-----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, AryLCZlBpol6w/h7Ki+IaIup52XeO9kC3+b20j036qvch8PFRIGUYRYiYP5wwzDJ tQ13k032sQWNTcUi+nPkWg== 0001047469-98-024388.txt : 19980619 0001047469-98-024388.hdr.sgml : 19980618 ACCESSION NUMBER: 0001047469-98-024388 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980617 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: 333-49541 FILM NUMBER: 98649637 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 - -----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, B6DlhMXgRdtq5/cQpJEk5zM/Qmx9kp5orfaVqRgJ2dUIBsR2acXoUIeXm0wISda+ 6Vgazy26UJRWYvTtCbOlSw== 0001047469-98-024388.txt : 19980618 0001047469-98-024388.hdr.sgml : 19980618 ACCESSION NUMBER: 0001047469-98-024388 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980617 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: 333-49541 FILM NUMBER: 98649637 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 FOR S-3/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1998. REGISTRATION NO. 333-49541 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 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: ROBERT E. BUCKHOLZ, JR., ESQ. DANIEL G. KELLY, JR., ESQ. SULLIVAN & CROMWELL SIDLEY & AUSTIN 125 BROAD STREET 875 THIRD AVENUE NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 10022
------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------------ 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. / / 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 Act 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. - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JUNE 17, 1998 [LOGO] PROSPECTUS June , 1998 $3,450,000,000 NIAGARA MOHAWK POWER CORPORATION $300,000,000 % SERIES A SENIOR NOTES DUE 1999 $400,000,000 % SERIES E SENIOR NOTES DUE 2003 $450,000,000 % SERIES B SENIOR NOTES DUE 2000 $400,000,000 % SERIES F SENIOR NOTES DUE 2005 $400,000,000 % SERIES C SENIOR NOTES DUE 2001 $600,000,000 % SERIES G SENIOR NOTES DUE 2008 $400,000,000 % SERIES D SENIOR NOTES DUE 2002 $500,000,000 % SENIOR DISCOUNT NOTES DUE 2010
The Series A through G Senior Notes and the Senior Discount Notes (collectively, the "Notes") are being offered (the "Offering") by Niagara Mohawk Power Corporation (the "Company"). Interest on the Series A, C and E Notes will be payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 1999. Interest on the Series B, D, F and G Notes will be payable semi-annually in arrears on April 1 and October 1 of each year, commencing on October 1, 1998. The Series A through G Notes will be redeemable at the option of the Company, in whole or in part, at any time, at a redemption price equal to 100% of the principal amount thereof plus accrued interest thereon, if any, plus the Make-Whole Premium (as defined). In addition, the Company may, at its option, by delivering a notice of redemption at any time during the period from April 1, 1999 through December 31, 2000 use the cash proceeds from any sale or sales of certain assets to redeem up to $500.0 million aggregate principal amount of the Series B through F Notes on a pro rata basis (by series) at a redemption price equal to 100% of the principal amount thereof plus accrued interest thereon, if any, to the date of redemption (the "Special Redemption"). See "Description of Notes--Special Redemption." The Senior Discount Notes will be issued in such aggregate principal amount and bear such rate of interest as will generate gross proceeds of approximately $ million and will be issued at a substantial discount from their principal amount. See "Description of Notes" and "Certain United States Federal Income Tax Considerations." The Senior Discount Notes will accrete at a rate of %, compounded semi-annually, to an aggregate principal amount at maturity of $500.0 million by July 1, 2003. Thereafter, the Senior Discount Notes will accrue cash interest at a rate of % per annum, payable semi-annually on January 1 and July 1 of each year, commencing January 1, 2004. The Senior Discount Notes will be redeemable at the option of the Company, in whole or in part, at any time prior to July 1, 2003, at a redemption price equal to 100% of the Accreted Value (as defined) thereof plus the Make-Whole Premium, and at any time on or after July 1, 2003, at the redemption prices set forth herein, plus accrued interest, if any, to the date of redemption. See "Description of Notes-- Optional Redemption." Upon the occurrence of a Change of Control Triggering Event (as defined), the holders of the Notes will have the right to require the Company to repurchase their Notes, in whole or in part, at a price equal to 101% of the aggregate principal amount thereof (in the case of the Series A through G Notes) or 101% of the Accreted Value of the Senior Discount Notes (if such repurchase occurs prior to July 1, 2003) or 101% of the principal amount at maturity of the Senior Discount Notes (if such repurchase occurs on or after July 1, 2003), plus accrued interest thereon, if any, to the date of repurchase. There can be no assurance that the Company will have sufficient funds to repurchase the Notes following a Change of Control Triggering Event. The Notes are senior unsecured obligations of the Company and will rank PARI PASSU in right of payment to all existing and future senior indebtedness of the Company ("Senior Indebtedness"). Upon completion of the Offering, the Company will have outstanding approximately $6.8 billion of Senior Indebtedness, consisting primarily of $2.8 billion of First Mortgage Bonds (as defined), which are secured by a lien on substantially all of the Company's utility property, $529.0 million of borrowings under the Credit Facility (as defined), which are secured with First Mortgage Bonds, $20.0 million of unsecured Medium Term Notes (as defined) and the Notes. In addition, the Company will have available up to $275.0 million under the Credit Facility. Upon completion of the Offering, the Company will not have any outstanding indebtedness that ranks junior in right of payment to the Notes ("Subordinated Indebtedness"). Under the terms of the Indenture (as defined), the Company may in the future issue additional First Mortgage Bonds, including in connection with a refinancing of the Credit Facility, and additional series of Notes, as well as Subordinated Indebtedness, subject to certain exceptions. See "Description of Notes" and "Description of Other Indebtedness." The Company does not intend to list the Notes on any national securities exchange. Although the Underwriters have indicated that they currently intend to make a market in the Notes, there can be no assurance that any market for the Notes will develop or, if any such market develops, that it would continue to exist. Such market-making activities may be discontinued at any time. SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS PRIOR TO ANY INVESTMENT IN THE NOTES. 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.
- - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OR PRICE TO UNDERWRITING PRINCIPAL AMOUNT THE DISCOUNTS AND AT MATURITY PUBLIC COMMISSIONS(1) - - ----------------------------------------------------------------------------------------------------------------------------- Per Series A Note............................................. $300,000,000 % % Per Series B Note............................................. $450,000,000 % % Per Series C Note............................................. $400,000,000 % % Per Series D Note............................................. $400,000,000 % % Per Series E Note............................................. $400,000,000 % % Per Series F Note............................................. $400,000,000 % % Per Series G Note............................................. $600,000,000 % % Per Senior Discount Note...................................... $500,000,000 % % Total..................................................... $ 3,450,000,000 $ $ - - ----------------------------------------------------------------------------------------------------------------------------- - - -------------------------------------------------------------- PROCEEDS TO THE COMPANY(2) - - -------------------------------------------------------------- Per Series A Note............................................. % Per Series B Note............................................. % Per Series C Note............................................. % Per Series D Note............................................. % Per Series E Note............................................. % Per Series F Note............................................. % Per Series G Note............................................. % Per Senior Discount Note...................................... % Total..................................................... $ - - --------------------------------------------------------------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITING." (2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $2,087,240. The securities are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to various prior conditions. It is expected that delivery of the Notes will be made in New York, New York against payment therefor on or about 1998, which will be the eighth business day following the date hereof (such settlement cycle being herein referred to as "T+8"). Purchasers of the Notes should note that trading of the Notes on the date hereof or the next four succeeding business days may be affected by the T+8 settlement. See "Underwriting." DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. WASSERSTEIN PERELLA SECURITIES, INC. J.P. MORGAN & CO. SALOMON SMITH BARNEY CITICORP SECURITIES, INC. TD SECURITIES [LOGO] THE UNDERWRITERS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 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 IN THEIR ENTIRETY. SEE "GLOSSARY OF CERTAIN ELECTRICITY, NATURAL GAS TERMS AND ACCOUNTING" 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") have agreed to terminate, restate or amend 27 power purchase agreements ("PPAs") between the Company and such IPPs in exchange for cash and shares of the Company's common stock (the "Common Stock"). The closing of this Offering is contingent upon and expected to occur concurrently with the consummation of the MRA. The closing of the MRA is presently scheduled for June 30, 1998. The proceeds from this Offering, together with cash on hand, will be used to fund the Company's cash obligation under the MRA. Pursuant to the MRA, the Company will also issue approximately 42.9 million shares of Common Stock either directly to the IPP Parties or a portion of such 42.9 million shares may be sold in a public offering and the net proceeds thereof paid to the IPP Parties. See "Description of Other Indebtedness," "Use of Proceeds" and "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 (earnings before interest, income taxes, depreciation and amortization and extraordinary items), 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 Offering, and the principal terms of the PowerChoice Agreement excluding the Genco Divestiture, the Company would have had revenues, EBITDA, interest charges and net loss of approximately $3.8 billion, $1.3 billion, $505.5 million, and $(27.9) million, respectively. 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. 3 BACKGROUND OF TRANSACTION 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 CENTS 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. 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." THE MRA The MRA is an agreement among the Company and 14 IPPs (the "IPP Parties") that sell electricity to the Company under 27 PPAs, representing in excess of 75% of the Company's estimated above-market power purchase obligation. The Company expects to consummate the MRA concurrently with and as a condition to the Offering. Upon consummation of the MRA, the 27 PPAs will be terminated, restated or amended in exchange for an aggregate payment to the IPP Parties of approximately $3.6 billion in cash and approximately 42.9 million shares of Common Stock (representing approximately 23% of the Company's outstanding shares following such issuance). The closing of the MRA is subject to approval by the Company's common shareholders of the issuance of Common Stock to the IPP Parties. See "The MRA and the PowerChoice Agreement." 4 THE POWERCHOICE AGREEMENT 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 elements of the PowerChoice Agreement include: (i) a revenue reduction (exclusive of reductions in the New York State Gross Receipts Tax ("GRT")) of approximately $111.8 million for all customer classes to be phased-in over three years beginning upon the consummation of the MRA; (ii) a cap on 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 a regulatory asset, reflecting the recoverable costs of the MRA which will be amortized generally over ten years (the "MRA Regulatory Asset"); (v) an agreement by the Company to divest its fossil and hydro electric generating facilities (4,217 MW) within a defined time period and retain its nuclear generating facilities (1,082 MW) 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. 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 an opportunity to form a holding company which, if formed, would enhance the Company's ability to explore unregulated business opportunities to foster longer-term strategic growth. The Company is seeking approval from its shareholders for the formation of a holding company. The implementation of a holding company structure, if approved by the Company's shareholders, would only occur following various regulatory approvals. Upon formation of a holding company, the Company's obligations under the Notes would remain with the Company and would not be transferred to the holding company. 5 THE OFFERING Securities Offered.............. $300.0 million principal amount of % Series A Senior Notes due 1999; $450.0 million principal amount of % Series B Senior Notes due 2000; $400.0 million principal amount of % Series C Senior Notes due 2001; $400.0 million principal amount of % Series D Senior Notes due 2002; $400.0 million principal amount of % Series E Senior Notes due 2003; $400.0 million principal amount of % Series F Senior Notes due 2005; $600.0 million principal amount of % Series G Senior Notes due 2008; $500.0 principal amount at maturity of % Senior Discount Notes due 2010. Maturity Dates.................. The Series A, C and E Notes will mature on July 1, 1999, 2001 and 2003, respectively. The Series B, D, F and G Notes will mature on October 1, 2000, 2002, 2005 and 2008, respectively. The Senior Discount Notes will mature on July 1, 2010. Interest Payment Dates.......... Interest on the Series A, C and E Notes will be payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 1999. Interest on the Series B, D, F and G Notes will be payable semi-annually in arrears on April 1 and October 1 of each year, commencing on October 1, 1998. The Senior Discount Notes will accrete at a rate of %, compounded semi-annually on January 1 and July 1 of each year, commencing July 1, 1998, to an aggregate principal amount of $500.0 million by July 1, 2003. Thereafter, the Senior Discount Notes will accrue cash interest at a rate of % per annum, payable semi-annually on January 1 and July 1 of each year, commencing January 1, 2004. Ranking......................... The Notes are senior unsecured obligations of the Company and will rank PARI PASSU in right of payment to the Senior Indebtedness. Upon completion of the Offering, the Company will have 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 Credit Facility, which are secured with First Mortgage Bonds, $20.0 million of unsecured Medium Term Notes, and the Notes. See "Description of Other Indebtedness." Mandatory Redemption............ The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes prior to maturity. Under certain circumstances, the Company is required to make an offer to repurchase Notes. See "Description of Notes--Proceeds of Certain Asset Sales." Optional Redemption............. The Series A through G Notes will be redeemable at the option of the Company, in whole or in part, at any time, at a redemption price equal to 100% of the principal amount thereof plus accrued interest thereon, if any, plus the Make-Whole Premium. The Senior Discount Notes will be redeemable at the option of the Company, in whole or in part, at any time prior to July 1, 2003 at a redemption price equal to 100% of the Accreted Value thereof plus the Make-Whole Premium and at any time on or after July 1, 2003 at the redemption prices set forth herein, plus accrued interest
6 thereon, if any, to the date of redemption. See "Description of Notes--Optional Redemption." Special Redemption.............. The Company may, at its option, by delivering a notice of redemption at any time during the period from April 1, 1999 through December 31, 2000, use the Net Proceeds from any sale or sales of its fossil and hydro generating facilities to redeem up to $500.0 million aggregate principal amount of the Series B through F Notes on a pro rata basis (by series) at a redemption price equal to 100% of the principal amount thereof plus accrued interest thereon, if any, to the date of redemption. See "Description of Notes--Special Redemption." Change of Control............... Upon the occurrence of a Change of Control Triggering Event, the holders of the Notes will have the right to require the Company to repurchase their Notes, in whole or in part, at a price equal to 101% of the aggregate principal amount thereof (in the case of the Series A through G Notes) or 101% of the Accreted Value of the Senior Discount Notes (if such repurchase occurs prior to July 1, 2003) or 101% of the principal amount at maturity of the Senior Discount Notes (if such repurchase occurs on or after July 1, 2003), plus accrued interest thereon, if any, to the date of repurchase. There can be no assurance that the Company will have sufficient funds to repurchase the Notes following a Change of Control Triggering Event. See "Description of Notes--Change of Control." Covenants....................... The indenture under which the Notes will be issued (the "Indenture") will contain certain covenants that, among other things, limit the ability of the Company to pay dividends, incur additional indebtedness, secure certain indebtedness without also securing the Notes, enter into certain transactions with affiliates or consummate certain mergers or consolidations. See "Description of Notes." Original Issue Discount......... The Senior Discount Notes are being issued with original issue discount for U.S. federal income tax purposes. Thus, although cash interest will not be payable on the Senior Discount Notes prior to January 1, 2004, holders will be required to include amounts in gross income for U.S. federal income tax purposes in advance of receipt of the cash payments to which the income is attributable. See "Certain United States Federal Income Tax Considerations-- Original Issue Discount."
RECENT DEVELOPMENTS Following discussions with the staff of the Securities and Exchange Commission, the Company has restated its financial results for 1997. Originally, the Company's fourth-quarter 1997 reported financials reflected a one-time, non-cash charge of $190.0 million, or $0.85 per share related to the MRA, that the Company determined was necessary after reviewing the PSC Order. Subsequently, the Company has decided to reflect the non-cash charge in 1998 upon consummation of the MRA, which is presently scheduled for June 30, 1998. As a result of such restatement, the Company will report restated 1997 earnings of $145.9 million, or $1.01 per share, as compared to the previously reported earnings of $22.4 million, or $0.16 per share. In addition, the Company will report a restated fourth-quarter loss of $(1.4) million, or $(0.01) per share, as compared to the previously reported loss of $(124.9) million or $(0.86) per share. All financial data in this Prospectus have been presented to reflect such restatement. 7 USE OF PROCEEDS The Company will use the net proceeds from the Offering, together with cash on hand to make cash payments to the IPP Parties in connection with the MRA. Pursuant to the MRA, the Company will also issue approximately 42.9 million shares of Common Stock either directly to the IPP Parties or, subject to an amendment to the MRA, a portion of such 42.9 million shares may be sold in a public offering and the net proceeds thereof paid to the IPP Parties. See "Use of Proceeds" and "The MRA and the PowerChoice Agreement." RISK FACTORS Prospective investors should consider carefully the risks discussed under "Risk Factors" before deciding to invest in the Notes. 8 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA The following table presents certain historical and pro forma financial and operating data of the Company as of the dates and for the periods indicated. The historical financial data as of the end of and for each of the three years in the period ended December 31, 1997 are derived from the audited consolidated financial statements of the Company. The historical financial data as of and for the three months ended March 31, 1997 and March 31, 1998 are derived from the unaudited financial statements of the Company, which in the opinion of management, contain all adjustments necessary for a fair presentation thereof. The following data should be read in conjunction with "Pro Forma Condensed Financial Statements," "Selected Historical Financial Data," "Management's Discussion of Pro Forma Condensed Financial Statements" and the Consolidated Financial Statements of the Company, including the notes thereto, appearing elsewhere or incorporated by reference in this Prospectus. The pro forma financial data are not necessarily indicative of the results that would be achieved if the pro forma transactions had occurred on the dates indicated or the results that will be achieved in the future. The results for the three months ended March 31, 1998 are not necessarily indicative of the results that may be achieved for the full year ending December 31, 1998.
TWELVE MONTHS ENDED YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, MARCH 31, ------------------------------------------- -------------------------------- ---------- PRO FORMA PRO FORMA PRO FORMA 1995 1996 1997 1997 (1) 1997 1998 1998(1) 1998(1) (Dollars in thousands except per share data) STATEMENT OF INCOME DATA: Operating revenues....... $3,917,338 $3,990,653 $3,966,404 $3,870,904 $1,163,832 $1,098,404 $1,074,529 $3,805,476 Operating income......... 684,034 522,338 558,839 606,839 231,937 134,297 144,797 503,199 Interest charges......... 279,674 278,033 273,906 511,806 67,538 65,590 123,965 505,458 Income before federal and foreign income taxes... 407,429 280,248 309,930 113,630 171,499 72,932 23,457 13,463 Net income (loss)........ 248,036 110,390 183,335 55,735 103,022 20,363 (11,787) (27,924) Balance available for common stock........... 208,440 72,109 145,938 18,338 93,623 11,140 (21,010) (65,145) Average shares of common stock outstanding (in thousands)............. 144,329 144,350 144,404 187,304 144,389 144,419 187,319 187,312 Basic and diluted earnings (loss) per average share of common stock.................. $ 1.44 $ 0.50 $ 1.01 $ 0.10 $ 0.65 $ 0.08 $ (0.11) $ (0.35) OTHER OPERATING DATA: EBITDA (2)............... $ 929,130 $ 957,549 $ 961,502 $1,426,702 358,863 $ 222,273 $ 337,073 $1,318,887 Net cash interest (3).... 260,548 244,501 226,890 446,290 56,305 54,783 108,936 440,368 Capital expenditures (4).................... 345,804 352,049 290,757 290,757 53,552 132,354 132,354 369,559 Amortization of MRA Regulatory Asset....... -- -- -- 378,000 -- -- 94,500 378,000 Depreciation and amortization........... 317,831 329,827 339,641 339,641 84,222 87,950 87,950 343,369 Ratio of EBITDA to net cash interest (5)...... 3.6x 3.9x 4.2x 3.2x 6.4x 4.1x 3.1x 3.0x BALANCE SHEET DATA (AT END OF PERIOD): Net utility plant........ $7,007,853 $6,957,615 $6,868,044 $6,868,044 $6,919,730 $6,897,664 $6,897,664 $6,897,664 Regulatory assets (including MRA Regulatory Asset)...... 1,300,812 1,214,306 1,176,824 5,166,024 1,171,468 1,174,570 5,162,570 5,162,570 Total assets............. 9,477,869 9,427,635 9,584,141 13,412,941 9,515,010 9,707,583 13,536,383 13,536,383
9
TWELVE MONTHS ENDED YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, MARCH 31, ------------------------------------------- -------------------------------- ---------- PRO FORMA PRO FORMA PRO FORMA 1995 1996 1997 1997 (1) 1997 1998 1998(1) 1998(1) (Dollars in thousands) CAPITALIZATION (AT END OF PERIOD): Long-term debt, excluding current portion........ $3,582,414 $3,477,879 $3,417,381 $6,689,381 $3,478,628 $3,418,299 $6,690,299 $6,690,299 Preferred stock, excluding current portion................ 536,850 526,730 516,610 516,610 526,730 516,610 516,610 516,610 Common stockholders' equity................. 2,513,952 2,585,572 2,727,527 3,138,027 2,676,890 2,739,957 3,150,457 3,150,457 --------- --------- --------- ---------- --------- --------- ---------- ---------- Total capitalization... $6,633,216 $6,590,181 $6,661,518 $10,344,018 $6,682,248 $6,674,866 $10,357,366 $10,357,366 --------- --------- --------- ---------- --------- --------- ---------- ---------- --------- --------- --------- ---------- --------- --------- ---------- ----------
- - ------------------------------ (1) Gives pro forma effect to the consummation of the MRA and the Offering, and the principal terms of the PowerChoice Agreement excluding the Genco Divestiture, as if such transactions had occurred on the first day of each period presented for purposes of the unaudited Pro Forma Condensed Statements of Income and on December 31, 1997 or March 31, 1998, as applicable, for purposes of the unaudited Pro Forma Condensed Balance Sheet. See the "Pro Forma Condensed Financial Statements" including the accompanying notes. (2) EBITDA represents earnings before interest charges, interest income, income taxes, depreciation and amortization, amortization of nuclear fuel, allowance for funds used during construction, MRA Regulatory Asset 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 contained herein and the Consolidated Statements of Cash Flows incorporated by reference in this Prospectus. (3) Net cash interest reflects interest charges plus allowance for funds used during construction less the non-cash impact of the net amortization of discount on long-term debt, interest accrued on the Nuclear Waste Policy Act disposal liability and interest accreted on the Senior Discount Notes that is not otherwise capitalized less interest income. (4) Capital expenditures consist of amounts for the Company's construction program related to its transmission, distribution and generation operations (including nuclear fuel, related allowance for funds used during construction and capitalized overhead expenses), and the amounts incurred to comply with the Clean Air Act and other environmental requirements. (5) For purposes of determining the ratio of EBITDA to net cash interest, EBITDA and net cash interest are calculated as described above in notes (2) and (3). The ratio of EBITDA to net cash interest is presented to provide additional information about the Company's ability to meet its future requirements for debt service. See the Pro Forma Condensed Statements of Income contained herein and the Consolidated Statements of Cash Flows incorporated by reference in this Prospectus. 10 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," "MANAGEMENT'S DISCUSSION OF PRO FORMA CONDENSED FINANCIAL STATEMENTS" 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. SUBSTANTIAL LEVERAGE AND LIMITED FINANCIAL FLEXIBILITY Following consummation of the MRA and the Offering, the Company will have 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 Offering, the Company would have had outstanding approximately $6.8 billion of Senior Indebtedness, consisting 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 Credit Facility, which are secured with First Mortgage Bonds, $20.0 million of unsecured Medium Term Notes and the Notes. The Company also will have available additional borrowings of $275.0 million under the Credit Facility and, under the financial covenants set forth in the Indenture, will have the ability to incur up to an additional $ billion of indebtedness. See "Capitalization," "Summary Historical and Pro Forma Financial Data," "The MRA and the PowerChoice Agreement," "Description of Notes--Certain Covenants--Incurrence of Indebtedness" and "Description of Other Indebtedness." The degree to which the Company is leveraged could have important consequences to holders of the Notes, 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. As a result, any reduction in revenues or significant increase in costs or expenditures could materially adversely affect the Company's ability to satisfy its obligations under the Notes. See "Management's Discussion of Pro Forma Condensed Financial Statements--Liquidity and Capital Resources," "Description of Other Indebtedness," and "Description of Notes." 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, including the payment of principal and interest under the Notes, 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 11 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 ability to service its obligations under the Notes 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 becomes final. 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 herein. Certain parties have filed petitions for rehearing before the PSC. Of the six petitions filed, three have been denied. In addition, certain parties 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 and on the cash available to service the Notes. 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 repay the Notes 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 three-year testing period by 12 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 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 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 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. LIMITATIONS ON HOLDERS' CLAIMS WITH RESPECT TO SENIOR DISCOUNT NOTES The Senior Discount Notes will be issued with a substantial original issue discount from their principal amount at maturity. Consequently, purchasers of the Senior Discount Notes will be required to include amounts in gross income for federal income tax purposes in advance of receipt of the cash payments to which the income is attributable. See "Certain United States Federal Income Tax Considerations" for a more detailed discussion of the federal income tax consequences to the purchasers of the Senior Discount Notes resulting from the purchase, ownership or disposition thereof. Under the Indenture, in the event of an acceleration of the maturity of the Notes upon the occurrence of an Event of Default, holders of the Senior Discount Notes may be entitled to recover only the amount which may be declared due and payable pursuant to the Indenture, which could be less than the principal amount at maturity of such Senior Discount Notes. See "Description of the Notes--Events of Default and Remedies." If a bankruptcy case is commenced by or against the Company under the United States Bankruptcy Code, the claim of a holder with respect to the principal amount thereof may be limited to an amount equal to the sum of (i) the issue price of the Senior Discount Notes as set forth on the cover page hereof and (ii) that portion of the original issue discount (as determined on the basis of such issue price) which is not deemed to constitute "unmatured interest" for purposes of the United States Bankruptcy Code. Accordingly, under such circumstances, even if sufficient funds are available, holders may receive a lesser amount than they otherwise may be entitled to under the express terms of the Indenture. In addition, there can be no assurance that a bankruptcy court would compute the accrual of interest by the same method as that used for the calculation of original issue discount under federal income tax law and, accordingly, a holder might be required to recognize gain or loss in the event of a distribution related to such a bankruptcy case. See "Certain United States Federal Income Tax Considerations--Disposition of Notes." 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 13 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 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. Such a non-cash charge would not reduce the Company's capacity to make the types of payments that are restricted under the Indenture. See "Description of Notes--Certain Covenants--Restricted Payments." ABSENCE OF PUBLIC MARKET The Notes will constitute a new issue of securities with no established trading market, and the Company does not intend to list the Notes on any national securities exchange. The Company has been advised by the Underwriters that they currently intend, following completion of the Offering, to make a market in the Notes; however, they are not obligated to do so, and any market-making may be discontinued at any time without notice. Accordingly, no assurance can be given that any active public or other market will develop for the Notes or as to the liquidity of the Notes. See "Underwriting." 14 USE OF PROCEEDS The proceeds of the Offering (after deducting underwriting discounts and commissions and other estimated expenses of the Offering payable by the Company) are expected to be approximately $ billion. All such net proceeds, together with $ million of cash on hand, will be applied by the Company to make payments to the IPP Parties pursuant to the MRA. Pursuant to the MRA, the Company will also issue approximately 42.9 million shares of Common Stock either directly to the IPP Parties or, subject to an amendment to the MRA, a portion of such 42.9 million shares may be sold in a public offering and the net proceeds thereof paid to the IPP Parties. See "The MRA and the PowerChoice Agreement." 15 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1998 on a historical basis and as adjusted to give pro forma effect to consummation of the MRA and the Offering, and the principal terms of the PowerChoice Agreement excluding the Genco Divestiture. This table should be read in conjunction with "Pro Forma Condensed Financial Statements," "Summary Historical and Pro Forma Financial Data," "Management's Discussion of Pro Forma Condensed Financial Statements" and the Consolidated Financial Statements, including the notes thereto, appearing elsewhere or incorporated by reference in this Prospectus.
AT MARCH 31, 1998 --------------------------- HISTORICAL PRO FORMA (Dollars in thousands) COMMON STOCKHOLDERS' EQUITY: Common stock, par value $1.00 per share, 185,000,000 shares authorized.(1) Issued and outstanding 144,419,351 and 187,319,351 shares, respectively................. $ 144,419 $ 187,319 Capital stock premium and expense.................................................. 1,780,978 2,272,078 Retained earnings.................................................................. 814,560 691,060 ------------ ------------- 2,739,957 3,150,457 ------------ ------------- PREFERRED STOCK: Preferred stock, cumulative, par value $100 per share, 3,400,000 shares authorized: Mandatorily redeemable. Issued and outstanding 222,000 shares.................... 22,200 22,200 Non-redeemable. Issued and outstanding 2,100,000 shares.......................... 210,000 210,000 Preferred stock, cumulative, par value $25 per share, 19,600,000 shares authorized: Mandatorily redeemable. Issued and outstanding 2,581,204 shares.................. 64,530 64,530 Non-redeemable. Issued and outstanding 9,200,000 shares.......................... 230,000 230,000 ------------ ------------- Total preferred stock.......................................................... 526,730 526,730 Less--Preferred stock due within one year...................................... 10,120 10,120 ------------ ------------- 516,610 516,610 ------------ ------------- Preference stock, par value $25 per share, 8,000,000 shares authorized. None issued and outstanding.................................................................. -- -- LONG-TERM DEBT: First Mortgage Bonds............................................................... 2,801,305 2,801,305 Promissory Notes................................................................... 413,760 413,760 Credit Facility.................................................................... 105,000 105,000 Senior Notes....................................................................... -- 2,950,000 Senior Discount Notes.............................................................. -- 322,000 Other long-term debt............................................................... 165,299 165,299 ------------ ------------- Total long-term debt........................................................... 3,485,364 6,757,364 Less--Long-term debt due within one year....................................... 67,065 67,065 ------------ ------------- 3,418,299 6,690,299 ------------ ------------- Total capitalization......................................................... $ 6,674,866 $ 10,357,366 ------------ ------------- ------------ -------------
- - ------------------------ (1) The Company is seeking authorization from its shareholders at its 1998 annual meeting to increase the number of authorized shares of Common Stock. If such approval is not received, the Company intends either to renegotiate the terms of the MRA to increase cash and decrease the number of shares of Common Stock to be issued to the IPP Parties, or to buy outstanding Common Stock to be used for the MRA payments. 16 PRO FORMA CONDENSED FINANCIAL STATEMENTS INTRODUCTION The following unaudited Pro Forma Condensed Statements of Income and unaudited Pro Forma Condensed Balance Sheet are based on the historical Consolidated Financial Statements of the Company incorporated by reference in this Prospectus, as adjusted to give effect to (i) the consummation of the MRA; (ii) the consummation of the Offering; (iii) the issuance of approximately 42.9 million shares of Common Stock to the IPP Parties; and (iv) the principal terms of the PowerChoice Agreement, including the first year impact of a three year rate reduction intended to reduce the Company's revenues (exclusive of reductions in the GRT) by approximately $111.8 million by the time it is fully phased in over three years, and the establishment of the MRA Regulatory Asset (described in note 6 of the notes to unaudited Pro Forma Condensed Balance Sheet) which will be amortized by the Company generally over ten years. The unaudited Pro Forma Condensed Financial Statements do not give effect to the Genco Divestiture and certain elements of the PowerChoice Agreement that are not material to the financial results of the Company. The Company is unable at this time to predict either the timing of the Genco Divestiture or the amount of proceeds that the Company will receive. In the event that unacceptable bids are received for any or all of the generating facilities, the Company may spin off such assets to its shareholders. The net book value of the fossil and hydro generating facilities at March 31, 1998 was approximately $1.1 billion. The unaudited Pro Forma Condensed Statements of Income have been prepared to reflect the consummation of the MRA and the Offering, and the principal terms of the PowerChoice Agreement, excluding the Genco Divestiture, as if they had occurred on the first day of each period presented. The unaudited Pro Forma Condensed Balance Sheet has been prepared to reflect the consummation of the MRA and the Offering, and the principal terms of the PowerChoice Agreement, excluding the Genco Divestiture, as if they had occurred on March 31, 1998. 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, and other expenses related to the MRA. The pro forma income statements for the year ended December 31, 1997 and the three and twelve months ended March 31, 1998 do not include an adjustment for the one-time, non-cash write-off associated with the PSC Order that limited the amount of the MRA Regulatory Asset that can be recovered from customers. Because the value of the Common Stock to be paid as consideration to the IPP Parties can only be determined at the closing of the MRA, the value of the limitation on the recoverability of the MRA Regulatory Asset is expected to be recorded as a charge to expense in the second quarter of 1998 upon the closing of the MRA. The charge to expense will be determined as the difference between $8 per share and the Company's closing Common Stock price on the date the MRA closes. Using the Company's closing Common Stock price on March 26, 1998 of $12 7/16 per share, multiplied by approximately 42.9 million shares, the estimated charge to expense would be approximately $190.0 million. The ultimate amount of the charge to expense will be based upon the Company's closing Common Stock price on the date of the MRA closing. See "The MRA and the PowerChoice Agreement." The unaudited Pro Forma Condensed Financial Statements and accompanying notes should be read in conjunction with the Company's historical Consolidated Financial Statements and the notes thereto incorporated by reference in this Prospectus. The unaudited Pro Forma Condensed Financial Statements are presented for informational purposes only and do not purport to represent what the Company's financial position or results of operations would actually have been if the consummation of the MRA and the Offering, and the principal terms of the PowerChoice Agreement, excluding the Genco Divestiture, had occurred on the dates set forth herein, or to project the Company's financial position or results of operations at any future date or for any future period. However, the unaudited Pro Forma Condensed Financial Statements contain, in the opinion of management, all adjustments necessary for a fair presentation. 17 PRO FORMA CONDENSED STATEMENT OF INCOME (Unaudited)
YEAR ENDED DECEMBER 31, 1997 ------------------------------------------- PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA (Dollars in thousands except per share data) Operating Revenues: Electric.......................................................... $ 3,309,441 $ (56,300)(1) (39,200)(2) $ 3,213,941 Gas............................................................... 656,963 656,963 ----------- ---------------- ----------- 3,966,404 (95,500) 3,870,904 ----------- ---------------- ----------- Operating Expenses: Fuel for electric generation...................................... 179,455 179,455 Electricity purchased: IPP............................................................. 1,105,970 (807,000)(3) 203,700(3) 81,800(3) 584,470 Others.......................................................... 130,138 130,138 Gas purchased..................................................... 345,610 345,610 Other operation and maintenance................................... 835,282 835,282 Amortization of MRA Regulatory Asset.............................. -- 378,000(4) 378,000 Depreciation and amortization..................................... 339,641 339,641 Other taxes....................................................... 471,469 471,469 ----------- ---------------- ----------- 3,407,565 (143,500) 3,264,065 ----------- ---------------- ----------- Operating income.................................................... 558,839 48,000 606,839 ----------- ---------------- ----------- Other income........................................................ 24,997 (6,400)(5) 18,597 ----------- ---------------- ----------- Income before interest charges...................................... 583,836 41,600 625,436 Interest charges.................................................... 273,906 16,500(6) 248,400(7) (27,000)(7) 511,806 ----------- ---------------- ----------- Income before federal and foreign income taxes...................... 309,930 (196,300) 113,630 Federal and foreign income taxes.................................... 126,595 (68,700)(8) 57,895 ----------- ---------------- ----------- Net income.......................................................... 183,335 (127,600) 55,735 Dividends on preferred stock........................................ 37,397 37,397 ----------- ---------------- ----------- Balance available for common stock.................................. $ 145,938 $ (127,600) $ 18,338 ----------- ---------------- ----------- ----------- ---------------- ----------- Average number of shares of common stock outstanding (in thousands)........................................................ 144,404 42,900(9) 187,304 Basic and diluted earnings per average share of common stock........ $ 1.01 $ 0.10 OTHER OPERATING DATA: EBITDA (10)....................................................... $ 961,502 $ 1,426,702 Net cash interest (11)............................................ 226,890 446,290 Ratio of EBITDA to net cash interest (12)......................... 3.2x Ratio of earnings to fixed charges (13)........................... 1.2x Ratio of earnings to fixed charges and preferred dividend requirements (13)............................................... 1.1x
See accompanying notes to Pro Forma Condensed Statements of Income 18 PRO FORMA CONDENSED STATEMENT OF INCOME (Unaudited)
THREE MONTHS ENDED MARCH 31, 1998 --------------------------------------- PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA (Dollars in thousands except per share data) Operating Revenues: Electric........................................................ $ 863,169 $ (14,075)(1) (9,800)(2) $ 839,294 Gas............................................................. 235,235 235,235 ---------- -------------- ---------- 1,098,404 (23,875) 1,074,529 ---------- -------------- ---------- Operating Expenses: Fuel for electric generation.................................... 47,198 47,198 Electricity purchased: IPP........................................................... 299,938 (201,500)(3) 53,275(3) 19,350(3) 171,063 Others........................................................ 24,412 24,412 Gas purchased................................................... 115,452 115,452 Other operation and maintenance 262,362 262,362 Amortization of MRA Regulatory Asset 94,500(4) 94,500 Depreciation and amortization................................... 87,950 87,950 Other taxes..................................................... 126,795 126,795 ---------- -------------- ---------- 964,107 (34,375) 929,732 ---------- -------------- ---------- Operating income.................................................. 134,297 10,500 144,797 ---------- -------------- ---------- Other income...................................................... 4,225 (1,600)(5) 2,625 ---------- -------------- ---------- Income before interest charges.................................... 138,522 8,900 147,422 Interest charges.................................................. 65,590 4,125(6) 61,000(7) (6,750)(7) 123,965 ---------- -------------- ---------- Income before federal and foreign income taxes.................... 72,932 (49,475) 23,457 Federal and foreign income taxes.................................. 52,569 (17,325)(8) 35,244 ---------- -------------- ---------- Net income (loss)................................................. 20,363 (32,150) (11,787) Dividends on preferred stock...................................... 9,223 9,223 ---------- -------------- ---------- Balance available for common stock................................ $ 11,140 $ (32,150) $ (21,010) ---------- -------------- ---------- ---------- -------------- ---------- Average number of shares of common stock outstanding (in thousands)...................................................... 144,419 42,900(9) 187,319 Basic and diluted earnings (loss) per average share of common stock........................................................... $ 0.08 $ (0.11) OTHER OPERATING DATA: EBITDA (10)..................................................... $ 222,273 $ 337,073 Net cash interest (11).......................................... 54,783 108,936 Ratio of EBITDA to net cash interest (12)....................... 3.1x Ratio of earnings to fixed charges (13)......................... 1.2x Ratio of earnings to fixed charges and preferred dividend requirements (13)............................................. 1.1x
See accompanying notes to Pro Forma Condensed Statements of Income 19 PRO FORMA CONDENSED STATEMENT OF INCOME (Unaudited)
TWELVE MONTHS ENDED MARCH 31, 1998 ----------------------------------------- PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA (Dollars in thousands except per share data) Operating Revenues: Electric........................................................ $ 3,295,241 $ (56,300)(1) (39,200)(2) $ 3,199,741 Gas............................................................. 605,735 605,735 ------------ ------------- ------------ 3,900,976 (95,500) 3,805,476 ------------ ------------- ------------ Operating Expenses: Fuel for electric generation.................................... 189,188 189,188 Electricity purchased: IPP........................................................... 1,107,697 (806,000)(3) 213,100(3) 77,400(3) 592,197 Others........................................................ 123,958 123,958 Gas purchased................................................... 312,431 312,431 Other operation and maintenance................................. 890,979 890,979 Amortization of MRA Regulatory Asset............................ 378,000(4) 378,000 Depreciation and amortization................................... 343,369 343,369 Other taxes..................................................... 472,155 472,155 ------------ ------------- ------------ 3,439,777 (137,500) 3,302,277 ------------ ------------- ------------ Operating income.................................................. 461,199 42,000 503,199 Other income...................................................... 22,122 (6,400)(5) 15,722 ------------ ------------- ------------ Income before interest charges.................................... 483,321 35,600 518,921 Interest charges.................................................. 271,958 16,500(6) 244,000(7) (27,000)(7) 505,458 ------------ ------------- ------------ Income before federal and foreign income taxes.................... 211,363 (197,900) 13,463 Federal and foreign income taxes.................................. 110,687 (69,300)(8) 41,387 ------------ ------------- ------------ Net income (loss)................................................. 100,676 (128,600) (27,924) Dividends on preferred stock...................................... 37,221 37,221 ------------ ------------- ------------ Balance available for common stock................................ $ 63,455 $ (128,600) $ (65,145) ------------ ------------- ------------ ------------ ------------- ------------ Average number of shares of common stock outstanding (in thousands)...................................................... 144,412 42,900(9) 187,312 Basic and diluted earnings (loss) per average share of common stock........................................................... $ 0.44 $ (0.35) OTHER OPERATING DATA: EBITDA (10)..................................................... $ 859,687 $ 1,318,887 Net cash interest (11).......................................... 225,368 440,368 Ratio of EBITDA to net cash interest (12)....................... 3.0x Ratio of earnings to fixed charges (13)......................... 1.0x Ratio of earnings to fixed charges and preferred dividend requirements (13)............................................. 1.0x
See accompanying notes to Pro Forma Condensed Statements of Income 20 NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME The following notes set forth the explanations and assumptions used and adjustments made in preparing the unaudited Pro Forma Condensed Statements of Income for the year ended December 31, 1997 and for the three and twelve months ended March 31, 1998. The unaudited Pro Forma Condensed Statements of Income should be read in conjunction with the historical Consolidated Financial Statements and the notes thereto incorporated by reference in this Prospectus. The adjustments described below are based on the assumptions and preliminary estimates described therein and are subject to change. These statements do not purport to be indicative of the results of operations of the Company for such period, nor are they indicative of future results. All of the following adjustments for the year ended December 31, 1997 and for the three and twelve months ended March 31, 1998, are pro forma to reflect the consummation of the MRA and the Offering, and the principal terms of the PowerChoice Agreement excluding the Genco Divestiture, as if they had occurred on the first day of each respective period. The pro forma income statements for the year ended December 31, 1997 and the three and twelve months ended March 31, 1998 do not include an adjustment for the one-time, non-cash write-off associated with the PSC Order that limited the amount of the MRA Regulatory Asset that can be recovered from customers. Using the Company's closing Common Stock price on March 26, 1998 of $12 7/16 per share, multiplied by approximately 42.9 million shares, the estimated charge to expense would be approximately $190.0 million. The ultimate amount of the charge to expense will be based upon the Company's closing Common Stock price on the date of the MRA closing. The unaudited Pro Forma Statements of Income include the following pro forma adjustments based on the assumptions described below: (1) To reflect the first year impact on total electric revenues of the rate reduction requirements contained in the PowerChoice Agreement, which provides for rate reductions to be phased in over three years. These rate reductions are intended to result in a decrease in electric revenues (exclusive of reductions in the GRT) of approximately $111.8 million by the time they are fully phased in over the three years, of which the first year impact for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998 is estimated to be approximately $56.3 million, $14.1 million and $56.3 million, respectively. Of the first year revenue reduction applicable to the year ended December 31, 1997 and the twelve months ended March 31, 1998, approximately $12.0 million relates to residential and small commercial customers and is calculated as a price reduction of approximately 0.08 CENTS per Kwh (or approximately 0.7%) to 1997 average prices applied against sales to those customers of 14,475,005 Mwhs and 14,306,055 Mwhs in each period, respectively. Approximately $13.4 million of revenue reductions relate to large commercial and small industrial customers and are calculated as a reduction of approximately 0.20 CENTS per Kwh (or approximately 2.0%) to 1997 average prices applied against sales to those customers of 6,529,095 Mwhs and 6,495,852 Mwhs in each period, respectively. The remaining $30.9 million of revenue reductions relate to large industrial customers and are comprised of several adjustments, including a revenue reduction of $24.9 million based on a price reduction of approximately 0.34 CENTS per Kwh (or approximately 4.3%) to 1997 average prices applied against sales to those customers of 7,387,140 Mwhs and 7,443,164 Mwhs in each period, respectively, and net increases in anticipated discounts to specific customers of $6.0 million. The pro forma adjustment for revenue reductions for the three months ended March 31, 1998 is calculated as one quarter of the revenue reductions for the twelve months ended March 31, 1998. The actual rate reductions in any year will be affected by numerous factors such as the volume of electricity sold and the timing of the rate reductions. (2) To reflect a deferral of revenues required by the PSC Order. The amount of the deferral is based on the difference between the assumed weighted average interest rate of 8.5% used by the Company to prepare its PowerChoice proposal and the estimated weighted average interest rate of 7.27% assumed for the Series A through G Notes. The amount of the deferral for the year ended December 31, 1997, the 21 three months ended March 31, 1998 and the twelve months ended March 31, 1998 would be $39.2 million, $9.8 million and $39.2 million, respectively. (3) To reflect (i) the elimination of $807.0 million, $201.5 million and $806.0 million of electricity purchased costs for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively, reflecting the termination, restatement or amendment of the 27 PPAs pursuant to the MRA; (ii) the addition of approximately $203.7 million, $53.3 million and $213.1 million of electricity purchased costs for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively, reflecting the Company's commitment to purchase electricity under the restated and amended contracts entered into with certain IPP Parties as part of the MRA; and (iii) the addition of approximately $81.8 million, $19.4 million and $77.4 million of electricity purchased costs for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively, reflecting the estimated cost of market purchases of electricity to replace the capacity terminated as part of the MRA. These adjustments decreased the cost of electricity purchased from the IPPs by a net amount of $521.5 million, $128.9 million and $515.5 million for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively. The cost of electricity purchased under the restated and amended contracts for the year ended December 31, 1997 and the twelve months ended March 31, 1998 is based on the first year prices set forth in each of such contracts applied to purchases of 4,340,376 MW also established in the restated and amended contracts. The estimated cost of replacement power is based on the administratively determined SC-6 "buy-back" rate from qualifying facility projects, as approved by the PSC, applied against 4,645,370 MW and 4,391,791 MW of market purchases for the year ended December 31, 1997 and the twelve months ended March 31, 1998, respectively. The weighted average buy-back rate for each period was approximately 1.8 CENTS per Kwh. A 1.0 CENTS per Kwh change in the buy-back rate will impact the annual cost of electricity purchased by approximately $43.4 million. The pro forma adjustments relating to the cost of electricity purchased under the restated and amended contracts and the cost of replacement power for the three months ended March 31, 1998 is calculated as one quarter of the similar adjustments for the twelve months ended March 31, 1998. (4) To reflect the amortization of the $3.997 billion MRA Regulatory Asset established as a result of the MRA and the PowerChoice Agreement. Pursuant to the PowerChoice Agreement, the Company will amortize the MRA Regulatory Asset generally over ten years. The amortization amounted to $378.0 million, $94.5 million and $378.0 million for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively. See "The MRA and the PowerChoice Agreement." (5) To reflect interest expense, in accordance with the appropriate regulatory treatment, of $6.4 million, $1.6 million and $6.4 million for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively, on a $157.1 million reduction in the amount of cash compensation paid to the IPP Parties in exchange for adjustments to the restated contracts pursuant to an amendment to the MRA dated April 22, 1998, the amount of which is reflected in the MRA Regulatory Asset. See "The MRA and the Power Choice Agreement." (6) To reflect the amortization of the total debt issuance costs of approximately $78.3 million incurred and capitalized in connection with the Offering. The debt issuance costs will be amortized over the life of the indebtedness represented by the Offering using the interest method and would have amounted to $16.5 million, $4.1 million and $16.5 million for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively. (7) To reflect additional interest charges associated with the indebtedness represented by the Offering and borrowings that would have been drawn under the Company's receivables facility in order to fund the Company's cash obligations under the MRA. Interest charges on the indebtedness represented by the Series A through G Notes were calculated assuming a weighted average interest rate of 7.27% and 22 amounted to $214.4 million, $53.7 million and $214.4 million for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively. A 1/8% change in the assumed interest rate on the Series A through G Notes would impact interest charges by $3.7 million per year. The amount of accreted interest on the Senior Discount Notes was calculated assuming an interest rate of 9% and amounted to $29.0 million, $7.3 million and $29.0 million for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively, of which $27.0 million, $6.7 million and $27.0 million, respectively, was capitalized as part of the MRA Regulatory Asset for such periods. The amount of the accreted interest that was not deferred to the MRA Regulatory Asset was $2.0 million, $0.6 million and $2.0 million, respectively, for such periods. Further, interest charges on the additional borrowings under the receivables facility were calculated assuming an interest rate of 7.5% and amounted to $5.0 million, $0.0 million and $0.6 million for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively. (8) To reflect a reduction of $68.7 million, $17.3 million and $69.3 million for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively, in federal and foreign income taxes as a result of the reduction in pro forma income before federal and foreign income taxes, calculated at the statutory federal income tax rate of 35.0%. Pro forma income before federal and foreign income taxes is reduced by $196.3 million, $49.5 million and $197.9 million, respectively, for such periods as the net result of the pro forma adjustments described in notes (1) through (7). (9) To reflect the issuance of approximately 42.9 million shares of Common Stock to the IPP Parties as part of the consideration paid to them under the MRA. (10) EBITDA represents earnings before interest charges, interest income, income taxes, depreciation and amortization, amortization of nuclear fuel, allowance for funds used during construction, MRA Regulatory Asset 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 contained herein and the Consolidated Statements of Cash Flows incorporated by reference in this Prospectus. (11) Net cash interest reflects interest charges plus allowance for funds used during construction less the non-cash impact of the net amortization of discount on long-term debt, interest accrued on the Nuclear Waste Act disposal liability and interest accreted on the Senior Discount Notes that is not otherwise capitalized less interest income. (12) For purposes of determining the ratio of EBITDA to net cash interest, EBITDA and net cash interest are calculated as described above in notes (10) and (11). The ratio of EBITDA to net cash interest is presented to provide additional information about the Company's ability to meet its future requirements for debt service. See the Pro Forma Condensed Statements of Income contained herein and the Consolidated Statements of Cash Flows incorporated by reference in this Prospectus. (13) For purposes of determining the ratio of earnings to fixed charges and the ratio of earnings to fixed charges and preferred dividend requirements, (i) earnings consist of income before federal and foreign income taxes plus fixed charges; (ii) fixed charges consist of interest charges on all indebtedness, including the portion of rental expense that is representative of the interest factor; and (iii) preferred dividend requirements include the dividends on all classes of preferred stock adjusted to a pre-tax basis. 23 PRO FORMA CONDENSED BALANCE SHEET (Unaudited)
AT MARCH 31, 1998 ---------------------------------------------- PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA (Dollars in thousands) Net utility plant............................................. $ 6,897,664 $ 6,897,664 ------------ ------------- Other property and investments................................ 296,976 296,976 ------------ ------------- Current Assets: Cash...................................................... 436,256 $ 3,200,200(1) (3,644,000)(2) 8,000(3) 456 Other current assets...................................... 829,872 75,000(4) 137,800(5) (8,000)(3) 1,034,672 ------------ ----------------- ------------- 1,266,128 (231,000) 1,035,128 ------------ ----------------- ------------- MRA Regulatory Asset.......................................... 8,700 3,988,000(6) 3,996,700 Other regulatory assets....................................... 1,165,870 1,165,870 Other assets.................................................. 72,245 71,800(7) 144,045 ------------ ----------------- ------------- Total assets................................................ $ 9,707,583 $ 3,828,800 $ 13,536,383 ------------ ----------------- ------------- ------------ ----------------- -------------
See accompanying notes to Pro Forma Condensed Balance Sheet 24 PRO FORMA CONDENSED BALANCE SHEET (Unaudited)
AT MARCH 31, 1998 --------------------------------------------- PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA (Dollars in thousands) Capitalization: Common stockholders' equity: Common stock................................................. $ 144,419 $ 42,900(8) $ 187,319 Capital stock premium and expense............................ 1,780,978 491,100(8) 2,272,078 Retained earnings............................................ 814,560 (123,500)(9) 691,060 ------------ ---------------- ------------- 2,739,957 410,500 3,150,457 Preferred stock................................................ 516,610 516,610 Long-term debt................................................. 3,418,299 3,272,000(1) 6,690,299 ------------ ---------------- ------------- Total capitalization......................................... 6,674,866 3,682,500 10,357,366 Current liabilities............................................ 613,524 613,524 Regulatory liabilities......................................... 239,880 239,880 Other liabilities.............................................. 2,179,313 75,000(4) 137,800(5) (66,500)(9) 2,325,613 ------------ ---------------- ------------- Total liabilities and stockholders' equity................... $ 9,707,583 $ 3,828,800 $ 13,536,383 ------------ ---------------- ------------- ------------ ---------------- -------------
See accompanying notes to Pro Forma Condensed Balance Sheet 25 NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET The following notes set forth the explanations and assumptions used and adjustments made in preparing the unaudited Pro Forma Condensed Balance Sheet at March 31, 1998. The unaudited Pro Forma Condensed Balance Sheet should be read in conjunction with the historical Consolidated Financial Statements and the notes thereto incorporated by reference in this Prospectus. The adjustments described below are based on the assumptions and preliminary estimates described therein and are subject to change. These statements do not purport to be indicative of the financial position of the Company as of such date, nor are they indicative of future results. Furthermore, this unaudited Pro Forma Condensed Balance Sheet does not reflect anticipated changes, other than the consummation of the MRA and the Offering, and the principal terms of the PowerChoice Agreement excluding the Genco Divestiture, which may occur as the result of operating activities before and after the effective date of the MRA, the Offering, the PowerChoice Agreement and other matters. All of the following adjustments are based on the assumption that the consummation of the MRA and the Offering, and the principal terms of the PowerChoice Agreement excluding the Genco Divestiture had occurred on March 31, 1998. The unaudited Pro Forma Condensed Balance Sheet includes the following pro forma adjustments based on the assumptions described below: (1) To reflect the gross cash proceeds of $3.272 billion received by the Company from the Offering, reduced for the payment of the remaining debt issuance costs estimated by the Company to be approximately $71.8 million. (2) To reflect the cash compensation of $3.631 billion paid to the IPP Parties pursuant to the terms of the MRA and payment of $13.0 million in other remaining expenses related to the MRA. Approximately $8.7 million of other expenses had been incurred and capitalized as the MRA Regulatory Asset as of March 31, 1998. (3) To reflect partial usage of the Company's receivables facility in light of the liquidity requirements presented in the Pro Forma Condensed Balance Sheet. Such adjustment is representative of the Company's normal cash management practices. (4) To record the reversal of $75.0 million of estimated federal income tax payments which would not have been made as a result of the deduction of payments made in connection with the MRA. (5) To record a federal income tax receivable of $137.8 million, based on the net operating loss which would have been generated and carried back two years for income tax purposes. The net loss for income tax purposes results from the current deduction for income tax purposes of the full amount of the consideration, including cash and Common Stock, paid to the IPP Parties pursuant to the MRA. See "Risk Factors--Federal Income Tax Implications of MRA to the Company." (6) To reflect the establishment of a $3.997 billion MRA Regulatory Asset representing the recoverable costs of the MRA consisting of (i) the cash compensation of $3.631 billion paid to the IPP Parties; (ii) the issuance of approximately 42.9 million shares of Common Stock valued at an aggregate of $344.0 million or $8.00 per share, based on the limitation on the amount of the MRA Regulatory Asset, as set forth in the PSC Order; and (iii) other remaining expenses of $13.0 million related to the MRA. Approximately $8.7 million of other expenses had been incurred and capitalized as the MRA Regulatory Asset as of March 31, 1998. The MRA Regulatory Asset was established pursuant to the PowerChoice Agreement and will be amortized generally over ten years. See "The MRA and the PowerChoice Agreement." (7) To reflect the capitalization of the estimated remaining debt issuance costs of approximately $71.8 million resulting from the Offering. 26 (8) To reflect the issuance of approximately 42.9 million shares of Common Stock to the IPP Parties pursuant to the MRA. These shares will be valued at the price of the Common Stock on the date of the consummation of the MRA. For purposes of developing the Pro Forma Condensed Balance Sheet, the Company used the price of the Common Stock at the close of business on March 26, 1998, or $12 7/16. This adjustment to common stockholders' equity will change based on the price of the Common Stock on the date of the consummation of the MRA. (9) To reflect the charge to earnings and related tax benefit associated with the PSC's limitation of the amount of the MRA Regulatory Asset that can be recovered from customers. The amount represents the product of the difference between $8 and the closing price of the Common Stock on March 26, 1998 of $12 7/16 multiplied by approximately 42.9 million shares. The ultimate amount of the charge to expense will be based upon the Company's closing Common Stock price on the date of the MRA closing. 27 SELECTED HISTORICAL FINANCIAL DATA The following table presents certain historical financial and operating data of the Company as of the dates and for the periods indicated. The historical financial data as of the end of and for each of the five years in the period ended December 31, 1997 are derived from the audited Consolidated Financial Statements of the Company. The historical financial data as of and for the three months ended March 31, 1997 and March 31, 1998 are derived from the unaudited financial statements of the Company, which in the opinion of management, contain all adjustments necessary for a fair presentation thereof. The selected historical financial data presented below should be read in conjunction with the Consolidated Financial Statements of the Company, including the notes thereto, appearing elsewhere or incorporated by reference in this Prospectus.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------------------------------------- -------------------- 1993 1994 1995 1996 1997 1997 1998 (Dollars in thousands except per share data) STATEMENT OF INCOME DATA: Operating revenues: Electric.............................. $3,332,464 $3,528,987 $3,335,548 $3,308,979 $3,309,441 $ 877,369 $ 863,169 Gas................................... 600,967 623,191 581,790 681,674 656,963 286,463 235,235 --------- --------- --------- --------- --------- --------- --------- 3,933,431 4,152,178 3,917,338 3,990,653 3,966,404 1,163,832 1,098,404 --------- --------- --------- --------- --------- --------- --------- Operating expenses: Fuel for electric generation.......... 231,064 219,849 165,929 181,486 179,455 37,465 47,198 Electricity purchased: IPP............................... 745,335 966,724 1,011,518 1,052,298 1,105,970 298,211 299,938 Others............................ 118,178 140,409 126,419 130,594 130,138 30,592 24,412 Gas purchased......................... 326,273 315,714 276,232 370,040 345,610 148,631 115,452 Other operation and maintenance....... 1,057,580 957,377 817,897 928,224 835,282 206,665 262,362 Employee reduction program............ -- 196,625 -- -- -- -- -- Depreciation and amortization......... 276,623 308,351 317,831 329,827 339,641 84,222 87,950 Other taxes........................... 491,363 496,922 517,478 475,846 471,469 126,109 126,795 --------- --------- --------- --------- --------- --------- --------- 3,246,416 3,601,971 3,233,304 3,468,315 3,407,565 931,895 964,107 --------- --------- --------- --------- --------- --------- --------- Operating income......................... 687,015 550,207 684,034 522,338 558,839 231,937 134,297 Other income............................. 14,154 17,204 3,069 35,943 24,997 7,100 4,225 --------- --------- --------- --------- --------- --------- --------- Income before interest charges........... 701,169 567,411 687,103 558,281 583,836 239,037 138,522 Interest charges......................... 282,263 278,958 279,674 278,033 273,906 67,538 65,590 --------- --------- --------- --------- --------- --------- --------- Income before federal and foreign income taxes.................................. 418,906 288,453 407,429 280,248 309,930 171,499 72,932 Federal and foreign income taxes......... 147,075 111,469 159,393 102,494 126,595 68,477 52,569 --------- --------- --------- --------- --------- --------- --------- Income before extraordinary item......... 271,831 176,984 248,036 177,754 183,335 103,022 20,363 Extraordinary item....................... -- -- -- (67,364) -- -- -- --------- --------- --------- --------- --------- --------- --------- Net income............................... 271,831 176,984 248,036 110,390 183,335 103,022 20,363 Dividends on preferred stock............. 31,857 33,673 39,596 38,281 37,397 9,399 9,223 --------- --------- --------- --------- --------- --------- --------- Balance available for common stock....... $ 239,974 $ 143,311 $ 208,440 $ 72,109 $ 145,938 $ 93,623 $ 11,140 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Average number of shares of common stock outstanding (in thousands)............. 140,417 143,621 144,329 144,350 144,404 144,389 144,419 Basic and diluted earnings per average share of common stock before extraordinary item..................... $ 1.71 $ 1.00 $ 1.44 $ 0.97 $ 1.01 $ 0.65 $ 0.08 Extraordinary item per average share of common stock........................... $ -- $ -- $ -- $ (0.47) $ -- $ -- $ -- Basic and diluted earnings per average share of common stock.................. $ 1.71 $ 1.00 $ 1.44 $ 0.50 $ 1.01 $ 0.65 $ 0.08
28
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ----------------------------------------------------- -------------------- 1993 1994 1995 1996 1997 1997 1998 (Dollars in thousands) OTHER OPERATING DATA: EBITDA(1).............................. $ 950,099 $1,029,865 $ 929,130 $ 957,549 $ 961,502 $ 358,863 $ 222,273 Net cash interest(2)................... 271,116 261,655 260,548 244,501 226,890 56,305 54,783 Capital expenditures(3)................ 519,612 490,124 345,804 352,049 290,757 53,552 132,354 Ratio of EBITDA to net cash interest(4).......................... 3.5x 3.9x 3.6x 3.9x 4.2x 6.4x 4.1x Ratio of earnings to fixed charges(5)........................... 2.3x 1.9x 2.3x 1.6x 2.0x 3.4x 2.1x Ratio of earnings to fixed charges and preferred dividend requirements(5)... 2.0x 1.6x 1.9x 1.3x 1.7x 2.8x 1.4x BALANCE SHEET DATA (AT END OF PERIOD): Net utility plant...................... $6,877,292 $7,035,643 $7,007,853 $6,957,615 $6,868,044 $6,919,730 $6,897,664 Total assets........................... 9,471,327 9,649,816 9,477,869 9,427,635 9,584,141 9,515,010 9,707,583 Total long-term debt, including current portion.............................. 3,474,797 3,375,845 3,647,478 3,525,963 3,484,476 3,523,412 3,485,364 Preferred stock, including current portion.............................. 440,400 556,950 546,000 535,600 526,730 535,600 526,730 Common stockholders' equity............ 2,456,465 2,462,398 2,513,952 2,585,572 2,727,527 2,676,890 2,739,957
- - ------------------------ (1) EBITDA represents earnings before interest charges, interest income, income taxes, depreciation and amortization, amortization of nuclear fuel, allowance for funds used during construction, 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 Consolidated Statements of Cash Flows incorporated by reference in this Prospectus. (2) Net cash interest reflects interest charges plus allowance for funds used during construction less the non-cash impact of the net amortization of discount on long-term debt and interest accrued on the Nuclear Waste Policy Act disposal liability less interest income. (3) Capital expenditures consist of amounts for the Company's construction program related to its transmission, distribution and generation operations (including nuclear fuel, related allowance for funds used during construction and capitalized overhead expenses), and the amounts incurred to comply with the Clean Air Act and other environmental requirements. (4) For purposes of determining the ratio of EBITDA to net cash interest, EBITDA and net cash interest are calculated as described above in notes (1) and (2). The ratio of EBITDA to net cash interest is presented to provide additional information about the Company's ability to meet its future requirements for debt service. See the Consolidated Statements of Cash Flows incorporated by reference in this Prospectus. (5) For purposes of determining the ratio of earnings to fixed charges and the ratio of earnings to fixed charges and preferred dividend requirements, (i) earnings consist of income before federal and foreign income taxes plus fixed charges; (ii) fixed charges consist of interest charges on all indebtedness, including the portion of rental expense that is representative of the interest factor; and (iii) preferred dividend requirements include the dividends on all classes of preferred stock adjusted to a pre-tax basis. 29 MANAGEMENT'S DISCUSSION OF PRO FORMA CONDENSED FINANCIAL STATEMENTS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, OTHER INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, INCLUDING THE UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS AND THE NOTES THERETO. CERTAIN STATEMENTS IN THE FOLLOWING DISCUSSION ARE FORWARD-LOOKING STATEMENTS OR DISCUSSIONS OF TRENDS WHICH BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES THAT COULD SIGNIFICANTLY AFFECT EXPECTED RESULTS. ACTUAL RESULTS AND TRENDS IN THE FUTURE MAY DIFFER MATERIALLY FROM THOSE DESCRIBED HEREIN DEPENDING ON A VARIETY OF FACTORS, INCLUDING THOSE DETAILED UNDER THE CAPTION "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. The unaudited Pro Forma Condensed Financial Statements give effect to (i) the consummation of the MRA; (ii) the consummation of the Offering; (iii) the issuance of approximately 42.9 million shares of Common Stock to the IPP Parties; and (iv) the principal terms of the PowerChoice Agreement, including the first year impact of a three year rate reduction intended to reduce the Company's revenues by $111.8 million (exclusive of reductions in the GRT) by the time it is fully phased in over three years, and the establishment of the MRA Regulatory Asset which will be amortized by the Company generally over ten years. The unaudited Pro Forma Condensed Financial Statements do not give effect to the Genco Divestiture or certain elements of the PowerChoice Agreement that are not material to the financial results of the Company. The Company is unable at this time to predict either the timing of the Genco Divestiture or the amount of proceeds that the Company will receive. In the event that unacceptable bids are received for any or all of the generating facilities, the Company may spin off such assets to its shareholders. The net book value of the fossil and hydro generating facilities at March 31, 1998 was approximately $1.1 billion. On a pro forma basis after giving effect to the consummation of the MRA and the Offering, and the principal terms of the PowerChoice Agreement excluding the Genco Divestiture, the Company's revenues for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998 would have declined by approximately $95.5 million, $23.9 million and $95.5 million, respectively, to $3.9 billion, $1.1 billion and $3.8 billion, respectively. On a historical basis, the Company's revenues were $4.0 billion, $1.1 billion and $3.9 billion, respectively, for such periods. This reduction in revenues reflects the first year's phase-in of a three year rate reduction intended to reduce the Company's electric revenues by $111.8 million (exclusive of reductions in the GRT) by the time it is fully phased in over three years, as well as a deferral of revenues required by the PSC Order representing the difference between the assumed weighted average interest rate for the Series A through G Notes used by the Company in preparing its PowerChoice proposal as compared to current estimates of the same. The actual rate reductions and level of revenues in 1998 and other years will be dependent upon numerous factors such as the volume of electricity sold and the timing of the rate reductions. Pursuant to the MRA, 18 PPAs representing approximately 1,100 MW of electric generating capacity are to be terminated. Such electric generating capacity will be replaced with purchases in the spot market for electricity at prices significantly less than the contracted prices under such terminating PPAs. In addition, eight PPAs representing approximately 541 MW of electric generating capacity will be restated and amended 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. 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. As a result, on a pro forma basis, the Company's cost of electricity purchased from the IPPs for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998 would have declined by approximately $521.5 million, $128.9 million and $515.5 million, respectively, to $584.5 million, $171.1 million and $592.2 million, respectively. On a historical basis, the Company's cost of electricity purchased from the IPPs was $1.1 billion, $300.0 million and $1.1 billion, respectively, for such periods. 30 Pursuant to the PowerChoice Agreement, the compensation paid to the IPP Parties in the form of cash and Common Stock will be capitalized and carried on the Company's balance sheet as the MRA Regulatory Asset. The net amount which will be initially recorded and subsequently amortized generally over a ten year period has been limited by the PSC to approximately $4.0 billion. On a pro forma basis, the amortization of the MRA Regulatory Asset would have amounted to $378.0 million, $94.5 million and $378.0 million for the year ended December 31, 1997, the three months March 31, 1998 and the twelve months ended March 31, 1998, respectively. No such amortization charge was recorded in the historical income statements for such periods. The Company's operating income on a pro forma basis would have increased by $48.0 million, $10.5 million and $42.0 million to $606.8 million, $144.8 million and $503.2 million, respectively, for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively. On a historical basis, the Company's operating income was $558.8 million, $134.3 million and $461.2 million, respectively, for such periods. This increase reflects the net positive impact resulting from the significant reduction in the Company's cost of electricity purchased from the IPPs which more than offsets the decline in revenues and amortization of the MRA Regulatory Asset. The estimated additional interest charges and amortization of debt issuance costs associated with the MRA Financing and usage of the Company's receivables facility would have increased interest charges on a pro forma basis by approximately $237.9 million, $58.4 million and $233.5 million to $511.8 million, $124.0 million and $505.5 million, respectively, for the year ended December 31, 1997, the three months ended March 31, 1998 and the year ended March 31, 1998. On a historical basis, the Company recorded interest charges of $273.9 million, $65.6 million and $272.0 million, respectively, for such periods. The Company's net income on a pro forma basis would have declined by $127.6 million, $32.2 million and $128.6 million to a net income (loss) of $55.7 million, $(11.8) million and $(27.9) million, respectively, for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively. On a historical basis, the Company reported net income of $183.3 million, $20.4 million and $100.7 million, respectively, for such periods. This decline in net income reflects the above described decrease in revenues, the amortization of the MRA Regulatory Asset and an increase in interest charges, which more than offset the decrease in the cost of electricity purchased from the IPPs. As a result of the MRA, the Company would have recognized and deducted in the current year for income tax purposes, an amount representing the total compensation paid to the IPP Parties, including the cash and market value of the Common Stock issued to the IPP Parties. This deduction would have created a net operating loss which would have been carried back two years resulting in a federal income tax refund and would have been carried forward to effectively reduce federal income taxes paid in future years. The impact of such NOL would have been to increase the amount of cash available to the Company until such NOL is fully utilized. LIQUIDITY AND CAPITAL RESOURCES The Pro Forma Condensed Financial Statements demonstrate significant improvement in the Company's liquidity and capital resources by comparison to the Company's historical financial statements. Under the MRA, the Company is able to replace long-term escalating payment obligations to the IPP Parties with the indebtedness represented by the Offering and a portfolio of restated or amended shorter-term PPAs with pricing and terms that are more favorable than the existing PPAs that are subject to the MRA. On a pro forma basis, the Company's EBITDA would increase by $465.2 million, $114.8 million and $459.2 million to $1.4 billion, $337.1 million, and $1.3 billion, respectively, for the year ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1998, respectively. On a historical basis, the Company's EBITDA was $961.5 million, $222.3 million and $859.7 million, respectively, for such periods. This change results primarily from a decrease in the cost of electricity purchased from the IPPs due to the termination, restatement or amendment of PPAs pursuant 31 to the MRA. In addition, the Company would have available additional borrowings of $275.0 million under the Credit Facility and, under the financial covenants set forth in the Indenture, will have the ability, to incur up to an additional $ billion of indebtedness. The Company's principal short-term and long-term liquidity requirements are expected to consist of the payment of interest on and retirement of the First Mortgage Bonds and the indebtedness represented by the Offering, the payment of dividends on and the redemption of the Company's Preferred Stock and capital expenditures required to maintain the Company's transmission and distribution systems. In addition, the Company is currently negotiating to extend the expiration of its Credit Facility from June 30, 1999 to August 1, 2000. The Company anticipates that internally generated funds will be sufficient to meet its capital expenditure requirements, provide for the payment of interest charges and preferred dividends and the retirement of debt and preferred stock at maturity, and enable the Company to meet other contingencies that may occur, such as compliance with environmental regulation. 32 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 GRT) 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 Offering is expected to occur concurrently with and is contingent upon the closing of the MRA. Pursuant to the MRA, the Company has 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. The Common Stock to be received by the IPP Parties will represent approximately 23% of the Company's outstanding shares following such issuance. The cash payment to the IPP Parties will be funded from the proceeds of the Offering together with cash on hand. 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 will be 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 will be 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 will be 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 will have shorter terms (ten years) and will be 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 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 33 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. Upon consummation of the MRA, the IPP Parties are expected to own up to approximately 42.9 million shares of the Common Stock, representing up to 23% of the Company's voting securities. Pursuant to the MRA, any IPP Party that receives 2% or more of the outstanding Common Stock and any designee of IPP Parties that receives more than 4.9% of the outstanding Common Stock upon the consummation of the MRA will, together with certain but not all affiliates (collectively, "2% Shareholders"), enter 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. The terms of the MRA have been amended so that the Company will sell some portion of the 42.9 million shares of Common Stock to the public and deliver the net proceeds to the IPP Parties. 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 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 Series A through G Notes. 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. 34 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, and other expenses related to the MRA. The ultimate amount of the MRA Regulatory Asset may vary based on certain events related to the closing of the MRA. Because the value of the consideration to be paid to the IPP Parties can only be determined at the closing of the MRA, the value of the limitation on the recoverability of the MRA Regulatory Asset is expected to be recorded as a charge to expense in the second quarter of 1998 upon the MRA closing. The charge to expense will be determined as the difference between $8 per share and the Company's closing Common Stock price on the date the MRA closes. Using the Company's Common Stock price on March 26, 1998 of $12 7/16 per share, the charge to expense would be approximately $190.0 million. 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 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 is seeking approval from its shareholders for the formation of a holding company. The implementation of a holding company structure, if approved by the Company's shareholders, would only occur following various regulatory approvals. 35 DESCRIPTION OF NOTES GENERAL The Notes will be issued pursuant to an Indenture to be entered into between the Company and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are subject to all such terms, and prospective purchasers of Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. A copy of the proposed form of Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The definitions of certain capitalized terms used in the Indenture and in the following summary are set forth below under "--Definitions." The Notes will be senior unsecured obligations of the Company and will rank PARI PASSU in right of payment to all existing and future Senior Indebtedness of the Company. Upon completion of the offering hereunder, the Company will have 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 Credit Facility, which are secured with First Mortgage Bonds, $20.0 million of unsecured Medium Term Notes and the Notes. In addition, the Company will have available up to an additional $275.0 million under the Credit Facility. Upon completion of the Offering, the Company will not have any outstanding Subordinated Indebtedness. Under the Indenture, the Company may in the future issue additional First Mortgage Bonds, including in connection with a refinancing of the Credit Facility, and additional series of Notes, as well as Subordinated Indebtedness, subject to certain exceptions described below. PRINCIPAL, MATURITY AND INTEREST The Indenture permits the Company to issue Notes in one or more series and in an unlimited amount. Except for the Notes offered hereby, each series of Notes will be created and established by a Supplemental Indenture which shall specify the terms of such Notes. SERIES A THROUGH G NOTES Each series of Notes offered hereby will be limited in aggregate principal amount, will mature on (i) July 1, in the case of Series A, C and E Notes, and (ii) October 1, in the case of Series B, D, F and G Notes, of the year, and will bear interest at the rate set forth opposite such series below:
SERIES PRINCIPAL AMOUNT INTEREST RATE MATURITY - - ---------- ---------------- ------------- ----------- Series A $300.0 million % 1999 Series B $450.0 million % 2000 Series C $400.0 million % 2001 Series D $400.0 million % 2002 Series E $400.0 million % 2003 Series F $400.0 million % 2005 Series G $600.0 million % 2008
36 Interest on the Series A, C and E Notes will be payable in cash semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 1999, to holders of record on the immediately preceding December 15 and June 15. Interest on the Series B, D, F and G Notes will be payable in cash semi-annually in arrears on April 1 and October 1 of each year, commencing on October 1, 1998, to holders of record on the immediately preceding March 15 and September 15. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Series A through G Notes will be issued in denominations of $1,000 and integral multiples thereof. SENIOR DISCOUNT NOTES The Senior Discount Notes initially will be limited in aggregate principal amount at maturity to $500.0 million and will mature on July 1, 2010. The Senior Discount Notes will be issued at a substantial discount from their principal amount at maturity in order to generate gross proceeds of $ million. Until July 1, 2003, no interest will accrue on the Senior Discount Notes, but the Accreted Value will increase (representing amortization of original issue discount) between the date of original issuance and July 1, 2003, on a semi-annual bond equivalent basis using a 360-day year comprised of twelve 30-day months, such that the Accreted Value shall be equal to the full principal amount at maturity of the Senior Discount Notes on July 1, 2003. Thereafter, interest on the Senior Discount Notes will accrue at the rate of % per annum and will be payable in cash semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2004. Interest on the Senior Discount Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from July 1, 2003. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Senior Discount Notes will be issued in denominations of $1,000 and integral multiples thereof. MANDATORY REDEMPTION Except as provided under "--Change of Control," the Company is not required to make mandatory repurchase, redemption or sinking fund payments with respect to the Notes prior to maturity. Under certain circumstances, the Company may be required to make an offer to repurchase the Notes. See "Certain Covenants--Proceeds of Certain Asset Sales." OPTIONAL REDEMPTION The Notes in Series A through G will be redeemable at the option of the Company at any time, in whole or in part, upon not less than 30 nor more than 60 days' notice, in cash at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, through the applicable redemption date plus the Make-Whole Premium. The Senior Discount Notes will be redeemable at the Company's option prior to July 1, 2003 at any time, in whole or in part, upon not less than 30 and not more than 60 days' notice, in cash at a redemption price equal to 100% of the Accreted Value thereof plus the Make-Whole Premium. On or after July 1, 2003, the Company, at its option, may redeem, in whole or in part, the Senior Discount Notes, upon not less than 30 nor more than 60 days' notice, in cash at the respective redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest thereon through the applicable redemption date, if redeemed during the twelve-month period beginning on July 1 of the years indicated below.
YEAR PERCENTAGE - - -------------------------------------------------------------------------------------- ----------- 2003.................................................................................. % 2004.................................................................................. % 2005.................................................................................. % 2006 and thereafter................................................................... 100.0 %
37 SPECIAL REDEMPTION Notwithstanding the Optional Redemption provisions above, the Company may, at its option, by delivering a notice of redemption at any time during the period from April 1, 1999 through December 31, 2000, use the Net Proceeds from any sale or sales of Fossil and Hydro Generating Assets to redeem up to $500.0 million aggregate principal amount of the Notes in Series B through F at a cash redemption price equal to 100% of the principal amount thereof plus accrued interest thereon, if any, to the date of redemption. The Company shall effect a redemption of Notes pursuant to this provision such that, following such redemption, the percentage of Notes in each of Series B through F that remain outstanding (calculated for each series by dividing the aggregate principal amount of Notes outstanding by the aggregate principal amount of Notes originally issued) is as near to identical as reasonably practicable. Any such redemption must occur within 120 days following the receipt by the Company of the Net Proceeds that are being used to effect the redemption. SELECTION AND NOTICE If less than all the Notes in any series are to be redeemed at any time, selection of Notes of such series for redemption will be made by the Trustee, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate; provided that no Notes in denominations of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days prior to the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on the Notes or portions thereof called for redemption. CHANGE OF CONTROL No earlier than 30 days nor later than 60 days after the date upon which the Company mails a written notice to the holders of the occurrence of a Change of Control Triggering Event, each holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such holder's Notes pursuant to an offer by the Company (the "Change of Control Offer") at an offer price in cash equal to (a) 101% of the aggregate principal amount thereof in the case of the Series A through G Notes, or (b) 101% of the Accreted Value of the Senior Discount Notes (if such repurchase occurs prior to July 1, 2003) or (c) 101% of the principal amount at maturity of the Senior Discount Notes (if such repurchase occurs on or after July 1, 2003), plus accrued and unpaid interest thereon, if any, through the date of purchase. The Company will mail or cause to be mailed notice of the Change of Control Offer to each holder of the Notes within 30 days following any Change of Control Triggering Event, which will (i) state that a Change of Control Offer is being made and that all Notes tendered will be accepted for payment and (ii) offer to repurchase the Notes during the time period and for the purchase price referred to above pursuant to the procedures required by the Indenture and described in such notice. The Company's ability to pay cash to the holders of the Notes upon a repurchase may be limited by the Company's then existing financial resources. There can be no assurance that the Company will have sufficient funds to repurchase the Notes following a Change of Control Triggering Event. Except as described above with respect to a Change of Control Triggering Event, the Indenture does not contain provisions that permit the holder of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar restructuring, including highly leveraged transactions that could reduce the creditworthiness of the Company. The Company will comply with the requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any other securities laws and regulations thereunder to the 38 extent such laws and regulations are applicable in connection with any repurchase or redemption of the Notes as a result of a Change of Control Triggering Event. CERTAIN COVENANTS RESTRICTED PAYMENTS The Indenture will provide that, prior to the Investment Grade Date, the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make any cash dividend or other distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests, including, without limitation, any payment in connection with any merger or consolidation involving the Company (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or any portion of a dividend or distribution by a Restricted Subsidiary of the Company that is payable to the Company or to any Wholly-Owned Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value from any Person other than the Company or a Wholly-Owned Restricted Subsidiary any Equity Interests of the Company, any of its Subsidiaries or any direct or indirect parent of the Company (other than the conversion or exchange of Equity Interests of the Company for other Equity Interests of the Company); (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness, except at final maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payments: (A) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (B) except in the case of a Restricted Investment, the Company would, at the time of such Restricted Payment, and after giving PRO FORMA effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have a Fixed Charge Coverage Ratio of not less than 1.75 to 1 (calculated as described below under the caption "--Incurrence of Indebtedness"); and (C) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the Initial Issuance Date (excluding Restricted Payments permitted by clauses (iii), (iv), (v), (vi) or (vii) of the next succeeding paragraph), is less than the sum of (i) $50,000,000, PLUS (ii) 25% of an amount equal to the Operating Cash Flow of the Company for the period (taken as one accounting period) from the day after the Initial Issuance Date through the end of the Company's most recently ended fiscal quarter for which financial statements are available at the time of such Restricted Payment (or, if such Operating Cash Flow for such period is a deficit, less 100% of such deficit), PLUS (iii) 100% of the aggregate net cash proceeds received by the Company from the issuance or sale (other than pursuant to or in connection with the IPP Buyout) after the Initial Issuance Date of Equity Interests of the Company or of debt securities of the Company that have been converted into Equity Interests of the Company, PLUS (iv) 100% of the aggregate cash proceeds received by the Company from any payment in respect of any previously made Restricted Investment (but only to the extent that such amount is not reflected in Consolidated Net Income). The foregoing provisions will not prohibit (i) the payment of dividends, whether paid in kind or in cash, or the satisfaction of mandatory redemption obligations, in respect of any Preferred Stock outstanding on the Initial Issuance Date in accordance with the terms thereof; (ii) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (iii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, other Equity Interests of the Company; (iv) the defeasance, redemption or repurchase of Subordinated Indebtedness with the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the 39 Company) of Equity Interests of the Company or from an incurrence of Permitted Refinancing Indebtedness that consists of Subordinated Indebtedness; PROVIDED, that the amount of any net cash proceeds that are utilized for any redemption, repurchase, retirement or other acquisition described in clauses (iii) and (iv) shall be excluded from clause (C) (iii) of the first paragraph of this covenant; (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any member of the Company's (or any of its Restricted Subsidiaries') management or for the purpose of providing Equity Interests for issuance under dividend reinvestment or employee benefits plans of the Company; (vi) any spin-off or other distribution to shareholders of the Generating Assets or the Oswego Plant or any portion thereof or any direct or indirect interest therein; and (vii) any dividend or other distribution of the Capital Stock of any Unrestricted Subsidiary; PROVIDED, that in the case of each of clauses (i) and (ii) above, no Default or Event of Default shall have occurred and be continuing immediately after such transaction. Not later than the date of making any Restricted Payment that relies on clause (C) of the first paragraph of this covenant to be permitted, and so long as the limitations contained in such clause apply, the Company shall deliver to the Trustee an officer's certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by such covenant were computed, which calculations may be based upon the Company's latest available financial statements. INCURRENCE OF INDEBTEDNESS The Indenture will provide that, prior to the Investment Grade Date, the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur"), any Indebtedness (including Acquired Debt) or issue any Disqualified Stock; PROVIDED, HOWEVER, that the Company and any of its Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) and issue Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which financial statements are available immediately preceding the date on which such Indebtedness is incurred or Disqualified Stock is issued would have been at least 3.25 to 1, determined on a PRO FORMA basis (including a PRO FORMA application of the net proceeds therefrom), as if such Indebtedness had been incurred or such Disqualified Stock had been issued at the beginning of such four-quarter period. The foregoing provisions will not apply to (i) Permitted Refinancing Indebtedness; (ii) the incurrence by the Company of any amount of Subordinated Indebtedness if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which financial statements are available immediately preceding the date on which such Subordinated Indebtedness is incurred would have been at least 1.75 to 1 (determined as above); (iii) Permitted Hedging Agreements; (iv) borrowings under the Credit Facility in an amount not to exceed $804.4 million; and (v) intercompany Indebtedness between and among the Company and any of its Restricted Subsidiaries (except in a TIPES Transaction); PROVIDED, HOWEVER, that (A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than a Restricted Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be. LIENS The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, secure with a Lien on the property or assets of the Company or such Restricted Subsidiary, Other Indebtedness or Subordinated Indebtedness without making, or causing such Restricted Subsidiary to make, effective provision for securing the Notes (i) in the case of a Lien securing Other Indebtedness, on an equal and ratable basis with the Lien securing such Other Indebtedness and 40 (ii) in the case of a Lien securing Subordinated Indebtedness, on a basis such that the Lien securing the Notes is senior in priority to the Lien securing such Subordinated Indebtedness, in each case until such time as such Other Indebtedness or Subordinated Indebtedness is no longer secured by a Lien. Under this covenant, the Company will be permitted to refinance or replace the full amount of First Mortgage Bonds outstanding on the Initial Issuance Date, the Credit Facility and the Receivables Financing, and to enter into the Securitization Transaction, without securing the Notes. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Restricted Subsidiary to (a)(i) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits or (ii) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (b) make loans or advances to the Company or any of its Restricted Subsidiaries or (c) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) the First Mortgage Bonds, the Credit Facility, the Receivables Financing, the Pollution Control Obligations, the Securitization Transaction, the Indenture and the Notes; (ii) applicable law or regulation; (iii) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; (iv) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practice; (v) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (c) above in the property so acquired; (vi) any contract for the sale of 100% of the Capital Stock of a Restricted Subsidiary; or (vii) Permitted Refinancing Indebtedness, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. MERGER, CONSOLIDATION, OR SALE OF ASSETS The Indenture will provide that so long as the Notes are outstanding the Company may not, directly or indirectly, consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all its assets in one or more related transactions, to another Person unless (i) the corporation formed by such consolidation or surviving in such merger or the Person that acquires by sale, assignment, transfer, conveyance or other disposition, or that leases, such assets (in each such case, the "Successor Entity), is a corporation organized and existing under the laws of the United States, any State thereof or the District of Columbia and expressly assumes the Company's obligations under the Indenture and the Notes; (ii) immediately before and after such transaction no Default or Event of Default exists; and (iii) the Successor Entity (or the Company, in the case of a consolidation or merger in which the Company is the surviving entity) (A) has Consolidated Net Worth immediately after the transaction (but prior to any revaluation or recalculation of Consolidated Net Worth as of the date of the transaction relating to a carry-over basis (if any) of the assets acquired in the transaction (as determined in accordance with GAAP)) equal to or greater than the Consolidated Net Worth of the Company immediately prior to the transaction and (B) will, at the time of such transaction and after giving PRO FORMA effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, have a Fixed Charge Coverage Ratio of not less than 1.75 to 1 (calculated as described above under the caption "--Incurrence of Indebtedness);" PROVIDED, that the limitations set forth in this clause (iii) shall not apply following the Investment Grade Date or to any merger or 41 consolidation of the Company with or into a Restricted Subsidiary and PROVIDED FURTHER, that the limitations set forth above shall not apply to the sale or disposition by the Company of its Generating Assets or the Oswego Plant. PROCEEDS OF CERTAIN ASSET SALES The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, engage in a (A) Permitted Asset Swap unless the Company or Restricted Subsidiary receives property or assets with a Fair Value at least equal to the Fair Value of the property or assets swapped, (B) Sale of Assets unless (i) the Company or Restricted Subsidiary receives consideration at least equal to the Fair Value of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) except in connection with a sale of the Nuclear Generating Assets or the Oswego Plant, at least 75% of the consideration received therefor by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents, PROVIDED, that if in the case of the sale of any Fossil and Hydro Generating Assets pursuant to the PowerChoice Agreement, the Board of Directors determines in good faith that the Company will receive the highest price by accepting a bid with consideration consisting of less than 75% cash or Cash Equivalents, and the PSC approves the Company's acceptance of such bid, then the Company may accept such bid and PROVIDED, FURTHER, that in the case of any Sale of Assets (except a Securitization Transaction) that is consummated after the Investment Grade Date, the requirement of clause (ii) shall not apply. Within 180 days after the receipt of any Net Proceeds from a Securitization Transaction or a Sale of Assets consisting of Generating Assets, or within 360 days after the receipt of any Net Proceeds from any other Sale of Assets that is consummated prior to the Investment Grade Date, the Company is required (a) in the case of a Securitization Transaction, to apply the cash portion of such Net Proceeds in accordance with the relevant statutory or regulatory requirements that govern such transaction or, if there are no such requirements, to reduce Senior Indebtedness, (b) in the case of a sale or other disposition of Generating Assets or the Oswego Plant, to use not less than 85% (or 100% if the accepted bid requires less than 75% of the purchase price to be paid in cash or Cash Equivalents) of the cash portion of such Net Proceeds to reduce Senior Indebtedness and (c) in the case of any other Sale of Assets that is consummated prior to the Investment Grade Date, to use 100% of the cash portion of such Net Proceeds for one or more of the following: (x) to reduce Senior Indebtedness, (y) to reinvest, or enter into an agreement with respect to the reinvestment of, such Net Proceeds in Related Assets, or (z) make an offer to all holders to purchase outstanding Notes at an offer price in cash in an amount equal to 100% of the principal amount thereof (in the case of the Series A through G Notes), 100% of the Accreted Value of the Senior Discount Notes (if such repurchase occurs prior to July 1, 2003) or 100% of the principal amount at maturity of the Senior Discount Notes (if such purchase occurs on or after July 1, 2003), plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. If such an offer is not fully subscribed, the Company will be free to use the remaining proceeds in any manner permitted by the Indenture. TRANSACTIONS WITH AFFILIATES The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make any contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or Subsidiary with an unrelated Person and (b) the Company delivers to the Trustee (i) with respect to any Affiliate Transaction or any series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million a resolution of the Board of Directors set forth in an officer's certificate certifying that such Affiliate Transaction complies with clause (a) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and 42 (ii) with respect to any Affiliate Transaction or any series of related Affiliate Transactions involving aggregate consideration in excess of $50.0 million, an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction from a financial point of view issued by a nationally recognized expert in evaluating such transactions; PROVIDED that (v) any employment agreement entered into by the Company or any of its Subsidiaries in the ordinary course of business, (w) commercial transactions in the ordinary course of the utility business between or among the Company and/or its Restricted Subsidiaries, (x) transactions permitted by the provisions of the Indenture described above under the caption "-- Restricted Payments," (y) agreements or transactions entered into in connection with a Securitization Transaction or the Receivables Financing and (z) following any holding company reorganization, transactions between the Company and its Restricted Subsidiaries and the Company's parent that are on terms permitted by the PSC, in each case, shall not be deemed Affiliate Transactions. PAYMENTS FOR CONSENT The Indenture will provide that neither the Company nor any of it its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of the Notes of any series for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or such Notes unless such consideration is offered to be paid or agreed to be paid to all holders of the Notes of such series that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. REPORTS The Indenture will provide that the Company shall file with the Trustee, within 15 days of filing them with the Securities and Exchange Commission (the "Commission"), copies of the current, quarterly and annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall nevertheless file with the Commission and the Trustee, on the date upon which it would have been required to file with the Commission, current, quarterly and annual financial statements, including any notes thereto (and with respect to annual reports, an auditor's report by a firm of established national reputation, upon which the Trustee may conclusively rely), and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," both comparable to that which the Company would have been required to include in such current, quarterly and annual reports, information, documents or other reports on Forms 8-K, 10-Q and 10-K if the Company were subject to the requirements of Section 13 or 15(d) of the Exchange Act, PROVIDED that the Company shall not be required to register under the Exchange Act by virtue of this provision, if not otherwise required to do so. EVENTS OF DEFAULT AND REMEDIES The Indenture will provide that the occurrence of any of the following constitutes an Event of Default: (i) default for 60 days in the payment when due of interest on any of the Notes; (ii) default in the payment when due of the principal of, or premium, if any, on, the Notes; (iii) failure by the Company to comply with the provisions described under the captions "--Restricted Payments," "--Incurrence of Indebtedness" or "--Merger, Consolidation, or Sale of Assets", (iv) failure by the Company for 60 days after notice by the Trustee or to the Company and Trustee by the holders of 25% or more in aggregate principal amount (or principal amount at maturity, as the case may be) of Notes to comply with any of its other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or of any of its Restricted Subsidiaries (or the payment of which is Guaranteed by the Company or by any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists or is created after the date of the Indenture, which default (a) is caused by a failure to pay the principal of such Indebtedness at the 43 stated maturity of such Indebtedness after the expiration of grace periods provided in such indebtedness (a "Payment Default") or (b) has resulted in the acceleration of such Indebtedness prior to its stated maturity; and, in each case the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $50.0 million or more; (vi) failure by the Company or any of its Restricted Subsidiaries to pay one or more final judgments not otherwise covered by insurance aggregating in excess of $50.0 million not otherwise covered and payable by insurance, which judgments are not paid, discharged or stayed for a period of 60 days; or (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount (or principal amount at maturity, as the case may be) of the then outstanding Notes of any series affected by an Event of Default may declare all the Notes of such series to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, the holders of not less than a majority in principal amount (or principal amount at maturity, as the case may be) of the then outstanding Notes of any series affected by an Event of Default will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding such notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption or Change of Control provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The holders of not less than a majority in aggregate principal amount of the Notes then outstanding which would be materially adversely affected by such waiver, by notice to the Trustee may on behalf of the holders of all the Notes so affected waive any existing Default or Event of Default and its consequences under the Indenture, except an Event of Default in the payment of principal of, premium, if any, or interest on the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS No past, present or future director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes and the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder by accepting a Note waives and releases all such liability as part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Indenture will provide that the Company may, at its option and at any time, elect to have its obligations discharged with respect to the outstanding Notes of any series ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire 44 indebtedness represented by, and the Indenture shall cease to be of further effect as to, all outstanding Notes of such series, except as to (i) rights of holders to receive payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due from the trust funds; (ii) the Company's obligations with respect to such Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and the maintenance of an office or agency for payment and money for security payments held in trust; (iii) the rights, powers, trust, duties, and immunities of the Trustee, and the Company's obligations in connection therewith; and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have its obligations released with respect to certain covenants that are described in the Indenture or covering the Notes of any series ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes of the affected series. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes of the affected series. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, U.S. legal tender, noncallable U.S. government securities or a combination thereof, in such amounts as will be sufficient, in the opinion of a firm of independent public accountants nationally recognized in the United States, to pay the principal of, premium, if any, and interest on such Notes on the stated date for payment thereof or on the redemption date of such principal or installment of principal of, premium, if any, or interest on such Notes, and the holders of Notes must have a valid, perfected, exclusive security interest in such trust; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the United States Internal Revenue Service, a ruling or (B) since the date of the Indenture, there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of such Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Legal Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner, and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel reasonably acceptable to such Trustee confirming that the Holders of such Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance has not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the holders of such Notes over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and (vii) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that the conditions precedent provided for in, in the case of the officers' certificate, (i) through (vi) and, in the case of the opinion of counsel, clauses (i) (with respect to the validity and perfection of the security interest), (ii), (iii) and (v) of this paragraph have been complied with. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture or the Notes may be amended or supplemented, and the Company and the Trustee may enter into Supplemental Indentures, 45 and any existing default or compliance with any provision of the Indenture or the Notes may be waived, with the consent of the holders of not less than a majority in principal amount (or principal amount at maturity, as the case may be) of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes); PROVIDED, HOWEVER, that if there shall be Notes of more than one series outstanding and if the proposed action to be taken will materially adversely affect the rights of holders of Notes of one or more of such series, then the consent (including consents obtained in connection with a tender offer or exchange offer for Notes) only of the holders of a majority in aggregate principal amount (or principal amount at maturity, as the case may be) of outstanding Notes of all series so affected, considered as one class, shall be required. Without the consent of each holder affected an amendment or waiver may not (with respect to any Note held by a non-consenting holder); (i) reduce the principal amount (or principal amount at maturity, as the case may be) of Notes whose holders must consent to an amendment, supplement or waiver; (ii) reduce the principal or change the maturity of any Note or alter or waive the provisions with respect to redemption with respect to any Note except as permitted by the Indenture; (iii) reduce the rate of or change the time for payment of interest on any Note; (iv) after the obligation has arisen for the Company to make an offer to purchase following a Change of Control or Sale of Assets, alter the obligation to purchase Notes in accordance with such offer to purchase or waive any default in the performance thereof; (v) waive a Default or Event of Default in the payment of principal of or interest on the Notes; (vi) make any Note payable in money other than that stated in any Note; (vii) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of Notes to receive payments of principal or interest on the Notes; (viii) waive a redemption payment with respect to any Note; or (ix) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any holder of Notes, the Company and the Trustee may amend or supplement the Indenture or any Notes and enter into Supplemental Indentures: (a) to cure any ambiguity, defect or inconsistency; (b) to secure the Notes on an equal and ratable or senior basis with Other Indebtedness or Subordinated Indebtedness as required by the Indenture; (c) to establish and create one or more additional series of Notes and to specify the terms of such series, pursuant to the Indenture; (d) to provide that the Company shall not issue any additional Notes or to add conditions, limitations and restrictions on the Company with respect to any series of Notes; (e) to add additional covenants and agreements of the Company to the Indenture, to add additional Events of Default under the Indenture or to surrender any right or power reserved to or conferred upon the Company pursuant to the Indenture; (f) to provide for alternative methods or forms for evidencing and recording the ownership of Notes; (g) to evidence the succession to the Company by a Successor Entity, or successive successions, and the assumption by such Successor Entity of the covenants and obligations of the Company under the Indenture; (h) to make any other change that would provide additional rights or benefits to the holders of the Notes or that would not adversely affect the legal rights of such holders; or (i) to comply with the requirements of the Commission to maintain the qualification of the Indenture under the TIA. BOOK-ENTRY SYSTEM Upon issuance, all Notes of the same series will be represented by one or more global securities (a "Global Security"). Each Global Security will be deposited with, or on behalf of, the Depository Trust Company (the "Depository") and registered in the name of a nominee of the Depository. Except under circumstances described below, book-entry Notes will not be exchangeable for certificated Notes and will not otherwise be issuable in definitive form. The Depository has advised the Company that it is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. The Depository holds securities that its participants ("Participants") deposit with the Depository. The Depository also facilitates the settlement among 46 Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities. Direct Participants ("Direct Participants") include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. The Depository is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers (the "NASD"). Access to the Depository's system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly. The rules applicable to the Depository and its Participants are on file with the Securities and Exchange Commission. Upon the issuance of a Global Security, the Depository will credit on its book-entry registration and transfer system its Participants' accounts with their respective principal amounts of the Notes represented by such Global Security. Such accounts shall be designated by the Underwriters with respect to such Notes. Ownership of beneficial interests in a Global Security will be limited to Participants or persons that hold interests through Participants. Ownership of beneficial interests in such Global Security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the Depository or its nominee (with respect to interest of Participants) and on the records of Participants (with respect to interests of persons other than Participants). The laws of some states may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability of a purchaser of an interest in a book-entry Note to transfer such interest. So long as the Depository or its nominee is the registered owner of such Global Security, the Depository or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Security for all purposes under the Indenture. Except as provided below or as the Company may otherwise agree in its sole discretion, owners of beneficial interests in a Global Security will not be entitled to have Notes represented by such Global Security registered in their names, will not receive or be entitled to receive physical delivery of Notes in definitive form and will not be considered the owners or holders thereof under the Indenture. Principal, premium, if any, and interest payments on Notes registered in the name of the Depository or its nominee will be made to the Depository or its nominee, as the case may be, as the registered owner of the Global Security representing such Notes. None of the Company, the Trustee, any paying agent or the registrar for such Notes will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial interests in such Global Security for such Notes or for maintaining, supervising or reviewing any records relating to such beneficial interests. The Company expects that the Depository for the Notes or its nominee, upon receipt of any payment of principal, premium or interest, will credit immediately Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Security for such Notes as shown on the records of the Depository or its nominee. The Company also expects that payments by Participants to owners of beneficial interest in such Global Security held through such Participants will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name" (i.e., the name of a securities broker or dealer), and will be the responsibility of such Participants. If the Depository is at any time unwilling or unable to continue as depository and a successor depository is not appointed by the Company within 90 days, the Company will issue Notes in definitive form in exchange for the entire Global Security representing such Notes. In addition, the Company may at any time and in its sole discretion determine not to have the Notes represented by Global Securities and, in such event, will issue Notes in definitive form in exchange for the Global Securities representing such Notes. In any such instance, an owner of a beneficial interest in a Global Security will be entitled to physical delivery in definitive form of Notes represented by such Global Security equal in principal amount to such beneficial interest and to have such Notes registered in its name. Notes so issued in definitive form 47 will be issued as registered Notes in denominations that are integral multiples of $1,000, unless otherwise specified by the Company. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Indenture provides that in case an Event of Default occurs (which is not cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless such holder will have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for the full definitions of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "ACCRETED VALUE" means, for each $1,000 face amount of Senior Discount Notes as of any date of determination prior to July 1, 2003, the sum of (a) the initial offering price of each Senior Discount Note and (b) that portion of the excess of the principal amount of each Senior Discount Note over such initial offering price which shall have been accreted thereon through such date, such amount to be so accreted on a daily basis and compounded semi-annually on each January 1 and July 1 at the rate of % per annum from the date of issuance of the Senior Discount Notes through the date of determination. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Restricted Subsidiary of such specified Person; and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "AFFILIATE" of any specified person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "CAPITAL LEASE OBLIGATION" means, with respect to any Person, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet of such Person in accordance with GAAP. "CAPITAL STOCK" means (i) in the case of a corporation, shares of corporate stock; (ii) in the case of an association or business entity, any and all shares, interests, participation, rights or other equivalents (however designated) of corporate stock; (iii) in the case of a partnership, partnership interests (whether general or limited); and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distribution of assets of, the issuing Person. 48 "CASH EQUIVALENTS" means (i) certain U.S. government securities having maturities of not more than eighteen months from the date of acquisition; (ii) certificates of deposit and eurodollar time deposits with maturities of eighteen months or less from the date of acquisition, bankers' acceptances with maturities not exceeding eighteen months and overnight bank deposits, in each case with any lender party to the Credit Facility or with any U.S. commercial bank having capital and surplus in excess of $500 million; (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i) and (ii) above entered into with any financial institution meeting the qualifications specified in clause (ii) above; (iv) commercial paper having either the highest or second highest rating obtainable from Moody's or S&P and in each case maturing within six months after the date of acquisition; (v) other corporate debt or asset backed or mortgage backed securities rated as Investment Grade by S&P or Moody's and which mature within eighteen months; and (vi) money market mutual funds. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all the assets of the Company and its Restricted Subsidiaries taken as a whole; (ii) the adoption of a plan relating to the liquidation or dissolution of the Company; (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power in the aggregate of all classes of Capital Stock of the Company then outstanding normally entitled to vote in the election of directors; or (iv) the first day on which a majority of the members of the Board of Directors of the Company or of any Successor Entity (as defined under the caption "Merger, Consolidation, or Sale of Assets" above) are not Continuing Directors. For purposes of this definition, the consummation of a transaction in which the outstanding shares of Common Stock are exchanged for common stock of a Person that thereafter will be the sole shareholder of the Company as part of a holding company reorganization will not be deemed to be a Change of Control. "CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of a Change of Control and a Rating Decline. "COMMON STOCK" means the Company's common stock, $1.00 par value. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common shareholders (or equity holders) of such Person and its consolidated Restricted Subsidiaries as of such date; plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of Preferred Stock that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such Preferred Stock, LESS (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the Initial Issuance Date in the book value of any asset owned by such Person or a Restricted Subsidiary of such Person, (y) all investments as of such date in Unrestricted Subsidiaries and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all the foregoing determined in accordance with GAAP. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the Initial Issuance Date; or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "CREDIT FACILITY" means the Company's $804.4 million credit facility dated as of March 20, 1996 with a group of banks and Citibank, as agent, as such agreement is amended, modified, restated, extended, renewed, replaced or refinanced from time to time. 49 "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is one year after the final maturity of the outstanding series of Notes with the longest maturity. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "FAIR VALUE" when applied to any property means its fair value to the Company, which may be determined without physical inspection by use of accounting and engineering records and other data maintained by, or available to, the Company; PROVIDED, that the Company delivers a resolution of the Board of Directors specifying the Fair Value of the assets being sold and, in the event of a transaction in excess of $50.0 million, the Company also delivers an opinion of a nationally recognized expert in the valuation of the assets being sold as to the Fair Value of the assets being sold and that the transaction is fair to the Company. "FIRST MORTGAGE BONDS" means the securities and other Indebtedness issued from time to time pursuant to the Company's Mortgage Trust Indenture dated as of October 1, 1937 and the supplemental indentures thereto. "FIXED CHARGE COVERAGE RATIO" of the Company and its Restricted Subsidiaries means for any period, the ratio of (i) the sum (determined from the consolidated income statement of the Company and its Restricted Subsidiaries) of (A) operating income or operating loss of the Company and its Restricted Subsidiaries, taken as a whole, for such period PLUS (B) depreciation and amortization (including amortization of goodwill and other intangibles and of the MRA Regulatory Asset and other non-cash regulatory deferrals and amortizations) and other non-recurring, non-cash charges of the Company and its Restricted Subsidiaries for such period to the extent that such deprecation and amortization and other non-recurring, non-cash charges were deducted in computing operating income or operating loss, in each case on a consolidated basis and determined in accordance with GAAP, PLUS (C) provision for taxes based on income or profits of the Company and its Restricted Subsidiaries for such period to the extent deducted in determining operating income, to (ii) the sum of (A) the consolidated interest expense of the Company and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to any sale and leaseback transactions, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings (unless such commissions, discounts and other fees and charges have been deducted in calculating operating income), net payments (if any) pursuant to Hedging Obligations and any interest paid by the Company or a Restricted Subsidiary pursuant to a TIPES Transaction; PLUS (B) the consolidated interest expense of the Company and its Restricted Subsidiaries that was capitalized during such period; PLUS (C) any interest expense on Indebtedness of another Person that is Guaranteed by the Company or one of its Restricted Subsidiaries or secured by a Lien on assets of the Company or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon); PLUS (D) the quotient obtained by dividing all cash dividend or other payments or distributions on or in respect of any series of Preferred Stock (other than Preferred Stock issued in a TIPES Transaction), of the Company or any of its Restricted Subsidiaries by 1 minus the maximum statutory income tax rate then applicable to the Company (expressed as a decimal), in each case, on a consolidated basis and in accordance with GAAP. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to 50 the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge Coverage Ratio shall be calculated giving PRO FORMA effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of Preferred Stock, as if the same had occurred at the beginning of the applicable reference period. "FOSSIL AND HYDRO GENERATING ASSETS" means the Generating Assets other than the Nuclear Generating Assets. "GAAP" means generally accepted accounting principles in use at the Initial Issuance Date or, at the option of the Company, other generally accepted accounting principles which are in use at the time of their determination; in determining generally accepted accounting principles, the Company may, but shall not be required to, conform to any accounting order, rule or regulation of any regulatory authority having jurisdiction over the electric generating, transmission or distribution operations of the Company. "GENERATING ASSETS" means the Company's nuclear, fossil and hydroelectric generation plants other than the Oswego Plant, and any related asset necessary for the operation of any such plant and any associated license or permit. "GRADATION" means a gradation within a Rating Category or a change to another Rating Category, which shall include "+" and "-", in the case of S&P's current Rating Categories (e.g., a decline from BB+ to BB would constitute a decrease of one gradation); "1", "2" and "3", in the case of Moody's current Rating Categories (e.g. a decline from B1 to B2 would constitute a decrease of one gradation); or the equivalent in respect of successor Rating Categories used by Rating Agencies other than S&P or Moody's. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including without limitation, letters of credit, reimbursement agreements and support, "keep-well" or similar agreements in respect thereof), of all or any part of any Indebtedness. "HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such Person under any interest rate, currency or commodity swap agreement, interest rate, currency or commodity future agreement, interest rate cap or collar agreement, interest rate, currency or commodity hedge agreement, and any put, call other agreement or arrangement designed to protect such Person against fluctuations in interest rates, currency exchange rates or commodity prices. "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations of such Person or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations of such Person, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP (provided, that any debt instrument issued by the Company or a Restricted Subsidiary in a TIPES Transaction shall be deemed Indebtedness of the Company regardless of its characterization on any such balance sheet), as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, any Guarantees by such Person of any indebtedness of any other Person. "INITIAL ISSUANCE DATE" means the date of closing of the public offering of the Notes. "INVESTMENT" means, with respect to any Person, any investment by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including Guarantees of Indebtedness or other obligations), advances (excluding commission, travel and similar advances to employees made in the 51 ordinary course of business) or capital contributions, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; PROVIDED, HOWEVER, that an acquisition of assets, Equity Interests or other securities by the Company for consideration consisting of assets or Capital Stock (other than Disqualified Stock) shall not be deemed to be an Investment. "INVESTMENT GRADE" means a rating of BBB- or higher by S&P (or its equivalent under any successor rating categories of S&P) or the equivalent of such rating category of any other Rating Agency. "INVESTMENT GRADE DATE" means the date of delivery by the Company to the Trustee of an officer's certificate to the effect that the Notes of the series having the longest maturity then outstanding have been rated Investment Grade by (i) S&P and Moody's or (ii) S&P or Moody's and at least one other Rating Agency identified in such certificate. "IPP BUYOUT" means the termination, restatement or amendment of certain power purchase agreements in exchange for cash and securities (or the proceeds of the sale by the Company of securities) pursuant to the terms of the Master Restructuring Agreement. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, encumbrance, charge or adverse claim affecting title or resulting in a charge against real or personal property, or a security interest of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "MAKE WHOLE PREMIUM" with respect to any Note shall mean with respect to any prepayment of such Note in circumstances requiring the payment of a Make Whole Premium, an amount equal to (i) in the case of the Series A through G Notes, the excess of (a) the aggregate present value as of the date of such prepayment of the expected future cash flows of such Note (for the avoidance of doubt, such amounts shall include all principal and interest payable with respect to such Note) (exclusive of interest accrued to the date of prepayment) that, but for such prepayment, would have been payable if such prepayment had not been made, all determinated by discounting such amounts at a rate which is equal to the Treasury Rate plus .50% over (b) the aggregate principal amount of the Note then to be prepaid and (ii) in the case of the Senior Discount Notes (if such prepayment occurs prior to July 1, 2003), the excess of (a) the present value of the sum of all remaining interest (excluding accrued and unpaid interest, if any), premium and principal payments that would become due on the Senior Discount Notes if they were to remain outstanding and be redeemed on July 1, 2003, computed using a discount rate equal to the Treasury Rate plus .50% over (b) the Accreted Value of the Senior Discount Note then to be prepaid. For purposes of any determination of the Make Whole Premium: "TREASURY RATE" shall mean at any time with respect to the Notes being prepaid (a) the yield reported on page C4 of the Bloomberg Financial Markets Service (or, if not available, any other nationally recognized trading screen reporting on-line intraday trading in United States government securities) at 11:00 A.M. (New York, New York time) for those actively traded United States government securities having a maturity (rounded to the nearest month) corresponding to the remaining Weighted Average Life to Maturity of the Notes being prepaid or (b) in the event that no nationally recognized trading screen reporting on-line intraday trading in United States government securities is available, Treasury Rate shall mean the weekly average of the yield to maturity on the United States Treasury obligations with a constant maturity (as compiled by and published in the most recently published issue of the United States Federal Reserve Statistical Release designated H.15(519) or its successor publication) most nearly equal to (by rounding to the nearest month) the Weighted Average Life to Maturity of the Notes then being prepaid. If no maturity exactly corresponding to such Weighted Average Life to maturity of such Notes shall appear therein, the weekly average yield for the two most closely corresponding published 52 maturities shall be calculated pursuant to the foregoing sentence and the Treasury Rate shall be interpolated or extrapolated, as the case may be, from such yields on a straight-line basis (rounding, in the case of relevant periods, to the nearest month). "MASTER RESTRUCTURING AGREEMENT" means the Master Restructuring Agreement dated July 9, 1997 among the Company and the independent power producer parties thereto, as amended from time to time. "MOODY'S" means Moody's Investor Service, Inc., or any successor to its securities ratings business. "MRA REGULATORY ASSET" means the item designated as such on the Company's balance sheet, which represents amounts that the Company is permitted to collect from customers, pursuant to the regulations of the PSC, in respect of the IPP Buyout and the other transactions contemplated by the Master Restructuring Agreement. "NET PROCEEDS" means the aggregate cash proceeds received by a Person in respect of any sale of assets, net of amounts paid to minority interests, co-owners and lienholders, direct costs relating to such sale (including, without limitation, legal, accounting and investment banking fees and sales commission), taxes paid or payable which are attributable to such sale (after taking into account any available tax credits or deductions and any tax sharing arrangements relating to such assets), and any cash reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provide credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "NUCLEAR GENERATING ASSETS" means the Company's interest in Units 1 and 2 of the Nine Mile Point Nuclear Generating Plant, and any related asset necessary for the operation of such plants and any associated license or permit. "OPERATING CASH FLOW" means, with respect to any Person for any period, the net cash provided by operating activities of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP. "OSWEGO PLANT" means the interest of the Company in the fossil fuel electric generation plant located near Lake Ontario in Oswego, New York. "OTHER INDEBTEDNESS" shall mean Senior Indebtedness incurred after the Initial Issuance Date, except (a) Permitted Refinancing Indebtedness with respect to First Mortgage Bonds issued and outstanding at the closing on the Initial Issuance Date; (b) Permitted Refinancing Indebtedness with respect to the Credit Facility; and (c) Indebtedness under the Securitization Transaction and the Receivables Financing and any Permitted Refinancing Indebtedness with respect thereto. "PERMITTED ASSET SWAP" means any swap of utility property or assets (or assets related or ancillary thereto) of the Company for other property or assets that will be used in or in connection with the Company's utility business. "PERMITTED HEDGING AGREEMENT" of any Person shall mean any Hedging Obligation entered into in the ordinary course of business or pursuant to the MRA and not for speculation or trading purposes that is designed to protect such Person against fluctuations in interest rates or currency exchange rates or 53 commodity prices with respect to Indebtedness incurred or proposed to be incurred or assets used in the business in the ordinary course and which in the case of agreements relating to interest rates shall have a notional amount no greater than the payments due with respect to the Indebtedness being hedged thereby. "PERMITTED INVESTMENT" means (a) an Investment in the Company or in a Restricted Subsidiary of the Company (including Investments by the Company in the First Mortgage Bonds or the Notes to the extent otherwise permitted by this Indenture); (b) an Investment in Cash Equivalents; (c) an Investment by the Company or any Restricted Subsidiary in a Person, if as a result of such Investment (i) such Person becomes a direct or indirect Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (d) an Investment in any Person owning or operating electric generation, transmission or distribution facilities or gas distribution or transportation or related systems in which the Company owns joint or undivided interests; (e) an Investment in a Person formed as a special purpose entity in conjunction with a Receivables Financing or Securitization Transaction; (f) an Investment received in connection with the bankruptcy or reorganization of customers and suppliers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; and (g) any payment pursuant to those existing Investments of the Company, including the nuclear decommissioning trust fund and the employee benefit plan trusts, described in a Schedule attached to the Indenture. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, extend, refinance, replace (including the replacement at any time following their stated maturity of First Mortgage Bonds or Notes that are repaid at maturity, or the replacement at any time following their stated maturity of the Credit Facility or the Receivables Financing), defease or refund, in whole or in part, other Indebtedness of the Company or any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so renewed, extended, refinanced, replaced, defeased or refunded (plus the amount of accrued interest and premiums (including premium paid on open market purchases), if any, thereon and the reasonable expenses incurred in connection therewith); (ii) Permitted Refinancing Indebtedness that is incurred prior to the maturity of the Indebtedness that it is renewing, extending, refinancing, replacing, defeasing or refunding must be on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being renewed, extended, refinanced, replaced, defeased, or refunded and: (a) if such Indebtedness has a final maturity date earlier than the final maturity date of the series of Notes with the latest final maturity date, then such Permitted Refinancing Indebtedness must have a final maturity date the same as or later than the final maturity date of, and a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed, extended, refinanced, replaced, defeased or refunded, and (b) if such Indebtedness has a final maturity date later than the final maturity date of the series of Notes with the latest final maturity date, then such Permitted Refinancing Indebtedness must have a final maturity date the same as or later than the final maturity date of, and a Weighted Average Life to Maturity equal to or greater than the maturity of, the series of Notes with the latest final maturity date; (iii) if the Indebtedness being renewed, extended, refinanced, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being refinanced, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary (or, in the case of the Receivables Financing, the special purpose entity) that is the obligor on the Indebtedness being renewed, extended, refinanced, replaced, defeased or refunded. 54 "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "POLLUTION CONTROL OBLIGATIONS" means the Indebtedness or other obligations (however designated) of the Company in respect of tax-exempt revenue bonds issued by the New York State Energy Research and Development Authority. "POWERCHOICE AGREEMENT" means the PowerChoice Settlement Agreement between the Company and the PSC, as approved by the PSC in an Order dated March 20, 1998, as such agreement may be amended or modified from time to time. "PREFERRED STOCK" means any Capital Stock of the Company which by its terms has preference to Common Stock in right of dividends or other distributions or upon liquidation or dissolution. "PSC" means the New York State Public Service Commission, or any successor agency or other governmental entity performing the same functions. "RATING AGENCY" means any of S&P, Moody's, Duff & Phelps Credit Rating Company and Fitch Investors Service, Inc., and their successors. "RATING CATEGORIES" means (i) with respect to S&P, any of the following categories (any of which may include a "+" or "-"): AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody's, any of the following categories (any of which may include a "1", "2" or "3"): Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such categories of S&P or Moody's used by another Rating Agency, if applicable. "RATING DECLINE" means, at any time within 90 days (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for a possible downgrade by any Rating Agency) after the date of public notice of a Change of Control, or the intention of the Company or any Person to effect a Change of Control, (i) the Rating of the Notes is decreased at least one Gradation by any Rating Agency or (ii) a withdrawal of the rating of the Notes by any Rating Agency. "RECEIVABLES FINANCING" means the obligations of the Company pursuant to the Trade Receivables Purchase and Sale Agreement, dated as of August 30, 1996, among NM Receivables Corp., Corporate Receivables Corporation, Citibank, N.A., Citicorp North America, Inc. and the Company, as such agreement is amended or modified from time to time. "RELATED ASSET" means real or tangible personal property integral to the generation, transmission or distribution of electricity or the transportation or distribution of natural gas, and ancillary or related activities, including other energy-related businesses. "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such Person that is not an Unrestricted Subsidiary. "S&P" means Standard & Poors' Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors. "SALE OF ASSETS" means (i) the sale, lease, conveyance or other disposition of any assets (including, without limitation by way of a sale and leaseback) by the Company or any Restricted Subsidiary other than sales of inventory or other current assets in the ordinary course of business consistent with past practice; (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of their Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a Fair Value in excess of $25.0 million or (b) for Net Proceeds in excess of $25.0 million; (iii) the sale or other disposition (but not any spin-off or other distribution to the Company's 55 shareholders) of the Generating Assets or the Oswego Plant; or (iv) a Securitization Transaction. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Wholly-Owned Restricted Subsidiary or by a Wholly-Owned Restricted Subsidiary to the Company or to another Wholly-Owned Restricted Subsidiary; (ii) an issuance of Equity Interests by a Wholly-Owned Restricted Subsidiary to the Company or to another Wholly-Owned Restricted Subsidiary; (iii) a Restricted Payment that is permitted by the Indenture; (iv) sales of property or equipment that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any of its Restricted Subsidiaries; (v) transactions involving the license, lease or sublease of any real or personal property in the ordinary course of business; (vi) the making of any Permitted Investment; (vii) the transfer, sale or assignment of assets to a single purpose entity in connection with the Receivables Financing; and (viii) a Permitted Asset Swap, will not be deemed to be a Sale of Assets. "SECURITIZATION TRANSACTION" means a transaction in which the Company, pursuant to authorization of the PSC, or other appropriate governmental authorizations, transfers rights or other property to a Person formed as a special purpose entity in conjunction with a financing based on the Company's right to collect a non-bypassable wires or similar fee. "SENIOR INDEBTEDNESS" means any senior Indebtedness of the Company, including the First Mortgage Bonds, the Credit Facility, the Notes and the Medium-Term Notes. "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act of 1933, as amended, as such Regulation is in effect on the date hereof. "SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or Guaranteed by the Company or its Restricted Subsidiaries) which is subordinate to the Notes in right of payment or rights upon liquidation of the Company, whether pursuant to the terms of the instrument creating or evidencing such Indebtedness or otherwise. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (ii) any partnership (a) the sole general partner or the managing partner of which is such Person or a Subsidiary of such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "SUPPLEMENTAL INDENTURE" means any indenture duly authorized and approved by the Company's Board of Directors and entered into between the Company and the Trustee in accordance with the Indenture. "TIPES TRANSACTION" means a financing transaction or transactions in which the Company establishes a trust or other pass-through entity whose common equity interests are owned by the Company or a Subsidiary and whose assets consist of debt securities of the Company or any Restricted Subsidiary for the purpose of issuing preferred interests in such trust or other entity to investors. "UNRESTRICTED SUBSIDIARY" means (i) Opinac North America, Inc., Opinac Energy Corporation, Plum Street Enterprises, Inc., Canadian Niagara Power Company, Limited and any other Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board resolution; but only to the extent that any such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company 56 nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (d) has not Guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors will be evidenced to the Trustee by filing with the Trustee a certified copy of the Board resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing conditions and was permitted by the covenant described under the caption "Certain Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date by the covenant described under the caption "Certain Covenants-Incurrence of Indebtedness", the Company shall be in default of such covenant). The Board of Directors may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted by the covenant described under the caption "Certain Covenants--Incurrence of Indebtedness" and (ii) no Default or Event of Default would be in existence following such designation. "WEIGHTED AVERAGE LIFE TO MATURITY" means, with respect to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY-OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly-Owned Restricted Subsidiaries of such Person. 57 DESCRIPTION OF OTHER INDEBTEDNESS Upon the completion of the Offering, the Company will have outstanding, in addition to the Notes, indebtedness outstanding under the Credit Facility, its First Mortgage Bonds, Promissory Notes and Medium Term Notes. The following is a brief summary of the principal terms and conditions of the foregoing, all of which will be "Senior Indebtedness" under the terms of the Indenture. CREDIT FACILITY The Company has a $804.4 million credit facility (the "Credit Facility") which is secured with First Mortgage Bonds, with a bank group consisting of a $255.0 million term loan agreement (the "Term Loan Agreement"), a $125.0 million revolving credit agreement, and $424.4 million for letters of credit (the "Letter of Credit"). As of March 31, 1998, the amount outstanding under the Credit Facility was $529.4 million, consisting of $105.0 million under the Term Loan Agreement and $424.4 million under the Letter of Credit, leaving the Company with $275.0 million of borrowing capability under the Credit Facility. The interest rate applicable to the Credit Facility is variable based on certain rate options available under the Credit Facility and currently approximates 7.38% (but is capped at 15%). The Company is currently negotiating with lenders to amend the Credit Facility to extend the expiration date from June 30, 1999 to August 1, 2000. FIRST MORTGAGE BONDS At March 31, 1998, the Company had $2.8 billion aggregate principal amount of First Mortgage Bonds in 18 different series issued pursuant to supplements to the Company's Mortgage Trust Indenture dated as of October 1, 1937, as amended. The First Mortgage Bonds bear interest at fixed rates ranging from 5 7/8% to 9 3/4% for different series, with a weighted average interest rate of 7.81% for all series during 1997. The First Mortgage Bonds are secured by a lien on substantially all gas and electric properties owned by the Company and used or useful in the operation of the Company's properties as an integrated system, together with all rights pertaining thereto. Substantially all after-acquired property of such character will also become subject to such lien. The First Mortgage Bonds mature between 1998 and 2029. PROMISSORY NOTES At March 31, 1998, the Company had outstanding approximately $413.8 million Adjustable Rate Promissory Notes (the "Pollution Control Bonds") issued in seven series with maturities ranging from July 1, 2015 to July 1, 2027. The Pollution Control Bonds were issued to NYSERDA to secure a like amount of tax-exempt revenue bonds issued by NYSERDA. Such securities bear interest at a daily adjustable interest rate (with a Company option to convert to other rates, including a fixed interest rate which would require the Company to issue First Mortgage Bonds to secure the NYSERDA debt) which averaged 3.63% for 1997 and were supported by bank direct pay letters of credit under the Credit Facility. MEDIUM TERM NOTES At March 31, 1998, the Company also had outstanding $20.0 million of unsecured notes (the "Medium Term Notes") with maturities between 2000 and 2004 and bearing interest at rates ranging from 9.95% to 9.99% pursuant to an indenture between the Company and IBJ Schroder Bank & Trust Company, as trustee. 58 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a summary description of certain United States federal income tax consequences of the acquisition, ownership and disposition of the Notes, based on advice received from Bryan Cave LLP, special tax counsel to the Company. The described consequences are based upon the provisions of the Code, applicable Treasury regulations, rulings and other administrative pronouncements, and judicial decisions as of the date hereof. Such authorities may be repealed, revoked or modified, possibly with retroactive effect, so as to result in federal income tax consequences different from those indicated. No ruling from the Internal Revenue Service ("IRS") has been or will be sought with respect to any of the described consequences and there can be no assurance that the IRS would necessarily accept such consequences in the event of an audit. This discussion applies only with respect to Notes that are held as "capital assets" (within the meaning of section 1221 of the Code), and addresses only initial purchasers of the Notes. This discussion does not purport to deal with all aspects of federal income taxation that might be relevant to particular holders in light of their particular circumstances or tax status, including holders who are subject to special treatment under the federal income tax laws, such as foreign holders, certain financial institutions, insurance companies, dealers in securities or foreign currency, tax-exempt organizations or retirement plans, persons who enter into hedging transactions in connection with the Notes, or who hold the Notes as a hedge against currency risks or as part of a straddle with other investments or as part of a "synthetic security" or other integrated investment (including a conversion transaction), a constructive sale transaction, or persons whose functional currency is not the U.S. dollar. Nor does the discussion address the consequences or effect of any applicable state, local or foreign tax laws, or any estate or gift tax laws. THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR TO DETERMINE THE TAX IMPACT OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES IN LIGHT OF SUCH INVESTOR'S PARTICULAR CIRCUMSTANCES, INCLUDING ANY CONSEQUENCES UNDER THE TAX LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER NON-FEDERAL JURISDICTION. HOLDERS--UNITED STATES PERSONS For purposes of this discussion, the term "holder" refers to any person who is considered the owner of a Note for U.S. federal income tax purposes, whether or not such person is the registered holder of the Note. Except as set forth under the subheadings "Non-U.S. Holders" and "Backup Withholding and Information Reporting", the described tax consequences apply to holders of Notes who are "United States persons," including: (i) an individual who is a citizen or resident of the United States for federal income tax purposes, (ii) a corporation or partnership created or organized in or under the laws of the United States or any State or the District of Columbia, (iii) an estate (other than a foreign estate) or (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. TREATMENT OF NOTES AS INDEBTEDNESS OF THE COMPANY The Company intends to characterize and treat the Notes as "indebtedness" (as opposed to a "stock" or other "equity"-type interest in the Company) for all federal income tax purposes. Pursuant to section 385(c) of the Code, such characterization will generally be binding upon all holders of the Notes (but not upon the IRS). INTEREST INCOME--SERIES A THROUGH G NOTES In respect of the Series A through G Notes, for federal income tax purposes, interest paid or accrued in respect thereof will be includible in holder's gross income, as ordinary interest income, in accordance 59 with its regular method of tax accounting. Although the Series A through G Notes may be issued at a price that is less than their stated principal amount, the discount is not expected to exceed 0.25% of the stated redemption price at maturity multiplied by the number of whole years to maturity. Accordingly, the amount of any original issue discount on the Notes that is attributable to the difference between their purchase price and their stated redemption price would be considered DE MINIMIS and thus treated as zero. ORIGINAL ISSUE DISCOUNT--SENIOR DISCOUNT NOTES GENERAL. The Senior Discount Notes will be issued with original issue discount ("OID") for federal income tax purposes. A U.S. holder of a Senior Discount Note will be required to include such OID as ordinary income (regardless of whether such holder is a cash or accrual basis taxpayer) on a constant yield to maturity basis in advance of the receipt of some or all of the related cash payments, as described below, in each taxable year. The amount of OID with respect to each Senior Discount Note will be equal to the excess of (i) its "stated redemption price at maturity" over (ii) its issue price. Pursuant to the Treasury Regulations issued under provisions of the Code relating to OID (the "OID Regulations"), the "stated redemption price at maturity" of each Note will include all payments to be made in respect thereof, including any stated interest payments, other than payments of "qualified stated interest." Payments of qualified stated interest are payments of interest which are unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually at a qualifying rate, including a single fixed rate during the entire term of the debt instrument. Since no actual cash payments will be made in respect of the Senior Discount Notes until January 1, 2004, no interest payments on the Senior Discount Notes will constitute "qualified stated interest." TAXATION OF ORIGINAL ISSUE DISCOUNT. A U.S. holder of a Senior Discount Note is required to include in gross income as interest income for federal income tax purposes an amount equal to the sum of the "daily portions" of the OID for each day during the taxable year that the Senior Discount Note was held. The daily portion of OID required to be included in a holder's gross income in a taxable year will be determined upon a constant yield to maturity basis by allocating to each day during the taxable year on which the holder holds the Senior Discount Note a pro-rata portion of the OID which is attributable to the "accrual period" in which such day is included. Accrual periods with respect to a Senior Discount Note may be of any length and may vary in length over the term of the Senior Discount Note as long as (i) no accrual period is longer than one year and (ii) each scheduled payment of interest or principal on the Senior Discount Note occurs on either the final or first day of an accrual period. The amount of the OID attributable to each "accrual period" will be the product of (A) the "adjusted issue price" of the Senior Discount Note at the beginning of such accrual period (i.e., the issue price of the Senior Discount Note, generally increased by all prior accruals of OID with respect to the Senior Discount Note and reduced by all payments made with respect to the Senior Discount Note) and (B) the "yield to maturity" of the Senior Discount Note (stated in a manner appropriately taking into account the length of the accrual period). The Senior Discount Notes' yield to maturity is the discount rate, which when applied to all payments required to be made with respect to the Senior Discount Notes, results in a present value equal to the issue price. Accordingly, a holder of a Senior Discount Note will be required to include OID in gross income for federal income tax purposes in advance of the receipt of cash in respect of such income. The amount of OID allocable to an initial short accrual period may be computed using any reasonable method if all other accrual periods, other than a final short accrual period, are of equal length. The amount of OID allocable to the final accrual period at maturity of the Senior Discount Notes is the difference between (x) the amount payable at the maturity of the Senior Discount Note, and (y) the Senior Discount Note's adjusted issue price as of the beginning of the final accrual period. EFFECT OF MANDATORY AND OPTIONAL REDEMPTIONS ON OID. In the event of a Change of Control Triggering Event, the Company will be required to offer to redeem all of the Senior Discount Notes at the redemption price specified elsewhere herein. See "Description of Notes--Change of Control." Under the 60 OID Regulations, computation of yield and maturity of the Senior D iscount Notes is not affected by such redemption rights and obligations if, based on all the facts and circumstances as of the issue date, the potential occurrence of such contingencies is remote. The Company has determined that, based on all of the facts and circumstances that are expected to exist as of the issue date, the possibility that a Change of Control Triggering Event or an optional redemption by the Company will occur is remote and, as a result, the stated payment schedule of the Senior Discount Notes will not be adjusted for such contingencies. The Company may redeem the Senior Discount Notes, in whole or in part, at any time at redemption prices specified elsewhere herein. See "Description of Notes--Optional Redemption." The OID Regulations contain rules for determining the "maturity date" and the stated redemption price at maturity of an instrument that may be redeemed prior to its stated maturity date at the option of the issuer. Under the OID Regulations, solely for purposes of the accrual of OID, it is assumed that the issuer will exercise any option to redeem a debt instrument if such exercise will lower the yield-to-maturity of the debt instrument. The Company anticipates that it will not be presumed to redeem the Senior Discount Notes prior to their stated maturity under the foregoing rules because the exercise of such option would not lower the yield-to-maturity of the Senior Discount Notes. REPORTING REQUIREMENTS. Each Senior Discount Note will contain a legend stating that it was issued with OID and setting forth the issue date, the issue price, the amount of OID and the yield to maturity. The Company will report annually to the IRS and to each holder the amount of OID accrued with respect to such Senior Discount Note for that year. DEDUCTIBILITY OF ORIGINAL ISSUE DISCOUNT BY THE COMPANY Certain issuers of "applicable high-yield discount obligations" ("AHYDOs") are not permitted to deduct interest attributable to OID on such obligations as it accrues. An AHYDO is a debt instrument that (i) has a maturity date that is more than five years from the date of issue, (ii) bears a yield to maturity that exceeds the sum of (A) the applicable federal rate (the "AFR") in effect for the calendar month in which the obligation was issued (5.93% for instruments issued in June, 1998), plus (B) five percent (5%), and (iii) has "significant original issue discount." A debt instrument is deemed to be issued with "significant original issue discount" if the aggregate amount which would be includible in gross income of a holder with respect to such instrument for periods before the close of any accrual period ending after the date five years after the date of issue exceeds the sum of (i) the aggregate amount of interest required to be paid under the instrument before the close of such accrual period and (ii) the product of the issue price of such instrument and its yield to maturity. If the Senior Discount Notes are determined to be AHYDOs, to the extent any AHYDO limitations apply, the deduction of the "disqualified portion" of the OID is permanently disallowed and the remainder of the OID is not deductible until it is actually paid in cash or property (other than equity or debt of the issuer). MARKET DISCOUNT; ACQUISITION PREMIUM If a holder acquires a Note for an amount that is less than the sum of all payments (other than payments with respect to qualified stated interest) due with respect to such Note at the time of acquisition, the amount of such difference will be treated as "market discount" for federal income tax purposes, unless such difference is less than a specified DE MINIMIS amount. Under the market discount rules, a holder will be required to treat any principal payment on, or any gain on the sale, exchange, retirement or other disposition of, a Note as ordinary income to the extent that such gain does not exceed the accrued market discount on such Note. If a holder makes a gift of a Note, accrued market discount, if any, will be recognized as if such holder had sold such Note for a price equal to its fair market value. In addition, the holder may be required to defer, until the maturity of the Note or the earlier disposition of the Note in a 61 taxable transaction, the deduction of a portion of the interest expense on any indebtedness incurred or continued to purchase or carry such Note. Any market discount will be considered to accrue on a straight-line basis during the period from the date of acquisition to the maturity date of the Note, unless the holder elects to accrue such market discount on a "constant yield to maturity" basis. Such an election is irrevocable and is applicable only to the Note with respect to which it is made. A holder of a Note may elect to include market discount in income currently as it accrues (on either a straight-line or constant yield to maturity basis), in which case the rules described above regarding the deferral of interest deductions will not apply. An election to include market discount in income currently, once made, applies to all market discount obligations acquired on or after the first day of the first taxable year to which the election applies, and may not be revoked without IRS consent. A holder who purchases a Note for an amount in excess of the sum of all payments due with respect to such Note (other than payments with respect to qualified stated interest) will be considered to have purchased the Note at a "premium." Under section 171 of the Code, a holder generally may elect to amortize the premium over the remaining term of the Note on a constant yield to maturity basis. The amount amortized in any year will be treated as a reduction of the holder's interest from the Note. A holder who elects to amortize such premium must also reduce its tax basis in a Note by the amount of premium amortized during its holding period. Bond premium on a Note held by a holder who does not make such an election will decrease the gain or increase the loss otherwise recognized on disposition of the Note. Under recently finalized Treasury regulations, any premium on a Note that is not amortized pursuant to an election under section 171 of the Code may be deductible only as a capital loss upon the maturity of the Note. In the case of a Note that is callable by the Company prior to maturity, the holder is required to amortize premium with reference to the amount payable on the earlier call date if that would result in a smaller amount of amortizable premium for the period prior to the call date. The election to amortize premium on a constant yield to maturity basis, once made, applies to all debt obligations held or subsequently acquired by the electing holder on or after the first day of the first taxable year to which the election applies (other than debt instruments the interest on which is excludable from gross income), and may not be revoked without the consent of the IRS. With respect to the Senior Discount Notes, under the acquisition premium rules of the Code and the OID Regulations, the daily portion of OID which such holder must include in its gross income with respect to such Senior Discount Notes for any taxable year will be reduced by an amount equal to the OID multiplied by a fraction, the numerator of which is the amount of such acquisition premium and the denominator of which is the OID remaining from the date the Senior Discount Note was purchased to its maturity date. DISPOSITION OF NOTES Unless a nonrecognition provision of the Code applies, the sale, exchange, retirement at maturity, redemption prior to maturity (including pursuant to an offer, or exercise of a call option, by the Company), or other disposition of a Note will be a taxable event for federal income tax purposes. A holder will recognize gain or loss equal to the difference between (i) the amount of cash plus the fair market value of any property received upon such disposition, and (ii) the holder's adjusted tax basis in the Note. A holder's adjusted tax basis in a Note generally will be the holder's purchase price for the Note, increased by amounts includible in income by the holder as market discount, or OID with respect to the Senior Discount Notes, and reduced by any amortized premium. Except with respect to that portion of any gain equal to the amount of accrued market discount (which will constitute ordinary income), and that portion of the amount realized on disposition that represents accrued and unpaid interest (which also will constitute ordinary income), such gain or loss generally will constitute capital gain or loss and will be long-term capital gain or loss if the Note was held by the holder for more than 12 months at the time of such sale, exchange, redemption or other disposition. For non-corporate holders, the excess of net long-term 62 capital gains over net short-term capital losses is taxed under current law at a maximum rate of 20 percent (20%) for capital assets held more than 18 months, and 28 percent (28%) for capital assets held for more than 12 months but not more than 18 months at the time of the disposition. Gain on the disposition of capital assets held for one year or less is subject to federal income tax at ordinary income tax rates. Certain limitations exist on the deductibility of capital losses by both corporations and individual taxpayers. NON-U.S. HOLDERS The following discussion applies to any holder of a Note who is not a United States person, as defined above. Such holders are hereafter referred to as "Non-U.S. Holders." Subject to the discussion of "backup" withholding below, payments of interest by the Company or its agent (in its capacity as such) to a Non-U.S. Holder will not be subject to U.S. federal withholding tax, provided that (i) such holder does not actually or constructively own ten percent (10%) or more of the total combined voting power of all classes of stock of the Company entitled to vote; (ii) such holder is not a "controlled foreign corporation" for U.S. federal income tax purposes (as defined in section 957 of the Code) that is related, directly or indirectly, to the Company through stock ownership; (iii) such interest payments are not "effectively connected" with the conduct by the "Non-U.S. Holder" of a trade or business within the United States; and (iv) the certification requirements of section 871(h) or 881(c) of the Code, as applicable, are satisfied. Under the certification rules, the beneficial owner of a Note must certify to the Company or its agent, under penalties of perjury, that it is a Non-U.S. Holder and provide a completed IRS Form W-8 ("Certificate of Foreign Status") (or substitute Form W-8). Recently finalized Treasury regulations modify the certification procedures in certain respects for payments made after December 31, 1999. A Non-U.S. Holder who does not meet all of the above described requirements will generally be subject to U.S. federal withholding tax at a flat rate of thirty percent (30%) (or a lower applicable treaty rate) on payments of interest on the Notes, unless (i) such holder otherwise qualifies for a withholding tax exemption or reduced withholding rate under an applicable treaty, or (ii) the payments of interest by the Company or its agent (in its capacity as such) to such holder are "effectively connected" with the conduct by the Non-U.S. Holder of a trade or business in the United States. If payments of interest with respect to the Series A through G Notes, or the accrual of OID with respect to Senior Discount Notes, are effectively connected with the conduct by a Non-U.S. Holder of a trade or business within the United States, such holder, even though exempt from U.S. federal withholding tax, will be subject to U.S. federal income tax on such interest, or OID as the case may be, and on any gain realized on the sale, exchange, retirement or other disposition of a Note in the same manner as if it were a United States person. In addition, pursuant to section 884(c) of the Code, if such Non-U.S. Holder is a foreign corporation, it may be subject to a "branch profits tax" equal to thirty percent (30%) of its effectively connected earnings and profits for that taxable year, unless it qualifies for a lower rate under an applicable income tax treaty. Subject to the discussion of "backup" withholding below, any gain realized upon the sale, exchange, retirement or other disposition of a Note by a Non-U.S. Holder will not be subject to U.S. federal income or withholding taxes unless (i) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the United States (or, under an applicable tax treaty, is attributable to a U.S. permanent establishment maintained by such Non-U.S. Holder); (ii) in the case of an individual, such holder is present in the United States for 183 days or more in the taxable year of the retirement or other disposition and certain other conditions are met; or (iii) such Non-U.S. Holder is subject to tax pursuant to the provisions of the U.S. tax law applicable to certain U.S. expatriates or nonresident aliens. BACKUP WITHHOLDING AND INFORMATION REPORTING The "backup" withholding and information reporting requirements may apply to certain payments of principal and interest on a Note and to certain payments of proceeds from the sale, exchange, retirement 63 or other disposition of a Note. The Company, its agent, a broker or any paying agent, as the case may be, will be required to withhold tax from any payment that is subject to backup withholding at a rate of thirty-one percent (31%) of such payment if the holder fails to furnish its correct taxpayer identification number (I.E., social security number or employer identification number) and certifies that such holder is not subject to backup withholding, or otherwise fails to comply with applicable requirements of the backup withholding rules. Certain holders (including, among others, all corporations) are not subject to the backup withholding and reporting requirements. Under current Treasury regulations, backup withholding and information reporting will not apply to payments made by the Company or any agent thereof to a holder of a Note who has provided the required certification under penalties of perjury that it is a Non-U.S. Holder, or has otherwise established an exemption under applicable rules. In general, payments of the proceeds from the sale or other disposition of a Note by a Non-U.S. Holder which are made to or through a foreign office of a broker will not be subject to a U.S. information reporting or backup withholding, provided that the broker is not a United States person, a controlled foreign corporation for U.S. tax purposes, or a foreign person fifty percent (50%) or more of whose gross income is effectively connected with a U.S. trade or business over a specified period. In addition, for payments made to or through a foreign office of a broker after December 31, 1999, recently finalized Treasury regulations make subject to U.S. information reporting and possibly backup withholding, brokers that are a U.S. branch of (i) a foreign bank or insurance company or (ii) a foreign partnership controlled by U.S. persons or engaged in a U.S. trade or business. Payments to or through the U.S. office of a broker are subject to U.S. information reporting and backup withholding, unless the holder or beneficial owner certifies as to its Non-U.S. Holder status or otherwise establishes an exemption under applicable rules. Any amounts withheld under the backup withholding rules may be claimed as a refund or credit against such holder's U.S. federal income tax liability, provided the required information is furnished timely to the IRS. Holders should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining such an exemption. 64 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement (the "Underwriting Agreement") among the Company and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill"), Wasserstein Perella Securities, Inc. ("Wasserstein"), Salomon Brothers Inc ("Salomon"), J.P. Morgan Securities Inc. ("JP Morgan"), Citicorp Securities, Inc. ("Citicorp") and TD Securities (USA) Inc. ("TD", and together with DLJ, Merrill, Wasserstein, Salomon, JP Morgan and Citicorp, the "Underwriters"), the Underwriters have agreed to purchase the Notes from the Company in the amounts set forth opposite each such Underwriter's name in the table below at the applicable public offering price set forth on the cover page of this Prospectus, less underwriting discounts and commissions. All of the net proceeds from the sale of the Notes to the Underwriters together with $ will be used by the Company to make payments to the IPP Parties pursuant to the MRA. See "The MRA and the PowerChoice Agreement."
PRINCIPAL AMOUNT OR PRINCIPAL AMOUNT AT MATURITY OF UNDERWRITER NOTES - - ---------------------------------------------------------------------------- ---------------- Donaldson, Lufkin & Jenrette Securities Corporation......................... $ Merrill Lynch, Pierce, Fenner & Smith Incorporated.......................... Wasserstein Perella Securities, Inc......................................... Salomon Brothers Inc........................................................ J.P. Morgan Securities Inc.................................................. Citicorp Securities, Inc.................................................... TD Securities (USA) Inc..................................................... ---------------- Total................................................................. $ 3,450,000,000
The Underwriting Agreement provides that the obligations of the Underwriters thereunder are subject to the approval of certain legal matters by their counsel and to certain other conditions precedent. The Underwriting Agreement also provides that the Company will indemnify the Underwriters and certain persons controlling the Underwriters against certain liabilities and expenses, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"), or will contribute to payments the Underwriters are required to make in respect thereof. The nature of the Underwriters' obligations under the Underwriting Agreement is such that the Underwriters are committed to purchase all of the Notes if any of the Notes are purchased. The Underwriters and DLJ have advised the Company that they initially propose to offer the Notes in part directly to the public at the applicable offering price set forth on the cover page of this Prospectus, and in part to certain dealers at such price less a concession not in excess of % of the principal amount (or principal amount at muturity, as the case may be) of the Notes. The Underwriters may allow, and such dealers may reallow, a concession to certain other dealers not in excess of % of the principal amount (or principal amount at maturity, as the case may be) of the Notes. After the initial public offering, the public offering price, concession and reallowance may be changed by the Underwriters or by DLJ, as the case may be, at any time without notice. There is currently no public market for the Notes and the Company has no present plan to list any of the Notes on a national securities exchange. The Underwriters have advised the Company that the Underwriters currently intend to make a market in the Notes, but are not obligated to do so and may discontinue any such market making at any time without notice. Accordingly, there can be no assurance as to the liquidity of the trading market for the Notes. 65 Other than in the United States, no action has been taken by the Company or the Underwriters that would permit a public offering of the Notes in any jurisdiction where action for that purpose is required. The Notes offered hereby may not be offered or sold, directly or indirectly, nor may this Prospectus or any other offering material or advertisements in connection with the offer and sale of the Notes be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of such jurisdiction. Persons into whose possession this Prospectus comes are advised to inform themselves about and to observe any restrictions relating to the Offering and the distribution of this Prospectus. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the Notes offered hereby in any jurisdiction in which such an offer or a solicitation is unlawful. In connection with the Offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Notes. Specifically, the Underwriters may over allot the Offering, creating a syndicate short position. The Underwriters may bid for and purchase Notes in the open market to cover syndicate short positions or to stabilize the price of the Notes. These activities may stabilize or maintain the market price of the Notes above independent market levels. The Underwriters are not required to engage in these activities and may end any of these activities at any time. It is expected that delivery of the Notes will be made against payment therefor on or about the date specified in the last paragraph of the cover page of this Prospectus, which will be the eighth business day following the date hereof. Under Rule 15c6-1 adopted by the Commission under the Exchange Act, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the Notes on the date hereof or any day prior to the third business day before the date of delivery of the Notes will be required by virtue of the fact that the Notes initially will settle in T+8, to agree to a delayed settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of the Notes who wish to trade the Notes on the date hereof or the next four succeeding business days should consult their own advisors. DLJ and Merrill have performed various investment banking services for the Company in the past, for which they have received customary remuneration, and may provide such services in the future. DLJ has acted as financial advisor to the Company with respect to the MRA and has delivered an opinion to the Company's Board of Directors with respect to certain financial matters relating to the MRA. A significant portion of DLJ's advisory fee is contingent upon the successful restructuring of the Company's obligations under the PPAs pursuant to the MRA. Wasserstein has performed various financial advisory services for the IPP Parties in the past and in connection with the transactions contemplated by the MRA, for which they have received and will receive in the future customary remuneration, and may provide such services in the future. Citicorp Securities, Inc. and its affiliates provide or may provide commercial banking and/or investment banking services to the Company and its affiliates in the ordinary course of business. VALIDITY OF THE NOTES The validity of the Notes offered hereby will be passed upon for the Company by Sullivan & Cromwell, New York, New York, counsel to the Company. Certain legal matters will be passed upon for the Underwriters by Sidley & Austin, New York, New York. EXPERTS The financial statements incorporated in this Prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 1997, 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. 66 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. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents filed 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 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. 67 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 a distribution system. Electric energy is Distribution 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 watthours. 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.
A-1 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 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 NOTES OFFERED HEREBY, AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NOTES 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 HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE --------- Prospectus Summary.............................. 3 Risk Factors.................................... 11 Use of Proceeds................................. 15 Capitalization.................................. 16 Pro Forma Condensed Financial Statements........ 17 Selected Historical Financial Data.............. 28 Management's Discussion of Pro Forma Condensed Financial Statements.......................... 30 The MRA and the PowerChoice Agreement........... 33 Description of Notes............................ 36 Description of Other Indebtedness............... 58 Certain United States Federal Income Tax Considerations................................ 59 Underwriting.................................... 65 Validity of the Notes........................... 66 Experts......................................... 66 Available Information........................... 67 Incorporation of Certain Information by Reference..................................... 67 Glossary of Certain Electricity, Natural Gas and Accounting Terms.............................. A-1
[LOGO] $300,000,000 % SERIES A SENIOR NOTES DUE 1999 $450,000,000 % SERIES B SENIOR NOTES DUE 2000 $400,000,000 % SERIES C SENIOR NOTES DUE 2001 $400,000,000 % SERIES D SENIOR NOTES DUE 2002 $400,000,000 % SERIES E SENIOR NOTES DUE 2003 $400,000,000 % SERIES F SENIOR NOTES DUE 2005 $600,000,000 % SERIES G SENIOR NOTES DUE 2008 $500,000,000 % SENIOR DISCOUNT NOTES DUE 2010
------------------------------ PROSPECTUS ------------------------------ DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. WASSERSTEIN PERELLA SECURITIES, INC. J.P. MORGAN & CO. SALOMON SMITH BARNEY CITICORP SECURITIES, INC. TD SECURITIES JUNE , 1998 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 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............................................................ $ 965,240 NASD fees and expenses.......................................................... -0- Legal fees and expenses......................................................... 800,000 Accounting fees and expenses.................................................... 200,000 Printing and engraving fees..................................................... 45,000 Registrar and transfer agent's fees............................................. 10,000 Trustee's fees.................................................................. 37,000 Miscellaneous................................................................... 30,000 ------------ Total................................................................... $ 2,087,240 ------------ ------------
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. In so far 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. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Index to Exhibits 1 Form of Underwriting Agreement. 2(a) PowerChoice Settlement Agreement (incorporated by reference from Form 8-K of the Company dated October 10, 1997).
II-1 2(b) Master Restructuring Agreement by and between Niagara Mohawk Power Corporation and Independent Power Producers (incorporated by reference to Current Report on Form 8-K of the Company dated July 9, 1997). 2(c) PSC Order dated March 20, 1998 (incorporated by reference to Annual Report on Form 10-K for year ended December 31, 1997). 4(a)(1) Mortgage Trust Indenture dated as of October 1, 1937 between NMPC (formerly CNYP) and Marine Midland Trust Company of New York), as Trustee (incorporated by reference to CNYP Registration No. 2-5490). 4(a)(2) Supplemental Indenture dated as of December 1, 1938, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-59500). 4(a)(3) Supplemental Indenture dated as of April 15, 1939, supplemental to Exhibit 4(a)(1)(incorporated by reference to NMPC Registration Statement No. 2-59500). 4(a)(4) Supplemental Indenture dated as of July 1, 1940, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-59500). 4(a)(5) Supplemental Indenture dated as of October 1, 1944, supplemental to Exhibit 4(a)(1) (incorporated by reference to CNYP Registration Statement No. 2-5490). 4(a)(6) Supplemental Indenture dated as of June 1, 1945, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-59500). 4(a)(7) Supplemental Indenture dated as of August 17, 1948, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-59500). 4(a)(8) Supplemental Indenture dated as of December 31, 1949, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-8214). 4(a)(9) Supplemental Indenture dated as of January 1, 1950, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-8214). 4(a)(10) Supplemental Indenture dated as of October 1, 1950, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-8634). 4(a)(11) Supplemental Indenture dated as of October 19, 1950, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-8634). 4(a)(12) Supplemental Indenture dated as of February 20, 1953, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-10501). 4(a)(13) Supplemental Indenture dated as of April 25, 1956, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-12443). 4(a)(14) Supplemental Indenture dated as of March 15, 1960, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-70860). 4(a)(15) Supplemental Indenture dated as of October 1, 1966, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-25526). 4(a)(16) Supplemental Indenture dated as of July 15, 1967, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-26918). 4(a)(17) Supplemental Indenture dated as of August 1, 1967, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-26918). 4(a)(18) Supplemental Indenture dated as of August 1, 1968, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-29575). 4(a)(19) Supplemental Indenture dated as of March 15, 1977, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-59500). 4(a)(20) Supplemental Indenture dated as of August 1, 1977, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-70860).
II-2 4(a)(21) Supplemental Indenture dated as of March 1, 1978, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-70860). 4(a)(22) Supplemental Indenture dated as of June 15, 1980, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-70860). 4(a)(23) Supplemental Indenture dated as of November 1, 1985, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 2-90568). 4(a)(24) Supplemental Indenture dated as of October 1, 1989, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 33-32475). 4(a)(25) Supplemental Indenture dated as of dated as of June 1, 1990, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 33-38093). 4(a)(26) Supplemental Indenture dated as of November 1, 1990, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 33-38093). 4(a)(27) Supplemental Indenture dated as of March 1, 1991, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 33-47241). 4(a)(28) Supplemental Indenture dated as of October 1, 1991, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 33-47241). 4(a)(29) Supplemental Indenture dated as of April 1, 1992, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 33-47241). 4(a)(30) Supplemental Indenture dated as of June 1, 1992, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 33-59594). 4(a)(31) Supplemental Indenture dated as of July 1, 1992, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 33-59594). 4(a)(32) Supplemental Indenture dated as of August 1, 1992, supplemental to Exhibit 4(a)(1) (incorporated by reference to NMPC Registration Statement No. 33-59594). 4(a)(33) Supplemental Indenture dated as of April 1, 1993, supplemental to Exhibit 4(a)(1) (incorporated by reference to Quarterly Report on Form 10-Q for quarter ended March 31, 1993). 4(a)(34) Supplemental Indenture dated as of July 1, 1993, supplemental to Exhibit 4(a)(1) (incorporated by reference to Quarterly Report on Form 10-Q for quarter ended September 30, 1993). 4(a)(35) Supplemental Indenture dated as of September 1, 1993, supplemental to Exhibit 4(a)(1) (incorporated by reference to Quarterly Report on Form 10-Q for quarter ended September 30, 1993). 4(a)(36) Supplemental Indenture dated as of March 1, 1994, supplemental to Exhibit 4(a)(1) (incorporated by reference to Annual Report on Form 10-K for year ended December 31, 1993). 4(a)(37) Supplemental Indenture dated as of July 1, 1994, supplemental to Exhibit 4(a)(1) (incorporated by reference to Annual Report on Form 10-K for year ended December 31, 1994). 4(a)(38) Supplemental Indenture dated as of May 1, 1995, supplemental to Exhibit 4(a)(1) (incorporated by reference to Quarterly Report on Form 10-Q for quarter ended June 30, 1995). 4(a)(39) Supplemental Indenture dated as of March 20, 1996, supplemental to Exhibit 4(a)(1). 4(a)(40) Agreement dated as of August 16, 1940, between CNYP, The Chase National Bank of the City of New York, as Successor Trustee, and The Marine Midland Trust Company of New York, as Trustee incorporated by reference to CNYP Registration Statement No. 2-5490). 4(a)(41) Form of Supplemental Indenture to be dated as of June 30, 1998, supplemental to Exhibit 4(a)(1).
II-3 4(b) Form of Indenture relating to the Notes. 4(c) Form of Notes. 5 Opinion of Sullivan & Cromwell. 8 Opinion of Bryan Cave LLP.** 12 Statement regarding computation of ratios.** 23(a) Consent of Independent Accountants, Price Waterhouse LLP. 23(b) Consent of Sullivan & Cromwell (included within Exhibit 5 hereto). 23(c) Consent of Bryan Cave LLP (included within Exhibit 8 hereto).** 25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of IBJ Schroder Bank & Trust Company.**
- - ------------------------ ** Previously filed. ITEM 17. UNDERTAKINGS (a) 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. (b) 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. (c) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus 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-4 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. 2 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 16th 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. 2 to the Registration Statement has been signed by the following persons in the capacities indicated on June 16, 1998: SIGNATURE TITLE DATE - - ------------------------------ --------------------------- ------------------- /s/ WILLIAM F. EDWARDS Senior Vice President and - - ------------------------------ Chief Financial Officer June 16, 1998 William F. Edwards /s/ ARTHUR W. ROOS Vice President-Treasurer - - ------------------------------ June 16, 1998 Arthur W. Roos II-5 EX-1.1 2 EXHIBIT 1.1 - UNDERWRITING AGRMT EXHIBIT 1.1 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- NIAGARA MOHAWK POWER CORPORATION $300,000,000 __% SERIES A SENIOR NOTES DUE 1999 $450,000,000 __% SERIES B SENIOR NOTES DUE 2000 $400,000,000 __% SERIES C SENIOR NOTES DUE 2001 $400,000,000 __% SERIES D SENIOR NOTES DUE 2002 $400,000,000 __% SERIES E SENIOR NOTES DUE 2003 $400,000,000 __% SERIES F SENIOR NOTES DUE 2005 $600,000,000 __% SERIES G SENIOR NOTES DUE 2008 $500,000,000 __% SENIOR DISCOUNT NOTES DUE 2010 UNDERWRITING AGREEMENT Dated as of June __, 1998 Donaldson, Lufkin & Jenrette Securities Corporation Merrill Lynch, Pierce, Fenner & Smith Incorporated Wasserstein Perella Securities, Inc. Salomon Brothers Inc J. P. Morgan Securities Citicorp Securities, Inc. TD Securities (USA) Inc. - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- June __, 1998 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED WASSERSTEIN PERELLA SECURITIES, INC. SALOMON BROTHERS INC J.P. MORGAN SECURITIES CITICORP SECURITIES, INC. TD SECURITIES (USA) INC. c/o Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 Ladies and Gentlemen: Niagara Mohawk Power Corporation, a New York corporation (the "Company"), proposes to issue and sell (i) $300,000,000 principal amount of its __% Series A Senior Notes due 1999 (the "Series A Notes"), (ii) $450,000,000 principal amount of its __% Series B Senior Notes due 2000 (the "Series B Notes"), (iii) $400,000,000 principal amount of its __% Series C Senior Notes due 2001 (the "Series C Notes"), (iv) $400,000,000 principal amount of its __% Series D Senior Notes due 2002 (the "Series D Notes"), (v) $400,000,000 principal amount of its __% Series E Senior Notes due 2003 (the "Series E Notes"), (vi) $400,000,000 principal amount of its __% Series F Senior Notes due 2005 (the "Series F Notes"), (vii) $600,000,000 principal amount of its __% Series G Senior Notes due 2008 (the "Series G Notes") and (viii) $500,000,000 principal amount at maturity of its __% Senior Discount Notes due 2010 (the "Discount Notes" and together with the Series A Notes, the Series B Notes, the Series C Notes, the Series D Notes, the Series E Notes, the Series F Notes and the Series G Notes, the "Notes") to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), & Smith Incorporated ("Merrill"), Wasserstein Perella Securities, Inc. ("Wasserstein"), Salomon Brothers Inc ("Salomon"), J.P. Morgan Securities ("Morgan"), Citicorp Securities, Inc. ("Citicorp") and TD Securities (USA) Inc. ("TDS" and together with DLJ, Merrill, Wasserstein, Salomon, Morgan and Citicorp, the "Underwriters"). The Notes are to be issued pursuant to the provisions of an Indenture dated as of June 30, 1998 (the "Indenture") between the Company and IBJ Schroder Bank & Trust Company, as Trustee (the "Trustee"). 1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-3, including a prospectus, relating to the Notes. The registration statement, as amended at the time it became effective or, if a post-effective amendment is filed with respect thereto, as amended by such post-effective amendment at the time of its effectiveness, including, in each case, all documents incorporated by reference therein, all financial statements and exhibits thereto, and the information (if any) contained in a prospectus subsequently filed with the Commission pursuant to Rule 424(b) under the Act and deemed to be a part of the registration statement at the time of its effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as the "Registration Statement"; and the prospectus in the form first used to confirm sales of the Notes, whether or not filed with the Commission pursuant to Rule 424(b) under the Act, including all documents incorporated by reference therein, is hereinafter referred to as the "Prospectus." 2. AGREEMENTS TO SELL AND PURCHASE. The Company agrees to issue and sell to the Underwriters, and, on the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, each Underwriter agrees, severally and not jointly, to purchase from the Company the Notes in the respective amounts set forth opposite the name of such Underwriter on Schedule I hereto, on the Closing Date (as defined herein), at ____% of the principal amount thereof or, in the case of the Discount Notes, at __% of the principal amount at maturity (the "Purchase Price"). 3. TERMS OF PUBLIC OFFERING. The Underwriters have advised the Company that the Underwriters propose (i) to make a public offering of their respective portions of the Notes as soon after the execution and delivery of this Agreement as in the Underwriters' judgment is advisable and (ii) initially to offer the Notes upon the terms set forth in the Prospectus. 4. DELIVERY AND PAYMENT. The Notes shall be represented by definitive global certificates. The Company shall deliver the Notes, with any transfer taxes thereon duly paid by the Company, to DLJ through the facilities of The Depository Trust Company ("DTC"), for the respective accounts of the several Underwriters, against payment to the Company of the Purchase Price therefore by wire transfer of Federal or other funds immediately available in New York City. The certificates representing the Notes shall be made available for inspection not later than 9:30 a.m., New York City time, on the business day prior to the Closing Date (as defined below), at the office of DTC or its designated custodian (the "Designated Office"). The time and date of delivery and payment for the Notes shall be 9:00 a.m., New York City time, on June __, 1998 or such other time on the same or such other date as DLJ and the Company shall agree in writing. The time and date of such delivery and payment are hereinafter referred to as the "Closing Date". The documents to be delivered on the Closing Date on behalf of the parties hereto pursuant to Section 8 of this Agreement shall be delivered at the offices of Sidley & Austin, 875 Third Avenue, New York, New York 10022, or such other place as DLJ and the Company shall agree in writing, and the Notes shall be delivered at the Designated Office, all on the Closing Date. -2- 5. AGREEMENTS OF THE COMPANY. The Company agrees with the Underwriters: (a) If the Registration Statement has become effective and the Company, omitting from the Prospectus certain information in reliance upon Rule 430A of the Act, elects not to file a post-effective amendment pursuant to Rule 430A of the Act, it will file the form of Prospectus required by Rule 424(b) of the Act, the form and substance of which shall be reasonably satisfactory to you, within the time period specified by Rule 430A and Rule 424(b) of the Act. The Company will otherwise comply fully and in a timely manner with the applicable provisions of Rule 424 and Rule 430A under the Act. (b) To advise the Underwriters promptly and, if requested by the Underwriters, to confirm such advice in writing, (i) if and when the Prospectus is sent for filing pursuant to Rule 424 under the Act (including any term sheet within the meaning of Rule 434 under the Act) and when any post-effective amendment to the Registration Statement becomes effective, (ii) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Notes for offering or sale in any jurisdiction, or the initiation of any proceeding for such purposes, (iv) if the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, when the Rule 462(b) Registration Statement has become effective and (v) of the happening of any event during the period referred to in Section 5(e) below which makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or which requires any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (c) To furnish to the Underwriters, without charge, eight signed copies of the Registration Statement as first filed with the Commission and of each amendment to it, including all exhibits, and to furnish to the Underwriters such number of conformed copies of the Registration Statement as so filed and of each amendment to it, without exhibits, as the Underwriters may reasonably request. (d) During the period specified in Section 5(e) below, not to file any further amendment or supplement to the Registration Statement, and not to make any amendment or supplement to the Prospectus of which the Underwriters shall not previously have been advised or to which the Underwriters shall reasonably object after being so advised; and, to prepare and file with the Commission, promptly upon the Underwriters' reasonable request, any amendment to the Registration Statement or amendment or supplement to the Prospectus which may be necessary or advisable in connection with the distribution of the Notes by the Underwriters, and to use its best efforts to cause the same to become promptly effective. (e) Prior to 10:00 A.M., New York City time, on the first business day after the date of -3- this Agreement and from time to time thereafter for such period as in your reasonable judgment a prospectus is required by law to be delivered in connection with sales of Notes by the Underwriters or a dealer, to furnish to each Underwriter and any dealer as many copies of the Prospectus (and of any amendment or supplement to the Prospectus) as such Underwriter or dealer may reasonably request. (f) If during the period specified in Section 5(e), any event shall occur or condition shall exist as a result of which, in the opinion of counsel for the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare and file with the Commission an appropriate amendment or supplement to the Prospectus so that the statements in the Prospectus, as so amended or supplemented, will not in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with applicable law, and to furnish to the Underwriters and to any dealer as many copies thereof as any such Underwriter or dealer may reasonably request. (g) Prior to any public offering of the Notes, to cooperate with the Underwriters and counsel for the Underwriters in connection with the registration or qualification of the Notes for offer and sale by the Underwriters and by dealers under the state securities or Blue Sky laws of such jurisdictions within the United States as the Underwriters may reasonably request, to continue such registration or qualification in effect so long as required for distribution of the Notes and to file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification; PROVIDED, HOWEVER, that the Company shall not be required in connection therewith to qualify as a foreign corporation in any jurisdiction in which it is not now so qualified or to take any action that would subject it to general consent to service of process or taxation in any jurisdiction in which it is not now so subject. (h) To make generally available to its security holders (within the meaning of Rule 158 under the Act) as soon as practicable an earnings statement covering a period of at least twelve-months after the effective date of the Registration Statement (but in no event commencing later than 90 days after such date) which shall satisfy the provisions of Section 11(a) of the Act (including, at the Company's option, Rule 158 thereunder). (i) So long as the Notes are outstanding, (i) to mail and make generally available as soon as practicable after the end of each fiscal year to the record holders of the Notes a financial report of the Company and its subsidiaries on a consolidated basis, all such financial reports to include a consolidated balance sheet, a consolidated statement of operations, a consolidated statement of cash flows and a consolidated statement of shareholders' equity as of the end of and for such fiscal year, together with comparable information as of the end of and for the preceding year, certified by independent public accountants and (ii) to mail and make generally available as soon as practicable after the end of each quarterly period (except for the last quarterly period of each fiscal year) to such -4- holders, a consolidated balance sheet, a consolidated statement of operations and a consolidated statement of cash flows as of the end of and for such period, and for the period from the beginning of such fiscal year to the close of such quarterly period, together with comparable information for the corresponding periods of the preceding fiscal year. (j) For three years following the date hereof, to furnish to the Underwriters as soon as available copies of all reports or other publicly available information of the Company mailed to its security holders or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed and such other publicly available information concerning the Company and its subsidiaries as the Underwriters may reasonably request. (k) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement becomes effective or is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the registration and delivery of the Notes under the Act and all other fees and expenses in connection with the preparation, printing, filing and distribution of the Registration Statement (including financial statements and exhibits), any preliminary prospectus, the Prospectus and all amendments and supplements to any of the foregoing, including the mailing and delivering of copies thereof to the Underwriters and dealers as provided herein, (ii) the preparation, printing (including, without limitation, word processing and duplicating costs) and delivery of this Agreement and the Indenture (the "Operative Documents") and all other agreements, memoranda, correspondence and other documents printed and delivered in connection with the offering of the Notes (including in each case any disbursements of counsel for the Underwriters relating to such printing and delivery), (iii) all costs and expenses related to the issuance, transfer and delivery of the Notes to the Underwriters, including any transfer or other taxes payable thereon, (iv) all expenses in connection with the registration or qualification of the Notes for offer and sale under the securities or Blue Sky laws of the several states and reasonable costs of printing or producing any Preliminary and Supplemental Blue Sky Memoranda in connection therewith (including the filing fees and reasonable fees and disbursements of counsel for the Underwriters in connection with such registration or qualification and memoranda relating thereto), (v) the filing fees and disbursements of counsel for the Underwriters in connection with the review and clearance of the offering of the Notes by the National Association of Securities Dealers, Inc., (vi) furnishing such copies of the Registration Statement, the Prospectus and all amendments and supplements thereto as may be requested for use in connection with the offering or sale of the Notes by the Underwriters or by dealers to whom the Notes may be sold, (vii) the cost of printing certificates representing the Notes, (viii) all fees and expenses in connection with approval of the Notes by the DTC for "book-entry" transfer, (ix) any fees charged by rating agencies for the rating of the Notes, (x) the fees and expenses of the Trustee and the Trustee's counsel in connection with the Indenture and the Notes and (xi) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. -5- (l) During the period beginning on the date hereof and continuing to and including the Closing Date, not to offer, sell, contract to sell or otherwise transfer or dispose of any debt securities of the Company or any warrants, rights or options to purchase securities of the Company substantially similar to the Notes (other than (i) the Notes and (ii) commercial paper issued in the ordinary course of business), without the prior written consent of DLJ. (m) To apply the net proceeds from the sale of the Notes to be sold hereunder for the purposes set forth in the Registration Statement and the Prospectus (and any supplements or amendments thereto). (n) If the Registration Statement at the time of the effectiveness of this Agreement does not cover all of the Notes, to file a Rule 462(b) Registration Statement with the Commission registering the Notes not so covered in compliance with Rule 462(b) by 10:00 p.m., New York City time, on the date of this Agreement and to pay to the Commission the filing fee for such Rule 462(b) Registration Statement at the time of the filing thereof or to give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Underwriter that: (a) The Registration Statement has become effective (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement); any Rule 462(b) Registration Statement filed after the effectiveness of this Agreement will become effective no later than 10:00 p.m., New York City time, on the date of this Agreement; and no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the best knowledge of the Company, threatened by the Commission. (b)(i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Act, (iii) if the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, such Rule 462(b) Registration Statement and any amendments thereto, when they become effective (A) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (B) will comply in all material respects with the Act and (iv) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph (b) shall not (A) apply to statements or omissions in the Registration Statement or the -6- Prospectus based upon information relating to the Underwriters furnished to the Company in writing by the Underwriters expressly for use therein or (B) to that part of the Registration Statement that constitutes the Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), of the Trustee. The Company and the Underwriters acknowledge for all purposes under this Agreement (including this paragraph, Section 6(c) hereof, Section 7(a) hereof and Section 7(b) hereof) that the statements with respect to price and discount and the last paragraph on the cover page of the Prospectus and the second, fifth, sixth, seventh and eighth paragraphs under the table in the section entitled "Underwriting" in the Prospectus and the information regarding stabilization on the inside front cover of the preliminary Prospectus and the Prospectus (or any amendment or supplement thereto) constitute the only information furnished to the Company by or on behalf of any Underwriter expressly for use in the Registration Statement, the preliminary Prospectus or the Prospectus and that the Underwriters shall not be deemed to have provided any other information (and therefore are not responsible for any statements or omissions) pertaining to any arrangement or agreement with respect to any party other than the Underwriters or any party to an arrangement or agreement with the Underwriters. (c) The preliminary prospectus dated June 1, 1998 filed as part of Amendment No. 1 to the registration statement complied as to form when so filed in all material respects with the Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in such preliminary prospectus based upon information relating to the Underwriters furnished to the Company in writing by the Underwriters expressly for use therein. (d) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business and to own, lease and operate its properties as described in the Prospectus, and is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole (a "Material Adverse Effect"). (e) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under, the Operative Documents and to consummate the transactions contemplated hereby and thereby, including, without limitation, the corporate power and authority to issue, sell and deliver the Notes as provided herein and therein. (f) This Agreement has been duly authorized and validly executed by the Company and (assuming the due execution and delivery hereof by the Underwriters) is the legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except -7- as the enforceability thereof may be limited (i) by the effect of bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors, (ii) by the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought and (iii) to the extent that rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy relating thereto. (g) The Company has duly authorized the Indenture and, when the Company has duly executed and delivered the Indenture (assuming the due authorization, execution and delivery thereof by the Trustee), the Indenture will be the legally valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited (i) by the effect of bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors and (ii) by the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought. (h) The Company has duly authorized the Notes and, when issued and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Underwriters in accordance with the terms hereof, the Notes will conform in all material respects to the description thereof contained in the Prospectus, will be entitled to the benefits of the Indenture and will be the legally valid and binding obligations of the Company, enforceable against it in accordance with their terms, except as the enforceability thereof may be limited (i) by the effect of bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors and (ii) by the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought. (i) The Indenture has been duly qualified under the Trust Indenture Act. (j) The execution, delivery and performance of the Operative Documents, the issuance and sale of the Notes, the compliance by the Company with all the provisions hereof and thereof and the consummation of the transactions contemplated hereby and thereby will not (i) conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Company or any bond, debenture, note, indenture, loan agreement, mortgage, lease or any other evidence of indebtedness or any other agreement or instrument filed as an exhibit to the Registration Statement, (ii) violate or conflict with any applicable law, statute, rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property, (iii) result in the imposition or creation of (or the obligation to create or impose) a lien, encumbrance or security interest under any agreement or instrument filed as an exhibit to the Registration Statement or (iv) result in the suspension, -8- termination or revocation of any Authorization (as defined below) of the Company or any of its subsidiaries or any other impairment of the rights of the holder of any such Authorization, except in all cases as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect. (k) No consent, waiver, approval, authorization or order of, or filing, registration, qualification, license or permit of or with, any court or governmental agency, body or administrative agency is required for the execution, delivery and performance by the Company of the Operative Documents, the issuance and sale of the Notes, and the consummation of the transactions contemplated hereby and thereby, except (i) such as have been obtained and made under the Act and the TIA, and such as are expected to be obtained from the PSC on or prior to the Closing Date, or have been obtained as described in the Prospectus, (ii) such as are required under state securities or Blue Sky laws and regulations, and (iii) such as to which the failure to be obtained or made would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect. (l) There is no legal or administrative proceeding, statute, rule or regulation, contract or document concerning the Company or any of its subsidiaries of a character required to be described in the Registration Statement or Prospectus or to be filed as an exhibit to the Registration Statement that is not so described or filed as required. (m) To the Company's knowledge, each of the Company and its subsidiaries has such permits, licenses, consents, exemptions, franchises, authorizations and other approvals (each, an "Authorization") of, and has made all filings with and notices to, all federal and state governmental or regulatory authorities and self-regulatory organizations, as are necessary to conduct its business substantially as described in the Prospectus, subject in each case to such qualifications as may be set forth in the Prospectus, except where the failure to have any such Authorization or to make any such filing or notice would not reasonably be expected to have a Material Adverse Effect. (n) Except as otherwise set forth in the Prospectus or such as are not material to the business, financial condition or results of operations of the Company and its subsidiaries taken as a whole, at the Closing Date, the Company has good and marketable title, free and clear of all liens, claims, encumbrances and restrictions, except liens for taxes not yet due and payable, to all property and assets described in the Registration Statement and the Prospectus as being owned by it. At the Closing Date, all leases to which the Company is a party will be valid and binding, no default will have occurred or be continuing thereunder, and the Company enjoys peaceful and undisturbed possession under all such leases to which it is a party as lessee with such exceptions as would not reasonably be expected to have a Material Adverse Effect. (o) Except as otherwise set forth in the Prospectus and subject to such qualifications as may be set forth therein, neither the Company nor any of its subsidiaries has violated any provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules and regulations promulgated thereunder, which in each case would reasonably be expected to result in -9- a Material Adverse Effect. Except as otherwise set forth in the Prospectus, to the knowledge of the Company, the Company and its subsidiaries are in compliance with all applicable existing federal, state and foreign laws (including statutes and the common law) and regulations relating to protection of human health or the environment or imposing liability or standards of conduct concerning any Hazardous Material ("Environmental Laws"), except for such instances of noncompliance which, either singly or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. The term "Hazardous Material" means (i) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (ii) any "hazardous waste" as defined by the Resource Conservation and Recovery Act, as amended, (iii) any petroleum or petroleum product, (iv) any polychlorinated biphenyl and (v) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance regulated under or within the meaning of any other Environmental Law. (p) There is (i) no significant unfair labor practice complaint pending against the Company or any of its subsidiaries or, to the best knowledge of the Company, threatened against the Company or its subsidiaries before the National Labor Relations Board or any state or local labor relations board, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is so pending against the Company or its subsidiaries or, to the best knowledge of the Company, threatened against them and (ii) no significant strike, labor dispute, slowdown or stoppage pending against the Company or its subsidiaries or, to the best knowledge of the Company, threatened against them except for such actions specified in clause (i) or (ii) above, which, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. (q) Price Waterhouse LLP are independent public accountants with respect to the Company as required by the Act. (r) The financial statements, together with related schedules and notes forming part of the Registration Statement and the Prospectus (and any amendment or supplement thereto), comply as to form in all material respects with the requirements of the Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), present fairly the financial position, results of operations and changes in financial position of the Company on the basis stated in the Registration Statement and the Prospectus at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data set forth in the Registration Statement and the Prospectus (and any amendment or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. The PRO FORMA financial data included in the Registration Statement and the Prospectus have been prepared on a basis consistent with such historical statements, except for the PRO FORMA adjustments specified therein, and give effect to the assumptions made on a reasonable basis and present fairly the transactions reflected thereby as indicated in the -10- Registration Statement and Prospectus and comply in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X and the PRO FORMA adjustments have been properly applied to the historical amounts in the compilation of these statements. (s) Since the respective dates as of which information is given in the Prospectus, other than as set forth in the Prospectus, there has not occurred any material adverse change or any development involving a prospective material adverse change in the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (t) The Company is presently exempt from the provisions of the Public Utility Holding Company Act of 1935, as amended, that would require it to register thereunder. (u) There are no holders of securities of the Company who, by reason of the execution of the Operative Documents, the issuance and sale of the Notes and the consummation of the transactions contemplated thereby, have the right to request or demand that the Company register under the Act, in the Registration Statement, securities held by them who have not waived such right. (v) Each certificate signed by any officer of the Company and delivered to the Underwriters or counsel for the Underwriters pursuant to this Agreement shall be deemed to be a representation and warranty by the Company to the Underwriters as to the matters covered thereby. 7. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and judgments (including, without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action, that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to the Underwriters furnished in writing to the Company by or on behalf of the Underwriters expressly for use therein; PROVIDED, HOWEVER, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter who failed to deliver a Prospectus (as then amended or supplemented, provided by the Company to the several Underwriters in the requisite quantity and on a timely basis to permit proper delivery on or prior to the Closing Date) to the person asserting any losses, claims, damages and liabilities and judgments caused by any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such material misstatement or omission or alleged -11- material misstatement or omission was cured in such Prospectus and such Prospectus was required by law to be delivered at or prior to the written confirmation of sale to such person. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Underwriter but only with reference to information relating to the Underwriters furnished in writing to the Company by or on behalf of the Underwriters expressly for use in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume the defense of such action pursuant to this Section 7(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of such Underwriter). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by DLJ, in the case of parties indemnified pursuant to Section 7(a), and by the Company, in the case of parties indemnified pursuant to Section 7(b). The indemnifying party shall not be liable for any settlement of any such action effected without its written consent but the indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action effected with the indemnifying party's written consent. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of -12- judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent the indemnification provided for in this Section 7 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Notes or (ii) if the allocation provided by clause 7(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 7(d)(i) above but also the relative fault of the Company on the one hand and the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (after deducting underwriting discounts and commissions but before deducting expenses) received by the Company, and the total underwriting discounts and commissions received by the Underwriters, bear to the total price to the public of the Notes, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such indemnified party in connection with investigating or defending any matter, including any action, that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Notes underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise -13- been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7(d) are several in proportion to the respective principal amount of Notes purchased by each of the Underwriters hereunder and not joint. (e) The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. 8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of the Underwriters to purchase the Notes under this Agreement are subject to the satisfaction of each of the following conditions: (a) All the representations and warranties of the Company contained in this Agreement shall be true and correct on the Closing Date with the same force and effect as if made on and as of the Closing Date. (b) The Registration Statement shall have become effective not later than 5:00 p.m. (and, in the case of a Registration Statement filed under Rule 462(b) of the Act, not later than 10:00 p.m.), New York City time, on the date of this Agreement or at such later date and time as the Underwriters may approve in writing, and on the Closing Date no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending before or, to the Company's knowledge, contemplated by the Commission. (c) On or after the date hereof, (i) no "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Act shall have publicly announced that it is considering (A) the downgrading, suspension or withdrawal of, or any review for a possible change that does not indicate the direction of the possible change in, any rating assigned to the Company or any securities of the Company or (B) any change in the outlook for any rating of the Company or any securities of the Company, and (ii) no such rating organization shall have given notice that it has assigned (or publicly announced that it is considering assigning) a lower rating to the Notes than that on which the Notes were marketed. (d) Since the respective dates as of which information is given in the Prospectus other than as set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there shall not have occurred any material adverse change or any development involving a prospective material adverse change in the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, (ii) there shall not have been any change or any development involving a prospective material adverse change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries shall have incurred any liability or obligation, direct or contingent, not in -14- the ordinary course of business, which is material and adverse and makes it impracticable to market the Notes on the terms and in the manner contemplated in the Prospectus. (e) The Underwriters shall have received on the Closing Date a certificate dated the Closing Date, signed by William E. Davis and William F. Edwards, in their capacities as the Chief Executive Officer and Chief Financial Officer of the Company, confirming the matters set forth in Sections 8(a), 8(b), 8(d) and 8(i) and that the Company has complied with all of the agreements and satisfied all of the conditions herein contained and required to be complied with or satisfied by the Company on or prior to the Closing Date. (f) The Underwriters shall have received on the Closing Date an opinion (satisfactory to the Underwriters and counsel for the Underwriters), dated the Closing Date, of Sullivan & Cromwell, counsel for the Company, Swidler & Berlin, regulatory counsel for the Company, Bryan Cave LLP, special tax counsel for the Company, and Paul Kaleta, Esq., the Company's Vice President-Law & General Counsel, substantially in the form of Exhibits 1A, 1B, 1C and 1D hereto, respectively. (g) The Underwriters shall have received on the Closing Date an opinion, dated the Closing Date, of Sidley & Austin, counsel for the Underwriters, substantially in the form of Exhibit 2 hereto. (h) The Underwriters shall have received a letter dated on and as of the Closing Date, in form and substance satisfactory to the Underwriters, from Price Waterhouse LLP, independent public accountants, with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus in the form and substance of the letter delivered to the Underwriters by Price Waterhouse LLP on the date of this Agreement. (i) The New York Public Service Commission (the "PSC") shall have issued a written order or orders (the "PSC Orders") approving the Company's PowerChoice Settlement Agreement the "PowerChoice Agreement"), including the issuance by the Company of the Notes pursuant to the Master Restructuring Agreement dated July 9, 1997, as amended (the "MRA"); the PSC Orders shall remain in full force and effect; the PSC shall not have publicly indicated its intention to modify, amend or otherwise change the PSC Orders in any material respect; no party or entity with legal standing shall have entered a notice of appeal, or otherwise publicly indicated it intention to appeal, the PSC Orders; no judicial or administrative proceeding shall have been instituted that challenges the validity of, or otherwise seeks to modify, amend, stay or enjoin the effectiveness of, the PSC Orders if (with respect to any of the events in this and the two immediately preceding clauses), in the reasonable judgment of the Underwriters, such event makes it impracticable to market the Notes on the terms and in the manner contemplated in the Prospectus; and all conditions precedent to the effectiveness of the PowerChoice Agreement and the MRA shall have been satisfied and the transactions contemplated by MRA shall have closed (or shall close concurrently with the Closing hereunder). (j) The Underwriters shall have received a counterpart, conformed as executed, of the -15- Indenture which shall have been entered into by the Company and the Trustee. (k) The Company shall not have failed on or prior to the Closing Date to perform or comply in any material respect with any of the agreements herein contained and required hereunder to be performed or complied with by the Company on or prior to the Closing Date. 9. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement shall become effective upon its execution by and of the parties hereto. This Agreement may be terminated at any time on or prior to the Closing Date by the Underwriters by written notice to the Company if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or development involving a prospective material adverse change in the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, whether or not arising in the ordinary course of business, which would, in the Underwriters' good faith judgment, make it impracticable to market the Notes on the terms and in the manner contemplated in the Prospectus, (ii) any outbreak or escalation of hostilities involving the United States or other national or international calamity or crisis involving the United States or change in economic conditions or in the financial markets of the United States that, in the Underwriters' good faith judgment, is material and adverse and would, in the Underwriters' good faith judgment, make it impracticable to market the Notes on the terms and in the manner contemplated in the Prospectus, (iii) the suspension or material limitation of trading in securities or other instruments on the New York Stock Exchange or limitation on prices for securities or other instruments generally on such exchange, or (iv) the declaration of a banking moratorium by either federal or New York State authorities. If on the Closing Date any one or more of the Underwriters shall fail or refuse to purchase the Notes which it or they have agreed to purchase hereunder on such date and the aggregate principal amount of Notes which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate principal amount of Notes to be purchased on such date by all Underwriters, each non-defaulting Underwriter shall be obligated severally, in the proportion which the principal amount of Notes set forth opposite its name in Schedule I bears to the aggregate principal amount of Notes which all the non-defaulting Underwriters have agreed to purchase, or in such other proportion as the Underwriters may specify, to purchase the Notes which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; PROVIDED that in no event shall the aggregate principal amount of Notes which any Underwriter has agreed to purchase pursuant to Section 2 hereof be increased pursuant to this Section 9 by an amount in excess of one-ninth of such principal amount of Notes without the written consent of such Underwriter. If on the Closing Date any Underwriter or Underwriters shall fail or refuse to purchase Notes and the aggregate principal amount of Notes with respect to which such default occurs is more than one-tenth of the aggregate principal amount of Notes to be purchased on such date by all Underwriters and arrangements satisfactory to the Underwriters and -16- the Company for purchase of such Notes are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter and the Company. In any such case which does not result in termination of this Agreement, either the Underwriters or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of any such Underwriter under this Agreement. 10. MISCELLANEOUS. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) if to the Company, to Niagara Mohawk Power Corporation, 300 Erie Boulevard West, Syracuse, New York 13202, Attention: General Counsel and (ii) if to the Underwriters, c/o Donaldson, Lufkin & Jenrette Securities Corporation, 140 Broadway, New York, New York 10005, Attention: Syndicate Department, or in any case to such other address as the person to be notified may have requested in writing. The respective indemnities, contribution agreements, representations, warranties and other statements of the Company, its officers and directors and of the Underwriters set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Notes, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, the officers or directors of the Company or any person controlling the Company, (ii) acceptance of the Notes and payment for them hereunder and (iii) termination of this Agreement. If this Agreement shall be terminated by the Underwriters because of any failure or refusal on the part of the Company to comply with any of the terms or to fulfill any of the conditions of this Agreement, the Company agrees to reimburse the Underwriters for all out-of-pocket expenses (including the fees and disbursements of counsel) incurred by them. Notwithstanding any termination of this Agreement, the Company shall be liable for all expenses which it has agreed to pay pursuant to Section 5(k) hereof. Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Underwriters, the Underwriters' directors and officers, any controlling persons referred to herein, the Company's directors and the Company's officers who sign the Registration Statement and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Notes from any of the several Underwriters merely because of such purchase. This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to the conflict of laws provisions thereof. -17- This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. -18- Please confirm that the foregoing correctly sets forth the agreement between the Company and the Underwriters. Very truly yours, NIAGARA MOHAWK POWER CORPORATION By:_______________________________ Name: Title: Acknowledged and accepted on the date first described herein. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By:_______________________________ Name: Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By:_______________________________ Name: Title: WASSERSTEIN PERELLA SECURITIES, INC. By:_______________________________ Name: Title: -19- SALOMON BROTHERS INC By:_______________________________ Name: Title: J. P. MORGAN SECURITIES By:_______________________________ Name: Title: TD SECURITIES (USA) INC. By:_______________________________ Name: Title: CITICORP SECURITIES INC. By:_______________________________ Name: Title: -20- SCHEDULE I ---------- Principal Amount of Notes Underwriters to be Purchased - - ------------ --------------- Donaldson, Lufkin & Jenrette Securities Corporation Merrill Lynch, Pierce, Fenner & Smith Incorporated Wasserstein Perella Securities, Inc. Salomon Brothers Inc J. P. Morgan Securities Citicorp Securities, Inc. TD Securities (USA) Inc. -------------------- Total $3,450,000.000 EX-4.(A)(41) 3 EXHIBIT 4(A)(41) Exhibit 4(a)(41) Form of 1998 Supplemental Indenture NIAGARA MOHAWK POWER CORPORATION to BANKERS TRUST COMPANY, as Trustee ------------------------ Supplemental Indenture Dated as of June 30, 1998 Providing for the exchange of instruments relating to the following so as to evidence the extension of the due date thereof: Bonds of the Eighty-first Series, Bonds of the Eighty-second Series, Bonds of the Eighty-third Series, Bonds of the Eighty-fourth Series, Bonds of the Eighty-fifth Series and Bonds of the Eighty-sixth Series. SUPPLEMENTAL INDENTURE dated as of June 30, 1998, made by and between NIAGARA MOHAWK POWER CORPORATION, a corporation duly organized and existing under the laws of the State of New York, having its principal place of business (residence) at No. 300 Erie Boulevard West, Syracuse, New York (hereinafter sometimes referred to as the "Company"), party of the first part, and BANKERS TRUST COMPANY (successor to Marine Midland Bank, in turn, successor to Marine Midland Bank, N.A., a national banking association and, in turn, successor to Marine Midland Bank, a corporation duly organized and existing under the laws of the State of New York, formerly named the Marine Midland Trust Company of New York, Marine Midland Grace Trust Company of New York and Marine Midland Bank -- New York), a banking corporation and trust company duly organized and existing under the laws of the State of New York, having its principal corporate trust office at Four Albany Street, New York (hereinafter sometimes referred to as the "Trustee"), as Trustee under the Mortgage Trust Indenture hereinafter mentioned, party of the second part. WHEREAS, the Company (formerly Central New York Power Corporation) has heretofore executed and delivered to the Trustee its Mortgage Trust Indenture dated as of October 1, 1937 (hereinafter referred to as the "Original Indenture") and indentures supplemental thereto dated as of December 1, 1938, as of April 15, 1939, as of July 1, 1940, as of January 1, 1942, as of October 1, 1944, as of June 1, 1945, as of August 17, 1948, as of December 31, 1949, as of January 1, 1950, as of October 1, 1950, as of October 19, 1950, as of December 1, 1951, as of February 1, 1953, as of February 20, 1953, as of October 1, 1953, as of August 1, 1954, as of April 25, 1956, as of May 1, 1956, as of September 1, 1957, as of June 1, 1958, as of March 15, 1960, as of April 1,1960, as of November 1, 1961, as of December 1, 1964, as of October 1, 1966, as of July 15, 1967, as of August 1, 1967, as of August 1, 1968, as of December 1, 1969, as of February 1, 1971, as of February 1, 1972, as of August 1, 1972, as of December 1, 1973, as of October 1, 1974, as of March 1, 1975, as of August 1, 1975, as of March 15, 1977, as of August 1, 1977, as of December 1, 1977, as of March 1, 1978, as of December 1, 1978, as of September 1, 1979, as of October 1, 1979, as of June 15, 1980, as of September 1, 1980, as of March 1, 1981, as of August 1, 1981, as of March 11, 1982, as of April 1, 1982, as of June 1, 1982, as of August 1, 1982, as of November 1, 1982, as of March 1, 1983, as of May 1, 1983, as of June 1, 1983, as of March 1, 1984, as of May 1, 1984, as of July 1, 1984, as of October 1, 1984, as of January 1, 1985, as of February 1, 1985, as of February 15, 1985, as of November 1, 1985, as of June 1, 1986, as of August 1, 1986, as of October 1, 1986, as of November 1, 1986, as of July 1, 1987, as of May 1, 1988, as of February 1, 1989, as of April 1, 1989, as of October 1, 1989, as of June 1, 1990, as of November 1, 1990, as of March 1, 1991, as of October 1, 1991, as of April 1, 1992, as of June 1, 1992, as of July 1, 1992, as of August 1, 1992, as of April 1, 1993, as of July 1, 1993, as of September 1, 1993, as of March 1, 1994, as July 1, 1994, as of May 1, 1995 and as of March 20, 1996 (the "1996 Supplemental Indenture") (said Original Indenture, together with all instruments stated to be supplemental thereto to which the Trustee has heretofore been or shall hereafter be a party, including said enumerated Supplemental Indentures and this Supplemental Indenture, being herein referred to as the "Indenture"; capitalized terms used herein and not otherwise defined herein are used as defined in the Indenture); and WHEREAS, the Company has entered into a 1998 Amendment and Restatement Agreement dated as of June 5, 1998 (the "1998 Amendment Agreement") with the parties to the following agreements to effect certain amendments thereto (including without limitation the extension of the maturity dates of the facilities therein) (all of which are as defined in the 1996 Indenture): the Term Loan Agreement, the Revolving Credit Agreement, the Morgan LC Agreement, the Toronto LC Agreement, the CIBC LC Agreement and the Master Creditor Agreement; WHEREAS, under the terms of the 1998 Amendment Agreement the Company and each of (as each is defined in the 1996 Indenture) the Term Lenders, the Revolving Lender Parties, the Morgan LC Credit Parties, the Toronto LC Credit Parties, the CIBC LC Credit Parties, the Master Creditor Agent and the Lender Parties have each agreed to the extension of the maturity (the "Maturities Extension") of each of the following from June 30, 1999 until June 1, 2000 (as each is defined in the 1996 Supplemental Indenture): the Bonds of the Eighty-first Series, the Bonds of the Eighty-second Series, the Bonds of the Eighty-third Series, the Bonds of the Eighty-fourth Series, the Bonds of the Eighty-fifth Series and the Bonds of the Eighty-sixth Series (together, the "Old Senior Finance Bonds"); WHEREAS, each of the parties to the 1998 Amendment Agreement in the third recital above has under the provisions of the 1998 Amendment Agreement waived any and all rights to have meetings convened of the respective holders of the Old Senior Finance Bonds (or to receive prior notice of any such meeting) in relation to the Maturities Extension or for the Maturities Extension to be submitted to any approval, consent, notification, filing or voting procedures or requirements under the Indenture or otherwise in addition to their agreement to the Maturities Extension contained in the 1998 Amendment Agreement; WHEREAS, each of the parties to the 1998 Amendment Agreement has signed and collectively issued an instruction letter dated as of June 30, 1998 (the "Instruction Letter") to the Trustee agreeing to the Maturities Extension and instructing the Trustee to exchange instruments evidencing each of the Old Senior Finance Bonds for certificates evidencing amended Bonds of the Eighty-first Series, amended Bonds of the Eighty-second Series, amended Bonds of the Eighty-third Series, amended Bonds of the Eighty-fourth Series, amended Bonds of the Eighty-fifth Series and amended Bonds of the Eighty-sixth Series upon presentation and delivery of certain instruments as described herein; WHEREAS, the Company has requested the Trustee to enter into this Supplemental Indenture to give effect to the Maturities Extension; WHEREAS, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument in accordance with its terms have been performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized; 2 NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE W I T N E S S E T H: That for and in consideration of the premises of One Dollar to the Company duly paid by the Trustee at or before the execution and delivery of this Supplemental Indenture and for other good and valuable consideration, the receipt whereof is hereby acknowledged, the Company does hereby covenant and agree with the Trustee for the benefit of the holders of the Old Senior Finance Bonds, as follows: PART I. AMENDMENT AND EXCHANGE OF INSTRUMENTS EVIDENCING SENIOR FINANCE BONDS SECTION 1. The stated maturity date of each Old Senior Finance Bond shall be extended from "June 30, 1999" to "June 1, 2000" (the Old Senior Finance Bonds as extended being the "Amended Senior Finance Bonds"). Pursuant to the Instruction Letter all of the holders of the Old Senior Finance Bonds have agreed to such extension. SECTION 2. The Trustee hereby agrees to comply with the instructions given by the signatories to the Instruction Letter in relation to the Old Senior Finance Bonds. SECTION 3. Upon delivery by the Company to the Trustee of certificates representing the Amended Senior Finance Bonds (which shall be identical to the certificates representing the Old Senior Finance Bonds except for the substitution of "June 1, 2000" for "June 30, 1999" as the stated maturity date), the Trustee shall authenticate the Amended Senior Finance Bonds and deliver them to the Master Creditor Agent in exchange for the Old Senior Finance Bonds delivered by the Master Creditor Agent to the Trustee in accordance with the Instruction Letter. The Trustee shall cancel the surrendered Old Senior Finance Bonds in accordance with the terms of the Indenture. PART II THE TRUSTEE SECTION 1. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture, or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. To the extent permitted by the provisions of Section 4 of Article Tenth of the Indenture, the Trustee shall not be answerable or accountable for anything whatsoever in connection with this Supplemental Indenture except for its own wilful misconduct or negligence. 3 PART III MISCELLANEOUS PROVISIONS SECTION 1. This Supplemental Indenture shall hereafter form a part of the Indenture; and all the terms and conditions contained in this Supplemental Indenture as to any provision authorized to be contained herein shall be and be deemed to be part of the terms and conditions of the Indenture for any and all purposes. Except as expressly amended and supplemented by this Supplemental Indenture, the Indenture is hereby ratified and confirmed in all respects. SECTION 2. This Supplemental Indenture may be simultaneously executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original and shall remain in full force and effect, and all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be executed in their respective corporate names by their respective corporate officers thereunto duly authorized, and their respective corporate seals to be hereto attached and to be duly attested, all as of the day and year first above written. NIAGARA MOHAWK POWER CORPORATION [CORPORATE SEAL] By -------------------------------- Name: Title: Attest: --------------------------- Title: 4 EX-4.(B) 4 EXHIBIT 4(B) - FORM OF INDENTURE - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- NIAGARA MOHAWK POWER CORPORATION SENIOR NOTES ____________________ INDENTURE Dated as of June 30, 1998 ____________________ ____________________ IBJ SCHRODER BANK & TRUST COMPANY ____________________ Trustee
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE. . . . . . . . . . . . . - 1 - Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . - 1 - Section 1.02. Other Definitions. . . . . . . . . . . . . . . . . . - 17 - Section 1.03. Incorporation by Reference of Trust Indenture Act. . - 18 - ARTICLE 2 THE SENIOR NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . - 19 - Section 2.01. Series And Terms of Senior Notes . . . . . . . . . . - 19 - Section 2.02. Terms of Initial Series Senior Notes . . . . . . . . - 21 - Section 2.03. Form and Dating. . . . . . . . . . . . . . . . . . . - 24 - Section 2.04. Execution and Authentication . . . . . . . . . . . . - 24 - Section 2.05. Registrar and Paying Agent . . . . . . . . . . . . . - 25 - Section 2.06. Paying Agent and to Hold Money in Trust. . . . . . . - 25 - Section 2.07. Holder Lists . . . . . . . . . . . . . . . . . . . . - 26 - Section 2.08. Transfer and Exchange. . . . . . . . . . . . . . . . - 26 - Section 2.09. Replacement Senior Notes . . . . . . . . . . . . . . - 27 - Section 2.10. Outstanding Senior Notes . . . . . . . . . . . . . . - 27 - Section 2.11. Treasury Senior Notes. . . . . . . . . . . . . . . . - 27 - Section 2.13. Cancellation . . . . . . . . . . . . . . . . . . . . - 28 - Section 2.14. Record Date. . . . . . . . . . . . . . . . . . . . . - 28 - Section 2.15. Cusip Number . . . . . . . . . . . . . . . . . . . . - 28 - ARTICLE 3. REDEMPTION AND REPURCHASE . . . . . . . . . . . . . . . . . . . . . - 29 - Section 3.01. Certain Senior Notes Redeemable; Notices to Trustee. - 29 - Section 3.02. Selection of Senior Notes to Be Redeemed . . . . . . - 29 - Section 3.03. Notice of Redemption . . . . . . . . . . . . . . . . - 30 - Section 3.04. Effect of Notice of Redemption.. . . . . . . . . . . - 31 - Section 3.05. Deposit of Redemption Price. . . . . . . . . . . . . - 31 - Section 3.06. Senior Notes Redeemed in Part. . . . . . . . . . . . - 31 - Section 3.07. Optional and special Redemption of Initial Series Senior Notes . . . . . . . . . . . . . . . . . . . . - 32 - Section 3.08. Mandatory Redemption . . . . . . . . . . . . . . . . - 33 - Section 3.09. Offer to Purchase by Application of Excess Proceeds. - 33 - ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 - Section 4.01. Payment of Senior Notes. . . . . . . . . . . . . . . - 35 - Section 4.02. Maintenance of Office or Agency. . . . . . . . . . . - 35 - -i- Section 4.03. Reports. . . . . . . . . . . . . . . . . . . . . . . - 36 - Section 4.04. Compliance Certificate . . . . . . . . . . . . . . . - 36 - Section 4.05. Taxes. . . . . . . . . . . . . . . . . . . . . . . . - 37 - Section 4.06. Stay, Extension and Usury Laws.. . . . . . . . . . . - 37 - Section 4.07. Restricted Payments. . . . . . . . . . . . . . . . . - 38 - Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.. . . . . . . . . . . . . . . . . . . . - 39 - Section 4.09. Incurrence of Indebtedness . . . . . . . . . . . . . - 40 - Section 4.10. Proceeds of Certain Asset Sales. . . . . . . . . . . - 41 - Section 4.11. Transaction with Affiliates. . . . . . . . . . . . . - 42 - Section 4.12. Liens. . . . . . . . . . . . . . . . . . . . . . . . - 43 - Section 4.13. Corporate Existence. . . . . . . . . . . . . . . . . - 43 - Section 4.14. Offer to repurchase upon change of control triggering event . . . . . . . . . . . . . . . . . . - 43 - Section 4.15. Payments for Consents. . . . . . . . . . . . . . . . - 45 - ARTICLE 5 SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 - Section 5.01. Merger, Consolidation, or Sale of Assets . . . . . . - 45 - Section 5.02. Successor Corporation Substituted. . . . . . . . . . - 46 - ARTICLE 6 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . - 46 - Section 6.01. Events of Default. . . . . . . . . . . . . . . . . . - 46 - Section 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . - 48 - Section 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . - 49 - Section 6.04. Waiver of past Defaults. . . . . . . . . . . . . . . - 49 - Section 6.05. Control by Majority. . . . . . . . . . . . . . . . . - 49 - Section 6.06. Limitation on Suits. . . . . . . . . . . . . . . . . - 49 - Section 6.07. Rights of Holders of Senior Notes to Receive Payment. . . . . . . . . . . . . . . . . . . . . . . - 50 - Section 6.08. Collection Suit by Trustee . . . . . . . . . . . . . - 50 - Section 6.09. Trustee May File Proofs of Claim . . . . . . . . . . - 50 - Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . - 51 - Section 6.11. Undertaking for Costs. . . . . . . . . . . . . . . . - 51 - ARTICLE 7 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 - Section 7.01. Duties of Trustee. . . . . . . . . . . . . . . . . . - 52 - Section 7.02. Rights of Trustee. . . . . . . . . . . . . . . . . . - 53 - Section 7.03. Individual Rights of Trustee . . . . . . . . . . . . - 54 - Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . - 54 - Section 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . - 54 - Section 7.06. Reports by Trustee to Holders of the Senior Notes. . - 55 - -ii- Section 7.07. Compensation and Indemnity . . . . . . . . . . . . . - 55 - Section 7.08. Replacement of Trustee . . . . . . . . . . . . . . . - 56 - Section 7.09. Successor Trustee by Merger, Etc.. . . . . . . . . . - 57 - Section 7.10. Eligibility, Disqualification. . . . . . . . . . . . - 57 - Section 7.11. Preferential Collection of Claims Against Company. . - 57 - ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE. . . . . . . . . . . . . . - 58 - Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . - 58 - Section 8.02. Legal Defeasance and discharge . . . . . . . . . . . - 58 - Section 8.03. Covenant Defeasance. . . . . . . . . . . . . . . . . - 58 - Section 8.04. Conditions to Legal or Covenant Defeasance . . . . . - 59 - Section 8.05. Deposited Money and Government Senior Notes to Be Held in Trust; Other Miscellaneous Provisions. . . . - 60 - Section 8.06. Repayment of Company . . . . . . . . . . . . . . . . - 61 - Section 8.07. Reinstatement. . . . . . . . . . . . . . . . . . . . - 61 - ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER. . . . . . . . . . . . . . . . . . - 62 - Section 9.01. Without Consent of Holders of Senior Notes . . . . . - 62 - Section 9.02. With Consent of Holders of Senior Notes. . . . . . . - 63 - Section 9.03. Compliance with Trust Indenture Act. . . . . . . . . - 65 - Section 9.04. Revocation and Effect of Consents. . . . . . . . . . - 65 - Section 9.05. Notation on or Exchange of Senior Notes. . . . . . . - 66 - Section 9.06. Trustee to Sign Amendments, Etc. . . . . . . . . . . - 66 - Section 9.07. Effect Of Supplemental Indentures. . . . . . . . . . - 66 - ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . - 66 - Section 10.01. Trust Indenture Act Controls . . . . . . . . . . . . - 66 - Section 10.02. Notices. . . . . . . . . . . . . . . . . . . . . . . - 67 - Section 10.03. Communication by Holders of Senior Notes with Other Holders of Senior Notes. . . . . . . . . . . . - 68 - Section 10.04. Certificate And Opinion as to Conditions Precedent . - 68 - Section 10.05. Statements Required in Certificate or Opinion. . . . - 68 - Section 10.06. Rules by Trustee and Agents. . . . . . . . . . . . . - 69 - Section 10.07. No Personal Liability of Directors, Officers, Employees and Stockholders . . . . . . . . . . . . . - 69 - Section 10.08. Governing Law. . . . . . . . . . . . . . . . . . . . - 69 - Section 10.09. No Adverse Interpretation of Other Agreements. . . . - 69 - -iii- Section 10.10. Successors . . . . . . . . . . . . . . . . . . . . . - 69 - Section 10.11. Severability . . . . . . . . . . . . . . . . . . . . - 69 - Section 10.12. Counterpart Originals. . . . . . . . . . . . . . . . - 70 - Section 10.13. Table of Contents, Headings, Etc.. . . . . . . . . . - 70 -
-iv- INDENTURE dated as of June 30, 1998, between Niagara Mohawk Power Corporation, a New York corporation (the "Company") and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the Senior Notes issued hereunder. ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "ACCRETED VALUE" means, for each $1,000 face amount of Senior Discount Notes as of any date of determination prior to July 1, 2003, the sum of (a) the initial offering price of each Senior Discount Note and (b) that portion of the excess of the principal amount of each Senior Discount Note over such initial offering price which shall have been accreted thereon through such date, such amount to be so accreted on a daily basis and compounded semi-annually on each January 1 and July 1 at the rate of ___% per annum from the date of issuance of the Senior Discount Notes through the date of determination. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Restricted Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "AGENT" means any Registrar, Paying Agent or co-registrar. "BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "BOARD OF DIRECTORS" means the Board of Directors, if any, of the Company or any authorized committee thereof. "BOARD RESOLUTION" means a resolution authorized by the Board of Directors. "BUSINESS DAY" means any day other than a Legal Holiday. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet of such Person in accordance with GAAP. "CAPITAL STOCK" means (i) in the case of a corporation, shares of corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CASH EQUIVALENTS" means (i) Government Securities having maturities of not more than eighteen months from the date of acquisition; (ii) certificates of deposit and Eurodollar time deposits with maturities of eighteen months or less from the date of acquisition, bankers' acceptances with maturities not exceeding eighteen months and overnight bank deposits, in each case with any lender party to the Credit Facility or with any U.S. commercial bank having capital and surplus in excess of $500.0 million; (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i) and (ii) above entered into with any financial institution meeting the qualifications specified in clause (ii) above; (iv) commercial paper having either the highest or second highest rating obtainable from Moody's or S&P and in each case maturing within six months after the date of acquisition; (v) other corporate debt or asset backed or mortgage backed securities with an Investment Grade rating from Moody's or S&P and which mature within eighteen months; and (vi) money market mutual funds. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole; (ii) the adoption of a plan relating to the liquidation or dissolution of the Company; (iii) the consummation of any transaction (including, without limitation any merger or consolidation) the result of which is that any "person" or "group" (as such terms are defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes -2- the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power in the aggregate of all classes of Capital Stock of the Company then outstanding normally entitled to vote in the election of directors; or (iv) the first day on which a majority of the members of the Board of Directors of the Company or any Successor Entity are not Continuing Directors; PROVIDED, HOWEVER, that the consummation of a transaction in which the outstanding shares of Common Stock are exchanged for common stock of a Person that thereafter will be the sole shareholder of the Company as part of a holding company reorganization shall not be deemed a "Change of Control." For purposes of this definition, any transfer of an equity interest of an entity that was formed for the purpose of acquiring voting stock of the Company will be deemed to be a transfer of such portion of such voting stock as corresponds to the portion of the equity of such entity that has been so transferred. "CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of a Change of Control and a Rating Decline. "COMMON STOCK" means the Company's common stock, $1.00 par value. "COMPANY ORDER" means a written order, signed in the name of the Company by an authorized Officer and delivered to the Trustee, for the authentication and delivery of Senior Notes of the relevant series pursuant to this Indenture or any Supplemental Indenture pursuant to the procedures described herein or therein. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders (or equity holders) of such Person and its consolidated Restricted Subsidiaries as of such date, PLUS (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of Preferred Stock that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such Preferred Stock, LESS (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the Initial Issuance Date in the book value of any asset owned by such Person or a Restricted Subsidiary of such Person, (y) all investments as of such date in Unrestricted Subsidiaries and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the Initial Issuance Date or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. -3- "CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the Trustee specified in Section 10.02 or such other address as the Trustee may give notice to the Company. "CREDIT FACILITY" means the Company's $804.4 million credit facility dated as of March 20, 1996 with a group of banks and Citibank as agent, as such agreement is amended, modified, restated, extended, renewed, replaced or refinanced from time to time. "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is one year after the final maturity of the outstanding series of Senior Notes with the longest maturity. "DOLLAR " or "$" means a dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts in the United States. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FAIR VALUE" when applied to any property means its fair value to the Company, which may be determined without physical inspection by use of accounting and engineering records and other data maintained by, or available to, the Company; PROVIDED that the Company delivers a Board Resolution specifying the Fair Value of the assets being sold and, in the event of a transaction in excess of $50.0 million, the Company also delivers an opinion of a nationally recognized expert in the valuation of the assets being sold as to the Fair Value of the assets being sold and that the transaction is fair to the Company. "FIRST MORTGAGE BONDS" means the securities and other Indebtedness issued from time to time pursuant to the Company's Mortgage Trust Indenture dated as of October 1, 1937 and the supplemental indentures thereto. "FIXED CHARGE COVERAGE RATIO" of the Company and its Restricted Subsidiaries means for any period, the ratio of (i) the sum (determined from the consolidated income statement of the Company and its Restricted Subsidiaries) of (A) operating income or operating loss of the Company -4- and its Restricted Subsidiaries, taken as a whole, for such period PLUS (B) depreciation and amortization (including amortization of goodwill and other intangibles and of the MRA Regulatory Asset and other non-cash regulatory deferrals and amortizations) and other non-recurring, non-cash charges of the Company and its Restricted Subsidiaries for such period to the extent that such deprecation and amortization and other non-recurring, non-cash charges were deducted in computing operating income or operating loss, in each case on a consolidated basis and determined in accordance with GAAP, PLUS (C) provision for taxes based on income or profits of the Company and its Restricted Subsidiaries for such period to the extent deducted in determining operating income, to (ii) the sum of (A) the consolidated interest expense of the Company and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to any sale and leaseback transactions, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings (unless such commissions, discounts and other fees and charges have been deducted in calculating operating income), net payments (if any) pursuant to Hedging Obligations and any interest paid by the Company or a Restricted Subsidiary pursuant to a TIPES Transaction; PLUS (B) the consolidated interest expense of the Company and its Restricted Subsidiaries that was capitalized during such period; PLUS (C) any interest expense on Indebtedness of another Person that is Guaranteed by the Company or one of its Restricted Subsidiaries or secured by a Lien on assets of the Company or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon); PLUS (D) the quotient obtained by dividing all cash dividend or other payments or distributions on or in respect of any series of Preferred Stock (other than Preferred Stock issued in a TIPES Transaction) of the Company or any of its Restricted Subsidiaries by 1 minus the maximum statutory income tax rate then applicable to the Company (expressed as a decimal), in each case, on a consolidated basis and in accordance with GAAP. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge Coverage Ratio shall be calculated giving PRO FORMA effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of Preferred Stock, as if the same had occurred at the beginning of the applicable reference period. "FOSSIL AND HYDRO GENERATING ASSETS" means the Generating Assets other than the Nuclear Generating Assets. "GAAP" means generally accepted accounting principles in use at the Initial Issuance Date or, at the option of the Company, other generally accepted accounting principles which are in use at the time of their determination; in determining generally accepted accounting principles, the Company may, but shall not be required to, conform to any accounting order, rule or regulation of any -5- regulatory authority having jurisdiction over the electric generating, transmission or distribution operations of the Company. "GENERATING ASSETS" means the Company's nuclear, fossil and hydroelectric generation plants other than the Oswego Plant, and any related asset necessary for the operation of any such plant and any associated license or permit. "GOVERNMENT SECURITIES" means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed by the full faith and credit of the United States of America which, in either case, are not callable or redeemable at the option of the issuer thereof or otherwise subject to prepayment, and shall also include a depository receipt issued by a New York Clearing House bank or trust company as custodian with respect to any such Government Securities or a specific payment or interest on or principal of any such Government Securities held by such custodian for the account of the holder of a depository receipt, PROVIDED that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt or from any amount held by the custodian in respect of the Government Securities or the specific payment of interest on or principal of the Government Securities evidenced by such depository receipt. "GRADATION" means a gradation within a Rating Category or a change to another Rating Category, which shall include "+" and "-", in the case of S&P's current Rating Categories (e.g., a decline from BB+ to BB would constitute a decrease of one gradation); "1", "2" and "3", in the case of Moody's current Rating Categories (e.g. a decline from B1 to B2 would constitute a decrease of one gradation); or the equivalent in respect of successor Rating Categories used by Rating Agencies other than S&P or Moody's. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit, reimbursement agreements and support, "keep well" or similar agreements in respect thereof), of all or any part of any Indebtedness. "HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such Person under any interest rate, currency or commodity swap agreement, interest rate, currency or commodity future agreement, interest rate cap or collar agreement, interest rate, currency or commodity hedge agreement, and any put, call or other agreement designed to protect such Person against fluctuations in interest rates, currency exchange rates or commodity prices. "HOLDER" means a person in whose name a Senior Note is registered. -6- "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations of such Person or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations of such Person, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP (provided, that any debt instrument issued by the Company or a Restricted Subsidiary in a TIPES Transaction shall be deemed Indebtedness of the Company regardless of its characterization on any such balance sheet), as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, any Guarantees by such Person of any indebtedness of any other Person. "INDENTURE" means this Indenture, as amended or supplemented from time to time. "INITIAL ISSUANCE DATE" means the date of closing of the public offering of the Initial Series Senior Notes as set forth in a Company Order. "INITIAL SERIES SENIOR NOTES" means the Senior Discount Notes and the Series A through G Senior Notes issued on the Initial Issuance Date. "INVESTMENT" means, with respect to any Person, any investment by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including Guarantees of Indebtedness or other obligations), advances (excluding commission, travel and similar advances to employees made in the ordinary course of business) or capital contributions, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; PROVIDED, HOWEVER, that an acquisition of assets, Equity Interests or other securities by the Company for consideration consisting of assets or Capital Stock (other than Disqualified Stock) shall not be deemed to be an Investment. "INVESTMENT GRADE" means BBB- or above, in the case of S&P (or its equivalent under any successor rating categories of S&P), or the equivalent in respect of the Rating Categories of any other Rating Agency. "INVESTMENT GRADE DATE" means the date of delivery by the Company to the Trustee of an Officers' Certificate to the effect that the Senior Notes of the series having the longest maturity then outstanding have been rated Investment Grade by (i) S&P and Moody's or (ii) S&P or Moody's and at least one other Rating Agency identified in such certificate. - 7 - "IPP BUYOUT" means the termination, restatement or amendment of certain power purchase agreements in exchange for cash and securities (or the proceeds of the sale by the Company of securities) pursuant to the terms of the Master Restructuring Agreement. "LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, encumbrance, charge, or adverse claim affecting title or resulting in a charge against real or personal property, or a security interest of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "MAKE WHOLE PREMIUM" with respect to any Senior Note shall mean with respect to any prepayment of such Senior Note in circumstances requiring the payment of a Make Whole Premium, an amount equal to (i) in the case of the Series A through G Notes the excess of (a) the aggregate present value as of the date of such prepayment of the expected future cash flows of such Senior Note (for the avoidance of doubt, such amounts shall include all principal and interest payable with respect to such Senior Note) (exclusive of interest accrued to the date of prepayment) that, but for such prepayment, would have been payable if such prepayment had not been made, all determinated by discounting such amounts at a rate which is equal to the Treasury Rate plus .50% over (b) the aggregate principal amount of the Senior Note then to be prepaid and (ii) in the case of the Senior Discount Notes (if such prepayment occurs prior to July 1, 2003), the excess of (a) the present value of the sum of all remaining interest (excluding accrued and unpaid interest, if any), premium and principal payments that would become due on the Senior Discount Notes if they were to remain outstanding and be redeemed on July 1, 2003, computed using a discount rate equal to the Treasury Rate plus .50% over (b) the Accreted Value of the Senior Discount Note then to be prepaid. For purposes of any determination of the Make Whole Premium: "TREASURY RATE" shall mean at any time with respect to the Senior Notes being prepaid (a) the yield reported on page C4 of the Bloomberg Financial Markets Service (or, if not available, any other nationally recognized trading screen reporting on-line intra day trading in United States government securities) at 11:00 A.M. (New York, New York time) for those actively traded United States government securities having a maturity (rounded to the nearest month) corresponding to the remaining Weighted Average Life to Maturity of the Senior Notes being prepaid or (b) in the event that no nationally - 8 - recognized trading screen reporting on-line intraday trading in United States government securities is available, Treasury Rate shall mean the weekly average of the yield to maturity on the United States Treasury obligations with a constant maturity (as compiled by and published in the most recently published issue of the United States Federal Reserve Statistical Release designated H.15(519) or its successor publication) most nearly equal to (by rounding to the nearest month) the Weighted Average Life to Maturity of the Senior Notes then being prepaid. If no maturity exactly corresponding to such Weighted Average Life to maturity of such Senior Notes shall appear therein, the weekly average yield for the two most closely corresponding published maturities shall be calculated pursuant to the foregoing sentence and the Treasury Rate shall be interpolated or extrapolated, as the case may be, from such yields on a straight-line basis (rounding, in the case of relevant periods, to the nearest month). "MASTER RESTRUCTURING AGREEMENT" means the Master Restructuring Agreement dated July 9, 1997 among the Company and the independent power producer parties thereto, as amended from time to time. "MEDIUM-TERM NOTES" means the unsecured variable rate notes issued pursuant to an indenture between the Company and IBJ Schroder Bank & Trust Company, as trustee. "MOODY'S" means Moody's Investors Service, Inc., or any successor to its securities ratings business. "MRA REGULATORY ASSET" means the item designated as such on the Company's balance sheet, which represents amounts that the Company is permitted to collect from customers, pursuant to the regulations of the PSC, in respect of the IPP Buyout and the other transactions contemplated by the Master Restructuring Agreement. "NET PROCEEDS" means the aggregate cash proceeds received by a Person in respect of any sale of assets, net of amounts paid to minority interests, co-owners or lienholders, the direct costs relating to such sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions), taxes paid or payable which are attributable to such sale (after taking into account any available tax credits or deductions and any tax sharing arrangements relating to such assets) and any cash reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provide credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the Holders thereof may have to take enforcement action against an - 9 - Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any Holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "NUCLEAR GENERATING ASSETS" means the Company's interest in Units 1 and 2 of the Nine Mile Point Nuclear Generating Plant, and any related asset necessary for the operation of such plants and any associated license or permit. "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFICERS" means the Chief Executive Officer, the President, the Executive Vice President, the Treasurer, any Assistant Treasurer, Controller, Secretary or any Vice President of the Company. "OFFICERS' CERTIFICATE" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 10.05 hereof. "OPERATING CASH FLOW" means, with respect to any Person for any period, the net cash provided by operating activities of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP. "OPINION OF COUNSEL" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 1005 hereof. The counsel may be an employee of or counsel to the Company. "OSWEGO PLANT" means the interest of the Company in the fossil fuel electric generation plant located near Lake Ontario in Oswego, New York. "OTHER INDEBTEDNESS" shall mean Senior Indebtedness incurred after the Initial Issuance Date, except (a) Permitted Refinancing Indebtedness with respect to First Mortgage Bonds in an amount equal to the aggregate amount of First Mortgage Bonds issued and outstanding at the closing on the Initial Issuance Date; (b) Permitted Refinancing Indebtedness with respect to the Credit Facility; and (c) Indebtedness under the Securitization Transaction and the Receivables Financing and any Permitted Refinancing Indebtedness with respect thereto. - 10 - "PERMITTED ASSET SWAP" means any swap of utility property or assets (or assets related or ancillary thereto) of the Company for other property or assets that will be used in or in connection with the Company's utility business. "PERMITTED HEDGING AGREEMENT" of any Person shall mean any Hedging Obligation entered into in the ordinary course of business or pursuant to the Master Restructuring Agreement and not for speculation or trading purposes that is designed to protect such Person against fluctuations in interest rates or currency exchange rates or commodity prices with respect to Indebtedness incurred or proposed to be incurred or assets used in the business in the ordinary course and which in the case of agreements relating to interest rates shall have a notional amount no greater than the payments due with respect to the Indebtedness being hedged thereby. "PERMITTED INVESTMENT" means (a) an Investment in the Company or in a Restricted Subsidiary of the Company (including Investments by the Company in the First Mortgage Bonds or Senior Notes to the extent otherwise permitted by this Indenture); (b) an Investment in Cash Equivalents; (c) an Investment by the Company or any Restricted Subsidiary in a Person, if as a result of such Investment (i) such Person becomes a direct or indirect Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (d) an Investment in any Person owning or operating electric generation, transmission or distribution facilities or gas distribution or transportation or related systems in which the Company owns joint or undivided interests; (e) an Investment in a Person formed as a special purpose entity in conjunction with a Receivables Financing or Securitization Transaction; (f) an Investment received in connection with the bankruptcy or reorganization of customers and suppliers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; and (g) any payment pursuant to those existing Investments of the Company, including the nuclear decommissioning trust fund and the employee benefits plan trusts, described in Schedule 1 attached hereto. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, extend, refinance, replace (including the replacement at any time following their stated maturity of First Mortgage Bonds or Senior Notes that are repaid at maturity, or the replacement at any time following its stated maturity of the Credit Facility or the Receivables Financing), defease or refund, in whole or in part, other Indebtedness of the Company or any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so renewed, extended, refinanced, replaced, defeased or refunded (plus the amount of accrued interest and premiums (including premium paid on open market purchases), if any, thereon and the reasonable expenses incurred in connection therewith); (ii) Permitted Refinancing Indebtedness that is incurred prior to the maturity of the Indebtedness that it is renewing, extending, refinancing, replacing, defeasing or refunding must be on terms at least as favorable to the holders of - 11 - Notes as those contained in the documentation governing the Indebtedness being renewed, extended, refinanced, replaced, defeased or refunded and: (a) if such Indebtedness has a final maturity date earlier than the final maturity date of the series of Notes with the latest final maturity date, then such Permitted Refinancing Indebtedness must have a final maturity date the same as or later than the final maturity date of, and a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed, extended, refinanced, replaced, defeased or refunded, and (b) if such Indebtedness has a final maturity date later than the final maturity date of the series of Notes with the latest final maturity date, then such Permitted Refinancing Indebtedness must have a final maturity date the same as or later than the final maturity date of, and a Weighted Average Life to Maturity equal to or greater than the maturity of, the series of Notes with the latest final maturity date; (iii) if the Indebtedness being renewed, extended, refinanced, replaced, defeased or refunded is subordinated in right of payment to the Senior Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Senior Notes on terms at least as favorable to the holders of Senior Notes as those contained in the documentation governing the Indebtedness being refinanced, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary (or, in the case of the Receivables Financing, the special purpose entity) that is the obligor on the Indebtedness being renewed, extended, refinanced, replaced, defeased or refunded. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof. "POLLUTION CONTROL OBLIGATIONS" means the Indebtedness or other obligations (however designated) of the Company in respect of tax-exempt revenue bonds issued by the New York State Energy Research and Development Authority. "POWERCHOICE AGREEMENT" means the PowerChoice Settlement Agreement between the Company and the PSC, as approved by the PSC in an Order dated March 20, 1998, as such agreement may be modified or amended from time to time. "PREFERRED STOCK" means any Capital Stock of the Company which by its terms has preference to Common Stock in right of dividends or other distributions upon liquidation or dissolution. "PSC" means the New York State Public Service Commission, or any successor agency or other governmental entity performing the same function. "RATING AGENCY" means any of S&P, Moody's, Duff & Phelps Credit Rating Company and Fitch Investors Service, Inc. and their successors. - 12 - "RATING CATEGORIES" means (i) with respect to S&P, any of the following categories (any of which may include a "+" or "-"): AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody's, any of the following categories (any of which may include a "1", "2" or "3"): Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such categories of S&P or Moody's used by another Rating Agency, if applicable. "RATING DECLINE" means, at any time within 90 days (which period shall be extended so long as the rating of the Senior Notes is under publicly announced consideration for a possible downgrade by any Rating Agency) after the date of public notice of a Change of Control, or the intention of the Company or any Person to effect a Change of Control, (i) the Rating of the Senior Notes is decreased at least one Gradation by any Rating Agency or (ii) a withdrawal of the rating of the Senior Notes by any Rating Agency. "RECEIVABLES FINANCING" means the Obligation of the Company pursuant to the [describe agreement], as such agreement is amended or modified from time to time. "RELATED ASSET" means real or tangible personal property integral to the generation, transmission or distribution of electricity or the transportation or distribution of natural gas, and ancillary or related activities, including other energy-related businesses. "REPURCHASE OFFER" means a Change of Control Offer. "RESPONSIBLE OFFICER," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such Person that is not an Unrestricted Subsidiary. "S&P" means Standard & Poors' Rating Services, a division of The McGraw-Hill Companies, Inc., and its successors. "SALE OF ASSETS" means (i) the sale, lease, conveyance or other disposition of any assets (including, without limitation by way of a sale and leaseback) by the Company or any Restricted Subsidiary other than sales of inventory or other current assets in the ordinary course of business consistent with past practice (provided that the sale, lease conveyance or other disposition of all or - 13 - substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by Sections 4.14 and/or Section 5.01 and not Section 4.10 hereof); (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of their Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a Fair Value in excess of $25.0 million or (b) for Net Proceeds in excess of $25.0 million; (iii) the sale or other disposition (but not any spin-off or other distribution to the Company's shareholders) of the Generating Assets or the Oswego Plant; or (iv) a Securitization Transaction. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Wholly-Owned Restricted Subsidiary or by a Wholly-Owned Restricted Subsidiary to the Company or to another Wholly-Owned Restricted Subsidiary; (ii) an issuance of Equity Interests by a Wholly-Owned Restricted Subsidiary to the Company or to another Wholly-Owned Restricted Subsidiary; (iii) a Restricted Payment that is permitted by Section 4.07; (iv) sales of property or equipment that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any of its Restricted Subsidiaries; (v) transactions involving the license, lease or sublease of any real or personal property in the ordinary course of business; (vi) the making of any Permitted Investment; (vii) the transfer, sale or assignment of assets to a single purpose entity in connection with the Receivables Financing; and (viii) a Permitted Asset Swap, will not be deemed to be a Sale of Assets. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITIZATION TRANSACTION" means a transaction in which the Company, pursuant to authorization of the PSC, or other appropriate governmental authorizations, transfers rights or other property to a Person formed as a special purpose entity in conjunction with a financing based on the Company's right to collect a non-by passable wires or similar fee. "SENIOR INDEBTEDNESS" means any senior Indebtedness of the Company, including the First Mortgage Bonds, the Credit Facility, the Senior Notes and the Medium-Term Notes. "SENIOR DISCOUNT NOTES" means the Company's ____% Senior Discount Notes due 2010, which were issued pursuant to this Indenture on the Initial Issuance Date. "SENIOR NOTES" means the Company's Initial Series Senior Notes (which include the Senior Discount Notes) and any other series of Senior Notes issued under this Indenture or any Supplemental Indenture. "SERIES A SENIOR NOTES" means the Company's ___% Series A Senior Notes due 1999, which were issued pursuant to this Indenture on the Initial Issuance Date. - 14 - "SERIES B SENIOR NOTES" means the Company's ___% Series B Senior Notes due 2000, which were issued pursuant to this Indenture on the Initial Issuance Date. "SERIES C SENIOR NOTES" means the Company's ___% Series C Senior Notes due 2001, which were issued pursuant to this Indenture on the Initial Issuance Date. "SERIES D SENIOR NOTES" means the Company's ___% Series D Senior Notes due 2002, which were issued pursuant to this Indenture on the Initial Issuance Date. "SERIES E SENIOR NOTES" means the Company's ___% Series E Senior Notes due 2003, which were issued pursuant to this Indenture on the Initial Issuance Date. "SERIES F SENIOR NOTES" means the Company's ___% Series F Senior Notes due 2005, which were issued pursuant to this Indenture on the Initial Issuance Date. "SERIES G SENIOR NOTES" means the Company's ___% Series G Senior Notes due 2008, which were issued pursuant to this Indenture on the Initial Issuance Date. "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or Guaranteed by the Company or its Restricted Subsidiaries) which is subordinate to the Senior Notes in right of payment or rights upon liquidation of the Company, whether pursuant to the terms of the instrument creating or evidencing such Indebtedness or otherwise. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "SUPPLEMENTAL INDENTURE" means any indenture hereafter duly authorized and approved by the Board of Directors and entered into between the Company and the Trustee in accordance with this Indenture. - 15 - "TIPES TRANSACTION" means a financing transaction or transactions in which the Company establishes a trust or other pass-through entity whose common equity interests are owned by the Company or a Subsidiary and whose assets consist of debt securities of the Company or any Restricted Subsidiary for the purpose of issuing issue preferred interests in such trust or other entity to investors. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.03 hereof. "TRUSTEE" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "UNRESTRICTED SUBSIDIARY" means (i) Opinac North America, Inc., Opinac Energy Corporation, Plum Street Enterprises, Inc., Canadian Niagara Power Company, Limited and any other Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent that any such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (d) has not Guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors will be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by Section 4.07 of this Indenture. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date by Section 4.07, the Company shall be in default of such provision). The Board of Directors may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted by Section 4.07 and (ii) no Default or Event of Default would be in existence following such designation. - 16 - "WEIGHTED AVERAGE LIFE TO MATURITY" means, with respect to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY-OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly-Owned Restricted Subsidiaries of such Person. SECTION 1.02. OTHER DEFINITIONS.
Term Defined in Section "Affiliate Transaction" ................... 4.11 "Asset Sale Offer" ........................ 4.10 "Beneficial Owners" ....................... 2.02 "Case" .................................... 6.01 "Change of Control Offer" ................. 4.14 "Change of Control Payment" ............... 4.14 "Change of Control Payment Date" .......... 4.14 "Covenant Defeasance" ..................... 8.03 "Custodian" ............................... 6.01 "Event of Default" ........................ 6.01 "Incur" ................................... 4.09 "Legal Defeasance" ........................ 8.02 "Offer Amount" ............................ 3.09 "Offer Period" ............................ 3.09 "Participant" ............................. 2.02 "Paying Agent" ............................ 2.05 "Payment Default" ......................... 6.01 "Purchase Date" ........................... 3.09 "Registrar" ............................... 2.05 "Restricted Payments" ..................... 4.07 "Securities Depositary" ................... 2.02 "Successor Entity" ........................ 5.01
- 17 - SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "INDENTURE SECURITIES" means the Senior Notes; "INDENTURE SECURITY HOLDER" means a Holder of a Senior Note; "INDENTURE TO BE QUALIFIED" means this Indenture; "INDENTURE TRUSTEE or "INSTITUTIONAL TRUSTEE" means the Trustee; "OBLIGOR" on the Senior Notes means the Company, or any successor obligor upon the Senior Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in the United States; (3) references to "generally accepted accounting principles" shall mean generally accepted accounting principles in effect in the United States as of the time when and for the period as to which such accounting principles are to be applied; (4) "or" is not exclusive; (5) words in the singular include the plural, and in the plural include the singular; (6) provisions apply to successive events and transactions; and - 18 - (7) the words "he," "his," and "him" refer to both the masculine and feminine gender. ARTICLE 2 THE SENIOR NOTES SECTION 2.01. SERIES AND TERMS OF SENIOR NOTES. At the option of the Company, Senior Notes may be issued under this Indenture in one or more series and in an unlimited amount. All Senior Notes issued under this Indenture and any sums which may be secured by this Indenture shall be secured equally, to the same extent and with the same priority, as the amount initially advanced on the security of this Indenture. Except for the Initial Series Senior Notes, which are created hereby, each series of Senior Notes shall be created and established in a Supplemental Indenture which shall designate the title of such series of Senior Notes, any maximum aggregate principal amount of Senior Notes of such series which may be authenticated and delivered upon the original issuance or issuances of such Senior Notes, and the currency or currencies, including composite currencies, in which payment of the principal of and interest, if any, on such Senior Notes shall be payable if other than in Dollars. The Supplemental Indenture which creates and establishes a series of Senior Notes, or a Company Order pursuant to such Supplemental Indenture, shall specify the form of Senior Notes of such series (and, if applicable, any coupons) and any and all of the terms of such Senior Notes or the method of determining such terms, which terms may include, but are not limited to: (i) the principal amount of such Senior Notes to be authenticated and delivered upon their original issuance at any particular time; (ii) the date on which such Senior Notes are to be issued, and the date from which interest, if any, will accrue on such Senior Notes; (iii) the rate of interest, if any, which shall be borne by such Senior Notes and, if such interest rate is not a fixed rate, the formula for determining such interest rate from time to time; (iv) the interest payment dates, if any, with respect to such Senior Notes; (v) the record dates for the payment of interest on any interest payment dates with respect to such Senior Notes; - 19 - (vi) the date or dates on which principal of such Senior Notes is payable; (vii) the place or places where (A) the principal of and interest, if any, on such Senior Notes shall be payable upon presentation thereof, (B) such Senior Notes may be surrendered for registration of transfer, (C) such Senior Notes may be surrendered for exchange, and (D) notices and demands to or upon the Company in respect of such Senior Notes and this Indenture may be served, if different than as provided in Section 10.02; (viii) the means, which may include mail, for the payment of principal of and interest, if any, on such Senior Notes; (ix) if such Senior Notes may be established in book entry or certificate form; (x) the period or periods within which, the price or prices at which and the terms and conditions upon which such Senior Notes may be redeemed, in whole or in part, at the option of the Company; (xi) the obligation, if any, of the Company to redeem or repurchase such Senior Notes pursuant to any sinking, improvement, maintenance, replacement or analogous fund or at the option of a holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which such Senior Notes shall be redeemed or repurchased, in whole or in part, pursuant to such obligation; (xii) if the principal of or interest, if any, on such Senior Notes, are to be payable, at the election of the Company or a Holder of such Senior Notes, in a coin or currency other than that in which such Senior Notes are stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made; (xiii) if the principal of or interest, if any, on such Senior Notes are to be payable, or are to be payable at the election of the Company or a Holder of such Senior Notes, in securities or other property, the type and amount of such securities or other property, or the method by which such amount shall be determined, and the period or periods within which, and the terms and conditions upon which, any election may be made; (xiv) if the amount of payments of principal of or interest, if any, on such Senior Notes may be determined with reference to an index or other fact or event ascertainable outside of this Indenture, the manner in which such amounts shall be determined; (xv) if other than the principal amount of such Senior Notes, the portion of such principal amount of such Senior Notes which shall be payable upon a declaration that the principal of such Senior Notes is due and payable immediately pursuant to Section 6.02; - 20 - (xvi) the terms, if any, pursuant to which such Senior Notes may be converted into or exchanged for shares of Capital Stock or other securities of the Company or of any other Person; (xvii) the obligations or instruments, if any, which shall be considered to be eligible obligations in respect of such Senior Notes if they are denominated in a composite currency or in a currency other than Dollars; (xviii) if a service charge will be made for the registration of transfer or exchange of such Senior Notes the amount or terms thereof; and (xix) any variation in the definition of Business Day with respect to such Senior Notes. The Senior Notes and coupons of any one or more series may be expressed in one or more foreign languages, if also expressed in the English language, and the English text shall govern the construction thereof and both or all texts shall constitute only a single obligation. The English text of Senior Notes and the authentication certificate of the Trustee shall be in the forms set forth in the Supplemental Indenture creating and establishing such series of Senior Notes or in a Company Order pursuant to such Supplemental Indenture. With respect to Senior Notes of a series subject to a periodic offering, the Supplemental Indenture which creates and establishes such series or a Company Order pursuant to such Supplemental Indenture may provide general terms or parameters for Senior Notes of such series and provide either that the specific terms of particular Senior Notes of such series shall be specified in a Company Order or that such terms shall be determined by the Company or its agents in accordance with specified procedures, acceptable to the Trustee, by which such terms are to be established (which procedures may provide for authentication and delivery pursuant to oral or electronic instructions from the Company or any agent or agents thereof, which oral instructions are to be promptly confirmed electronically or in writing). SECTION 2.02. TERMS OF INITIAL SERIES SENIOR NOTES. There are hereby created and established eight series of Senior Notes to be issued pursuant to this Indenture, having the respective series designations, maturity dates and maximum aggregate principal amounts (subject to Section 2.07 of the Indenture) as follows: - 21 -
Maximum Principal Amount Series Designation Maturity Date or Principal Amount at Maturity - - ------------------ ----------------- ------------------------------- __% Series A Senior Notes July 1, 1999 $300,000,000 __% Series B Senior Notes October 1, 2000 $450,000,000 __% Series C Senior Notes July 1, 2001 $400,000,000 __% Series D Senior Notes October 1, 2002 $400,000,000 __% Series E Senior Notes July 1, 2003 $400,000,000 __% Series F Senior Notes October 1, 2005 $400,000,000 __% Series G Senior Notes October 1, 2008 $600,000,000 __% Senior Discount Notes July 1, 2010 $500,000,000
The Initial Series Senior Notes shall have the following terms: (1) The Series A through G Senior Notes shall bear interest at the rate per annum set forth in their respective titles, from the date of their initial issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest on the Series A through G Senior Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of their initial issuance. The interest payment dates for the Series A, C and E Senior Notes shall be January 1 and July 1 in each year, commencing January 1, 1999. The interest payment dates for the Series B, D, F and G Senior Notes shall be April 1 and October 1 in each year, commencing October 1, 1998. The regular record dates for the interest payable on any interest payment date for the Series A, C and E Senior Notes shall be the December 15 and June 15 next preceding such January 1 or July 1, as the case may be. The regular record dates for the interest payable on any interest payment date for the Series B, D, F and G Senior Notes shall be the March 15 and September 15 next preceding such April 1 or October 1, as the case may be. (2) The Senior Discount Notes will be issued at a discount from their principal amount at maturity. Until July 1, 2003, no interest will accrue on the Senior Discount Notes, but the Accreted Value will increase (representing amortization of original issue discount) between the date of initial issuance and July 1, 2003, on a semi-annual bond equivalent basis using a 360-day year comprised of twelve 30-day months, such that the Accreted Value shall be equal to the full principal amount at maturity of the Senior Discount Notes on July 1, 2003. Thereafter, interest on the Senior Discount Notes will accrue at the rate of ___% per annum and will be payable in cash semi-annually in arrears on January 1 and July 1, commencing on January 1, 2004, to holders of record on the immediately preceding June 15 and December 15. Interest on the Senior Discount Notes will accrue from the most recent to which interest has been paid or, if no interest has been paid, from July 1, 2003. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. - 22 - (3) The Initial Series Senior Notes are subject to redemption and repurchase by the Company in accordance with the terms of Article 3 hereof. (4) The Initial Series Senior Notes are entitled to the protections of the covenants contained in Articles 4 and 5 hereof and are subject to the provisions pertaining to Events of Default contained in Article 6 hereof. (5) The Initial Series Senior Notes shall be issuable in fully registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000 in excess thereof. The Initial Series Senior Notes shall be numbered RA-1, RB-1, RC-1, RD-1, RE-1, RF-1, RG-1, RDN-1 consecutively upwards, with the second capital letter (or the second and third capital letters in the case of the Senior Discount Notes) of such number corresponding to the applicable series of Senior Notes. (6) The Initial Series Senior Notes shall be dated as described in Section 2.03 of the Indenture, except that Initial Series Senior Notes first issued shall be dated as of the Initial Issuance Date. (7) Payment of principal of and interest on the Initial Series Senior Notes will be made in Dollars. Payment of principal of the Initial Series Senior Notes will be made upon surrender thereof at the office or agency of the Company maintained for that purpose in the City and State of New York, and principal and interest may be paid by check mailed to the address of the Holder as such address shall appear in the records of the Registrar as of the applicable record date or upon written request made prior to the applicable record date by a Holder of Initial Series Senior Notes in an aggregate principal amount in excess of $5,000,000, payments in respect of such Senior Notes shall be made by wire transfer; PROVIDED, FURTHER, that in the case of redemption or repurchase the Company may designate such other offices or agencies at which Initial Series Senior Notes subject to such redemption or repurchase may be surrendered for payment. (8) The Trustee and the Company may from time to time enter into, and discontinue, an agreement with a clearing agency (the "SECURITIES DEPOSITORY") registered under Section 17A of the Exchange Act, which is the registered owner of all of the Senior Notes of a series, to establish procedures with respect to the Senior Notes of such series not inconsistent with the provisions of the Indenture; PROVIDED, HOWEVER, that any such agreement may provide: (i) that the Senior Notes of such series may be represented by one or more global certificates; (ii) that such Securities Depository is not required to present a Senior Note of such series to the Trustee in order to receive a partial payment of principal; -23- (iii) that a legend referring to such agreement shall appear on each Senior Note of such series so long as the Senior Notes of such series are subject to such agreement; and (iv) that provisions for notice to such Securities Depository which are different from notice provisions in the Indenture, may be set forth therein. Neither the Company nor the Trustee will have any responsibility or obligation to any Securities Depository, to any direct or indirect participant (a "PARTICIPANT") in the book entry system of any Securities Depository, or to the purchasers (the "BENEFICIAL OWNERS") of an interest in the Senior Notes of such series from a Participant with respect to (A) the accuracy of any records maintained by the Securities Depository or by any Participant; (B) the payment by the Securities Depository or by any Participant of any amount due to any Beneficial Owner in respect of the principal amount or redemption price of, or interest on, any Senior Notes of such series; (C) the delivery of any notice by the Securities Depository or any Participant; (D) the selection of the Beneficial Owners to receive payment in the event of any partial redemption of the Senior Notes of such series; or (E) any other action taken by the Securities Depository or any Participant. SECTION 2.03. FORM AND DATING. The Senior Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A through Exhibit H hereto (which shall be a part of this Indenture) in respect of the Initial Series Senior Notes, or as specifically provided in the Supplemental Indenture that creates any other series of Senior Notes or in a Company Order pursuant to such Supplemental Indenture. The Senior Notes may have notations, legends or endorsements approved as to form by the Company and required by law, stock exchange rules and agreements to which the Company is subject or usage. Each Senior Note shall be dated the date of its authentication, unless otherwise specifically provided herein or in the Supplemental Indenture that creates a series of Senior Notes or in a Company Order pursuant to such Supplemental Indenture. The Senior Notes shall be issuable only in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Senior Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture and of any Supplemental Indenture creating any series of Senior Notes, expressly agree to such terms and provisions and to be bound thereby. SECTION 2.04. EXECUTION AND AUTHENTICATION. Two Officers of the Company shall sign the Senior Notes for the Company by manual or facsimile signature. If an Officer of the Company whose signature is on a Senior Note no longer holds that office at the time a Senior Note is authenticated, the Senior Note shall nevertheless be valid. -24- A Senior Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Senior Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers of the Company, authenticate Senior Notes for original issue up to the aggregate principal amount stated in paragraph 3 of the Initial Series Senior Notes, or as specifically provided in the Supplemental Indenture that creates any other series of Senior Notes or in a Company Order pursuant to such Supplemental Indenture. The aggregate principal amount of Senior Notes outstanding at any time may not exceed such amount except as provided in Section 2.09 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Senior Notes. An authenticating agent may authenticate Senior Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company. SECTION 2.05. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Senior Notes may be presented for registration of transfer or for exchange ("REGISTRAR") and an office or agency where Senior Notes may be presented for payment ("PAYING AGENT"). The Registrar shall keep a register of the Senior Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without prior notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company may act as Paying Agent or Registrar. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and agent for service of notices and demands in connection with the Senior Notes. SECTION 2.06. PAYING AGENT AND TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee or the Company itself to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of, or premium, if any, on the Senior Notes, and will notify the Trustee in writing of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held -25- by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money delivered to the Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Senior Notes. SECTION 2.07. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Senior Notes, including the aggregate principal amount of Senior Notes held by each thereof. SECTION 2.08. TRANSFER AND EXCHANGE. When Senior Notes are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Senior Notes of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met; PROVIDED, HOWEVER, that any Senior Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall issue and the Trustee shall authenticate Senior Notes at the Registrar's request, subject to such rules as the Trustee may reasonably require. Neither the Company nor the Registrar shall be required (i) to issue, register the transfer of or exchange Senior Notes during a period beginning at the opening of business on a Business Day 15 days before the day of any selection of Senior Notes for redemption under Section 3.02 and ending at the close of business on the day of selection, (ii) to register the transfer of or exchange any Senior Note so selected for redemption in whole or in part, being redeemed in part or (iii) to register the transfer or exchange of a Senior Note between the record date and the next succeeding interest payment date. No service charge shall be made to any Holder of a Senior Note for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.12, 3.06, or 9.05 hereof, which shall be paid by the Company). -26- Prior to due presentment to the Trustee for registration of the transfer of any Senior Note, the Trustee, any Agent or the Company may deem and treat the Person in whose name any Senior Note is registered as the absolute owner of such Senior Note for the purpose of receiving payment of principal of, or premium, if any, on such Senior Note and for all other purposes whatsoever, whether or not such Senior Note is overdue, and neither the Trustee, any Agent or the Company shall be affected by notice to the contrary. SECTION 2.09. REPLACEMENT SENIOR NOTES. If any mutilated Senior Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Senior Note, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Senior Note if the Trustee's requirements for replacements of Senior Notes are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Senior Note is replaced. The Company may charge for its expenses in replacing a Senior Note. Every replacement Senior Note shall constitute a valid obligation of the Company and shall evidence the same debt as the Senior Note for which it is a replacement. SECTION 2.10. OUTSTANDING SENIOR NOTES. The Senior Notes outstanding at any time are all the Senior Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Except as set forth in Section 2.11 hereof, a Senior Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Senior Note. If a Senior Note is replaced pursuant to Section 2.09 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Senior Note is held by a bona fide purchaser. If the principal amount of any Senior Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. SECTION 2.11. TREASURY SENIOR NOTES. In determining whether the Holders of the required principal amount of Senior Notes have concurred in any direction, waiver or consent, Senior Notes owned by the Company, any Subsidiary of the Company or any Affiliate of the Company shall be considered as though not -27- outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Senior Notes that a Trustee knows are so owned shall be so considered. Notwithstanding the foregoing, Senior Notes that are to be acquired by the Company, any Subsidiary of the Company or any Affiliate of the Company pursuant to an exchange offer, tender offer or other agreement shall not be deemed to be owned by the Company, a Subsidiary of the Company or an Affiliate of the Company until legal title to such Senior Notes passes to the Company, such Subsidiary or such Affiliate, as the case may be. SECTION 2.12. TEMPORARY SENIOR NOTES. Until definitive Senior Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Senior Notes upon a written order of the Company signed by two Officers. Temporary Senior Notes shall be substantially in the form of definitive Senior Notes but may have variations that the Company considers appropriate for temporary Senior Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee, upon a written order of the Company signed by two Officers of the Company, shall authenticate definitive Senior Notes in exchange for temporary Senior Notes. Holders of temporary Senior Notes shall be entitled to all of the benefits of this Indenture. SECTION 2.13. CANCELLATION. The Company at any time may deliver Senior Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Senior Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Senior Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Senior Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Senior Notes shall be delivered to the Company. The Company may not issue new Senior Notes to replace Senior Notes that they have paid or that have been delivered to the Trustee for cancellation. SECTION 2.14. RECORD DATE. The record date for purposes of determining the identity of Holders of the Senior Notes entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA Section 316(c). SECTION 2.15. CUSIP NUMBER. The Company in issuing the Senior Notes may use a "CUSIP" number and, if it does so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; PROVIDED that any such notice may state that no representation is made as to the correctness -28- or accuracy of the CUSIP number printed in the notice or on the Senior Notes and that reliance may be placed only on the other identification numbers printed on the Senior Notes. The Company will promptly notify the Trustee of any change in the CUSIP number. ARTICLE 3. REDEMPTION AND REPURCHASE Section 3.01. CERTAIN SENIOR NOTES REDEEMABLE; NOTICES TO TRUSTEE. Any Outstanding Senior Notes which are, by their terms, redeemable before maturity, at the option of the Company or pursuant to the requirements of this Indenture (or any Supplemental Indenture which created a series of Senior Notes), may be redeemed at such times, in such amounts and at such prices as may be specified therein and in accordance with this Article 3. If the Company elects to redeem any Initial Series Senior Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days (unless shorter notice shall be satisfactory to the Trustee) but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Senior Notes to be redeemed and (iv) the redemption price. The notice periods for redemption of other series of Senior Notes, if different from the foregoing, shall be set forth in the Supplemental Indenture which creates and establishes such series or a Company Order pursuant to such Supplemental Indenture. SECTION 3.02. SELECTION OF SENIOR NOTES TO BE REDEEMED. If less than all of the Outstanding Senior Notes are to be redeemed at any time, the Trustee shall select the Senior Notes to be redeemed among the Holders of the Senior Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Senior Notes are listed or, if the Senior Notes are not so listed, on a PRO RATA basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Senior Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Senior Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Senior Notes selected for redemption and, in the case of any Senior Note selected for partial redemption, the principal amount thereof to be redeemed. Senior Notes and portions of Senior Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Senior Notes of a Holder are to be redeemed, the entire outstanding amount of Senior Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this -29- Indenture that apply to Senior Notes called for redemption also apply to portions of Senior Notes called for redemption. In the event the Issuers are required to make an offer to redeem Senior Notes pursuant to Sections 3.09 and 4.10 hereof and the amount of the Net Proceeds from the Sale of Assets is not evenly divisible by $1,000, the Trustee shall promptly refund to the Company at the address set forth in Section 10.02 hereof of any remaining Net Proceeds. SECTION 3.03. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Senior Notes are to be redeemed at its registered address. The notice shall identify the Senior Notes to be redeemed and shall state: i. the redemption date; ii. the redemption price; iii. if any Senior Note is being redeemed in part, the portion of the principal amount of such Senior Note to be redeemed and that, after the redemption date, upon surrender of such Senior Note, a new Senior Note or Senior Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Senior Note; iv. the name and address of the Paying Agent; v. that Senior Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; vi. that, unless the Company defaults in making such redemption payment, interest on Senior Notes called for redemption ceases to accrue on and after the redemption date; vii. the paragraph of the Senior Notes and/or Section of this Indenture and/or of the Supplemental Indenture which created the series of Senior Notes pursuant to which the Senior Notes called for redemption are being redeemed; and viii. that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Senior Notes. -30- At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense; PROVIDED, HOWEVER, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Senior Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Senior Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Senior Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Senior Notes or the portions of Senior Notes called for redemption, whether or not such Senior Notes are presented for payment. If a Senior Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Senior Note was registered at the close of business on such record date. If any Senior Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Senior Notes and in Section 4.01 hereof. SECTION 3.06. SENIOR NOTES REDEEMED IN PART. Upon surrender of a Senior Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Senior Note equal in principal amount to the unredeemed portion of the Senior Note surrendered. -31- SECTION 3.07. OPTIONAL AND SPECIAL REDEMPTION OF INITIAL SERIES SENIOR NOTES. (a) Except as provided in subparagraphs (b), (c) and (d) below, the Initial Series Senior Notes may not be redeemed at the option of the Company prior to maturity. (b) The Series A through G Senior Notes are redeemable by the Company at any time, in whole or in part, upon not less than 30 nor more than 60 days' notice, in cash at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest through the redemption date plus the Make-Whole Premium. (c) The Company shall have the option to redeem the Senior Discount Notes prior to July 1, 2003 at any time, in whole or in part, upon not less than 30 nor more than 60 days' notice, in cash at a redemption price equal to 100% of the Accreted Value thereof plus the Make-Whole Premium. On and after July 1, 2003, the Company shall have the option to redeem the Senior Discount Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, in cash at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on July 1 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2003 % 2004 % 2005 % 2006 and thereafter 100.0%
(d) Notwithstanding the provisions of subparagraph (b) above, the Company may, at its option, by delivering a notice of redemption at any time during the period from April 1, 1999 through December 31, 2000, use all or a portion of the Net Proceeds from any sale or sales of Fossil and Hydro Generating Assets to redeem up to $500,000,000 aggregate principal amount of the Senior Notes in Series B through F at a cash redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, through the date of redemption. The Company shall effect a redemption of Senior Notes pursuant to this provision such that, following such redemption, the percentage of Senior Notes in each of Series B through F that remain outstanding (calculated for each series by dividing the aggregate principal amount of Senior Notes outstanding by the aggregate principal amount of Senior Notes originally issued) is as near to identical as reasonably practicable. Any such redemption must occur within 120 days following the receipt by the Company of the Net Proceeds that are being used to effect the redemption. -32- (e) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. SECTION 3.08. MANDATORY REDEMPTION. Except as set forth under Sections 4.10 and 4.15 hereof, the Company shall not be required to make mandatory repurchase, redemption or sinking fund payments with respect to the Initial Series Senior Notes. SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an Asset Sale Offer, it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "OFFER PERIOD"). No later than five Business Days after the termination of the Offer Period (the "PURCHASE DATE"), the Company shall purchase the principal amount (or principal amount at maturity, as the case may be) of Senior Notes required to be purchased pursuant to Section 4.10 hereof (the "OFFER AMOUNT") or, if less than the Offer Amount has been tendered, all Senior Notes tendered in response to the Asset Sale Offer. Payment for any Senior Notes so purchased shall be made in the same manner as interest payments are made. The Company shall comply with any tender offer rules under the Exchange Act which may then be applicable, including Rule 14e-1, in connection with any offer required to be made by the Company to repurchase the Senior Notes as a result of an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 3.09, the Company shall comply with the applicable securities laws or regulations and shall not be deemed to have breached its obligations hereunder by virtue thereof. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Senior Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Senior Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Senior Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: -33- (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Senior Note not tendered or accepted for payment shall continue to accrue interest; (d) that, unless the Company defaults in making such payment, any Senior Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (e) that Holders electing to have a Senior Note purchased pursuant to an Asset Sale Offer may elect only to have all of such Senior Note purchased and may not elect to have only a portion of such Senior Note purchased; (f) that Holders electing to have a Senior Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Senior Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior Note completed, or transfer by book-entry transfer, to the Company, a depositary (if appointed by the Company) or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receive, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Senior Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Senior Note purchased; (h) that, if the aggregate principal amount (or principal amount at maturity, as the case may be) of Senior Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Senior Notes to be purchased on a PRO RATA basis (with such adjustments as may be deemed appropriate by the Company so that only Senior Notes in denominations of US$1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Senior Notes were purchased only in part shall be issued new Senior Notes equal in principal amount to the unpurchased portion of the Senior Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a PRO RATA basis to the extent necessary, the Offer Amount of Senior Notes or portions -34- thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Senior Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Senior Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Senior Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Senior Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Senior Note to such Holder, in a principal amount equal to any unpurchased portion of the Senior Note surrendered. Any Senior Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. No repurchase of Senior Notes under this Section 3.09 shall be deemed to be a redemption of Senior Notes. ARTICLE 4 COVENANTS SECTION 4.01. PAYMENT OF SENIOR NOTES. The Company shall pay or cause to be paid the principal of and premium, if any, and interest on the Senior Notes on the dates and in the manner provided in the Senior Notes. Principal, and premium, if any, shall be considered paid on the date due if the Paying Agent, if other than the Company, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, and premium, if any, then due. Such Paying Agent shall return to the Company, no later than five Business Days following the date of payment, any money (including accrued interest) that exceeds such amount of principal of, premium, if any, and interest required to be paid on the Senior Notes. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, at the rate equal to 1% per annum in excess of the then applicable interest rate on the Senior Notes to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Senior Notes may be surrendered for registration of transfer or for exchange and -35- where notices and demands to or upon the Company in respect of the Senior Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Senior Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligations to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.05. SECTION 4.03. REPORTS. The Company shall file with the Trustee, within 15 days of filing them with the SEC, copies of the current, quarterly and annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall nevertheless file with the SEC and the Trustee, on the date upon which it would have been required to file with the SEC, financial statements, including any notes thereto (and with respect to annual reports, an auditor's report by a firm of established national reputation, upon which the Trustee may conclusively rely), and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," both comparable to that which the Company would have been required to include in such annual reports, information, documents or other reports on Forms 8-K, 10-Q and 10-K if the Company were subject to the requirements of Section 13 or 15(d) of the Exchange Act; PROVIDED, HOWEVER, that the Company shall not be required to register under the Exchange Act by virtue of this provision, if it were not otherwise required to do so. SECTION 4.04. COMPLIANCE CERTIFICATE. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Restricted Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company and its Restricted Subsidiaries have -36- kept, observed, performed and fulfilled their obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of the Senior Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Chartered Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company have violated any of the financial provisions of Sections 4.01, 4.07, 4.09 and 4.12 or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Senior Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05. TAXES. The Company shall pay, and shall cause each of its Restricted Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Senior Notes. SECTION 4.06. STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the -37- Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.07. RESTRICTED PAYMENTS. Prior to the Investment Grade Date, the Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make any cash dividend or other distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests, including, without limitation, any payment in connection with any merger or consolidation involving the Company (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or any portion of a dividend or distribution by a Restricted Subsidiary of the Company that is payable to the Company or to any Wholly-Owned Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value from any Person other than the Company or a Wholly-Owned Restricted Subsidiary any Equity Interests of the Company, any of its Subsidiaries or any direct or indirect parent of the Company (other than the conversion or exchange of Equity Interests of the Company for other Equity Interests of the Company); or (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness, except at final maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving effect to such Restricted Payments: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) except in the case of any Restricted Investment, the Company would, at the time of such Restricted Payment, and after giving PRO FORMA effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have a Fixed Charge Coverage Ratio of not less than 1.75 to 1 (calculated pursuant to Section 4.09 below); and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the Initial Issuance Date (excluding Restricted Payments permitted by clauses (iii), (iv), (v), (vi) or (vii) of the next succeeding paragraph), is less than the sum of (i) $50,000,000, PLUS (ii) 25% of an amount equal to the Operating Cash Flow of the Company for the period (taken as one accounting period) from the day after the Initial Issuance Date through the end of the Company's most recently ended fiscal quarter for which financial statements are available at the time of such Restricted Payment (or, if such Operating Cash Flow for such period is a deficit, less 100% of such deficit), PLUS (iii) 100% of the aggregate net cash proceeds received by the Company from the issuance or sale (other than pursuant to or in connection with the IPP Buyout) after the Initial Issuance Date of Equity Interests of the Company or of debt securities of the Company that have been converted into Equity Interests of the Company, PLUS (iv) -38- 100% of the aggregate cash proceeds received by the Company from any payment in respect of any previously made Restricted Investment (but only to the extent that such amount is not reflected in Consolidated Net Income). The foregoing provisions shall not prohibit (i) the payment of dividends, whether paid in kind or in cash, or the satisfaction of mandatory redemption obligations, in respect of any Preferred Stock outstanding on the Initial Issuance Date in accordance with the terms thereof; (ii) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Section 4.07, (iii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, other Equity Interests of the Company; (iv) defeasance, redemption or repurchase of Subordinated Indebtedness with the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of Equity Interests of the Company or from an incurrence of Permitted Refinancing Indebtedness that consists of Subordinated Indebtedness, PROVIDED that the amount of any net cash proceeds that are utilized for any redemption, repurchase, retirement or other acquisition described in clauses (iii) and (iv) shall be excluded from clause (c)(iii) of the first paragraph of this Section 4.07; (v) the repurchase, redemption, or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any member of the Company's (or any of its Restricted Subsidiaries') management or for the purpose of providing Equity Interests for issuance under dividend reinvestment or employee benefits plans of the Company; (vi) any spin-off or other distribution to shareholders of the Generating Assets or the Oswego Plant or any portion thereof or any direct or indirect interest therein; and (vii) any dividend or other distribution of the Capital Stock of any Unrestricted Subsidiary, PROVIDED that in the case of each of clauses (i) and (ii) above, no Default or Event of Default shall have occurred and be continuing immediately after such transaction. Not later than the date of making any Restricted Payment that relies on clause (c) of the first paragraph of this covenant to be permitted, and so long as the limitations contained in such clause apply, the Company shall deliver to the Trustee an Officer's Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by such covenant were computed, which calculations may be based upon the Company's latest available financial statements. SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Restricted Subsidiary to (a) (i) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits or (ii) pay any Indebtedness -39- owed to the Company or any of its Restricted Subsidiaries, (b) make loans or advances to the Company or any of its Restricted Subsidiaries or (c) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) the First Mortgage Bonds, the Credit Facility, the Receivables Financing, the Pollution Control Obligations, the Securitization Transaction, the Indenture and the Senior Notes; (ii) applicable law or regulation; (iii) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; (iv) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practice; (v) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (c) above in the property so acquired; (vi) any contract for the sale of 100% of the Capital Stock of a Restricted Subsidiary; or (vii) Permitted Refinancing Indebtedness, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. SECTION 4.09. INCURRENCE OF INDEBTEDNESS. Prior to the Investment Grade Date, the Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "INCUR"), any Indebtedness (including Acquired Debt) or issue any Disqualified Stock; PROVIDED, HOWEVER, that the Company and any of its Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) and issue Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which financial statements are available immediately preceding the date on which such Indebtedness is incurred or Disqualified Stock is issued would have been at least 3.25 to 1, determined on a PRO FORMA basis (including a PRO FORMA application of the net proceeds therefrom), as if such Indebtedness had been incurred or such Disqualified Stock had been issued at the beginning of such four-quarter period. The foregoing provisions will not apply to (i) Permitted Refinancing Indebtedness; (ii) the incurrence by the Company of any amount of Subordinated Indebtedness if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which financial statements are available immediately preceding the date on which such Subordinated Indebtedness is incurred would have been at least 1.75 to 1 (determined as in the immediately preceding paragraph); (iii) Permitted Hedging Agreements; (iv) borrowings under the Credit Facility in an amount not to exceed $804.4 million; and (v) intercompany Indebtedness between and among the Company and any of its Restricted Subsidiaries (except in a TIPES Transaction); PROVIDED, HOWEVER, that (A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by 40 a Person other than a Restricted Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be. SECTION 4.10. PROCEEDS OF CERTAIN ASSET SALES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, engage in a (A) Permitted Asset Swap unless the Company or Restricted Subsidiary receives property or assets with a Fair Value at least equal to the Fair Value of the property or assets swapped or (B) Sale of Assets unless (i) the Company (or the applicable Restricted Subsidiary, as the case may be) receives consideration at the time of such Sale of Assets at least equal to the Fair Value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets of Equity Interests issued or sold or otherwise disposed of and (ii) except in connection with a sale of Fossil and Generating Assets or the Oswego Plant, at least 75% of the consideration received therefor by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents; PROVIDED that if in the case of the sale of any Fossil and Generating Asset pursuant to the PowerChoice Agreement, the Board of Directors determines in good faith that the Company will receive the highest price by accepting a bid with consideration consisting of less than 75% cash or Cash Equivalents, and the PSC approves the Company's acceptance of such bid, then the Company may accept such bid, and PROVIDED FURTHER, that in the case of any Sale of Assets (except a Securitization Transaction) that is consummated after the Investment Grade Date, the requirement of clause (ii) shall not apply. For purposes of determining the Company's compliance with the requirements of the immediately preceding sentence, the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet), of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Senior Notes) that are assumed by the transferee of any such assets pursuant to a customary novation agreement or that otherwise releases the Company or such Restricted Subsidiary from further liability and (y) any notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash shall be deemed to be cash for purposes of this provision (to the extent of the cash received). Within 180 days after the receipt of any Net Proceeds from a Securitization Transaction or a Sale of Assets consisting of Generating Assets, or within 360 days after the receipt of any Net Proceeds from any other Sale of Assets that is consummated prior to the Investment Grade Date, the Company shall (a) in the case of a Securitization Transaction, apply the cash portion of such Net Proceeds in accordance with the relevant statutory or regulatory requirements that govern such transaction or, if there are no such requirements, to reduce Senior Indebtedness, (b) in the case of a sale or other disposition of Generating Assets or the Oswego Plant, use not less than 85% (or 100% if the accepted bid requires less than 75% of the purchase price to be paid in cash or Cash Equivalents) of the cash portion of such Net Proceeds to reduce Senior Indebtedness, and (c) in the case of any 41 other Sale of Assets that is consummated prior to the Investment Grade Date, use 100% of such Net Proceeds for one or more of the following: (i) to reduce Senior Indebtedness, (ii) to reinvest, or enter into an agreement with respect to the reinvestment of, such Net Proceeds in Related Assets, or (iii) make an offer to all Holders of Senior Notes (an "ASSET SALE OFFER") to purchase the maximum principal amount of Senior Notes that may be purchased out of such Net Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof (in the case of the Series A through G Notes) or 100% of the principal amount at maturity of the Senior Discount Notes (if such purchase occurs on or after July 1, 2003) or 100% of the Accreted Value of the Senior Discount Notes (if such repurchase occurs prior to July 1, 2003) plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of Senior Notes tendered pursuant to an Asset Sale Offer is less than the amount of such Net Proceeds, the Company may use any remaining Net Proceeds for general corporate purposes. If the aggregate principal amount of Senior Notes surrendered by Holders thereof exceeds the amount of such Net Proceeds, the Trustee shall select the Senior Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Net Proceeds shall be reset at zero. Pending the final application of any such Net Proceeds, the Company may otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. SECTION 4.11. TRANSACTION WITH AFFILIATES. The Company shall not, and shall not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of their properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or Subsidiary with an unrelated Person; and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $50.0 million, an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction from a financial point of view issued by a nationally recognized expert in evaluating such transactions; PROVIDED that (v) any employment agreement entered into by the Company or its Subsidiaries in the ordinary course of business; (w) commercial transactions in the ordinary course of the utility business between or among the Company and/or its Restricted Subsidiaries; (x) Restricted Payments that are permitted by Section 4.07; (y) agreements or transactions entered into in connection with a Securitization Transaction or the Receivables Financing and (z) following any holding company reorganization, transactions between 42 the Company and its Restricted Subsidiaries and the Company's parent that are on terms permitted by the PSC, in each case, shall not be deemed Affiliate Transactions. SECTION 4.12. LIENS. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, secure with a Lien on the property or assets of the Company or such Restricted Subsidiary, Other Indebtedness or Subordinated Indebtedness without making, or causing such Restricted Subsidiary to make, effective provision for securing the Senior Notes (i) in the case of a Lien securing Other Indebtedness, on an equal and ratable basis with the Lien securing such Other Indebtedness and (ii) in the case of a Lien securing Subordinated Indebtedness, on a basis such that the Lien securing the Senior Notes is senior in priority to the Lien securing such Subordinated Indebtedness, in each case until such time as such Other Indebtedness or Subordinated Indebtedness is no longer secured by a Lien. SECTION 4.13. CORPORATE EXISTENCE. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Restricted Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Senior Notes. SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL TRIGGERING EVENT. (a) Upon the occurrence of a Change of Control Triggering Event, each Holder of Senior Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Senior Notes pursuant to the offer described below (the "CHANGE OF CONTROL OFFER") at an offer price in cash equal to (a) 101% of the aggregate principal amount thereof in the case of the Series A through G Senior Notes, (b) 101% of the principal amount at maturity of the Senior Discount Notes (if such repurchase occurs on or after July 1, 2003) or (c) 101% of the Accreted Value of the Senior Discount Notes (if such repurchase occurs prior to July 1, 2003), plus accrued and unpaid interest thereon, if any, to the date of purchase (the "CHANGE OF CONTROL PAYMENT"). Within thirty days following any Change of Control Triggering Event, the Company shall mail a notice to each Holder describing the transaction or transactions that constitute 43 the Change of Control Triggering Event and offering to repurchase Senior Notes pursuant to the procedures described in this Section and described in such notice. The notice will state: (1) that the Change of Control Offer is being made pursuant to this Section 4.14 and that all Senior Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be at least 30 but not more than 60 days from the date such notice is mailed (the "CHANGE OF CONTROL PAYMENT DATE"); (3) that any Senior Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Senior Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Senior Notes purchased pursuant to a Change of Control Offer will be required to surrender the Senior Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Senior Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Senior Notes purchased; and (7) that Holders whose Senior Notes are being purchased only in part will be issued new Senior Notes equal in principal amount (or principal amount at maturity, as the case may be) to the unpurchased portion of the Senior Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Senior Notes as a result of a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Senior Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Senior Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Senior Notes so accepted together with an Officers' Certificate stating the aggregate principal amount (or principal amount at maturity, as the case may be) of Senior Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Senior Notes so tendered the Change of Control Payment for such Senior Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Senior Note equal in principal amount (or principal amount at maturity, as the case may be) to any unpurchased portion of the Senior Notes surrendered, if any; PROVIDED that each such new Senior Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. 44 (c) The Company shall not be required to make a Change of Control Offer upon a Change of Control Triggering Event if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in Sections 4.14(a) and 4.14(b) hereof and purchases all Senior Notes validly tendered and not withdrawn under such Change of Control Offer. SECTION 4.15. PAYMENTS FOR CONSENTS. Neither the Company nor any of its Subsidiaries may, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Senior Note of any series for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or such Senior Notes unless such consideration is offered to be paid or agreed to be paid to all Holders of the Senior Notes of that series that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. ARTICLE 5 SUCCESSORS SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS. So long as the Senior Notes are outstanding, the Company may not, directly or indirectly, consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all its assets in one or more related transactions, to another Person unless (i) the corporation formed by such consolidation or surviving in such merger or the Person that acquires by sale, assignment, transfer, conveyance or other disposition, or that leases, such assets (in each such case, the "SUCCESSOR ENTITY"), is a corporation organized and existing under the laws of the United States, any State thereof or the District of Columbia and expressly assumes the Company's obligations under the Indenture and the Notes; (ii) immediately before and after such transaction no Default or Event of Default exists; and (iii) the Successor Entity (or the Company, in the case of a consolidation or merger in which the Company is the surviving entity) (A) has Consolidated Net Worth immediately after the transaction (but prior to any revaluation or recalculation of Consolidated Net Worth as of the date of the transaction relating to a carry-over basis (if any) of the assets acquired in the transaction (as determined in accordance with GAAP)) equal to or greater than the Consolidated Net Worth of the Company immediately prior to the transaction and (B) will, at the time of such transaction and after giving PRO FORMA effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, have a Fixed Charge Coverage Ratio of not less than 1.75 to 1 (calculated pursuant to Section 4.09 above); PROVIDED that the limitations set forth in this clause (iii) shall not apply following the Investment Grade Date or to any merger or consolidation of the Company with or into a Restricted Subsidiary and PROVIDED FURTHER, that the limitations set forth above shall not apply to the sale or disposition by the 45 Company of the Generating Assets or the Oswego Plant (it being understood and agreed that the acquiror or transferee of such assets shall not qualify as a Successor Entity on the basis of having acquired all or substantially all of the Company's assets for purposes of this Article 5). SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation, amalgamation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or amalgamation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, amalgamation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "COMPANY" shall refer instead to the successor corporation), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; PROVIDED, HOWEVER, that the predecessor Company shall not be relieved from the obligation to pay the principal of, and premium, if any, on the Senior Notes except in the case of a transaction that meets the requirements of Section 5.01 hereof. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. Each of the following constitutes an "EVENT OF DEFAULT": (i) default by the Company for 60 days in the payment when due of interest on the Senior Notes; (ii) default by the Company in the payment when due of the principal of, or premium, if any, on the Senior Notes; (iii) failure by the Company to comply with Sections 4.07, 4.09 or 5.01 hereof; (iv) failure by the Company for 60 days after written notice to the Company by the Trustee, or written notice to the Company and the Trustee by the Holders of 25% or more in an aggregate principal amount (or principal amount at maturity, as the case may be) of the Senior Notes, to comply with any of its agreements in the Indenture or the Senior Notes; 46 (v) default by the Company under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created after the date hereof, which default (a) is caused by a failure to pay the principal of such Indebtedness at the stated maturity of such Indebtedness after the expiration of the grace period provided in such Indebtedness (a "PAYMENT DEFAULT") or (b) results in the acceleration of such Indebtedness prior to its stated maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $50.0 million or more; (vi) failure by the Company or any of its Restricted Subsidiaries to pay a final judgment or final judgments not otherwise covered by insurance for the payment of money entered by a court or courts of competent jurisdiction against the Company or any of its Subsidiaries and such judgment or judgments are not paid, discharged or stayed for a period of 60 days, PROVIDED that the aggregate of all such undischarged judgments exceeds $50.0 million; (vii) the Company or any of its Significant Subsidiaries pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary Case, (b) consents to the entry of an order for relief against it in an involuntary Case, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, or (e) generally is not paying its debts as they become due; or (viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any of its Significant Subsidiaries in an involuntary Case; 47 (b) appoints a Custodian of the Company or any of its Significant Subsidiaries or for all or substantially all of the property of the Company or any of its Significant Subsidiaries; or (c) orders the liquidation of the Company or any of its Significant Subsidiary; and, in each case, the order or decree remains unstayed and in effect for 60 consecutive days. The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. The term "CASE" means an application, petition, action, case or other proceeding (including the filing of a notice of intention to file a proposal) before any court, tribunal or other governmental authority under any applicable Bankruptcy Law (foreign or domestic). In the case of any Event of Default pursuant to the provisions of this Section 6.01 occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Senior Notes pursuant to Sections 3.07 or 4.14 hereof, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Senior Notes, anything in this Indenture or in the Senior Notes to the contrary notwithstanding. SECTION 6.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (vii) or (viii) of Section 6.01 hereof with respect to the Company or any Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount (or principal amount at maturity, as the case may be) of the then outstanding Senior Notes of any series affected by an Event of Default may declare all the Senior Notes of such Series to be due and payable immediately. Upon any such declaration, the Senior Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (vii) or (viii) of Section 6.01 hereof occurs with respect to the Company or any of its Significant Subsidiaries, all outstanding Senior Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount (or principal amount at maturity, as the case may be) of the then outstanding Senior Notes of any series affected by an Event of Default by written notice to the Trustee may on behalf of all of the Holders of such series rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. Except as provided in Section 6.01 hereof, in the event of any such acceleration of Senior Notes, the Company will become obligated to pay the aggregate principal amount and accrued interest (or Accreted Value on the Senior Discount Notes if prior to July 1, 2003) of the Senior Notes immediately. 48 SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, and premium, if any, on the Senior Notes or to enforce the performance of any provision of the Senior Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Senior Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Senior Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. Holders of not less than a majority in aggregate principal amount (or principal amount at maturity, as the case may be) of the then outstanding Senior Notes that would be materially adversely affected by such waiver by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of interest on, or the principal of, or premium of, if any, the Senior Notes. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount (or principal amount at maturity, as the case may be) of the then outstanding Senior Notes of any series affected by an Event of Default may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to tile rights of other Holders of Senior Notes or that may involve the Trustee in personal liability. SECTION 6.06. LIMITATION ON SUITS. A Holder of a Senior Note may pursue a remedy with respect to this Indenture or the Senior Notes only if: (a) the Holder of a Senior Note gives to the Trustee written notice of a continuing Event of Default; 49 (b) the Holders of at least 25% in principal amount (or principal amount at maturity, as the case may be) of the then outstanding Senior Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Senior Note or Holders of Senior Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount (or principal amount at maturity, as the case may be) of the then outstanding Senior Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Senior Note may not use this Indenture to prejudice the rights of another Holder of a Senior Note or to obtain a preference or priority over another Holder of a Senior Note. SECTION 6.07. RIGHTS OF HOLDERS OF SENIOR NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Senior Note to receive payment of principal and premium, if any, on the Senior Note, on or after the respective due dates expressed in the Senior Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(i) or (ii) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, and premium, if any, remaining unpaid on the Senior Notes and interest on overdue principal and, to the extent lawful, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Senior Notes allowed in any judicial proceedings relative to the Company (or 50 any other obligor upon the Senior Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Senior Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: FIRST: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection, including the costs of its agents and counsel; SECOND: to Holders of Senior Notes for amounts due and unpaid on the Senior Notes for principal, and premium, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on the Senior Notes for principal, and premium, if any, respectively; and THIRD: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Senior Notes pursuant to this Section 6.10. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party, litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any 51 party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Senior Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Senior Notes. ARTICLE 7 TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the occurrence and continuance of an Event of Default: (i) the Trustee need perform only those duties that are specifically set forth in this Indenture and any Supplemental Indenture; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. 52 (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01 and the requirements of the TIA. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely upon any document (and any facts or matters stated in any document) believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of the Holders unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any 53 of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not assured to it. (h) The Trustee shall have no duty to inquire as to the performance of the Company's covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Sections 6.01(i) or 6.01(ii) hereof; or (ii) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Senior Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Senior Notes, it shall not be accountable for the Company's use of the proceeds from the Senior Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital in this Indenture or any statement in the Senior Notes or any other document in connection with the sale of the Senior Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Senior Notes a notice of the Default or Event of Default within 90 days after it occurs, unless such Default or Event of Default shall have been cured. Except in the case of a Default or Event of Default in payment of principal of, or premium, if any, or interest on any Senior Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Senior Notes. 54 SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE SENIOR NOTES. Within 60 days after each May 15 beginning with the May 15 following the date hereof, and for so long as Senior Notes remain outstanding, the Trustee shall mail to the Holders of the Senior Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if the event described in Section 313(a) of the TIA has occurred within twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). Commencing at the time this Indenture is qualified under the TIA, a copy of each report at the time of its mailing to the Holders of Senior Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Senior Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Senior Notes are listed on any stock exchange. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, advances and expenses incurred by it or made by it in addition to the compensation for its services, including reasonable compensation and the expenses and disbursements of its agents and counsel. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel, whether incurred in disputes between the parties or disputes with third parties or otherwise. The Company shall indemnify the Trustee against any loss, liability or expense incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in the next paragraphs, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company, any Holder or any other Person). The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company or any Person of any liability or obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not reimburse any expense or indemnify against any loss or liability attributed solely to the Trustee's negligence or bad faith. 55 To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Senior Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Senior Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(vii) or (viii) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Trustee may resign and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Senior Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Senior Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount (or principal amount at maturity, as the case may be) of the then outstanding Senior Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. 56 If the Trustee, after written request by any Holder of a Senior Note who has been a Holder of a Senior Note for at least six months, fails to comply with Section 7. 10, such Holder of a Senior Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Senior Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. ELIGIBILITY, DISQUALIFICATION. The final paragraph of this Section shall not be operative as a part of this Indenture until this Indenture is qualified under the TIA and until such qualification this Indenture shall be construed as if said paragraph were not contained herein. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311 (b). A Trustee that has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. 57 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Senior Notes of any series upon compliance with the conditions set forth below in this Article Eight. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Senior Notes of any series on the date the conditions set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Senior Notes of such series, which shall thereafter be deemed to be " outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Senior Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Senior Notes of such series to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, and premium, if any, and interest on such Senior Notes when such payments are due from the funds held by the Trustee in the trust, (b) the Company's obligations with respect to such Senior Notes of such series under Sections 2.06, 2.08, 2.09, 2.12 and 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee under this Indenture and the Company's obligations in connection therewith and (d) the obligations of the Company under this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.14 and Article 5 hereof with respect to the outstanding Senior Notes of any series on and after the date the conditions set forth below are satisfied (hereinafter, "COVENANT DEFEASANCE"), and such Senior Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, 58 waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Senior Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Senior Notes of such series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Senior Notes of such series shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(iii) through 6.01(vii) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Senior Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Senior Notes, cash in Dollars, Government Securities or a combination thereof, in such amounts as will be sufficient, in the opinion of a firm of independent public accountants, nationally recognized in the United States, to pay the principal of, premium, if any, and interest on the outstanding Senior Notes on the stated date for payment thereof or on the applicable redemption date of such Senior Notes, and the Company must specify whether the Senior Notes are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date hereof, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming 59 S&A DRAFT -JUNE 10, 1998 that the Holders of the outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) the Company shall covenant that no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Senior Notes pursuant to this Article Eight concurrently with such incurrence) or insofar as Sections 6.01(vii) and (viii) hereof are concerned, at any time in the period ending on the 91st day after the date of deposit; (e) the Company shall covenant that such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries are parties or by which the Company or any of its Subsidiaries are bound; (f) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Senior Notes over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (g) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for, in the case of the Officers' Certificate, clauses (a) through (f), and, in the case of the Opinion of Counsel, clauses (a) (with respect to the validity and perfection of security interest), (b), (c) and (e), have been complied with. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SENIOR NOTES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "TRUSTEE") pursuant to Section 8.04 hereof in respect of the outstanding Senior Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Senior Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the - 60 - S&A DRAFT -JUNE 10, 1998 Holders of such Senior Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Senior Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT OF COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, or premium, if any, or interest on any Senior Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Senior Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any Dollars or Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Senior Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 - 61 - or 8.03 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company make any payment of principal of, premium, if any, or interest on any Senior Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Senior Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF SENIOR NOTES. Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Senior Notes, and enter into Supplemental Indentures hereto which shall thereafter form a part hereof, without the consent of any Holder of a Senior Note, for any one or more of the following purposes: (a) to cure any ambiguity, defect or inconsistency herein; (b) to secure the Senior Notes on an equal and ratable or senior basis with Other Indebtedness or Subordinated Indebtedness, respectively, as required by Section 4.12 hereof; (c) to establish and create one or more series of Senior Notes (in addition to the Initial Series Senior Notes) and to specify certain terms of such series of Senior Notes, which terms may include, but are not limited to, those set forth in Section 2.01, all in a manner not inconsistent with the provisions of this Indenture; (d) to provide that the Company shall not issue any additional Senior Notes or to add conditions, limitations and restrictions on the Company with respect to any series of Senior Notes under this Indenture; (e) to add additional covenants and agreements of the Company to this Indenture, or to add to the Events of Default specified in Section 6.01 additional Events of Default, or to surrender any right or power herein reserved to or conferred upon the Company pursuant to this Indenture. (f) to provide for alternative methods or forms for evidencing and recording the ownership of Senior Notes; - 62 - S&A DRAFT -JUNE 10, 1998 (g) to provide for the assumption of the Company's obligations to the Holders of the Senior Notes in the case of a merger, amalgamation, consolidation or sale of all or substantially all of the assets pursuant to Article Five hereof; (h) to make any change that would provide any additional rights or benefits to the Holders of the Senior Notes or that does not adversely affect the legal rights hereunder of any Holder of the Senior Notes; (i) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or Supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or Supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS OF SENIOR NOTES. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture, and the Senior Notes, and enter into Supplemental Indentures hereto which shall thereafter form a part hereof, with the consent of the Holders of at least a majority in principal amount (or principal amount at maturity, as the case may be) of the Senior Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount (or principal amount at maturity, as the case may be) of the then outstanding Senior Notes (including consents obtained in connection with a tender offer or exchange offer for the Senior Notes); PROVIDED, HOWEVER, that if there shall be Senior Notes of more than one series outstanding and if the proposed action to be taken will materially adversely affect the rights of holders of Senior Notes of one or more of such series, then the consent (including consents obtained in connection with a tender offer or exchange offer for Senior Notes) only of holders of a majority in aggregate principal amount (or principal amount at maturity, as the case may be) of outstanding Senior Notes of all series so affected, considered as one class, shall be required. - 63 - Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or Supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Senior Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or Supplemental Indenture unless such amended or Supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or Supplemental Indenture. It shall not be necessary for the consent of the Holders of Senior Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Senior Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or Supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Senior Notes then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture, the Senior Notes or any Supplemental Indenture. Subject to Section 9.01(a)(i), however, without the consent of each Holder affected, an amendment, waiver or Supplemental Indenture may not (with respect to any Senior Notes held by a non-consenting Holder): (a) reduce the principal amount (or principal amount at maturity, as the case may be) of Senior Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Senior Note or alter or waive any of the provisions with respect to the redemption of the Senior Notes except as provided above with respect to Sections 3.09, 4.10 and 4.14 hereof; (c) reduce the rate of or change the time for payment of interest on any Senior Note; (d) after the obligation has arisen for the Company to make an offer to purchase following the occurrence of a Change of Control or Sale of Assets, alter the obligation to purchase the Senior Notes in accordance with such offer to purchase or waive any default in the performance thereof; - 64- (e) waive a Default or Event of Default in the payment of principal of, or interest on, the Senior Notes (except a rescission of acceleration of the Senior Notes by the Holders of at least a majority in aggregate principal amount (or principal amount at maturity, as the case may be) of the then outstanding Senior Notes and a waiver of the payment default that resulted from such acceleration); (f) make any Senior Note payable in money other than that stated in the Senior Notes; (g) make any change in the provisions of this Indenture regarding waivers of past Defaults or the rights of Holders of Senior Notes to receive payments of principal of, or interest on, the Senior Notes; (h) waive a redemption payment with respect to any Senior Note (other than a payment required by Sections 4.10 or 4.14 hereof); or (i) make any change in the foregoing amendment and waiver provisions. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Senior Notes shall be set forth in an amended or Supplemental Indenture that complies with the TIA in effect as of the date of amendment or supplement. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Senior Note is a continuing consent by the Holder of a Senior Note and every subsequent Holder of a Senior Note or portion of a Senior Note that evidences the same debt as the consenting Holder's Senior Note, even if notation of the consent is not made on any Senior Note. However, any such Holder of a Senior Note or subsequent Holder of a Senior Note may revoke the consent as to its Senior Note if the Trustee receives written notice of revocation before the date the waiver, Supplemental Indenture or amendment becomes effective. An amendment, Supplemental Indenture or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may fix a record date for determining which Holders of Senior Notes must consent to such Supplemental Indenture, amendment or waiver. If the Company fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders of Senior Notes furnished to the Trustee prior to such solicitation pursuant to Section 2.07, or (ii) such other date as the Company shall designate. - 65 - SECTION 9.05. NOTATION ON OR EXCHANGE OF SENIOR NOTES. The Trustee may place an appropriate notation about an amendment, Supplemental Indenture or waiver on any Senior Note thereafter authenticated. The Company in exchange for all Senior Notes may issue and the Trustee shall authenticate new Senior Notes that reflect the amendment, Supplemental Indenture or waiver. Failure to make the appropriate notation or issue a new Senior Note shall not affect the validity and effect of such amendment, Supplemental Indenture or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or Supplemental Indenture authorized pursuant to this Article Nine if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or Supplemental Indenture until its Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or Supplemental Indenture is authorized or permitted by this Indenture and that all conditions precedent have been complied with. SECTION 9.07. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any Supplemental Indenture under this Article 9 by the Trustee and the Company, this Indenture shall be and shall be deemed to be modified and amended in accordance therewith and such Supplemental Indenture shall be and shall be deemed to be a part of the terms and conditions of this Indenture for all purposes; and every Holder of Senior Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby, except to the extent that the terms of such Supplemental Indenture relate solely to one or more particular series of Senior Notes identified therein. In the event of any inconsistency between the Indenture and the terms of any Supplemental Indenture, the terms of such Supplemental Indenture shall control. ARTICLE 10 MISCELLANEOUS SECTION 10.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties or rights imposed by TIA Section 318(c), the imposed duties or rights shall control. - 66 - SECTION 10.02. NOTICES. Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: Niagara Mohawk Power Corporation 300 Erie Boulevard West Syracuse, New York 13202 Attention: Chief Financial Officer If to the Trustee: IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attention: Corporate Trust The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. - 67 - If the Company mails a notice or communication to Holders, they shall mail a copy to the Trustee and each Agent at the same time. SECTION 10.03. COMMUNICATION BY HOLDERS OF SENIOR NOTES WITH OTHER HOLDERS OF SENIOR NOTES. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Senior Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 10.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 10.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and - 68 - (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied, PROVIDED, HOWEVER, that with respect to matters of fact, an Opinion of Counsel may rely upon an Officer's Certificate or a certificate of a public official. SECTION 10.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 10.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Senior Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Senior Notes. SECTION 10.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE AND THE SENIOR NOTES. SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.10. SUCCESSORS. All agreements of the Company in this Indenture and the Senior Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 10.11. SEVERABILITY. In case any provision in this Indenture or in the Senior Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. - 69 - SECTION 10.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. - 70 - SIGNATURES NIAGARA MOHAWK POWER CORPORATION By:____________________________ Name: Title: Attest: ______________________________ IBJ SCHRODER BANK & TRUST COMPANY Trustee By:_____________________________ Name: Title: Attest: _______________________________ EX-4.(C) 5 EXHIBIT 4(C) - FORM OF NOTES EXHIBIT A FORM OF ___% SERIES A SENIOR NOTE AND TRUSTEE CERTIFICATION OF AUTHENTICATION $300,000,000 __ % Series A Senior Note due 1999 No. $300,000,000 NIAGARA MOHAWK POWER CORPORATION promises to pay to or their registered assigns, the principal sum of ______________________ Dollars ($ ) on July 1, 1999. Interest Payment Dates: January 1 and July 1, commencing January 1, 1999 Record Dates: December 15 and June 15 Dated: _______________ ___, 1998 NIAGARA MOHAWK POWER CORPORATION By:_______________________________ Name: Title: By:_______________________________ Name: Title: This is one of the Senior Notes referred to in the within-mentioned Indenture: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By:______________________________ Authorized Signature (Back of Senior Note) ___% Series A Senior Note due 1999 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Niagara Mohawk Power Corporation, a New York corporation (the "Company") promises to pay interest on the principal amount of this ___% Series A Senior Note due 1999 (the "Senior Note") at the rate and in the manner specified below. The Company shall pay interest on the principal amount of this Senior Note in cash at the rate per annum shown above. The Company shall pay interest semi-annually on each January 1 and July 1, commencing January 1, 1999, or if any such day is not a Business Day (as defined in the Indenture referred to below), on the next succeeding Business Day (each an "Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Senior Note. To the extent lawful, the Company shall pay interest on overdue principal and premium at the rate of 1 % per annum in excess of the then applicable interest rate on this Senior Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. The rates of interest specified in the Indenture and this Senior Note are nominal rates and all interest payments and computations are to be made without allowance or deduction for deemed reinvestment of interest. 2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes to the Persons who are registered Holders of Senior Notes at the close of business on the December 15 and June 15 next preceding the Interest Payment Date, even if such Senior Notes are cancelled after such record date and on or before such Interest Payment Date. The Senior Notes will be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders. Such payment shall be in such payment of public and private debts coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company may act in any such capacity. 1 4. INDENTURE. The Company issued the Senior Notes under an Indenture dated as of June 30, 1998 (the "Indenture") between the Company and the Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Senior Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Senior Notes. The Senior Notes are senior unsecured obligations of the Company limited to $300 million in aggregate. 5. OPTIONAL REDEMPTION. The Senior Notes are redeemable by the Company at any time, in whole or in part, upon not less than 30 nor more than 60 days' prior notice, in cash at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon through the redemption date plus the Make-Whole Premium. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company is not required to make mandatory repurchase, redemption or sinking fund payments with respect to the Senior Notes. 7. CHANGE OF CONTROL OFFER AND ASSET SALE OFFER. (a) If there is a Change of Control Triggering Event, each Holder of Senior Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 in principal amount or an integral multiple thereof) of each Holder's Senior Notes pursuant to the offer described in the Indenture (a "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon the date of purchase. Within 30 days following any Change of Control Triggering Event, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) Under certain circumstances, the Company, following a Sale of Assets, may commence an offer to all Holders of Senior Notes (as "Asset Sale Offer") to purchase Senior Notes with the cash portion of the Net Proceeds of such Sale of Assets at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. (c) In the event of either 7(a) or 7(b), Holders may elect to have all or a portion of their Senior Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 2 8. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered and Senior Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. 9. PERSONS DEEMED LEGAL OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Senior Note, the Trustee, any Agent and the Company may deem and treat the person in whose name this Senior Note is registered as its legal and absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Senior Note and for all other purposes whatsoever, whether or not this Senior Note is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Senior Note may be treated as its legal owner for all purposes. 10. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture and the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Senior Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and, subject to Sections 6.04 and 6.07 of the Indenture, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Senior Notes. Without the consent of any Holder of a Senior Note, the Indenture or the Senior Notes may be amended or supplemented, and the Company and the Trustee may enter into Supplemental Indentures which shall thereafter form a part of the Indenture, to cure any ambiguity, defect or inconsistency, to secure the Senior Notes under circumstances set forth in the Indenture, to establish and create new series of Senior Notes, to provide that the Company shall not issue any additional series of Senior Notes, to add additional covenants and agreements of the Company to the Indenture, to provide for alterative methods or forms for evidencing and recording ownership of Senior Notes, to provide for the assumption of the Company's obligations to Holders of the Senior Notes in case of a merger, amalgamation, consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Senior Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 11. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 60 days in the payment when due of interest on the Senior Notes; (ii) default in payment when due of the principal of, or premium, if any, on the Senior Notes; (iii) failure by the Company to comply with 3 any of the provisions of Sections 4.07, 4.09 or 5.01 of the Indenture; (iv) failure by either the Company for 60 days after written notice by the Trustee or the Holders of at least 25 % or more in aggregate principal amount of the Senior Notes to comply with its other agreements in the Indenture or the Senior Notes involves non-payment of principal or interest or; (v) default under certain other agreements relating to Indebtedness of the Company which default involves non-payment of principal or interest, or results in the acceleration of such Indebtedness prior to its stated maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25 % in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 12. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 13. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Senior Notes. 14. AUTHENTICATION. This Senior Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 4 15. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 16. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Senior Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Senior Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Niagara Mohawk Power Corporation 300 Erie Boulevard West Syracuse, New York 13202 Attention: Chief Financial Officer ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Senior Note) Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: / / Section 4.10 / / Section 4.14 If you want to elect to have only part of the Senior Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: (Sign exactly as your name appears on this Senior Note) Tax Identification No.:_____________________ Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. EXHIBIT B FORM OF __% SERIES B SENIOR NOTE AND TRUSTEE CERTIFICATION OF AUTHENTICATION $450,000,000 __ % Series B Senior Note due 2000 No. $450,000,000 NIAGARA MOHAWK POWER CORPORATION promises to pay to or their registered assigns, the principal sum of ______________________ Dollars ($ ) on October 1, 2000. Interest Payment Dates: April 1 and October commencing October 1, 1998 Record Dates: March 15 and September 15 Dated: ___________ __, 1998 NIAGARA MOHAWK POWER CORPORATION By:_______________________________ Name: Title: By:_______________________________ Name: Title: This is one of the Senior Notes referred to in the within-mentioned Indenture: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By:______________________________ Authorized Signature (Back of Senior Note) ___% Series B Senior Note due 2000 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Niagara Mohawk Power Corporation, a New York corporation (the "Company") promises to pay interest on the principal amount of this ___% Series B Senior Note due 2000 (the "Senior Note") at the rate and in the manner specified below. The Company shall pay interest on the principal amount of this Senior Note in cash at the rate per annum shown above. The Company shall pay interest semi-annually on each April 1 and October 1, commencing October 1, 1998, or if any such day is not a Business Day (as defined in the Indenture referred to below), on the next succeeding Business Day (each an "Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Senior Note. To the extent lawful, the Company shall pay interest on overdue principal and premium at the rate of 1 % per annum in excess of the then applicable interest rate on this Senior Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. The rates of interest specified in the Indenture and this Senior Note are nominal rates and all interest payments and computations are to be made without allowance or deduction for deemed reinvestment of interest. 2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes to the Persons who are registered Holders of Senior Notes at the close of business on the March 15 and September 15 next preceding the Interest Payment Date, even if such Senior Notes are cancelled after such record date and on or before such Interest Payment Date. The Senior Notes will be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders. Such payment shall be in such payment of public and private debts coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company may act in any such capacity. 1 4. INDENTURE. The Company issued the Senior Notes under an Indenture dated as of June 30, 1998 (the "Indenture") between the Company and the Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Senior Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Senior Notes. The Senior Notes are senior unsecured obligations of the Company limited to $450 million in aggregate. 5. OPTIONAL AND SPECIAL OPTIONAL REDEMPTION. The Senior Notes are redeemable by the Company at any time, in whole or in part, upon not less than 30 nor more than 60 days' prior notice, in cash at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon through the redemption date plus the Make-Whole Premium. Notwithstanding the foregoing, the Company may, at its option, by delivering a notice of redemption at any time during the period from April 1, 1999 through December 31, 2000, use all or a portion of the Net Proceeds from any sale or sales of Fossil and Hydro Generating Assets to redeem up to $500,000,000 aggregate principal amount of the Notes in Series B through F at a cash redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption, in the manner and subject to the limitations set forth in the Indenture. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company is not required to make mandatory repurchase, redemption or sinking fund payments with respect to the Senior Notes. 7. CHANGE OF CONTROL OFFER AND ASSET SALE OFFER. (a) If there is a Change of Control Triggering Event, each Holder of Senior Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 in principal amount or an integral multiple thereof) of each Holder's Senior Notes pursuant to the offer described in the Indenture (a "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon the date of purchase. Within 30 days following any Change of Control Triggering Event, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. 2 (b) Under certain circumstances, the Company, following a Sale of Assets, may commence an offer to all Holders of Senior Notes (as "Asset Sale Offer") to purchase Senior Notes with the cash portion of the Net Proceeds of such Sale of Assets at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. (c) In the event of either 7(a) or 7(b), Holders may elect to have all or a portion of their Senior Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 8. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered and Senior Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. 9. PERSONS DEEMED LEGAL OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Senior Note, the Trustee, any Agent and the Company may deem and treat the person in whose name this Senior Note is registered as its legal and absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Senior Note and for all other purposes whatsoever, whether or not this Senior Note is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Senior Note may be treated as its legal owner for all purposes. 10. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture and the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Senior Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and, subject to Sections 6.04 and 6.07 of the Indenture, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Senior Notes. Without the consent of any Holder of a Senior Note, the Indenture or the Senior Notes may be amended or supplemented, and the Company and the Trustee may enter into Supplemental Indentures which shall thereafter form a part of the Indenture, to cure any ambiguity, defect or inconsistency, to secure the Senior Notes under circumstances set forth in the Indenture, to establish and create new series of Senior Notes, to provide that the Company shall not issue any additional series of Senior Notes, to add additional covenants and agreements of the Company to the Indenture, to provide for alternative methods or forms for evidencing and 3 recording ownership of Senior Notes, to provide for the assumption of the Company's obligations to Holders of the Senior Notes in case of a merger, amalgamation, consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Senior Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 11. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 60 days in the payment when due of interest on the Senior Notes; (ii) default in payment when due of the principal of, or premium, if any, on the Senior Notes; (iii) failure by the Company to comply with any of the provisions of Sections 4.07, 4.09 or 5.01 of the Indenture; (iv) failure by either the Company for 60 days after written notice by the Trustee or the Holders of at least 25 % or more in aggregate principal amount of the Senior Notes to comply with its other agreements in the Indenture or the Senior Notes; (v) default under certain other agreements relating to Indebtedness of the Company which default involves non-payment of principal or interest, or results in the acceleration of such Indebtedness prior to its stated maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25 % in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 12. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 4 13. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Senior Notes. 14. AUTHENTICATION. This Senior Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 15. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 16. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Senior Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Senior Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Niagara Mohawk Power Corporation 300 Erie Boulevard West Syracuse, New York 13202 Attention: Chief Financial Officer 5 ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Senior Note) Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: / / Section 4.10 / / Section 4.14 If you want to elect to have only part of the Senior Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: (Sign exactly as your name appears on this Senior Note) Tax Identification No.:_____________________ Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. EXHIBIT C FORM OF ___% SERIES C SENIOR NOTE AND TRUSTEE CERTIFICATION OF AUTHENTICATION $400,000,000 __ % Series C Senior Note due 2001 No. $400,000,000 NIAGARA MOHAWK POWER CORPORATION promises to pay to or their registered assigns, the principal sum of ______________________ Dollars ($ ) on July 1, 2001. Interest Payment Dates: January 1 and July 1, commencing January 1, 1999 Record Dates: December 15 and June 15 Dated: __________ __, 1998 NIAGARA MOHAWK POWER CORPORATION By:_______________________________ Name: Title: By:_______________________________ Name: Title: This is one of the Senior Notes referred to in the within-mentioned Indenture: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By:______________________________ Authorized Signature (Back of Senior Note) ___% Series C Senior Note due 2001 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Niagara Mohawk Power Corporation, a New York corporation (the "Company") promises to pay interest on the principal amount of this ___% Series C Senior Note due 2001 (the "Senior Note") at the rate and in the manner specified below. The Company shall pay interest on the principal amount of this Senior Note in cash at the rate per annum shown above. The Company shall pay interest semi-annually on each January 1 and July 1, commencing January, 1999, or if any such day is not a Business Day (as defined in the Indenture referred to below), on the next succeeding Business Day (each an "Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Senior Note. To the extent lawful, the Company shall pay interest on overdue principal and premium at the rate of 1 % per annum in excess of the then applicable interest rate on this Senior Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. The rates of interest specified in the Indenture and this Senior Note are nominal rates and all interest payments and computations are to be made without allowance or deduction for deemed reinvestment of interest. 2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes to the Persons who are registered Holders of Senior Notes at the close of business on the December 15 and June 15 next preceding the Interest Payment Date, even if such Senior Notes are cancelled after such record date and on or before such Interest Payment Date. The Senior Notes will be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders. Such payment shall be in such payment of public and private debts coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company may act in any such capacity. 1 4. INDENTURE. The Company issued the Senior Notes under an Indenture dated as of June 30, 1998 (the "Indenture") between the Company and the Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Senior Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Senior Notes. The Senior Notes are senior unsecured obligations of the Company limited to $400 million in aggregate. 5. OPTIONAL AND SPECIAL OPTIONAL REDEMPTION. The Senior Notes are redeemable by the Company at any time, in whole or in part, upon not less than 30 nor more than 60 days' prior notice, in cash at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon through the redemption date plus the Make-Whole Premium. Notwithstanding the foregoing, the Company may, at its option, by delivering a notice of redemption at any time during the period from April 1, 1999 through December 31, 2000, use all or a portion of the Net Proceeds from any sale or sales of Fossil and Hydro Generating Assets to redeem up to $500,000,000 aggregate principal amount of the Notes in Series B through F at a cash redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption, in the manner and subject to the limitations set forth in the Indenture. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company is not required to make mandatory repurchase, redemption or sinking fund payments with respect to the Senior Notes. 7. CHANGE OF CONTROL OFFER AND ASSET SALE OFFER. (a) If there is a Change of Control Triggering Event, each Holder of Senior Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 in principal amount or an integral multiple thereof) of each Holder's Senior Notes pursuant to the offer described in the Indenture (a "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon the date of purchase. Within 30 days following any Change of Control Triggering Event, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. 2 (b) Under certain circumstances, the Company, following a Sale of Assets, may commence an offer to all Holders of Senior Notes (as "Asset Sale Offer") to purchase Senior Notes with the cash portion of the Net Proceeds of such Sale of Assets at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. (c) In the event of either 7(a) or 7(b), Holders may elect to have all or a portion of their Senior Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Senior Notes are to be redeemed at his registered address. Senior Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Senior Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Senior Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered and Senior Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. 10. PERSONS DEEMED LEGAL OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Senior Note, the Trustee, any Agent and the Company may deem and treat the person in whose name this Senior Note is registered as its legal and absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Senior Note and for all other purposes whatsoever, whether or not this Senior Note is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Senior Note may be treated as its legal owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture and the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Senior Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and, subject to Sections 6.04 and 6.07 of the Indenture, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding 3 Senior Notes. Without the consent of any Holder of a Senior Note, the Indenture or the Senior Notes may be amended or supplemented, and the Company and the Trustee may enter into Supplemental Indentures which shall thereafter form a part of the Indenture, to cure any ambiguity, defect or inconsistency, to secure the Senior Notes under circumstances set forth in the Indenture, to establish and create new series of Senior Notes, to provide that the Company shall not issue any additional series of Senior Notes, to add additional covenants and agreements of the Company to the Indenture, to provide for alterative methods or forms for evidencing and recording ownership of Senior Notes, to provide for the assumption of the Company's obligations to Holders of the Senior Notes in case of a merger, amalgamation, consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Senior Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 60 days in the payment when due of interest on the Senior Notes; (ii) default in payment when due of the principal of, or premium, if any, on the Senior Notes; (iii) failure by the Company to comply with any of the provisions of Sections 4.07, 4.09 or 5.01 of the Indenture; (iv) failure by either the Company for 60 days after written notice by the Trustee or the Holders of at least 25 % or more in aggregate principal amount of the Senior Notes to comply with its other agreements in the Indenture or the Senior Notes; (v) default under certain other agreements relating to Indebtedness of the Company which default involves non-payment of principal or interest, or results in the acceleration of such Indebtedness prior to its stated maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25 % in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the 4 Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Senior Notes. 15. AUTHENTICATION. This Senior Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Senior Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Senior Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Niagara Mohawk Power Corporation 300 Erie Boulevard West Syracuse, New York 13202 Attention: Chief Financial Officer 5 ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Senior Note) Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: / / Section 4.10 / / Section 4.14 If you want to elect to have only part of the Senior Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: (Sign exactly as your name appears on this Senior Note) Tax Identification No.:________________________ Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. EXHIBIT D FORM OF ____% SERIES D SENIOR NOTE AND TRUSTEE CERTIFICATION OF AUTHENTICATION $400,000,000 __ % Series D Senior Note due 2002 No. $400,000,000 NIAGARA MOHAWK POWER CORPORATION promises to pay to or their registered assigns, the principal sum of ______________________ Dollars ($ ) on October 1, 2002. Interest Payment Dates: April 1 and October 1, commencing October 1, 1998 Record Dates: March 15 and September 15 Dated: ____________ ___, 1998 NIAGARA MOHAWK POWER CORPORATION By:_______________________________ Name: Title: By:_______________________________ Name: Title: This is one of the Senior Notes referred to in the within-mentioned Indenture: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By:______________________________ Authorized Signature (Back of Senior Note) ___% Series D Senior Note due 2002 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Niagara Mohawk Power Corporation, a New York corporation (the "Company") promises to pay interest on the principal amount of this ___% Series D Senior Note due 2002 (the "Senior Note") at the rate and in the manner specified below. The Company shall pay interest on the principal amount of this Senior Note in cash at the rate per annum shown above. The Company shall pay interest semi-annually on each April 1 and October 1, commencing October 1, 1998, or if any such day is not a Business Day (as defined in the Indenture referred to below), on the next succeeding Business Day (each an "Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Senior Note. To the extent lawful, the Company shall pay interest on overdue principal and premium at the rate of 1 % per annum in excess of the then applicable interest rate on this Senior Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. The rates of interest specified in the Indenture and this Senior Note are nominal rates and all interest payments and computations are to be made without allowance or deduction for deemed reinvestment of interest. 2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes to the Persons who are registered Holders of Senior Notes at the close of business on the March 15 and September 15 next preceding the Interest Payment Date, even if such Senior Notes are cancelled after such record date and on or before such Interest Payment Date. The Senior Notes will be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders. Such payment shall be in such payment of public and private debts coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company may act in any such capacity. 1 4. INDENTURE. The Company issued the Senior Notes under an Indenture dated as of June 30, 1998 (the "Indenture") between the Company and the Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Senior Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Senior Notes. The Senior Notes are senior unsecured obligations of the Company limited to $400 million in aggregate. 5. OPTIONAL AND SPECIAL OPTIONAL REDEMPTION. The Senior Notes are redeemable by the Company at any time, in whole or in part, upon not less than 30 nor more than 60 days' prior notice, in cash at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon through the redemption date plus the Make-Whole Premium. Notwithstanding the foregoing, the Company may, at its option, by delivering a notice of redemption at any time during the period from April 1, 1999 through December 31, 2000, use all or a portion of the Net Proceeds from any sale or sales of Fossil and Hydro Generating Assets to redeem up to $500,000,000 aggregate principal amount of the Notes in Series B through F at a cash redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption, in the manner and subject to the limitations set forth in the Indenture. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company is not required to make mandatory repurchase, redemption or sinking fund payments with respect to the Senior Notes. 7. CHANGE OF CONTROL OFFER AND ASSET SALE OFFER. (a) If there is a Change of Control Triggering Event, each Holder of Senior Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 in principal amount or an integral multiple thereof) of each Holder's Senior Notes pursuant to the offer described in the Indenture (a "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon the date of purchase. Within 30 days following any Change of Control Triggering Event, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. 2 (b) Under certain circumstances, the Company, following a Sale of Assets, may commence an offer to all Holders of Senior Notes (as "Asset Sale Offer") to purchase Senior Notes with the cash portion of the Net Proceeds of such Sale of Assets at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. (c) In the event of either 7(a) or 7(b), Holders may elect to have all or a portion of their Senior Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Senior Notes are to be redeemed at his registered address. Senior Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Senior Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Senior Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered and Senior Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. 10. PERSONS DEEMED LEGAL OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Senior Note, the Trustee, any Agent and the Company may deem and treat the person in whose name this Senior Note is registered as its legal and absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Senior Note and for all other purposes whatsoever, whether or not this Senior Note is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Senior Note may be treated as its legal owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture and the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Senior Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and, subject to Sections 6.04 and 6.07 of the Indenture, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding 3 Senior Notes. Without the consent of any Holder of a Senior Note, the Indenture or the Senior Notes may be amended or supplemented, and the Company and the Trustee may enter into Supplemental Indentures which shall thereafter form a part of the Indenture, to cure any ambiguity, defect or inconsistency, to secure the Senior Notes under circumstances set forth in the Indenture, to establish and create new series of Senior Notes, to provide that the Company shall not issue any additional series of Senior Notes, to add additional covenants and agreements of the Company to the Indenture, to provide for alterative methods or forms for evidencing and recording ownership of Senior Notes, to provide for the assumption of the Company's obligations to Holders of the Senior Notes in case of a merger, amalgamation, consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Senior Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 60 days in the payment when due of interest on the Senior Notes; (ii) default in payment when due of the principal of, or premium, if any, on the Senior Notes; (iii) failure by the Company to comply with any of the provisions of Sections 4.07, 4.09 or 5.01 of the Indenture; (iv) failure by either the Company for 60 days after written notice by the Trustee or the Holders of at least 25 % or more in aggregate principal amount of the Senior Notes to comply with its other agreements in the Indenture or the Senior Notes; (v) default under certain other agreements relating to Indebtedness of the Company which default involves non-payment of principal or interest, or results in the acceleration of such Indebtedness prior to its stated maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25 % in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the 4 Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Senior Notes. 15. AUTHENTICATION. This Senior Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Senior Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Senior Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Niagara Mohawk Power Corporation 300 Erie Boulevard West Syracuse, New York 13202 Attention: Chief Financial Officer 5 ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Senior Note) Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: / / Section 4.10 / / Section 4.14 If you want to elect to have only part of the Senior Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: (Sign exactly as your name appears on this Senior Note) Tax Identification No.:________________________ Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. EXHIBIT E FORM OF ___% SERIES E SENIOR NOTE AND TRUSTEE CERTIFICATION OF AUTHENTICATION $400,000,000 __ % Series E Senior Note due 2003 No. $400,000,000 NIAGARA MOHAWK POWER CORPORATION promises to pay to or their registered assigns, the principal sum of ______________________ Dollars ($ ) on July 1, 2003. Interest Payment Dates: January 1 and July 1, commencing January 1, 1999 Record Dates: December 15 and June 15 Dated: _______________ ___, 1998 NIAGARA MOHAWK POWER CORPORATION By:_______________________________ Name: Title: By:_______________________________ Name: Title: This is one of the Senior Notes referred to in the within-mentioned Indenture: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By:______________________________ Authorized Signature (Back of Senior Note) ___% Series E Senior Note due 2003 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Niagara Mohawk Power Corporation, a New York corporation (the "Company") promises to pay interest on the principal amount of this ___% Series E Senior Note due 2003 (the "Senior Note") at the rate and in the manner specified below. The Company shall pay interest on the principal amount of this Senior Note in cash at the rate per annum shown above. The Company shall pay interest semi-annually on each January 1 and July 1, commencing January 1, 1999, or if any such day is not a Business Day (as defined in the Indenture referred to below), on the next succeeding Business Day (each an "Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Senior Note. To the extent lawful, the Company shall pay interest on overdue principal and premium at the rate of 1% per annum in excess of the then applicable interest rate on this Senior Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. The rates of interest specified in the Indenture and this Senior Note are nominal rates and all interest payments and computations are to be made without allowance or deduction for deemed reinvestment of interest. 2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes to the Persons who are registered Holders of Senior Notes at the close of business on the December 15 and June 15 next preceding the Interest Payment Date, even if such Senior Notes are cancelled after such record date and on or before such Interest Payment Date. The Senior Notes will be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders. Such payment shall be in such payment of public and private debts coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company may act in any such capacity. 1 4. INDENTURE. The Company issued the Senior Notes under an Indenture dated as of June 30, 1998 (the "Indenture") between the Company and the Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Senior Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Senior Notes. The Senior Notes are senior unsecured obligations of the Company limited to $400 million in aggregate. 5. OPTIONAL AND SPECIAL OPTIONAL REDEMPTION. The Senior Notes are redeemable by the Company at any time, in whole or in part, upon not less than 30 nor more than 60 days' prior notice, in cash at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon through the redemption date plus the Make-Whole Premium. Notwithstanding the foregoing, the Company may, at its option, by delivering a notice of redemption at any time during the period from April 1, 1999 through December 31, 2000, use all or a portion of the Net Proceeds from any sale or sales of Fossil and Hydro Generating Assets to redeem up to $500,000,000 aggregate principal amount of the Notes in Series B through F at a cash redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption, in the manner and subject to the limitations set forth in the Indenture. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company is not required to make mandatory repurchase, redemption or sinking fund payments with respect to the Senior Notes. 7. CHANGE OF CONTROL OFFER AND ASSET SALE OFFER. (a) If there is a Change of Control Triggering Event, each Holder of Senior Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 in principal amount or an integral multiple thereof) of each Holder's Senior Notes pursuant to the offer described in the Indenture (a "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon the date of purchase. Within 30 days following any Change of Control Triggering Event, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. 2 (b) Under certain circumstances, the Company, following a Sale of Assets, may commence an offer to all Holders of Senior Notes (as "Asset Sale Offer") to purchase Senior Notes with the cash portion of the Net Proceeds of such Sale of Assets at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. (c) In the event of either 7(a) or 7(b), Holders may elect to have all or a portion of their Senior Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 8. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered and Senior Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. 9. PERSONS DEEMED LEGAL OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Senior Note, the Trustee, any Agent and the Company may deem and treat the person in whose name this Senior Note is registered as its legal and absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Senior Note and for all other purposes whatsoever, whether or not this Senior Note is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Senior Note may be treated as its legal owner for all purposes. 10. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture and the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Senior Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and, subject to Sections 6.04 and 6.07 of the Indenture, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Senior Notes. Without the consent of any Holder of a Senior Note, the Indenture or the Senior Notes may be amended or supplemented, and the Company and the Trustee may enter into Supplemental Indentures which shall thereafter form a part of the Indenture, to cure any ambiguity, defect or inconsistency, to secure the Senior Notes under circumstances set forth in the Indenture, to establish and create new series of Senior Notes, to provide that the Company shall not issue any additional series of Senior Notes, to add additional covenants and agreements of the Company to the Indenture, to provide for alterative methods or forms for evidencing and 3 recording ownership of Senior Notes, to provide for the assumption of the Company's obligations to Holders of the Senior Notes in case of a merger, amalgamation, consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Senior Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 11. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 60 days in the payment when due of interest on the Senior Notes; (ii) default in payment when due of the principal of, or premium, if any, on the Senior Notes; (iii) failure by the Company to comply with any of the provisions of Sections 4.07, 4.09 or 5.01 of the Indenture; (iv) failure by either the Company for 60 days after written notice by the Trustee or the Holders of at least 25 % or more in aggregate principal amount of the Senior Notes to comply with its other agreements in the Indenture or the Senior Notes involves non-payment of principal or interest or; (v) default under certain other agreements relating to Indebtedness of the Company which default involves non-payment of principal or interest, or results in the acceleration of such Indebtedness prior to its stated maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25 % in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 12. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 4 13. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Senior Notes. 14. AUTHENTICATION. This Senior Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 15. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 16. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Senior Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Senior Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Niagara Mohawk Power Corporation 300 Erie Boulevard West Syracuse, New York 13202 Attention: Chief Financial Officer 5 ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Senior Note) Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: / / Section 4.10 / / Section 4.14 If you want to elect to have only part of the Senior Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: (Sign exactly as your name appears on this Senior Note) Tax Identification No.:________________________ Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. EXHIBIT F FORM OF __% SERIES F SENIOR NOTE AND TRUSTEE CERTIFICATION OF AUTHENTICATION $400,000,000 __ % Series F Senior Note due 2005 No. $400,000,000 NIAGARA MOHAWK POWER CORPORATION promises to pay to or their registered assigns, the principal sum of ______________________ Dollars ($ ) on October 1, 2005. Interest Payment Dates: April 1 and October 1, commencing October 1, 1998 Record Dates: March 15 and September 15 Dated: ___________ __, 1998 NIAGARA MOHAWK POWER CORPORATION By:_____________________________ Name: Title: By:_____________________________ Name: Title: This is one of the Senior Notes referred to in the within-mentioned Indenture: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By:_____________________________ Authorized Signature (Back of Senior Note) ___% Series F Senior Note due 2005 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Niagara Mohawk Power Corporation, a New York corporation (the "Company") promises to pay interest on the principal amount of this ___% Series F Senior Note due 2005 (the "Senior Note") at the rate and in the manner specified below. The Company shall pay interest on the principal amount of this Senior Note in cash at the rate per annum shown above. The Company shall pay interest semi-annually on each April 1 and October 1, commencing October 1, 1998, or if any such day is not a Business Day (as defined in the Indenture referred to below), on the next succeeding Business Day (each an "Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Senior Note. To the extent lawful, the Company shall pay interest on overdue principal and premium at the rate of 1 % per annum in excess of the then applicable interest rate on this Senior Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. The rates of interest specified in the Indenture and this Senior Note are nominal rates and all interest payments and computations are to be made without allowance or deduction for deemed reinvestment of interest. 2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes to the Persons who are registered Holders of Senior Notes at the close of business on the March 15 and September 15 next preceding the Interest Payment Date, even if such Senior Notes are cancelled after such record date and on or before such Interest Payment Date. The Senior Notes will be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders. Such payment shall be in such payment of public and private debts coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company may act in any such capacity. 1 4. INDENTURE. The Company issued the Senior Notes under an Indenture dated as of June 30, 1998 (the "Indenture") between the Company and the Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Senior Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Senior Notes. The Senior Notes are senior unsecured obligations of the Company limited to $400 million in aggregate. 5. OPTIONAL AND SPECIAL OPTIONAL REDEMPTION. The Senior Notes are redeemable by the Company at any time, in whole or in part, upon not less than 30 nor more than 60 days' prior notice, in cash at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon through the redemption date plus the Make-Whole Premium. Notwithstanding the foregoing, the Company may, at its option, by delivering a notice of redemption at any time during the period from April 1, 1999 through December 31, 2000, use all or a portion of the Net Proceeds from any sale or sales of Fossil and Hydro Generating Assets to redeem up to $500,000,000 aggregate principal amount of the Notes in Series B through F at a cash redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption, in the manner and subject to the limitations set forth in the Indenture. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company is not required to make mandatory repurchase, redemption or sinking fund payments with respect to the Senior Notes. 7. CHANGE OF CONTROL OFFER AND ASSET SALE OFFER. (a) If there is a Change of Control Triggering Event, each Holder of Senior Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 in principal amount or an integral multiple thereof) of each Holder's Senior Notes pursuant to the offer described in the Indenture (a "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon the date of purchase. Within 30 days following any Change of Control Triggering Event, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. 2 (b) Under certain circumstances, the Company, following a Sale of Assets, may commence an offer to all Holders of Senior Notes (as "Asset Sale Offer") to purchase Senior Notes with the cash portion of the Net Proceeds of such Sale of Assets at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. (c) In the event of either 7(a) or 7(b), Holders may elect to have all or a portion of their Senior Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 8. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered and Senior Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. 9. PERSONS DEEMED LEGAL OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Senior Note, the Trustee, any Agent and the Company may deem and treat the person in whose name this Senior Note is registered as its legal and absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Senior Note and for all other purposes whatsoever, whether or not this Senior Note is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Senior Note may be treated as its legal owner for all purposes. 10. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture and the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Senior Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and, subject to Sections 6.04 and 6.07 of the Indenture, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Senior Notes. Without the consent of any Holder of a Senior Note, the Indenture or the Senior Notes may be amended or supplemented, and the Company and the Trustee may enter into Supplemental Indentures which shall thereafter form a part of the Indenture, to cure any ambiguity, defect or inconsistency, to secure the Senior Notes under circumstances set forth in the Indenture, to establish and create new series of Senior Notes, to provide that the Company shall not issue any additional series of Senior Notes, to add additional covenants and agreements of the Company to the Indenture, to provide for alternative methods or forms for evidencing and 3 recording ownership of Senior Notes, to provide for the assumption of the Company's obligations to Holders of the Senior Notes in case of a merger, amalgamation, consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Senior Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 11. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 60 days in the payment when due of interest on the Senior Notes; (ii) default in payment when due of the principal of, or premium, if any, on the Senior Notes; (iii) failure by the Company to comply with any of the provisions of Sections 4.07, 4.09 or 5.01 of the Indenture; (iv) failure by either the Company for 60 days after written notice by the Trustee or the Holders of at least 25 % or more in aggregate principal amount of the Senior Notes to comply with its other agreements in the Indenture or the Senior Notes; (v) default under certain other agreements relating to Indebtedness of the Company which default involves non-payment of principal or interest, or results in the acceleration of such Indebtedness prior to its stated maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25 % in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 12. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 4 13. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Senior Notes. 14. AUTHENTICATION. This Senior Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 15. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 16. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Senior Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Senior Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Niagara Mohawk Power Corporation 300 Erie Boulevard West Syracuse, New York 13202 Attention: Chief Financial Officer 5 ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Senior Note) Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: / / Section 4.10 / / Section 4.14 If you want to elect to have only part of the Senior Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: (Sign exactly as your name appears on this Senior Note) Tax Identification No.:________________________ Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. EXHIBIT G FORM OF ___% SERIES G SENIOR NOTE AND TRUSTEE CERTIFICATION OF AUTHENTICATION $600,000,000 __ % Series G Senior Note due 2008 No. $600,000,000 NIAGARA MOHAWK POWER CORPORATION promises to pay to or their registered assigns, the principal sum of ______________________ Dollars ($ ) on October 1, 2008. Interest Payment Dates: April 1 and October 1, commencing October 1, 1998 Record Dates: March 15 and September 15 Dated: ___________ __, 1998 NIAGARA MOHAWK POWER CORPORATION By:_____________________________ Name: Title: By:_____________________________ Name: Title: This is one of the Senior Notes referred to in the within-mentioned Indenture: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By:_____________________________ Authorized Signature (Back of Senior Note) ___% Series G Senior Note due 2008 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Niagara Mohawk Power Corporation, a New York corporation (the "Company") promises to pay interest on the principal amount of this ___% Series G Senior Note due 2008 (the "Senior Note") at the rate and in the manner specified below. The Company shall pay interest on the principal amount of this Senior Note in cash at the rate per annum shown above. The Company shall pay interest semi-annually on each April 1 and October 1, commencing October 1, 1998, or if any such day is not a Business Day (as defined in the Indenture referred to below), on the next succeeding Business Day (each an "Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Senior Note. To the extent lawful, the Company shall pay interest on overdue principal and premium at the rate of 1 % per annum in excess of the then applicable interest rate on this Senior Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. The rates of interest specified in the Indenture and this Senior Note are nominal rates and all interest payments and computations are to be made without allowance or deduction for deemed reinvestment of interest. 2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes to the Persons who are registered Holders of Senior Notes at the close of business on the March 15 and September 15 next preceding the Interest Payment Date, even if such Senior Notes are cancelled after such record date and on or before such Interest Payment Date. The Senior Notes will be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders. Such payment shall be in such payment of public and private debts coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company may act in any such capacity. 1 4. INDENTURE. The Company issued the Senior Notes under an Indenture dated as of June 30, 1998 (the "Indenture") between the Company and the Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Senior Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Senior Notes. The Senior Notes are senior unsecured obligations of the Company limited to $600 million in aggregate. 5. OPTIONAL REDEMPTION. The Senior Notes are redeemable by the Company at any time, in whole or in part, upon not less than 30 nor more than 60 days' prior notice, in cash at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon through the redemption date plus the Make-Whole Premium. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company is not required to make mandatory repurchase, redemption or sinking fund payments with respect to the Senior Notes. 7. CHANGE OF CONTROL OFFER AND ASSET SALE OFFER. (a) If there is a Change of Control Triggering Event, each Holder of Senior Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 in principal amount or an integral multiple thereof) of each Holder's Senior Notes pursuant to the offer described in the Indenture (a "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon the date of purchase. Within 30 days following any Change of Control Triggering Event, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) Under certain circumstances, the Company, following a Sale of Assets, may commence an offer to all Holders of Senior Notes (as "Asset Sale Offer") to purchase Senior Notes with the cash portion of the Net Proceeds of such Sale of Assets at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. (c) In the event of either 7(a) or 7(b), Holders may elect to have all or a portion of their Senior Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 2 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Senior Notes are to be redeemed at his registered address. Senior Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Senior Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Senior Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered and Senior Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. 10. PERSONS DEEMED LEGAL OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Senior Note, the Trustee, any Agent and the Company may deem and treat the person in whose name this Senior Note is registered as its legal and absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Senior Note and for all other purposes whatsoever, whether or not this Senior Note is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Senior Note may be treated as its legal owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture and the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Senior Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and, subject to Sections 6.04 and 6.07 of the Indenture, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Senior Notes. Without the consent of any Holder of a Senior Note, the Indenture or the Senior Notes may be amended or supplemented, and the Company and the Trustee may enter into Supplemental Indentures which shall thereafter form a part of the Indenture, to cure any ambiguity, defect or inconsistency, to secure the Senior Notes under circumstances set forth in the Indenture, to establish and create new series of Senior Notes, to provide that the Company shall not issue any additional series of Senior Notes, to add additional covenants and agreements of the Company to the Indenture, to provide for alterative methods or forms for evidencing and recording ownership of Senior Notes, to provide for the assumption of the Company's obligations to Holders of the Senior Notes in case of a merger, amalgamation, consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional 3 rights or benefits to the Holders of the Senior Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 60 days in the payment when due of interest on the Senior Notes; (ii) default in payment when due of the principal of, or premium, if any, on the Senior Notes; (iii) failure by the Company to comply with any of the provisions of Sections 4.07, 4.09 or 5.01 of the Indenture; (iv) failure by either the Company for 60 days after written notice by the Trustee or the Holders of at least 25 % or more in aggregate principal amount of the Senior Notes to comply with its other agreements in the Indenture or the Senior Notes; (v) default under certain other agreements relating to Indebtedness of the Company which default involves non-payment of principal or interest, or results in the acceleration of such Indebtedness prior to its stated maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25 % in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of, or by 4 reason of, such obligations or their creation. Each Holder by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Senior Notes. 15. AUTHENTICATION. This Senior Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Senior Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Senior Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Niagara Mohawk Power Corporation 300 Erie Boulevard West Syracuse, New York 13202 Attention: Chief Financial Officer 5 ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Senior Note) Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: / / Section 4.10 / / Section 4.14 If you want to elect to have only part of the Senior Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: (Sign exactly as your name appears on this Senior Note) Tax Identification No.:________________________ Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. EXHIBIT H FORM OF ____% SENIOR DISCOUNT NOTE AND TRUSTEE CERTIFICATION OF AUTHENTICATION $500,000,000 __ % Senior Discount Note due 2010 No. $500,000,000 NIAGARA MOHAWK POWER CORPORATION promises to pay to or their registered assigns, the principal sum of ______________________ Dollars ($ ) on July 1, 2010. Interest Payment Dates: January 1 and July 1, commencing January 1, 2004. Record Dates: December 15 and June 15 Dated: ____________ ___, 1998 NIAGARA MOHAWK POWER CORPORATION By:_______________________________ Name: Title: By:_______________________________ Name: Title: This is one of the Senior Notes referred to in the within-mentioned Indenture: IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By:______________________________ Authorized Signature (Back of Senior Note) ___% Senior Discount Note due 2010 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Niagara Mohawk Power Corporation, a New York corporation (the "Company") promises to pay interest on the principal amount of this ___% Senior Discount Note due 2010 (the "Senior Note") at the rate and in the manner specified below. This Senior Discount Note was issued at a substantial discount from its principal amount at maturity. Until July 1, 2003, no interest will accrue on this Senior Discount Note, but the Accreted Value will increase (representing amortization of original issue discount) between the date of initial issuance and July 1, 2003, on a semi-annual bond equivalent basis using a 360-day year comprised of twelve 30-day months, such that the Accreted Value shall be equal to the full principal amount at maturity of this Senior Discount Note on July 1, 2003. Thereafter, interest on this Senior Discount Note will accrue at a rate of ___% per annum and will be payable in cash semi-annually in arrears on January 1 and July 1 of each year, commencing January 1, 2004, or if any such day is not a Business Day (as defined in the Indenture referred to below), on the next succeeding Business Day (each an "Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from July 1, 2003. To the extent lawful, the Company shall pay interest on overdue principal and premium at the rate of 1% per annum in excess of the then applicable interest rate on this Senior Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. The rates of interest specified in the Indenture and this Senior Note are nominal rates and all interest payments and computations are to be made without allowance or deduction for deemed reinvestment of interest. 2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes to the Persons who are registered Holders of Senior Notes at the close of business on the December 15 and June 15 next preceding the Interest Payment Date, even if such Senior Notes are cancelled after such record date and on or before such Interest Payment Date. The Senior Notes will be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders. Such payment shall be in such payment of public 1 and private debts coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company may act in any such capacity. 4. INDENTURE. The Company issued the Senior Notes under an Indenture dated as of June 30, 1998 (the "Indenture") between the Company and the Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Senior Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Senior Notes. The Senior Notes are senior unsecured obligations of the Company limited to $500 million principal amount at maturity in aggregate. 5. OPTIONAL REDEMPTION. Prior to July 1, 2003, the Company may redeem all or any portion of the Senior Notes, at any time upon not less than 30 nor more than 60 days' notice, in cash at a redemption price equal to 100% of the Accreted Value thereof plus the Make-Whole Premium. On or after July 1, 2003, the Company may redeem all or any portion of the Senior Notes, at any time upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on July 1 of the years indicated below:
YEAR PERCENTAGE 2003 . . . . . . . . . . . . . . . . % 2004 . . . . . . . . . . . . . . . . % 2005 . . . . . . . . . . . . . . . . % 2006 and thereafter. . . . . . . . . 100.00%
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company is not required to make mandatory repurchase, redemption or sinking fund payments with respect to the Senior Notes. 2 7. CHANGE OF CONTROL OFFER AND ASSET SALE OFFER. (a) If there is a Change of Control Triggering Event, each Holder of Senior Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 in principal amount or an integral multiple thereof) of each Holder's Senior Notes pursuant to the offer described in the Indenture (a "Change of Control Offer") at an offer price in cash equal to (i) 101% of the aggregate principal amount thereof (if such repurchase occurs on or after July 1, 2003) plus accrued and unpaid interest thereon, if any, to the date of purchase or (ii) 101% of the Accreted Value thereof (if such repurchase occurs prior to July 1, 2003). Within 30 days following any Change of Control Triggering Event, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) Under certain circumstances, the Company, following a Sale of Assets, may commence an offer to all Holders of Senior Notes (as "Asset Sale Offer") to purchase Senior Notes with the cash portion of the Net Proceeds of such Sale of Assets at an offer price in cash in an amount equal to (a) 100% of the principal amount thereof (if such repurchase occurs on or after July 1, 2003) plus accrued and unpaid interest thereon, if any, to the date of purchase or (b) 100% of the Accreted Value thereof (if such repurchase occurs prior to July 1, 2003). (c) In the event of either 7(a) or 7(b), Holders may elect to have all or a portion of their Senior Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Senior Notes are to be redeemed at his registered address. Senior Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Senior Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Senior Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered and Senior Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. 10. PERSONS DEEMED LEGAL OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Senior Note, the Trustee, any Agent and the Company may deem and treat the person in whose name this Senior Note is registered as its legal and absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Senior 3 Note and for all other purposes whatsoever, whether or not this Senior Note is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Senior Note may be treated as its legal owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture and the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount at maturity of the then outstanding Senior Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and, subject to Sections 6.04 and 6.07 of the Indenture, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount at maturity of the then outstanding Senior Notes. Without the consent of any Holder of a Senior Note, the Indenture or the Senior Notes may be amended or supplemented, and the Company and the Trustee may enter into Supplemental Indentures which shall thereafter form a part of the Indenture, to cure any ambiguity, defect or inconsistency, to secure the Senior Notes under circumstances set forth in the Indenture, to establish and create new series of Senior Notes, to provide that the Company shall not issue any additional series of Senior Notes, to add additional covenants and agreements of the Company to the Indenture, to provide for alterative methods or forms for evidencing and recording ownership of Senior Notes, to provide for the assumption of the Company's obligations to Holders of the Senior Notes in case of a merger, amalgamation, consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders of the Senior Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 60 days in the payment when due of interest on the Senior Notes; (ii) default in payment when due of the principal of, or premium, if any, on the Senior Notes; (iii) failure by the Company to comply with any of the provisions of Sections 4.07, 4.09 or 5.01 of the Indenture; (iv) failure by either the Company for 60 days after written notice by the Trustee or the Holders of at least 25 % or more in aggregate principal amount of the Senior Notes to comply with its other agreements in the Indenture or the Senior Notes; (v) default under certain other agreements relating to Indebtedness of the Company which default involves non-payment of principal or interest, or results in the acceleration of such Indebtedness prior to its stated maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25 % in principal amount at maturity of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of 4 bankruptcy or insolvency, all outstanding Senior Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount at maturity of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount at maturity of the Senior Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company as such, shall not have any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Senior Notes. 15. AUTHENTICATION. This Senior Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Senior Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Senior Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 5 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Niagara Mohawk Power Corporation 300 Erie Boulevard West Syracuse, New York 13202 Attention: Chief Financial Officer 6 ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the face of this Senior Note) Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: / / Section 4.10 / / Section 4.14 If you want to elect to have only part of the Senior Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: (Sign exactly as your name appears on this Senior Note) Tax Identification No.:________________________ Signature Guarantee.* * Your signature must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city where the principal office of the registrar is located or by a member of a national securities exchange. EX-5 6 OPINION OF SULLIVAN AND CROMWELL EXHIBIT 5 June 16, 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 $300,000,000 Series A Senior Notes, $450,000,000 Series B Senior Notes, $400,000,000 Series C Senior Notes, $400,000,000 Series D Senior Notes, $400,000,000 Series E Senior Notes, $400,000,000 Series F Senior Notes, $600,000,000 Series G Senior Notes and $500,000,000 Senior Discount Notes (together, the "Securities") of Niagara Mohawk Power Corporation, a New York corporation (the "Company"), we, as your 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. Niagara Mohawk Power Corporation -2- Upon the basis of such examination, we advise you that, in our opinion, when the Registration Statement has become effective under the Act, the Indenture relating to the Securities has been duly authorized, executed and delivered, the terms of the Securities and of their issuance and sale have been duly established so as not to violate any applicable law or result in a default under or breach of any agreement or instrument binding upon the Company and so as to comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Company, and the Securities have been duly executed and authenticated in accordance with the Indenture and issued and sold as contemplated in the Registration Statement, the Securities will constitute valid and legally binding obligations of the Company, subject to bankruptcy, insolvency, fradulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. In rendering the foregoing opinion, we are expressing no opinion as to Federal or state laws relating to fradulent transfers. Niagara Mohawk Power Corporation -3- 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. 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 references to us under the heading "Validity of the Notes" in the Prospectus. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, /s/ Sullivan & Cromwell EX-23.(A) 7 CONSENT OF PRICE WATERHOUSE EXHIBIT 23(a) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 (No. 333-49541) of our report dated March 26, 1998, except Note 2 (third paragraph) and Note 15, as to which the date is May 29, 1998, appearing on page 40 of Niagara Mohawk Power Corporation's Annual Report on Form 10K/A for the year ended December 31, 1997. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 109 in the Niagara Mohawk Power Corporation's Annual Report on Form 10-K. We also consent to the reference to us under the heading "Experts" in the Prospectus. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Syracuse, New York June 17, 1998 - -----END PRIVACY-ENHANCED MESSAGE----- -----END PRIVACY-ENHANCED MESSAGE-----