal (or facsimile thereof), waives any right to receive any notice of the acceptance of such tender. 2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of Transmittal is required if: (i) this Letter of Transmittal is signed by the registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on a security position listing as the owner of the Old Bonds) of Old Bonds tendered herewith, unless such holder(s) has completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" above, or (ii) such Old Bonds are tendered for the account of a firm that is an Eligible Institution. In all other cases, an Eligible Institution must guarantee the signature(s) on this Letter of Transmittal. See Instruction 5. 3. INADEQUATE SPACE. If the space provided in the box captioned "Description of Old Bonds Tendered" is inadequate, the Certificate number(s) and/or the principal amount of Old Bonds and any other required information should be listed on a separate signed schedule which is attached to this Letter of Transmittal. 4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tender of the Old Bonds will be accepted only in the principal amount of $1,000 and integral multiples thereof. If less than all the Old Bonds evidenced by any Certificate submitted are to be tendered, fill in the principal amount of the Old Bonds which are to be tendered in the box entitled "Principal Amount of Old Bonds Tendered (If Principal Amount of Old Bonds Less Than All)." In such case, new Certificate(s) for the remainder of the Old Bonds that were evidenced by your old Certificate(s) will only be sent to the holder of the Old Bond, promptly after the expiration date. All Old Bonds represented by Certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Except as otherwise provided herein, tenders of the Old Bonds may be withdrawn at any time on or prior to the expiration date. In order for a withdrawal to be effective on or prior to that time, a written, telegraphic, telex or facsimile transmission of such notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth above or in the Prospectus on or prior to the expiration date. Any such notice of withdrawal must specify the name of the person who tendered the Old Bonds to be withdrawn, the aggregate principal amount of Old Bonds to be withdrawn, and (if Certificates for Old Bonds have been tendered) the name of the registered holder of the Old Bonds as set forth on the Certificate for the Old Bonds, if different from that of the person who tendered such Old Bonds. If Certificates for the Old Bonds have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such Certificates for the Old Bonds, the tendering holder must submit the serial numbers shown on the particular Certificates for the Old Bonds to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Old Bonds tendered for the account of an Eligible Institution. If Old Bonds have been tendered pursuant to the procedures for book-entry transfer set forth in "The Exchange Offer-Procedures for Tendering the Old Bonds," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Old Bonds, in which case a notice of withdrawal will be effective if delivered to the Exchange Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of Old Bonds may not be rescinded. Old Bonds properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but -9- may be retendered at any subsequent time on or prior to the expiration date by following any of the procedures described in the Prospectus under "The Exchange Offer-Procedures for Tendering the Old Bonds." All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company, in its sole discretion, whose determination shall be final and binding on all parties. Neither the Company, any affiliates or assigns of the Company, the Exchange Agent nor any other person shall be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Old Bonds which have been tendered but which are withdrawn will be returned to the holder thereof without cost to such holder promptly after withdrawal. 5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Old Bonds tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Certificate(s) without alteration, enlargement or any change whatsoever. If any of the Old Bonds tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Old Bonds are registered in different name(s) on several Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are different registrations of Certificates. If this Letter of Transmittal or any Certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and must submit proper evidence satisfactory to the Company, in its sole discretion, of such persons' authority to so act. When this Letter of Transmittal is signed by the registered owner(s) of the Old Bonds listed and transmitted hereby, no endorsement(s) of Certificate(s) or separate bond power(s) are required unless New Bonds are to be issued in the name of a person other than the registered holder(s). Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered owner(s) of the Old Bonds listed, the Certificates must be endorsed or accompanied by appropriate bond powers, signed exactly as the name or names of the registered owner(s) appear(s) on the Certificates, and also must be accompanied by such opinions of counsel, certifications and other information as the Company or the Trustee for the Old Bonds may require in accordance with the restrictions on transfer applicable to the Old Bonds. Signatures on such Certificates or bond powers must be guaranteed by an Eligible Institution. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Bonds are to be issued in the name of a person other than the signer of this Letter of Transmittal, or if New Bonds are to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Certificates of Old Bonds not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at DTC. See Instruction 4. 7. IRREGULARITIES. The Company will determine, in its sole discretion, all questions as to the form of documents, validity, eligibility (including time of receipt) and -10- acceptance for exchange of any tender of Old Bonds, which determination shall be final and binding on all parties. The Company reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance of which, or exchange for, may, in the view of counsel to the Company, be unlawful. The Company also reserves the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer set forth in the Prospectus under "The Exchange Offer-Certain Conditions to the Exchange Offer" or any conditions or irregularity in any tender of Old Bonds of any particular holder whether or not similar conditions or irregularities are waived in the case of other holders. The Company's interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) will be final and binding. No tender of Old Bonds will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. Neither the Company, any affiliates or assigns of the Company, the Exchange Agent, nor any other person shall be under any duty to give notification of any irregularities in tenders or incur any liability for failure to give such notification. 8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Exchange Agent at its address and telephone number set forth on the front of this Letter of Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from the Exchange Agent or from your broker, dealer, commercial bank, trust company or other nominee. 9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income tax law, a holder whose tendered Old Bonds are accepted for exchange is required to provide the Exchange Agent with such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not provided with the correct TIN, the Internal Revenue Service (the "IRS") may subject the holder or other payee to a $50 penalty. In addition, payments to such holders or other payees with respect to Old Bonds exchanged pursuant to the Exchange Offer may be subject to 31% backup withholding. The box in Part 2 of the Substitute Form W-9 may be checked in if the tendering holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 2 is checked, the holder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 2 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Exchange Agent will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Exchange Agent. The Exchange Agent will retain such amounts withheld during the 60 day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent with its TIN within 60 days after the date of the Substitute Form W-9, the amounts retained during the 60 day period will be remitted to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent with its TIN within such 60 day period, amounts withheld will be remitted to the IRS as backup withholding. In addition, 31% of all payments made thereafter will be withheld and remitted to the IRS until a correct TIN is provided. The holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered owner of the Old Bonds or of the last transferee appearing on the transfers attached to, or endorsed on, the Old Bonds. If the Old Bonds are registered in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. Certain holders (including, among others, corporations, financial institutions and certain foreign persons) may not be subject to these backup withholding and reporting requirements. Such holders should nevertheless complete the -11- attached Substitute Form W-9 below, and write "exempt" on the face thereof, to avoid possible erroneous backup withholding. A foreign person may qualify as an exempt recipient by submitting a properly completed IRS Form W-8, signed under penalties of perjury, attesting to that holder's exempt status. Please consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which holders are exempt from backup withholding. Backup withholding is not an additional U.S. Federal income tax. Rather, the U.S. Federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s) representing Old Bonds have been lost, destroyed or stolen, the holder should promptly notify the Exchange Agent. The holder will then be instructed as to the steps that must be taken in order to replace the Certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen Certificate(s) have been followed. 11. SECURITY TRANSFER TAXES. Holders who tender their Old Bonds for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, New Bonds are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Old Bonds tendered, or if a transfer tax is imposed for any reason other than the exchange of Old Bonds in connection with the Exchange Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. -12- TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS (SEE INSTRUCTION 9) PAYER'S NAME: CENTRAL VERMONT PUBLIC SERVICE CORPORATION
- ------------------------------------------------------------------------------------------ SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN ON THE TIN____________________ FORM W-9 LINE AT RIGHT AND CERTIFY BY SIGNING AND Social Security DATING BELOW Number or Employer Identification Number - ------------------------------------------------------------------------------------------ Department of the NAME (Please Print) Treasury Internal Part 2 Revenue Service _________________________________________ Awaiting Payor's Request for ADDRESS__________________________________ Taxpayer Identification _________________________________________ TIN |_| Number (TIN) and Certification CITY_____________________________________ STATE____________________ ZIP CODE_______ -------------------------------------------------------------------- Part 3 - CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), (2) I am not subject to backup withholding either because (i) I am exempt from backup withholding, (ii) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified me that I am not longer subject to backup withholding, and (3) any other information provided on this form is true and correct. SIGNATURE__________________________________ DATE___________________ You must cross out item (iii) in Part (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return and you have not been notified by the IRS that you are no longer subject to backup withholding. - ------------------------------------------------------------------------------------------ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY, IN CERTAIN CIRCUMSTANCES, RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTION FORM W-9 FOR ADDITIONAL DETAILS. ==========================================================================================
- -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments made to me on account of the New Notes shall be retained until I provide a taxpayer identification number to the Exchange Agent and that, if I do not provide my taxpayer identification number within 60 days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a taxpayer identification number. Signature___________________________________ Date___________________ , 1999 - -------------------------------------------------------------------------------- -13- GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number To Give the Payer--Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digs separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. - -------------------------------------------------------------------------------- Give the SOCIAL SECURITY For this type of account: number of-- - -------------------------------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals (joint The actual owner of the account or, if account) combined funds, the first individual on the account(1) 3. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 4. a. The usual revocable savings The grantor-trustee(1) trust account (grantor is also trustee) b. So-called trust account that is The actual owner(1) not a legal or valid trust under State law 5. Sole proprietorship The owner(3) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Give the EMPLOYER IDENTIFICATION For this type of account: number of-- - -------------------------------------------------------------------------------- 6. Sole Proprietorship The owner(3) 7. A valid trust, estate, or pension The legal entity(4) trust 8. Corporate account The corporation 9. Religious, charitable, or The organization educational organization account 10. Partnership The partnership 11. Association, club, or other The organization tax-exempt organization 12. A broker or registered nominee The broker or nominee 13. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - -------------------------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has an SSN, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) Show your individual name. You may also enter your business name. You may use either your Social Security Number or your Employer Identification Number. (4) List first and circle the name of the legal trust, estate or pension trust. (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. -14- GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Page 2 Obtaining a Number If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") and apply for a number. Payees Exempt from Backup Withholding Payees specifically exempted from backup withholding on ALL payments include the following: o A corporation. o A financial institution. o An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan. o The United States or any agency or instrumentality thereof. o A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. o A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. o An international organization or any agency, or instrumentality thereof. o A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. o A real estate investment trust. o A common trust fund operated by a bank under section 584(a) of the Code. o An entity registered at all times under the Investment Company Act of 1940. o A foreign central bank of issue. Payments of interest not generally subject to backup withholding include the following: o Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. o Payments of tax-exempt interest (including exempt-interest dividends under section 852 of the Code). o Payments described in section 6049(b)(5) of the Code to non-resident aliens. o Payments on tax-free covenant bonds under section 1451 of the Code. o Payments made by certain foreign organizations. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see Sections 6041, 6041A(a), 6045, 6050A and 6050N of the Code and the regulations promulgated thereunder. Privacy Act Notice.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to wilful neglect. (2) Civil Penalty for False Information with Respect to Withholding--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) Criminal Penalty for Falsifying Information.--Wilfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. -15- EX-99.2 10 FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF 8 1/8% SECOND MORTGAGE BONDS DUE 2004 OF CENTRAL VERMONT PUBLIC SERVICE CORPORATION This Notice of Guaranteed Delivery, or one substantially equivalent to this form, must be used to accept the Exchange Offer (as defined below) if (i) certificates for the Company's (as defined below) 8 1/8% Second Mortgage Bonds Due 2004 (the "Old Bonds") are not immediately available, (ii) the Old Bonds, the Letter of Transmittal and all other required documents cannot be delivered to The Bank of New York (the "Exchange Agent") on or prior to the expiration date (as defined in the Prospectus referred to and as defined below) or (iii) the procedures for delivery by book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight courier or mail, or transmitted by facsimile transmission, to the Exchange Agent. See "The Exchange Offer-Procedures for Tendering the Old Bonds" in the Prospectus. THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: THE BANK OF NEW YORK BY MAIL: OVERNIGHT DELIVERY/HAND: The Bank of New York The Bank of New York 101 Barclay Street 7E Corporate Trust Service Window; New York, NY 10286 Ground Level Attn: Reorg. Dept. 101 Barclay Street Enrique Lopez New York, NY 10286 Attn: Reorg. Dept. 7E Enrique Lopez TO CONFIRM BY TELEPHONE OR FOR INFORMATION: (212) 815-2742 FACSIMILE TRANSMISSIONS: (212) 815-6339/4699 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. 2 Ladies and Gentlemen: The undersigned hereby tenders to Central Vermont Public Service Corporation, a Vermont corporation (the "Company"), upon the terms and subject to the conditions set forth in the Company's prospectus dated __________ ____, 1999 (as the same may be amended or supplemented from time to time, the "Prospectus"), and the related letter of transmittal (the "Letter of Transmittal," which together constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the aggregate principal amount of the Old Bonds set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption, "The Exchange Offer-Procedures for Tendering the Old Bonds." Aggregate Principal Name(s) of Registered Holder(s): Amount Tendered: Certificate No(s). Address(es): (if available): Area Code and Telephone Number(s): If the Bonds will be tendered by book-entry transfer, provide the following information: Signature(s): ___________________________________________________________ DTC Account Number: __________________________________________________ Date: __________________________________________________________________ THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED 3 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm or other entity identified in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor institution," including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities broker, municipal securities dealer, government securities broker, government securities dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association recognized program (each of the foregoing being referred to as an "Eligible Institution"), hereby guarantees to deliver to the Exchange Agent, at one of its addresses set forth above, either the Old Bonds tendered hereby in proper form for transfer, or confirmation of the book entry transfer of such Old Bonds to the Exchange Agent's account at The Depositary Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set forth in the Prospectus, in either case together with one or more properly completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and any other required documents within five business days after the date of execution of this Notice of Guaranteed Delivery. The undersigned acknowledges that it must deliver the Letter(s) of Transmittal and the Old Bonds tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in a financial loss to the undersigned. Name of Firm:____________________________________________________________ _________________________________________________________________________ (AUTHORIZED SIGNATURE) (TITLE) Address:_________________________________________________________________ _________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone Number: _________________________________________ Date: ____________________________________ NOTE: DO NOT SEND THE OLD BONDS WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL SURRENDER OF THE OLD BONDS MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS. 4 -----END PRIVACY-ENHANCED MESSAGE-----