-----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, IYXbroGJjkIz0/aGV7MmWlQ1H6j+kJ9sERm5xSFsaeOiFJ6MbCy1Ici9q7OktAXA my/Hs+HPrJyyIXuugYRvGA== 0000891836-98-000457.txt : 19980702 0000891836-98-000457.hdr.sgml : 19980702 ACCESSION NUMBER: 0000891836-98-000457 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19980701 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NIAGARA MOHAWK POWER CORP /NY/ CENTRAL INDEX KEY: 0000071932 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 150265555 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-55923 FILM NUMBER: 98658838 BUSINESS ADDRESS: STREET 1: 300 ERIE BLVD W CITY: SYRACUSE STATE: NY ZIP: 13202 BUSINESS PHONE: 3154741511 MAIL ADDRESS: STREET 1: 300 ERIE BLVD W CITY: SYRACUSE STATE: NY ZIP: 13202 FORMER COMPANY: FORMER CONFORMED NAME: CENTRAL NEW YORK POWER CORP DATE OF NAME CHANGE: 19710419 S-3/A 1 FORM S-3, AMENDMENT NO. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998. REGISTRATION NO. 333-55923 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- AMENDMENT NO. 1 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------- NIAGARA MOHAWK POWER CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 15-0265555 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) ---------------------- 300 ERIE BOULEVARD WEST SYRACUSE, NEW YORK 13202 (315) 474-1511 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------------- WILLIAM F. EDWARDS NIAGARA MOHAWK POWER CORPORATION SENIOR VICE PRESIDENT & CHIEF FINANCIAL OFFICER 300 ERIE BOULEVARD WEST SYRACUSE, NEW YORK 13202 (315) 474-1511 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: JANET T. GELDZAHLER, ESQ. SULLIVAN & CROMWELL 125 BROAD STREET NEW YORK, NEW YORK 10004 (212) 558-4000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT AS DETERMINED BY MARKET CONDITIONS. ------------------ If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. |_| If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box. |X| If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please 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 registration statement number of the earlier effective registration statement for the same offering. |_|__________________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| 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 THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 20,546,264 SHARES NIAGARA MOHAWK POWER CORPORATION COMMON STOCK PAR VALUE $1.00 PER SHARE --------------------------- All of the 20,546,264 shares of common stock, par value $1.00 per share ("Common Stock"), of Niagara Mohawk Power Corporation, a New York corporation (the "Company"), being offered hereby are being sold by the shareholders of the Company (the "Selling Shareholders"). The Company will not receive any proceeds of the sale of shares of Common Stock by the Selling Shareholders. See "Selling Shareholders." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS PRIOR TO ANY INVESTMENT IN THE SHARES OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------------- No dealer, salesperson or other person has been authorized to give any information or to make any representation other than those contained in or incorporated by reference into this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company, the Underwriters or any other person. This Prospectus does not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any security other than the shares offered hereby, an offer to sell or a solicitation of an offer to buy the Shares by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained in this Prospectus is correct as of any time subsequent to the date hereof. TABLE OF CONTENTS Page Prospectus Summary......................................................... 3 The Company................................................................ 3 Risk Factors............................................................... 6 Dividend Policy............................................................ 10 The MRA and the PowerChoice Agreement...................................... 11 The Share Exchange......................................................... 15 Selling Shareholders....................................................... 16 Plan of Distribution....................................................... 18 Validity of the Shares..................................................... 20 Experts.................................................................... 20 Available Information...................................................... 20 Incorporation of Certain Documents by Reference............................ 21 Glossary of Certain Electricity, Natural Gas and Accounting Terms.......... 22 June 30, 1998 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the financial statements, including the notes thereto, appearing elsewhere (or incorporated by reference) in this Prospectus. Each prospective investor is encouraged to read this Prospectus and the documents incorporated by reference herein and therein in their entirety. See "Glossary of Certain Electricity, Natural Gas and Accounting Terms" appearing as Appendix A for definitions of certain terms used in this Prospectus. THE COMPANY Niagara Mohawk Power Corporation (the "Company") is engaged in the generation, purchase, transmission, distribution and sale of electricity and the purchase, distribution, sale and transportation of natural gas in New York State. The Company provides electric service to its customers in areas of central, northern and western New York having a total population of approximately 3.5 million, including the cities of Buffalo, Syracuse, Albany, Utica, Schenectady, Niagara Falls, Watertown and Troy. The Company sells, distributes and transports natural gas in areas of central, northern and eastern New York contained within the Company's electric service territory having a total population of approximately 1.7 million. The Company owns or has a significant ownership interest in seven principal fossil and nuclear electric generating facilities and a total capacity of approximately 5,299 megawatts ("MW") of electricity. In 1997, the Company entered into two related agreements that it believes will significantly improve its financial outlook, namely the PowerChoice Settlement Agreement dated October 10, 1997 (as modified by the PSC Order (as defined), the "PowerChoice Agreement") and the Master Restructuring Agreement dated July 9, 1997, as amended (the "MRA"). Pursuant to the PowerChoice Agreement, the Company and the New York State Public Service Commission (the "PSC"), which regulates utilities in the State of New York, have agreed to a five-year rate plan and the Company has agreed to divest its fossil and hydro generating facilities (the "Genco Divestiture"), representing 4,217 MW of capacity and approximately $1.1 billion of net book value. The PSC issued a written order approving the PowerChoice Agreement and the MRA on March 20, 1998 (the "PSC Order"). The Company currently intends to use the proceeds from any Genco Divestiture to reduce indebtedness. Pursuant to the MRA, the Company and 14 independent power producers ("IPPs", and such 14 IPPs, the "IPP Parties") agreed to terminate, restate or amend 27 power purchase agreements ("PPAs") between the Company and such IPPs in exchange for cash and approximately 42.9 million shares of the Company's Common Stock. The Selling Shareholders are IPP Parties. The MRA closed on June 30, 1998. The Company funded its cash obligations under the MRA through the sale of $3.45 billion principal amount of senior unsecured debt (the "Debt Offering"). In addition, the Company sold 22.4 million of the 42.9 million shares of Common Stock to the public (the "Equity Offering", and together with the Debt Offering, the "MRA Financing"), and delivered the proceeds thereof to the IPP Parties. The remaining 20.5 million shares received by the IPP Parties are being registered hereunder. See "The MRA and the PowerChoice Agreement." For the twelve months ended March 31, 1998, the Company derived approximately 84.5% of its revenues from the sale and transmission of electricity and 15.5% of its revenues from the sale, distribution and transportation of natural gas. During such period, the Company had revenues, EBITDA, interest charges and net income of approximately $3.9 billion, $859.7 million, $272.0 million, and $100.7 million, respectively. After giving pro forma effect to the consummation of the MRA and the MRA Financing, and the principal terms of the PowerChoice Agreement excluding the Genco Divestiture, the Company would 3 have had revenues, EBITDA, interest charges and net loss of approximately $3.8 billion, $1.3 billion, $516.1 million, and $(35.2) million, respectively. "EBITDA" represents earnings before interest charges, interest income, income taxes, depreciation and amortization, non-cash regulatory deferrals and other amortizations, and extraordinary items. EBITDA is presented to provide additional information about the Company's ability to meet its 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. See the Pro Forma Condensed Statements of Income and the Consolidated Statements of Cash Flows incorporated by reference in this Prospectus. See "The MRA and the PowerChoice Agreement" and the "Pro Forma Condensed Financial Statements" set forth herein. The Company's principal executive offices are located at 300 Erie Boulevard West, Syracuse, New York 13202, and its telephone number is (315) 474-1511. BACKGROUND OF THE MRA The Company entered into the PPAs that are subject to the MRA because it was required to do so under the Public Utility Regulatory Policies Act of 1978 ("PURPA"), which was intended to provide incentives for businesses to create alternative energy sources. Under PURPA, the Company was required to purchase electricity generated by qualifying facilities of IPPs at prices that were not expected to exceed the cost that otherwise would have been incurred by the Company in generating its own electricity, or in purchasing it from other sources (known as "avoided costs"). While PURPA was a federal initiative, each state retained certain delegated authority over how PURPA would be implemented within its borders. In its implementation of PURPA, the State of New York passed the "Six-Cent Law," establishing 6(cent) per kilowatt hour ("Kwh") as the floor on avoided costs for projects less than 80 MW in size. The Six-Cent Law remained in place until it was amended in 1992 to deny the benefit of the statute to any future PPAs. The avoided cost determinations under PURPA were periodically increased by the PSC during this period. PURPA and the Six-Cent Law, in combination with other factors, attracted large numbers of IPPs to New York State, and, in particular, to the Company's service territory, due to the area's existing energy infrastructure and availability of cogeneration hosts. The pricing terms of substantially all of the PPAs that the Company entered into in compliance with PURPA and the Six-Cent Law or other New York laws were based, at the option of the IPP, either on administratively determined avoided costs or minimum prices, both of which have consistently been materially higher than the wholesale market prices for electricity. Since PURPA and the Six-Cent Law were passed, the Company has been required to purchase electricity from IPPs in quantities in excess of its own demand and at prices in excess of those available to the Company by internal generation or for purchase in the wholesale market. In fact, by 1991 the Company was facing a potential obligation to purchase power from IPPs substantially in excess of its peak demand of 6,093 MW. As a result, the Company's competitive position and financial performance have deteriorated and the price of electricity paid per Kwh by its customers has risen significantly above the national average. Accordingly, in 1991 the Company initiated a parallel strategy of negotiating individual PPA buyouts, cancellations and renegotiations, and of pursuing regulatory and legislative support and litigation to mitigate the Company's obligation under the PPAs. By mid-1996, this strategy had resulted in reducing the Company's obligations to purchase power under its PPA portfolio to approximately 2,700 MW. Notwithstanding this reduction in capacity, over the same time period, the payments made to the IPPs in respect of their PPAs rose from approximately $200 million in 1990 to approximately $1.1 billion in 1997 as independent power facilities from which the Company was obligated to purchase electricity commenced operations. The Company estimates that absent the MRA, payments made to the IPPs pursuant to PPAs would continue to escalate by approximately $50 million per year until 2002. 4 Recognizing the competitive trends in the electric utility industry and the impracticability of remedying the situation through a series of customer rate increases, in mid-1996, the Company began comprehensive negotiations to terminate, amend or restate a substantial portion of above-market PPAs in an effort to mitigate the escalating cost of these PPAs as well as to prepare the Company for a more competitive environment. These negotiations led to the MRA and the PowerChoice Agreement. See "The MRA and the PowerChoice Agreement." BUSINESS STRATEGY In New York State, where the Company's principal assets are located, the PSC has established guidelines and goals for the development of a competitive electricity market through the Competitive Opportunities Proceeding. The PSC's stated goals include (i) lowering customer rates; (ii) increasing customer choice; (iii) maintaining reliability of service; (iv) continuing environmental and public policy programs; (v) mitigating concerns about market power; and (vi) continuing customer protections and the obligation to serve. In addition, the PSC has stated that electric utilities may recover stranded costs from customers through a non-bypassable "wires" charge, known as a Competitive Transition Charge ("CTC"), to be collected by electric distribution companies. Stranded costs are utility costs that cannot be fully recovered from customers in rates established in a competitive market. However, the PSC also cautioned that a careful balancing of customer and electric utility interests and expectations is necessary, and that the level of stranded cost recovery will ultimately depend on the particular circumstances of each electric utility. Six of the seven investor-owned electric utilities in New York State have had major restructuring proposals approved, including the Company's PowerChoice Agreement. Management believes that the MRA and the PowerChoice Agreement provide the Company with financial stability and create an improved platform from which to build value. The primary objective of the MRA is to convert a large and growing off-balance sheet payment obligation that threatens the financial viability of the Company into a fixed and manageable capital obligation. Accordingly, the Company believes that the lower contractual obligations resulting from the MRA will significantly improve cash flow which can be dedicated to reduce indebtedness incurred to fund the MRA. With the PowerChoice Agreement, the Company has established lower prices for its industrial, commercial and residential electric customers for a period of three years and reasonable certainty of prices for the two years thereafter. The MRA also facilitates the creation of a competitive electricity supply market in the Company's service territory. In the near term, the Company believes the greatest opportunity for improving the cash flow and financial condition of the Company will come from focusing on the regulated electric transmission, distribution, nuclear and gas operations. The Company will continue to emphasize operational excellence and seek to improve margins through cost reductions. In addition, the Company intends to pursue low risk unregulated business opportunities. Pursuant to the PowerChoice Agreement, the Company has a one-year window in which to form a holding company that, if formed, would enhance the Company's ability to explore unregulated business opportunities to foster longer-term strategic growth. The Company has obtained approval from its shareholders for the formation of a holding company. The implementation of a holding company will only occur following various regulatory approvals and is not expected to occur prior to the first quarter of 1999. See "The Share Exchanges." 5 RISK FACTORS This Prospectus contains or incorporates by reference statements that constitute forward looking information within the meaning of the Private Securities Litigation Reform Act of 1995. All statements regarding the Company's future financial condition, results of operations, cash flows, financing plans, business strategy, projected costs and capital expenditures, operations under the MRA and the PowerChoice Agreement and words such as "anticipate," "estimate," "expect," "project," "intend," and similar expressions are intended to identify forward-looking statements. Such statements appear in this Prospectus under the captions "Prospectus Summary," "Risk Factors," and "The MRA and the PowerChoice Agreement." Such statements are subject to certain risks, uncertainties and assumptions. All of these forward-looking statements are based on estimates and assumptions made by the Company's management which, although believed by the Company's management to be reasonable, are inherently uncertain. Investors are cautioned that such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors, including the factors described below. EFFECT OF MRA AND POWERCHOICE ON THE COMPANY'S REPORTED EARNINGS The Company's reported net income will be significantly depressed in the future as compared to historical results because of the effects of the MRA and the PowerChoice Agreement. Pursuant to the rate reductions under PowerChoice, the Company's electric revenues will be reduced by approximately $111.8 million to be phased in over three years. In addition, the compensation paid to the IPP Parties in the form of cash and Common Stock will be capitalized and carried on the Company's books as a regulatory asset in an amount of approximately $4.0 billion (the "MRA Regulatory Asset"). This asset will be amortized generally over ten years and will substantially reduce the Company's reported earnings. Finally, the estimated additional interest charges and amortization of debt issuance costs associated with the Debt Offering will increase the Company's future interest expense and correspondingly reduce earnings. The impact of reduced revenues under the PowerChoice Agreement, the MRA Regulatory Asset and the increased interest expense related to the Debt Offering will be partially offset by the benefit to the Company of the decreased cost of electricity purchased from the IPPs. On a pro forma basis, as a result of the above adjustments, the Company's net income (loss) will be reduced by $135.1 million and $136.1 million for the year ended December 31, 1997 and the twelve months ended March 31, 1998, respectively, to $48.2 million and $(35.4) million, respectively, for such periods. On a historical basis, the Company reported net income of $183.3 million and $100.7 million, respectively, for such periods. The foregoing may adversely affect the market for the Common Stock and the prices at which it may trade. SUBSTANTIAL LEVERAGE AND LIMITED FINANCIAL FLEXIBILITY As a result of the MRA and the Debt Offering, the Company has substantial leverage and significant debt service obligations. As of March 31, 1998, on a pro forma basis after giving effect to the consummation of the MRA and the Debt Offering, the Company would have had outstanding approximately $6.8 billion of senior indebtedness, consisting primarily of $2.8 billion of First Mortgage Bonds, which are secured by a lien on substantially all of the Company's utility property, $529.0 million of borrowings under the Company's senior bank facility, which are secured with First Mortgage Bonds, $20.0 million of unsecured medium term notes and $3.279 billion of senior unsecured notes (the "Notes"). The Company also has available additional borrowings of $275.0 million under its senior bank facility and, under the financial covenants set forth in the indenture governing the Notes, has the ability to incur an additional $1.5 billion of indebtedness. See "The MRA and the PowerChoice Agreement." 6 The degree to which the Company is leveraged could have important consequences to holders of the Common Stock, including: (i) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions or other corporate purposes will be limited in the future; (ii) a substantial portion of the Company's cash flow from operations will be dedicated to the payment of principal and interest on its indebtedness, thereby reducing the funds available to the Company for other purposes; and (iii) the Company's substantial leverage may place the Company at a competitive disadvantage, hinder its ability to adjust rapidly to changing market conditions and make it more vulnerable in the event of a downturn in general economic conditions or its business. EFFECT OF DECREASED SALES TO CUSTOMERS Under the PowerChoice Agreement, the Company has established rates intended to create sufficient cash flow to at least cover its operating expenses, satisfy its fixed obligations, and recover allowable stranded costs. The Company's rate design is based on estimates of future electricity usage and the number of customers connected to the Company's distribution system. The level of electric revenues can be adversely affected by lower than projected sales to retail customers and by customer bypass of the system. Economic conditions in the Company's service area could result in lower sales due to the relocation of customers. Because of the relatively high cost of the Company's electricity, customers could seek to bypass the Company's distribution system through self-generation or the replacement of the Company with a municipal or other utility. While the PowerChoice Agreement requires the payment of an exit fee or access charge in these circumstances (except with respect to customers who had made substantial investment in on-site generation as of October 10, 1997), the affected customers and competitors may challenge the Company's right to collect these fees, or the appropriate level of these fees. There can be no assurance that the Company would prevail in any such proceeding. If revenues are significantly lower than those anticipated in its rate design, the Company's profitability could be materially adversely affected. REGULATORY MATTERS Following implementation of the PowerChoice Agreement, the Company will remain subject to extensive regulation by the PSC. While the most material aspects of the Company's rate structure for the next five years are established in the PowerChoice Agreement, under certain circumstances, the PSC could initiate proceedings to reduce rates. Conversely, the PSC is likely to continue to assess competitive consequences in considering future rate increases even in the event that the Company experiences revenue shortfalls or increased expenses. In addition, many aspects of the Company's operations, including its electric transmission and distribution systems, the operation and maintenance of its nuclear facilities, its gas distribution operations and the issuance of securities, will continue to be subject to extensive regulation by both the federal government and the PSC. Changes in these regulations or in their application to the Company could adversely affect the Company's business and financial condition. Further, uncertainty exists regarding the ultimate impact on the Company as the electric industry is further deregulated and electricity suppliers gain open access to the Company's retail customers. New York laws governing the approval of the PowerChoice Agreement provide various parties the right to appeal such approval by giving notice of their intention to do so within four months of the date on which approval is received. Such an appeal may be based on the failure of the record to show a reasonable basis for the terms of the PowerChoice Agreement and may result in an amendment of the record to correct such failure, in renegotiation of such terms or in renegotiation of the PowerChoice Agreement as a whole. There can be no assurance that, if appealed, the approval of the PowerChoice Agreement will be upheld or that such appeal will not result in terms substantially less favorable to the Company than those described 7 herein. Certain parties have filed petitions for rehearing before the PSC. Of the six petitions filed, three have been denied. In addition, certain parties and filed an action seeking to enjoin the implementation of the PowerChoice Agreement, the MRA and the Company's contemplated Genco Divestiture on the grounds that the PSC failed to comply with the provisions of the New York State Environmental Quality Review Act. On April 20, 1998, the application for a temporary restraining order was denied, and on May 22, 1998, the injunction was denied and the petition was dismissed, which decision is appealable. The Company is unable to predict the outcome of any such proceeding. Suspension of the PowerChoice Agreement or renegotiation of its material terms could have a material adverse effect on the Company's results of operations. RESTRICTIONS ON THE ABILITY TO PAY DIVIDENDS The Company's Board of Directors omitted the Common Stock dividend beginning in 1996 in order to stabilize the Company's financial condition and to provide additional cash to service its fixed obligations. The Company expects to dedicate a substantial portion of its future cash flow to reduce the indebtedness incurred in connection with the MRA, which will reduce the amount of cash available to pay dividends on the Common Stock. In addition, the PowerChoice Agreement, as well as the indenture governing the Notes and the Company's senior bank facility, significantly limit the amount that the Company is permitted to pay in dividends on its Common Stock and Preferred Stock. In light of the foregoing, there can be no assurance that the Company will be in a position to pay dividends on the Common Stock in the near future and, if such dividends are paid, their amount may be limited based on the Board's evaluation of the Company's financial condition, business conditions and other factors at the time. FEDERAL INCOME TAX IMPLICATIONS OF MRA TO THE COMPANY The Company has requested rulings from the Internal Revenue Service to the effect that the amount of cash and Common Stock paid to the IPP Parties who are terminating their PPAs upon closing of the MRA will be currently deductible and generate a substantial net operating loss ("NOL"). No assurance can be given that favorable rulings will be issued. If favorable rulings are not received, and the Company's claimed current deductions are challenged on audit and not ultimately sustained, the amount of tax refunds generated from the NOL carryback, and thus the amount of cash available to provide operating capital and service the Company's obligations following consummation of the MRA, would be reduced. While any disallowed deductions would ultimately be allowable in future years, and would likely create, or increase the amount of NOLs available to offset tax liabilities in future years, cash flow would be adversely affected in the near term. The Company's ability to utilize the NOL generated as a result of the MRA could be substantially limited under the rules of section 382 of the Internal Revenue Code (the "Code") if certain changes in the Company's stock ownership were to occur following the consummation of the MRA. In general, the limitation is triggered by a more than 50% change in stock ownership during a 3-year testing period by shareholders who own, directly or indirectly, 5% or more of the Common Stock. For purposes of making the change in ownership computation, the IPP Parties who are issued Common Stock pursuant to the MRA and the purchasers in the Equity Offering will likely be considered separate 5% shareholder groups, with the result that a stock ownership change of up to 23% will be deemed to have occurred by reason of their collective acquisition of such stock. Thus, if the IPP Parties, the purchasers in the Equity Offering and any other 5% shareholders experience ownership increases totaling more than 27% during any 3-year testing period that includes the consummation date of the MRA, the 50% statutory threshold would be breached and the NOL limitation would apply. The rules for determining changes in stock ownership for purposes of section 382 are extremely complicated and in many respects uncertain. A stock ownership change could 8 occur as a result of circumstances that are not within the control of the Company. If a more than 50% change in ownership were to occur, the Company's remaining usable NOL on a going forward basis would likely be significantly lower than the NOL amount which otherwise would be usable absent the limitation. Consequently, the Company's net cash position could be significantly lower as a result of tax liabilities which would otherwise be eliminated or reduced through unrestricted use of the NOL. NUCLEAR FACILITY RISK Risks of substantial liability arise from the ownership and operation of nuclear facilities, including, among others, structural problems at a nuclear facility, the storage, handling and disposal of radioactive materials, limitations on the amounts and types of insurance coverages commercially available and uncertainties with respect to the technological and financial aspects of decommissioning nuclear facilities at the end of their useful lives. The Company's Nine Mile Point Nuclear Unit No. 1 ("Unit 1") nuclear facility is one of the oldest in operation, having commenced operations in 1969. In the event of an extended outage of either Unit 1 or Unit 2 at Nine Mile Point, the Company would be required to purchase power in the open market to replace the power normally produced by these facilities. Such purchases would subject the Company to the risk of increased energy prices and, depending on the length of the outage and the level of market prices, could have a material adverse effect on the Company's cash flow. Under the PowerChoice Agreement, the Company is not entitled to pass along these increased costs to customers in the form of higher electric rates. If either facility were to have problems with its physical condition or require significant capital expenditure, the Company would evaluate the economic justification of continuing to operate the facility. The prudence of the Company's decision to close a facility is subject to review by the PSC to determine whether the Company should be allowed to recover its incremental costs, including replacement power costs, which would likely be an amount significant to the Company. ENVIRONMENTAL REGULATIONS The Company and its operations are subject to a wide range of environmental laws and regulations relating to, among other matters, air emissions, wastewater discharges, landfill operations and hazardous waste management. Compliance with these laws and regulations is an increasingly important factor in the Company's business. The Company is currently conducting a program to investigate and restore, as necessary to meet current environmental standards, certain properties associated with its former gas manufacturing process and other properties which the Company has learned may be contaminated with industrial waste, as well as investigating identified industrial waste sites as to which it may be determined that the Company contributed. The Company has also been advised that various federal, state or local agencies believe certain properties require investigation and has prioritized the sites based on available information in order to enhance the management of investigation and remediation, if necessary. The Company is currently aware of 124 such sites with which it has been or may be associated, including 76 which are Company-owned. With respect to non-owned sites, the Company may be required to contribute some share of the remedial costs. The Company has denied any responsibility in certain of these sites and is contesting liability accordingly. Although in practice, remedial costs are often allocated among parties, one party can, as a matter of law, be held liable for all of the remedial costs at a site regardless of fault. The Company has accrued a liability in the amount of $220 million for remedial costs and the high end of the range of remedial costs is currently estimated by the Company to be approximately $650 million, including approximately $285 million in the unlikely event the Company is required to assume 100% responsibility at non-owned sites. The Company believes that it is probable that environmental compliance and remediation costs will continue to be recovered in its rates and the Company has recorded a regulatory asset for recovery of these costs. However, there can be no assurance that additional expenses associated with remedial costs or compliance with 9 proposed and future environmental laws and regulations could not have a material adverse effect on the future operations and financial condition of the Company. ACCOUNTING PRINCIPLES The Company continues to apply the accounting principles of SFAS No. 71 to its electric transmission and distribution, nuclear and gas operations, based on the terms of the PowerChoice Agreement. SFAS No. 71 permits a utility to defer certain costs for future recovery which would otherwise be charged to expense when authorized to do so by the relevant regulatory authorities. As of March 31, 1998, the Company had recorded $811.0 million of regulatory assets, net of regulatory liabilities, associated with the electric business. The deferral of the costs of the MRA by the PSC will cause the net regulatory assets to increase by approximately $4.0 billion. In the event that the Company determined, either as a result of lower than expected revenues or higher than expected costs, that its net regulatory assets were not in fact recoverable, it could no longer apply the principles of SFAS No. 71 and would be required to record a non-cash charge against income in the amount of the remaining unamortized net regulatory assets. DIVIDEND POLICY The Company has not declared or paid any cash dividends on the Common Stock since 1996. The Company currently intends to retain future earnings to repay indebtedness and therefore, does not anticipate paying any cash dividends in the immediate future. The Company is limited in its ability to pay cash dividends in respect of its Common Stock pursuant to the PowerChoice Agreement, the indenture governing the Notes and the Company's senior bank facility. Any future determination to declare and pay dividends will be made by the Board of Directors after evaluating the Company's earnings, cash flow, financial position, capital requirements, contractual agreements, regulatory restrictions, competitive position, and such other factors as the Board of Directors deems relevant. 10 THE MRA AND THE POWERCHOICE AGREEMENT Overview On March 20, 1998, the Company received written approval from the PSC for the PowerChoice Agreement which establishes a five-year rate plan and incorporates the terms of the MRA. The key terms of the PowerChoice Agreement include: (i) a revenue reduction of $111.8 million (exclusive of reductions in the New York State Gross Receipts Tax) for all customer classes to be phased in over three years beginning upon the consummation of the MRA; (ii) a mechanism to cap prices to electric customers in years four and five of the five-year term; (iii) an allowance for the Company to recover stranded costs (including the recoverable costs associated with the MRA); (iv) the permission to establish the MRA Regulatory Asset, reflecting the recoverable costs of the MRA which will be amortized generally over ten years; (v) an agreement by the Company to divest its fossil and hydro electric generating facilities within a defined time period and retain its nuclear generating facilities with a commitment to explore their divestiture at a later date; and (vi) an agreement by the Company to provide its retail electric customers with the option to choose their supplier of electricity by no later than December 1999. The MRA The closing of the MRA Financing closed concurrently with the closing of the MRA. Pursuant to the MRA, the Company reached an agreement with 14 IPPs to terminate, restate or amend 27 PPAs in exchange for approximately $3.6 billion of cash and approximately 42.9 million shares of Common Stock (representing approximately 23% of the Company's outstanding shares following such issuance). Approximately 22.4 million shares of Common Stock were issued in the Equity Offering and the net proceeds thereof were paid to the IPP Parties. The remainder of the 42.9 million shares of Common Stock was issued directly to the IPP Parties and is being registered hereunder. The proceeds of the Debt Offering, together with cash on hand, were used to fund the Company's cash obligation under the MRA. The principal effects of the MRA are to significantly reduce the Company's existing payment obligations under the PPAs, which consisted of approximately 2,700 MW of capacity in aggregate for all existing PPAs at March 31, 1998. The Company expects that the MRA will result in a significant improvement in cash flow resulting from the reduction in the payment obligation (both in nominal dollars and PPA duration) under the existing PPAs. The savings in annual energy payments will yield significant free cash flow that can be dedicated to the repayment of the Notes. Under the terms of the MRA, the Company's significant long-term and escalating IPP payment obligations have been restructured into a more manageable debt obligation and a portfolio of restated and amended PPAs with price and duration terms that the Company believes are more favorable than the existing PPAs. Under the MRA, 18 PPAs representing approximately 1,100 MW of electric generating capacity have been terminated completely, thus allowing this capacity to be replaced through the competitive market at market-based prices. The Company has no continuing obligation to purchase energy from the terminating IPPs. Also under the MRA, eight PPAs representing approximately 541 MW of capacity have been restated on economic terms and conditions which the Company believes are more favorable to it than the terms of the existing PPAs subject to the MRA. The restated PPAs have shorter terms (ten years) and have been structured as financial swap contracts where the Company receives or makes payments to the IPP Parties based upon the differential between the contract price and a market reference price for electricity. The contract prices are fixed for the first two years changing to an indexed pricing formula thereafter. Contract quantities are fixed for the full ten year term of the contracts. The indexed pricing structure ensures that the 11 price paid for energy and capacity will fluctuate relative to the underlying market cost of gas and general indices of inflation. Until such time as a competitive energy market structure becomes operational in the State of New York, the amended and restated contracts provide the IPP Parties with a put option for the physical delivery of energy. Additionally, one PPA representing 42 MW of capacity will be amended to reflect a shorter term (17 years) and a lower stream of fixed unit prices. The Company's expected future commitment under the restated and amended contracts ranges from approximately $210 million in the first year to $290 million in the tenth year. Against the Company's forecast of market energy prices, the amended and restated PPAs represent an expected above-market payment obligation. The Company believes, however, that its portfolio of amended and restated PPAs could provide it and its customers with a hedge against significant upward movement in market prices for electricity. The portfolio of amended and restated PPAs and market purchases contain terms that are more responsive than the existing PPAs to competitive market price changes. The IPP Parties and their designees own approximately 20.5 million shares of the Common Stock, representing approximately 11% of the Company's voting securities. Pursuant to the MRA, any IPP Party that received 2% or more of the outstanding Common Stock and any designee of IPP Parties that received more than 4.9% of the outstanding Common Stock upon the consummation of the MRA, together with certain but not all affiliates (collectively, "2% Shareholders"), entered into certain shareholder agreements (the "Shareholders Agreements"). Pursuant to each Shareholder Agreement, the 2% Shareholders agree that for five years from the consummation of the MRA they will not acquire more than an additional 5% of the outstanding Common Stock (resulting in ownership in all cases of no more than 9.9%) or take any actions to attempt to acquire control of the Company, other than certain permitted actions in response to unsolicited actions by third parties. The 2% Shareholders generally vote their shares on a "pass-through" basis, in the same proportion as all shares held by other shareholders are voted, except that they may vote in their discretion (i) for extraordinary transactions and (ii) for directors when there is a pending proposal to acquire the Company. Purchasers of the shares offered hereby who are not affiliates of any 2% Shareholders will not be subject to the above described restrictions. Each of the IPP Parties that owns shares of Common Stock being registered hereunder has agreed, until 45 days after the closing of the Equity Offering, not to offer, sell or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock, or enter into any swap or similar arrangement with respect thereto, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, subject to certain exceptions. The PowerChoice Agreement The PowerChoice Agreement, which was approved by the PSC on March 20, 1998, establishes a five-year rate plan that will reduce average residential and commercial rates by an aggregate of 3.2% over the first three years. The rate plan will take effect within 30 days of approval by the PSC of the tariffs implementing PowerChoice, but in no case earlier than the MRA closing. The reduction in prices will include certain savings that will result from partial reductions of the GRT. Industrial customers will see average reductions of 25% relative to 1995 price levels; these decreases will include discounts currently offered to some industrial customers through optional and flexible rate programs. The cumulative rate reductions, exclusive of GRT savings, are estimated to be $111.8 million, to be phased in over the first three years of the agreement. During the term of the PowerChoice Agreement, the Company will be permitted to defer certain costs associated primarily with environmental remediation, nuclear decommissioning and related costs, and changes in laws, regulations, rules and orders. The Company must also defer, during the term of 12 the PowerChoice Agreement, the difference between the assumed weighted average interest rate of 8.5% used by the Company to prepare its PowerChoice proposal and the actual weighted average interest rate for the Senior Notes portion of the Debt Offering. In years four and five of its rate plan, the Company can request an annual increase in prices subject to a cap of 1% of the all-in price, excluding commodity costs (e.g., transmission, distribution, nuclear, and forecasted CTC). In addition to the price cap, the PowerChoice Agreement provides for the recovery of deferrals established in years one through four and cost variations resulting from indexing provisions of the MRA financial contracts. The aggregate of the price cap increase and recovery of deferrals is subject to an overall limitation of inflation. Under the terms of the PowerChoice Agreement, all of the Company's customers will be able to choose their electricity supplier in a competitive market by December 1999. The Company will continue to distribute electricity through its transmission and distribution systems and would be obligated to be the so-called provider of last resort for those customers who do not exercise their right to choose a new electricity supplier. The PowerChoice Agreement provides that the MRA and the contracts executed pursuant thereto are found to be prudent. The PowerChoice Agreement further provides that the Company shall have a reasonable opportunity to recover its stranded costs, including those associated with the MRA and the contracts executed thereto, through a CTC and, under certain circumstances, through exit fees or in rates for back-up service. The PSC has limited the amount of the MRA Regulatory Asset that can be recovered from customers to approximately $4.0 billion. The MRA Regulatory Asset represents the recoverable costs of the MRA, consisting of the cash compensation paid to the IPP Parties, the issuance of approximately 42.9 million shares of Common Stock, of which 20.5 million shares are being registered hereunder with the remainder being issued in the Equity Offering, and other expenses related to the MRA. The value of the limitation on the recoverability of the MRA Regulatory Asset is expected to be recorded as a $263.2 million charge to expense in the second quarter of 1998. The PowerChoice Agreement calls for the Company to divest all its fossil and hydro generating facilities and prohibits the Company from owning non-nuclear generating assets within the State of New York except as described below. The Genco Divestiture is intended to be accomplished through an auction, the plan for which was approved by the PSC in an order dated May 6, 1998. Winning bids are expected to be selected in the fall of 1998. The Company will retain a portion of the auction sale proceeds, above specified levels, as an incentive to obtain maximum value in the sale. This incentive would be recovered from sale proceeds. The Company agreed that if it does not receive an acceptable bid for an asset, the Company will form a subsidiary to hold any such asset and then will legally separate this subsidiary from the Company through a spin-off to shareholders or otherwise. If a bid of zero or below is received for an asset, the Company may keep the asset as part of its regulated business. The auction process will serve to quantify any stranded costs associated with the Company's fossil and hydro generating facilities. The Company will have a reasonable opportunity to recover these costs through the CTC and, under certain circumstances, through exit fees or in rates for back-up service. The Company intends to use any cash proceeds from such an auction to repay indebtedness. The PowerChoice Agreement contemplates that the Company's nuclear plants will remain part of the Company's regulated business. The Company has been supportive of the creation of a statewide New York Nuclear Operating Company that it expects would improve the efficiency of nuclear units throughout the state. The PowerChoice Agreement stipulates that absent such a statewide solution, the Company will 13 file a detailed plan for analyzing other proposals regarding its nuclear facilities, including the feasibility of an auction, transfer and/or divestiture of such facilities, within 24 months of approval of the PowerChoice Agreement. The PowerChoice Agreement also allows the Company to form a holding company at its election. The Company obtained approval from its shareholders for the formation of a holding company. The implementation of a holding company structure will only occur following various regulatory approvals and is not anticipated to occur prior to the first quarter of 1999. 14 THE SHARE EXCHANGE EXCHANGE AGREEMENT In order to effectuate a holding company structure, the Company will engage in a share exchange (the "Share Exchange") whereby: (i) each share of the Company's Common Stock outstanding immediately prior to the effective time of the Share Exchange will be exchanged for one new share of common stock of the holding company ("Holdings"); (ii) Holdings will become the owner of all outstanding Common Stock of the Company; and (iii) the shares of Holdings common stock held by the Company immediately prior to the Share Exchange will be canceled. As a result, upon completion of the Share Exchange, Holdings will become a holding company, the Company will become a subsidiary of Holdings, and all of Holdings common stock outstanding immediately after the Share Exchange will be owned by the former holders of the Company's Common Stock outstanding immediately prior to the share exchange. Following the Share Exchange, certain of the Company's existing non-utility subsidiaries will be transferred to Holdings and become subsidiaries of Holdings. The Company's outstanding preferred stock will not be exchanged in the Share Exchange but will continue as shares of the Company preferred stock. The Share Exchange will not change the rights of the holders of such shares as currently provided in the Company's Amended Certificate of Incorporation. Debt of the Company will remain unchanged and will continue as outstanding obligations of the Company after the Share Exchange. CONDITIONS TO EFFECTIVENESS OF THE SHARE EXCHANGE The Share Exchange is subject to the satisfaction of the following conditions: (i) all necessary orders, authorizations, approvals or waivers from the PSC and all other jurisdictive regulatory bodies, boards or agencies have been received, remain in full force and effect, and do not include, in the sole judgment of the Board of Directors of the Company, unacceptable conditions; and (ii) shares of Holdings common stock to be issued in connection with the exchange have been listed, subject to official notice of issuance, by the New York Stock Exchange. Following satisfaction of these conditions, the Share Exchange will become effective immediately following the close of business on the date of filing with the New York Department of State of a certificate of exchange pursuant to Section 913(d) of the New York Business Corporation Law. The Company cannot predict when all conditions will be satisfied, but expects that the share exchange will become effective in the first quarter of calendar 1999. LISTING OF HOLDINGS COMMON STOCK Holdings is applying to have its common stock listed on the New York Stock Exchange. It is expected that such listing will become effective at the effective time of the Share Exchange. The stock exchange ticker symbol of Holdings common stock will be "NMK", and quotations will be carried in newspapers as they have been for the Company's Common Stock. Following the Share Exchange, the Company's Common Stock will no longer trade and will be delisted and no longer registered pursuant to Section 12 of the Securities Exchange Act of 1934. 15 SELLING SHAREHOLDERS The table below sets forth the expected beneficial ownership of Common Stock by each Selling Shareholder at June 30, 1998 and following the sale of the shares of Common Stock offered by such Selling Shareholder. The Selling Shareholders are IPP Parties or designees of IPP Parties and all of the shares of Common Stock to be sold by the Selling Shareholders represent shares issued to them in connection with the closing of the MRA.
Shares of Common Stock Shares of Common Stock to be Beneficially Owned Before Beneficially Owned After Sale Sale Under this Prospectus Under this Prospectus (1) (2) (1) (2) Shares to Name of Selling Shareholder Number Percentage be sold Number Percentage --------------------------- ------ ---------- ---------- ------ ---------- Onondaga Cogeneration Limited 1,292,801 (3) 1,292,801 0 -- Partnership c/o GPU International, Inc. One Upper Pond Road Parsippany, NJ 07054 Indeck-Ilion Limited Partnership 4,763,874(4) 2.54% 4,763,874(4) 0 -- Indeck Energy Services, Inc. 600 North Buffalo Grove Road Buffalo Grove, IL 60089 Indeck-Yerkes Limited Partnership 4,763,874(4) 2.54% 4,763,874(4) 0 -- Indeck Energy Services, Inc. 600 North Buffalo Grove Road Buffalo Grove, IL 60089 Indeck-Olean Limited Partnership 4,763,874(4) 2.54% 4,763,874(4) 0 -- Indeck Energy Services, Inc. 600 North Buffalo Grove Road Buffalo Grove, IL 60089 Indeck-Oswego Limited Partnership 4,763,874(4) 2.54% 4,763,874(4) 0 -- Indeck Energy Services, Inc. 600 North Buffalo Grove Road Buffalo Grove, IL 60089 Jones Capital Corporation 400,000 (3) 400,000 0 -- J.A. Jones Drive Charlotte, NC 28287 Energy Investors Fund, L.P. 420,581 (3) 420,581 0 -- 200 Berkeley Street 20th Floor Boston, MA 02116 Iroquois Power 391,593 (3) 391,593 0 -- c/o Clements & Duchame, P.C. 2 Judson Street Canton, NY 10017
16 Energy Factors, Incorporated 7,787,306(5) 4.16% 7,680,206(6) 107,100(7) (3) 450 Lexington Avenue 37th Floor New York, NY 10017 Energy Corporation of America 187,035 (3) 187,035 0 -- 4643 South Ulster Street Suite 1100 Denver, CO 80237-2867 Sithe Energies, Inc. 7,787,306(5) 4.16% 7,680,206(6) 107,100(7) (3) 450 Lexington Avenue 37th Floor New York, NY 10017 Sithe Energies U.S.A., Inc. 7,787,306(5) 4.16% 7,680,206(6) 107,100(7) (3) 450 Lexington Avenue 37th Floor New York, NY 10017 Sundance Energy, Ltd. 494,404 (3) 494,404 0 -- 380 Cemetery Road Oswego, NY 13126 Beta Carthage, Inc. 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3) 1151 Flatbush Road Kingston, NY 12401 Beta C&S Limited 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3) 1151 Flatbush Road Kingston, NY 12401 Beta South Glens Falls, Inc. 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3) 1151 Flatbush Road Kingston, NY 12401 Beta Natural Dam, Inc. 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3) 1151 Flatbush Road Kingston, NY 12401 Beta N Limited 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3) 1151 Flatbush Road Kingston, NY 12401 Beta Syracuse, Inc. 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3) 1151 Flatbush Road Kingston, NY 12401 Beta Beaver Falls, Inc 4,615,771(8) 2.46% 4,615,770(9) 1(10) (3) 1151 Flatbush Road Kingston, NY 12401 Harold N. Kamine 300,000 (3) 300,000 0 -- c/o Kamine Development Corp. 1535 Rt. 206 Suite 300 Bedminster, NJ 07921-2567 - ------------ (1) Based on the number of shares of Common Stock outstanding on June 30, 1998. Beneficial ownership is determined in accordance with rules of the Commission and includes shares over which the indicated beneficial owner exercises voting and/or investment power. (2) Each IPP Party that holds 2% or more of the outstanding Common Stock and any designee of IPP Parties that holds more than 4.9% of the outstanding Common Stock upon the consummation of the MRA, together with certain but not all affiliates (collectively, "2% Shareholders"), entered into certain shareholder agreements (the "Shareholders Agreements"). Pursuant to each Shareholder Agreement, the 2% Shareholders agree that for five years from the consummation of the MRA they will not acquire more than an additional 5% of the outstanding Common Stock (resulting in ownership in all cases of no more than 9.9%) or take any actions to attempt to acquire control of the Company, other than certain permitted actions in response to unsolicited actions by third parties. The 2% Shareholders generally vote their shares on a "pass-through" basis, in the same proportion as all shares held by other shareholders are voted, except that they may vote in their discretion (i) for extraordinary transactions and (ii) for directors when there is a pending proposal to acquire the Company. (3) Less than 1%. (4) Includes (i) 1,463,505 shares held by Indeck-Ilion Limited Partnership, (ii) 1,116,806 shares held by Indeck-Yerkes Limited Partnership, (iii) 1,993,911 shares held by Indeck-Olean Limited Partnership, and (iv) 189,652 shares held by Indeck-Oswego Limited Partnership. (5) Includes (i) 4,350,569 shares held by Energy Factors, Incorporated, (ii) 1,683,311 shares held by Sithe Energies U.S.A., Inc. and (ii) 1,753,426 shares held by Sithe Energies, Inc. (6) Includes (i) 4,350,569 shares held by Energy Factors, Incorporated, (ii) 1,683,311 shares held by Sithe Energies U.S.A., Inc. and (iii) 1,646,326 shares held by Sithe Energies, Inc. (7) Includes 107,100 shares held by Sithe Energies, Inc. (8) Includes (i) 611,801 shares held by Beta Carthage, Inc., (ii) 217,625 shares held by Beta C&S Limited, (iii) 621,409 shares held by Beta South Glens Falls, Inc., (iv) 380,948 shares held by Beta Natural Dam, Inc., (v) 526,071 shares held by Beta N Limited, (vi) 894,934 shares held by Beta Syracuse, Inc., (vii) 1,362,982 shares held by Beta Beaver Falls, Inc., and (viii) 1 share held by Besicorp Group Inc. (9) Includes (i) 611,801 shares held by Beta Carthage, Inc., (ii) 217,625 shares held by Beta C&S Limited, (iii) 621,409 shares held by Beta South Glens Falls, Inc., (iv) 380,948 shares held by Beta Natural Dam, Inc., (v) 526,071 shares held by Beta N Limited, (vi) 894,934 shares held by Beta Syracuse, Inc., and (vii) 1,362,982 shares held by Beta Beaver Falls, Inc. (10) Includes 1 share held by Besicorp Group Inc.
PLAN OF DISTRIBUTION The shares of Common Stock covered by this Prospectus may be offered and sold from time to time by the Selling Shareholders. The Selling Shareholders will act independently of the Company in making decisions with respect to the timing, manner and size of each sale. The Selling Shareholders may sell the shares being offered hereby on the New York Stock Exchange, or otherwise, at prices and under terms then prevailing or at prices related to the then current market price or at negotiated prices. The shares may be sold by one or more of the following means of distribution: (a) a block trade in which the broker-dealer so engaged will attempt to sell such shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this Prospectus; (c) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (d) in privately negotiated transactions. To the extent required, this Prospectus may be amended and supplemented from time to time to describe a specific plan of distribution. In connection 18 with distributions of such shares or otherwise, the Selling Shareholders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of the Common Stock in the course of hedging the positions they assume with the Selling Shareholders. The Selling Shareholders may also sell the Common Stock short and redeliver the shares to close out such short positions. The Selling Shareholders may also enter into option or other transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealer or other financial institution of shares of Common Stock offered hereby, which shares such broker-dealer or other financial institution may resell pursuant to this Prospectus (as supplemented or amended to reflect such transaction). The Selling Shareholders may also pledge such shares to a broker-dealer or other financial institution, and, upon a default, such broker-dealer or other financial institution may effect sales of the pledged shares pursuant to this Prospectus (as supplemented or amended to reflect such transaction). In addition, any shares of Common Stock covered by this Prospectus that qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this Prospectus. In effecting sales, brokers, dealers or agents engaged by the Selling Shareholders may arrange for other brokers or dealers to participate. Brokers, dealers or agents may receive commissions, discounts or concessions from the Selling Shareholders in amounts to be negotiated prior to the sale. Such brokers or dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales, and any such commissions, discounts or concessions may be deemed to be underwriting discounts or commissions under the Securities Act. The Company will pay all expenses incident to the offering and sale of the shares of Common Stock covered by this Prospectus to the public other than any commissions and discounts of underwriters, dealers or agents and any transfer taxes. In order to comply with the securities laws of certain states, if applicable, the shares of Common Stock covered by this Prospectus must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states such shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. The Company has advised the Selling Shareholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares of Common Stock covered by this Prospectus in the market and to the activities of the Selling Shareholders and their affiliates. In addition, the Company will make copies of this Prospectus available to the Selling Shareholders and has informed them of the need for delivery of copies of this Prospectus to purchasers at or prior to the time of any sale of the shares of Common Stock covered by this Prospectus. The Selling Shareholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares of Common Stock covered by this Prospectus against certain liabilities, including liabilities arising under the Securities Act. At the time a particular offer of shares of Common Stock covered by this Prospectus is made, if required, a Prospectus Supplement will be distributed that will set forth the number of shares of Common Stock covered by this Prospectus being offered and the terms of the offering, including the name of any underwriter, dealer or agent, the purchase price paid by any underwriter, any discount, commission and other item constituting compensation, any discount, commission or concession allowed or reallowed or paid to any dealer, and the proposed selling price to the public. The sale of shares of Common Stock covered by this Prospectus by the Selling Shareholders is subject to compliance by the Selling Shareholders with certain contractual restrictions with the Company. There can 19 be no assurance that the Selling Shareholders will sell all or any of the shares of Common Stock covered by this Prospectus. The Company has agreed to indemnify the Selling Shareholders and any person controlling a Selling Shareholder against certain liabilities, including liabilities under the Securities Act. The Selling Shareholders have agreed to indemnify the Company and certain related persons against certain liabilities, including liabilities under the Securities Act. The Company has agreed with certain of the Selling Shareholders to keep the Registration Statement of which this Prospectus constitutes a part effective for up to two years following the effectiveness of the Registration Statement containing this Prospectus. VALIDITY OF THE SHARES The validity of the shares offered hereby will be passed upon for the Company by Sullivan & Cromwell, New York, New York, counsel to the Company. EXPERTS The financial statements incorporated in this Prospectus have been so incorporated in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities and Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files periodic reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center, New York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such materials may be obtained from the Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the prescribed rates. The Commission maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Common Stock of the Company is listed on the New York Stock Exchange, 20 Broad Street, New York, New York 10005, where reports and other information concerning the Company may be inspected. Additional information regarding the Company and the securities offered hereby is contained in the Registration Statement on Form S-3 and the exhibits thereto (the "Registration Statement") filed with the Commission under the Securities Act. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is made to the Registration Statement, which may be inspected without charge at, and copies of which may be obtained at prescribed rates from the Commission at, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. 20 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents filed by the Company with the Commission pursuant to the Exchange Act are incorporated in this Prospectus by reference: 1. Annual Report on Form 10-K for the year ended December 31, 1997. 2. Amendment to Annual Report on Form 10-K/A for the year ended December 31, 1997. 3. Second Amendment to Annual Report on Form 10-K/A for the year ended December 31, 1997. 4. Current Report on Form 8-K dated February 11, 1998. 5. Quarterly Report on Form 10-Q for the three months ended March 31, 1998. 6. Amendment to Quarterly Report on Form 10-Q/A for the three months ended March 31, 1998. 7. Proxy Statement dated May 29, 1998 for the Company's 1998 Annual Meeting. All documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the Equity Offering will be deemed to be incorporated by reference in this Prospectus and will be part of this Prospectus from the date of filing of such documents. Any statement contained in this Prospectus or in any document incorporated or deemed to be incorporated by reference in this Prospectus will be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained in this Prospectus or in any subsequently filed document that also is or is deemed to be incorporated by reference in this Prospectus modifies or supersedes such statement. any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company undertakes to provide without charge to each person to whom a copy of this Prospectus is delivered, upon the written or oral request of any such person, a copy of any document described in this Prospectus (not including exhibits to those documents unless such exhibits are incorporated by reference into the information incorporated into this Prospectus). Requests for copies should be directed to Niagara Mohawk Power Corporation, 300 Erie Boulevard West, Syracuse, New York 13202. Attention: Leon T. Mazur, telephone number: (315) 474-1511. 21 APPENDIX A GLOSSARY OF CERTAIN ELECTRICITY, NATURAL GAS AND ACCOUNTING TERMS TERM DEFINITION Avoided Costs The costs an electric utility would otherwise incur to generate power if it did not purchase electricity from another source. Cogeneration The simultaneous production of electric energy and useful thermal energy for industrial, commercial, heating or cooling purposes. CTC Competitive Transition Charge. Electric The delivery of electric energy to customers on distribution system. Electric energy is carried at high voltages along transmission lines. For consumers needing lower voltages, it is reduced in voltage at a substation and delivered over primary distribution lines extending throughout the area where the electricity is distributed. For users needing lower voltage, the voltage is reduced once again by a distribution transformer or a line transformer. At this point it changes from primary to secondary distribution voltage. GRT Gross Receipts Tax. GwH Gigawatt-hours: one gigawatt hour equals one billion watt hours. IPP Independent Power Producer: any person that owns or operates, in whole or in part, one or more Independent Power Facilities. KW Kilowatt: one thousand watts. Kwh Kilowatt-hour: a unit of electrical energy equal to one kilowatt of power supplied or taken from an electric circuit steadily for one hour. MW Megawatt: one million watts. MWh Megawatt hour: one thousand kilowatt hours. NYSERDA New York State Energy Research and Development Authority. PPA Power Purchase Agreements: long-term contracts under which a utility is obligated to purchase electricity from an IPP at specified rates. PSC New York State Public Service Commission. PURPA Public Utility Regulatory Policies Act of 1978, as amended. One of five bills signed into law on November 8, 1978, as the National Energy Act. It sets forth procedures and requirements applicable to state utility commissions, electric and natural gas utilities and certain federal regulatory agencies. A major aspect of this law is the mandatory purchase obligation from qualifying facilities. SFAS No. 71 Statement of Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation". Six-Cent Law Section 66-c of the New York State Public Service Law, governing minimum prices to be paid under certain PPAs. Transmission The act or process of transporting electric energy in bulk from a source or sources of supply to other principal parts of the system or to other utility systems. Also a functional classification relating to that portion of utility plant used for the purpose of transmitting electric energy in bulk to other principal parts of the system or to other utility systems, or to expenses relating to the operation and maintenance of transmission plant. Unit 1 Nine Mile Point Nuclear Station Unit No. 1, a 613 MW nuclear generating facility 100% owned by Niagara Mohawk and in operation since 1969. Unit 2 Nine Mile Point Nuclear Station Unit No. 2, a 1144 MW nuclear generating facility 41% owned by Niagara Mohawk and in operation since 1988. 22 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is a statement of the estimated expenses, other than underwriting discounts and commissions, to be incurred in connection with the distribution of the securities registered under this registration statement. Except as indicated, all costs and expenses will be paid by the Company. Amount to be paid SEC registration fee........................................ $81,633 Legal fees and expenses..................................... 20,000 Accounting fees and expenses................................ 15,000 Miscellaneous............................................... 20,000 --------- Total............................................ $136,633 ========= ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Sections 721 through 726 of the Business Corporation Law of the State of New York (the "BCL") provide for indemnification of the Company's officers and directors under certain conditions and subject to specific limitations. The BCL permits New York corporations to supplement the statutory indemnification with additional "non-statutory" indemnification for directors and officers meeting a specified standard of conduct and to advance to officers and directors litigation expenses under certain circumstances. As permitted by the BCL, Article VI of the Company's By-Laws provides for indemnification of, and advancement of litigation expenses incurred by, directors and officers of the Company. The Company has also obtained insurance providing for indemnification of directors and officers against certain expenses and liabilities. In addition, pursuant to a 1986 amendment to the BCL, the Company has entered into agreements with certain of the officers and directors of the Company providing for indemnification for the liability of officers and directors not covered by the policy mentioned above. Such additional indemnification does not cover acts committed in bad faith or acts which were the result of active and deliberate dishonesty. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed 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. Furthermore, Article XIIA of the Certificate of Incorporation of the Company limits, with certain exceptions, the personal liability of a director of the Company to the Company or its shareholders for damages for any breach of duty in such capacity to the fullest extent permitted by the BCL. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Index to Exhibits 3(a) Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk Power Corporation under Section 805 of the Business Corporation Law of New York. 3(b) By-Laws of Niagara Mohawk Power Corporation, as amended April 23, 1998. 5 Opinion of Sullivan & Cromwell. 23(a) Consent of PriceWaterhouse LLP. 23(b) Consent of Sullivan & Cromwell (included within Exhibit 5 hereto). 24 Power of attorney (included on page II-4). - ----------- * Previously filed. ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 19(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under "Item 15, Indemnification of Directors and Officers" above, 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 Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report, to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Syracuse, State of New York, on the 26th day of June, 1998. NIAGARA MOHAWK POWER CORPORATION By: /s/ Steven W. Tasker ------------------------------------------------- Name: Steven W. Tasker Title: Vice President-Controller and Principal Accounting Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities indicated on June 26, 1998: SIGNATURE Title Date --------- ----- ---- /s/ William F. Edwards Senior Vice President and Chief June 26, 1998 - ----------------------- Financial Officer /s/ Arthur W. Roos Vice President-Treasurer June 26, 1998 - ----------------------- II-4 EX-3.(I) 2 CERTIFICATE OF INCORPORATION OF NIAGARA MOHAWK CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF NIAGARA MOHAWK POWER CORPORATION Under Section 805 of the Business Corporation Law The undersigned, being Vice President - Law and Secretary, of Niagara Mohawk Power Corporation, New York corporation, hereby certify that: FIRST. The name of the corporation is Niagara Mohawk Power Corporation, and the name under which it was formed was Niagara Hudson Public Service Corporation. SECOND. The certificate of consolidation forming the corporation was filed by the Department of State on July 31, 1937. THIRD. The certificate of incorporation is amended to increase the number of shares which the corporation has authority to issue from 185,000,000 common shares of the par value of $1 per share to 250,000,000 common shares of the par value of $1 per share. To effect such change, Parts A and C of Article IV of the certificate of incorporation of the corporation are hereby amended to read as follows: "IV.A. The total number of shares which the Corporation may have is 281,000,000, of which 3,400,000 are to have a par value of $100 each, 27,600,000 are to have a par value or $25 each and 250,000,000 are to have a par value of $1 each." "C. The shares of the Corporation are to be classified as follows: 3,400,000 shares are to be Preferred Stock with a par value of $100 each; 19,600,000 shares are to be Preferred Stock with a par value of $25 each; 8,000,000 shares are to be Preference Stock with a par value of $25 each; and 250,000,000 shares are to be Common Stock with a par value of $1 each." FOURTH. The foregoing amendment of the certificate of incorporation was authorized by the Board of Directors of the corporation at a meeting duly called and held on May 14, 1998, followed by the favorable vote of the holders of a majority of all outstanding shares entitled to vote thereon at a meeting of shareholders duly called and held on June 29, 1998. -2- IN WITNESS WHEREOF, the undersigned have signed this certificate of amendment of certificate of incorporation on June 29, 1998 and affirm the statements contained herein as true under the penalties of perjury. NIAGARA MOHAWK POWER CORPORATION By /s/ Paul J. Kaleta -------------------------------------- Paul J. Kaleta Vice President - Law By /s/ Kapua A. Rice -------------------------------------- Kapua A. Rice Secretary -3- EX-3.(II) 3 BY-LAWS OF NIAGARA MOHAWK POWER CORPORATION Exhibit 3(b) BY-LAWS NIAGARA MOHAWK POWER CORPORATION ADOPTED JANUARY 5, 1950 (As Amended April 23, 1998) BY-LAWS NIAGARA MOHAWK POWER CORPORATION ADOPTED JANUARY 5, 1950 (As Amended April 23, 1998) *INDEX
Page Page Additional Officers 14 Lost Stock Certificates 19 Adjournments 4 Notices of Meetings 3,8,11 Amendments 20 Officers 11 Annual Meeting 2 Place of Meeting 3 Assistant Officers 13,14 President 12 Audit Committee 10 Procedure 4,9,11,20 Bonds 15 Proxies 6 Certificate of Stock 17 Quorum 4,9 Chairman of the Board 12 Record Date 18 Committees 9 Registrar 17 Compensation 8,15 Resignation 7 Controller 13 Scrip 19 Corporate Charter 1 Secretary 13 Corporate Seal 20 Special Meetings 3 Directors 6 Stock 17 Directors' Meetings 8 Stockholders' Meetings 2 Election 2,6,12,20 Term of Office 6,12 Executive Committee 10 Transfer Agent 17 Finance Committee 10 Transfers of Shares 18 Finances 19 Treasurer 14 Fiscal Year 20 Unanimous Written Consent 11 General Provisions 19 Vacancies 7 Indemnification; Insurance 15,17 Vice Presidents 13 Inspectors of Election 5 Voting 5 *This Index does not constitute part of the By-Laws or have any bearing upon the interpretation of their terms and provisions.
BY-LAWS OF NIAGARA MOHAWK POWER CORPORATION ARTICLE I BY-LAWS SUPPLEMENT CORPORATE CHARTER SECTION 1. CORPORATE CHARTER: The provisions of these by-laws supplement the corporate charter. The provisions of the latter shall govern over the provisions of these by-laws in the event of any conflict, Elections of directors and meetings of stockholders in addition to those provided by these by-laws may be held in accordance with the provisions of the corporate charter. The term "corporate charter" as used in these by-laws includes the Certificate of Consolidation of Antwerp Light and Power Company, Baldwinsville Light and Heat Company of Baldwinsville, N.Y., Fulton Fuel and Light Company, Fulton Light, Heat and Power Company, Malone Light and Power Company, Northern New York Utilities, Inc., The Norwood Electric Light and Power Company, Peoples Gas and Electric Company of Oswego, St. Lawrence County Utilities, Inc., St. Lawrence Valley Power Corporation, The Syracuse Lighting Company, Inc., and Utica Gas and Electric Company forming Niagara Hudson Public Service Corporation, filed in the Department of State of the State of New York on July 31, 1937, all certificates supplemental thereto or amendatory thereof or in restatement thereof filed in the Department of State of the State of New York (including specifically but without limitation among all such supplemental or amendatory certificates heretofore filed or hereafter to be filed, the Certificate of Change of Name of Niagara Hudson Public Service Corporation to Central New York Power Corporation, filed in the Department of State of the State of New York on September 15, 1937, the Certificate of Consolidation of New York Power and Light Corporation and Buffalo Niagara Electric Corporation and Central New York Power Corporation which is to survive the consolidation and be named Niagara Mohawk Power Corporation Pursuant to Sections 26-a and 86 of the Stock Corporation Law and to Subdivision 4 of Section 11 of the Transportation Corporations Law, filed in the Department of State of the of New York on January 5, 1950, and the Certificate of Amendment of Certificate of Incorporation of Niagara Mohawk Power Corporation Pursuant to Sections 26-a and 36 of the Stock Corporation Law, filed in the Department of State of the State of New York on January 5, 1950), and includes also all resolutions of the board of directors fixing the designations, preferences, privileges and voting powers of any series of stock of the corporation, and all other instruments which are binding upon, and define or set forth the rights of, the stockholders of the corporation. 1 ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. ANNUAL MEETING: The annual meeting of the stockholders of the corporation for the election of directors and the transaction of such other business as may properly come before it shall be held at such date and time as may be designated by the Board of Directors. Business properly brought before any such annual meeting shall include matters specifically set forth in the corporation's proxy statement with respect to such meeting, matters which the Chairman of the Board of Directors in his sole discretion causes to be placed on the agenda of any such annual meeting and (i) any proposal of a stockholder of this corporation and (ii) any nomination by a stockholder of a person or persons for election as director or directors, if such stockholder has made a written request to this corporation to have such proposal or nomination considered at such annual meeting, as provided herein, and further provided that such proposal or nomination is otherwise proper for consideration under applicable law and the certificate of incorporation and by-laws of the corporation. Notice of any proposal to be presented by any stockholder or of the name of any person to be nominated by any stockholder for election as a director of the corporation must be received by the secretary of the corporation at its principal executive office not less than 60 nor more than 90 days prior to the date of the annual meeting; provided, however, that if the date of the annual meeting is first publicly announced or disclosed (in a public filing or otherwise) less than 70 days prior to the date of the meeting, such notice shall be given not more than ten days after such date is first so announced or disclosed. Public notice shall be deemed to have been given more than 70 days in advance of the annual meeting if the corporation shall have previously disclosed, in these by-laws or otherwise, that the annual meeting in each year is to be held on a determinable date, unless and until the Board of Directors determines to hold the meeting on a different date. Any stockholder who gives notice of any such proposal shall deliver therewith the text of the proposal to be presented and a brief written statement of the reasons why such stockholder favors the proposal and setting forth such stockholder's name and address, the number and class of all shares of each class of stock of the corporation beneficially owned by such stockholder and any material interest of such stockholder in the proposal (other than as a stockholder). Any stockholder desiring to nominate any person for election as a director of the corporation shall deliver with such notice a statement in writing setting forth the name of the 2 person to be nominated, the number and class of all shares of each class of stock of the corporation beneficially owned by such person, the information regarding such person required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and Exchange Commission (or the corresponding provisions of any regulation subsequently adopted by the Securities and Exchange Commission applicable to the corporation), such person's signed consent to serve as a director of the corporation if elected, such stockholder's name and address and the number and class of all shares of each class of stock of the corporation beneficially owned by such stockholder. As used herein, shares "beneficially owned" shall mean all shares as to which such person, together with such person's affiliates and associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as well as all shares as to which such person, together with such person's affiliates and associates, has the right to become the beneficial owner pursuant to any agreement or understanding, or upon the exercise of warrants, option or rights to convert or exchange (whether such rights are exercisable immediately or only after the passage of time or the occurrence of conditions). The person presiding at the meeting in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall determine whether such notice has been duly given and shall direct that proposals and nominees not be considered if such notice has not been so given. SECTION 2. SPECIAL MEETINGS: Special meetings of the stockholders of the corporation may be called at any time by a majority of the entire board of directors or by the Chairman of the Board or the President. Such request shall state the purpose or purposes of the proposed meeting. Special meetings of stockholders for the election of directors in accordance with the provisions of the corporate charter providing for a special election of directors in the event of default in the payment of dividends on the preferred stock or preference stock for a specified period and on the termination of such default may be called as provided in the corporate charter. SECTION 3. PLACE AND NOTICE OF STOCKHOLDERS' MEETINGS: Meetings of Stockholders shall be held at the principal office of the corporation in the City of Syracuse, New York, or at such other place or places in the State of New York as may be determined from time to time by the board of directors. For meetings other than annual meetings, the notice shall also state by and at whose direction and for what purpose or purposes the meeting is called. If the manner of giving notice of the meeting is not specified by law or the corporate charter, notice shall be given by mailing, postage prepaid, not less than ten (10) nor more than sixty (60) days before such meeting, a copy of the notice of such meeting, stating the purpose or purposes for which the 3 meeting is called and the time when and the place where it is to be held, to each stockholder of record on the record date established pursuant to Article VII, Section-4 entitled to vote at the meeting at his address as it appears on the stock book of the corporation, unless he shall have filed with the Secretary of the corporation a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request. If, at any meeting, action is proposed to be taken which would, if taken, entitle shareholders fulfilling the requirements of Section 623 of the New York Business Corporation Law to receive payment for their shares, the notice of such meeting shall also include a statement to that effect. SECTION 4. BUSINESS AT STOCKHOLDERS' MEETINGS: Business transacted at all meetings of stockholders shall be confined to the objects stated in the notice of the meeting and matters germane thereto. In the absence of fraud, the determination of the holders of a majority of the stock present in person or by proxy and entitled to vote at the meeting shall be conclusive as to whether any proposed action or proceeding at such meeting is within the scope of the notice of such meeting. SECTION 5. PROCEDURE: The order of business and all other matters of procedure at every meeting of stockholders may be determined by the presiding officer. SECTION 6. QUORUM: Except as otherwise provided by law or in the corporate charter, the presence of a majority of the holders of shares, in person or by proxy, entitled to vote thereat shall constitute a quorum at any shareholders' meeting. SECTION 7. ADJOURNMENTS: Except as otherwise provided by the corporate charter, the stockholders entitled to vote who are present in person or by proxy at any meeting of stockholders, whether or not a quorum shall be present or represented at the meeting, shall have power by a majority vote to adjourn the meeting from time to time without further notice other than announcement at the meeting, unless the board of directors shall fix a new record date in respect of such adjourned meeting, in which case the provisions of Section 3 of this Article shall apply. At any adjourned meeting at which the requisite amount of voting stock shall be present in person or by proxy any business may be transacted which might have been transacted at the meeting as originally called, and the stockholders entitled to vote at the meeting as originally called, and no others, unless the board of directors shall have fixed a new record date in respect thereof, shall be entitled to vote at such adjourned meeting. 4 SECTION 8. VOTING: Whenever an action shall require the vote of stockholders, the tabulations that identify the particular vote of a stockholder on all proxies, consents, authorizations and ballots shall be kept confidential, except as disclosure may be required (i) by applicable law, (ii) in pursuit or defense of legal proceedings, (iii) to resolve a bona fide dispute as to the authenticity of one or more proxies, consents, authorizations or ballots or as to the accuracy of any tabulation of such proxies, consents, authorizations or ballots, (iv) if an individual stockholder requests that his or her vote and identity be forwarded to the corporation, or (v) in the event of a proxy or consent solicitation in opposition to the solicitation of the Board of Directors of the corporation; and the receipt and tabulation of such votes will be by an independent third party not affiliated with the corporation. Comments written on proxies, consents, authorizations and ballots, will be transcribed and provided to the secretary of the corporation without reference to the vote of the stockholder, except where such stockholder has requested that the nature of their vote be forwarded to the corporation. Stockholders shall have such voting rights as may be granted by law and the provisions of the corporate charter. All questions presented to stockholders for decision shall be decided by a vote of shares. Voting may be viva voce unless a stockholder present in person or by proxy and entitled to vote at the meeting shall demand a vote by ballot in which event a vote by ballot shall be taken. Except where otherwise provided by law, the corporate charter or these by-laws, elections shall be determined by a plurality vote and all other questions that shall be submitted to stockholders for decision shall be decided by a majority of the votes cast. SECTION 9. INSPECTORS OF ELECTION: Two inspectors of election who are not employees or directors of the corporation, shall be appointed by the directors to serve at each meeting of stockholders, or of a class of stockholders, such inspectors to serve at such meeting and any adjournments thereof; and such inspectors shall have authority to count and report upon the votes cast at such meeting upon the election of directors and such other questions as may be voted upon by ballot. In the event that any such inspector of election shall not have been appointed by the directors to serve at such meeting, or, having been appointed, shall be absent from such meeting or adjournment or unable to serve thereat, such inspector shall be appointed by the presiding officer at such meeting or adjournment. The inspectors appointed to act at any meeting of stockholders, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspectors at such meeting with strict impartiality and according to the best of their ability, and the oath so taken shall be subscribed by them and shall be filed in the records of such meeting. The inspectors shall be responsible for determining the number of shares outstanding, the voting power of each, the shares represented at the meeting, the existence of a quorum, and the validity and effect of any proxies. They shall also receive and tabulate all votes, ballots or 5 consents and determine the result of any election, hear and determine all challenges and questions arising in connection with any election and do such acts to conduct the election according to the applicable provisions of'law of the State of New York. SECTION 10. PROXIES: Each stockholder entitled to vote at any meeting of stockholders may be represented and vote at such meeting by his proxy, authorized and acting in manner as provided by the applicable laws of the State of New York. No proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless otherwise provided in the proxy in accordance with law. ARTICLE III DIRECTORS SECTION 1. NUMBER AND QUALIFICATIONS: Except as otherwise required by the provisions of the corporate charter relating to the rights of the holders of any class or series of preferred or preference stock having a preference over the common stock as to dividends or to elect directors under specified circumstances, the board of directors shall consist of not less than nine (9) nor more than twenty-one (21) persons, the exact number initially to be fifteen (15) persons, subject to change from time to time to any number not less than nine (9) nor more than twenty-one (21) persons by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the board for adoption). Directors need not be stockholders. No person, other than those serving on November 11, 1976, who has reached age 70 prior to May 1 in the year such director would otherwise stand for election, shall stand for election as a director. SECTION 2. ELECTION AND TENURE OF OFFICE: Except as otherwise provided by law, the corporate charter or these by-laws, the directors of the corporation shall be elected at the annual meeting of the stockholders or at any meeting of the stockholders held in lieu of such annual meeting, which meeting, for the purposes of these by-laws, shall be deemed the annual meeting. The directors shall be classified, with respect to the time for which they severally hold office into three classes, as nearly equal in number as possible, one class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1989, another class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1990, and another class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1991, with the members of each class to hold office until their successors are elected and qualified. At each annual meeting of the stockholders of the corporation, the 6 successors to the class of directors whose terms expire at that meeting shall be elected, to hold office until the annual meeting of stockholders held in the third year following the year of their election. Except as otherwise provided in the corporate charter, the directors shall hold office until the annual meeting at which their respective terms expire and until their successors are elected and have qualified. The election of directors shall be conducted by two inspectors of election appointed as hereinbefore provided. The election need not be by ballot and shall be decided by a plurality vote. SECTION 3. RESIGNATION; REMOVAL: Any director of the corporation may resign at any time by giving his resignation to the chief executive officer of the corporation, or to the Secretary. Such resignation shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Subject to the rights of the holders of any class or series of preferred or preference stock having preference over the holders of common stock as to dividends or to elect directors under specified circumstances, any director, or the entire board of directors, may be removed from office at any time, but only for cause. SECTION 4. VACANCIES: Except as otherwise provided by the corporate charter, if the office of any director becomes vacant for any reason, a majority of the directors then in office, whether or not such majority shall constitute a quorum, may choose a successor who, to the extent required by New York law, shall hold office until the next annual meeting of stockholders at which the election of directors is in the regular order of business and until his successor has been elected and qualified; provided that if New York law does not so require, such director shall hold office for the full unexpired term of the director whose seat he is filling, or any such vacancy in the board of directors may be filled by the stockholders entitled to vote at any meeting of stockholders, notice of which shall have referred to the proposed election. Except as otherwise provided by the corporate charter, in the event of an increase in the number of directors pursuant to Section 1 of this Article III, a majority of the directors then in office, whether or not such majority shall constitute a quorum, may elect the additional director or directors who to the extent required by New York law, shall hold office until the next annual meeting of stockholders at which the election of directors is in the regular order of business and until his successor has been elected and qualified; provided that if New York law does not so require, such director or directors shall hold office for the full unexpired term of the class of directors to which such director or directors is elected, or any such director or directors may be elected by the stockholders entitled to vote at any meeting of stockholders, notice of which shall have referred to the proposed election. No decrease in the number of authorized directors constituting the entire board of directors shall shorten the term of any incumbent director. 7 SECTION 5. COMPENSATION: Members of the board of directors shall be entitled to compensation for service and the board of directors may assign duties to any member or members of the board and may fix the amount of compensation therefor, which shall be a charge to be paid by the corporation. The board of directors may elect or appoint members of the board as officers, members of committees, or agents of the corporation, may assign duties to be performed and may fix the amount of the respective salaries, fees or other compensation therefor, and the amount so fixed shall be a charge to be paid by the corporation. In addition to any other compensation provided pursuant to these by-laws, each director shall be entitled to receive a fee, in amount as fixed from time to time by resolution of the board of directors, for attendance at any meeting of the board, or of any committee of the board, together with his expenses of attendance, if any. SECTION 6. MEETINGS OF DIRECTORS: Regular meetings of the board of directors shall be held at such times and at such places as may be determined by the board of directors, or by the Chairman of the Board or by the President. Special meetings of the board may be called from time to time by any three directors, or by the Chairman of the Board or by the President. Any action required or permitted to be taken by the board or any committee thereof may be taken without a meeting if all board or committee members file one or more written consents to a resolution authorizing the action with the respective minutes of the board or committee as the case may be. Any one or more members of the board or of any of its committees may participate in a meeting of the board or committee by conference telephone or similar communications equipment allowing all participants in the meeting to hear each other at the same time. Participation by such means shall constitute presence at a meeting. SECTION 7. NOTICE OF MEETINGS OF BOARD OF DIRECTORS: Notice of each meeting of the board of directors, stating the time and place thereof, shall be given to each member of the board by the Secretary, or an Assistant Secretary, by mailing the same, postage prepaid, addressed to each member of the board at his residence or usual place of business not less than three (3) days before the meeting, or by delivering the same to each member of the board personally or to his residence or usual place of business, or by sending the same by telegraph or facsimile transmission to his residence or usual place of business, not less than one (1) day before the meeting. Meetings of the board of directors may also be held at any time and place without notice provided all the members are present at such meeting without protest or, at any time before or after the meeting, shall sign a written waiver of notice. The notice of any meeting of the board of directors need not specify the purpose or purposes for which the meeting is called, except as otherwise expressly provided in these by-laws. 8 SECTION 8. QUORUM: At all meetings of the board of directors, except where otherwise provided by law, the corporate charter, or these by-laws, a quorum shall be required for the transaction of business and shall consist of not less than one-third of the entire board, if the number of members be more than nine (9), but not less than a majority, if the number of directors be less than nine (9); and the vote of a majority of the directors present shall decide any questions that may come before the meeting. A majority of the directors present at any meeting, although less than a quorum, may adjourn the same from time to time, without notice other than announcement at the meeting, until a quorum is present. SECTION 9. PROCEDURE: The order of business and all other matters of procedure at every meeting of directors may be determined by the presiding member. ARTICLE IV COMMITTEES OF DIRECTORS SECTION 1. DESIGNATION: The board of directors, by resolution or resolutions adopted by a majority of the entire board, shall designate an Executive Committee, an Audit Committee and a Finance Committee, and may designate one or more other committees, each committee to consist of three (3) or more directors of the corporation. In the interim between meetings of the board, the Executive Committee shall have and may exercise the powers of the board of directors granted by the corporate charter and these by-laws and by resolution of the board, and such other committees shall have only such powers as shall be granted by these by-laws and by resolution of the board; provided, however, that no committee shall have authority as to the following matters: (a) The submission to shareholders of any action that needs shareholders' approval by law; (b) The filling of vacancies in the board of directors or in any committee; (c) The fixing of compensation of the directors for serving on the board or on any committee; (d) The amendment or repeal of the by-laws, or the adoption of new by-laws; or (e) The amendment or repeal of any resolution of the board which, by its terms, shall not be so amendable or repealable. 9 Each committee shall serve at the pleasure of the board of directors and shall have such name or names as may be determined from time to time by the by-laws or by resolution or resolutions adopted by the board of directors. Except as otherwise required by law, the existence of any such committee may be terminated, or its powers and authority modified, at any time by resolution of the board of directors. SECTION 2. EXECUTIVE COMMITTEE: When the board of directors is not in session, the Executive Committee shall have all of the authority of the board of directors, except it shall have no authority as to the matters specified in Section 1 of this Article IV. The Chairman of the Board shall be Chairman of the Executive Committee. The members of the Executive Committee shall serve at the pleasure of the board of directors. SECTION 3. AUDIT COMMITTEE: The Audit Committee shall recommend to the board of directors the accounting firm to be selected by the board or to be recommended by it for shareholder approval, as independent auditor of the corporation and its subsidiaries; act on behalf of the board in meeting and reviewing with the independent auditors, the chief internal auditor and the appropriate corporate officers matters relating to corporate financial reporting and accounting procedures and policies, adequacy of internal controls and the scope of the respective audits of the independent auditors and the internal auditor; review the results of such audits with the respective auditing agency and reporting thereon to the board; review and make recommendations to the board concerning the independent auditor's fees and services; review interim and annual financial reports and disclosures and submit to the board any recommendations it may have from time to time with respect to financial reporting and accounting practices and policies; be consulted, and its consent obtained, prior to the selection or termination of the chief internal auditor; oversee matters involving compliance with Corporate business ethics policies including the work of the Business Ethics Council; review management's assessment of financial risks; authorize special investigations and studies, as appropriate, in fulfillment of its function as specified herein or by resolution of the board of directors; and perform any other duties or functions deemed appropriate by the board of directors. The Committee will conduct a self-assessment at least every three years of its performance in relation to its powers and responsibilities. The membership of such committee shall consist only of directors of the corporation who are not, and have not been, officers of the company. SECTION 4. FINANCE COMMITTEE: The Finance Committee shall exercise such powers of the board of directors as shall be provided in one or more resolutions of the board of directors with respect to the issuance by the corporation of securities and evidences of indebtedness and the participation by the corporation in other financing transactions and with respect to the authorization of the making, modification, alteration, termination or abrogation of notes, bills, mortgages, sales, deeds, financing leases, liens and contracts of the corporation and shall further be empowered to take any action in connection with the determination of the terms of any 10 securities, evidences of indebtedness or other financing transactions of the corporation the issuance of which by the corporation or the participation in which by the corporation shall have theretofore been approved by the board of directors, and shall further perform any other duties or functions deemed appropriate by the board of directors. SECTION 5. RECORDS AND PROCEDURE: Said committees shall keep regular minutes of their proceedings and report the same to the board when required. Unless otherwise determined by the board of directors each committee may appoint a chairman and a secretary and such other officers of the committee as it may deem advisable, may determine the time and place of holding each meeting of the committee, the notice of meetings to be given to members, and all other procedural questions which may arise in connection with the work of the committee. SECTION 6. UNANIMOUS WRITTEN CONSENT: Any action authorized in writing, by all of the members of a committee, and filed with the minutes of the corporation shall be the act of that committee with the same force and effect as if the same had been passed by unanimous vote at a duly called meeting of such committee. SECTION 7. NOTICE: Unless otherwise provided by resolution of the board of directors or by a vote of a majority of the members of the relevant committee, notice of cormnittee meetings shall be given in the same manner as notice of special meetings of the board of directors is to be given under Article III, Section 7 of the By-Laws. ARTICLE V OFFICERS SECTION 1. OFFICERS: The officers of the corporation shall consist of a Chairman of the Board, a President, one or more Vice-Presidents, a Secretary, a Controller, a Treasurer, and such Assistant Secretaries, Assistant Controllers and Assistant Treasurers and other officers as shall be elected or appointed by the board of directors. The board of directors may elect or appoint a General Counsel upon such terms and with such powers and duties as it may prescribe and may also designate the General Counsel an officer of the corporation. 11 SECTION 2. ELECTION: The officers of the corporation shall be elected or appointed by the board of directors at the meeting of the board held after each annual meeting of the stockholders. The Chairman of the Board and the President shall be elected or appointed by the board of directors from among their number. Any number of Vice-Presidents, the Secretary, the Controller, the Treasurer and other officers established pursuant to resolution of the board of directors shall also be elected or appointed by the board of directors. SECTION 3. TERM OF OFFICE: The officers of the corporation shall hold office until the meeting of the board of directors held after the next annual meeting of the stockholders and until their successors are elected and have qualified, unless a shorter term is fixed or unless removed, subject to the provisions of law, by the board of directors. The Chairman of the Board, the President, any Vice President, the Secretary, the Controller or the Treasurer may be removed at any time, with or without cause, by the board of directors provided that notice of the meeting at which such action shall have been taken shall set forth such action as one of the purposes of such meeting. Any other officer of the corporation may be removed at any time, with or without cause, by the board of directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the board of directors at any time to serve the remaining current term of that office. SECTION 4. CHAIRMAN OF THE BOARD. There shall be a chairman of the Board of Directors, with the official title "Chairman of the Board", who shall be the chief executive officer of the corporation. The Chairman of the Board shall preside at meetings of the stockholders, the board of directors and the Executive Committee. He shall recommend to the board policies to be followed by the corporation, and, subject to the board, shall have general charge of the policies and business of the corporation and general supervision of the details thereof, and shall supervise the operation, maintenance and preservation of the properties of the corporation. He shall keep the board of directors informed respecting the business of the corporation. He shall have authority to sign on behalf of the corporation all contracts and other documents or instruments to be signed or executed by the corporation, and, in all cases where the duties and powers of subordinate officers and agents of the corporation are not specifically prescribed by the by-laws or by resolutions of the board of directors, the Chairman of the Board may prescribe such duties and powers. He shall perform such other duties as may from time to time be assigned to him by the board of directors. SECTION 5. THE PRESIDENT: The President shall have the direction of and responsibility for the operations of the corporation and such other powers and duties as the board of directors or the chairman of the Board shall designate from time to time and, in the absence or inability to act of the Chairman of the Board, shall have the powers and duties of the Chairman of the Board. The President, unless some other person is thereunto specifically authorized by vote of the board of directors, shall have authority to sign all contracts and other documents and instruments of the corporation. 12 SECTION 6. THE VICE-PRESIDENTS: The Vice-Presidents may be designated by such title or titles and in such order of seniority as the board of directors may determine. The Vice-Presidents shall perform such of the duties and exercise such of the powers of the President on behalf of the corporation as may be assigned to them respectively from time to time by the board of directors or by the Chairman of the Board or the President, and, subject to the control of the board, shall have authority to sign on behalf of the corporation all contracts and other documents or instruments necessary for the conduct of the business of the corporation. The Vice Presidents shall perform such other duties as may from time to time be assigned to them respectively by the board of directors or the Chairman of the Board or the President. SECTION 7. THE SECRETARY AND ASSISTANT SECRETARIES: The Secretary shall cause notices of all meetings of stockholders and directors to be given as required by law, the corporate charter, and these by-laws. He shall attend all meetings of stockholders and of the board of directors and keep the minutes thereof. He shall affix the corporate seal to and sign such instruments as require the seal and his signature and shall perform such other duties as usually pertain to his office or as are required of him by the board of directors or the Chairman of the Board or the President. Any Assistant Secretary may, in the absence or disability of the Secretary, or at his request, perform the duties and exercise the powers of the Secretary, and shall perform such other duties as the board of directors, the Chairman of the Board, the President or the Secretary shall prescribe. The Secretary or any Assistant Secretary may certify under the corporate seal as to the corporate charter or these by-laws or any provision thereof, the acts of the board of directors or any committee thereof, the tenure, signatures, identity and acts of officers of the corporation or other corporate facts, and any such certificate may be relied upon by any person or corporation to whom the same shall be given until receipt of written notice to the contrary. In the absence of the Secretary and of an Assistant Secretary, the stockholders or the board of directors may appoint a secretary pro tem to record the proceedings of their respective meetings and to perform such other acts pertaining to said office as they may direct. SECTION 8. THE CONTROLLER AND ASSISTANT CONTROLLERS: The Controller shall be the chief accounting officer of the corporation. He shall have general supervision of the accounting and financial reporting policies of the corporation, and shall recommend policies and procedures and shall render current and periodic reports of financial status to the Chairman of the Board, the 13 President and the board of directors. He shall perform such other duties as usually pertain to his office or as are required of him by the board of directors or the Chairman of the Board or the President. Any Assistant Controller may, in the absence or disability of the Controller, or at his request, perform the duties and exercise the powers of the Controller and shall perform such other duties as the board of directors, the Chairman of the Board, the President or the Controller shall prescribe. SECTION 9. THE TREASURER AND ASSISTANT TREASURERS: The Treasurer is authorized and empowered to receive and collect all moneys due the corporation and to receipt for the same. He shall be empowered to execute on behalf of the corporation all instruments, agreements and certificates necessary or appropriate to effect the issuance by the corporation of securities or evidences of indebtedness or to permit the corporation to enter into and perform any other financing transactions to the extent the foregoing are within the ordinary course of business of the corporation or have been authorized by the board of directors or a committee thereof. He shall cause to be entered in books of the corporation to be kept for that purpose full and accurate accounts of all moneys received by and paid on account of the corporation. He shall make and sign such reports, statements, and instruments as may be required of him by the board of directors or by laws of the United States or the State of New York, or by commission, bureau, department or agency created under any such laws, and shall perform such other duties as usually pertain to his office or as are required of him by the board of directors or the Chairman of the Board or the President. Any Assistant Treasurer may, in the absence or disability of the Treasurer, or at his request, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the board of directors, the Chairman of the Board, or the President, or the Treasurer shall prescribe. SECTION 10. ADDITIONAL OFFICERS: In addition to the officers provided for by these by-laws, the board of directors may, from time to time, designate and appoint such other officers as may be necessary or convenient for the transaction of the business and affairs of the corporation. Such other officers shall have such powers and duties as may be assigned to them by resolution of the board of directors. SECTION 11. OFFICERS HOLDING TWO OR MORE OFFICES: Any two or more of the above-mentioned offices may be held by the same person, except that the President shall not also be the Secretary, but no officer shall execute or verify any instrument in more than one capacity if such instrument be required by law or otherwise to be executed or verified by any two or more officers. 14 SECTION 12. DUTIES OF OFFICERS MAY BE DELEGATED: In case of the absence of any officer of the corporation, or for any other reason that the board of directors may deem sufficient, the board of directors may delegate, for the time and to the extent specified, the powers or duties of any officer to any other officer, or to any director. SECTION 13. COMPENSATION: The compensation of all officers with an assigned salary level above the scale of Salary Grade N as prescribed in the Salary Administration Program, as adopted by the board of directors, shall be fixed by the board of directors. The compensation of all other officers and employees shall be fixed by the Chairman of the Board or by the President in accordance with the Salary Administration Program. SECTION 14. BONDS: The board of directors may require any officer, agent or employee of the corporation to give a bond to the corporation, conditional upon the faithful performance of his duties, with one or more sureties and in such amount as may be satisfactory to the board of directors. The premium payable to any surety company for such bond shall be paid by the corporation. ARTICLE VI INDEMNIFICATION OF DIRECTORS AND OFFICERS; INSURANCE SECTION 1. INDEMNIFICATION: The corporation shall fully indemnify, to the extent not expressly prohibited by law, each person involved in, or made or threatened to be made a party to, any action, claim or proceeding, whether civil or criminal, including any investigative, administrative, legislative, or other proceeding, and including an action by or in the right of the corporation or any other corporation, or any partnership, joint venture, trust, employee benefit plan, or other enterprise, and including appeals therein (any such action or proceeding being hereinafter referred to as a "Matter"), by reason of the fact that such person, such person's testator or intestate (i) is or was a director or officer of the corporation, or (ii) is or was serving, at the request of the corporation, as a director, officer, or in any other capacity, any other corporation, or any partnership, joint venture, trust, employee benefit plan, or other enterprise, against any and all judgments, fines, penalties, amounts paid in settlement, and expenses, including attorneys' fees, actually and reasonably incurred as a result of or in connection with any Matter, except as provided in the next paragraph. No indemnification shall be made to or on behalf of any such person if a judgment or other final adjudication adverse to such person establishes that such person's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material 15 to the cause of action so adjudicated, or that such person personally gained in fact a financial profit or other advantage to which such person was not legally entitled. In addition, no indemnification shall be made with respect to any Matter initiated by any such person against the corporation, or a director or officer of the corporation, other than to enforce the terms of this article, unless such Matter was authorized by the board of directors. Further, no indemnification shall be made with respect to any settlement or compromise of any Matter unless and until the corporation has consented to such settlement or compromise. In making any determination regarding any person's entitlement to indemnification hereunder, it shall be presumed that such person is entitled to indemnification, and the corporation shall have the burden of proving the contrary. Written notice of any Matter for which indemnity may be sought by any person shall be given to the corporation as soon as practicable and the corporation shall be permitted to participate therein. Such person shall cooperate in good faith with any request that common counsel be utilized by the parties to any Matter who are similarly situated, unless to do so would be inappropriate due to actual or potential differing interests between or among such parties. SECTION 2. ADVANCEMENT OF EXPENSES: Except in the case of a Matter against a director, officer, or other person specifically approved by the board of directors, the corporation shall, subject to Section 1 above, pay expenses actually and reasonably incurred by or on behalf of such a person in connection with any Matter in advance of the final disposition of such Matter. Such payments shall be made promptly upon receipt by the corporation, from time to time, of a written demand of such person for such advancement, together with an undertaking by or on behalf of such person to repay any expenses so advanced to the extent that the person receiving the advancement is ultimately found not to be entitled to indemnification for part or all of such expenses. SECTION 3. RIGHTS NOT EXCLUSIVE: The rights to indemnification and advancement of expenses granted by or pursuant to this article (i) shall not limit or exclude, but shall be in addition to, any other rights which may be granted by or pursuant to any statute, corporate charter, by-law, resolution, or agreement, (ii) shall be deemed to constitute contractual obligations of the corporation to any director, officer, or other person who serves in a capacity referred to herein at any time while this article is in effect, (iii) are intended to be retroactive and shall be available with respect to events occurring prior to the adoption of this article, and (iv) shall continue to exist after the repeal or modification hereof with respect to events occurring prior thereto. It is the intent of this article to require the corporation to indemnify the persons referred to herein for the aforementioned judgments, fines, penalties, amounts paid in settlement, and expenses, including attorneys' fees, in each and every circumstance in which such indemnification could 16 lawfully be permitted by express provisions of by-laws, and the indemnification required by this article shall not be limited by the absence of an express recital of such circumstances. SECTION 4. AUTHORIZATION OF CONTRACTS: The corporation may, with the approval of the board of directors, enter into an agreement with any person who is, or is about to become, a director or officer of the corporation, or who is serving, or is about to serve, at the request of the corporation, as a director, officer, or in any other capacity, any other corporation, or any partnership, joint venture, trust, employee benefit plan, or other enterprise, which agreement may provide for indemnification of such person and advancement of expenses to such person upon terms, and to the extent, not prohibited by law. The failure to enter into any such agreement shall not affect or limit the rights of any such person under this article. SECTION 5. INSURANCE: The corporation may purchase and maintain insurance to indemnify the corporation and the directors and officers within the limits permitted by law. SECTION 6. SEVERABILITY: If any provision of this article is determined at any time to be unenforceable in any respect, the other provisions shall not in any way be affected or impaired thereby. ARTICLE VII STOCK SECTION 1. TRANSFER AGENT AND REGISTRAR: The board of directors may appoint one or more individuals, banks, firms of bankers, or trust companies the agent or agents of the corporation for the transfer of shares of its stock, and may also appoint one or more individuals, bank, firms of bankers, or trust companies registrar or registrars for the registering of shares of its stock. SECTION 2. CERTIFICATE OF STOCK: The certificates of stock of the corporation shall be numbered and shall be recorded in the books of the corporation as they are issued. They shall contain the holder's name and number of shares and shall be signed by the Chairman of the Board, the President or a Vice-President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall be sealed with the corporate seal, which may be a facsimile. Where any such certificate is signed by a registrar, the signatures of any such Chairman of the Board, President, Vice-President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer upon such certificate may be facsimiles. In case any such officer who has signed 17 or whose facsimile signature has been placed upon such certificate shall have ceased to be such before such certificate is issued, it may be issued by the corporation with the same effect as if such officer had not ceased to be such at the date of its issue. No certificate of stock shall be valid until countersigned by a transfer agent if the corporation have a transfer agent for the class or series of stock represented by such certificate whose signature may be a facsimile and until registered by a registrar if the corporation have a registrar for such class or series. SECTION 3. TRANSFERS OF SHARES: Subject to applicable law, shares of stock shall be transferable on the books of the corporation by the holder thereof, in person or by duly authorized attorney, upon the surrender to the corporation or any transfer agent of the corporation of the certificate representing the shares to be transferred, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the owner thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of New York. The board of directors, to the extent permitted by law, shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer, and registration of certificates of stock. SECTION 4. FIXING OF RECORD DATE OR CLOSING TRANSFER BOOKS: The board of directors may fix a day and hour, not more than sixty (60) days prior to the day on which any meeting of stockholders is to be held, as the time as of which stockholders entitled to notice of or to vote at such meeting and at all adjournments thereof shall be determined; and in the event such record date is fixed by the board of directors no one other than the holders of record on such date of stock entitled to notice of or to vote at such meeting shall be entitled to notice of or to vote at such meeting or, unless a new record date be fixed as provided in Article II, Section 7 of these by-laws, any adjournment thereof. The board of directors may at its option, in lieu of fixing a record date as aforesaid, prescribe a period, not exceeding sixty (60) days prior to any meeting of stockholders, during which no transfer of shares on the books of the corporation may be made. The board of directors may fix a day and hour, not exceeding sixty (60) days preceding the date fixed for the payment of a dividend or the making of any distribution, or for the delivery of evidences or rights or evidences of interests arising out of any change, conversion or exchange of stock, as a record time for the determination of the stockholders, or stockholders of any class or series, entitled to receive any such dividend, distribution, rights, or interests, and in such case only stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution, rights, or interests, or the board of directors may at its option prescribe a period, not exceeding sixty (60) days prior to the date for such payment, distribution or delivery, during which no transfer of stock on the books of the corporation may be made. 18 SECTION 5. LOST STOCK CERTIFICATES: The holder of any certificate representing shares of stock of the corporation shall immediately notify the corporation of any mutilation, loss, or destruction thereof, and the board of directors or an officer or officers duly authorized thereunto by the board of directors may in its or his discretion authorize one or more new certificates for the same number of shares in the aggregate to be issued to such holder upon the surrender of the mutilated certificate, or, in case of loss or destruction of the certificate, upon satisfactory proof of such loss or destruction and the deposit of indemnity by way of bond or otherwise in such form and amount and with such surety or sureties or security as the board of directors or such officer or officers may require to protect the corporation against loss or liability by reason of the issuance of such new certificates; but the board of directors may in its discretion refuse to issue new certificates save upon the order of the court having jurisdiction in such matters. SECTION 6. SCRIP: The board of directors may from time to time authorize the issuance by the corporation of scrip certificates representing interests in fractions of a full share of any class or series of stock of the corporation, and, subject to the provisions of the corporate charter and applicable provisions of law, shall have power to prescribe the rights, and the conditions and limitations thereof, to which the holders of such scrip certificates shall be entitled in respect of such scrip certificates and of the interests in shares of stock of the corporation represented thereby, which rights and the conditions and limitations thereon shall be set forth therein to the extent required by law. Such scrip certificates may be issued in registered or bearer form, as the board of directors may determine. ARTICLE VIII GENERAL PROVISIONS SECTION 1. FINANCES: The funds of the corporation shall be deposited in its name with such bank or banks, firm or firms of bankers, trust company or trust companies as the board of directors may from time to time designate. All checks, notes, drafts and other negotiable instruments of the corporation shall be signed by such officer or officers, agent or agents, employee or employees or such other person or persons as may be designated by the board of directors from time to time by resolution, or by the Chairman of the Board or the President or the Treasurer in the exercise of authority conferred by resolution of the board of directors. No officers, agents, employees of the corporation, or other person, alone or with others, shall have power to make any checks, notes, drafts or other negotiable instruments in the name of the corporation or to bind the corporation thereby, except as in this article provided. 19 SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall be the calendar year unless otherwise provided by the board of directors. ARTICLE IX CORPORATE SEAL SECTION 1. FORM OF SEAL: The seal of the corporation shall bear the name of the corporation, the year of its incorporation, and such appropriate design as the board of directors may approve. The seal on stock certificates or on any corporate obligation for the payment of money may be facsimile. ARTICLE X AMENDMENTS SECTION 1. PROCEDURE: These by-laws may be added to, amended, altered, or repealed at any meeting of stockholders, notice of which shall have referred to the proposed action, by the vote of the holders of record of a majority of the outstanding shares of the corporation entitled to vote, or, to the extent permitted by law, at any meeting of the board of directors, notice of which shall have referred to the proposed action, by the affirmative vote of a majority of the board of directors. SECTION 2. AMENDMENT OF BY-LAW REGULATING ELECTION OF DIRECTORS: If any by-law regulating an impending election of directors is adopted or amended or repealed by the board of directors, there shall be set forth in the notice of the next meeting of stockholders for the election of directors the by-law so adopted or amended or repealed, together with a concise statement of the changes made. 20 EX-5 4 OPINION LETTER FROM SULLIVAN & CROMWELL SULLIVAN & CROMWELL NEW YORK TELEPHONE: (212) 558-4000 TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC) 125 Broad Street, New York 10004-2498 CABLE ADDRESS: LADYCOURT, NEW YORK __________ FACSIMILE: (212) 558-3588 1701 PENNSYLVANIA AVE., N.W., WASHINGTON, D.C. 20006-5805 444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901 8, PLACE VENDOME, 75001 PARIS ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY 101 COLLINS STREET, MELBOURNE 3000 2-1, MARUNOUCHI I-CHOME, CHIYODA-KU, TOKYO 100 NINE QUEEN'S ROAD, CENTRAL, HONG KONG OBERLINDAU 54-56, 60323 FRANKFURT AM MAIN
June 26, 1998 Niagara Mohawk Power Corporation 300 Erie Boulevard West Syracuse, NY 13202 Ladies and Gentlemen: In connection with the registration under the Securities Act of 1933 (the "Act") of 20,546,264 shares (the "Securities") of Common Stock, par value $1.00 per share, of Niagara Mohawk Power Corporation, a New York corporation (the "Company"), we, as your special counsel, have examined such corporate records, certificates and other documents, and such questions of law as we have considered necessary or appropriate for the purposes of this opinion. Upon the basis of such examination, we advise you that, in our opinion, when the Company's shareholders have duly approveda proposal to increase the number of shares of Common Stock the Company is authorized to issue from 185,000,000 to 250,000,000, the Certificate of Amendment of the Company's Certificate of Incorporation, substantially in the form Niagara Mohawk Power Corporation -2- filed as an exhibit to the Registration Statement, has been duly filed with the Secretary of State of the State of New York, and the Securities have been duly issued pursuant to the terms of the Master Restructuring Agreement dated July 9, 1997, as amended, the Securities will be validly issued, fully paid and nonassessable. The foregoing opinion is limited to the Federal laws of the United States and the laws of the State of New York, and we are expressing no opinion as to the effect of the laws of any other jurisdiction. In rendering the foregoing opinion, we have relied as to certain matters on information obtained from public officials, officers of the Company and other sources believed by us to be responsible. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading "Validity of the Shares" in the Prospectus. In giving such consent, we do not Niagara Mohawk Power Corporation -3- thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, -----END PRIVACY-ENHANCED MESSAGE-----