-----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, TlhSHYBzxZPOI/y1Uk24VOtGY9O9yfchmWXbb6ArZtERekQ0n/zcYbf8UUSWhEFQ N6gVfHxWLtCuOWlZS6rLeQ== 0000009548-02-000003.txt : 20020415 0000009548-02-000003.hdr.sgml : 20020415 ACCESSION NUMBER: 0000009548-02-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANGOR HYDRO ELECTRIC CO CENTRAL INDEX KEY: 0000009548 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 010024370 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10922 FILM NUMBER: 02579481 BUSINESS ADDRESS: STREET 1: 33 STATE ST CITY: BANGOR STATE: ME ZIP: 04401 BUSINESS PHONE: 2079455621 MAIL ADDRESS: STREET 1: 33 STATE STREET CITY: BANGOR STATE: ME ZIP: 04401 10-K 1 k10k2001.txt 10K 2001 BANGOR HYDRO-ELECTRIC COMPANY FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal year ended December 31, 2001 Commission File No. 1-10922 BANGOR HYDRO-ELECTRIC COMPANY (Exact Name of Registrant as specified in its charter) MAINE 01-0024370 (State of Incorporation) (I.R.S. Employer ID No.) 33 STATE STREET, BANGOR, MAINE 04401 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 207-945-5621 Securities registered pursuant to Section 12(g) of the Act: TITLE OF EACH CLASS 7% Preferred Stock, $100 Par Value 4 1/4% Preferred Stock, $100 Par Value 4% Preferred Stock Series A, $100 Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value on March 1, 2002 of the voting stock held by non-affiliates of the registrant was $3.32 million. BANGOR HYDRO-ELECTRIC COMPANY TABLE OF CONTENTS PART I Page ---- Item 1. Business 4 Item 2. Properties 5 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 Executive Officers of the Registrant 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matter 9 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition 12 Item 8. Financial Statements and Supplementary Data 25 Consolidated Statements of Income 25 Consolidated Balance Sheets 26 Consolidated Statements of Capitalization 28 Consolidated Statements of Cash Flows 29 Consolidated Statements of Common Stock Investment 30 Notes to Consolidated to Financial Statements 31 Report of Independent Accountants 58 Item 7A Quantitative and Qualitative Disclosures About Market Risk 59 Item 9. Changes in and Disagreements with Independent Accountants on Accounting and Financial Disclosure 59 PART III Item 10. Directors and Executive Officers of the Registrant 59 Item 11. Executive Compensation 59 Item 12. Security Ownership of Certain Beneficial Owners and Management 60 Item 13. Certain Relationships and Related Transactions 60 PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 61 Signatures 62 Schedule VIII - Reserve for Doubtful Accounts 63 Exhibits Delivered with this Report 64 Exhibits Incorporated Herein by Reference 65 PART I ITEM 1 BUSINESS (a) General development of business Bangor Hydro-Electric Company (the Company) is a public utility incorporated in Maine in 1924. Effective October 10, 2001, pursuant to an Agreement and Plan of Merger, the Company became a wholly owned subsidiary of Emera Inc. of Halifax, Nova Scotia (Emera). For a discussion of general developments that have occurred in the Company's business since January 1, 2001, see See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Recent Events Affecting the Company". (a) Regulatory and Rate Matters See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Recent Events Affecting the Company - Current Rate Filings" and Item 8, "Notes to Consolidated Financial Statements - Note 11 - Industry Restructuring and Rate Regulation". (b) Financial information about segments The Company has no material segments outside of the electric business. (c) Narrative description of business (i) Principal business The Company is a public utility primarily engaged in the transmission and distribution of electric energy, with a service area of approximately 5,275 square miles having a population of approximately 190,000 people. The Company serves approximately 107,000 customers in portions of the counties of Penobscot, Hancock, Washington, Waldo, Piscataquis and Aroostook. On March 1, 2000, the Company's obligation to generate or otherwise supply electric energy terminated as part of the restructuring of the electric utility industry in Maine. Although the Company has no long- term supply responsibility, the Maine Public Utilities Commission (MPUC) can mandate that the Company be the default standard offer provider. In February 2001, the MPUC directed the Company to provide energy services to customers as the standard offer provider for the period March 1, 2001 through February 28, 2002. However, the MPUC has selected third party suppliers to provide energy services to customers as the standard offer provider for the period March 1, 2002 through February 28, 2003. (ii) New product or segment - Not applicable (iii) Sources and availability of raw materials Not applicable. The Company is primarily engaged in the delivery of electric energy. (iv) Franchises - Not applicable (v) Seasonal business Sales of electricity are highest during the winter months primarily due to heating requirements and fewer daylight hours. (vi) Working capital items The Company has been granted, through the ratemaking process, an allowance for working capital to operate its ongoing electric utility system. (vii) Single customer - Not applicable (viii) Backlog of orders - Not applicable (ix) Business subject to renegotiation - Not applicable (x) Competitive conditions The Company is a regulated public utility with an exclusive franchise to provide electricity delivery service within its service territory. (xi) Research and development - Not applicable (xii) Environmental matters See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Contingencies and Disclosures About Market Risk" and Item 8, "Notes to Consolidated Financial Statements - Note 14 - Contingencies" for a discussion of Environmental Matters. (xiii) Number of employees As of December 31, 2001, the Company had 423 full time employees. (d) Financial information about geographical areas - Not applicable ITEM 2 PROPERTIES The Company owns approximately 550 miles of transmission lines and approximately 4,600 miles of distribution lines to serve its customers in portions of the counties of Penobscot, Hancock, Washington, Waldo, Piscataquis and Aroostook, Maine. The Company owns a variety of customer and business information systems used to manage its business operations. Other properties consist of office, garage and warehouse facilities at various locations in its service area. Pursuant to the issuance of various first mortgage bond issues, all of the Company's property, real, personal or mixed, including real estate, easements, lines, poles, wires, generating stations, buildings and equipment, is subject to the lien of a Mortgage and Deed of Trust Securing First Mortgage Bonds dated as of July 1, 1936 as supplemented and amended, with Citibank, N.A. (formerly City Bank Farmers Trust Company) as Trustee. Pursuant to the issuance of various additional financings, all of BHE's property, real, personal or mixed, including real estate, easements, lines, poles, wires, generating stations, and buildings is further subject to the lien of a General and Refunding Mortgage Indenture and Deed of Trust dated as of June 1, 1995 as supplemented and amended, with The Chase Manhattan Bank (formerly Chemical Bank) as Trustee. This mortgage presently serves as a "second mortgage" on the Company's property, but is intended to become the Company's first mortgage once all outstanding first mortgage bonds are retired. ITEM 3 LEGAL PROCEEDINGS See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Recent Events Affecting the Company - Current Rate Filings." See also Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition - Contingencies and Disclosures About Market Risk" and Item 8, "Notes to Consolidated Financial Statements - Note 14 - Contingencies" for a discussion of potential liabilities under the Comprehensive Environmental Response, Compensation, and Liability Act. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At a meeting of shareholders held on December 19, 2001, the following actions were taken. Note that Common Shares are weighted at 1/12 of a vote per share in calculating the total vote. "Non-Votes" are the aggregation of unreturned ballots, abstentions, and ballots on which no vote was cast for the particular question. 1) Election of Directors: Nominees: Class I (for terms expiring in 2002): Robert S. Briggs Common For: 7,363,424 Common Against: 0 Preferred For: 36,541 Preferred Against: 440 Preferred Non-Vote: 10,359 Total For: 650,160 Total Against: 440 Total Non-Vote: 10,359 Norman A. Ledwin Common For: 7,363,424 Common Against: 0 Preferred For: 36,591 Preferred Against: 390 Preferred Non-Vote: 10,359 Total For: 650,210 Total Against: 390 Total Non-Vote: 10,359 Elizabeth A. MacDonald Common For: 7,363,424 Common Against: 0 Preferred For: 36,591 Preferred Against: 390 Preferred Non-Vote: 10,359 Total For: 650,210 Total Against: 390 Total Non-Vote: 10,359 Class II (for terms expiring in 2003): Jane J. Bush Common For: 7,363,424 Common Against: 0 Preferred For: 36,591 Preferred Against: 390 Preferred Non-Vote: 10,359 Total For: 650,210 Total Against: 390 Total Non-Vote: 10,359 David McD. Mann Common For: 7,363,424 Common Against: 0 Preferred For: 36,591 Preferred Against: 390 Preferred Non-Vote: 10,359 Total For: 650,210 Total Against: 390 Total Non-Vote: 10,359 Richard J. Smith Common For: 7,363,424 Common Against: 0 Preferred For: 36,591 Preferred Against: 390 Preferred Non-Vote: 10,359 Total For: 650,210 Total Against: 390 Total Non-Vote: 10,359 Class III (for terms expiring in 2004): Christopher G. Huskilson Common For: 7,363,424 Common Against: 0 Preferred For: 36,591 Preferred Against: 390 Preferred Non-Vote: 10,359 Total For: 650,210 Total Against: 390 Total Non-Vote: 10,359 Carroll R. Lee Common For: 7,363,424 Common Against: 0 Preferred For: 36,591 Preferred Against: 390 Preferred Non-Vote: 10,359 Total For: 650,210 Total Against: 390 Total Non-Vote: 10,359 Ronald E. Smith Common For: 7,363,424 Common Against: 0 Preferred For: 36,591 Preferred Against: 390 Preferred Non-Vote: 10,359 Total For: 650,210 Total Against: 390 Total Non-Vote: 10,359 2) RESOLVED that the Articles of Incorporation of the Company, as amended to date, be further amended to reduce the minimum number of Directors of the Company from 9 Directors to 3 Directors. Common For: 7,363,424 Common Against: 0 Preferred For: 35,250 Preferred Against: 1,614 Preferred Non-Vote: 10,516 Total For: 648,829 Total Against: 1,614 Total Non-Vote: 10,516 3) RESOLVED that the By-Laws of the Company, as amended to date, be further amended to eliminate the requirement that Directors be stockholders of the Company, thereby conforming the Company's By-Laws with the minimum requirement under the Maine Business Corporations Act. Common For: 7,363,424 Common Against: 0 Preferred For: 14,214 Preferred Against: 3,785 Preferred Non-Vote: 29,341 Total For: 627,833 Total Against: 3,785 Total Non-Vote: 29,341 4) RESOLVED that the By-Laws of the Company, as amended to date, be further amended to remove references to and special conditions related to the 8.76% series of non-voting preferred stock, such series having been redeemed in 1999. Common For: 7,363,424 Common Against: 0 Preferred For: 17,182 Preferred Against: 136 Preferred Non-Vote: 30,022 Total For: 627,833 Total Against: 136 Total Non-Vote: 30,022 5) RESOLVED to ratify and approve the actions of the Officers and the Board of Directors taken since the most recent Annual Meeting of Shareholders. Common For: 7,363,424 Common Against: 0 Preferred For: 34,674 Preferred Against: 297 Preferred Non-Vote: 12,369 Total For: 648,293 Total Against: 297 Total Non-Vote: 12,369 ------------------------------------- Executive officers of the Registrant Name Age Positions, offices and business experience - January 1997 to date Carroll R. Lee 52 President (from October 17, 2001); Senior Vice President and Chief Operating Officer prior thereto. Frederick S. Samp 51 Vice President - Finance & Law; Chief Financial Officer Paul A. LeBlanc 54 Vice President - Human Resources & Information Services The officers hold office until their respective successors are elected and qualified. PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS BHE Holdings Inc., a wholly-owned subsidiary of Emera, owns all of the Company's common stock. For information regarding dividends declared see Item 8 - Consolidated Statements of Income; Consolidated Statements of Cash Flows; and Consolidated Statement of Common Stock Investment. BANGOR HYDRO-ELECTRIC COMPANY Item 6 Selected Financial Data Six-Year Statistical Summary (Unaudited)
2001 2000 1999 1998 1997 1996 Megawatt Hours (MWH) Generated And Purchased Hydro Generation (Company) 65,392 90,719 205,265 275,379 262,377 321,532 Nuclear Generation (Maine Yankee) - - - - - 348,719 Oil (Company) 2,435 3,142 69,026 96,476 69,580 26,912 Biomass/Refuse 150,401 152,060 137,384 156,051 159,990 163,279 NEPOOL/Other Purchases 1,782,797 1,914,615 1,629,643 1,522,125 1,583,093 1,359,116 ----------- ----------- ----------- ----------- ----------- ----------- Total Generated & Purchased 2,001,025 2,160,536 2,041,318 2,050,031 2,075,040 2,219,558 Less Line Losses and Company Use 130,067 140,470 143,198 139,028 147,298 141,426 ----------- ----------- ----------- ----------- ----------- ----------- Remainder-MWH sold 1,870,958 2,020,066 1,898,120 1,911,003 1,927,742 2,078,132 =========== =========== =========== =========== =========== =========== Classification of Sales-MWH Residential 546,144 558,596 533,566 522,836 533,161 536,490 Commercial 583,829 570,963 545,087 524,292 515,904 508,331 Industrial 462,792 604,959 667,059 662,382 687,365 652,087 Lighting 8,742 8,859 8,911 8,901 8,780 8,945 Wholesale 2,676 2,799 2,716 2,704 3,841 4,486 ----------- ----------- ----------- ----------- ----------- ----------- Total MWH Billed to Customers 1,604,183 1,746,176 1,757,339 1,721,115 1,749,051 1,710,339 Unbilled Sales-Net Increase (Decrease) 4,343 2,629 11,772 1,040 33,011 2,998 ----------- ----------- ----------- ----------- ----------- ----------- Total Delivered Sales (MWH) 1,608,526 1,748,805 1,769,111 1,722,155 1,782,062 1,713,337 (Less) Interruptible Sales 22,305 178,943 230,378 248,091 265,438 237,553 ----------- ----------- ----------- ----------- ----------- ----------- Total Firm Delivered Sales (MWH) 1,586,221 1,569,862 1,538,733 1,474,064 1,516,624 1,475,784 Off-System Sales 262,432 271,261 129,009 188,848 145,680 364,795 ----------- ----------- ----------- ----------- ----------- ----------- Total Energy Sales (MWH) 1,870,958 2,020,066 1,898,120 1,911,003 1,927,742 2,078,132 =========== =========== =========== =========== =========== =========== Electric Operating Revenues and Expenses (000's) Electric Operating Revenues Residential $ 50,264 $ 57,746 $ 73,304 $ 71,396 $ 67,532 $ 66,805 Commercial 37,795 44,329 63,093 60,191 55,391 54,010 Industrial 15,516 23,749 43,560 42,645 41,930 39,105 Lighting 1,837 1,929 2,268 2,207 2,065 2,032 Wholesale 19 63 220 235 310 314 ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue from Customers $ 105,431 $ 127,816 $ 182,445 $ 176,674 $ 167,228 $ 162,266 Standard Offer Service Revenue 84,589 66,134 - - - - ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Revenue $ 190,020 $ 193,950 $ 182,445 $ 176,674 $ 167,228 $ 162,266 Unbilled Sales-Net Increase (Decrease) 815 (5,014) 2,042 481 2,375 408 ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue $ 190,835 $ 188,936 $ 184,487 $ 177,155 $ 169,603 $ 162,674 (Less) Interruptible Revenue 1,687 4,973 10,049 11,064 11,215 9,537 ----------- ----------- ----------- ----------- ----------- ----------- Total Firm Revenue $ 189,148 $ 183,963 $ 174,438 $ 166,091 $ 158,388 $ 153,137 Off-System Revenue 19,125 19,352 12,947 14,630 13,615 18,384 ----------- ----------- ----------- ----------- ----------- ----------- Total Electric Operating Revenues $ 209,960 $ 208,288 $ 197,434 $ 191,785 $ 183,218 $ 181,058 =========== =========== =========== =========== =========== =========== Operating Expenses Fuel for Generation and Purchased Power $ 34,299 $ 44,144 $ 80,748 $ 82,027 $ 92,792 $ 78,477 Standard Offer Service Purchased Power 82,839 65,553 - - - - Operating and Maintenance Expense 38,868 37,212 36,492 34,448 32,471 32,441 Depreciation and Amortization 26,205 26,776 30,565 31,891 35,104 29,965 Taxes 11,752 12,228 14,032 11,642 3,168 10,249 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Expenses $ 193,963 $ 185,913 $ 161,837 $ 160,008 $ 163,535 $ 151,132 =========== =========== =========== =========== =========== =========== Summary of Operations (000's) Operating Revenue $ 217,580 $ 212,338 $ 197,994 $ 195,144 $ 187,324 $ 187,374 Operating Expenses 193,963 185,913 161,837 160,008 163,535 151,132 Other Income (Loss) (including equity AFDC) (654) 613 2,806 1,292 1,292 1,466 Interest Expense (net of borrowed AFDC) 14,273 15,936 20,683 24,963 25,467 26,425 ----------- ----------- ----------- ----------- ----------- ----------- Net Income (Loss) $ 8,690 $ 11,102 $ 18,280 $ 11,465 $ (386) $ 11,283 Less Preferred Dividends 266 266 945 1,244 1,376 1,537 ----------- ----------- ----------- ----------- ----------- ----------- Earnings (Loss) on Common Stock $ 8,424 $ 10,836 $ 17,335 $ 10,221 $ (1,762) $ 9,746 =========== =========== =========== =========== =========== ===========
BANGOR HYDRO-ELECTRIC COMPANY Item 6 Selected Financial Data Six-Year Statistical Summary (Unaudited)
2001 2000 1999 1998 1997 1996 Selected Financial Data Total Assets (000's) $ 678,245 $ 532,220 $ 543,950 $ 605,688 $ 600,583 $ 556,629 Electric Plant (000's) Total Electric Plant $ 341,143 $ 327,247 $ 318,435 $ 372,782 $ 358,878 $ 341,526 Depreciation Reserve 93,985 86,684 84,825 101,633 96,595 87,736 ----------- ----------- ----------- ----------- ----------- ----------- Net Electric Plant $ 247,158 $ 240,563 $ 233,610 $ 271,149 $ 262,283 $ 253,790 =========== =========== =========== =========== =========== =========== Capitalization (000's) Short-Term Debt $ 8,000 $ - $ - $ 12,000 $ 34,000 $ 32,500 Long-Term Debt 131,968 161,960 183,300 263,028 221,643 274,221 Redeemable Preferred Stock - - - 7,604 9,137 10,670 Preferred Stock 4,734 4,734 4,734 4,734 4,734 4,734 Common Equity 205,557 137,420 132,722 118,864 106,558 108,321 ----------- ----------- ----------- ----------- ----------- ----------- Total $ 350,259 $ 304,114 $ 320,756 $ 406,230 $ 376,072 $ 430,446 =========== =========== =========== =========== =========== =========== Capital Structure Ratios (%) Short-Term Debt 2.3 % - % - % 3.0 % 9.1 % 7.5 % Long-Term Debt 37.7 % 53.2 % 57.1 % 64.7 % 58.9 % 63.7 % Preferred Stock 1.3 % 1.6 % 1.5 % 3.0 % 3.7 % 3.6 % Common Stock 58.7 % 45.2 % 41.4 % 29.3 % 28.3 % 25.2 % ----------- ----------- ----------- ----------- ----------- ----------- Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % =========== =========== =========== =========== =========== =========== Miscellaneous Statistics Shares Outstanding (Average) 7,363,424 7,363,424 7,363,424 7,363,424 7,363,424 7,336,174 Shares Outstanding (Year End) 7,363,424 7,363,424 7,363,424 7,363,424 7,363,424 7,363,424 Number of Common Stockholders (Year End) 1 6,222 5,678 6,328 6,868 7,734 Basic Earnings (Loss) Per Common Share $ 1.14 $ 1.47 $ 2.35 $ 1.39 $ (0.24) $ 1.33 Diluted Earnings (Loss) Per Common Share $ 1.08 $ 1.30 $ 2.08 $ 1.33 $ (0.24) $ 1.33 Dividends Declared Per Common Share $ 0.60 $ 0.80 $ 0.45 $ - $ - $ 0.72 Book Value Per Common Share $ 17.26 $ 18.66 $ 18.02 $ 16.14 $ 14.47 $ 14.71 Return on Common Equity 6.30 % 7.98 % 13.81 % 9.11 % (1.64)% 9.09 % Ratio of AFDC to Common Stock Earnings 14 % 3 % (4)% 11 % (48)% 12 % Ratio of Earnings to Fixed Charges 1.89 % 2.11 % 2.25 % 1.59 % 0.86 % 1.50 % Payout Ratio 53 % 54 % 26 % - % - % 54 % Percentage of Construction Expenditures Funded Internally 100 % 100 % 100 % 100 % 100 % 100 % =========== =========== =========== =========== =========== =========== Residential Customer Data Average Number of Customers 93,398 92,656 91,726 90,888 90,433 89,769 Kilowatt-Hours per Customer 5,847 6,029 5,817 5,753 5,896 5,976 Revenue per Customer $ 538.17 $ 623.23 $ 799.16 $ 785.54 $ 746.76 $ 744.19 Revenue per Kilowatt-Hour in Cents 9.20 10.34 13.74 13.65 12.67 12.45 =========== =========== =========== =========== =========== =========== Miscellaneous System Data Net System Capability at Time of Peak (MW) Firm* 182.23 98.98 273.72 381.54 344.44 373.04 System Peak Demand (MW) 290.37 304.71 293.08 281.63 277.06 274.32 Reserve Margin at Time of Peak** (37.2)% (67.5)% (6.6)% 35.5 % 24.3 % 36.0 % System Load Factor 68.4 % 70.8 % 74.5 % 75.4 % 79.5 % 77.0 % =========== =========== =========== =========== =========== =========== * The net system capability was reduced subsequent to the generation asset sale, which accord in May 1999.. ** While the reserve margin at time of peak in 2001, 2000 and 1999 was negative, the system requirements were met through spot market purchases.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RECENT EVENTS AFFECTING THE COMPANY MERGER WITH EMERA - In early October 2001, final regulatory approvals for the merger between the Company and Emera, Inc. (Emera) were received. On October 10, 2001, Emera completed the acquisition of all of the outstanding common stock of the Company for US$26.806 per share in cash. The purchase increases Emera's customer base by 25% and broadens the Company's presence in the expanding northeast energy market. Emera also owns Nova Scotia Power, a fully integrated electric utility that supplies substantially all of the generation, transmission and distribution of electricity in Nova Scotia; and has an interest in the Maritimes & Northeast Pipeline, which transports Sable natural gas through Maine to Boston. The acquisition transaction was accounted for using purchase accounting. The cost in excess of the fair value of the net assets acquired, amounting to approximately $82.5 million at December 31, 2001, is recorded as goodwill on the consolidated balance sheets. Emera is a diversified energy and services company, with about 440,000 customers and (Cdn)$2.9 billion in assets. It owns 100% of Nova Scotia Power, Inc., the primary electricity supplier in the province of Nova Scotia. Emera's energy product line also includes bunker oil, diesel fuel and light fuel oil, and the company has a 12.5% interest in the Maritimes & Northeast Pipeline, which delivers Sable Island natural gas to markets in Maritime Canada, and the northeastern United States. CURRENT RATE FILINGS - On October 12, 2001, the Company filed a proposal with the MPUC for an alternative rate plan (ARP) that would govern its rates for distribution service over a four year period. Such a filing was required by the Maine Public Utilities Commission (MPUC) as a condition of its approval of the Company's acquisition by Emera. In addition to distribution service rates, the Company's ARP proposal included proposed incentives to improve the efficiency and the service quality of power delivery services to Bangor Hydro's customers. The Company's proposal included an initial increase in distribution rates of approximately $3.4 million, with additional annual adjustments during the term of the ARP at a rate below that of inflation. However, as a result of a scheduled reduction in standard offer service, the combined impact of rate changes for most customers would be a reduction of approximately 10% (or about $8 per month for a typical residential customer) during 2002. There is no legal deadline for the MPUC to complete such a proceeding. On October 18, 2001, the Company filed a notice of its intent to file a request for a general increase in distribution rates of approximately $6.4 million. Under Maine law, utilities are required to provide a minimum of sixty days notice of their intent to file such a request. This filing was made as an alternative to the Company's ARP filing, although it does not preclude simultaneous or subsequent implementation of an ARP. Once filed, the MPUC must process such a request within nine months. In November 2001, the MPUC Hearing Examiner administering the ARP proceeding suspended that proceeding pending the Company's filing of a request for a general increase in distribution rates. On January 11, 2002, the MPUC requested comments on a Draft Order that would initiate a management investigation of the Company, as permitted by Maine law, as part of its investigation of the Company's anticipated request for a general increase in distribution rates. On January 17, 2002, in response to this Draft Order, the Company offered to defer filing its request for a general increase in distribution rates and asked the MPUC to defer initiating the management investigation to permit the Company and interested parties a three month period to pursue a settlement of the ARP proceeding with the expectation that such a settlement would also terminate the proposed request for a general increase in rates and the management investigation. At a deliberative session held on January 22, 2002, the MPUC deferred issuing an order initiating a management investigation for 90 days to allow the parties to pursue a settlement of these related rate matters. On February 14, 2002, the Company presented to the MPUC a proposed resolution of the ongoing ARP proceeding that calls for a multi-year freeze in the distribution portion of the Company's electric rates. In order to comply with such a rate freeze without an adverse impact on the Company's earnings, the Company believes that it will be necessary to implement significant reductions in its operating costs as compared to current levels. The Company believes that such operating cost reductions can be implemented without adversely affecting service quality. At this time, however, management cannot predict the outcome of the ARP proceeding with the MPUC, and the Company has not identified the timing or the nature of the cost reductions to be implemented. RESULTS OF OPERATIONS EARNINGS - Basic earnings per common share were $1.14, $1.47, and $2.35, for the years ended 2001, 2000 and 1999, respectively. The earned return on average common equity was 6.3% in 2001, 8% in 2000 and 13.8% in 1999. The reduction in earnings in 2001 as compared to 2000 was due to several factors. In 2001, the Company incurred approximately $3.9 million ($.33 reduction in earnings per common share) of costs associated with the merger with Emera, as compared to $3 million in 2000 ($.24 reduction in earnings per common share). Also, in 2001, as a result of a settlement of certain issues with the parties participating in the Company's stranded cost rate filing with the MPUC, the Company charged to expense approximately $1.7 million ($.13 reduction in earnings per common share). Finally negatively impacting earnings in 2001 was the establishment of a $615,000 reserve ($.05 reduction in earnings per common share) associated with adjustments to revenue related to filings with the New England Power Pool (NEPOOL). The relatively high level of earnings in 1999 as compared to 2000 was in part attributable to a number of one-time benefits in 1999 amounting to approximately $.52 per common share. The largest of these was a $1.5 million income tax benefit recorded in the fourth quarter of 1999 (approximately $.20 per common share) from the flow through of unamortized deferred investment tax credits and excess deferred income taxes associated with the 1999 sale of the Company's generation assets. Other one-time items for 1999 include a gain on the sale of a subsidiary as part of the mandatory divestiture of generation assets (approximately $.04 per common share after taxes) recorded in the third quarter of 1999. In the second quarter the Company recorded a one-time benefit of $896,000 ($.07 per common share after taxes) because of the settlement of a dispute related to the NEPOOL transmission rates, and in the first quarter the Company recorded a one-time benefit of $802,000 ($.07 per common share after taxes) due to the settlement by the NEPOOL of a contract dispute with Hydro-Quebec (HQ). Finally, in 1999 the Company participated in a major construction project for a third party unrelated to its core utility business. This activity, now completed, allowed the Company to charge some of its fixed costs directly to that third party resulting in a reduction to operation and maintenance expense and producing a benefit to 1999 earnings of $.14 per common share after taxes. Several other major changes account for the difference between 2000 and 1999 earnings. The largest change is attributable to new rates implemented by order of the MPUC effective March 1, 2000 that reflect a lower authorized return on equity of 11% in Maine's restructured electric industry. Also affecting earnings in 2000 were costs billed to the Company associated with transmission constraints in New England ($.15 per common share after taxes), as well as the recognition of costs related to the merger ($.24 per common share after taxes) with Emera, and a write-off associated with power costs to replace generation from the Maine Yankee nuclear power plant ($.16 per common share after taxes). Somewhat offsetting these charges to earnings was a $1.2 million ($.10 per common share after taxes) gain on the sale of the Company's wholly-owned subsidiary, Penobscot Natural Gas (Penobscot Gas). REVENUES - With the previously discussed implementation of competition in the electric utility industry starting March 1, 2000, and excluding the standard-offer service, the Company is no longer selling electricity to customers. The Company's T&D and stranded cost charges to customers, though, continue to be based on customers' electricity usage measured in kilowatt-hours (kWh). Consequently, discussion related to electric operating revenues will continue to have a kWh sales, or hereafter referred to as "energy sales" component. With the implementation of retail competition effective March 1, 2000, comparisons of electric operating revenues for 2001 as compared to 2000 are difficult. Total electric operating revenues, including standard- offer service, increased by approximately $5.2 million, or 2.5%, in 2001 in comparison to 2000. Principally as a result of increases in standard-offer service rates as ordered by the MPUC in 2000 and 2001, electric operating revenues attributable to energy sales were approximately $13.6 million higher in the 2001. From the March 1, 2000 through March 1, 2001, the cumulative increase in standard-offer service rates was approximately 60%. This impact of the increased standard-offer rates was offset to some extent by an 8% reduction in total energy sales in 2001, due principally to the shutdown of the Company's largest retail customer, HoltraChem Manufacturing Company (HoltraChem) in September 2000, the weak economy in the Company's service territory and by the impacts of warmer than average weather in 2001. Effective July 1, 2001, and providing for an increase in revenues, the Company entered into a special rate contract with a large industrial customer to provide fully bundled electric service (both T&D and energy) to this customer. Formerly, the Company was only providing T&D service to this customer. The Company has entered into a power purchase contract to procure the power necessary to serve this customer under this contract. Principally as a result of the new contract, the Company recognized approximately $2.8 million in greater electric operating revenues associated with this customer in 2001 as compared to 2000. Other revenues, which decreased by approximately $8.3 million in the 2001 period, were most affected by a $11.8 million reduction in revenues associated with the standard-offer service deferral mechanism. In 2001, the Company's energy sales related to standard-offer revenues were greater than the associated costs of providing the standard-offer service, and consequently the Company's recorded reductions in other revenues of approximately $8.8 million. In the 2000 period, starting March 1, the Company recorded additional other revenues of approximately $3 million as a result of standard-offer costs exceeding energy sales related standard-offer revenues. The decreased other revenues in 2001 were offset to some extent by Holtrachem revenue sharing, which was a $1.1 million reduction in revenues in 2000, while, as a result of the Holtrachem plant shutdown, there was no revenue sharing in 2001. Electric operating revenue increased by $14.3 million in 2000 as compared to 1999 due to several factors. Other revenues (not attributable to kWh sales) were approximately $12.7 million greater in 2000 as compared to 1999 due principally to four factors. First, as a result of the previously discussed deferral mechanism for the standard- offer service revenues and costs, the Company recorded additional revenue of $3 million in 2000 to recognize the standard-offer service expenses in excess of revenues. Off-system sales, which are sales related to power pool and interconnection agreements and resales of purchased power, were approximately $6.4 million higher in 2000 as a result of the Company's requirement to resell the capacity and energy from its six purchased power contracts pursuant to Chapter 307 of Maine's 1997 law restructuring the State's electric industry (See the Note 7 to the Consolidated Financial Statements for a more complete discussion). Also, primarily as a result of electric generators in the Company's service territory wheeling power over the Company's transmission lines and out of its service territory, the Company recorded approximately $1.8 million in higher transmission wheeling revenues in 2000 as compared to 1999. Finally, in 2000 the Company recorded approximately $1.4 million of revenues associated with the previously discussed deferral mechanism for special rate contracts. Total electric operating revenues attributable to energy sales were $1.6 million greater in 2000 than in 1999. Total energy sales were 1.2% or 20.3 million KWH's lower in 2000 as compared to 1999, largely attributable to reduced sales to the Company's largest special rate contract customers (64.5 million KWH reduction in energy sales and $6.9 million reduction in electric operating revenues). These reduced special contract customer sales and revenues were attributable to the previously discussed shutdown of Holtrachem on September 15, 2000, and sales to another large industrial customer in 2000. Sales to this customer, which contribute a relatively low profit margin to the Company, can vary greatly from year to year as they own self-generation facilities. Reduced revenues for this group of customers were also affected by certain of these large customers choosing a competitive electricity supplier starting March 1, 2000 (197.5 million KWH's or 62% of total large special contract energy sales for the period from March through December 2000) and not contributing to the Company's standard- offer service revenues. For those who have chosen standard-offer service, corresponding revenues have been impacted by the various associated rate changes in 2000 discussed below. Exclusive of the Company's largest special contract customers, total T&D and stranded cost revenues related to energy sales were $8.5 million higher in 2000 as compared to 1999 principally as a result of a 5.3% increase in energy sales and effect of various rate changes discussed below. As with the large special contract customers, certain non-special contract commercial customers have been able to purchase electricity from competitive energy providers starting in March 2000 (37 million KWH's or 3% of total non-special contract energy sales for the period from March through December 2000), and consequently, the Company's electric operating revenues have been reduced. The increased energy sales in 2000 were impacted by the previously discussed strength in the local economy and colder weather in 2000 as compared to 1999. As a result of the February 2000 rate order from the MPUC, the Company's overall rates, including the impact of the initial standard- offer prices, were reduced by approximately 2.9% starting March 1, 2000. The Company has also implemented various rate changes for its standard-offer service as approved by the MPUC. The result of these standard-offer rate changes for the period from March 1 through October 1, 2000 was an increase in the standard-offer prices of 36% for residential and small commercial customers and 25% for large industrial customers as compared to the prices when initially set by the MPUC on March 1, 2000. EXPENSES - Total fuel for generation and purchased power expense, including the standard offer, increased approximately $7.4 million in 2001 as compared to 2000. Standard offer purchased power expense for the comparable periods of March through December of each year was $3.5 million higher in 2001. The increase is due to higher power prices, offset by reductions in standard offer sales. Also, in connection with the previously discussed new special rate contract with a large industrial customer, in 2001 the Company incurred $2.3 million of purchased power expense associated with serving this customer. Further increasing purchased power expense in 2001 was the establishment of the previously discussed reserve in connection with potential regulatory loss exposure. Also increasing purchased power expense was the recording of a $615,000 reserve associated with adjustments to revenue related to filings with the NEPOOL. Finally, in the first two months of 2001, purchased power costs were also higher, since the Company purchased significantly more power on the spot power market as compared to 2000 as a result of the expiration of the power contracts that had been in place in the 2000 period. Further, the market prices for power were higher due to higher fuel prices and possibly lack of sufficient competition in the generation market. Offsetting these increases to some extent in 2001 were lower transmission related costs, including those associated with NEPOOL. In 2001, the Company also realized reduced transmission costs as a result of the construction of additional qualifying transmission facilities whose costs are recoverable from the other NEPOOL transmission owners. Fuel for generation and purchased power expense increased $28.9 million in 2000 as compared to 1999. Total power purchases in 2000 were fairly consistent with those in 1999 due to the Company continuing to fulfill its long-term power purchase contract obligations subsequent to the implementation of the electric industry restructuring on March 1, 2000 and also procuring power to serve the standard-offer load. In 2000, though, the Company purchased significantly more power on the spot power market as compared to 1999 as a result of having fewer power contracts in place than in 1999. These factors resulted in higher fuel and purchased power costs in 2000. With more of the Company's power purchases being made in the spot power market in 2000, the price of the power was negatively affected by very high oil prices in 2000 and new market rules implemented by NEPOOL in May 1999, which set prices for replacement purchases from the pool at market levels related to supply and demand as opposed to actual marginal fuel costs. Also impacting power cost increases in each year were very unusual circumstances in NEPOOL for one day in each of the respective years, with record- breaking loads occurring while many generators were still out of service for maintenance. The result was on-peak power prices that, for the June 1999 event were two to three times as great as would normally occur during June. However, the May 2000 event resulted in prices that were approximately five times as high as the prices paid on the comparable day in June 1999. The Company incurred approximately $2 million more in purchased power costs on the day in 2000 as compared to the day in 1999. In connection with the previously discussed standard- offer service deferral mechanism, the high power costs for the day in May 2000 have been deferred and are recoverable from customers in the future. Increased fuel and purchased power expense was also impacted by higher ISO New England (ISO) expenses in 2000 as compared to 1999, due to the implementation of NEPOOL new market rules in May 1999 and $1.9 million in previously discussed ISO costs in 2000 associated with transmission constraints. Also increasing fuel and purchased power expense in 2000 was $2 million charged to expense in connection with the previously discussed write-off associated with power costs to replace generation from the Maine Yankee nuclear power plant. The increased expense in 2000 as compared to 1999 was also due to the previously discussed settlement of the dispute with HQ which resulted in a $747,000 reduction in expense in the first quarter of 1999, and the settlement of a dispute related to NEPOOL, which resulted in a $896,000 reduction in expense in the second quarter of 1999. Other operation and maintenance (O&M) expense increased by approximately $1.7 million in 2001 relative to 2000. The single largest item impacting the increased expense was related to pension expense, which was approximately $1.4 million greater in 2001 as compared to 2000. This was due principally to changes in actuarial assumptions used in calculating pension expense and the end of the amortization of the transition pension benefit in 2001. Also in 2001, bad debt expense increased by approximately $610,000 due to the write-off of amounts associated with the Chapter 11 bankruptcy filing of a large industrial customer, a greater level of write-offs of standard offer receivables and in 2000 bad debt expense was reduced by a $200,000 decrease in the reserve for bad debts. These increases were offset to some extent by a reduction in legal and regulatory related costs in 2001, as there was a greater level of regulatory activities in 2000 in relation to 2001. Other O&M expense increased by approximately $720,000 in 2000 as compared to 1999. Increasing other O&M expense in 2000 was a $1.7 million increase in O&M payroll due principally to less labor in 2000 being charged to capital projects as compared to 1999 as a result of less construction activity in 2000, and the impact of a 4% wage rate increase for bargaining unit employees on January 1, 2000 and various wage rate increases for non-bargaining unit employees. Further increasing other O&M in 2000 was the amortization expense of approximately $680,000 associated with incremental costs deferred in connection with the implementation of the electric utility industry restructuring (see Note 11 to the Consolidated Financial Statements). Recovery of the cost deferrals was allowed in rates in the Company's February 2000 rate order from the MPUC over a three year period starting March 1, 2000. Decreasing other O&M expense in 1999 was a $706,000 increase in overhead expenses allocated to capital projects. This increased overhead allocation in 1999 was principally a result of major construction activities being performed by the Company in connection with the Maine Independence Station, a new 520 megawatt gas fired generation facility in Veazie, Maine, which has subsequently become operational and is connected to the regional transmission power grid. The Company was reimbursed by the owner of the facility for the construction costs incurred, including overhead expense. Offsetting these increases to some extent in 2000 was a $1.3 million decrease in incremental expenditures related to electric utility industry restructuring activities, costs associated with assessment and testing of systems for year 2000 compliance, and an upgrade to the Company's customer information system which was completed in May 1999. Also reducing other O&M expense in 2000 was a decrease in pension and other postretirement benefit expense of $1 million, resulting principally from plan amendments in 1999 and changes in actuarial assumptions. Depreciation and amortization expense increased by approximately $866,000 in 2001 relative to 2000 and by approximately $1.1 million in 2000 as compared to 1999 due principally to two factors, the first being additions to the Company's electric plant in service in both 2001 and 2000. Also increasing depreciation expense in 2001 was the effect of a depreciation study conducted in December 1996, which determined that the Company's reserve for depreciation was overaccumulated by approximately $3.6 million. In connection with the MPUC's rate order in February 1998, the Company was allowed to amortize this balance over a two-year period, starting in February 1998. The amortization was increased in June 1999 as a result of the Company's generation asset sale. See Note 1 to the Consolidated Financial Statements for a complete discussion of this transaction. The amortization recorded as a reduction in depreciation expense in 1999 amounted to $2.2 million as compared to $308,000 of amortization in 2000. The Company's expenses over the period 1999-2001 have been significantly affected by amortizations authorized by the MPUC and charged annually against earnings. The MPUC has specifically authorized the inclusion of these expenses in the Company's electric rates. Absent such regulatory authority, the expenses that gave rise to the amortizations would have been charged to operations when incurred. Instead, the recognition of such expenses have been deferred, and appear on the Consolidated Balance Sheets as assets on the strength of the regulatory authority to amortize them and to collect these amounts from customers (thus the term "regulatory assets"). Although there are a number of such authorized amortizations, the major ones are the allowable recovery of the Company's abandoned investment in the Seabrook nuclear project and the costs associated with the 1993 and 1995 purchased power contract terminations. The Company's recoverable investment in Seabrook Unit 1 is being amortized at a rate of $1.7 million per year, beginning in 1985, for a period of 30 years. Effective March 1, 1994, as authorized in the base rate order from the MPUC, the Company began amortizing the deferred costs associated with the Beaver Wood purchased power contract termination at a rate of $3.9 million annually over a nine-year period. With the July 1, 1997 temporary rate increase, the MPUC required the Company to accelerate the amortization of this deferred regulatory asset. Effective December 12, 1997, the MPUC ordered the amortization of this regulatory asset to be returned to the level before the temporary rate order. Effective with the rate order in February 1998, the amortization was reduced, so that the unamortized balance of the regulatory asset would be the same as under the original amortization schedule as of March 1, 2000. Consequently, as a result of the rate orders, amortization associated with this regulatory asset was $3.9 million in 2001, $3.7 million in 2000 and $2.8 million in 1999. The approximately $170 million of costs associated with the 1995 purchased power contract buy-back were deferred and recorded as a regulatory asset, to be amortized and collected over a ten-year period, beginning July 1, 1995. Amortization expense related to this contract buyout amounted to $17 million in each of 2001, 2000 and 1999. Prior to the implementation of new rates in March 2000, the Company was recovering deferred PERC restructuring costs at an annual rate of $1 million. Effective March 1, 2000, recovery of PERC restructuring costs was adjusted to include the estimated future value of warrants to be exercised. The adjusted annual amortization amounted to $1.6 million. The amortization expense associated with PERC contract restructuring costs was $1.6 million in 2001, $1.5 million in 2000 and $1 million in 1999. In connection with the electric utility industry restructuring in Maine, the Company was required to sell its generation related assets. As a result, in May 1999 the Company completed the sale of its generation assets and certain transmission rights to PP&L Global, Inc. (PP&L). The Company realized a gain on this sale of approximately $29.8 million, of which $29.3 million was required by the MPUC to be deferred for the future benefit of ratepayers. Effective with the implementation of new rates on March 1, 2000, the Company began amortizing the deferred asset sale gain over a 70 month period. The annual amortization amounts are to be recorded in an uneven manner in order to levelize the Company's revenue requirement over this period. As a result of an increase in the Company's FERC regulated transmission rates on June 1, 2000, and the desire to not increase rates to its retail customers close to the implementation of electric industry restructuring, which occurred on March 1, 2000, the Company agreed to reduce its MPUC jurisdictional distribution rates in an amount equal to the increase in its transmission rates. The reduction in the distribution rates was accomplished by accelerating the amortization of the deferred asset sale gain through May 2001 by an annualized total of $2.5 million. Effective April 15, 2001, and through February 28, 2002, in an effort to mitigate the effects of increased energy prices for the Company's large customers, the MPUC ordered the Company to reduce its distribution and stranded cost electric rates to certain large customers by $.008/kWh. To fund this rate reduction and corresponding decrease in revenues, the MPUC ordered the Company to accelerate the amortization of the deferred asset sale gain in an amount necessary to offset the estimated decrease in revenues caused by the rate reduction. The asset sale gain amortization is expected to be increased by approximately $2.5 million over the 10 1/2 month period the reduced rates are in effect. Also, the Company's FERC jurisdictional transmission rates changed on June 1, 2001. Consistent with 2000, the Company has proposed to reduce its distribution rates via an adjustment to the asset sale gain amortization to offset the change in the transmission rates effective June 1, 2001. The annualized accelerated amortization associated with the transmission rate change amounts to approximately $1.6 million and ends in May 2002. The increase in property and other taxes in 2001 relative to 2000 was due primarily to higher property taxes, resulting from electric plant additions and increased property tax rates. The decrease in property and other taxes in 2000 period was due principally to reductions in property taxes as a result of the sale of the Company's generation assets. This reduction in property taxes was offset to some extent by increased electric plant additions and higher property tax rates. The decrease in total federal and state income taxes for both 2001 as compared to 2000 and for 2000 in relation to 1999 was principally a function of lower earnings in 2001 and 2000 as compared to the prior years. See Footnote 2 to the Consolidated Financial Statements for a reconciliation of the Company's effective income tax rate. OTHER INCOME AND (DEDUCTIONS) AND INTEREST EXPENSE - Allowance for funds used during construction (AFDC), which includes carrying costs on certain regulatory assets and liabilities, increased by $445,000 in 2001 relative to 2000 due mainly to approximately $526,000 in carrying costs being recorded on the deferred asset sale gain in 2000. The Company also recorded increased carrying costs on exercised PERC common stock warrants in 2001 relative to 2000. Offsetting these increases to some extent was less AFDC associated with lower levels of construction in 2001. AFDC increased by approximately $940,000 in 2000 relative to 1999 due mainly to a $1.25 million increase in carrying costs being recorded on the deferred asset sale gain in 1999. This increase was offset to some extent by a $378,000 reduction in AFDC being recorded on construction work in progress in 2000 due principally to decreased construction costs. Other income, net of income taxes decreased by approximately $1.7 million in 2001 principally as a result of the previously discussed $1.2 million gain on the sale of Penobscot Gas in 2000. Also incremental costs associated with the Company's merger with Emera were $3.9 million in 2001 as compared to $3 million in 2000. Finally, investment income decreased by approximately $539,000 in the 2001 period due principally to reductions in the Company's available cash balances from the 1999 generation asset sale (see the section on Liquidity and Capital Resources). Other income decreased by approximately $2.7 million in 2000 relative to 1999 principally as a result of a $1.5 million income tax benefit recorded in 1999 associated with the flow-through of unamortized investment tax credits and excess deferred income taxes related to generation assets sold to PP&L in May 1999 and the effect of incremental merger related costs ($1.8 million, net of tax) incurred in 2000. Also decreasing other income in 2000 as compared to 1999 was a $310,000, net of tax, gain on sale of the Company's wholly-owned subsidiary, Penobscot Hydro Co., Inc. (Penobscot Hydro), in July 1999 (See Note 7 to the Consolidated Financial Statements for a discussion of this sale). These decreases in other income in 2000 were offset to some extent by the previously discussed gain on sale of Penobscot Gas in 2000. Long-term debt interest expense decreased $1.4 million in 2001 in relation to 2000 due primarily to repayments on the Company's long-term debt in each year. In June 2001 and June 2000, the Company made $15.1 million and $14 million in principal payments, respectively, on the Finance Authority of Maine (FAME) Revenue Notes. Also, monthly principal payments on the $24.8 million medium term notes amounting to approximately $6.2 million and $5.5 million, respectively, in 2001 and 2000. These were offset to some extent by interest expense in 2001 associated with a $13.7 million note established in October 2001 with the Municipal Review Committee in connection with the exercise of common stock warrants. See note 5 to the consolidated financial statements for a discussion of this new debt. Long-term debt interest expense decreased $3.8 million in 2000 as compared to 1999 as a result of principal repayments in 2000 and 1999 on various long-term debt issues. See the section on liquidity, capital requirements and capital resources for a more complete discussion of the long-term debt repayments in 2000 and 1999. Other interest expense increased by approximately $116,000 in 2001 due principally to borrowings and fees under the Company's revolving credit facility. Weighted average borrowings outstanding were approximately $3 million in 2001, while in 2000 there were no borrowings under the revolving credit facility. This was offset to some extent by a reduction in the amortization of debt issuance costs in 2001 as a result of the end of the amortization period of certain deferred debt issuance costs in June 2001 and June 2000. Other interest expense decreased $500,000 in 2000 due principally to a reduction in the amortization of debt issuance costs in 2000. The amortization decrease was primarily attributable to the end of the amortization of certain deferred debt issuance costs in 1999 as a result of the repayment of long-term debt through the utilization of generation asset sale proceeds and the end of the amortization period of certain deferred debt issuance costs in June 2000. Also impacting the reduction in other interest expense was $11 million in weighted average borrowings under the Company's revolving credit facility for the first quarter of 1999 as compared to no outstanding borrowings in 2000. LIQUIDITY, CAPITAL REQUIREMENTS, AND CAPITAL RESOURCES The Consolidated Statements of Cash Flows reflect events for the years ended December 2001, 2000 and 1999 as they affect the Company's liquidity. Net cash provided by operations was approximately $25.3 million in 2001, $37.6 million in 2000 and $47.4 million in 1999. The approximately $12.3 million reduction in operating cash flows in 2001 in relation to 2000 was the result of several factors. The largest single item impacting this change was cash payments to the PERC common stock warrant holders in connection with the exercise of warrants in each period (See Note 7 to the Consolidated Financial Statements). In 2001 approximately $14.2 million in payments were made to the holders of the warrants, while in 2000 these payments amounted to only $2.1 million. Cash flows from operations were further impacted in 2001 by lower earnings as compared to the year 2000. Operating cash flows are also impacted in both 2001 and 2000 by the standard-offer service. In 2001, the Company's standard-offer service revenues exceeded associated costs by approximately $8.8 million, while in 2000, the costs exceeded revenues by approximately $3 million. Also cash flows were negatively impacted by the previously discussed $.008/kWh rate reductions provided to certain large customers starting in April 2001. While earnings impacts of the rate discounts are negated by additional asset sale gain amortization to offset the rate discounts, cash flows are negatively impacted by providing the $2.5 million in rate discounts over the 10 1/2 month period the reduced rates are in effect. Changes in accounts receivable and accounts payable in the statement of cash flows are also greatly impacted by the standard-offer related revenues and purchased power obligations. Enhancing cash flows to some extent in 2001 was the receipt in October 2001 of $2.6 million associated with the settlement of a dispute regarding the sale of a jointly owned property in which the Company had an interest. See Note 11 to the Consolidated Financial Statements for a discussion of this transaction. Negatively impacting cash flows in the 2000 as compared to 1999 was $3 million in previously discussed deferred costs associated with the Company providing standard-offer service to customers, as well as $1.4 million in deferred costs for the period from March 1, 2000 through December 31, 2000, associated with a deficiency in actual revenues realized from customers under special rate contracts as compared to the estimated revenues for these customers utilized in setting the Company's new electric rates starting March 1, 2000. The Company was granted a deferral mechanism for the differences in these revenues in its February 2000 rate order from the MPUC. Also negatively impacting cash flows in 2000 was the impact of a lower authorized return on equity of 11% ordered by the MPUC effective March 1, 2000 with the advent of the electric industry restructuring. Positively impacting cash flows from operations in the 1999 period was the receipt of a $1.75 million payment related to a terminated purchased power contract (See the 1999 Form 10-K). These decreases in cash flows from operations for 2000 as compared to 1999 were offset to some extent by a $5.8 million reduction in interest payments in 2000 principally as a result of long-term debt principal payments discussed below. Also the Company incurred $5.3 million in closing and selling costs associated with the generation asset sale in 1999. Over the last three years, capital expenditures have been $16.4 million in 2001, $16.7 million in 2000 and $20.3 million in 1999. In 2001, approximately $9.5 million of the capital expenditures were related to the Company's electric distribution system, $1.6 million was associated with the electric transmission system, and the remaining $5.3 million was expended in connection with customer information system changes necessitated by the electric industry restructuring, other general property and equipment, software, and internal combustion facilities. In 2000, approximately $8.2 million of the capital expenditures were related to the electric distribution system, $4.2 million was associated with the electric transmission system, $2.4 million was expended in connection with customer information system changes necessitated by the electric industry restructuring, and the remainder related to other general property and equipment, software, and internal combustion facilities. In 1999, approximately $8 million of the capital expenditures were related to the Company's electric distribution system, $5.6 million was associated with the electric transmission system and certain fiber optic equipment, $3.2 million was expended in connection with Y2K compliance and restructuring related activities, and the remainder related to other general property and equipment, software, and internal combustion facilities. The Company expects its capital expenditures to total between $45 and $50 million over the next three years, although it may be necessary to adjust the budget for capital expenditures on a year-to-year basis. As previously discussed, in July 2000 the Company received $1.25 million in connection with the sale of Penobscot Gas. As discussed in the 1999 Form 10-K, the Company received approximately $79.6 million in proceeds related to its generation asset sale in late May 1999 and an additional $10 million in late July 1999 in connection with the sale of Penobscot Hydro. Also impacting cash flows in 1999 were Graham Station property sale proceeds. This sale is discussed in note 11 to the consolidated financial statements. The $6.2 million in proceeds associated with the sale of this property were required to be deposited with a third party trustee in September 1998. In January 1999 the trustee released the $6.2 million to the Company, and the funds were utilized to repay outstanding medium term notes. The increase in dividends paid on common stock in 2001 as compared to 2000 was due to an increase in the common dividend from $.15 to $.20 per share in March 2000. The increase in common dividends paid in 2000 relative to 1999 was a result of the reinstatement of the Company's common dividend in the second quarter of 1999, as well as the increase in the common dividend in March 2000. The reduction in preferred dividends paid in 2000 as compared to 1999 resulted from the final redemption of the remaining outstanding 8.76% mandatory redeemable preferred stock in October 1999. In 2000 the Company made $19.5 million in repayments on long-term debt, including a $14 million principal payment at the end of June 2000 on the Finance Authority of Maine Revenue Notes and $5.5 million in payments on the $24.8 million medium term notes which are discussed below. In 1999 the Company made $85.8 million in repayments on long-term debt. The increase in repayments in 1999 was due principally to the utilization of generation asset sale proceeds. The Company made $3.7 million in principal repayments on the Company's 12.25% first mortgage bonds (which were fully repaid in August 1999); a $13.1 million principal payment at the end of June 1999 on the Finance Authority of Maine Revenue Notes; $4.7 million in payments on the $24.8 million medium term notes; principal repayments of $6.2 million and $38.8 million in January and June 1999, respectively, on the $45 million medium term notes which were issued on June 29, 1998; the full redemption of $15 million in outstanding 10.25% series first mortgage bonds in early July 1999; and the redemption of $4.2 million in outstanding variable rate Pollution Control Revenue Bonds in early September 1999. In 1999, through the use of generation asset sale proceeds, the Company redeemed the remaining outstanding 90,000 shares of its 8.76% mandatory redeemable preferred stock amounting to $9 million. The Company also made approximately $563,000 in payments to the institutional holder of the 8.76% series preferred stock related to a "make whole provision" under the preferred stock purchase agreement. Of this amount approximately $320,000 was recorded as a reduction of the deferred asset sale gain, while approximately $243,000 was recorded as a reduction in the 8.76% preferred stock balance. The Company had maintained full borrowing capacity under its revolving credit facility from the second quarter of 1999 through June 2001, but it became necessary to renew borrowings under the revolving line in June 2001 to fund the required FAME debt payment of $15 million. The Company's utilization of the line of credit was also impacted by the approximately $3.8 million in incremental merger costs in 2001 and the cash payments to common stock warrant holders in 2001 amounting to approximately $14.2 million. The Company's borrowings under this arrangement amounted to $8 million at December 31, 2001. On June 29, 2001, the Company extended the revolving credit agreement until October 1, 2001, and the agreement was further extended until March 31, 2002. Also, the Company entered into a promissory note that allows the Company to borrow up to an additional $10 million. This unsecured facility is used by the Company to manage working capital needs, and the interest rate setting mechanism and other major terms of the note are similar to terms in the revolving credit agreement. Capital and operating needs in 2001, 2000 and 1999 were met through internally generated funds, the Company's revolving credit line and generation asset sale proceeds. Under the current projections of cash needs, the new credit facilities discussed above should provide adequate borrowing capacity until a longer term financing structure is implemented. The Company has approximately $121.7 million of first mortgage bonds and other long-term debt maturities in the period 2002-2006. OTHER MATTERS MAINE YANKEE - TERMINATION OF DECOMMISSIONING OPERATIONS CONTRACT - In May 2000 Maine Yankee terminated its decommissioning operations contract with Stone & Webster Engineering Corp. (Stone & Webster) pursuant to the terms of the contract. Stone & Webster disputed Maine Yankee's grounds for the termination. In June 2000 Stone & Webster filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware. Upon the contract termination Maine Yankee temporarily assumed the general contractor role and entered into interim agreements with Stone & Webster and obtained assignments of several subcontracts in order to allow decommissioning work to continue and to avoid the adverse consequences of an abrupt or inefficient demobilization from the Plant site. Decommissioning of the Plant site continued, with major emphasis directed to maintaining the schedule on critical-path projects such as construction of the ISFSI and preparation of the Plant's reactor vessel for eventual shipment to an off-site disposal facility. After assessing its long-term alternatives for safely and efficiently completing the decommissioning, including evaluating proposals from prospective successor general contractors, on January 26, 2001 Maine Yankee announced that it would continue to manage the project itself. In June 2000 Federal Insurance Company (Federal), which had provided performance and payment bonds in the amount of approximately $38.5 million each in connection with the decommissioning operations contract, filed a declaratory- judgment complaint against Maine Yankee in the Bankruptcy Court in Delaware, which was subsequently transferred to the United States District Court in Maine. The complaint alleged that Maine Yankee had improperly terminated the decommissioning operations contract with Stone & Webster and had failed to give proper notice of the termination to Federal under the contract, and that Federal had no further obligations under the bonds. After extensive discovery and resolution of certain preliminary issues by the court, in December 2001 Maine Yankee and Federal entered into a settlement agreement pursuant to which Federal paid Maine Yankee $44 million on January 18, 2002. That amount represents full payment under the performance bond, plus an additional amount under the payment bond reflecting certain payments made by Maine Yankee to subcontractors and suppliers who had not been fully paid by Stone & Webster. Maine Yankee deposited the payment in its decommissioning trust fund to offset past and future expenses resulting from the failures of Stone & Webster. The deposit was reflected on Maine Yankee's 2001 financial statements. Maine Yankee is continuing to pursue its claim for damages that was originally filed against Stone & Webster and its parent corporations in August 2000 in the Bankruptcy Court in Delaware. After recognizing the payment from Federal, Maine Yankee has asserted a right to recover an additional $21 million in that court from the bankrupt estate. The hearing on the claim was held in late 2001, and Maine Yankee expects a decision from the court later in 2002. Recovery of such an additional amount in the Bankruptcy Court is contingent on a number of factors beyond Maine Yankee's control, including the extent to which the bankrupt estate has assets available to pay any amount determined to be recoverable. Maine Yankee therefore cannot predict what amount, if any, it will recover on this claim. On February 27, 2002, Stone & Webster filed a claim for approximately $6.9 million against Maine Yankee in the Bankruptcy Court in Delaware for alleged breaches of contract and to subordinate Maine Yankee's claims. Maine Yankee cannot predict the outcome of the new claim. In connection with the state of Maine's electric industry restructuring law, the Company was allowed the recovery of Maine Yankee decommissioning costs as a component of its stranded costs. In the Company's rate order from the MPUC that became effective March 1, 2000, the Company was allowed to defer the amount of any future FERC ordered changes in Maine Yankee's decommissioning collections. Consequently, management does not believe that Maine Yankee's decommissioning contractor difficulties will have a material adverse impact on the Company's results of operations, financial condition or cash flows. CRITICAL ACCOUNTING POLICIES - We prepare our financial statements in conformity with accounting principles generally accepted in the United States. Judgments and uncertainties about the application of these accounting policies along with estimates and other assumptions may affect reported results. REGULATION - As a regulated electric utility, the Company prepares its financial statements in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation", (SFAS No. 71) for its regulated business. In order for a Company to report under SFAS No. 71, the Company's rates must be designed to recover its costs of providing service and must be able to collect those rates from customers. If rate recovery becomes unlikely or uncertain, whether due to competition or regulatory action, this accounting standard would no longer apply to the Company's regulated operations. In the event the Company determines that it no longer meets the criteria for applying SFAS No. 71, the accounting impact would be an extraordinary non-cash charge to operations of an amount that could be material. Management periodically reviews these criteria to ensure the continuing application of SFAS No. 71 is appropriate. Based on a current evaluation of the various factors and conditions that are expected to impact future cost recovery, Management believes future recovery of its regulatory assets are probable. OTHER - Electric Operating Revenue consists primarily of amounts charged for electricity delivered to customers during the period. The Company records unbilled revenue, based on estimates of electric service rendered and not billed at the end of an accounting period, in order to match revenue with related costs. We reserve an estimate for potential uncollectible customer accounts based on historical uncollectible experience and specific customer identification where practical. Depreciation of electric plant is provided using the straight-line method at rates designed to allocate the original cost of properties over their estimated service lives. Income taxes are recorded in accordance with SFAS No. 109, "Accounting for Income Taxes." OTHER - Management's discussion and analysis of results of operations and financial condition contains items that are "forward-looking" as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Readers should not place undue reliance on forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Factors that might cause such differences include, but are not limited to, the Company's merger with Emera, future economic conditions, relationships with lenders, earnings retention and dividend payout policies, electric utility restructuring, developments in the legislative, regulatory and competitive environments in which the Company operates and other circumstances that could affect revenues and costs. CONTINGENCIES AND DISCLOSURES ABOUT MARKET RISK ENVIRONMENTAL MATTERS - The Company is regulated by the United States Environmental Protection Agency (EPA) as to compliance with the Federal Water Pollution Control Act, the Clean Air Act, and several federal statutes governing the treatment and disposal of hazardous wastes. The Company is also regulated by the Maine Department of Environmental Protection (DEP) under various Maine environmental statutes. The Company is actively engaged in complying with these federal and state acts and statutes, and it has not, to date, encountered material difficulties in connection with such compliance. In 1992, the Company received notice from the DEP that it was investigating the cleanup of several sites in Maine that were used in the past for the disposal of waste oil and other hazardous substances, and that the Company, as a generator of waste oil that was disposed at those sites, may be liable for certain cleanup costs. The Company learned in October 1995 that the EPA placed one of those sites on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act and would pursue potentially responsible parties. With respect to this site, the Company is one of a number of waste generators under investigation. The Company has recorded a liability, based on currently available information, for what it believes are the estimated environmental remediation costs that the Company expects to incur for this waste disposal site. Additional future environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, and possible effects of future legislation or regulation and the possible effects of technological changes At December 31, 2001, the liability recorded by the Company for its estimated environmental remediation costs amounted to approximately $435,000. The Company's actual future environmental remediation costs may be different as additional factors become known. In 2001 the Company expended approximately $544,000 in operations to comply with environmental standards for air, water and hazardous materials. DISCLOSURES ABOUT MARKET RISK - The Company's major financial market risk exposure is changing interest rates. Changes in interest rates will affect interest paid on variable rate debt and the fair value of fixed rate debt. The Company manages interest rate risk through a combination of both fixed and variable rate debt instruments and an interest rate swap, which is associated with the Company's medium term notes (See Note 13 to the Consolidated Financial Statements). As of December 31, 2001, the Company had $5.5 million of medium term notes outstanding which bear floating, LIBOR-based rates (1.87375% LIBO rate at December 31, 2001). The interest rate swap fixes the interest rate on the medium term notes at 5.72% for the full notional amount of the debt. See Note 5 to the Consolidated Financial Statements for a discussion of these medium term notes. Item 8 Financial Statements & Supplementary Data BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31,
Predecessor --------------------------------------------------- Period From Period From January 1, Acquisition 2001 Date to Through December 31, Acquisition 2001 Date 2000 1999 -------------- -------------- -------------- -------------- Electric Operating Revenues: Electric operating revenue (Note 1) $ 34,326,272 $ 98,664,499 $ 146,204,013 $ 197,994,796 Standard offer service (Note 11) 17,476,348 67,112,864 66,133,532 - -- ------------ - ------------ - ------------ - ------------- $ 51,802,620 $ 165,777,363 $ 212,337,545 $ 197,994,796 -- ------------ - ------------ - ------------ - ------------- Operating Expenses: Fuel for generation and purchased power (Notes 1 and 4) $ 8,711,924 $ 25,587,586 $ 44,144,334 $ 80,748,385 Standard offer service purchased power (Note 11) 16,945,383 65,893,732 65,552,980 - Other operation and maintenance (Notes 1 and 6) 10,019,568 28,848,107 37,211,862 36,491,666 Depreciation and amortization (Note 1) 2,198,158 7,826,371 9,158,885 8,063,939 Amortization of Seabrook nuclear unit (Note 8) 424,763 1,274,287 1,699,050 1,699,050 Amortization of contract buyouts and restructuring (Note 7) 5,639,281 16,917,843 22,311,448 20,801,816 Amortization of deferred asset sale gain (Note 11) (2,105,076) (5,971,057) (6,393,038) - Taxes - Local property and other 1,181,771 3,817,948 4,795,698 5,059,140 Income (Note 3) 2,038,384 4,713,760 7,432,261 8,973,166 -- ------------ - ------------- - ------------ - ------------ $ 45,054,156 $ 148,908,577 $ 185,913,480 $ 161,837,162 -- ------------ - ------------- - ------------ - ------------ Operating Income $ 6,748,464 $ 16,868,786 $ 26,424,065 $ 36,157,634 Other Income And (Deductions): Allowance for equity funds used during construction (Note 1) $ 139,532 $ 464,541 $ 158,698 $ (326,026) Other, net of applicable income taxes (Notes 1, 3, 7 and 11) 157,452 (1,416,135) 454,715 3,132,097 -- ------------ - ------------- - ------------ - ------------ Income Before Interest Expense $ 7,045,448 $ 15,917,192 $ 27,037,478 $ 38,963,705 -- ------------ - ------------- - ------------ - ------------ Interest Expense: Long-term debt (Notes 5 and 13) $ 3,393,733 $ 10,429,419 $ 15,211,905 $ 19,004,624 Other (Note 5) 286,443 722,586 893,455 1,393,547 Allowance for borrowed funds used during construction (Note 1) (135,676) (423,431) (169,929) 284,933 -- ------------ - ------------- - ------------ - ------------ $ 3,544,500 $ 10,728,574 $ 15,935,431 $ 20,683,104 -- ------------ - ------------- - ------------ - ------------ Net Income $ 3,500,948 $ 5,188,618 $ 11,102,047 $ 18,280,601 Dividends On Preferred Stock (Note 4) 66,429 199,141 265,570 945,396 -- ------------ - ------------- - ------------ - ------------ Earnings Applicable To Common Stock $ 3,434,519 $ 4,989,477 $ 10,836,477 $ 17,335,205 == ============ = ============= = ============ = ============ Weighted Average Number Of Shares Outstanding (Note 4) 7,363,424 7,363,424 7,363,424 7,363,424 -- ------------ - ------------- - ------------ - ------------ Earnings Per Common Share (Note 4): Basic $ .47 $ .67 $ 1.47 $ 2.35 Diluted .47 .61 1.30 2.08 == ============ = ============= = ============ = ============ Dividends Declared Per Common Share $ - $ .60 $ .80 $ .45 == ============ = ============= = ============ = ============ The accompanying notes are an integral part of these consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS December 31,
Predecessor Assets 2001 2000 Investment In Utility Plant: Electric plant in service, at original cost (Note 12) $ 328,559,986 $ 316,167,622 Less - Accumulated depreciation and amortization (Note 1) 93,984,836 86,684,205 - ------------ - ------------ $ 234,575,150 $ 229,483,417 Construction work in progress (Note 1) 7,307,837 5,457,707 - ------------ - ------------ $ 241,882,987 $ 234,941,124 Investments in corporate joint ventures: (Notes 1 and 7) Maine Yankee Atomic Power Company $ 4,421,884 $ 4,949,696 Maine Electric Power Company, Inc. 853,562 672,581 - ------------ - ------------ $ 247,158,433 $ 240,563,401 - ------------ - ------------ Other Investments, at cost (Note 9) $ 3,497,681 $ 3,174,561 - ------------ - ------------ Funds held by trustee, at cost (Notes 5 and 9) $ 22,694,648 $ 22,696,405 - ------------ - ------------ Current Assets: Cash and cash equivalents (Notes 1 and 9) $ 884,617 $ 12,462,780 Accounts receivable, net of reserve ($761,000 in 2001 and 2000) 19,268,889 21,731,869 Unbilled revenue receivable (Note 1) 15,379,708 15,778,696 Inventories, at average cost: Material and supplies 2,531,853 2,585,107 Fuel oil 53,320 93,746 Prepaid expenses 671,267 829,181 - ------------ - ------------ Total current assets $ 38,789,654 $ 53,481,379 - ------------ - ------------ Regulatory Assets and Deferred Charges: Goodwill-EMERA Acquisition (Note 2) $ 82,537,291 $ - Investment in Seabrook nuclear project, net of accumulated amortization of $35,270,346 in 2001 and $33,571,296 in 2000 (Notes 8 and 11) 23,571,729 25,270,779 Costs to terminate/restructure purchased power contracts, net of accumulated amortization of $145,729,090 in 2001 and $123,171,966 in 2000 (Notes 7 and 11) 92,057,206 99,312,319 Maine Yankee decommissioning costs (Notes 7 and 11) 37,306,576 43,028,107 Above-market purchased power contract obligation (Notes 11 and 13) 73,954,000 - Other regulatory assets (Notes 3,5,6 and 11) 52,657,562 41,025,080 Other deferred charges 4,019,969 3,667,769 - ------------ - ------------ Total regulatory assets and deferred charges $ 366,104,333 $ 212,304,054 - ------------ - ------------ Total Assets $ 678,244,749 $ 532,219,800 ============== ============== The accompanying notes are an integral part of these consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS December 31,
Predecessor Stockholders' Investment and Liabilities 2001 2000 Capitalization: (see accompanying statement) Common stock investment (Note 4) $ 205,556,673 $ 137,419,659 Preferred stock (Note 4) 4,734,000 4,734,000 Long-term debt, net of current portion (Notes 5, 9 and 13) 131,967,827 161,960,000 - ------------ - ------------ Total capitalization $ 342,258,500 $ 304,113,659 - ------------ - ------------ Current Liabilities: Notes payable - banks (Note 5) $ 8,000,000 $ - - ------------ - ------------ Other current liabilities - Current portion of long-term debt (Notes 5 and 9) $ 43,245,891 $ 21,340,000 Accounts payable 22,491,785 24,785,193 Dividends payable 66,429 1,539,114 Accrued interest 2,663,225 2,529,237 Customers' deposits 572,867 502,276 Current income taxes payable 1,916,892 305,323 - ------------ - ------------ Total other current liabilities $ 70,957,089 $ 51,001,143 - ------------ - ------------ Total current liabilities $ 78,957,089 $ 51,001,143 - ------------ - ------------ Regulatory and Other Long-term Liabilities (Note 3) Deferred income taxes - Seabrook $ 12,223,523 $ 13,109,098 Other accumulated deferred income taxes 47,405,476 58,314,350 Maine Yankee decommissioning liability (Note 7) 37,306,576 43,028,107 Deferred gain on asset sale (Note 11) 14,574,316 22,788,408 Above-market purchased power contract obligation (Note 13) 73,954,000 - Other regulatory liabilities (Note 11) 18,961,715 12,556,052 Unamortized investment tax credits 1,311,928 1,452,059 Accrued pension and postretirement benefit costs (Note 6) 39,655,265 12,124,106 Other long-term liabilities (Notes 7 and 12) 11,636,361 13,732,818 - ------------ - ------------ Total regulatory and other long-term liabilities $ 257,029,160 $ 177,104,998 - ------------ - ------------ Total Stockholders' Investment and Liabilities $ 678,244,749 $ 532,219,800 = ============ = ============ The accompanying notes are an integral part of these consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31,
Predecessor 2001 2000 Common Stock Investment (Notes 1,2 and 4) Common stock, par value $5 per share- $ 36,817,120 $ 36,817,120 Authorized -- 10,000,000 shares Outstanding -- 7,363,424 shares in 2001 and 2000 Amounts paid in excess of par value 165,352,312 58,642,367 Accumulated other comprehensive loss (47,278) - Retained earnings 3,434,519 41,960,172 - -------------- ------------- Total common stock investment $ 205,556,673 $ 137,419,659 - -------------- ------------- Preferred Stock, Non-participating, cumulative, par value $100 per share, authorized 600,000 shares (Note 4): Not redemable or redeemable solely at the option of the issuer- 7%, Noncallable, 25,000 shares authorized and outstanding $ 2,500,000 $ 2,500,000 4.25%, Callable at $100, 4,840 shares authorized and outstanding 484,000 484,000 4%, Series A, Callable at $110, 17,500 shares authorized and outstanding 1,750,000 1,750,000 - -------------- ------------- $ 4,734,000 $ 4,734,000 - -------------- ------------- Long-Term Debt (Notes 5, 9 and 14) First Mortgage Bonds- 10.25% Series due 2020 $ 30,000,000 $ 30,000,000 8.98% Series due 2022 20,000,000 20,000,000 7.38% Series due 2002 20,000,000 20,000,000 7.30% Series due 2003 15,000,000 15,000,000 - -------------- ------------- $ 85,000,000 $ 85,000,000 - -------------- ------------- Other Long-Term Debt- Finance Authority of Maine - Taxable Electric Rate Stabilization Revenue Notes, 7.03% Series 1995A, due 2005 $ 71,500,000 $ 86,600,000 Medium Term Notes, Variable interest rate-LIBO rate plus 1.125%, due 2002 5,460,000 11,700,000 Municipal Review Committee Note, 5%, due 2008 13,234,394 - Other miscellaneous notes payable, 3.90%, due 2003 19,324 - - -------------- ------------- $ 90,213,718 $ 98,300,000 Less: Current portion of long-term debt 43,245,891 21,340,000 - -------------- ------------- $ 46,967,827 $ 76,960,000 - -------------- ------------- Total Long-Term Debt $ 131,967,827 $ 161,960,000 - -------------- ------------- Total Capitalization $ 342,258,500 $ 304,113,659 = ============ = ============ The accompanying notes are an integral part of these consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31,
Predecessor Period From Period From Acquisition January 1, Date to 2001 Through December 31, Acquisition 2001 Date 2000 1999 Cash Flows From Operating Activities: Net income $ 3,500,948 $ 5,188,618 $ 11,102,047 $ 18,280,601 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 2,198,158 7,826,371 9,158,885 8,063,939 Amortization of Seabrook nuclear project (Note 8) 424,763 1,274,287 1,699,050 1,699,050 Amortization of contract buyouts and restructuring (Note 7) 5,639,281 16,917,843 22,311,448 20,801,816 Amortization of deferred asset sale gain (Note 11) (2,105,076) (5,971,057) (6,393,038) - Other amortizations 375,024 1,193,607 1,896,179 2,590,725 Allowance for equity funds used during construction (Note 1) (139,532) (464,541) (158,698) 326,026 Deferred income tax provision and amortization of investment tax credits (Note 3) (212,917) (5,976,077) (2,765,264) (131,897) Gain on sale of subsidiary (Notes 7 and 11) - - (1,205,727) (523,390) Deferred Maine Yankee replacement power cost write-off (Note 7) - - 1,992,848 - Flow-through of unamortized investment tax credits and excess deferred income taxes (Note 3) - - - (1,485,131) Changes in assets and liabilities: Costs to restructure purchased power contract (Note 7) (250,000) (750,000) (1,000,000) (1,099,000) Deferred standard-offer service costs (Note 11) 4,265,218 4,580,779 (2,988,823) - Deferred special rate contract revenues (Note 11) (910,954) (1,404,194) (1,368,948) - Exercise of PERC warrants-cash paid in lieu of issuing shares (Note 7) (4,951,550) (9,225,892) (2,129,387) (3,321,710) Deferred Wyman#4 litigation settlement proceeds (Note 11) 2,592,294 - - - Deferred incremental Maine Yankee costs (Note 7) - - 807,616 2,886,401 Deferred incremental ice storm costs - - - 1,817,851 Deferred costs associated with generation asset sale (Note 11) - - 107,765 (5,266,689) Payment received related to terminated purchased power contract (Note 7) - - - 1,750,000 Accounts receivable, net and unbilled revenue (1,291,684) 1,298,321 (5,113,248) (2,759,315) Accounts payable (1,032,699) (1,359,942) 10,609,785 (11,081) Accrued interest (703,043) 837,030 (23,521) (921,611) Current and deferred income taxes (293,705) 2,253,111 (10,093) 3,755,913 Accrued postretirement benefit costs (Note 6) 589,050 1,533,939 1,322,206 1,608,414 Other current assets and liabilities, net (257,941) 580,127 202,486 (356,034) Other, net (5,530) (501,752) (433,387) (345,523) - -------------- --------------- --------------- -------------- Net Increase in Cash From Operating Activities: $ 7,430,105 $ 17,830,578 $ 37,620,181 $ 47,359,355 - -------------- --------------- --------------- -------------- Cash Flows From Investing Activities: Construction expenditures $ (6,264,489) $ (10,083,839) $ (16,680,501) $ (20,323,360) Allowance for borrowed funds used during construction (Note 1) (135,676) (423,431) (169,929) 284,933 Asset sale proceeds (Note 11) - - - 79,587,841 Proceeds from sale of subsidiary (Notes 7 and 11) - - 1,250,000 10,000,000 Release of Graham Station property sale proceeds held by trustee (Note 11) - - - 6,200,000 - -------------- --------------- --------------- -------------- Net (Decrease) Increase in Cash From Investing Activities $ (6,400,165) $ (10,507,270) $ (15,600,430) $ 75,749,414 - -------------- --------------- --------------- -------------- Cash Flows From Financing Activities: Dividends on preferred stock $ (66,380) $ (199,190) $ (265,570) $ (1,127,882) Dividends on common stock (1,472,685) (4,418,054) (5,522,567) (2,209,028) Payments on long-term debt (Note 4) (2,054,457) (19,720,645) (19,460,000) (85,782,897) Payments on mandatory redeemable preferred stock (Note 4) - - - (9,243,742) Short-term debt, net (Note 5) 2,000,000 6,000,000 - (12,000,000) - -------------- --------------- --------------- -------------- Net Decrease in Cash From Financing Activities $ (1,593,522) $ (18,337,889) $ (25,248,137) $ (110,363,549) - -------------- --------------- --------------- -------------- Net (Decrease) Increase in Cash and Cash Equivalents $ (563,582) $ (11,014,581) $ (3,228,386) $ 12,745,220 Cash and Cash Equivalents at Beginning of Year 1,448,199 12,462,780 15,691,166 2,945,946 - -------------- --------------- --------------- -------------- Cash and Cash Equivalents at End of Year $ 884,617 $ 1,448,199 $ 12,462,780 $ 15,691,166 ============ ============= ============= ============== The accompanying notes are an integral part of these consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF COMMON STOCK INVESTMENT
Accumulated Amounts Paid Other Total Common Common in Excess of Retained Comprehensive Stock Stock Par Value Earnings Loss Investment -------- ------------ ----------- ------------ ------------- Balance December 31, 1998 $36,817,120 $ 59,054,203 $22,992,769 $ - $118,864,092 Net income - - 18,280,601 18,280,601 Cash dividends declared on- Preferred stock - - (899,718) (899,718) Common stock - - (3,313,541) (3,313,541) Exercise of warrants-cash paid in lieu of issuing shares (Note 4) - (410,052) - (410,052) Transfer of mandatory redeemable 8.76% preferred stock issuance costs to the deferred asset sale gain (Note 11) 246,191 246,191 Other - - (45,678) (45,678) ------------ ------------ ------------ ------------ ------------ Balance December 31, 1999 $36,817,120 $ 58,890,342 $37,014,433 $ - $132,721,895 Net income - - 11,102,047 11,102,047 Cash dividends declared on- Preferred stock - - (265,570) (265,570) Common stock - - (5,890,738) (5,890,738) Exercise of warrants-cash paid in lieu of issuing shares (Note 4) - (247,975) - (247,975) ------------- ------------- ------------- ------------- -------------- Balance December 31, 2000 $36,817,120 $ 58,642,367 $41,960,172 $ - $137,419,659 Net income - - 8,689,566 8,689,566 Other comprehensive loss net of taxes: Unrealized loss on interest rate swap (Note 13) (47,278) (47,278) Total comprehensive income 8,642,288 Merger transactions (net) (Note 2) - 120,890,928 (42,531,595) - 78,359,333 Cash dividends declared on- Preferred stock - - (265,570) - (265,570) Common stock - - (4,418,054) - (4,418,054) Exercise of warrants-cash paid in lieu of issuing shares (Note 4) - (14,180,983) - - (14,180,983) ------------ ------------ ------------ ------------ -------------- Balance December 31, 2001 $36,817,120 $165,352,312 $ 3,434,519 $ (47,278) $205,556,673 ------------ ------------ ------------ ------------ -------------- The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS - Bangor Hydro-Electric Company (the Company) is a public utility engaged in the transmission and distribution of electric energy and other energy related services, with a service area of approximately 5,275 square miles having a population of approximately 190,000 people. The Company serves approximately 107,000 customers in portions of the Maine counties of Penobscot, Hancock, Washington, Waldo, Piscataquis, and Aroostook. The Company's regulated operations are subject to the regulatory authority of the Maine Public Utilities Commission (MPUC) as to retail rates, accounting, service standards, territory served, the issuance of securities and other matters. The Company is also subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC) as to certain matters, including rates for transmission services. The Company is a member of the New England Power Pool (NEPOOL), and is interconnected with other New England utilities to the south and with New Brunswick Power Corporation to the north. BASIS OF CONSOLIDATION - The Consolidated Financial Statements of the Company include its wholly- owned subsidiaries, Bangor Var Co., Inc. (BVC), Bangor Energy Resale, Inc. (BERI), CareTaker, Inc. (CareTaker), Bangor Fiber Co., Inc. (Bangor Fiber), and Bangor Line Co., Inc. (Bangor Line), BERI was formed in 1997 as a special purpose vehicle to permit Bangor Hydro's use of a power sales agreement as collateral for a bank loan (see Note 5 for a discussion of this financing arrangement). CareTaker was incorporated in 1997 and provides security alarm services on a retail basis to residential and commercial customers. Bangor Fiber was formed in 2000 to supply fiber optic communications cable to communications companies and cable service providers and other related activities. Bangor Line was formed in 2001 to provide engineering, permitting and design, geographic information system and construction services to third parties. See Note 7 for additional information with respect to BVC. All significant intercompany balances and transactions have been eliminated. The accounts of the Company are maintained in accordance with the Uniform System of Accounts prescribed by the regulatory bodies having jurisdiction. EQUITY METHOD OF ACCOUNTING - The Company accounts for its investments in the common stock of Maine Yankee Atomic Power Company (Maine Yankee) and Maine Electric Power Company, Inc. (MEPCO) under the equity method of accounting, and records its proportionate share of the net earnings of these companies as a reduction of fuel for generation and purchased power expense. See Note 7 for additional information with respect to these investments. ELECTRIC OPERATING REVENUE - Electric Operating Revenue, including that associated with standard offer service (See Note 11) consists primarily of amounts charged for electricity delivered to customers during the period. The Company records unbilled revenue, based on estimates of electric service rendered and not billed at the end of an accounting period, in order to match revenue with related costs. As of March 1, 2000, the Company bills customers for the energy supplied by competitive energy providers (See Note 11). Competitive energy providers are paid only after the funds are collected from customers. The Company records accounts receivable for the amounts billed to competitive energy customers and a corresponding accounts payable for the amounts due to the energy supplier. No revenue is recognized as the Company is acting as an agent. DEPRECIATION OF ELECTRIC PLANT AND MAINTENANCE POLICY- Depreciation of electric plant is provided using the straight-line method at rates designed to allocate the original cost of properties over their estimated service lives. The composite depreciation rate (excluding intangible assets), expressed as a percentage of average depreciable plant in service, and considering the amortization of overaccu-mulated depreciation (discussed below), was approximately 2.9% in 2001, 2.9% in 2000 and 2.1% in 1999. A study conducted as of December 31, 1996 determined that the Company's reserve for depreciation was overaccumulated by approximately $3.6 million. In connection with the MPUC's rate order in February 1998, the Company was allowed to amortize this balance over a two-year period, starting in February 1998. The Company recorded approximately $307,000 in amortization in 2000 and $2.4 million in 1999 which reduced depreciation expense. The 1999 and 2000 amortizations were increased as a result of the sale of the Company's hydroelectric plant assets in May 1999. The Company follows the practice of charging to maintenance the cost of repairs, replacements and renewals of minor items considered to be less than a unit of property. Costs of additions, replacements and renewals of items considered to be units of property are charged to the utility plant accounts, and any items retired are removed from such accounts. The original costs of units of property retired and removal costs, less salvage, are charged to the depreciation reserve. Depreciation, local property taxes and other taxes not based on income, which were charged to operating expenses, are stated separately in the Consolidated Statements of Income. Rents, advertising and research and development expenses are not significant. No royalty expenses were incurred. Maintenance expense was $10.1 million in 2001, $10 million in 2000 and $9.5 million in 1999. GOODWILL -In connection with the acquisition of the Company's common stock by Emera, Inc. (Emera) in October 2001 (see Note 2), the excess of the cost over the fair value of the net assets of the Company has been recorded as goodwill on the Company's consolidated balance sheet. In accordance with the implementation of Statement of Financial Accounting Standards No. 141, "Business Combination", goodwill is no longer amortized. The Company assesses the recoverability of goodwill by using discounted cash flow analysis. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFDC) - In accordance with regulatory requirements of the MPUC, the Company capitalizes as AFDC financing costs related to portions of its construction work in progress, at a rate equal to its weighted cost of capital, into utility plant with offsetting credits to other income and interest. This cost is not an item of current cash income, but is recovered over the service life of plant in the form of increased revenue collected as a result of higher depreciation expense and return. In addition, carrying costs on certain regulatory assets and liabilities, including the deferred asset sale gain (see Note 11), were also capitalized and included in AFDC in the Consolidated Statements of Income. The average AFDC (carrying costs) rates computed by the Company were 9.1% in 2001, 9.3% for 2000 and 9.5% in 1999. CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid for interest, net of amounts capitalized was approximately $14.1 million, $15.1 million and $20.9 million in 2001, 2000 and 1999, respectively. Cash paid for income taxes was approximately $10.4 million, $10 million and $8.9 million in 2001, 2000 and 1999, respectively. Non-cash financing activity: In October 2001 the Company issued a $13,667,550 note payable in connection with the exercise of common stock warrants. See Notes 5 and 7 for a discussion of the note payable and the common stock warrants. RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS - The Company's major financial market risk exposure is changing interest rates. Changing interest rates will affect interest paid on variable rate debt and the fair value of fixed rate debt. The Company manages interest rate risk through a combin-ation of both fixed and variable rate debt instruments and an interest rate swap (see Notes 5 and 15). The Company does not hold or issue derivatives for trading purposes. The Company's accounting for derivatives used to manage risk is in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". RECLASSIFICATIONS-Certain prior year amounts have been reclassified to conform with the presentation used in the 2001 Consolidated Financial Statements. NOTE 2. MERGER WITH EMERA, INC. In early October 2001, final regulatory approvals for the merger between the Company and Emera, Inc. (Emera) were received. On October 10, 2001, Emera completed the acquisition of all of the outstanding common stock of the Company for US$26.806 per share in cash. The purchase increases Emera's customer base by 25% and broadens the Company's presence in the expanding northeast energy market. Emera also owns Nova Scotia Power, a fully integrated electric utility that supplies substantially all of the generation, transmission and distribution of electricity in Nova Scotia; and has an interest in the Maritimes & Northeast Pipeline, which transports Sable natural gas through Maine to Boston. The acquisition transaction was accounted for using purchase accounting. The cost in excess of the fair value of the net assets acquired, amounting to approximately $82.5 million at December 31, 2001, is recorded as goodwill on the consolidated balance sheet. As previously discussed, the goodwill will not be amortized, but instead will be subject to an impairment test at least annually in accordance with the provisions of Statement No. 142. Goodwill associated with the Emera acquisition was not adjusted for any impairment losses in 2001. The following table summarizes the purchase accounting adjustments to the accounts of the Company as of December 31, 2001: Purchase Accounting Adjustments ---------------- Unbilled revenue receivable $ (2,855,331) Goodwill 82,537,291 Regulatory assets (1,660,375) ---------------- Total Assets $ 78,021,585 ============= Common stock investment $ 78,359,333 Current liabilities (1,582,637) Deferred asset sale gain 12,222 Other regulatory liabilities 1,232,667 --------------- Total Liabilities and Stockholders Equity $ 78,021,585 ============= As a result of the merger on October 12, 2001, as required under purchase accounting by generally accepted accounting principles, retained earnings of the Company were reset to zero and moved to amounts paid in excess of par value. Also in connection with merger related activities, the Company incurred approximately $3.9 million and $3 million in incremental costs in 2001 and 2000, respectively. These have been recorded as a component of Other Income (Expense) in the Consolidated Statements of Income for 2001 and 2000. NOTE 3. INCOME TAXES The individual components of federal and state income taxes reflected in the Consolidated Statements of Income for 2001, 2000 and 1999 are stated in the table below. Year Ended December 31, 2001 2000 1999 Current: Federal $ 9,300,188 $ 7,445,626 $7,390,387 State 2,958,075 2,920,769 2,314,251 ---------------- -------------- ----------- $12,258,263 $10,366,395 $9,704,638 --------------- ------------- -------------- Deferred: Federal $ (3,935,012) $ (1,618,863) $ (252,473) State (2,113,851) (1,006,733) (447,641) --------------- --------------- -------------- $(6,048,863) $ (2,625,596) $ (700,114) --------------- --------------- -------------- Investment Tax Credits, Net $ 42,951 $ (139,668) $ (317,877) --------------- --------------- -------------- Total Provision $ 6,252,351 $ 7,601,131 $ 8,686,647 Allocated to Other Income 499,793 (168,870) 286,519 --------------- --------------- -------------- Charged to Operating Expens $ 6,752,144 $ 7,432,261 $ 8,973,166 ============= =========== =============== Under the federal income tax laws, the Company received investment tax credits (ITC) on qualified property additions through 1986. ITC utilized were deferred and are being amortized over the life of the related property. In 1999 the Company utilized the remaining available ITC of about $3.2 million to reduce its federal income tax obligation. In 2000, the Company utilized the remaining $3.6 million of federal alternative minimum tax credits to reduce its regular income tax liability while in 1999, the Company utilized $4.2 million of federal and state alternative minimum tax credits. These net operating losses were principally due to the Company deducting for income tax reporting purposes the costs of the purchased power contract terminations in 1995, which were deferred for financial reporting purposes (see Note 7). The table below reconciles the income tax provision, calculated by multiplying income before federal income taxes (as reported on the Consolidated Statements of Income) by the statutory federal income tax rate to the federal income tax expense reported on the Consolidated Statements of Income. The difference is represented by the permanent and timing differences for which deferred taxes are not provided for ratemaking purposes. 2001 2000 1999 ----------------------------------- (Dollars in Thousands) Amount % Amount % Amount % ---------------------------------------- Federal income tax provision at statutory rate $5,230 35.0% $6,546 35.0% $9,439 35.0% Less (Plus) permanent differences in tax expense resulting from statutory exclusions from taxable income: Dividend received deduction related to earnings of associated companies 74 .5 164 .9 253 .9 Equity component of AFDC 170 1.1 138 .7 185 .7 Asset sale gain permanent differences (349) (2.3) (276) (1.5) - - Amortization of equity component of AFDC on recoverable Seabrook investment (160) (1.0) (160) (.8) (160) (.6) Other 2 - 32 .1 (29) (.1) ------------------------------------------- Federal income tax provision before effect of 0 timing differences $5,493 36.7% $6,648 35.6% $9,190 34.1% Less (Plus) timing differences that are flowed through for rate-making and accounting purposes: Amortization of debt component of AFDC and capitalized overheads on recoverable Seabrook investment (151) (1.0) (151) (.8) (151) (.6) Book depreciation greater than tax depreciation (85) (.6) (69) (.4) (85) (.3) Equity earnings in excess of (less than) dividends 102 .7 (41) (.2) (276) (1.0) State income tax liability deducted for federal income tax purposes 424 2.8 550 2.8 673 2.5 Reversal of excess deferred income taxes 230 1.5 147 .8 167 .6 Amortization of investment tax credits 140 .9 140 .8 350 1.3 Investment tax credits and excess deferred taxes flowed through - - - - 1,485 5.5 Other (392) (2.6) 43 .4 27 .1 ------------------------------------------- Federal income tax provision $5,225 35.0% $6,029 32.2% $7,000 26.0% =========================================== In accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (FAS 109), the Company recorded cumulative net additional deferred income tax liabilities of approximately $10.3 million as of December 31, 2001 and $16.4 million as of December 31, 2000. These additional deferred income tax liabilities have resulted from the accrual of deferred taxes on temporary differences on which deferred taxes had not been previously accrued ($16.0 million and $25.3 million as of December 31, 2001 and 2000, respectively), offset by the effect of the 1987 change to lower income tax rates (reduced by the 1% increase in the federal income tax rate in 1993) that will be refunded to customers over time ($4.9 million and $8.1 million as of December 31, 2001 and 2000, respectively), and the establishment of deferred tax assets on unamortized investment tax credits ($776,000 and $858,000 as of December 31, 2001 and 2000, respectively). These latter amounts have been recorded in Other Regulatory Liabilities at December 31, 2001 and 2000. The accrual of the additional amount of deferred tax liabilities have been offset by regulatory assets which represent the customers' future payment of these income taxes when the taxes are, in fact, expensed. As a result of this accounting, the Consolidated Statements of Income are not affected by the implementation of FAS 109. The rate- making practices followed by the MPUC permit the Company to recover federal and state income taxes payable currently, and to recover some, but not all, deferred taxes that would otherwise be recorded in accordance with FAS 109 in the absence of regulatory accounting. The individual components of other accumulated deferred income taxes are as follows at December 31, 2001 and 2000: 2001 2000 --------------- ----------------- Deferred Income Tax Liabilities: Costs to terminate/restructure purchased power contracts $26,362,744 $ 35,091,730 Excess book over tax basis of electric plant in service 37,117,206 37,156,847 Investment in jointly-owned companies 1,476,037 1,358,081 Other regulatory assets 2,547,116 3,655,033 Other 138,374 120,104 ---------------- -------------- $ 67,641,477 $ 77,381,795 ------------------- ---------------- Deferred Income Tax Assets: Deferred asset sale gain $ 5,901,889 $ 8,776,804 Accrued pension and postretirement benefit costs 5,734,119 4,500,464 Other regulatory liabilities 5,369,662 1,441,734 Other 3,230,331 4,348,443 ------------------ --------------- $ 20,236,001 $ 19,067,445 ------------------ ---------------- Total other accumulated deferred income taxes $ 47,405,476 $ 58,314,350 ============ ============ As a result of the Company's generation asset sale to PP&L Global in 1999 (see Note 11), the Company realized $1.5 million in income tax benefits associated with the recognition of previously unamortized deferred ITC associated with the generation assets sold and the reversal of the excess deferred income taxes associated with these assets. These income tax benefits have been recorded as a component of Other Income in the Consolidated Statements of Income in 1999. NOTE 4. COMMON AND PREFERRED STOCK AND EARNINGS PER SHARE COMMON STOCK - In connection with the Company's merger with Emera on October 10, 2001, Emera owns all of the Company's outstanding common shares. The common stock has general voting rights of one vote per twelve shares owned. PREFERRED STOCK - Authorized but unissued shares of 552,660 (plus additional shares equal in number to such presently outstanding shares as may be retired) may be issued with such preferences, restrictions or qualifications as the board of directors may determine. Any new shares so issued will be required to be issued with per share voting rights no greater than that of the common stock. The callable preferred stock may be called in whole or in part upon any dividend date by appropriate resolution of the board of directors. The currently outstanding preferred stock has general voting rights of one vote per share. With regard to payment of dividends or assets available in the event of liquidation, preferred stock ranks prior to common stock. EXERCISE OF COMMON STOCK WARRANTS - In 2001, the remaining 1,437,215 of outstanding common stock warrants were exercised, which were issued in connection with the PERC purchased power contract restructuring, were exercised at market prices ranging from $25.625 to $26.806 per share. For a complete discussion of the PERC contract restructuring and the issuance of warrants, see Note 7. For 736,315 of the warrants, the Company exercised its option to pay cash to the holders of the warrants instead of actually issuing shares of common stock. These payments amounted to approximately $14.2 million. For 700,900 of unexercised warrants associated with the Municipal Review Committee (MRC), the Company and the MRC entered into an agreement whereby the Company, instead of issuing shares or paying cash, established a note payable to the MRC in the amount of $13,667,550, at an interest rate of 5% and a term of seven years. See Note 5 for a discussion of the MRC debt. Since the common shares were not issued, and the Company had recorded the estimated fair value of these warrants when issued in June 1998 as a $1.4 million addition to paid-in capital, an adjustment has been made in connection with the cash payments option and the MRC note payable to reduce paid-in capital by this amount as of December 31, 2001. Also as a result of the exercise of the warrants in 2001, the MPUC, in connection with its order approving the Company's merger with Emera, established a cap on the value of the warrants that could be recorded as a regulatory asset for exercises in 2001. Since all of the warrant exercises in 2001 were in excess of this cap, the Company was required to write-off this excess amount to paid-in capital. The charges, which reduced paid-in capital, amounted to approximately $12.6 million in 2001. See Note 7 for a complete discussion of the impact of the MPUC's orders concerning the PERC warrants. In 2000, 212,786 common stock warrants, which were issued in connection with the PERC purchased power contract restructuring, were exercised at market prices ranging from $14.75 to $24.8125 per share. The Company exercised its option to pay cash to the holders of the warrants instead of actually issuing shares of common stock. These payments amounted to approximately $2.5 million. Since the common shares were not issued, and the Company had recorded the estimated fair value of these warrants when issued in June 1998 as a $248,000 addition to paid-in capital, an adjustment has been made in connection with the cash payments option to reduce paid-in capital by this amount as of December 31, 2000. In 1999, 349,999 common stock warrants, which were issued in connection with the PERC purchased power contract restructuring, were exercised at market prices ranging from $16.0625 to $16.75 per share. The Company exercised its option to pay cash to the holders of the warrants instead of actually issuing shares of common stock. These payments amounted to approximately $3.3 million. Since the common shares were not issued, and the Company had recorded the estimated fair value of these warrants when issued in June 1998 as a $410,000 adjustment to paid-in capital, an adjustment was made in connection with the cash payments option to reduce paid-in capital by this amount as of December 31, 1999. EARNINGS PER SHARE - The following table reconciles basic and diluted earnings per common share assuming all outstanding common stock warrants were converted to common shares (see Note 7 for discussion of warrants issued in connection with the PERC purchased power contract restructuring). For 2001 the Predecessor period is from January 1, 2001 through the acquisition date, and the Successor period is from the acquisition date to December 31, 2001. Successor Predecessor 2001 2001 2000 1999 ------------- ------------- ---------- ---------- Earnings applicable to common stock $3,434,519 $4,989,477 $10,836,477 $17,335,205 ----------- ------------- ------------ ----------- Average common shares outstanding 7,363,424 7,363,424 7,363,424 7,363,424 Plus: incremental shares from assumed conversion of outstanding warrants - 791,745 990,099 984,200 ------------ --------- ----------- --------- Average common shares outstanding plus assumed warrants converted 7,363,424 8,155,169 8,353,523 8,347,624 ------------- ----------- ----------- ---------- Basic earnings per common share $.47 $.67 $1.47 $2.35 ------------- ------------- ----------- ---------- Diluted earnings per common share $.47 $.61 $1.30 $2.08 ======== ========= ========= ======== NOTE 5. LENDING AGREEMENTS AND MONETIZATION OF POWER SALE CONTRACT On June 29, 1998, the Company entered into an Amended and Restated Revolving Credit and Term Loan Agreement with a new group of lenders that provided a two-year term loan of $45 million and a three year revolving credit commitment of $30 million. The amended credit agreement is secured by $82.5 million of non-interest bearing First Mortgage Bonds. The term loan was fully repaid in May of 1999. The terms of the amended credit agreement have been extended to March 31, 2002 and the First Mortgage Bonds have expired. By the terms of the credit agreement, the Company may borrow, at its option, at rates, as defined in the agreement, based on the London Interbank Offered (LIBO) rate, or the base rate, which is the higher of the agent bank's defined base rate or one-half of one percent (1/2%) above the federal funds interest rate. The applicable risk premium based on the Company's corporate credit rating is added to the core interest rate, which results in the total combined interest rate for borrowing under the agreement. A required commitment fee, based on the Company's available revolving credit commitment, is also priced according to the Company's corporate credit rating. On June 29, 2001, the Company, as permitted under the Amended and Restated Credit and Term Loan Agreement, entered into a Promissory Note with FleetBoston Financial that allows the Company to borrow up to an additional $10 million. This unsecured facility is used by the Company to manage working capital needs, and the interest rate setting mechanism and other major terms of the Note are similar to terms in the Amended and Restated Credit and Term Loan Agreement. The original facility expired on October 1, 2001, but has subsequently been extended to March 31, 2002. Both facilities contain certain financial covenants related to the Company's debt ratio, fixed charge coverage, net worth, and limitation on the payment of common dividends. The Company was in compliance with all covenants associated with these agreements during 2001 and 2000. The Company provided power directly to UNITIL Power Corp. (UNITIL), a New Hampshire based electric utility, at significantly above-market rates, with the contract term ending in the year 2003. On March 31, 1998, the Company completed a transaction with lenders and one of its wholly owned subsidiaries, BERI (see below) that provided a loan of approximately $23.3 million in net proceeds secured by the value of the UNITIL contract. As a requirement of the financing, the Company established BERI, a special purpose entity which holds the medium term notes and acts as a conduit between Bangor Hydro and UNITIL for the procurement of power under the terms of the original power sales contract between the two parties. The loan was comprised of $24.8 million in medium term notes, with a term of 53 months. BERI must maintain a capital reserve fund of $1.5 million, funded with proceeds from the loan, which will be used to pay the final installment of principal and interest due in 2002. The assets in the capital reserve fund are held by a third party trustee and invested in money market funds whose investments are limited to commercial paper, corporate notes and bonds, certificates of deposit, municipal bonds, U.S. Agency obligations and repurchase agreements. Interest is payable, at the Company's option, under the agreement at the LIBO rate plus 1.125% or the base rate, which is the higher of (a) the lending bank's reported "base rate" and (b) one-half of one percent (1/2%) above the federal funds effective interest rate. The Company has historically selected the LIBO rate interest option. To provide interest rate protection through the maturity date of the term loan, in April 1998, BERI entered into an interest rate swap agreement with one of the lending banks. The interest rate swap fixed the LIBO interest rate on the medium term notes at 5.72%. As a result of the interest rate swap agreement, BERI incurred additional interest expense in 2001 amounting to approximately $103,000, while in 2000 BERI realized reduced interest expense of approximately $96,000. The agreement also contains certain financial covenants, with which BERI was in compliance during 2001 and 2000. In connection with financing the costs of the purchased power contract buyback accomplished in June 1995 (see Note 6), the Company entered into a Loan Agreement with the Finance Authority of Maine (FAME), a body corporate and politic and public instrumentality of the state of Maine. Pursuant to authorizing legislation in Maine, FAME issued $126 million of notes through a private placement, the repayment of which is the responsibility of the Company under the terms of the Loan Agreement. Of that amount, approximately $105 million was made available to the Company to finance a portion of the buyback and approximately $21 million was set aside in a capital reserve fund. The notes bear interest at an annual rate of 7.03%, mature on July 1, 2005 and are subject to a schedule of annual principal payments, which began on July 1, 1998. The amount held in the capital reserve fund will be used to pay the final installment of principal and interest due in 2005. The assets in the capital reserve fund are held by a third party trustee and invested in a guaranteed investment contract, earning interest at an annual rate of 6.51%. The interest earnings are utilized to offset the semiannual interest payments on the FAME notes. In order to secure the FAME notes, the Company executed a General and Refunding Mortgage Indenture and Deed of Trust establishing a lien on the Company's property junior to the lien under the Company's First Mortgage Bonds Indenture. The Company may not issue any additional First Mortgage Bonds in the future. The Company issued bonds to FAME under the new mortgage in the amount of $126 million. Under the provisions of the first mortgage bond indenture, substantially all of the Company's plant and property has been mortgaged to secure the Company's first mortgage bonds. On October 10, 2001, the Company issued a unsecured promissory note to the MRC for the amount of $13,667,550 (MRC Promissory Note). The Company and the MRC agreed to terms and conditions of the MRC Promissory Note under which the Company shall make a series of cash payments to the MRC upon the exercise of warrants on the closing of the merger with Emera, Inc. (See Notes 4 and 7 for a discussion of the PERC common stock warrants). The MRC Promissory Note has a term of seven years, a fixed interest rate of 5%, and payments of interest and principal on a quarterly basis. The MRC has the right to defer some or all of any of the quarterly payments within the same Note Year (August 1 to July 31), upon at least a 14 days' prior written notice to the Company. Current maturities of the first mortgage bonds and other long-term debt for the five years subsequent to December 31, 2001, amounting to $121,619,152, are $43,245,904 in 2002, $33,909,192 in 2003, $20,314,371 in 2004, $21,830,717 in 2005, and $2,318,968 in 2006. Certain information related to total short-term borrowings under the Credit Agreements and the lines of credit is as follows: 2001 2000 1999 ------------- ----------- --------------- Total credit available at end of period $40,000,000 $30,000,000 $30,000,000 Unused credit at end of period $32,000,000 $30,000,000 $30,000,000 Borrowings outstanding at end of period $ 8,000,000 - - Effective interest rate (exclusive of fees) on borrowings outstanding at end of period 4.4% -% -% Average daily outstanding borrowings for the period $ 3,031,507 $ - $ 2,802,740 Weighted daily average annual interest rate exclusive of fees) 4.4% -% 6.7% Highest level of borrowings outstanding at any month-end during the period $ 8,000,000 $ - $13,000,000 =========== ============= =========== NOTE 6. POSTRETIREMENT BENEFITS The Company has a noncontributory pension plan covering substantially all of its employees. Benefits under the plan are generally based on the employee's years of service and compensation during the years preceding retirement. The Company's general policy is to contribute to the funds the amounts deductible for federal income tax purposes. The Company also has an unfunded noncontributory supplemental non-qualified pension plan that provides additional retirement benefits to certain management employees. There were no employer contributions to the noncontributory pension plan in 2001, 2000 or 1999. The plan's assets are composed of fixed income securities, equity securities and cash equivalents. The following tables detail the funded status of the plan, the amounts recognized in the Company's Consolidated Financial Statements, the components of pension (income) expense for 2001, 2000 and 1999 and the major assumptions used to determine these amounts (includes both the funded and unfunded plans). Total pension expense (income) included the following components: 2001 2000 1999 ------------- ----------- ----------- Service cost-benefits earned during the period $1,387,841 $1,186,910 $1,439,047 Interest cost on projected benefit obligation 3,622,633 3,479,260 3,295,172 Expected return on plan assets (4,260,894) (4,460,416) (4,317,379) Amortization of unrecognized asset and gains (losses) (6,958) (664,911) 252,043 ------------- ------------- ---------- Total pension expense (income) $ 742,622 $ (459,157) $ 668,883 =========== =========== =========== 2001 2000 1999 ---------- --------- --------- Significant assumptions used were- Discount rate* 7.75% / 7.25% 8.0% 6.75% Rate of increase in future compensation levels 4.0% 4.0% 4.0% Expected long-term rate of return on plan assets 9.0% 9.0% 9.0% * In 2001, a 7.75% discount rate was used prior to the acquisition, and 7.25% was subsequent to the acquisition. The following table sets forth the plans' funded status at December 31, 2001 and 2000: 2001 2000 -------------- --------------- Change in Projected Benefit Obligation Balance as of December 31, 2000 and 1999 $ 47,951,796 $45,165,460 Service cost 1,387,841 1,186,910 Interest cost 3,622,633 3,479,260 Benefits paid (2,863,257) (2,900,824) (Gains) and losses 3,283,569 1,020,990 -------------- ------------- Balance as of December 31, 2001 and 2000 $ 53,382,582 $47,951,796 -------------- ------------- Change in Plan Assets Balance as of December 31, 2000 and 1999 $ 48,425,866 $51,834,730 Employer contributions 54,142 40,000 Benefits paid (2,863,257) (2,900,824) Actual return, less expenses (4,185,796) (548,040) -------------- -------------- Balance as of December 31, 2001 and 2000 $ 41,430,955 $48,425,866 -------------- -------------- Funded status $(11,951,627) $ 474,070 Unrecognized net transition asset - (390,175) Unrecognized prior service cost - 2,630,838 Unrecognized gain (1,180,767) (4,756,609) ---------------- ------------- Accrued pension at December 31, 2001 and 2000 $(13,132,394) $ (2,041,876) ============== ============ As a result of purchase accounting, all unrecognized actuarial gains and losses, prior service cost and the net transition asset were eliminated as of October 10, 2001, the merger date with Emera. As a result of regulatory accounting, a regulatory asset of $10.4 million, equal to these unrecognized amounts, was established at the merger date. The Company is amortizing this balance over the same period at which the corresponding gains and losses were being amortized when they were a component of pension expense. Amortization expense amounted to $211,670 in 2001 for the period subsequent to the merger. The discount rate and rate of increase in future compensation levels used to determine pension obligations, effective January 1, 2002, are 7.25% and 4%, respectively, and were used to calculate the plans' funded status at December 31, 2001. The accumulated benefit obligation for the unfunded supplemental pension plan with accumulated benefit obligations in excess of plan assets was $2,201,171 and $1,999,298 as of December 31, 2001 and 2000, respectively. In addition to pension benefits, the Company provides certain health care and life insurance benefits to its retired employees. Substantially all of the Company's employees may become eligible for retiree benefits if they reach normal retirement age while working for the Company. The actuarially determined net periodic postretirement benefit cost for 2001, 2000 and 1999 and the major assumptions used to determine these amounts are shown in the following tables: 2001 2000 1999 ------------- ----------- ---------- Service cost of benefits earned $ 632,590 $ 573,740 $ 583,385 Interest cost on accumulated postretirement benefit obligation 1,848,813 1,716,563 1,518,092 Actual return on plan assets (37,836) (22,002) (9,710) Amortization of unrecognized transition obligation 375,900 501,200 501,200 Other deferrals, net 271,727 280,255 405,834 ------------- ------------ ------------ Net periodic postretirement benefit cost $3,091,194 $3,049,756 $2,998,801 ========== ========== ========== The following table sets forth the benefit plan's funded status at December 31, 2001 and 2000. 2001 2000 -------------- ------------ Change in Accumulated Postretirement Benefit Obligation Balance as of December 31, 2000 and 1999 $ 23,874,192 $ 20,720,833 Service cost 632,590 573,740 Interest cost 1,848,813 1,716,563 Claims paid (979,648) (1,091,334) Gains and losses 2,112,497 1,954,390 --------------- ------------- Balance as of December 31, 2001 and 2000 $ 27,488,444 $ 23,874,192 --------------- ------------- Change in Plan Assets Balance as of December 31, 2000 and 1999 $ 879,734 $ 358,971 Employer contributions 1,250,743 1,727,550 Retiree contributions 44,038 43,428 Claims paid (979,648) (1,091,334) Actual return, less expenses (180,829) (158,881) -------------- ------------- Balance as of December 31, 2001 and 2000 $ 1,014,038 $ 879,734 ------------- ------------- Funded status $(26,474,406) $(22,994,458) Unrecognized net transition obligation - 6,013,600 Unrecognized (gain) loss (48,465) 6,898,628 -------------- ------------- Accrued postretirement benefit cost at December 31, 2001 and 2000 $(26,522,871) $(10,082,230) ============= ============ As a result of purchase accounting, all unrecognized actuarial gains and losses, prior service cost and the unrecognized net transition obligation were eliminated as of October 10, 2001, the merger date with Emera. As a result of regulatory accounting, a regulatory asset of $14.6 million, equal to these unrecognized amounts, was established at the merger date. The Company is amortizing this balance over the same period at which the corresponding gains and losses were being amortized when they were a component of the net periodic postretirement benefit cost. Amortization expense amounted to $282,537 in 2001 for the period subsequent to the merger. The MPUC in 1993 issued a final accounting rule in connection with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106), which adopted this pronouncement for ratemaking purposes and authorized the Company to defer the excess of the net periodic postretirement benefit cost recognized under SFAS 106 over the pay-as- you-go amount in 1993 through February 28, 1994, and to include such excess as a regulatory asset pending inclusion in the new base rates, effective March 1, 1994. This regulatory asset, which amounted to $705,283 at February 28, 1994, is being recovered, beginning March 1, 1994, over a ten-year period. In 1994 the Company established an irrevocable external Voluntary Employee Benefit Association Trust Fund (VEBA) to fund the payment of postretirement medical and life insurance benefits. Company contributions to the VEBA amounted to approximately $1.3 million in 2001 and $1.7 million in 2000. The VEBA's assets are composed of United States Treasury money market funds. The Company's general policy is to contribute to the VEBA amounts necessary to fund claims and administrative costs. 2001 2000 1999 ------------ -------- ------- Significant assumptions used were- Discount rate * 7.75% /7.25% 8.0% 6.75% Health care cost trend rate, employees less than age 65- Near-term 7.5% 7.0% 7.5% Long-term 5.0% 5.0% 4.5% Health care cost trend rate, employees greater than age 65- Near-term 7.5% 7.0% 7.5% Long-term 5.0% 5.0% 4.5% Rate of return on plan assets 5.0% 5.0% 5.0% * In 2001, a 7.75% discount rate was used prior to the acquisition, and 7.25% was subsequent to the acquisition. The discount rate used to determine postretirement benefit obligations, effective January 1, 2002, and the Plan's funded status at December 31, 2001, was 7.25%. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effect: 1% Increase 1% Decreas ------------- ------------ Effect on total of service and interest cost components $ 451,011 $ (355,321) Effect on postretirement benefit obligation 4,580,571 (3,658,701) In 1999 the Company incurred $469,000 and $175,587 in special termination benefits associated with enhanced pension and postretirement medical benefits, respectively, provided to employees who were displaced due to the asset sale to PP&L Global (see Note 11). The state of Maine electric utility restructuring legislation allowed utilities to recover the costs of providing such benefits to the workers displaced due to the sale of the Company's generation assets, and consequently, the special termination benefits expense of $644,587 was deferred and is recorded as a regulatory asset at December 31, 1999. Recovery of this regulatory asset began starting March 1, 2000 over a three-year period as specified in the Company's 2000 rate order from the MPUC. The estimates of the Company's accrued pension and postretirement benefit costs involve the utilization of significant assumptions. Changes in any one of these assumptions could impact the liabilities in the near term. The Company also provides a defined contribution 401(k) savings plan for substantially all of its employees. The Company's matching of employee voluntary contributions amounted to approximately $363,000 in 2001, $370,000 in 2000 and $331,000 in 1999. NOTE 7. JOINTLY OWNED FACILITIES AND POWER SUPPLY COMMITMENTS MAINE YANKEE - The Company owns 7% of the common stock of Maine Yankee, which owns and, prior to its permanent closure in 1997, operated an 880 megawatt (MW) nuclear generating plant (the Plant) in Wiscasset, Maine. Maine Yankee, which had commenced commercial operation on January 1, 1973, is the only nuclear facility in which the Company has an ownership interest. The Company's equity ownership in the plant had entitled the Company to about 7% of the output pursuant to a cost-based power contract. Pursuant to a contract with Maine Yankee, the Company is obligated to pay its pro rata share of Maine Yankee's operating expenses, including decommissioning costs. In addition, under a Capital Funds Agreement entered into by the Company and the other sponsor utilities, the Company may be required to make its pro rata share of future capital contributions to Maine Yankee if needed to finance capital expenditures. Plant Shutdown and Rate Case Settlement - On August 6, 1997, the board of directors of Maine Yankee voted to permanently cease power operations at the Plant and to begin decommissioning the Plant. The Plant had experienced a number of operational and regulatory problems and did not operate after December 6, 1996. The decision to close the Plant permanently was based on an economic analysis of the costs, risks and uncertainties associated with operating the Plant compared to those associated with closing and decommissioning it. The Plant's operating license from the Nuclear Regulatory Commission was scheduled to expire in 2008. The entire output of the Plant had been sold at wholesale by Maine Yankee to ten New England electric utilities, which collectively own all of the common equity of Maine Yankee; a portion of that output (approximately 6.2%) was in turn resold by certain of the owner utilities to 29 municipal and cooperative utilities in New England (the Secondary Purchasers). Maine Yankee recovered, and since the shutdown decision has continued to recover, its costs of providing service through a formula rate filed with the FERC and contained in Power Contracts with its utility purchasers, which, as amended, are also filed with the FERC. In November 1997, Maine Yankee submitted for filing certain amendments to the Power Contracts (the Amendatory Agreements) and revised rates to reflect the decision to shut down the Plant and to request approval of an increase in the decommissioning component of its formula rates. Maine Yankee's submittal also requested certain other rate changes, including recovery of unamortized investment (including fuel) and certain changes to its billing formula, consistent with the nonoperating status of the Plant. During 1998 and early 1999, the parties to the FERC proceeding, including, among others, the MPUC staff, the Maine Office of the Public Advocate and the Secondary Purchasers, engaged in extensive discovery and negotiations, which resulted in the filing of a settlement agreement with the FERC in January 1999. A separately negotiated settlement filed with the FERC in February 1999 resolved the issues raised by the Secondary Purchasers by limiting the amounts of their payments for decom-missioning the Plant and by settling other points of contention affecting individual Secondary Purchasers. Both settlements were found to be in the public interest and were approved by the FERC on June 1, 1999. The settlements constitute a full settlement of all issues raised in the FERC proceeding, including decommissioning cost issues and the issues pertaining to the prudence of the management, operation, and decision to permanently cease operation of the Plant. The primary settlement provides for Maine Yankee to recover amounts intended to cover the costs of decommissioning and those associated with the construction and maintenance of an of an off-site independent spent fuel storage installation (ISFSI). The settlement also provides for recovery of the unamortized investment (including fuel) in the Plant, together with a return on equity of 6.50% on limited equity balances. The Settling Parties also agreed not to contest the effectiveness of the Amendatory Agreements submitted to FERC as part of the original filing, subject to certain limitations including the right to challenge any accelerated recovery of unamortized investment under the terms of the Amendatory Agreements after a required informational filing with the FERC by Maine Yankee. In addition, Maine Yankee agreed to file with the FERC a rate proceeding that will have an effective date of no later than January 1, 2004, when major decommissioning activities are expected to be nearing completion. As a separate part of the settlement, the three Maine Sponsors of Maine Yankee, the MPUC Staff, and the Office of the Public Advocate entered into a further agreement (Maine Agreement) resolving retail rate issues and other issues specific to the Maine parties, including those that had been raised concerning the prudence of the operation and shutdown of the Plant. The Company believes that the settlement, including the Maine Agreement, constituted a reasonable resolution of the issues raised in the Maine Yankee FERC proceeding, and eliminated significant uncertainties concerning the Company's future financial performance. Under the Maine Agreement, the Company would continue to recover its Maine Yankee costs , although the allowed return on equity associated with the Company's equity balance in Maine Yankee was set at 6.50%. The final major provision of the Maine Agreement required the Maine owners, for the period from March 1, 2000, through December 1, 2004, to hold their Maine retail ratepayers harmless from the amounts by which the replacement power costs for Maine Yankee exceeded the replacement power costs assumed in the report to the Maine Yankee board of directors that served as a basis for the Plant shutdown decision. As part of a further settlement, the Company's liability was fixed at approximately $2.2 million to be reflected as a reduction in stranded costs effective March 1, 2002. The Company charged to fuel and purchased power expense and recorded as a regulatory liability $2 million in December 2000 representing the net present value of this future obligation. Maine Yankee's most recent estimate of the total costs of decommissioning and plant closure, for the period from 2001 to 2008, excluding funds already collected, is $596 million (undiscounted). The Company's share of the estimated cost at December 31, 2001 is approximately $37.3 million and is recorded as a regulatory asset and decommissioning liability. The regulatory asset was recorded for the full amount of the decommissioning and plant closure costs due to the state's industry restructuring legislation (see Note 11) allowing the Company future recovery of nuclear decommissioning expenses related to Maine Yankee, as well as the Company being allowed a recovery mechanism in its February 2000 rate order for Maine Yankee non-decommissioning plant closure costs. Accumulated decommissioning funds at December 31, 2001 had an adjusted market value of $157.1 million of which the Company's share was approximately $11 million. MEPCO - The Company owns 14.2% of the common stock of MEPCO. MEPCO owns and operates electric transmission facilities from Wiscasset, Maine, to the Maine-New Brunswick border. Information relating to the operations and financial position of Maine Yankee and MEPCO appears later in Note 6. In connection with the Company's generation asset sale in May 1999 (see Note 11), the Company sold certain of its rights to MEPCO transmission capacity. NEPOOL/Hydro-Quebec Project - The Company is a 1.6% participant in the NEPOOL/Hydro-Quebec Phase 1 project (Phase 1), a 690 MW DC intertie between the New England utilities and Hydro-Quebec constructed by a subsidiary of another New England utility at a cost of about $140 million. The participants receive their respective share of savings from energy transactions with Hydro-Quebec, and are obliged to pay for their respective shares of the costs of ownership and operation whether or not any savings are realized. The Company is also a 1.5% participant in the NEPOOL/Hydro-Quebec Phase 2 project (Phase 2), which involves an increase to the capacity of the Phase 1 intertie to 2,000 MW. As in the Phase 1 project, the Company receives a share of the anticipated energy cost savings derived from purchases from Hydro-Quebec and capacity benefits provided by the intertie and is required to pay its share of the costs of ownership and operation whether or not any savings are obtained. In connection with the generation asset sale in May 1999, the Company sold its rights as a participant in the regional utilities agreement with Hydro-Quebec (see Note 11). The Company, though, is still required to pay its share of the costs of ownership and operation of the Hydro-Quebec intertie. Also in connection with the asset sale, PP&L Global (PP&L) has agreed to pay the Company $400,000 per year to partially offset the Company's on- going Hydro-Quebec support payments. Since the Company still has an obligation for the costs of the Hydro-Quebec intertie, but it has sold the rights to the benefits as a participant, an $6 million liability (included in Other Long-term Liabilities) and corresponding regulatory asset (included in Other Regulatory Assets) have been recorded as of December 31, 2001 on the Consolidated Balance Sheet representing the present value of the Company's estimated future payments (net of the $400,000 to be received from PP&L) for costs of ownership and operation of the Hydro-Quebec intertie. BANGOR VAR CO. - In 1990, the Company formed BVC, whose sole function is to be a 50% general partner in Chester, a partnership which owns a static var compensator (SVC), which is electrical equipment that supports the Phase 2 transmission line. A wholly-owned subsidiary of Central Maine Power Company owns the other 50% interest in Chester. Chester has financed the acquisition and construction of the SVC through the issuance of $33 million in principal amount of 10.48% senior notes due 2020, and up to $3.25 million in principal amount of additional notes due 2020 (collectively, the SVC Notes). The holders of the SVC Notes are without recourse against the partners or their parent companies and may only look to Chester and to the collateral for payment. The New England utilities which participate in Phase 2 have agreed under a FERC approved contract to bear the cost of Chester, on a cost of service basis, which includes a return on and of all capital costs. Summary Financial Information for Maine Yankee and MEPCO is as follows (dollars in thousands): - ---------------------------------------------------------------------------- Maine Yankee MEPCO - ---------------------------------------------------------------------------- 2001 2000 1999 2001 2000 1999 ------ -------- ------ ------ ------- ------- Operations: As reported by investee- Operating revenue $ 61,994 $ 43,813 $ 69,439 $ 4,514 $ 4,029 $ 2,936 -------- --------- --------- --------- ------- ------- Amortization/depreciation and decommissioning collections $ 47,586 $ 47,611 $ 55,286 $ 274 $ 319 $ 326 Interest and preferred dividends 10,987 14,829 14,079 40 55 72 Other (income) expenses, net (950) (23,267) (4,789) 3,008 2,274 (771) ----------- ----------- ---------- ------- -------- ------- Operating expenses $ 57,623 $ 39,173 $ 64,576 $ 3,322 $ 2,648 $ (373) ----------- --------- ---------- -------- -------- ------ Earnings applicable to common stock $ 4,371 $ 4,640 $ 4,86 $ 1,192 $ 1,381 $3,309 ========== ======== ======== ======= ======= ====== Amounts reported by the Company- Purchased power costs $ 5,198 $ 5,013 $ 4,368 $ - $ - $ - Equity in net income (310) (320) (83) ( 19 (157) (199) ----------- --------------------- ------- -------- ----- Net purchased power expense $ 4,888 $ 4,693 $ 4,285 $ (195) $ (157) $ (199) ========= ======== ======== ====== ====== ===== Financial Position: As reported by investee- Plant in service $ 685 $ 685 $ 685 $25,860 $25,593 $23,493 Accumulated depreciation - - - (23,231) (23,075) (23,015) Other assets and deferred charges 801,433 914,412 1,049,287 4,241 3,355 7,589 ---------- --------- ----------- --------- ------- ------ Total assets $ 802,118 $915,097 $1,049,972 $ 6,870 $5,873 $8,067 Less- Preferred stock - 15,000 15,000 - - - Long-term debt 31,200 40,800 54,000 - - - Other liabilities and deferred credits 707,643 788,703 905,994 770 863 4,339 --------- --------- ----------- --------- -------- ------ Net assets $ 63,275 $ 70,594 $ 74,978 $6,100 $5,010 $ 3,728 ========= ======== ========== ====== ====== ======= Company's reported equity- Equity in net assets $ 4,429 $ 4,942 $ 5,248 $ 866 $ 711 $ 529 Adjust Company's estimated to actual (7) 8 19 (12) (38) 1 ------------ ----------- ------------ -------- --------- ---- Equity in net assets as reported $ 4,422 $ 4,950 $ 5,267 $ 854 $ 673 $ 530 =========== ======== ========== ======== ====== ====== Power Supply Commitments - As of the end of 2001, the Company had contracts with six in-dependent, non-utility power producers known as "small power production facilities." The West Enfield Project, described below, is one such facility. There are four other relatively small hydroelectric facilities, and a 20 MW facility fueled by municipal solid waste (see PERC discussion below). The cost of power from the small power production facilities is more than the Company would incur from other sources if it were not obligated under these contracts, and, in the case of the solid waste plant, substantially more. The prices were negotiated at a time when oil prices were much higher than at present, and when forecasts for the costs of the Company's long-term power supply were higher than current forecasts. West Enfield Project - In 1986, the Company entered into a joint venture with a development subsidiary of Pacific Lighting Corporation for the purpose of financing and constructing the redevelopment of an old 3.8 MW hydroelectric plant which the Company owned on the Penobscot River in Enfield and Howland, Maine, into a 13 MW facility for the purpose of operating the facility once it was completed. Commercial operation of the redeveloped project began in April 1988. PHC was formed to own the Company's 50% interest in the joint venture, Bangor- Pacific. Bangor-Pacific financed the cost of the redevelopment through the issuance in a privately placed transaction of $40 million of fixed rate term notes and a commitment for up to $5 million of floating rate notes. The notes are secured by a mortgage on the project and a security interest in a 50-year purchased power contract, and the revenues expected thereunder, between the Company and Bangor-Pacific. In late July 1999, in connection with the generation asset sale, the Company sold PHC to PP&L and received $10 million in proceeds. The sale resulted in a gain of approximately $5.2 million, of which $4.7 million was deferred as part of the deferred asset sale gain (see Note 11). The remaining $.5 million of the gain related to the portion of the gain on sale of PHC which was allocable to shareholders (recorded as Other Income in the Consolidated Statements of Income for the year ending December 31, 1999). PERC - PERC owns a 20 MW waste-to-energy facility in Orrington, Maine, that provides solid waste disposal services to many communities in central, eastern, and northern Maine. The contract requires the Company to purchase the electricity output of the plant until 2018 at a price that is presently above the cost of alternative sources of power, and, in the Company's opinion, is likely to remain so. The Company's purchased power expense, net of revenues from the resale of power to another utility, under this contract was approximately $15.1 million in 2001, is projected to be approximately $16 million in 2002, $20 million in 2003, and to increase over the remainder of the contract up to $28 million in the last full year, 2017. Also as a result of a 1998 contract restructuring (discussed below), PERC will share the net revenues generated by the facility on a pro rata basis with the Company and the MRC, which represents over 130 Maine municipalities receiving waste disposal service from PERC. In 2001, 2000 and 1999 the Company realized $3.5 million, $3.5 million and $2.9 million, respectively, in savings associated with its share of PERC net revenues. The Company expects to realize approximately $3.6 million annually in such savings through the term of the PERC contract. Other Power Supply Commitments - The Company entered into a contract, which started on March 1, 2001, for the delivery of up to 160 MW of power from a third party, ending February 28, 2004. The energy delivered in connection with the contract is used to serve a portion of the standard offer service customer load. The Company's purchased power expense under this contract was approximately $21 million in 2001, and is estimated to be approximately $39.4 million in 2002, $24.1 million in 2003 and $3.5 million in 2004. See Note 11 for a discussion of the standard offer service. In late 1999 the Company selected the winning bidder for all of the capacity and energy from its six purchased power contracts being auctioned off pursuant to Chapter 307 of the MPUC's rules for regulation of electric utilities. The contract commenced March 1, 2000, the date when retail customer choice for power supply commenced in Maine, and continued through February 28, 2002. The Company recorded $4.4 million in revenues from the resale of power under this contract in 2001. In the fall of 2001, the MPUC selected the winning bidder to supply the small customer class of standard offer service starting in March 2002. Their bid was contingent upon being selected as buyer of all of the capacity and energy from the Company's previously discussed six purchased power contracts, two-year standard offer related energy supply contract and the output of the Company's diesel units. The period of sale will commence March 1, 2002, and will continue for a period of three years. The revenues to be realized under this contract, as well as the final two months in 2002 of the Chapter 307 sales related contract discussed above, are estimated to be approximately $36.9 million in 2002, $25.6 million in 2003, $11 million 2004 and $2 million in 2005. Rate Recovery - In connection with the Company's stranded cost rate proceeding with the MPUC, Maine Yankee decommissioning and other closure costs, obligations associated with Hydro-Quebec, the cost of energy and capacity associated with the power purchase contracts and revenues associated with the sales agreements discussed in this note are being recovered from customers as stranded costs. PURCHASED POWER CONTRACT BUYOUTS AND RESTRUCTURING - During the 1990's, the Company attempted to alleviate the adverse impact of high-cost contracts with small power production facilities. One method for doing so was to pay a fixed sum in return for terminating the contract. The first such transaction was accomplished in 1993, and in 1995 the Company succeeded in accomplishing two more. In the 1993 transaction, the Company negotiated an agreement to cancel its long-term purchased power agreement with one of the biomass plants, the Beaver Wood Joint Venture (Beaver Wood), in June 1993. In connection with the cancellation, the Company paid Beaver Wood $24 million in cash and issued a new series of 12.25% First Mortgage Bonds due July 15, 2001 to the holders of Beaver Wood's debt in the amount of $14.3 million in substitution for Beaver Wood's previously outstanding 12.25% Secured Notes. Also, in connection with the cancellation agreement, a reconstituted Beaver Wood partnership paid the Company $1 million at the time of settling the transaction and agreed to pay the Company $1 million annually for a six-year period beginning in 1994 in return for retaining the ownership and the option of operating the plant. The payments were secured by a mortgage on the property of the Beaver Wood facility. In each of the years from 1994 through 1997 the Company received its $1 million payment. The Company was entitled to receive the final two payments totaling $2 million in 1998 and 1999 from Beaver Wood. However, in July 1998, Beaver Wood indicated that it would not be making the payment due at that time and requested the Company agree to a lower payment. After assessing the potential costs and benefits of foreclosing on the mortgage, the Company determined that accepting a payment of $1.75 million would be a better alternative. This $1.75 million payment was received in February 1999. The Company has recorded the $250,000 shortfall as a regulatory asset as of December 31, 2001, and this amount will be recovered from customers in connection with the Company's stranded cost recovery. The Company established a regulatory asset associated with the cost of the buyout, and with the implementation of new base rates on March 1, 1994, the Company began recovering over a nine-year period the deferred balance, net of the additional $6 million anticipated from Beaver Wood. This regulatory asset is being amortized at an annual rate of $3.9 million through February 2003. The 1995 transactions involved a "buyback" of the contracts for the purchase of power from two biomass-fueled generating plants in West Enfield and Jonesboro, Maine, which are identical plants under common ownership. The buyback cost was approximately $170 million, including transaction costs. The buyback costs were deferred and recorded as a regulatory asset and are being amortized and collected over a ten-year period, beginning July 1, 1995, at an annual expense of $17 million. The cost of the buyback was financed entirely by new debt instruments, thereby significantly increasing the Company's indebtedness (see Note 5). In June 1998 the Company successfully completed a major restructuring of its obligations under various agreements with PERC. It is anticipated that the restructuring will result in a substantial savings for the Company. As previously discussed, in connection with this restructuring, PERC will share the net revenues generated by the facility on a pro rata basis with the Company and the MRC over the remaining term of the PERC contract. which represents over 130 Maine municipalities receiving waste disposal service from PERC. The Company also made a one-time payment of $6 million to PERC in June 1998 and is making additional quarterly payments, starting in October 1998, of $250,000 for four years totaling $4 million. These amounts are recorded as regulatory assets when the payments are made. Finally, in connection with the PERC contract restructuring in 1998, the Company issued two million warrants to purchase common stock, one million each to PERC and the MRC. Each warrant entitled the warrant holder to acquire one share of the Company's common stock at a price of $7 per share. No warrants could be exercised within the first nine months after their issuance, and they were exercisable in 500,000 share blocks following the expiration of nine months, 21 months, 33 months, and 45 months from the closing date. Upon exercise, the Company had the option, instead of providing common stock, to pay cash equal to the difference between the then market price of the stock and the exercise price of $7 per share times the number of shares as to which exercise is made. The MPUC established a cap on ratepayers' exposure to the cost of the warrants. Ratepayer costs were limited to the difference between the higher of $15 per share or the book value per share at the time the warrants are exercised and the $7 exercise price. This cap was further modified by the MPUC in 2001 in connection with the approval of the Company's merger with Emera. For any warrants which were exercised after the merger approval in January 2001, the cap on the ratepayers' exposure was set at $10.50 per share ($17.50 per share less the $7 exercise price). The Company will not recover any costs above the cap from ratepayers, and as previously discussed, these amounts were charged against paid-in capital in 2001. As previously discussed in Note 4, in 2001, the remaining 1,437,215 of outstanding common stock warrants were exercised. For 736,315 of these warrants, the Company exercised its option to pay cash to the holders of the warrants instead of actually issuing shares of common stock. These payments amounted to approximately $14.2 million. For 700,900 of unexercised warrants associated with the MRC, the Company and the MRC entered into an agreement whereby the Company, instead of issuing shares or paying cash, established the previously discussed note payable to the MRC. As a result of the exercise of the warrants in 2001 and the affects of the cap on the ratepayers' exposure as set by the MPUC, the Company increased its regulatory asset associated with the PERC contract restructuring by approximately $13.7 million in 2001. In 2000 and 1999, 212,786 and 349,999 common stock warrants were exercised (at a market prices below the book value per common share at the time of the exercise), respectively, and the Company exercised its option to pay cash to the holders of the warrants instead of actually issuing shares of common stock. These payments amounted to approximately $2.5 million in 2000 and $3.3 million in 1999. As a result of the exercise of the warrants in 2000 and 1999 and the cap on the ratepayers' exposure as set by the MPUC, the Company increased its regulatory asset associated with the PERC contract restructuring by approximately $1.9 million in 2000 and $2.9 million in 1999. As of December 31, 2001, the Company has deferred, as a regulatory asset, approximately $27.6 million in costs associated with the PERC contract restructuring. Effective with the implementation of new rates on March 1, 2000, the Company began recovering the full amount of deferred PERC restructuring costs, including an estimate of the future value of warrants to be exercised and the additional $250,000 quarterly payments discussed above, amounting to an annual amortization of $1.6 million per year. The Company had been involved in 2001 and early 2002 in a regulatory proceeding at the MPUC to reset stranded cost electric rates starting March 1, 2002. Effective with the new electric rates set by the MPUC, the annual amortization expense associated with the recovery of the PERC restructuring costs was adjusted to $1.7 million annually. NOTE 8. RECOVERY OF SEABROOK INVESTMENT AND SALE OF SEABROOK INTEREST The Company was a participant in the Seabrook nuclear project in Seabrook, New Hampshire. On December 31, 1984, the Company had almost $87 million invested in Seabrook, but because the uncertainties arising out of the Seabrook Project were having an adverse impact on the Company's financial condition, an agreement for the sale of Seabrook was reached in mid-1985 and was finally consummated in November 1986. During 1985, a comprehensive agreement was negotiated among the Company, the MPUC staff, and the Maine Public Advocate addressing the recovery through rates of the Company's investment in Seabrook (the Seabrook Stipulation). This negotiated agreement was approved by the MPUC in late 1985. Although the implementation of the Seabrook Stipulation significantly improved the Company's financial condition, substantial write-offs were required as a result of the determination that a portion of the Company's investment in Seabrook would not be recovered. In addition to the disallowance of certain Seabrook costs, the Seabrook Stipulation also provided for the recovery through customer rates of 70% of the Company's year-end 1984 investment in Seabrook Unit 1 over 30 years, and 60% of the Company's investment in Unit 2 over seven years, with base rate treatment on the unamortized balances. As of December 31, 1992, the Company's investment in Seabrook Unit 2 was fully amortized. NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The following represents the estimated fair value at December 31, 2001 of each class of financial instrument for which it is practical to estimate the value: Cash and cash equivalents-including money market funds and repurchase agreements: the carrying amount of $884,617 approximates fair value. Funds held by trustees, associated with the BERI capital reserve fund and miscellaneous special deposits-Money market funds and U.S. Treasury Bills: the carrying amount of $2,189,638 approximates fair value. The fair values of other financial instruments at December 31, 2001 based upon similar issuances of comparable companies are as follows: (In Thousands) Carrying Amount Fair Value ----------------- ------------ Funds held by trustee-guaranteed investment contract $21,191 $22,409 First Mortgage Bonds 85,000 98,876 FAME Revenue Notes 71,500 75,909 Medium Term Notes-LIBO rate plus 1.125% 5,460 5,460 Municipal Review Committee Note Payable 13,234 12,147 Short-term debt 8,000 8,000 NOTE 10. UNAUDITED QUARTERLY FINANCIAL DATA Unaudited quarterly financial data pertaining to the results of operations are shown below (Dollars in thousands except for per share amounts): Quarter Ended ------------------------------------------- Mar. 31 June 30 Sept. 30 Dec. 31 ------------------------------------------- 2001 - ------ Electric Operating Revenue $ 56,204 $ 54,003 $ 55,570 $ 51,803 Operating Income 7,627 3,169 6,099 6,722 Net Income (Loss) 4,584 (201) 3,062 1,244 Basic Earnings (Loss) Per Share of Common Stock $ .6 $ (.04) $ 41 $ .16 ======== ========= ======= ======== 2000 - ------ Electric Operating Revenue $ 50,121 $ 48,563 $ 58,641 $ 55,012 Operating Income 8,307 4,652 6,535 6,930 Net Income 3,937 1,339 3,940 1,885 Basic Earnings Per Share of Common Stock $ .53 $ .17 $ .53 $ .25 ========= ========= ======= ======== 1999 - ------ Electric Operating Revenue $ 50,222 $ 47,299 $ 51,452 $ 49,022 Operating Income 9,886 8,502 9,331 8,439 Net Income 4,212 3,452 5,037 5,580 Basic Earnings Per Share of Common Stock $ .53 $ .43 $ .65 $ .74 ========= ========== ========= ======= NOTE 11. INDUSTRY RESTRUCTURING AND RATE REGULATION INDUSTRY RESTRUCTURING - In connection with the state of Maine's electric industry restructuring law, effective March 1, 2000, consumers of electricity had the right to purchase generation services directly from competitive electricity suppliers. In February 2000, and in connection with the implementation of the restructuring law, the Company received a final rate order from the MPUC setting its transmission and distribution and stranded cost rates effective March 1, 2000. The Company's total annual revenue requirement as set in the rate proceedings, including $40 million associated with stranded cost recovery, amounted to $103.2 million. The stranded cost recovery includes the decommissioning and other plant closure expenses for Maine Yankee. There were no write-offs of previously deferred costs based on the final rate order. In Maine, stranded costs are treated in the same manner as most other costs and may be included in calculations for prospective rate changes. Absent any rate proceedings, however, in 2003 and every three years thereafter until the stranded costs are recovered, the MPUC shall review and reevaluate the stranded cost recovery. Customers reducing or eliminating their consumption of electricity by switching to self- generation, conversion to alternative fuels or utilizing demand-side management measures cannot be assessed exit or entry fees. The restructuring law also provided for a standard-offer service being available for all customers who did not choose to purchase energy from a competitive supplier starting March 1, 2000. As a result of the bids from competitive energy suppliers to provide energy under the standard- offer service being higher than anticipated in both 2000 and 2001, and as ordered by the MPUC, the Company assumed the responsibility of being the standard-offer service provider starting March 1, 2000 for the period ending February 28, 2002. The MPUC established the schedule of rates the Company could charge for this service starting March 1, 2000. The Company entered into arrangements with third parties to purchase the energy to serve the standard- offer customers. The Company has been allowed by the MPUC to defer, for future ratemaking treatment, the difference between revenues realized from the standard-offer sales and the costs incurred to provide this service, including carrying costs on the deferred balance. Since March 1, 2000, when new rates went into effect, on a cumulative basis, the revenues realized from standard offer customers have exceeded the costs of providing the standard offer service, and consequently, the Company has recorded a regulatory liability of approximately $5.7 million, including carrying costs, as of December 31, 2001 (which is included in Other regulatory liabilities on the Consolidated Balance Sheets). Effective March 1, 2002, with the implementation of new stranded cost rates as approved by the MPUC, the Company began amortizing the deferred standard offer liability balance over a two year period. Also effective March 1, 2002, as a result of new bids received from competitive energy providers, the Company is no longer serving as the standard offer service provider. The Company is, though, serving as the billing and collection agent under the standard offer program. As a result of the previously discussed reconciliation mechanism, standard-offer related revenues and expenses do not have any impact on the Company's earnings, although they do result in increases in both categories in the Company's Consolidated Statements of Income. Consequently, the Consolidated Statement of Income for 2001 and 2000 has been modified to reflect the separate presentation of standard- offer service revenues and purchased power expenses. CURRENT RATE FILINGS - On October 12, 2001, the Company filed a proposal with the MPUC for an alternative rate plan (ARP) that would govern its rates for distribution service over a four year period. Such a filing was required by the MPUC as a condition of its approval of the Company's acquisition by Emera. In addition to distribution service rates, the Company's ARP proposal included proposed incentives to improve the efficiency and the service quality of power delivery services to Bangor Hydro's customers. The Company's proposal included an initial increase in distribution rates of approximately $3.4 million, with additional annual adjustments during the term of the ARP at a rate below that of inflation. However, as a result of a scheduled reduction in standard offer service, the combined impact of rate changes for most customers would be a reduction of approximately 10% (or about $8 per month for a typical residential customer) during 2002. There is no legal deadline for the MPUC to complete such a proceeding. On October 18, 2001, the Company filed a notice of its intent to file a request for a general increase in distribution rates of approximately $6.4 million. Under Maine law, utilities are required to provide a minimum of sixty days notice of their intent to file such a request. This filing was made as an alternative to the Company's ARP filing, although it does not preclude simultaneous or subsequent implementation of an ARP. Once filed, the MPUC must process such a request within nine months. In November 2001, the MPUC Hearing Examiner administering the ARP proceeding suspended that proceeding pending the Company's filing of a request for a general increase in distribution rates. On January 11, 2002, the MPUC requested comments on a Draft Order that would initiate a management investigation of the Company, as permitted by Maine law, as part of its investigation of the Company's anticipated request for a general increase in distribution rates. On January 17, 2002, in response to this Draft Order, the Company offered to defer filing its request for a general increase in distribution rates and asked the MPUC to defer initiating the management investigation to permit the Company and interested parties a three month period to pursue a settlement of the ARP proceeding with the expectation that such a settlement would also terminate the proposed request for a general increase in rates and the management investigation. At a deliberative session held on January 22, 2002, the MPUC deferred issuing an order initiating a management investigation for 90 days to allow the parties to pursue a settlement of these related rate matters. Management cannot predict the outcome of the regulatory proceedings associated with the Company's rate proposals with the MPUC. SALES OF THE COMPANY'S GENERATING ASSETS - In September 1998, the Company sold certain property and equipment at its Graham Station site in Veazie, Maine, to Casco Bay Energy for $6.2 million. On May 27, 1999, the Company completed most of the transaction for the sale of its electric generating assets and certain transmission rights to PP&L. The purchase price for the assets transferred was $79 million. The sale involved all but one of the Company's hydroelectric plants on the Penobscot, Piscataquis, and Union rivers and Bangor Hydro's 8.33% ownership interest in the Wyman Unit #4 oil-fired plant in Yarmouth, Maine-a total base load capacity of 83 megawatts. The sale also involved a transfer by the Company of rights to transmit power over the MEPCO transmission facilities connecting NEPOOL to New Brunswick Canada; the Company's rights as a participant in the regional utilities' agreement with Hydro-Quebec pursuant to an agency agreement; and the Company's rights to develop a second high voltage transmission line that will connect NEPOOL to New Brunswick, Canada. The Company realized a net gain on the sale related to these sales of approximately $29.8 million, and $29.3 million of this amount was recorded as a deferred liability at February 29, 2000, on the Consolidated Balance Sheets. As discussed in Note 7, the other $.5 million of the gain on the sale of Penobscot Hydro that was allocable to shareholders, pursuant to orders of the MPUC, was recorded as other income in 1999. Effective with the March 1, 2000 rate change, the Company began amortizing the deferred asset sale gain over a 70-month period. The annual amortization amounts are being recorded in an uneven manner in order to levelize the Company's revenue requirement over this period. As a result of an increase in the Company's FERC regulated transmission rates on June 1, 2000, and the desire to not increase rates to its retail customers so close to the implementation of electric industry restructuring, which occurred on March 1, 2000, the Company agreed to reduce its MPUC jurisdictional distribution rates in an amount equal to the increase in its transmission rates. The reduction in the distribution rates was accomplished by accelerating the amortization of the deferred asset sale gain through May 2001 by an annualized total of $2.5 million. Effective April 15, 2001, and through February 28, 2002, in an effort to mitigate the effects of increased energy prices for the Company's large customers, the MPUC ordered the Company to reduce its distribution and stranded cost electric rates to certain large customers by $.008/kWh. To fund this rate reduction and corresponding decrease in revenues, the MPUC ordered the Company to accelerate the amortization of the deferred asset sale gain in an amount necessary to offset the estimated decrease in revenues caused by the rate reduction. The asset sale gain amortization was increased by approximately $2.5 million over the 10 1/2 month period the reduced rates was in effect. Also, the Company's FERC jurisdictional transmission rates changed on June 1, 2001. Consistent with 2000, the Company reduced its distribution rates via an adjustment to the asset sale gain amortization to offset the change in the transmission rates effective June 1, 2001. The annualized accelerated amortization associated with the transmission rate change amounts to approximately $1.6 million and ends in May 2002. In April 1999 Central Maine Power Company (CMP), sold all of its interest in the Wyman generating units and ancillary property, including its 59% interest in Unit 4. On August 31, 1999, 11 minority owners of Wyman #4, including Bangor Hydro, served a Demand for Arbitration on CMP with respect to the sale of Wyman #4. The Demand asserted that the minority owners were entitled to a share of the proceeds from CMP's sale of Wyman. On April 23, 2001, CMP and the minority owners reached a settlement agreement to dispose of all claims raised in the Demand for Arbitration. Under the terms of the agreement, CMP agreed to pay the minority owners $12 million in exchange for a full release from all claims arising from CMP's sale of Wyman. In July 2001 the MPUC issued an order approving the settlement agreement, and in October 2001 the Company received its share of the settlement from CMP amounting to approximately $2.6 million. This amount was deferred as a regulatory liability per the MPUC order, and the Company will begin returning this amount to customers starting March 1, 2002 in connection with a change in its stranded cost rates. DEFERRED SPECIAL RATE CONTRACT REVENUES - Also in connection with the February 2000 rate order from the MPUC, and starting March 1, 2000, the Company was granted a deferral mechanism for the difference in actual revenues realized from customers under special rate contracts as compared to the estimated revenues from these customers utilized in setting the Company's new electric rates starting March 1, 2000. Under this deferral mechanism, the Company recorded a regulatory asset and additional revenues of approximately $1.4 million for the period from March 1, 2000 through December 31, 2000. In 2001, the Company's special rate contract revenue deferrals amounted to approximately $1.6 million, of which $2.3 million was recorded as additional revenue and $700,000 was recorded as an increase in goodwill. The increase in goodwill was a result of certain adjustments to the deferrals approved by the MPUC in the Company's recent stranded cost rate proceeding. The regulatory asset is included as a component of Other Regulatory Assets in the Consolidated Balance Sheets at December 31, 2001 and 2000. REGULATORY ASSETS AND MEETING THE REQUIREMENTS OF SFAS 71 - The Company is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). SFAS 71 allows the establishment of regulatory assets for costs accumulated for certain items other than the usual and customary capital assets, and allows the deferral of the income statement impact of those costs if they are expected to be recovered in future rates. As of December 31, 2001, the Company has regulatory assets, net of regulatory liabilities, of approximately $246 million. The Company continues to meet the requirements of SFAS 71 since the Company's rates are intended to recover the cost of service plus a rate of return on the Company's investment, as well as providing specific recovery of costs deferred in prior periods. The legislation enacted in Maine associated with industry restructuring specifically addressed the issue of cost recovery of regulatory assets stranded as a result of industry restructuring. Specifically, the legislation requires the MPUC, when retail access begins, to provide a "reasonable opportunity" for the recovery of stranded costs through the rates of the transmission and distribution company, comparable to the utility's opportunity to recover stranded costs before the implementation of retail access under the legislation. The final rate orders from the MPUC effective March 1, 2000 and March 1, 2002 did not result in the Company writing off any stranded costs, but if the Company had not been allowed full recovery of its stranded costs, it would be required to write-off any disallowed costs. As provided for in Emerging Issues Task Force Issue No. 97-4, "Deregulation of the Pricing of Electricity," the Company will continue to record regulatory assets in a manner consistent with SFAS 71 as long as future recovery is probable, since the Maine legislation provides the opportunity to recover regulatory assets including stranded costs through the rates of the T&D company. The Company anticipates, based on current generally accepted accounting principles, that SFAS 71 will continue to apply to the regulated T&D segments of its business. If the Company failed to meet the requirements of SFAS 71, due to legislative or regulatory initiatives, the Company would be required to apply Statement of Financial Accounting Standards No. 101, "Regulated Enterprises-Accounting for the Discontinuation of Application of FASB No. 71" (SFAS 101). If legislative or regulatory changes and/or competition result in electric rates which do not fully recover the Company's costs, a write-down of regulatory assets would be required. The Company does not anticipate any write-down of assets at this time. NOTE 12. CONSTRUCTION OF FACILITIES FOR CASCO BAY ENERGY The Company entered into an agreement with Casco Bay whereby the Company agreed to construct various transmission facilities required to allow a generating facility being constructed in Veazie, Maine to interconnect with the Company's electrical system and deliver its output to the New England Power Pool Transmission Facility (PTF) grid. Under this agreement, Casco Bay agreed to advance funds necessary to pay for such construction. Pursuant to a FERC order approving an amendment to the NEPOOL Agreement, approximately 50% of the construction funds advanced are being refunded to Casco Bay by customers of NEPOOL over an approximately 30-year period. The Company began refunding such construction costs to Casco Bay starting in June 2000. At the end of 2001, the Company had recorded approximately $4 million for PTF facilities and a corresponding Long-term Payable of $3.7 million. These amounts are included on the Consolidated Balance Sheets as components of Electric Plant in Service and Other Long-term Liabilities, respectively. NOTE 13. DERIVATIVE FINANCIAL INSTRUMENTS Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138. This new accounting standard requires that all derivative instruments be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The effect of adopting this standard was not material to the Company's consolidated financial statements. The accounting for derivative financial instruments can change based on guidance received from the Derivatives Implementation Group (DIG). The DIG identifies practice issues that arise from applying the requirements of SFAS 133 and advises the Financial Accounting Standards Board on how to resolve those issues. PURCHASED POWER CONTRACTS - In the second quarter of 2001, the DIG reached a conclusion as to the interpretation of clearly and closely related contracts that qualify for the normal purchase and sales exception under SFAS 133. The conclusion of the DIG was that for contracts with prices indexed to the Consumer Price Index (CPI), these would not qualify for the normal purchase and sale exception under SFAS 133 and would need to be accounted for as derivatives under this statement effective July 1, 2001. The Company has two power contracts (one purchase and one sale) with prices indexed to a broad price measure similar to the CPI, that were excluded from the scope of SFAS 133 on January 1, 2001, as a result of the normal purchase and sale exception. Given the DIG's conclusion, the Company, effective July 1, 2001, began to account for these power contracts as derivatives in accordance with SFAS 133 and recorded them at fair value on the Company's consolidated balance sheet in the third quarter of 2001. The fair value of the above-market portion of these contracts as of December 31, 2001 represents a liability of approximately $74.0 million. The Company has recorded a regulatory asset to offset this liability, since the Company is currently recovering the net above- market cost of these contracts as part of its stranded cost recovery. As a result of this regulatory accounting, the recording of these contracts on the Company's consolidated balance sheet does not result in an impact on earnings. INTEREST RATE SWAP - As discussed in Note 5, in connection with the $24.8 million in BERI medium term notes, BERI entered into an interest rate swap arrangement with a major financial institution to provide interest rate protection through the maturity date of the term loan. The interest rate swap fixed the LIBO interest rate on the medium term notes at 5.72%. BERI will be reimbursed for incremental interest expense incurred in excess of the 5.72% and incurs additional expense for incremental interest expense below 5.72%. Market risk is the potential loss arising from adverse changes in interest rates. The fair value of the interest rate swap at December 31, 2001 is ($79,862) and represents the estimated payment that would be paid to terminate the agreement. NOTE 14. CONTINGENCIES ENVIRONMENTAL MATTERS - In 1992, the Company received notice from the Maine Department of Environmental Protection that it was investigating the cleanup of several sites in Maine that were used in the past for the disposal of waste oil and other hazardous substances, and that the Company, as a generator of waste oil that was disposed at those sites, may be liable for certain cleanup costs. The Company learned in October 1995 that the United States Environmental Protection Agency placed one of those sites on the National Priorities List under the Comprehensive Environmental Response, Compensation, and Liability Act and will pursue potentially responsible parties. With respect to this site, the Company is one of a number of waste generators under investigation. The Company has recorded a liability, based upon currently available information, for what it believes are the estimated environmental remediation costs that the Company expects to incur for this waste disposal site. Additional future environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, the possible effects of future legislation or regulation and the possible effects of technological changes. At December 31, 2001, the liability recorded by the Company for its estimated environmental remediation costs amounted to approximately $435,000. The Company's actual future environmental remediation costs may be different as additional factors become known. ERNST & YOUNG Ernst & Young LLP Phone: (617) 266-2000 200 Clarendon Street Fax: (617) 266-5843 Boston, Massachusetts 02116-5072 www.ey.com Report of Independent Auditors To the Stockholders and Directors of Bangor Hydro-Electric Company We have audited the consolidated financial statements listed in the index appearing under Item 14(a) and the financial statement schedule appearing under Item 14(b) as of December 31, 2001, and for the year then ended. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. The financial statements of Bangor Hydro- Electric Company and financial statement schedules for the years ended December 31, 2000 and 1999 were audited by other auditors whose report dated February 2, 2001 expressed an unqualified opinion on those statements and schedules. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 2001 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bangor Hydro-Electric Company at December 31, 2001, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 13 and Note 1, respectively, of the consolidated financial statements, in 2001 the Company changed its method of accounting for derivative financial instruments and for goodwill. February 1, 2002 /s/ Ernst & Young LLP --------------------- Ernst & Young LLP is a member of Ernst & Young International, Ltd. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition -Contingencies and Disclosures About Market Risk", and Item 8, Note 13, "Derivative Financial Instruments" for a discussion of certain derivative financial instruments held by the Company. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON FINANCIAL DISCLOSURE At a regularly scheduled meeting of the Board of Directors held on November 21, 2001, the Board appointed Ernst & Young LLP, P.O. Box 2007, Station CRO, 13th Floor, 1959 Upper Water Street, Halifax, N.S. B3J 2Z1 to serve as the Company's Independent Public Accountants for the Company's 2001 and 2002 fiscal years, thereby discontinuing the Company's retention of PricewaterhouseCoopers, LLP, One Post Office Square, Boston, Massachusetts 02109, in this capacity. The decision to change accountants was approved by the Audit Committee of the Board. Ernst & Young serves as independent auditors to Emera Inc., a parent of the Company. PricewaterhouseCoopers's report on the financial statements for 1999 and 2000 did not contain any adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company's 1999 and 2000 fiscal years and during 2001 prior to the dismissal of PricewaterhouseCoopers, the Company had no disagreements with PricewaterhouseCoopers on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of the former accountant, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report. For a full disclosure regarding this change in accountants, please refer to the Company's Report on Form 8-K dated for events occurring on November 21, 2001 which is incorporated herein by reference. PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See Item 4 above, and see the information under "Election of Directors" in the Company's definitive proxy statement for the annual meeting of stockholders to be held on April 24, 2002, which information is incorporated herein by reference. ITEM 11 EXECUTIVE COMPENSATION See the information under "Executive Compensation" in the Company's definitive proxy statement for the annual meeting of stockholders to be held on April 24, 2002, which information is incorporated herein by reference. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners See the Company's definitive proxy statement for the annual meeting of stockholders to be held on April 24, 2002, which information is incorporated herein by reference. (b) Security Ownership of Management See the Company's definitive proxy statement for the annual meeting of stockholders to be held on April 24, 2002, which information is incorporated herein by reference. (c) Changes in Control Effective October 10, 2001, pursuant to an Agreement and Plan of Merger, the Company became a wholly owned subsidiary of Emera Inc. of Halifax, Nova Scotia through Emera's purchase of 100% of the Company's common equity. The Company is unaware of any arrangements, including any pledge by any person of securities of the Company or any of its parents, the operation of which may at a subsequent date result in a change in control of the registrant. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the information under "Compensation Committee Interlocks and Insider Participation" in the Company's definitive proxy statement for the annual meeting of stockholders to be held on April 24, 2002, which information is incorporated herein by reference. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Consolidated Financial Statements of the Company covered by the Report of the of Independent Auditors (See Item 8): Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999 Consolidated Balance Sheets - December 31, 2001 and 2000 Consolidated Statements of Capitalization - December 31, 2001 and 2000 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 Consolidated Statements of Common Stock Investment for the Years ended December 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements Report of Independent Accountants (b) Schedules Report of Independent Accountants Schedule VIII - Reserves for Doubtful Accounts All other schedules are omitted as the required information is inapplicable or the information is presented in the Company's consolidated financial statements or related notes. (c) Exhibits See Exhibit Index. (d) Reports on Form 8-K A current report on Form 8-K for the Fourth Quarter of 2001 was filed regarding the Company's Change in Accountants effective November 21, 2001. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Bangor Hydro-Electric Company /s/ Carroll R. Lee ------------------------ By: Carroll R. Lee President and Chief Operating Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Elizabeth A. MacDonald -------------------------- Robert S. Briggs Elizabeth A. MacDonald Director Director /s/ David McD.Mann ------------------ Jane J. Bush David McD. Mann Director Chairman of the Board /s/ Christopher G. Huskilson /s/ Richard J. Smith - ---------------------------- -------------------- Christopher G. Huskilson Richard J. Smith Vice Chairman, Director Director /s/ Norman A. Ledwin /s/ Ronald E. Smith - -------------------- ------------------- Norman A. Ledwin Ronald E. Smith Director Director /s/ Carroll R. Lee /s/ Frederick S. Samp - ------------------ --------------------- Carroll R. Lee Frederick S. Samp Director, President Vice President - Finance & Law and Chief Operating (Chief Financial Officer) Officer David R. Black -------------- David R. Black Controller (Chief Accounting Officer) Each of the above signatures is affixed as of February 28, 2002. SCHEDULE VIII RESERVE FOR DOUBTFUL ACCOUNTS -----------------------------
Additions ----------------------------- Balance at Charged to Charged to Balance at Beginning Costs and Other End Of Period Expenses Accounts Deductions of Period ---------------------------------------------------- ------------- 2001 Reserve for Doubtful Accounts $ 761,000 $1,884,630 $ - $1,884,630 (A) $ 761,000 --------- --------- --------- --------- --------- 2000 Reserve for Doubtful Accounts $ 1,075,000 $1,275,016 $ - $1,589,016 (B) $ 761,000 --------- --------- --------- --------- --------- 1999 Reserve for Doubtful Accounts $ 1,075,000 $1,475,395 $ - $1,475,395 (A) $1,075,000 --------- --------- --------- --------- --------- NOTE: (A) Accounts written off, less recoveries. (B) Accounts written off, less recoveries. For 2000 includes reduction in reserve for doubtful accounts of $314,000.
EXHIBIT INDEX EXHIBITS INCLUDED HEREWITH 3. Articles of Incorporation and By-Laws 3(a) Articles of Merger dated October 10, 2001 3(b) Articles of Amendment dated January 8, 2002, reducing the minimum number of directors from 9 to 3 3(c) By-Laws of the Company, Amended and Restated as of December 19, 2001 10. Material Contracts 10(a) Line Agreement dated as of June 29, 2001 Agreement By and Among the Company and Fleet National Bank 10(b) Promissory Note dated as of June 29, 2001 Agreement By and Among the Company and Fleet National Bank 10(a) 10(c) Promissory Note dated as of October 10, 2001 from the Company to the Municipal Review Committee, Inc. 10(d) Amendment No. 3 entered into as of December 31, 2001 to the 1998 Amended and Restated Revolving Credit Agreement and Term Loan Agreement By and Among the Company and Fleet National Bank as Agent 10(e) Amendment No. 2 dated as of December 31, 2001 to Promissory Note By and Among the Company and Fleet National Ban EXHIBIT INDEX EXHIBITS INCORPORATED HEREIN BY REFERENCE EXHIBIT NO. DESCRIPTION OF EXHIBIT INCORPORATED BY REFERENCE TO: - ----------- ---------------------- ----------------------------- 3. ARTICLES OF INCORPORATION & BY-LAWS ----------------------------------- 3.1 Company's Certificate Form S-2, Reg. No. 33-39181, of Organization, together Exhibit 3.1 with all amendments thereto 3.2 Articles of Amendment Form S-2, Reg. No. 33-63500, increasing Company's Exhibit 4.3 authorized capital stock 3.3 Articles of Amendment Form 10-K, 1995, Exhibit 3(a) changing Corporate Clerk 3.4 Articles of Amendment Form 10-K, 1998, Exhibit 3(a) Allowing Use of Similar Name 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS --------------------------------------------------- 4.1 Mortgage and Deed of Form S-1, Reg. No. 2-54452, Trust dated as of Exhibit 4(b)(1) July 1, 1936, re First Mortgage Bonds 4.2 Supplemental Indenture Form S-1, Reg. No. 2-54452, dated as of December 1, Exhibit 4(b)(2) 1945, amending the Mortgage 4.3 Supplemental Indenture Form S-1, Reg. No. 2-54452 dated as of September 1, Exhibit 4(b)(4) 1969, re 8 1/4% Series Bonds, together with form of purchase agreement. (Supplemental indentures and purchase agreements with respect to prior issues are substantially identical in substantive content to the 8 1/4% Series documents). 4.4 Supplemental Indenture Form 10-K, 1975, Exhibit B dated as of November 1, 1975, re 10 1/2% Series Bonds, together with form of purchase agreement 4.5 Supplemental Indenture Form 8-K, 6/28/76, Exhibit A dated as of June 1, 1976, re 9 1/4% Series Bonds 4.6 Supplemental Indenture Form S-7, Reg. No. 2-61589, dated as of January 1, Exhibit 5(a)(7) 1978, re 8.6% Series Bonds, together with form of purchase agreement 4.7 Supplemental Indenture Form 10-Q, 3rd Quarter 1979, dated as of August 1, Exhibit A 1979, re 10.25% Series Bonds, together with form of purchase agreement Common Stock Purchase Plan 4.8 Supplemental Indenture Form 10-Q, 1st Quarter, 1981, dated as of April 1, Exhibit A 1981 re 15.25% Series Bonds, together with form of purchase agreement 4.9 Supplemental Indenture Form 10-Q, 2nd Quarter 1981, dated as of July 30, Exhibit (4) 1981 re 16.50% Series Bonds, together with form of purchase agreement 4.10 Bond Purchase Agreement, Form 10-K, 1983, Exhibit 4(a) including form of supplemental indenture, with respect to First Mortgage Bonds, 12.50% Series due 1998 4.11 Bond Purchase Agreement, Form 10-K, 1984, Exhibit 4(a) including form of supplemental indenture, with respect to First Mortgage Bonds, 17.35% Series due 1994 4.12 Bond Purchase Agreement Form 10-Q, First Quarter, dated as of March 1, 1989 1989, Exhibit 4.1 including form of supplemental indenture, with respect to First Mortgage Bonds, 10.25% Series due 2019 4.13 Bond Purchase Agreement Form 10-K, 1990, Exhibit 4(b) dated as of June 15, 1990 including form of supplemental indenture, with respect to First Mortgage Bonds, 10.25% Series due 2020 4.14 Loan Agreement by and Form 10-Q, 3rd Quarter 1995, Finance Authority of Exhibit 4.1 Maine and Bangor Hydro- Electric Company 4.15 Purchase Contract dated Form 10-Q, 3rd Quarter 1995, as of June 28, 1995 among Exhibit 4.3 the Finance Authority of Maine and Bangor Hydro- Electric Company and Prudential Securities Incorporated 4.16 General and Refunding Form 10-Q, 3rd Quarter 1995, Mortgage Indenture and Exhibit 4.4 Deed of Trust - Bangor Hydro-Electric Company to Chemical Bank, As Trustee, Dated as of June 1, 1995 4.17 Supplemental Indenture Form 10-Q, 3rd Quarter 1995, Dated as of June 15, 1995 Exhibit 4.5 to General and Refunding Mortgage Indenture and Deed of Trust dated as of June 1, 1995 (Bangor Hydro- Electric Company to Chemical Bank). 4.18 Supplemental Indenture as Form 10-Q, 3rd Quarter 1995, of June 29, 1995 to Mortgage and Deed of Trust dated as of July 1, 1936 (Bangor Hydro-Electric Company to Citibank, N.A. at Trustee). 4.19 Supplemental Indenture Form 10-K, 1995, Exhibit 4(a) Dated as of October 1, 1995 (Identified as Exhibit 10(a)) to General and Refunding Mortgage and Deed of Trust dated as of June 1, 1995 (Bangor Hydro-Electric Company to Chemical Bank). 4.20 TERM LOAN AGREEMENT Form 10-Q, First Quarter 1998, dated as of March 31, 1998 Exhibit 4(a) among BANGOR ENERGY RESALE, INC., BANKBOSTON, N.A. and the certain other lending institutions and BANKBOSTON, N.A., as Agent, including all Exhibits thereto 4.21 GUARANTY, dated as of March 31, Form 10-Q, First Quarter 1998, 1998, by BANGOR HYDRO Exhibit 4(b) - -ELECTRIC COMPANY, in favor of (a) BANKBOSTON, N.A., as Agent, for itself and the other lending institutions which are or may become parties to a Term Loan Agreement, dated as of March 31, 1998 4.22 Warrant to Purchase Form 10-Q, Second Quarter 1998, Common Stock Granted to Exhibit 4(a) the Municipal Review Committee, Inc. on June 26, 1998 4.23 Supplemental Indenture Form 10-Q, Second Quarter 1998, Dated as of June 29, 1998 Exhibit 4(d) between the Company and Citibank, N.A. 10. MATERIAL CONTRACTS ------------------ 10.1 New England Power Pool Form S-7, Reg. No. 2-69904, Agreement dated as of Exhibit 10(a)(3) September 1, 1971, with all amendments through December 1980 10.2 Copy of Twelfth Amendment Form S-7, Reg. No. 2-69904, dated as of June 16, 1980 Exhibit 10(a)(4) to the Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units 10.3 Participation Agreement Form S-1, Reg. No. 2-54452, dated June 20, 1969 Exhibit 13(a)(2)(a)-1 between Maine Electric Power Company, Inc. ("MEPCO") and the Company 10.4 Agreement dated June Form S-1, Reg. No. 2-54452, 29, 1969 among Maine Exhibit 13(a)(2)(a)-2 participants in MEPCO Participation Agreement 10.5 Power Contract dated Form S-1, Reg. No. 2-54452, May 20, 1968 between Exhibit 13(a)(3)(a) Maine Yankee Atomic Power Company ("Maine Yankee") and the Company and other utilities 10.6 Stockholder Agreement Form S-1, Reg. No. 2-54452, dated May 20, 1968 Exhibit 13(a)(3)(b) among stockholders of Maine Yankee, (including the Company). 10.7 Capital Funds Agreement Form S-1, Reg. No. 2-54452, dated May 29,1968 Exhibit 13(a)(3)(c) between Maine Yankee and sponsors, including the Company 10.8 Maine Yankee Transmission Form S-1, Reg. No. 2-54452, Agreement dated April 1, Exhibit 13(a)(3)(d) 1971 among the Company and other utilities 10.9 Modification of Maine Form S-1, Reg. No. 2-54452, Yankee Transmission Exhibit 13(a)(3)(f) Agreement of December 1, 1972 10.10 Forms of contracts Form 10-Q, 2nd Qtr. 1982, concerning the Company's Exhibit 10 participation with other New England utilities in the proposed Quebec interconnection 10.11 Third Amendment dated Form 10-K, 1983, Exhibit 10.2 as of November 1, 1982 to Preliminary Quebec Interconnection Support Agreement 10.12 Second Amendment dated Form 10-K, 1983, Exhibit 10.3 as of November 1, 1982 to Agreement With Respect to Use of Quebec Interconnection 10.13 Amendment No. 2 dated Form 10-K, 1983, Exhibit 10.4 as of November 1, 1982, to Phase 1 Terminal Facility Support Agreement (Quebec Interconnection) 10.14 Amendment No. 2 dated Form 10-K, 1983, Exhibit 10.5 as of November 1, 1982 to Phase 1 Vermont Transmission Line Support Agreement (Quebec Interconnection) 10.15 Fourth Amendment Form 10-Q, 1st Quarter 1983, dated as of March 1, Exhibit 10.1 1983, to Preliminary Quebec Interconnection Support Agreement 10.16 Amendment dated as of Form 10-Q, 2nd Quarter 1983, September 1, 1981 Exhibit 10.3 to New England Power Pool Agreement 10.17 Amendment dated as of Form 10-Q, 2nd Quarter 1983, June 1, 1982 to New Exhibit 10.4 England Power Pool Agreement 10.18 Amendment dated as of Form 10-Q, 2nd Quarter 1983, June 15, 1983 to New Exhibit 10.5 England Power Pool Agreement 10.19 Amendment dated as of Form 10-Q, 3rd Quarter 1983, October 1, 1983 to Exhibit 10.1 New England Power Pool Agreement 10.20 Amendment No. 1 to the Form 10-K, 1983, Exhibit 10(b) Maine Yankee Power Contract 10.21 Amendment No. 2 to the Form 10-K, 1983, Exhibit 10(c) Maine Yankee Power Contract 10.22 Additional Power Con- Form 10-K, 1983, Exhibit 10(d) tract between Maine Yankee and its sponsors, including the Company 10.23 Preliminary Support Form 10-K, 1984, Exhibit 10(b) Agreement - Phase 2 of Hydro-Quebec Inter- connection 10.24 Amendment dated September 1, Form 10-K, 1985, Exhibit 10(b) 1985 to Agreement with respect to Use of Quebec Interconnection 10.25 Energy Contract dated Form 10-K, 1985, Exhibit 10(c) March 1983 between NEPOOL and Hydro-Quebec re: Hydro-Quebec Phase I interconnection project 10.26 Energy Banking Agreement Form 10-K, 1985, Exhibit 10(d) dated March 1983 between NEPOOL and Hydro-Quebec re Hydro-Quebec Phase I interconnection project 10.27 Interconnection Agreement Form 10-K, 1985, Exhibit 10(e) dated March 1983 between NEPOOL and Hydro-Quebec re: Hydro-Quebec Phase I interconnection project 10.28 Amendment dated September 1 Form 10-K, 1985, Exhibit 10(f) 1985 to NEPOOL Agreement re: Hydro-Quebec Phase II interconnection project 10.29 Firm Energy Contract dated Form 10-K, 1985, Exhibit 10(g) October 14, 1985 between New England utilities and Hydro-Quebec re: Hydro- Quebec Phase II interconnection project 10.30 Boston Edison AC Facilities Form 10-K, 1985, Exhibit 10(h) Support Agreement dated June 1, 1985 re: Hydro-Quebec Phase II interconnection project 10.31 Phase II New England Form 10-K, 1985, Exhibit 10(i) Power AC Facilities Support Agreement dated June 1, 1985 re: Hydro- Quebec Phase II interconnection project 10.32 Phase II Massachusetts Form 10-K, 1985, Exhibit 10(j) Transmission Facilities Support Agreement dated June 1, 1985 re: Hydro- Quebec Phase II interconnection project 10.33 Phase II New Hampshire Form 10-K, 1985, Exhibit 10(k) Facilities Support Agreement dated June 1, 1985 re: Hydro-Quebec Phase II interconnection project 10.34 First Amendment dated Form 10-K, 1985, Exhibit 10(l) March 1, 1985 and Second Amendment dated January 1, 1986 to Preliminary Quebec Interconnection Support Agreement - Phase II 10.35 Amendment No. 3 dated Form 10-K, 1985, Exhibit 10(m) October 1, 1984 to Maine Yankee Power Contract 10.36 Amendment No. 1 dated Form 10-K, 1985, Exhibit 10(n) August 1, 1985 to Maine Yankee Capital Funds Agreement 10.37 Amendments dated August 1, Form 10-K, 1985, Exhibit 10(o) 1985, August 15, 1985, and January 1, 1986 to NEPOOL Agreement 10.38 Third Amendment to Vermont Form 10-Q, 1st Quarter 1986, Transmission Line Support Exhibit 10.2 Agreement 10.39 First Amendment to Hydro- Form 10-Q, 1st Quarter 1986, Quebec Phase I Intercon- Exhibit 10.3 nection Agreement 10.40 First Amendment to Hydro- Form 10-Q, 2nd Quarter 1986, Quebec Phase II Exhibit 10.1 Massachusetts Trans- mission Facilities Support Agreement 10.41 First Amendment to Hydro- Form 10-Q, 2nd Quarter 1986, Quebec Phase II New Exhibit 10.2 Hampshire Transmission Facilities Support Agreement 10.42 First Amendment to Hydro- Form 10-Q, 2nd Quarter 1986, Quebec Phase II New England Exhibit 10.3 Power AC Facilities Support Agreement 10.43 First Amendment to Form 10-Q, 2nd Quarter 1986, Hydro-Quebec Phase II Exhibit 10.4 Boston Edison Company AC Facilities Support Agreement 10.44 Amendment Number 3 to Form 10-Q, 3rd Quarter 1986, Hydro-Quebec Phase l Exhibit 10.1 Terminal Facility Support Agreement 10.45 Amendment Number 3 to Form 10-Q, 3rd Quarter 1986, Hydro-Quebec Phase I Exhibit 10.2 Vermont Transmission Line Support Agreement 10.46 Power Sale Agreement for Form 10-Q, 3rd Quarter 1986, sale of approximately Exhibit 10.3 31 MW of system power by Bangor Hydro-Electric Company to UNITIL Power Corp. 10.47 Purchase Agreement with Form 10-Q, 3rd Quarter 1986, respect to Wyman No. 4 Exhibit 10.4 between Bangor Hydro- Electric Company and Fitchburg Gas and Electric Light Company 10.48 Power Purchase Agreement Form 10-K, 1986, Exhibit 10(i) dated June 9, 1986 and Amendment No. 1 thereto dated January 14, 1987, between the Company and Bangor-Pacific Hydro Associates (formerly West Enfield Associates) 10.49 Power Sale Agreement dated Form 10-K, 1986, Exhibit 10(l) August 1, 1986, and First Amendment thereto, between the Company and Unitil Power Corp. re Wyman No. 4 10.50 Third Amendment to Pre- Form 10-K, 1987, Exhibit 10(a) liminary Quebec Intercon- nection Support Agreement - Phase II 10.51 Fourth Amendment to Pre- Form 10-K, 1987, Exhibit 10(b) liminary Quebec Intercon- nection Support Agreement - Phase II 10.52 Fifth Amendment to Pre- Form 10-K, 1987, Exhibit 10(c) liminary Quebec Intercon- nection Support Agreement - Phase II 10.53 Sixth Amendment to Pre- Form 10-K, 1987, Exhibit 10(d) liminary Quebec Intercon- nection Support Agreement - Phase II 10.54 Seventh Amendment to Pre- Form 10-K, 1987, Exhibit 10(e) liminary Quebec Intercon- nection Support Agreement - Phase II 10.55 Amendment to New England Form 10-K, 1987, Exhibit 10(f) Power Pool Agreement dated March 1, 1988 10.56 Ninth Amendment to Form 10-K, 1988, Exhibit 10(b) Preliminary Quebec Interconnection Support Agreement - Phase II 10.57 Tenth Amendment to Form 10-K, 1988, Exhibit 10(c) Preliminary Quebec Interconnection Support Agreement - Phase II 10.58 Second Amendment to Form 10-K, 1988, Exhibit 10(d) Massachusetts Trans- mission Facilities Support Agreement 10.59 Third Amendment to Form 10-K, 1988, Exhibit 10(e) Massachusetts Trans- mission Facilities Support Agreement 10.60 Fourth Amendment to Form 10-K, 1988, Exhibit 10(f) Massachusetts Trans- mission Facilities Support Agreement 10.61 Fifth Amendment to Form 10-K, 1988, Exhibit 10(g) Massachusetts Trans- mission Facilities Support Agreement 10.62 Sixth Amendment to Form 10-K, 1988, Exhibit 10(h) Massachusetts Trans- mission Facilities Support Agreement 10.63 Second Amendment to Form 10-K, 1988, Exhibit 10(i) New Hampshire Trans- mission Facilities Support Agreement 10.64 Third Amendment to Form 10-K, 1988, Exhibit 10(j) New Hampshire Trans- mission Facilities Support Agreement 10.65 Fourth Amendment to Form 10-K, 1988, Exhibit 10(k) New Hampshire Trans- mission Facilities Support Agreement 10.66 Fifth Amendment to Form 10-K, 1988, Exhibit 10(l) New Hampshire Trans- mission Facilities Support Agreement 10.67 Sixth Amendment to Form 10-K, 1988, Exhibit 10(m) New Hampshire Trans- mission Facilities Support Agreement 10.68 Second Amendment to Form 10-K, 1988, Exhibit 10(n) Phase II AC New England Power Facilities Sup- port Agreement 10.69 Third Amendment to Form 10-K, 1988, Exhibit 10(o) Phase II AC New England Power Facilities Sup- port Agreement 10.70 Fourth Amendment to Form 10-K, 1988, Exhibit 10(p) Phase II AC New England Power Facilities Sup- port Agreement 10.71 Fifth Amendment to Form 10-K, 1988, Exhibit 10(q) Phase II AC New England Power Facilities Sup- port Agreement 10.72 Second Amendment to Form 10-K, 1988, Exhibit 10(r) Phase II Boston Edison AC Facilities Support Agreement 10.73 Third Amendment to Form 10-K, 1988, Exhibit 10(s) Phase II Boston Edison AC Facilities Support Agreement 10.74 Fourth Amendment to Form 10-K, 1988, Exhibit 10(t) Phase II Boston Edison AC Facilities Support Agreement 10.75 Fifth Amendment to Form 10-K, 1988, Exhibit 10(u) Phase II Boston Edison AC Facilities Support Agreement 10.76 Letter of Assurances, Form 10-K, 1988, Exhibit 10(v) Consents and Agreements With Respect to Credit Facility Financing for Phase II Hydro-Quebec Financing 10.77 401 (k) Plan for Non- Form 10-K, 1988, Exhibit 10(x) Union Employees 10.78 Agreement for the Form S-2, Reg. No. 33-39181, Purchase and Sale of Exhibit 10.82 Electricity dated as of June 21, 1984 between Penobscot Energy Recovery Company and the Company 10.79 Amendment No. 1 as of Form S-2, Reg. No. 33-39181, March 24, 1986 to the Exhibit 10.83 Agreement for the Purchase and Sale of Electricity dated as of June 21, 1984 between Penobscot Energy Recovery Company and the Company 10.80 Partnership Agreement Form S-2, Reg. No. 33-39181, dated as of July 1, 1990 Exhibit 10.85 between NORVARCO and Bangor Var Co., Inc. 10.81 Purchase Agreement between Form 10-Q, 3rd Quarter 1995, Babcock-Ultrapower Exhibit 10.1 Jonseboro and Bangor Hydro- Electric Company 10.82 Purchase Agreement between Form 10-Q, 3rd Quarter 1995, Babcock-Ultrapower West Exhibit 10.2 Enfield and Bangor Hydro- Electric Company 10.83 ASSIGNMENT OF CONTRACTS Form 10-Q, 1st Quarter 1998, AND ENTITLEMENTS, made March Exhibit 10(a) 31, 1998 by and between Bangor Hydro-Electric Company and Bangor Energy Resale, Inc. 10.84 Rate Agreement made October 30, Form 10-Q, 1st Quarter 1998, 1997, by and between Bangor Exhibit 10(b) Hydro-Electric Company and Bangor Energy Resale, Inc. 10.85 Management and Support Services Form 10-Q, 1st Quarter 1998, Agreement made March 31, 1998 Exhibit 10(c) by and between Bangor Hydro- Electric Company and Bangor Energy Resale, Inc. 10.86 Surplus Cash Agreement Form 10-Q, 2nd Quarter 1998, dated as of June 26, 1998 Exhibit 10(a) among the Company, Penobscot Energy Recovery Company Limited Partnership and the Municipal Review Committee, Inc. 10.87 Guaranty Agreement dated Form 10-Q, 2nd Quarter 1998, as of June 1, 1998 Exhibit 10(b) between the Company and The Chase Manhattan Bank 10.88 Amendment No. 2 to Form 10-Q, 2nd Quarter 1998, Purchase Power Agreement Exhibit 10(c) dated as of June 26, 1998 between the Company and Penobscot Energy Recovery Company Limited Partnership 10.89 Amended and Restated Form 10-Q, 2nd Quarter 1998, Revolving Credit And Exhibit 10(d) Term Loan Agreement dated as of June 19, 1998 between the Company and BankBoston, N.A. and Fleet National Bank 10.90 Asset Purchase Agreement Form 8-K, September 25, 1998 dated as of September 25, Exhibit 2 1998 between Bangor Hydro- Electric Company and PP&L Global, Inc. (schedules and exhibits omitted). 10.91 Asset Purchase Implementation Form 10-K, 2000, Exhibit 10(a) Agreement, dated as of May 27, 1999, by and among Bangor Hydro- Electric Company, Penobscot Hydro Co., Inc. and Penobscot Hydro, LLC 10.92 33rd Amendment to the NEPOOL Form 10-K, 2000, Exhibit 10(b) Agreement dated December 1, 1996 10.93 Form of Agreement with Form 10-K, 2000, Exhibit 10(c) certain Executive Officers providing benefits upon a change of control 10.94 Form of Agreement with Form 10-K, 2000, Exhibit 10(d) certain Executive Officers providing supplemental death and retirement benefits 10.95 Agreement and Plan of Merger by Form 8-K, June 29, 2000, and Among Bangor Hydro-Electric Exhibit 2.1 Company and NS Power Holdings Incorporated dated as of June 29, 2000 10.96 Amendment No. 1 to Agreement Form 8-K, October 10, 2001, and Plan of Merger dated as of Exhibit 2.2 August 28, 2001 by an Among the Company and Emera, Inc. EX-3 4 a3a2001.txt EXHIBIT 3(A) BANGOR HYDRO-ELECTRIC COMPANY Minimum Fee $80 (See Section 1401 sub-Section 17) DOMESTIC File No. 19240001 D Pages 62 BUSINESS CORPORATION File No. 20012350 D Fee Paid $80 STATE OF MAINE DCN 201282150003B MERG ----FILED----&----effective- ARTICLES OF MERGER 10/10/2001 @ 9:31 a.m. /s/ Julie L Flynn BHE Acquisition Corporation Deputy Secretary of State (A Maine Corporation) A True Copy When Attested By Signature INTO /s/ Julie L Flynn Bangor Hydro-Electric Company Deputy Secretary of State (A Maine Corporation) Pursuant to 13-A MRSA Section 903, the board of directors of each participating corporation approve and the undersigned corporations, adopt the following Articles of Merger: FIRST: The plan of merger is set forth in Exhibit A attached hereto and made a part hereof. SECOND: As to each participating corporation, the shareholders of which voted on such plan of merger, the number of shares outstanding and the number of shares entitled to vote on such plan, and the number of such shares voted for and against the plan, are as follows: Name of Number of Shares Number of Shares NUMBER NUMBER* Corporation Outstanding Entitled to Vote* Voted For* Voted Against** Bangor-Hydro 7,410,764 660,958.67 470,043 10,564 Electric Company BHE Acquisition Corp. 7,363,424 7,363,424 7,363,424 0 THIRD: If the shares of any class were entitled to vote as a class, the designation and number of the outstanding shares of each such class, and the number of shares of each such class voted for and against the plan, are as follows: Name of Designation Number of Shares NUMBER NUMBER Corporation of Class Outstanding Voted For Voted Against None (Include the following paragraph if the merger was authorized without the vote of the shareholders of the surviving corporation. Omit if not applicable.) FOURTH: The plan of merger was adopted by the participating corporation which is to become the surviving corporation in the merger without any vote of its shareholders, pursuant to section 902, subsection 5. The number of shares of each class outstanding immediately prior to the effective date of the merger, and the number of shares of each class to be issued or delivered pursuant to the plan of merger of the surviving corporation are set forth as follows: Number of Shares Outstanding Number of Shares to Be Issued Designation Immediately Prior to Effective Or Delivered Pursuant to the Of Class Date of Merger Merger N/A * See attached statement. ** Includes 2,406 abstentions. FIFTH: The address of the registered office of the surviving corporation in the State of Maine is 33 State Street, Bangor, ME 04401 (street, city, state and zip code) The address of the registered office of the merged corporation in the State of Maine is One City Center, Portland, ME 04101 (street, city, state and zip code) SIXTH: Effective date of the merger (if other than date of filing of Articles) is October 10, 2001 (Not to exceed 60 days from date of filing of the Articles) DATED October 9, 2001 Bangor Hydro-Electric Company (surviving corporation) MUST BE COMPLETED FOR VOTE OF SHAREHOLDERS *BY /s/Andrew Landry (signature) I certify that I have custody of the minutes showing the above Andrew Landry, Clerk action by the shareholders. (type or print name and capacity) Bango Hydro-Electric Company *BY (name of corporation) _______________________________ /s/ Andrew Landry (signature) (signature of clerk, secretary or asst. secretary) -------------------------------- (type or print name and capacity) DATED October 9, 2001 BHE Acquisiton Corporation (mergerd corporation) MUST BE COMPLETED FOR VOTE OF SHAREHOLDERS *BY /s/Michael L. Sheehan (signature) I certify that I have custody of the minutes showing the above Michael L. Sheehan, Clerk action by the shareholders. (type or print name and capacity) BHE Acquisition Corp. *BY_________________________________ (name of corporation) (signature) /s/ Michael L. Sheehan (signature of clerk, secretary __________________________________ or asst. secretary) (type or print name and capacity) *This document MUST be signed by (1) the Clerk OR (2) the President or a vice-pres. together with the Secretary or an ass't. sec., or a 2nd certifying officer OR (3) if no such officers, then a majority of the Directors OR (4) if no such directors, then the Holders of a majority of all outstanding shares OR (5) the Holders of all of the outstanding shares. SUBMIT COMPLETED FORMS TO: CORPORATE EXAMINING SECTION, SECRETARY OF STATE, 101 STATE HOUSE STATION, AUGUSTA, ME 04333-0101 FORM NO. MBCA-10 Rev. 4/16/2001 TEL. (207) 624-7740 Attachment to Articles of Merger Of BHE Acquisition Corporation Into Bangor Hydro-Electric Company On September 18, 2000, the record date established by Bangor Hydro- Electric Company for purposes of voting on the merger, 7,410,764 shares of stock were outstanding, 47,340 shares of which were voting preferred stock and 7,363,424 shares of which were voting common stock. Under the Articles of Incorporation of Bangor Hydro-Electric Company, each preferred share entitles the holder thereof to one vote and each common share entitles the holder thereof to 1/12 vote. The "Number of Shares Entitled to Vote," "NUMBER Voted For" and "NUMBER Voted Against" figures shown for Bangor Hydro-Electric Company in Article SECOND reflect the fractional voting of common shares. EXHIBIT A AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER Amendment No. 1, dated August 28, 2001, to the Agreement and Plan of Merger, dated as of June 29, 2000 (the "Merger Agreement"), by and among Bangor Hydro-Electric Company, a Maine corporation (the "Company") and Emera Incorporated (formerly known as "NS Power Holdings Incorporated"), a Nova Scotia company ("Parent"). Whereas, the Company and Parent are parties to the Merger Agreement; Whereas, the Company and Parent desire to amend the Merger Agreement in certain respects; Now, therefore, in consideration of the promises and the representations and warranties, covenants and other agreements hereinafter set forth, the parties hereto, intending to be legally bound hereby, agree as follows: Section 1. The second Recital of the Merger Agreement is hereby amended to delete the word "directly" in the last line and replace such word with the word "indirectly". Section 2. Section 2.01(a) of the Merger Agreement is hereby amended to delete the words "common stock, no par value" in the last line and replace such words with the words "common stock, par value $5.00 per share". Section 3. Section 2.01(c) of the Merger Agreement is hereby amended to delete the words "canceled and" in the fourth line. IN WITNESS WHEREOF, the undersigned parties hereto have executed this Amendment No. 1 as of the date first written above. Bangor Hydro-Electric Company By: /s/ Frederick S. Samp Name: Frederick S. Samp Title: Vice President - Finance & Law Emera Incorporated By: /s/ Richard J. Smith Name: Richard J. Smith Title: Corporate Secretary and General Counsel AGREEMENT AND PLAN OF MERGER BY AND AMONG BANGOR HYDRO-ELECTRIC COMPANY AND NS POWER HOLDINGS INCORPORATED dated as of June 29, 2000 TABLE OF CONTENTS Page ---- ARTICLE I THE MERGER Section 1.01 THE MERGER 1 Section 1.02 EFFECTS OF THE MERGER 1 Section 1.03 EFFECTIVE TIME OF THE MERGER 1 Section 1.04 DIRECTORS 2 Section 1.05 OFFICERS 2 ARTICLE II TREATMENT OF SHARES Section 2.01 EFFECT OF THE MERGER ON CAPITAL STOCK 2 Section 2.02 SURRENDER OF SHARES 3 Section 2.03 WITHHOLDING RIGHTS 5 ARTICLE III THE CLOSING Section 3.01 CLOSING 5 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY Section 4.01 ORGANIZATION AND QUALIFICATION 6 Section 4.02 SUBSIDIARIES AND JOINT VENTURES 6 Section 4.03 CAPITALIZATION 7 Section 4.04 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE 7 Section 4.05 REPORTS AND FINANCIAL STATEMENTS 9 Section 4.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. 10 Section 4.07 LITIGATION. 10 Section 4.08 INFORMATION SUPPLIED. 11 Section 4.09 TAX MATTERS. 11 Section 4.10 EMPLOYEE MATTERS; ERISA. 13 Section 4.11 ENVIRONMENTAL PROTECTION. 17 Section 4.12 REGULATION AS A UTILITY. 19 Section 4.13 VOTE REQUIRED. 19 Section 4.14 OPINION OF FINANCIAL ADVISOR. 19 Section 4.15 OWNERSHIP OF PARENT COMMON STOCK. 19 Section 4.16 TAKEOVER PROVISIONS. 20 Section 4.17 NUCLEAR FACILITIES. 20 Section 4.18 TITLE TO REAL PROPERTIES. 20 Section 4.19 MATERIAL CONTRACTS. 21 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT Section 5.01 ORGANIZATION AND QUALIFICATION. 22 Section 5.02 SUBSIDIARIES. 23 Section 5.03 CAPITALIZATION. 23 Section 5.04 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE. 23 Section 5.05 REPORTS AND FINANCIAL STATEMENTS. 24 Section 5.06 INFORMATION SUPPLIED. 25 Section 5.07 REGULATION AS A UTILITY. 26 Section 5.08 OWNERSHIP OF COMPANY COMMON STOCK. 26 Section 5.09 FINANCING. 26 Section 5.10 VOTE REQUIRED. 26 ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER Section 6.01 COVENANTS OF THE PARTIES. 26 Section 6.02 COVENANT OF THE COMPANY; ALTERNATIVE PROPOSALS. 31 Section 6.03 CONTROL OF OTHER PARTY'S BUSINESS. 32 ARTICLE VII ADDITIONAL AGREEMENTS Section 7.01 ACCESS TO INFORMATION. 33 Section 7.02 REGULATORY AND OTHER APPROVALS. 33 Section 7.03 SHAREHOLDER APPROVAL; PROXY STATEMENT. 34 Section 7.04 DIRECTORS' AND OFFICERS' INDEMNIFICATION. 35 Section 7.05 DISCLOSURE SCHEDULES. 36 Section 7.06 PUBLIC ANNOUNCEMENTS. 36 Section 7.07 CERTAIN EMPLOYEE AGREEMENTS AND ARRANGEMENTS. 36 Section 7.08 EMPLOYEE BENEFIT PLANS. 37 Section 7.09 EXPENSES. 38 Section 7.10 FURTHER ASSURANCES. 38 Section 7.11 CORPORATE OFFICES. 39 Section 7.12 COMMUNITY INVOLVEMENT. 39 Section 7.13 TRANSITION STEERING TEAM. 39 ARTICLE VIII CONDITIONS Section 8.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. 39 Section 8.02 CONDITIONS TO OBLIGATION OF PARENT TO EFFECT THE MERGER. 40 Section 8.03 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER. 41 ARTICLE IX TERMINATION, AMENDMENT AND WAIVER Section 9.01 TERMINATION. 42 Section 9.02 EFFECT OF TERMINATION. 43 Section 9.03 TERMINATION FEE; EXPENSES. 43 Section 9.04 AMENDMENT. 44 Section 9.05 WAIVER. 44 ARTICLE X GENERAL PROVISIONS Section 10.01 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES. 45 Section 10.02 BROKERS. 45 Section 10.03 NOTICES. 45 Section 10.04 MISCELLANEOUS. 46 Section 10.05 INTERPRETATION. 46 Section 10.06 COUNTERPARTS; EFFECT. 47 Section 10.07 PARTIES IN INTEREST. 47 Section 10.08 WAIVER OF JURY TRIAL. 47 Section 10.09 ENFORCEMENT; SUBMISSION TO JURISDICTION; WAIVER. 47 GLOSSARY OF DEFINED TERMS The following terms, when used in this Agreement, have the meanings ascribed to them in the corresponding Sections of this Agreement listed below: "1935 Act" -- Section 4.05 "Agreement" -- Preamble "Alternative Proposal" -- Section 6.02 "Canceled Shares" -- Section 2.02(b) "Certificates" -- Section 2.02(b) "CFIUS" -- Section 7.02(b) "Closing" -- Section 3.01 "Closing Agreement" -- Section 4.09(i) "Closing Date" -- Section 3.01 "Code" -- Section 2.03 "Company" -- Preamble "Company Common Stock" -- Section 2.01(b) "Company Disclosure Schedule" -- Section 7.05(ii) "Company Employee Benefit Plan" -- Section 4.10(a) "Company Financial Statements" -- Section 4.05 "Company Material Adverse Effect" -- Section 4.01 "Company Material Contract" -- Section 4.19 "Company Preferred Stock" -- Section 4.03 "Company Required Consents" -- Section 4.04(b) "Company Required Statutory Approvals" -- Section 4.04(c) "Company SEC Reports" -- Section 4.05 "Company Shareholders' Approval" -- Section 4.13 "Company Special Meeting" -- Section 7.03(a) "Confidentiality Agreement" -- Section 7.01 "Continuing Company Employees" -- Section 7.08(a) "Disclosure Schedules" -- Section 7.05 "Dissenting Shares" -- Section 2.01(e) "DOE" -- Section 4.05 "Effective Time" -- Section 1.03 "Environmental Claim" -- Section 4.11(g)(I) "Environmental Law" -- Section 4.11(g)(ii) "Environmental Permits" -- Section 4.11(b) "ERISA" -- Section 4.10(a) "ERISA Affiliate" -- Section 4.10(c) "Exchange Act" -- Section 4.05 "Exchange Fund" -- Section 2.02(a) "Exhibits" -- Section 10.05 "FCC" -- Section 4.05 "FERC" -- Section 4.05 "Final Order" -- Section 8.01(d) "Governmental Authority" -- Section 4.04(c) "Hazardous Materials" -- Section 4.11(g)(iii) "HSR Act" -- Section 7.02(a) "Indemnified Liabilities" -- Section 7.04(a) "Indemnified Party " -- Section 7.04(a) "Initial Termination Date" -- Section 9.01(b) "IRS" -- Section 4.10(a) "joint venture" -- Section 4.02 "Liens" -- Section 4.04(b) "Maine Yankee" -- Section 4.17 "MBCA" -- Section 1.02 "Merger" -- Section 1.01 "Merger Consideration" -- Section 2.01(c) "Merger Sub" -- Preamble "Merger Sub Common Stock" -- Section 5.03(b) "MPUC" -- Section 4.05 "NRC" -- Section 4.17 "Parent" -- Preamble "Parent Common Stock" -- Section 5.03(a) "Parent Disclosure Schedule" -- Section 7.05(i) "Parent Financial Statements" -- Section 5.05 "Parent Material Adverse Effect" -- Section 5.01 "Parent Preferred Stock" -- Section 5.03(a) "Parent Reports" -- Section 5.05 "Parent Required Consents" -- Section 5.04(b) "Parent Required Statutory Approvals" -- Section 5.04(c) "Paying Agent" -- Section 2.02(a) "PCBs" -- Section 4.11(g)(iii)(A) "Per Share Amount" -- Section 2.01(c) "Post Closing Plans" -- Section 7.08(b) "Power Act" -- Section 4.05 "Proxy Statement" -- Section 4.08 "Releases " -- Section 4.11(g)(iv) "Representatives" -- Section 7.01 "SEC" -- Section 4.05 "subsidiary" -- Section 4.01 "Surviving Corporation" -- Section 1.01 "Takeover Laws" -- Section 4.16 "Tax Return" -- Section 4.09 "Tax Ruling" -- Section 4.09(i) "Taxes" -- Section 4.09 "Transition Steering Team" -- Section 7.13 "U.S. GAAP" -- Section 4.05 "Violation" -- Section 4.04(b) "WARN Act" -- Section 4.10(m) "Warrants" -- Section 4.03 AGREEMENT AND PLAN OF MERGER, dated as of June 29, 2000 (this "Agreement"), by and among Bangor Hydro-Electric Company, a Maine corporation (the "Company") and NS Power Holdings Incorporated, a Nova Scotia company ("Parent"). WHEREAS, the Company and Parent have determined to engage in a business combination transaction on the terms stated herein; and WHEREAS, the Boards of Directors of the Company and Parent have approved and deemed it advisable and in the best interests of their respective shareholders to consummate the transactions contemplated hereby under which the businesses of the Company and Parent would be combined by means of the merger of a wholly-owned indirect subsidiary of Parent to be formed by Parent ("Merger Sub") with and into the Company, with the Company being the surviving entity, as a result of which Parent will own directly all of the outstanding shares of common stock of the Company. NOW THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I THE MERGER ---------- Section 1.01 THE MERGER. Upon the terms and subject to the conditions of this Agreement, at the Effective Time (as defined in Section 1.03), Merger Sub shall be merged with and into the Company (the "Merger") in accordance with the laws of the State of Maine. The Company shall be the surviving corporation in the Merger and shall continue its corporate existence under the laws of the State of Maine. The effects and the consequences of the Merger shall be as set forth in Section 1.02. Throughout this Agreement, the term "Merger Sub" shall refer to Merger Sub prior to the Merger and the term "Surviving Corporation" shall refer to Company in its capacity as the surviving corporation in the Merger. Section 1.02 EFFECTS OF THE MERGER. At the Effective Time, (i) the Articles of Incorporation, as amended, of the Company, as in effect immediately prior to the Effective Time, shall be the articles of incorporation of the Surviving Corporation until thereafter amended as provided by law and such articles of incorporation, and (ii) the by-laws of the Company, as in effect immediately prior to the Effective Time, shall be the by-laws of the Surviving Corporation until thereafter amended as provided by law, the articles of incorporation of the Surviving Corporation and such by-laws. Subject to the foregoing, the additional effects of the Merger shall be as provided in Section 905 of the Maine Business Corporation Act (the "MBCA"). Section 1.03 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this Agreement, on the Closing Date (as defined in Section 3.01), articles of merger complying with Section 903 of the MBCA, with respect to the Merger, shall be filed with the Secretary of the State of Maine. The Merger shall become effective upon the filing of the articles of merger with the Secretary of the State of Maine, or at such later date and time as may be set forth in the articles of merger (the "Effective Time"). Section 1.04 DIRECTORS. There shall be at least nine members on the Board of Directors of the Surviving Corporation as of the Effective Time. The initial directors of the Surviving Corporation (at least four of whom shall be directors of the Company immediately prior to the Effective Time) shall be designated in writing by Parent before the Effective Time and shall hold office from the Effective Time until their respective successors are duly elected or appointed and qualified in the manner provided in the articles of incorporation and by-laws of the Surviving Corporation, or as otherwise provided by the MBCA. In addition, as promptly as reasonably practicable after the Effective Time, in accordance with the by-laws of Parent, the Board of Directors of Parent shall increase by one the number of directors on the Board of Directors of Parent and shall thereupon appoint as a director, one director of the Company designated by Parent who is not a full-time employee of the Surviving Corporation. Section 1.05 OFFICERS. The officers of the Company immediately prior to the Effective Time shall be the initial officers of, and shall hold the same positions with, the Surviving Corporation and shall hold office from the Effective Time until their respective successors are duly elected or appointed and qualified in the manner provided in the articles of organization and by-laws of the Surviving Corporation, or as otherwise provided by the MBCA. ARTICLE II TREATMENT OF SHARES -------------------- Section 2.01 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of any holder thereof: (a) Shares of Merger Sub Common Stock. Each share of common stock of Merger Sub (the "Merger Sub Common Stock") that is issued and outstanding immediately prior to the Effective Time shall be converted into one fully paid and nonassessable share of common stock, no par value, of the Surviving Corporation. (b) Cancellation of Certain Company Common Stock. Each share of common stock, par value $5.00 per share, of the Company (the "Company Common Stock") that is owned by the Company as treasury stock and all shares of Company Common Stock that are owned by Parent (if any) shall be canceled and shall cease to exist, and no cash or other consideration shall be delivered in exchange therefor. (c) Conversion of Company Common Stock. Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares (as defined in Section 2.01(e)) and shares to be canceled in accordance with Section 2.01(b)) shall be canceled and converted in accordance with the provisions of this Section 2.01 into the right to receive cash in U.S. dollars in the amount (the "Per Share Amount") of $26.50, as such amount may hereafter be adjusted in accordance with Section 2.01(d) hereof (the "Merger Consideration"), payable, without interest, to the holder of such share of Company Common Stock, upon surrender, in the manner provided in Section 2.02, of the certificate formerly evidencing such share. (d) Adjustment in Amount of Merger Consideration. In the event that (i) the Closing Date (as defined in Section 3.01) shall not have occurred on or prior to the date which is twelve (12) months from the date hereof, and (ii) all conditions to closing of the Merger have been satisfied or are capable of being satisfied except for (A) any Parent Required Statutory Approvals and/or (B) the receipt of authorizations described in Section 7.02(c), then the Per Share Amount shall be increased, for each day after such date up to and including the day which is one day prior to the Closing Date, by an amount equal to U.S.$.003. (e) Dissenting Shares. Each outstanding share of Company Common Stock the holder of which has perfected his right to dissent under applicable law and has not effectively withdrawn or lost such right as of the Effective Time (the "Dissenting Shares") shall not be converted into or represent a right to receive the Merger Consideration, and the holder thereof shall be entitled only to such rights as are granted by applicable law; provided, however, that any Dissenting Share held by a person at the Effective Time who shall, after the Effective Time, withdraw the demand for payment for shares or lose the right to payment for shares, in either case pursuant to the MBCA, shall be deemed to be converted into, as of the Effective Time, the right to receive cash pursuant to Section 2.01(c). The Company shall give Parent prompt notice upon receipt by the Company of any such written demands for payment of the fair value of such shares of Company Common Stock and of withdrawals of such notice and any other instruments provided pursuant to applicable law. Any payments made in respect of Dissenting Shares shall be made by the Surviving Corporation. (f) Shares of Company Preferred Stock. Each share of Company Preferred Stock (as defined in Section 4.03) that is issued and outstanding immediately prior to the Effective Time shall remain outstanding as one fully paid and nonassessable share of preferred stock, par value $100 per share, of the Surviving Corporation. (g) Cancellation and Settlement with Respect to Warrants. From and after the Effective Time, each Warrant (as defined in Section 4.03), whether vested or unvested, shall entitle the holder thereof, in cancellation and settlement therefor, to a payment in cash by the Company (less any applicable withholding taxes), promptly following the Effective Time, equal to the product of (i) the total number of shares of Company Common Stock then subject to such Warrant, whether vested or unvested, and (ii) the excess, if any, of the Per Share Amount over the exercise price per share of the Company Common Stock subject to such Warrant. Section 2.02 SURRENDER OF SHARES. (a) Deposit with Paying Agent. Prior to the Effective Time, Parent or Merger Sub shall designate a bank or trust company in the United States to act as agent (the "Paying Agent") for the benefit of the holders of Company Common Stock to receive the funds to which holders of Company Common Stock shall become entitled pursuant to Section 2.01(c) (the "Exchange Fund"). From time to time at, immediately prior to or after the Effective Time, Parent or Merger Sub shall make or cause to be made available to the Paying Agent immediately available funds in amounts and at the times necessary for the payment of the Merger Consideration upon surrender of Certificates (as defined in Section 2.02(b)) in accordance with Section 2.02(b), it being understood that any and all interest or other income earned on funds made available to the Paying Agent pursuant to this Section 2.02(a) shall belong to and shall be paid (at the time provided for in Section 2.02(e)) as directed by Parent or Merger Sub. Any such funds deposited with the Paying Agent by Parent or Merger Sub shall be invested by the Paying Agent as directed by Parent or Merger Sub. (b) Exchange Procedure. As soon as practicable after the Effective Time, the Paying Agent shall mail to each holder of record of a certificate or certificates (the "Certificates") which immediately prior to the Effective Time represented outstanding Company Common Stock (the "Canceled Shares") that were canceled and became instead the right to receive the Merger Consideration pursuant to Section 2.01(c): (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon actual delivery of the Certificates to the Paying Agent), and (ii) instructions for effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate or Certificates to the Paying Agent for cancellation (or to such other agent or agents as may be appointed by Parent and are reasonably acceptable to the Company), together with a duly executed letter of transmittal and such other documents as the Paying Agent shall require, the holder of such Certificate or Certificates shall be entitled to receive the Merger Consideration in exchange for each share of Company Common Stock formerly evidenced by such Certificate or Certificates which such holder has the right to receive pursuant to Section 2.01(c). In the event of a transfer of ownership of Canceled Shares which is not registered in the transfer records of the Company, the Merger Consideration in respect of such Canceled Shares may be given to the transferee thereof if the Certificate or Certificates representing such Canceled Shares is presented to the Paying Agent, accompanied by all documents required to evidence and effect such transfer and by evidence satisfactory to the Paying Agent that any applicable stock transfer taxes have been paid. At any time after the Effective Time, each Certificate shall be deemed to represent only the right to receive the Merger Consideration subject to and upon the surrender of such Certificate as contemplated by this Section 2.02. No interest shall be paid or will accrue on the Merger Consideration payable to holders of Certificates pursuant to Section 2.01(c). (c) No Further Ownership Rights in Company Common Stock. The Merger Consideration paid upon the surrender of Certificates in accordance with the terms of Section 2.01(c) shall be deemed to have been paid at the Effective Time in full satisfaction of all rights pertaining to the shares of Company Common Stock represented thereby. From and after the Effective Time, the share transfer books of the Company shall be closed and there shall be no further registration of transfers thereon of the shares of Company Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to Parent for any reason, they shall be canceled and exchanged as provided in this Section 2.02. (d) Lost, Stolen or Destroyed Certificates. In the event any owner of any Certificate shall claim that such Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the owner of such Certificate and delivery of that affidavit to the Paying Agent and, if required by Parent or Merger Sub, the posting by such person of a bond in customary amount as indemnity against any claim that may be made against Parent, the Company or the Surviving Corporation with respect to such Certificate, the Paying Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration payable upon due surrender of, and deliverable pursuant to this Section 2.02 in respect of, the shares of Company Common Stock to which such Certificate relates. (e) Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the shareholders of the Company for one (1) year after the Effective Time shall be delivered to the Surviving Corporation upon demand, and any shareholders of the Company who have not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation (subject to abandoned property, escheat and other similar laws) as general creditors for payment of their claim for the Merger Consideration payable upon due surrender of the Certificates held by them. Neither Parent, Merger Sub nor the Surviving Corporation shall be liable to any former holder of shares of Company Common Stock for the Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Section 2.03 WITHHOLDING RIGHTS. Each of the Surviving Corporation and Parent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Company Common Stock, such amounts as it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Surviving Corporation or Parent, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of Company Common Stock in respect of which such deduction and withholding was made by the Surviving Corporation or Parent, as the case may be. ARTICLE III THE CLOSING ----------- Section 3.01 CLOSING. The closing of the Merger (the "Closing") shall take place at the offices of Winthrop, Stimson, Putnam & Roberts, New York, New York, at 10:00 a.m., New York City time, on the fifth business day immediately following the date on which the last of the conditions set forth in Article VIII hereof is fulfilled or waived (other than conditions that by their nature are required to be performed on the Closing Date, but subject to satisfaction of such conditions), or at such other time, date and place as the Company and Parent shall mutually agree (the "Closing Date"). ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY ---------------------------------------------- The Company represents and warrants to Parent as follows: Section 4.01 ORGANIZATION AND QUALIFICATION. Except as set forth in Section 4.01 of the Company Disclosure Schedule (as defined in Section 7.05(ii)), the Company and each of its subsidiaries (as defined below) is a corporation duly organized, validly existing and in good standing under the laws of the State of Maine, has all requisite corporate power and authority, and has been duly authorized by all necessary approvals and orders, to own, lease and operate its assets and properties to the extent owned, leased and operated and to carry on its business as it is now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its assets and properties makes such qualification necessary, other than in such jurisdictions where the failure to be so qualified and in good standing would not, when taken together with all other such failures, reasonably be expected to have a material adverse effect on the business, properties, condition (financial or otherwise) or results of operations of the Company and its subsidiaries taken as a whole or on the consummation of the transactions contemplated by this Agreement (any such material adverse effect being hereafter referred to as a "Company Material Adverse Effect"). As used in this Agreement, the term "subsidiary" of a person shall mean any corporation or other entity (including partnerships and other business associations) of which a majority of the outstanding capital stock or other voting securities having voting power under ordinary circumstances to elect directors or similar members of the governing body of such corporation or entity shall at the time be held, directly or indirectly, by such person. True and complete copies of the Articles of Incorporation, as amended, and by-laws of the Company as in effect on the date hereof, have been made available to Parent. Section 4.02 SUBSIDIARIES AND JOINT VENTURES. Section 4.02 of the Company Disclosure Schedule sets forth a description as of the date hereof, of all subsidiaries and joint ventures of the Company, including the name of each such entity, the state or jurisdiction of its incorporation or organization, the Company's interest therein and a brief description of the principal line or lines of business conducted by each such entity. Except as set forth in Section 4.02 of the Company Disclosure Schedule, all of the issued and outstanding shares of capital stock of each subsidiary of the Company are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. All of such shares, and the Company's outstanding equity interests in the joint ventures listed on Section 4.02 of the Company Disclosure Schedule are owned, directly or indirectly, by the Company free and clear of any liens, claims, encumbrances, security interests, equities, charges and options of any nature whatsoever, and there are no outstanding subscriptions, options, calls, contracts, voting trusts, proxies, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement, obligating any subsidiary of the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of its capital stock or obligating the Company or any of any of its subsidiaries to grant, extend or enter into any such agreement or commitment. As used in this Agreement, the term "joint venture" of a person shall mean any corporation or other entity (including partnerships and other business associations) that is not a subsidiary of such person, in which such person or one or more of its subsidiaries owns an equity interest, other than equity interests held for passive investment purposes which are less than ten (10) percent of any class of the outstanding voting securities or equity of any such entity. Section 4.03 CAPITALIZATION. The authorized capital stock of the Company consists of 10,000,000 shares of Company Common Stock and 600,000 shares of preferred stock, par value $100 per share ("Company Preferred Stock"). As of the date hereof, there were issued and outstanding 7,363,424 shares of Company Common Stock and 47,340 shares of Company Preferred Stock. The shares of Company Preferred Stock are not listed for trading on any securities exchange and the holders thereof have no rights to require the Company to obtain such listing. All of the issued and outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. Except for outstanding warrants to purchase Company Common Stock on a one-for-one basis at a current exercise price of $7.00 per share of Company Common Stock (subject to future adjustment), of which 1,503,215 are outstanding as of the date hereof (the "Warrants"), there are no outstanding subscriptions, options, calls, contracts, voting trusts, proxies, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement, obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of the Company, or obligating the Company to grant, extend or enter into any such agreement or commitment. As of the Effective Time, each Warrant will provide the Company with the exclusive right, exercisable at its sole discretion, to pay cash upon any exercise thereof in lieu of issuing Company Common Stock in the amount calculated pursuant to such Warrant. Section 4.03 of the Company Disclosure Schedule sets forth the dates the Warrants are exercisable and the expiration dates of the Warrants. A true and accurate copy of the form of Warrant has been delivered to Parent. Section 4.04 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE. (a) Authority. The Company has all requisite corporate power and authority to enter into this Agreement and, subject to obtaining the Company Shareholders' Approval (as defined in Section 4.13) and the Company Required Statutory Approvals (as defined in Section 4.04(c)), to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company subject to obtaining the Company Shareholders' Approval with respect to the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the other signatories hereto, constitutes a legal, valid and binding obligation of the Company enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether such enforceability is considered in a proceeding in equity or at law). (b) Non-Contravention. Except as set forth in Section 4.04(b) of the Company Disclosure Schedule, the execution and delivery of this Agreement by the Company do not, and the consummation of the transactions contemplated hereby will not, violate, conflict with, or result in a breach of any provision of, or constitute a default (with or without notice or lapse of time or both) under, or result in a right of termination, cancellation, or acceleration of any obligation under, or the loss of a material benefit under, or result in the creation of any lien, security interest, charge or encumbrance ("Liens") upon any of the properties or assets of the Company, any of its subsidiaries or, to the knowledge of the Company, any of its joint ventures (any such violation, conflict, breach, default, right of termination, cancellation or acceleration, loss or creation, a "Violation" with respect to the Company (such term when used in Article V having a correlative meaning with respect to Parent)) pursuant to any provisions of (i) the Articles of Incorporation or by-laws of the Company or any of its subsidiaries or joint ventures, (ii) subject to obtaining the Company Required Statutory Approvals and the receipt of the Company Shareholders' Approval, any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any Governmental Authority (as defined in Section 4.04(c)) applicable to the Company or any of its subsidiaries, or any of their respective properties or assets, or (iii) subject to obtaining the third-party consents or other approvals set forth in Section 4.04(b) of the Company Disclosure Schedule (the "Company Required Consents"), any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which the Company or any of its subsidiaries or joint ventures is a party or by which the Company or any of its subsidiaries or joint ventures or any of their respective properties or assets may be bound or affected, excluding from the foregoing clauses (ii) and (iii) such Violations as would not reasonably be expected to have, in the aggregate, a Company Material Adverse Effect. (c) Statutory Approvals. Except as described in Section 4.04(c) of the Company Disclosure Schedule, (i) no authorization, consent or approval of, any court, federal, state, local or foreign governmental or regulatory body (including a stock exchange or other self-regulatory body) or authority (each, a "Governmental Authority") and (ii) no declaration, filing or registration with, or notice to any Governmental Authority (other than any declaration, filing or registration with, or notice to any local Governmental Authority), is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, the failure to obtain, make or give which would have, in the aggregate, a Company Material Adverse Effect (the "Company Required Statutory Approvals"). (d) Compliance. Except as set forth in Section 4.04(d) or Section 4.11 of the Company Disclosure Schedule, or as disclosed in the Company SEC Reports (as defined in Section 4.05) filed prior to the date hereof, neither the Company, any of its subsidiaries nor, to the knowledge of the Company, any of its joint ventures is in violation of or has been given notice of any purported violation of, any law, statute, order, rule, regulation or judgment (including, without limitation, any applicable Environmental Law, as defined in Section 4.11(g)(ii)) of any Governmental Authority (including, without limitation, those Governmental Authorities identified in Section 4.05) except for violations that, in the aggregate, are not reasonably expected to have a Company Material Adverse Effect. Except as set forth in Section 4.04(d) or Section 4.11 of the Company Disclosure Schedule, or as disclosed in the Company SEC Reports filed prior to the date hereof, the Company, its subsidiaries and, to the knowledge of the Company, its joint ventures have all permits, licenses, franchises and other governmental authorizations, consents and approvals necessary to conduct their respective businesses as currently conducted in all respects, except those which the failure to obtain would, in the aggregate, not reasonably be expected to have a Company Material Adverse Effect. The Company and each of its subsidiaries are not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time (including, without limitation, the expiration of a temporary waiver) or action by a third party, could result in a default under, (i) its Articles of Incorporation or by-laws or (ii) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which it is a party or by which it is bound or to which any of its property is subject, except for breaches, violations or defaults under the foregoing clause (ii) that, in the aggregate, are not reasonably expected to have a Company Material Adverse Effect. (e) Except as set forth in Section 4.04(e) of the Company Disclosure Schedule, there is no "non-competition" or other similar consensual contract or agreement that restricts the ability of the Company, any of its subsidiaries or, to the knowledge of the Company, any of its joint ventures to conduct any business in any geographic area or that would reasonably be expected to restrict the Surviving Corporation or any of its affiliates to conduct business in any geographic area. Section 4.05 REPORTS AND FINANCIAL STATEMENTS. The filings required to be made by the Company or any of its subsidiaries since December 31, 1998 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"), the Federal Power Act, as amended (the "Power Act"), the Communications Act of 1934, and applicable state laws and regulations have been filed with the Securities and Exchange Commission (the "SEC"), the Federal Energy Regulatory Commission (the "FERC"), the Department of Energy (the "DOE"), the Federal Communications Commission (the "FCC") or any appropriate state public utilities commission (including, without limitation, to the extent required, the Maine Public Utilities Commission (the "MPUC")), as the case may be, including all forms, statements, reports, agreements (oral or written) and all documents, exhibits, amendments and supplements appertaining thereto, including, but not limited to, all rates, tariffs, franchises, services agreements and related documents, and all such filings complied, as of their respective dates, in all material respects with all applicable requirements of the appropriate statutes and the rules and regulations thereunder. The Company has made available to Parent a true and complete copy of each form, report, schedule, registration statement, registration exemption, if applicable, definitive proxy statement and other document (together with all amendments thereof and supplements thereto) filed by the Company or any of its subsidiaries with the SEC since December 31, 1998 (as such documents have since the time of their filing been amended, the "Company SEC Reports"), which are all the documents (other than preliminary materials) that the Company and its subsidiaries were required to file with the SEC under the Exchange Act, the Securities Act of 1933, as amended, and the 1935 Act since such date. As of their respective dates, the Company SEC Reports (i) complied as to form in all material respects with the requirements of the Exchange Act and the 1935 Act, and (ii) did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the audited consolidated financial statements and unaudited interim financial statements (including, in each case, the notes, if any, thereto) included in the Company SEC Reports (collectively, the "Company Financial Statements") complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments (which are not expected to be, individually or in the aggregate, materially adverse to the Company and its subsidiaries, taken as a whole)) the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of operations and cash flows for the periods then ended. Except as set forth in Section 4.05 of the Company Disclosure Schedule, each subsidiary of the Company is treated as a consolidated subsidiary of the Company in the Company Financial Statements for all periods covered thereby. Section 4.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Company SEC Reports filed prior to the date hereof or as set forth in Section 4.06 of the Company Disclosure Schedule, since December 31, 1999, the Company and each of its subsidiaries have conducted their business only in the ordinary course of business consistent with past practice, and there has not been, and no fact or condition exists which has or could reasonably be expected to have, a Company Material Adverse Effect. Section 4.07 LITIGATION. Except as disclosed in the Company SEC Reports filed prior to the date hereof or as set forth in Section 4.07, Section 4.09 or Section 4.11 of the Company Disclosure Schedule, (i) there are no claims, suits, actions or proceedings, pending or threatened, nor are there any investigations or reviews pending or threatened against, relating to or affecting the Company or any of its subsidiaries (collectively, "Claims"), and (ii) there are no judgments, decrees, injunctions, rules or orders of any court, governmental department, commission, agency, instrumentality or authority or any arbitrator applicable to the Company or any of its subsidiaries, except (A) in the case of new Claims or developments in existing Claims arising after the date hereof, and (B) any of the foregoing under clause (ii), that individually or in the aggregate would not reasonably be expected to have a Company Material Adverse Effect. Section 4.08 INFORMATION SUPPLIED. None of the information supplied or to be supplied by or on behalf of the Company for inclusion or incorporation by reference in (i) the proxy statement relating to the Company Special Meeting (as defined in Section 7.03(a)), as amended or supplemented from time to time (as so amended and supplemented, the "Proxy Statement"), and (ii) any other documents to be filed with the SEC (including, without limitation, under the 1935 Act) or any other Governmental Authority in connection with the Merger and other transactions contemplated hereby shall, on the date of their respective filings or, in the case of the Proxy Statement, on the date mailed to the shareholders of the Company and on the date of the Company Special Meeting, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that no representation or warranty is made by the Company with respect to statements made or incorporated by reference in the Proxy Statement based on information supplied by Parent or Merger Sub for inclusion or incorporation by reference therein. The Proxy Statement and any other documents to be filed with the SEC (including, without limitation, under the 1935 Act) or any other Governmental Authority in connection with the Merger and other transactions contemplated hereby shall comply as to form in all material respects with the requirements of the Exchange Act, the 1935 Act, and applicable state laws and regulations. Section 4.09 TAX MATTERS. "Taxes," as used in this Agreement, means any federal, state, county, local or foreign taxes, charges, fees, levies or other assessments, including, without limitation, all net income, gross income, sales and use, ad valorem, transfer, gains, profits, excise, franchise, real and personal property, gross receipts, capital stock, production, business and occupation, environmental (including taxes under Section 59 of the Code), disability, employment, social security, unemployment, payroll, license, estimated, alternative or add-on minimum, stamp, registration, custom duties, severance or withholding taxes or charges imposed by any governmental entity, and includes any interest and penalties (civil or criminal) on or additions to any such taxes, whether disputed or not, including any transferee liability with respect of any of the foregoing. "Tax Return," as used in this Agreement, means a report, return or other written information required to be supplied to a governmental entity with respect to Taxes. Except as disclosed in Section 4.09 of the Company Disclosure Schedule: (a) Filing of Timely Tax Returns. The Company and each of its subsidiaries have duly filed (or there has been filed on its behalf) within the time prescribed by law all Tax Returns required to be filed by each of them under applicable law. All such Tax Returns were and are in all material respects complete and correct. (b) Payment of Taxes. The Company and each of its subsidiaries have, within the time and in the manner prescribed by law, paid all Taxes that are currently due and payable except for those contested in good faith and for which adequate reserves have been taken as reflected on the Company's Financial Statements. (c) Tax Reserves. The Company and each of its subsidiaries have recorded on their books and records adequate reserves for all Taxes and for any liability for deferred Taxes in accordance with U.S. GAAP. (d) Extensions of Time for Filing Tax Returns. Neither the Company nor any of its subsidiaries has requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed. (e) Waivers of Statute of Limitations. Neither the Company nor any of its subsidiaries has in effect any extension, outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns. (f) Expiration of Statute of Limitations. The Tax Returns of the Company and each of its subsidiaries either have been examined and settled with the appropriate Tax authority or closed by virtue of the expiration of the applicable statute of limitations for all years through and including 1996. (g) Audit, Administrative and Court Proceedings. No material audits or other administrative proceedings are presently pending or threatened with regard to any Taxes or Tax Returns of the Company or any of its subsidiaries and no issues have been raised in writing or orally by any Tax authority in connection with any Tax or Tax Return. (h) Tax Liens. There are no Tax liens upon any asset of the Company or any of its subsidiaries except liens for Taxes not yet due. (i) Tax Rulings. Neither the Company nor any of its subsidiaries has received a Tax Ruling (as defined below) or entered into a Closing Agreement (as defined below) with any taxing authority that would have a continuing adverse effect after the Closing Date. "Tax Ruling," as used in this Agreement, shall mean a written ruling of a taxing authority relating to Taxes. "Closing Agreement," as used in this Agreement, shall mean a written and legally binding agreement with a taxing authority relating to Taxes. (j) Availability of Tax Returns. The Company has provided or made available to Parent complete and accurate copies of (i) all Tax Returns, and any amendments thereto, filed by the Company or any of its subsidiaries covering all years ending on or after December 31, 1996, (ii) all audit reports and notices of assessment received from any taxing authority relating to any Tax Return filed by the Company or any of its subsidiaries covering all years ending on or after December 31, 1996 and (iii) any Closing Agreements entered into by the Company or any of its subsidiaries with any taxing authority since December 31, 1996. (k) Tax Sharing Agreements. Neither the Company nor any of its subsidiaries is a party to any agreement relating to allocating or sharing of Taxes. (l) Liability for Others. Neither the Company nor any of its subsidiaries has any liability for any Taxes of any person other than the Company and its subsidiaries (i) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), (ii) as a transferee or successor, (iii) by contract or (iv) otherwise. Section 4.10 EMPLOYEE MATTERS; ERISA. (a) Each "employee benefit plan" (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), bonus, deferred compensation, share option or other agreement or arrangement relating to employment or fringe benefits with or for the benefit of any current or former employees or other personnel of the Company or any of its subsidiaries or their dependents or beneficiaries effective as of the date hereof pursuant to which the Company or any of its subsidiaries has or could reasonably be expected to have any liability (collectively, the "Company Employee Benefit Plans") is listed in Section 4.10(a) of the Company Disclosure Schedule, is in material compliance with applicable law, and has been administered and operated in all material respects in accordance with its terms and applicable law. All reports to governmental agencies and all disclosures to participants and beneficiaries have been timely filed and distributed in accordance with applicable law. Each Company Employee Benefit Plan which is intended to be qualified within the meaning of Sections 401(a) and 501(a) of the Code has received a favorable determination letter from the Internal Revenue Service (the "IRS") as to such qualification and, to the knowledge of the Company, no event has occurred and no condition exists which could reasonably be expected to result in the revocation of, or have any materially adverse effect on, the qualification of such plans. (b) Complete and correct copies of the following documents have been made available to Parent as of the date of this Agreement: (i) all Company Employee Benefit Plans and any related trust agreements or insurance contracts, (ii) the most current summary descriptions of each Company Employee Benefit Plan subject to ERISA, (iii) the three most recent Form 5500s and Schedules thereto for each Company Employee Benefit Plan subject to such reporting, (iv) the most recent determination of the IRS with respect to the qualified status of each Company Employee Benefit Plan that is intended to qualify under Sections 401(a) and 501(a) of the Code, (v) the most recent accountings with respect to each Company Employee Benefit Plan funded through a trust or other funding arrangement, (vi) the most recent actuarial report of the qualified actuary of each Company Employee Benefit Plan with respect to which actuarial valuations are conducted and (vii) a summary of any Company Employee Benefit Plan for which there are no written documents. (c) Each Company Employee Benefit Plan subject to the requirements of Section 601 of ERISA and Section 4980B of the Code has been operated in material compliance therewith. Neither the Company nor any subsidiary has contributed to a nonconforming group health plan (as defined in Code Section 5000(c)) and no person under common control with the Company within the meaning of Section 414 of the Code ("ERISA Affiliate") has incurred a tax liability under Code Section 5000(a) that is or could reasonably be expected to become a liability of the Company or any subsidiary. (d) Except as set forth in Section 4.10(d) of the Company Disclosure Schedule, each Company Employee Benefit Plan covers only employees who are employed by the Company or a subsidiary (or former employees or dependents or beneficiaries of any such employees or former employees) with respect to service with the Company or a subsidiary. (e) Except as set forth in Section 4.10(e) of the Company Disclosure Schedule, neither the Company, any subsidiary, any ERISA Affiliate nor any other corporation or organization controlled by or under common control with any of the foregoing within the meaning of Section 4001 of ERISA is, or within the six-year period preceding the date of this Agreement, was at any time obligated to contribute to or otherwise was a party to any "multiemployer plan," as that term is defined in Section 4001 of ERISA. (f) No event has occurred, and there exists no condition or set of circumstances under which the Company or any subsidiary, directly or indirectly (through any indemnification agreement or otherwise), could be subject to any liability under Section 302 of ERISA, Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA, Section 412 of the Code or Section 4975 of the Code or, to the knowledge of the Company, Section 406 of ERISA, except for instances of non-compliance in connection with any Company Employee Benefit Plan which, individually or in the aggregate, could not reasonably be expected to have a Company Material Adverse Effect. The Pension Plan for Bargaining Unit and Non-Bargaining Unit Employees is fully funded on a plan termination basis. (g) Neither the Company nor any ERISA Affiliate has incurred any liability to the Pension Benefit Guaranty Corporation under Section 302(c)(ii), 4062, 4063, 4064 or 4069 of ERISA, or otherwise that has not been satisfied in full and no event or condition exists or has existed which could reasonably be expected to result in any such material liability. As of the date of this Agreement, no "reportable event" within the meaning of Section 4043 of ERISA has occurred with respect to any Company Employee Benefit Plan that is a defined benefit plan under Section 3(35) of ERISA. Each of the Company and any ERISA Affiliate has paid all amounts due to the Pension Benefit Guaranty Corporation pursuant to Section 4007 of ERISA. (h) Except as set forth in Section 4.10(h) of the Company Disclosure Schedule, no employer securities, employer real property or other employer property is or can be included in the assets of any Company Employee Benefit Plan. (i) Full payment has been timely made of all contributions, insurance premiums, benefits and other payments which the Company or any affiliate thereof was required under the terms of any Company Employee Benefit Plan and/or applicable law to have paid on or prior to the Effective Time (excluding any amounts not yet due) and no Company Employee Benefit Plan which is subject to Part III of Subtitle B of Title I of ERISA has incurred any "accumulated funding deficiency" within the meaning of Section 302 of ERISA or Section 412 of the Code, whether or not waived. (j) Except as set forth in Section 4.10(j) of the Company Disclosure Schedule, no amounts paid or payable under any Company Employee Benefit Plan or other agreement, contract, or arrangement has failed or will fail to be deductible for federal income tax purposes by virtue of Section 280G or Section 162(m) of the Code. No amount or any asset of any Company Employee Benefit Plan or Company VEBA (as defined in Section 501(c)(9) of the Code) is subject to tax as unrelated business taxable income. (k) Except as set forth in Section 4.10(k) of the Company Disclosure Schedule, there are no actions, suits or claims pending or, to the knowledge of the Company, threatened (other than routine claims for benefits in the ordinary course) with respect to any Company Employee Benefit Plan. (l) Except as set forth in Section 4.10(l) of the Company Disclosure Schedule, participants' rights in all terminated Company Employee Benefit Plans qualified under the Code have been fully satisfied. (m) The Company and its subsidiaries are parties to the collective bargaining agreements described in Section 4.10(m) of the Company Disclosure Schedule. True and complete copies of such collective bargaining agreements have been provided to Parent. Except as set forth in Section 4.10(m) of the Company Disclosure Schedule, since January 1, 1998, neither the Company nor any of its subsidiaries has been a party to any collective bargaining agreement or other labor contract. Except as set forth in Section 4.10(m) of the Company Disclosure Schedule, since January 1, 1998, no labor organization or group of employees of the Company or any of its subsidiaries has made a demand, and there is not now pending any demand, for recognition or certification, and there has not been, and there is not now, any representation or certification proceeding or petition seeking a representation proceeding pending with the National Labor Relations Board or any other labor relations tribunal or authority. To the knowledge of the Company, no such proceeding or petition is threatened. Except as set forth in Section 4.10(m) of the Company Disclosure Schedule, since January 1, 1998, there has not been and there is not now any organizing activities, strikes, work stoppages, slowdowns, lockouts, arbitrations or grievances, or other labor disputes pending or, to the knowledge of the Company, threatened against or involving the Company or any of its subsidiaries which could reasonably be expected to have a Company Material Adverse Effect. Except as set forth in Section 4.10(m) of the Company Disclosure Schedule, since January 1, 1998, each of the Company and its subsidiaries has complied and is in compliance with, and there are no outstanding orders or charges against the Company or any of its subsidiaries regarding, all applicable laws and collective bargaining agreements respecting labor, employment and employment practices, including, without limitation, terms and conditions of employment, wages and hours, occupational safety and health, equal employment opportunity, non-discrimination, immigration, benefits, collective bargaining, and the payment of withholding and similar taxes, except for non-compliances which, in the aggregate, could not reasonably be expected to have a Company Material Adverse Effect. Except as set forth in Section 4.10(m) of the Company Disclosure Schedule, since January 1, 1998, there has not been and there is not now any arbitration proceedings arising out of or under any collective bargaining agreement pending against the Company or any of its subsidiaries, and there are no administrative charges, grievances or court complaints, actions, investigations or litigation against the Company or any of its subsidiaries concerning alleged employment discrimination, labor relations, unfair labor practices or other employment related matters pending or, to the knowledge of the Company, threatened before the National Labor Relations Board, U.S. Equal Employment Opportunity Commission or any other Governmental Authority. Except as set forth in Section 4.10(m) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries are in violation of the Federal Worker Adjustment and Retraining Notification Act of 1988 (the "WARN Act") or 26 M.R.S.A. Section 625-B. The Company and its subsidiaries have paid all levies, assessments and penalties pursuant to any applicable workers' compensation legislation in jurisdictions in which the Company and its subsidiaries conduct business. (n) Each Company VEBA (as defined in Section 501(c)(9) of the Code) is exempt from federal income tax. No event has occurred and, to the knowledge of the Company, no circumstance exists that will or could give rise to disqualification or loss of tax-exempt status of any Company VEBA or related trust. (o) The most recent actuarial report for each Company's (or for any subsidiary's) defined benefit pension plan fairly presents the financial condition and the results of operations of each such plan in accordance with GAAP. Since the last valuation of each such plan, no event has occurred or circumstance exists that would increase the amount of benefits under such plan or that would cause the excess of plan assets over benefit liabilities (as defined in ERISA Section 4001) to decrease (other than decreases caused by fluctuations in the market values of plan assets). (p) Except to the extent required under ERISA Section 601 et seq. and Section 4980B of the Code and except as set forth in Section 4.10(p) of the Company Disclosure Schedule, the Company and its ERISA Affiliates are not obligated to provide health or welfare benefits to any retired or former employee or any active employee following such employee's retirement or other termination of service, other than the benefits reflected in the FAS 106 report dated January 4, 2000. Except as set forth in Section 4.10(p) of the Company Disclosure Schedule, the liability of the Company or any ERISA Affiliate for such post retirement benefits will not increase due to the merger contemplated herein. (q) The Company and its ERISA Affiliates have provided complete disclosure of all material financial costs of all obligations owed under any Company Employee Benefit Plan. Except as set forth in Section 4.10(q) of the Company Disclosure Schedule, there are no costs or liabilities of any kind or nature, either relating to pension or welfare benefit plans, not otherwise disclosed in full on the audited financial statements of the Company and its affiliates as of December 31, 1999, which exceed $500,000 for all such plans in the aggregate. This provision shall include, but not be limited to, liabilities under self-funded medical, disability or workers' compensation plans not covered by insurance, so-called "incurred but not reported" or "IBNR" liabilities, unfunded deferred compensation plans and similar employee benefit liabilities. (r) The Company is not aware that any employee or director of the Company or any of its subsidiaries is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, between such employee, officer or director and any other person or entity ("Proprietary Rights Agreement") that in any way adversely affects or will affect (i) the performance of his duties as an employee, officer or director of the Company or any of its subsidiaries, or (ii) the ability of the Company or any of its subsidiaries to conduct its business. The Company has not been informed that any director, officer, or other key employee of the Company or any subsidiary intends to terminate his employment with such company. Section 4.11 ENVIRONMENTAL PROTECTION. Except as set forth in Section 4.11 of the Company Disclosure Schedule or in the Company SEC Reports filed prior to the date hereof: (a) Compliance. The Company and each of its subsidiaries are in compliance with all applicable Environmental Laws (as defined in Section 4.11(g)(ii)) except where the failure to be in such compliance would not, in the aggregate, reasonably be expected to have a Company Material Adverse Effect, and neither the Company nor any of its subsidiaries has received any written communication from any Governmental Authority that alleges that the Company or any of its subsidiaries is not in compliance with applicable Environmental Laws. (b) Environmental Permits. The Company and each of its subsidiaries have obtained or have applied for renewals of all environmental, health and safety permits and governmental authorizations (collectively, the "Environmental Permits") necessary for the construction of their respective facilities or the conduct of their respective operations, and all such Environmental Permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and the Company and its subsidiaries are in compliance with all terms and conditions of the Environmental Permits, except where the failure to obtain or to be in such compliance would not, in the aggregate, reasonably be expected to have a Company Material Adverse Effect. (c) Environmental Claims; Judgments. There is no Environmental Claim (as defined in Section 4.11(g)(i)) pending (i) against the Company or any of its subsidiaries, or (ii) against any real or personal property or operations that the Company or any of its subsidiaries owns, leases or manages, in whole or in part that, if adversely determined, would reasonably be expected to have, in the aggregate, a Company Material Adverse Effect. Neither the Company nor any of its subsidiaries (i) has entered into or agreed to any consent decree or order, or (ii) is subject to any judgment, decree or judicial order, in each case, relating to compliance with any Environmental Law or to investigation or cleanup of Hazardous Materials under any Environmental Law. (d) CERCLA. Neither the Company nor any of its subsidiaries has received any written request for information, or been notified (or otherwise has knowledge) that the Company or any of its subsidiaries is a potentially responsible party, under the Federal Comprehensive Environmental Response, Compensation and Liability Act, as amended, or any similar state law. (e) Releases. Except for Releases of Hazardous Materials the liability for which would not reasonably be expected to have, in the aggregate, a Company Material Adverse Effect, there have been no Releases (as defined in Section 4.11(g)(iv)) of any Hazardous Material (as defined in Section 4.11(g)(iii)) that would reasonably be expected to form the basis of any Environmental Claim against the Company or any of its subsidiaries. (f) Predecessors. The Company has no knowledge of any Environmental Claim pending or threatened, or of any Release of Hazardous Materials that would reasonably be expected to form the basis of any Environmental Claim, in each case against any person or entity (including, without limitation, any predecessor of the Company or any of its subsidiaries) whose liability the Company or any of its subsidiaries has or may have retained or assumed either contractually or by operation of law, except for Releases of Hazardous Materials the liability for which would not reasonably be expected to have, in the aggregate, a Company Material Adverse Effect. (g) As used in this Agreement: (i) "Environmental Claim" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, directives, claims, liens, investigations, proceedings or notices of noncompliance or violation by any person or entity (including any Governmental Authority) alleging potential liability (including, without limitation, potential responsibility for or liability for enforcement costs, investigatory costs, cleanup costs, governmental response costs, removal costs, remedial costs, natural-resources damages, property damages, personal injuries, fines or penalties) arising out of, based on or resulting from (A) the presence, or Release or threatened Release into the environment, of any Hazardous Materials at any location, whether or not owned, operated, leased or managed by the Company or any of their respective subsidiaries or joint ventures; or (B) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law; or (C) any and all claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence or Release of any Hazardous Materials. (ii) "Environmental Laws" means all federal, state, local laws, rules, ordinances and regulations, relating to pollution, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or protection of human health as it relates to the environment including, without limitation, laws and regulations relating to Releases or threatened Releases of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. (iii) "Hazardous Materials" means (A) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, coal tar residue, and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls ("PCBs") in regulated concentrations; and (B) any chemicals, materials or substances which are now defined as or included in the definition of "hazardous substances", "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "hazardous constituents" or words of similar import, under any Environmental Law; and (C) any other chemical, material, substance or waste, exposure to which is now prohibited, limited or regulated under any Environmental Law in a jurisdiction in which the Company or any of its subsidiaries or joint ventures operates or has stored, treated or disposed of Hazardous Materials. (iv) "Release" means any release, spill, emission, leaking, injection, deposit, disposal, discharge, dispersal, leaching or migration into the atmosphere, soil, surface water, groundwater or property. Section 4.12 REGULATION AS A UTILITY. Except as set forth in Section 4.12 of the Company Disclosure Schedule, neither the Company nor any "subsidiary company" or "affiliate" (as such terms are defined in the 1935 Act) of the Company is subject to regulation as (i) a "holding company," a "public-utility company," a "subsidiary company" or an "affiliate" of a "holding company," within the meaning of Sections 2(a)(7), 2(a)(5), 2(a)(8) or 2(a)(11), respectively, of the 1935 Act, (ii) a "public utility" under the Power Act, (iii) a "natural-gas company" under the Natural Gas Act, or (iv) a public utility or public service company (or similar designation) by the federal government of the United States, any state in the United States or any political subdivision thereof, or by any foreign country. Section 4.13 VOTE REQUIRED. A majority of the votes represented by the outstanding shares of Company Common Stock and Company Preferred Stock, voting together as a class, in favor of the Merger and the other transactions contemplated hereby (the "Company Shareholders' Approval") is the only vote of the holders of any class or series of the capital stock of the Company or any of its subsidiaries required to approve this Agreement, the Merger and the other transactions contemplated hereby. Section 4.14 OPINION OF FINANCIAL ADVISOR. The Company has received the opinion of Salomon Smith Barney Inc., dated the date of this Agreement, to the effect that, as of such date, the Merger Consideration is fair from a financial point of view to the holders of Company Common Stock. A true and complete copy of the written opinion will be delivered to Parent promptly after receipt thereof by the Company. Section 4.15 OWNERSHIP OF PARENT COMMON STOCK. Except as set forth in Section 4.15 of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries "beneficially owns" (as such term is defined for purposes of Section 13(d) of the Exchange Act) any shares of the capital stock of Parent. Section 4.16 TAKEOVER PROVISIONS. The Company has taken all necessary actions within its control so that this Agreement and the transactions contemplated hereby are exempt from (i) the requirements of any "moratorium," "control share," "fair price" or other anti-takeover laws and regulations (collectively, "Takeover Laws") of the State of Maine, including, without limitation, Section 611-A and Section 910 of the MBCA, and (ii) the anti-takeover provisions contained in the articles of organization of the Company. The Company is not a party to a shareholders' rights plan or other similar anti-takeover agreement or arrangement. Section 4.17 NUCLEAR FACILITIES. The Company is a seven (7) percent common stockholder of Maine Yankee Atomic Power Company ("Maine Yankee"), which owns a nuclear generating plant in Wiscasset, Maine that has permanently ceased operations and is in the process of being decommissioned. Maine Yankee holds its own license from the Nuclear Regulatory Commission (the "NRC"). The Company does not have responsibility for the operation of Maine Yankee, it being understood that the Company maintains two (2) representatives on the Maine Yankee Board of Directors. Except as set forth in Section 4.17 of the Company Disclosure Schedule or in the Company SEC Reports filed prior to the date hereof, to the knowledge of the Company, neither the Company, any of its subsidiaries nor Maine Yankee, is in violation of any applicable health, safety, regulatory, environmental or other legal requirements, including NRC laws and regulations, applicable to Maine Yankee, except for such failure to comply that would not reasonably be expected to have a Company Material Adverse Effect. To the knowledge of the Company, Maine Yankee maintains emergency plans designed to respond to an unplanned release therefrom of radioactive materials into the environment and insurance coverages consistent with industry practice. The Company has paid its portion of the decommissioning cost of Maine Yankee and the storage of spent fuel billed to date consistent with the most recently approved plan for Maine Yankee and FERC authorized rates. Except as set forth in Section 4.17 of the Company Disclosure Schedule, to the knowledge of the Company, Maine Yankee is not as of the date of this Agreement on the List of Nuclear Power Plants Warranting Increased Regulatory Attention maintained by the NRC. Section 4.18 TITLE TO REAL PROPERTIES. To the knowledge of the Company, the Company and each of its subsidiaries has good title to, or in the case of leased property and assets have valid leasehold interests in, all real property reflected on the Company Financial Statements or acquired after December 31, 1999, except for (i) properties sold since December 31, 1999 in the ordinary course of business consistent with past practice, and (ii) such imperfections in title and easements, if any, which (A) are not substantial in character, amount or extent and do not materially detract from the value, or materially interfere with the present use of the property subject thereto or affected thereby, or (B) otherwise do not materially impair the Company's business operations. None of such property is subject to any Lien, except: (a) Liens disclosed in the Company Financial Statements; (b) Liens for Taxes not yet due or being contested in good faith and for which adequate accruals or reserves have been established on the Company Financial Statements; or (c) Liens which do not materially detract from the value or materially interfere with any present use of such property or assets. Section 4.19 MATERIAL CONTRACTS. (a) Except for purchase orders the Company has provided Parent with a complete and accurate list of any of the following to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound (each, a "Company Material Contract"), together with copies thereof: (i) all written management, compensation, employment or other contracts entered into with any executive officer or director of the Company; (ii) all contracts or arrangements under which the Company or any of its subsidiaries has any outstanding indebtedness, obligation or liability for borrowed money or the deferred purchase price of property or has the right or obligation to incur any such indebtedness, obligation or liability, in each case, in an amount greater than $200,000; (iii) all bonds or agreements of guarantee or indemnification in which the Company or any of its subsidiaries acts as surety, guarantor or indemnitor with respect to any obligation (fixed or contingent) in an amount or potential amount greater than $100,000, other than any such bonds or agreements entered into in connection with an asset or stock acquisition or disposition made by the Company or any of its subsidiaries and other than any such guarantees of the obligations of the Company or any of its subsidiaries; (iv) all non-competition agreements to which the Company or any of its affiliates (other than any director of the Company) is a party; (v) all partnership and joint venture agreements; (vi) each other material contract or agreement listed as an exhibit to the Company's most recent Annual Report on Form 10-K and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000; and (vii) all agreements relating to material business acquisitions or dispositions during the last three years, including any separate tax or indemnification agreements. To the knowledge of the Company, no party to any Company Material Contract (other than the Company and any of its subsidiaries) is in default in any material respect under the terms of such Company Material Contract, and each Company Material Contract is in full force and effect, except for any such defaults or failures to be in full force and effect which, individually and in the aggregate, would not reasonably be expected to result in a Company Material Adverse Effect. To the Company's knowledge, the Company Material Contracts are enforceable by the Company in accordance with their terms. (b) Neither (i) any of the Company Material Contracts copies of which were delivered to Parent or its advisors in the period June 26, 2000 through the date hereof, nor (ii) any other Material Contracts amended, modified or affected in any material respect by such first-mentioned Material Contracts, (A) contains any restriction or prohibition, direct or indirect, on the ability of the Company to pay dividends on the Company Common Stock, (B) contains any waiver or forbearance of any covenant or restriction in respect of indebtedness under which the Company is currently operating, (C) obligates the Company to make any expenditure of funds outside of the ordinary course of business, (D) constitutes an incurrence of indebtedness not reflected on the Company Financial Statements, (E) constitutes a nuclear-related obligation (other than with respect to Maine Yankee), (F) results in the imposition of any taxes outside of the ordinary course of business, (G) contains any indemnities by the Company in favor of any third parties (other than indemnities in favor of lenders and trustees customary in financing transactions), or (H) is a partnership or joint venture agreement. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT ---------------------------------------- Parent represents and warrants to the Company as follows: Section 5.01 ORGANIZATION AND QUALIFICATION. Except as set forth in Section 5.01 of the Parent Disclosure Schedule (as defined in Section 7.05(i)), Parent and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has all requisite corporate power and authority, and has been duly authorized by all necessary approvals and orders, to own, lease and operate its assets and properties to the extent owned, leased and operated and to carry on its business as it is now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its assets and properties makes such qualification necessary, other than in such jurisdictions where the failure to be so qualified and in good standing would not, when taken together with all other such failures, reasonably be expected to have a material adverse effect on the business, properties, condition (financial or otherwise) or results of operations of Parent and its subsidiaries taken as a whole or on the consummation of the transactions contemplated by this Agreement (any such material adverse effect being hereafter referred to as a "Parent Material Adverse Effect"). True and complete copies of the articles of organization and by-laws of each of Parent and Merger Sub as in effect on the date hereof, have been made available to the Company. Section 5.02 SUBSIDIARIES. Section 5.02 of the Parent Disclosure Schedule sets forth a description as of the date hereof of all material subsidiaries and joint ventures of Parent, including the name of each such entity, the state or jurisdiction of its incorporation or organization, Parent's interest therein, and a brief description of the principal line or lines of business conducted by each such entity. Except as set forth in Section 5.02 of the Parent Disclosure Schedule, all of the issued and outstanding shares of capital stock of each subsidiary of Parent are validly issued, fully paid, nonassessable and free of preemptive rights, and are owned directly or indirectly by Parent free and clear of any liens, claims, encumbrances, security interests, equities, charges and options of any nature whatsoever, and there are no outstanding subscriptions, options, calls, contracts, voting trusts, proxies, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement, obligating any such subsidiary of Parent to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of its capital stock or obligating it to grant, extend or enter into any such agreement or commitment, except for any of the foregoing that could not reasonably be expected to have a Parent Material Adverse Effect. Section 5.03 CAPITALIZATION. Except as set forth in Section 5.03 of the Parent Disclosure Schedule, the authorized capital stock of Parent consists of an unlimited number of shares of common stock, no par value, of Parent ("Parent Common Stock"), and an unlimited number of shares of preferred stock, of Parent ("Parent Preferred Stock"). As of the close of business on June 21, 2000, there were issued and outstanding 87,172,909.8462 shares of Parent Common Stock and no shares of Parent Preferred Stock. All of the issued and outstanding shares of the capital stock of Parent are validly issued, fully paid, nonassessable and free of preemptive rights. Except as set forth in Section 5.03 of the Parent Disclosure Schedule, as of the date hereof, there are no outstanding subscriptions, options, calls, contracts, voting trusts, proxies, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement, obligating Parent or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of Parent, or obligating Parent to grant, extend or enter into any such agreement or commitment. Section 5.04 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE. (a) Authority. Each of Parent and Merger Sub has all requisite corporate power and authority to enter into this Agreement and, subject to the applicable Parent Required Statutory Approvals (as defined in Section 5.04(c)), to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by each of Parent and Merger Sub, and the consummation by each of Parent and Merger Sub of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of each of Parent and Merger Sub. This Agreement has been duly and validly executed and delivered by each of Parent and Merger Sub and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of each of Parent and Merger Sub enforceable against each of Parent and Merger Sub in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether such enforceability is considered in a proceeding in equity or at law). (b) Non-Contravention. Except as set forth in Section 5.04(b) of the Parent Disclosure Schedule, the execution and delivery of this Agreement by each of Parent and Merger Sub do not, and the consummation of the transactions contemplated hereby will not, result in a Violation pursuant to any provisions of (i) the articles of organization or by-laws of Parent or any of its subsidiaries, (ii) subject to obtaining Parent Required Statutory Approvals (as defined in Section 5.04(c)) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any Governmental Authority applicable to Parent or any of its subsidiaries, or any of their respective properties or assets, or (iii) subject to obtaining the third-party consents or other approvals set forth in Section 5.04(b) of the Parent Disclosure Schedule (the "Parent Required Consents"), any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which Parent or any of its subsidiaries is a party or by which Parent or any of its subsidiaries, or any of their respective properties or assets may be bound or affected, excluding from the foregoing clauses (ii) and (iii) such Violations as would not reasonably be expected to have, in the aggregate, a Parent Material Adverse Effect. (c) Statutory Approvals. Except as described in Section 5.04(c) of the Parent Disclosure Schedule, no declaration, filing or registration with, or notice to or authorization, consent or approval of, any Governmental Authority is necessary for the execution and delivery of this Agreement by Parent or Merger Sub or the consummation by Parent or Merger Sub of the transactions contemplated hereby, the failure to obtain, make or give which would reasonably be expected to have, in the aggregate, a Parent Material Adverse Effect (the "Parent Required Statutory Approvals"). Section 5.05 REPORTS AND FINANCIAL STATEMENTS. The filings required by law or regulation to be made by Parent or any of its subsidiaries since December 31, 1998 have been filed with the appropriate Governmental Authority, including all forms, statements, reports, agreements (oral or written) and all documents, exhibits, amendments and supplements required by law or regulation appertaining thereto, including, but not limited to, all rates, tariffs, franchises, services agreements and related documents, and all such filings complied, as of their respective dates, in all material respects with all applicable requirements of the appropriate statutes and the rules and regulations thereunder. Parent has made available to the Company a true and complete copy of each form, report, schedule, registration statement, registration exemption, if applicable, and other document (together with all amendments thereof and supplements thereto) filed by Parent or any of its subsidiaries with the Nova Scotia Securities Commission and The Toronto Stock Exchange since December 31, 1998 (as such documents have since the time of their filing been amended, the "Parent Reports"), which are all the documents (other than preliminary materials) that Parent and its subsidiaries were required to file by law or regulation since such date. As of their respective dates, the Parent Reports (i) complied as to form in all material respects with all applicable legal requirements, and (ii) did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the audited consolidated financial statements and unaudited interim financial statements (including, in each case, the notes, if any, thereto) included in the Parent Reports (collectively, the "Parent Financial Statements") complied as to form in all material respects with all applicable rules and regulations, were prepared in accordance with generally accepted accounting principles of Parent's country of origin applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly present (subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments (which are not expected to be, individually or in the aggregate, materially adverse to Parent and its subsidiaries, taken as a whole)) the consolidated financial position of Parent and its consolidated subsidiaries as of the dates thereof and the consolidated results of operations and cash flows for the periods then ended. Except as set forth in Section 5.05 of the Parent Disclosure Schedule, each subsidiary of Parent is treated as a consolidated subsidiary of Parent in the Parent Financial Statements for all periods covered thereby. Section 5.06 INFORMATION SUPPLIED. None of the information supplied or to be supplied by or on behalf of Parent or Merger Sub for inclusion or incorporation by reference in (i) the Proxy Statement and (ii) any other documents to be filed with the SEC (including, without limitation, under the 1935 Act) or any other Governmental Authority in connection with the Merger and other transactions contemplated hereby shall, on the date of their respective filings or, in the case of the Proxy Statement, at the date mailed to the shareholders of the Company, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that no representation or warranty is made by Parent with respect to statements made or incorporated by reference in the Proxy Statement based on information supplied by the Company for inclusion or incorporation by reference therein. Any documents to be filed with the SEC by or on behalf of Parent or Merger Sub (including, without limitation, under the 1935 Act) or any other Governmental Authority in connection with the Merger and other transactions contemplated hereby shall comply as to form in all material respects with the requirements of, as applicable, the 1935 Act, any applicable federal securities laws or state or provincial laws and regulations. Section 5.07 REGULATION AS A UTILITY. Except as set forth in Section 5.07 of the Parent Disclosure Schedule and without giving effect to the transactions contemplated by this Agreement, neither Parent nor any "subsidiary company" (as such term is defined in the 1935 Act) of Parent is subject to regulation as (i) a "holding company," or a "public-utility company" or, to the actual knowledge of Parent, a "subsidiary company" or an "affiliate" of a "holding company," within the meaning of Sections 2(a)(7), 2(a)(5), 2(a)(8) or 2(a)(11), respectively, of the 1935 Act, (ii) a "public utility" under the Power Act, (iii) a "natural-gas company" under the Natural Gas Act, or (iv) a public utility or public service company (or similar designation) by the federal government of the United States, any state in the United States or any political subdivision thereof, or by any foreign country or political subdivision thereof. Section 5.08 OWNERSHIP OF COMPANY COMMON STOCK. Except as set forth in Section 5.08 of the Parent Disclosure Schedule, Parent does not "beneficially own" (as such term is defined for purposes of Section 13(d) of the Exchange Act) any shares of Company Common Stock. Section 5.09 FINANCING. Parent has sufficient funds available to it or has received binding written commitments subject only to customary terms and conditions from third parties to provide sufficient funds to pay the Merger Consideration on the Closing Date and to consummate the Merger and other transactions contemplated hereby. Section 5.10 VOTE REQUIRED. Parent has approved the Merger, and such approval is the only vote of the holders of any class or series of the capital stock of Parent required to approve this Agreement, the Merger and the other transactions contemplated hereby. ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER -------------------------------------- Section 6.01 COVENANTS OF THE PARTIES. After the date hereof and prior to the Effective Time or earlier termination of this Agreement, Parent and the Company each agree as follows, each as to itself and to each of its subsidiaries, except as expressly contemplated or permitted in this Agreement, or to the extent the other parties hereto shall otherwise consent in writing: (a) Ordinary Course of Business. The Company shall, and shall cause its subsidiaries to, carry on their respective businesses in the ordinary course consistent with good utility or other practice, as applicable, and in substantially the same manner as heretofore conducted. Without limiting the generality of the foregoing, the Company shall, and shall cause its subsidiaries to, use all commercially reasonable efforts to (i) preserve intact their present business organizations and goodwill and preserve the goodwill and relationships with customers, suppliers and others having significant business dealings with them, (ii) subject to prudent management of workforce needs and ongoing programs currently in force, keep available the services of their present officers and employees as a group (provided that voluntary terminations of employment by officers or employees shall not be deemed a violation of this subsection), (iii) maintain and keep material properties and assets in as good repair and condition as at present, subject to ordinary wear and tear, and maintain supplies and inventories in quantities consistent with past practice, and (iv) comply in all material respects with all laws, orders and regulations of all Governmental Authorities applicable to them. (b) Dividends. The Company shall not, nor shall it permit any of its subsidiaries to: (i) declare or pay any dividends on, or make other distributions in respect of, any capital stock other than (A) dividends by a direct or indirect subsidiary to the Company, (B) regular dividends on the Company Preferred Stock, (C) regular quarterly dividends on Company Common Stock that do not exceed the current regular dividends on Company Common Stock; provided that, the Company may increase the rate of such dividends to not more than $0.25 per quarter beginning on the first regular quarterly dividend payment date in 2001, and (D) if the Effective Time does not occur between a record date and payment date of a regular quarterly dividend, a special dividend on Company Common Stock with respect to the quarter in which the Effective Time occurs with a record date on or prior to the date on which the Effective Time occurs, which does not exceed an amount equal to the product of (x) the number of days between the last payment date of a regularly quarterly dividend and the record date of such special dividend, multiplied by (y) the then-effective regular quarterly dividend, (ii) split, combine or reclassify any capital stock or the capital stock of any subsidiary or issue or authorize or propose the issuance of any other securities in respect of, in lieu of, or in substitution for, shares of capital stock or the capital stock of any subsidiary, or (iii) redeem, repurchase or otherwise acquire any shares of capital stock or the capital stock of any subsidiary other than (A) acquisitions of shares of capital stock in connection with the administration of the Company's dividend reinvestment plan as in effect on the date hereof in the ordinary course consistent with past practice, (B) cash payments to holders of Warrants in lieu of issuing Company Common Stock upon exercise of such Warrants, or (C) intercompany acquisitions of capital stock. (c) Issuance of Securities. The Company shall not, nor shall it permit any of its subsidiaries to, issue, agree to issue, deliver, sell, pledge, dispose of or otherwise encumber any shares of their capital stock of any class or any securities convertible into or exchangeable for, or any rights, warrants or options to acquire, any such shares or convertible or exchangeable securities, other than in the case of subsidiaries, for issuances of capital stock to the Company or another subsidiary. (d) Charter Documents; Other Actions. The Company shall not, nor shall it permit any of its subsidiaries to, amend its respective articles of organization, by-laws or regulations, or similar organic documents, and the Company shall not, nor shall it permit any of its subsidiaries to take or fail to take any other action which would reasonably be expected to prevent or materially impede or interfere with the Merger (except to the extent permitted by Section 6.02 and Article IX). (e) Acquisitions. Except as disclosed in Section 6.01(e) of the Company Disclosure Schedule, the Company shall not, nor shall it permit any of its subsidiaries to, acquire or agree to acquire, by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or business organization or division thereof, or otherwise acquire or agree to acquire any material amount of assets other than (i) in the ordinary course of business, and (ii) acquisitions having an aggregate acquisition consideration payable by the Company of not more than $1,000,000. With respect to the acquisitions identified in Section 6.01(e) of the Company Disclosure Schedule, the Company has provided Parent true and complete copies of any existing relevant agreement relating thereto. (f) Capital Expenditures. Except (i) as may be required by law or (ii) as reasonably deemed necessary by the Company following a catastrophic event, the Company shall not, nor shall it permit any of its subsidiaries to, make capital expenditures in excess of 110% of the aggregate amount budgeted by the Company or its subsidiaries for capital expenditures as set forth in Section 6.01(f) of the Company Disclosure Schedule. (g) No Dispositions. Except as set forth in Section 6.01(g) of the Company Disclosure Schedule, the Company shall not, nor shall it permit any of its subsidiaries to, sell, lease, or otherwise dispose of, any of its respective assets, other than (i) encumbrances or dispositions in the ordinary course of business consistent with past practice, and (ii) dispositions of assets having an aggregate fair market value of not more than $500,000. (h) Indebtedness. Except as set forth in Section 6.01(h) of the Company Disclosure Schedule, the Company shall not, nor shall it permit any of its subsidiaries to, incur or guarantee any indebtedness for borrowed money (including any such debt guaranteed or otherwise assumed including, without limitation, the issuance of debt securities or warrants or rights to acquire debt) or enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, other than (i) short-term indebtedness and "keep well" or similar assurances for the benefit of customers, in each case in the ordinary course of business consistent with past practice, (ii) arrangements between the Company and its subsidiaries or among its subsidiaries, or (iii) after prior consultation with Parent, indebtedness to the extent necessary to repay maturing debt in accordance with its terms. (i) Compensation; Benefits. Except as set forth in Section 6.01(i) of the Company Disclosure Schedule, or as may be required by applicable law or collective bargaining agreements in effect on the date hereof, the Company shall not, nor shall it permit any of its subsidiaries to, (i) enter into, adopt or amend or increase the amount or accelerate the payment or vesting of any benefit or amount payable under any employee benefit plan, or otherwise increase the compensation or benefits of any director, officer or other employee of the Company or any of its subsidiaries, except for normal increases in compensation and benefits in the ordinary course of business consistent with past practice that, with respect to employees who are not officers, in the aggregate, do not result in an increase in benefits or compensation expense to the Company or any of its subsidiaries in excess of five (5) percent per year, or (ii) enter into or amend any employment, severance or special pay arrangement with respect to the termination of employment or other similar contract, agreement or arrangement with any director or other employee other than with respect to employees who are not officers of the Company in the ordinary course of business consistent with current industry practice not to exceed $300,000 in the aggregate. Prior to the Closing Date, the Company shall take all necessary actions in a manner satisfactory to Parent, so that at and after the Closing Date, none of the capital stock or securities of the Company, the Surviving Corporation or their subsidiaries will be required to be held in, or distributed pursuant to, any of the Company's employee benefit plans or employment or similar contracts, agreements or arrangements with any director or other employee. (j) Labor Matters. Notwithstanding any other provision in this Agreement to the contrary, the Company and its subsidiaries may negotiate successor collective bargaining agreements to the agreements identified in Section 4.10(m), and may negotiate other collective bargaining agreements or arrangements as required by law or for the purpose of implementing such agreements. The Company will keep Parent informed as to the status of, and will consult with Parent as to the strategy for, all negotiations with collective bargaining representatives. The Company and its subsidiaries shall act prudently and reasonably and consistent with their obligation under applicable law in such negotiations. (k) 1935 Act. Except as required or contemplated by this Agreement, the Company shall not, nor shall it permit any of its subsidiaries to, engage in any activities which would cause a change in its status, or that of its subsidiaries, under the 1935 Act. (l) Accounting. The Company shall not, nor shall it permit any of its subsidiaries to, make any changes in their accounting methods, except as required by law, rule, regulation or U.S. GAAP. (m) Cooperation; Notification. The Company shall, and shall cause its subsidiaries to, (i) confer on a regular and frequent basis with one or more representatives of Parent to discuss, subject to applicable law, material operational and business matters, (ii) promptly notify Parent of any significant changes in its business, properties, assets, condition (financial or other), results of operations or prospects, and (iii) advise Parent of any change or event which has had or could reasonably be expected to result in a Company Material Adverse Effect. Each party will promptly provide the other party with copies of all filings made by such party or any of its subsidiaries with any state or federal court, administrative agency, commission or other Governmental Authority in connection with this Agreement and the transactions contemplated hereby; provided that no party shall be required to make any disclosure to the extent such disclosure would constitute a violation of any applicable law or regulation. (n) Third-Party Consents. The Company shall, and shall cause its subsidiaries to, use all commercially reasonable efforts to obtain all the Company Required Consents. The Company shall promptly notify Parent of any failure or prospective failure to obtain any such consents and, if requested by Parent shall provide copies of all the Company Required Consents obtained by the Company to Parent. Parent shall, and shall cause its subsidiaries to, use all commercially reasonable efforts to obtain all Parent Required Consents. Parent shall promptly notify the Company of any failure or prospective failure to obtain any such consents and, if requested by the Company, shall provide copies of all Parent Required Consents obtained by Parent to the Company. (o) No Breach, Etc. No party shall, nor shall any party permit any of its subsidiaries to, willfully take any action that would or reasonably be expected to result in a material breach of any provision of this Agreement or in any of its representations and warranties set forth in this Agreement being untrue on and as of the Closing Date. (p) Discharge of Liabilities. The Company shall not pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice (which includes the payment of final and unappealable judgments) or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company included in the Company's reports filed with the SEC, or incurred in the ordinary course of business consistent with past practice. (q) Contracts. Except as set forth in Section 6.01(q) of the Company Disclosure Schedule, the Company shall not, except in the ordinary course of business consistent with past practice, modify, amend, terminate, renew or fail to use reasonable business efforts to renew any material contract or agreement to which the Company or any of its subsidiaries is a party or waive, release or assign any material rights or claims. (r) Insurance. The Company shall, and shall cause its subsidiaries to, maintain with financially responsible insurance companies, insurance in such amounts and against such risks and losses as are at least equal to what is currently maintained by the Company and described in Section 6.01(r) of the Company Disclosure Schedule. (s) Permits. The Company shall, and shall cause its subsidiaries to, use reasonable efforts to maintain in effect all existing governmental permits pursuant to which the Company or any of its subsidiaries operate except for those permits the expiration or termination of which would not reasonably be expected to have a Company Material Adverse Effect. (t) Takeover Laws. Neither party shall take any action that would cause the transactions contemplated by this Agreement to be subject to requirements imposed by any Takeover Law, and each of them shall take all necessary steps within its control to exempt (or ensure the continued exemption of) the transactions contemplated by this Agreement from any applicable Takeover Law. (u) No Rights Triggered. The Company shall ensure that the entering into of this Agreement and the consummation of the transactions contemplated hereby do not and will not result, directly or indirectly, in the grant of any rights to any person under any material agreement (other than the agreements disclosed in Section 6.01(u) of the Company Disclosure Schedule) to which it or any of its subsidiaries is a party. (v) Taxes. The Company shall not, and shall cause its subsidiaries not to, (i) make or rescind any express or deemed material election relating to Taxes, (ii) settle or compromise any claim, audit, dispute, controversy, examination, investigation or other proceeding relating to Taxes, or (iii) change any of its methods of reporting income or deductions for Tax purposes, except as may be required by applicable law. (w) Organization and Conduct of Business of Merger Sub. As soon as reasonably practicable following the date hereof, Parent will take all necessary action to incorporate Merger Sub under the laws of a state of the United States as an indirect wholly-owned subsidiary of Parent. Prior to the Effective Time, except as may be required by applicable law and subject to the other provisions of this Agreement, Parent shall cause Merger Sub to (i) perform its obligations under this Agreement in accordance with its terms, and (ii) not engage directly or indirectly in any business or activities of any type or kind and not enter into any agreements or arrangements with any person, or be subject to or bound by any obligation or undertaking, which would reasonably be expected to prevent Parent or Merger Sub from performing their respective obligations under this Agreement. Parent will remain the indirect owner of 100% of Merger Sub until the Effective Time. (x) Regulatory Matters. Subject to applicable law and except for non-material filings in the ordinary course of business consistent with past practice, the Company shall consult with Parent prior to implementing any material changes in its or any of its subsidiaries' rates or charges, standards of service or accounting or executing any agreement with respect thereto that is otherwise permitted under this Agreement, and the Company shall, and shall cause its subsidiaries to, deliver to Parent a copy of each such filing or agreement prior to the filing or execution thereof so that Parent may comment thereon. Section 6.02 COVENANT OF THE COMPANY; ALTERNATIVE PROPOSALS. From and after the date hereof, the Company agrees (a) that it and its subsidiaries will not, and it will use its best efforts to cause its and its subsidiaries' employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its subsidiaries or any of the foregoing) not to, directly or indirectly, knowingly encourage, initiate or solicit (including by way of furnishing information) any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to its shareholders) which constitutes or may reasonably be expected to lead to an Alternative Proposal (as defined below) from any person or engage in any discussion or negotiations concerning, or provide any non-public information or data to make or implement an Alternative Proposal, (b) that it will immediately cease and cause to be terminated any existing solicitation, initiation, encouragement, activity, discussions or negotiations with any parties conducted heretofore with a view of formulating an Alternative Proposal, and (c) that it will immediately notify Parent orally and in writing of the receipt of any such inquiry, offer or proposals, and that it shall keep Parent informed of the status of any such inquiry, offer or proposal. Notwithstanding any other provision hereof, the Company may at any time prior to the time the shareholders of the Company shall have voted to approve this Agreement (i) engage in discussions or negotiations with a third party who, without solicitation in violation of the terms hereof, seeks to initiate such discussions or negotiations and may furnish such third party information concerning the Company and its business, properties and assets if, and only to the extent that, (A)(x) the third party has first made an Alternative Proposal that, in the good faith judgment of the Company Board of Directors, is likely to be more favorable to the shareholders of the Company than the Merger, and has demonstrated that it will have adequate sources of financing to consummate such Alternative Proposal, and (y) the Company Board of Directors shall conclude in good faith, based upon the advice of outside counsel and such other matters as the Company Board of Directors deems relevant, that such actions are necessary for the Company Board of Directors to act in a manner consistent with its fiduciary duties to shareholders under applicable law, and (B) prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, the Company (x) provides prompt written notice to Parent to the effect that it intends to furnish information to, or intends to enter into discussions or negotiations with, such person or entity, and of the identity of the person or group making the Alternative Proposal and the material terms thereof, and (y) receives from such person an executed confidentiality agreement in reasonably customary form except that such confidentiality agreement shall not prohibit such person from making an unsolicited Alternative Proposal, (ii) comply with Rule 14e-2 promulgated under the Exchange Act with regard to a tender or exchange offer, and/or (iii) accept an Alternative Proposal from a third party, provided the Company terminates this Agreement pursuant to Section 9.01(e). "Alternative Proposal" shall mean any merger, acquisition, consolidation, reorganization, share exchange, tender offer, exchange offer or similar transaction involving the Company or any proposal or offer to acquire in any manner, directly or indirectly (x) ten (10) percent or more of the outstanding Company Common Stock, or (y) all or a substantial portion of the assets of the Company and its subsidiaries taken as a whole. Nothing herein shall prohibit a disposition permitted by Section 6.01(g) hereof. Section 6.03 CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained in this Agreement shall give Parent, directly or indirectly, the right to control or direct the Company's operations prior to the Effective Time. Nothing contained in this Agreement shall give the Company, directly or indirectly, the right to control or direct Parent's operations prior to the Effective Time. Prior to the Effective Time, each of the Company and Parent shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its respective operations. ARTICLE VII ADDITIONAL AGREEMENTS --------------------- Section 7.01 ACCESS TO INFORMATION. Upon reasonable notice and during normal business hours, the Company shall, and shall cause its subsidiaries to, afford to the officers, directors, employees, agents and accountants of Parent (collectively, "Representatives") reasonable access, throughout the period prior to the Effective Time, to all of its properties, books, contracts, commitments and records to the extent that the Company or any of its subsidiaries is not under a legal obligation not to provide access or to the extent that such access would not constitute a waiver of the attorney- client privilege and does not unreasonably interfere with the business and operations of the Company; provided that such right of access shall not include random environmental testing with respect to any properties of the Company or its subsidiaries. During such period, the Company shall, and shall cause its subsidiaries to, furnish promptly to Parent (i) access to each material report, schedule and other document filed or received by it or any of its subsidiaries pursuant to the requirements of federal, state or provincial securities laws or filed with or sent to the SEC, the FERC, the Department of Justice, the Federal Trade Commission or any other Governmental Authority, and (ii) access to the Company, its subsidiaries, directors, officers and shareholders and such other matters as may be reasonably requested by Parent in connection with any filings, applications or approvals required or contemplated by this Agreement. The Company shall, and shall cause its subsidiaries and Representatives to, hold in strict confidence all Evaluation Material (as defined in the Confidentiality and Standstill Agreement) concerning Parent furnished to it in connection with the transactions contemplated by this Agreement in accordance with the Confidentiality and Standstill Agreement, dated March 28, 2000, between the Company and Parent, as it may be amended from time to time (the "Confidentiality Agreement"). Section 7.02 REGULATORY AND OTHER APPROVALS. (a) HSR Filings. Each party hereto shall file or cause to be filed with the Federal Trade Commission and the Department of Justice any notifications required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules and regulations promulgated thereunder with respect to the Merger and other transactions contemplated hereby. Such parties will use all commercially reasonable efforts to make such filings in a timely manner and to respond on a timely basis to any requests for additional information made by either of such agencies. (b) Other Regulatory Approvals. Each party hereto shall cooperate and use its best efforts to promptly prepare and file all necessary documentation, to effect all necessary applications, notices (including, without limitation, notice to the Committee on Foreign Investment in the United States ("CFIUS") with respect to the Exon-Florio review process), petitions, filings and other documents, and to use all commercially reasonable efforts to obtain no later than the Initial Termination Date, as such date may be extended pursuant to Section 9.01(b), all permits, consents, approvals and authorizations of all Governmental Authorities necessary to consummate the transactions contemplated by this Agreement, including, without limitation, the Company Required Statutory Approvals and Parent Required Statutory Approvals. The parties agree that they will consult with each other with respect to obtaining the Company Required Statutory Approvals and Parent Required Statutory Approvals, such consultation to include review of drafts of all applications for such approvals. (c) 1935 Act Matters. In furtherance of the foregoing subsection (b), Parent agrees to register under Section 5 of the 1935 Act if such registration is necessary under applicable law (i) for Parent to obtain authorization from the SEC to consummate the Merger (if required), and/or (ii) for Parent to obtain authorization from the SEC to own the Company as a direct or indirect subsidiary following the Merger. Parent agrees that it will use commercially reasonable efforts to complete all actions prior to the Initial Termination Date with respect to its present and proposed corporate, financial and business structure as may be necessary or appropriate in the opinion of United States counsel experienced in 1935 Act matters in order for the authorizations referred to above to be obtained prior to the Initial Termination Date, as such date may be extended pursuant to Section 9.01(b). Parent agrees that its application for approval of the Merger under the 1935 Act, and its application for registration under Section 5 of the 1935 Act,shall be made on the basis that each of its non-U.S. public-utility company subsidiaries (and such non-utility subsidiaries or businesses, if any, as Parent determines to place under or within any of such non-U.S. public utility company subsidiaries) shall claim the status of a "foreign utility company" under Section 33 of the 1935 Act. As used in this subsection (c), the term "subsidiary" means a subsidiary as defined in the 1935 Act. Section 7.03 SHAREHOLDER APPROVAL; PROXY STATEMENT. (a) The Company's Shareholders. The Company shall, as soon as reasonably practicable after the date hereof (i) take all steps necessary to duly call, give notice of, convene and hold a meeting of its shareholders (the "Company Special Meeting") for the purpose of securing the Company Shareholders' Approval, (ii) subject to the fiduciary duties of its Board of Directors, recommend to its shareholders the approval of this Agreement and the Merger and the transactions contemplated hereby and thereby, and (iii) cooperate and consult with Parent with respect to each of the foregoing matters. (b) Proxy Statement. As soon as reasonably practicable after the date hereof, the Company shall prepare, file with the SEC and distribute to its shareholders the Proxy Statement in accordance with applicable federal and state law and with its articles of organization and by-laws. The Company and Parent shall cooperate with each other in the preparation of the Proxy Statement, and the Company shall promptly notify Parent of the receipt of any comments of the SEC with respect to the Proxy Statement and of any requests by the SEC for any amendment or supplement thereto or for additional information, and shall promptly provide to Parent copies of all correspondence between the Company or any of its Representatives and the SEC with respect to the Proxy Statement (except reports from financial advisors other than with the consent of such financial advisors). Each party hereto shall furnish all information concerning itself which is required or customary for inclusion in the Proxy Statement. The Company shall give Parent and its counsel the opportunity to review the Proxy Statement and all responses to requests for additional information by and replies to comments of the SEC before their being filed with, or sent to, the SEC. Each of the Company and Parent agrees to use its reasonable best efforts, after consultation with the other parties hereto, to respond promptly to all such comments of and requests by the SEC. The Company shall also include in the Proxy Statement the recommendation of its Board of Directors that its shareholders approve this Agreement and the Merger as contemplated by clause (a)(ii) of this Section 7.03. Section 7.04 DIRECTORS' AND OFFICERS' INDEMNIFICATION. (a) Indemnification. To the extent, if any, not provided by an existing right of indemnification or other agreement or policy, from and after the Effective Time, Parent and the Surviving Corporation shall, to the fullest extent permitted by applicable law, indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date hereof, or who becomes prior to the Effective Time, an officer, director or employee of the Company or any of its subsidiaries (each, an "Indemnified Party" and collectively, the "Indemnified Parties") against (i) all losses, expenses (including reasonable attorney's fees and expenses), claims, damages or liabilities or, subject to the proviso of the next succeeding sentence, amounts paid in settlement, arising out of actions or omissions occurring at or prior to the Effective Time (whether asserted or claimed prior to, at or after the Effective Time) that are, in whole or in part, based on or arising out of the fact that such person is or was a director, officer or employee of the Company or a subsidiary of the Company (the "Indemnified Liabilities"), and (ii) all Indemnified Liabilities to the extent they are based on or arise out of or pertain to the transactions contemplated by this Agreement. In the event of any such loss, expense, claim, damage or liability (whether or not arising before the Effective Time), (i) Parent shall pay the reasonable fees and expenses of counsel selected by the Indemnified Parties, which counsel shall be reasonably satisfactory to Parent, promptly after statements therefor are received and otherwise advance to such Indemnified Parties upon request reimbursement of documented expenses reasonably incurred. The Indemnified Parties as a group may retain only one law firm with respect to each related matter except to the extent there is, in the opinion of counsel to an Indemnified Party, under applicable standards of professional conduct, a conflict or any significant issue between the position of such Indemnified Party and any other Indemnified Party or Indemnified Parties. Any determination required to be made with respect to whether an Indemnified Party's conduct complies with the standards set forth in Section 719 of the MBCA, and the articles of organization or by-laws, shall be made as provided in such Section 719. (b) Insurance. For a period of six (6) years after the Effective Time, Parent shall (i) cause to be maintained in effect policies of directors' and officers' liability insurance for the benefit of those persons who are currently covered by such policies of the Company on terms no less favorable than the terms of such current insurance coverage, or (ii) provide tail coverage for such persons which provides coverage for a period of six (6) years for acts prior to the Effective Time on terms no less favorable than the terms of such current insurance coverage. (c) Successors. In the event Parent or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any person, then, and in either such case, proper provisions shall be made so that the successors and assigns of Parent shall assume the obligations set forth in this Section 7.04. (d) Survival of Indemnification. To the fullest extent permitted by law, from and after the Effective Time, all rights to indemnification as of the date hereof in favor of the employees, agents, directors and officers of the Company, and its subsidiaries with respect to their activities as such prior to the Effective Time, as provided in its respective articles of organization and by-laws in effect on the date hereof, or otherwise in effect on the date hereof, shall survive the Merger and shall continue in full force and effect for a period of not less than six (6) years from the Effective Time. (e) Benefit. The provisions of this Section 7.04 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party, his or her heirs and his or her representatives. Section 7.05 DISCLOSURE SCHEDULES. On the date hereof, (i) Parent has delivered to the Company a schedule (the "Parent Disclosure Schedule"), accompanied by a certificate signed by its Chief Financial Officer stating that the Parent Disclosure Schedule is being delivered pursuant to this Section 7.05(i), and (ii) the Company has delivered to Parent a schedule (the "Company Disclosure Schedule"), accompanied by a certificate signed by its Chief Financial Officer stating that the Company Disclosure Schedule is being delivered pursuant to this Section 7.05(ii). The Company Disclosure Schedule and the Parent Disclosure Schedule are collectively referred to herein as the "Disclosure Schedules." The Disclosure Schedules constitute an integral part of this Agreement and modify the respective representations, warranties, covenants or agreements of the parties hereto contained herein to the extent that such representations, warranties, covenants or agreements expressly refer to the Disclosure Schedules. Anything to the contrary contained herein or in the Disclosure Schedules notwithstanding, any and all statements, representations, warranties or disclosures set forth in the Disclosure Schedules shall be deemed to have been made on and as of the date hereof. Section 7.06 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure obligations imposed by law or the rules of any applicable securities exchange or Governmental Authority, the Company and Parent will cooperate with each other in the development and distribution of all news releases and other public information disclosures with respect to this Agreement or any of the transactions contemplated hereby and shall not issue any public announcement or statement with respect hereto without the consent of the other party (which consent shall not be unreasonably withheld). Section 7.07 CERTAIN EMPLOYEE AGREEMENTS AND ARRANGEMENTS. Subject to Section 7.08 and to applicable law and collective bargaining agreements, Parent and the Surviving Corporation and its subsidiaries shall honor, all contracts, agreements, collective bargaining agreements and commitments of the Company prior to the date hereof which have been disclosed in the Company Disclosure Schedule and which apply to any current or former employee or current or former director of the Company; provided, however, that the foregoing shall not prevent Parent or the Surviving Corporation from enforcing such contracts, agreements, collective bargaining agreements and commitments in accordance with their terms, including, without limitation, any right to amend, modify, suspend, revoke or terminate any such contract, agreement, collective bargaining agreement or commitment. Any workforce reductions affecting employees of the Company carried out within the twelve- month period following the Effective Time by Parent or the Surviving Corporation or their respective subsidiaries shall be done in accordance with (i) the provisions of this Agreement, (ii) the recommendations of the Transition Steering Team to be established pursuant to Section 7.13 hereof, and (iii) all applicable collective bargaining agreements and all laws and regulations governing the employment relationship and termination thereof including, without limitation, the WARN Act and regulations promulgated thereunder, and any comparable state or local law. Section 7.08 EMPLOYEE BENEFIT PLANS. (a) For a period of twelve (12) months immediately following the Closing Date, the basic compensation, benefits and coverage provided to those individuals who do not have the benefit of a collective bargaining agreement with the Company and who continue to be employees of the Surviving Corporation, Parent or their respective subsidiaries ("Continuing Company Employees") pursuant to employee benefit plans or arrangements maintained by Parent, the Surviving Corporation or their respective subsidiaries shall be not less favorable in the aggregate (as determined by Parent and the Surviving Corporation using reasonable assumptions and benefit valuation methods) than those provided to such Continuing Company Employees immediately prior to the Closing Date. For purposes of the foregoing, Parent and the Surviving Corporation shall not be required to take into account the fact that any Company Employee Benefit Plan allows for investment of funds in Company Common Stock. In addition to the foregoing, Parent shall, or shall cause the Surviving Corporation, Parent or their respective subsidiaries to, pay any employee whose employment is terminated by Parent, the Surviving Corporation or their respective subsidiaries within twelve (12) months of the Closing Date (other than for cause) a severance benefit package having the terms described in Section 7.08 of the Company Disclosure Schedule. (b) Parent shall, or shall cause the Surviving Corporation to, give the Continuing Company Employees full credit for purposes of eligibility, vesting and determination of seniority-based levels of benefits under any employee benefit plans or arrangements maintained by Parent or the Surviving Corporation, as applicable, in effect as of the Closing Date for such Continuing Company Employees' service with the Company or any subsidiary of the Company (or any prior employer) to the same extent recognized by the Company or such subsidiary immediately prior to the Closing Date. With respect to any employee benefit plan or arrangement established by Parent or the Surviving Corporation after the Closing Date (the "Post Closing Plans"), service shall be credited in accordance with the terms of such Post Closing Plans, provided that the Continuing Company Employees shall be treated no less favorably in this respect than other similarly situated Employees of Parent or its affiliates who are covered under these same or similar plans. Notwithstanding the foregoing, if Parent or the Surviving Corporation or another affiliate of Parent (i) continues to maintain the Company's defined benefit pension plan (the "Company Pension Plan") on and after the Closing Date, or (ii) covers some or all of the Continuing Company Employees under an alternative defined benefit plan (an "Alternative Pension Plan"), then subject to applicable laws Parent shall cause the Company Pension Plan or such Alternative Pension Plan to count for benefit accrual purposes all prior service of the Continuing Company Employees that was counted for such purposes under the Company Pension Plan immediately prior to the Closing Date. Nothing in this Section 7.08(b), however, shall require that the Continuing Company Employees be given duplicative pension benefits with respect to service performed prior to the Closing Date. (c) Parent shall, or shall cause the Surviving Corporation to, (i) waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Continuing Company Employees under any welfare benefit plan established to replace any Company welfare benefit plans in which such Continuing Company Employees may be eligible to participate after the Closing Date, other than limitations or waiting periods that are already in effect with respect to such Continuing Company Employees and that have not be satisfied as of the Closing Date under any welfare plan maintained for the Continuing Company Employees immediately prior to the Closing Date and (ii) provide each Continuing Company Employee with credit for any co- payments and deductibles paid within the same plan year as the Closing Date in satisfying any applicable deductible or out-of-pocket requirements under any welfare plans that such Continuing Company Employees are eligible to participate in after the Closing Date. Section 7.09 EXPENSES. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. Section 7.10 FURTHER ASSURANCES. (a) Each party will, and will cause its subsidiaries to, execute such further documents and instruments and take such further actions as may reasonably be requested by any other party in order to satisfy the conditions set forth in Article VIII and to consummate the Merger in accordance with the terms hereof. (b) The parties expressly acknowledge and agree that, although it is their current intention to effect a business combination among themselves in the form contemplated by this Agreement, it may be preferable to effectuate such a business combination by means of an alternative structure in light of the conditions set forth in Section 8.01(d) or Sections 8.02(f) or (g). Accordingly, if the only conditions to the parties' obligations to consummate the Merger which are not satisfied or waived are receipt of any one or more of the Company Required Statutory Approvals or Parent Required Statutory Approvals, and the adoption of an alternative structure (that otherwise substantially preserves for Parent and the Company the economic benefits of the Merger and does not require any additional filings with, or authorizations, consents or approvals from, any Governmental Authority other than supplements or amendments to filings already made, to reflect such alternative structure) would result in such conditions being satisfied or waived, then the parties shall use their respective commercially reasonable efforts to effect a business combination among themselves by means of a mutually agreed upon structure other than the Merger that so preserves such benefits; provided that, prior to the Closing, any such restructured transaction, all material third party and Governmental Authority declarations, filings, registrations, notices, authorizations, consents or approvals for the effectuation of such alternative business combination shall have been obtained and all other conditions to the parties' obligations to consummate the Merger, as applied to such alternative business combination, shall have been satisfied or waived. This subsection shall not be construed as extending the Initial Termination Date (as it may otherwise be extended in accordance with Section 9.01(b)). Section 7.11 CORPORATE OFFICES. For a period of not less than 10 years subsequent to the Effective Time, the corporate headquarters of the Surviving Corporation shall be located in the State of Maine. Section 7.12 COMMUNITY INVOLVEMENT. After the Effective Time, Parent will permit the Surviving Corporation to make charitable contributions to the communities served by the Surviving Corporation and otherwise maintain a substantial level of involvement in community activities in the State of Maine that is similar to, or greater than, the level of contributions, community development and related activities currently carried on by the Company. Section 7.13 TRANSITION STEERING TEAM. As soon as reasonably practicable after the date hereof, Parent and the Company shall create a special transition steering team (the "Transition Steering Team"), with representation from Parent and the Company, that will develop recommendations concerning the future structure and operations of the Company after the Effective Time, subject to applicable law. The members of the Transition Steering Team shall be appointed by the Chief Executive Officers of Parent and the Company. The functions of the Transition Steering Team shall include (i) the direction of the exchange of information and documents between the parties, including as contemplated by Section 7.01, and (ii) the development of regulatory plans and proposals, corporate organizational and management plans, workforce combination proposals, and such other matters as they deem appropriate. ARTICLE VIII CONDITIONS ----------- Section 8.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligations of each party to effect the Merger shall be subject to the satisfaction or waiver on or prior to the Closing Date of each of the following conditions: (a) Shareholder Approval. The Company Shareholders' Approval shall have been obtained. (b) HSR Act. Any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act, shall have expired or been terminated. (c) No Injunction. No temporary restraining order or preliminary or permanent injunction or other order by any federal or state court preventing consummation of the Merger shall have been issued and be continuing in effect, and the Merger and the other transactions contemplated hereby shall not have been prohibited under any applicable federal or state law or regulation. (d) Statutory Approvals. The Company Required Statutory Approvals and Parent Required Statutory Approvals shall have been obtained at or prior to the Effective Time, and such approvals shall have become Final Orders (as defined below). A "Final Order" means action by the relevant regulatory authority which has not been reversed, stayed, enjoined, set aside, annulled or suspended, with respect to which any waiting period prescribed by law before the transactions contemplated hereby may be consummated has expired, and as to which all conditions to the consummation of such transactions prescribed by law, regulation or order have been satisfied. Section 8.02 CONDITIONS TO OBLIGATION OF PARENT TO EFFECT THE MERGER. The obligation of Parent to effect the Merger shall be further subject to the satisfaction (or waiver by Parent), on or prior to the Closing Date, of each of the following conditions: (a) Performance of Obligations of the Company. The Company shall have performed in all material respects each of its agreements and covenants required by this Agreement to be so performed by the Company at or prior to the Closing. (b) Representations and Warranties. The representations and warranties of the Company set forth in this Agreement shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that expressly speak only as of a specific date or time other than the date hereof or the Closing Date, which need only be true and correct as of such date or time) except for such failures of representations or warranties to be true and correct (without regard to any materiality qualifications contained therein) which, individually and in the aggregate, would not reasonably be expected to result in a Company Material Adverse Effect. (c) Closing Certificates. Parent shall have received a certificate signed by the Chief Executive Officer or Chief Financial Officer of the Company, dated the Closing Date, to the effect that, to the best of such officer's knowledge, the conditions set forth in Section 8.02(a) and Section 8.02(b) have been satisfied. (d) No Company Material Adverse Effect. No Company Material Adverse Effect shall have occurred, and there shall exist no fact or circumstance other than facts and circumstances described in Section 4.06 of the Company Disclosure Schedule or the Company SEC Reports filed prior to the date hereof which could reasonably be expected to have a Company Material Adverse Effect. (e) MPUC Authorization. The Final Order or Orders of the MPUC in respect of the transactions contemplated by this Agreement shall not impose terms or conditions specifically in relation to the Merger which, in the reasonable judgment of Parent, could be expected to have a material adverse effect on the business, properties, financial condition or results of operations of the Surviving Corporation and its subsidiaries taken as a whole if the Merger were consummated. (f) 1935 Act Order. The Final Order or Orders of the SEC with respect to the Merger and the transactions contemplated by this Agreement and the subsequent registration of Parent as a holding company under the 1935 Act shall not impose terms or conditions which, in the reasonable judgment of Parent, would be expected to have a material adverse effect on the business, properties, financial condition or results of operations of Parent and its subsidiaries taken as a whole or the Surviving Corporation and its subsidiaries taken as a whole. (g) FERC Order. The Final Order or Orders of the FERC in respect of the transactions contemplated by this Agreement shall not impose terms or conditions specifically in relation to the Merger which, in the reasonable judgment of Parent, could be expected to have a material adverse effect on the business, properties, financial condition or results of operations of Parent and its subsidiaries taken as a whole or the Surviving Corporation and its subsidiaries taken as a whole. (h) Company Required Consents. The Company Required Consents shall have been obtained. Section 8.03 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER. The obligation of the Company to effect the Merger shall be further subject to the satisfaction (or waiver by the Company), on or prior to the Closing Date, of each of the following conditions: (a) Performance of Obligations of Parent. Parent shall have performed in all material respects each of its agreements and covenants required by this Agreement to be so performed by Parent at or prior to the Closing. (b) Representations and Warranties. The representations and warranties of Parent set forth in this Agreement shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that expressly speak only as of a specific date or time other than the date hereof or the Closing Date, which need only be true and correct as of such date or time) except for such failures of representations or warranties to be true and correct (without regard to any materiality qualifications contained therein) which, individually and in the aggregate, would not reasonably be expected to result in a Parent Material Adverse Effect. (c) Closing Certificates. The Company shall have received a certificate signed by the Chief Executive Officer or Chief Financial Officer of Parent, dated the Closing Date, to the effect that, to the best of such officer's knowledge, the conditions set forth in Section 8.03(a) and Section 8.03(b) have been satisfied. ARTICLE IX TERMINATION, AMENDMENT AND WAIVER ----------------------------------- Section 9.01 TERMINATION. This Agreement may be terminated, and the Merger and other transactions contemplated hereby may be abandoned, at any time prior to the Effective Time, whether before or after approval by the shareholders of the respective parties hereto contemplated by this Agreement: (a) by mutual written consent of the Boards of Directors of the Company and Parent; (b) by Parent or the Company, by written notice to the other parties hereto, if the Effective Time shall not have occurred on or before the date which is twelve (12) months from the date hereof (the "Initial Termination Date"); provided, however, that the right to terminate this Agreement under this Section 9.01(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted directly or indirectly in, the failure of the Effective Time to occur on or before such date; and provided, further, that if on the Initial Termination Date the conditions to the Closing with respect to Company Required Statutory Approvals and/or Parent Required Statutory Approvals set forth in Section 8.01(d) shall not have been fulfilled but all other conditions to the Closing shall be fulfilled or shall be capable of being fulfilled, then the Initial Termination Date shall be extended to the 18th-month anniversary of the date hereof; (c) by Parent or the Company, by written notice to the other parties hereto, if the Company Shareholders' Approval shall not have been obtained at a duly held Company Special Meeting, including any adjournments thereof; (d) by Parent or the Company, if any federal or state law, order, rule or regulation is adopted or issued, which has the effect, as supported by the written opinion of outside counsel for such party, of prohibiting the Merger, or if any court of competent jurisdiction in the United States or any state in the United States shall have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Merger, and such order, judgment or decree shall have become final and nonappealable; (provided that the right to terminate this Agreement under this Section 9.01(d) shall not be available to any party that has not defended such lawsuit or other legal proceeding (including seeking to have any stay or temporary restraining order entered by any court or other Governmental Authority vacated or reversed)); (e) by the Company upon ten (10) days' prior notice to Parent if the Board of Directors of the Company determines in good faith that termination of this Agreement is necessary for the Board of Directors of the Company to act in a manner consistent with its fiduciary duties to shareholders under applicable law by reason of an Alternative Proposal meeting the requirements of Section 6.02 having been made; provided that: (A) the Board of Directors of the Company shall determine based on advice of outside counsel with respect to the Board of Directors' fiduciary duties that notwithstanding a binding commitment to consummate an agreement of the nature of this Agreement entered into in the proper exercise of its applicable fiduciary duties, and notwithstanding all concessions which may be offered by Parent in negotiation entered into pursuant to clause (B) below, it is necessary pursuant to such fiduciary duties that the directors reconsider such commitment as a result of such Alternative Proposal, and (B) prior to any such termination, the Company shall, and shall cause its respective financial and legal advisors to, negotiate with Parent to make such adjustments in the terms and conditions of this Agreement as would enable the Company to proceed with the Merger or other transactions contemplated hereby on such adjusted terms. (f) by the Company, by written notice to Parent, if (i) there exist breaches of the representations and warranties of Parent made herein as of the date hereof which breaches, individually or in the aggregate, would or would reasonably be expected to result in a Parent Material Adverse Effect, and such breaches shall not have been remedied within twenty (20) days after receipt by Parent of notice in writing from the Company, specifying the nature of such breaches and requesting that they be remedied, or (ii) there shall have been a material breach of any agreement or covenant of Parent hereunder, and such breach shall not have been remedied within twenty (20) days after receipt by Parent of notice in writing from the Company, specifying the nature of such failure and requesting that it be remedied; or (g) by Parent, by written notice to the Company, if (i) there exist material breaches of the representations and warranties of the Company made herein as of the date hereof which breaches, individually or in the aggregate, would or would reasonably be expected to result in a Company Material Adverse Effect, and such breaches shall not have been remedied within twenty (20) days after receipt by the Company of notice in writing from Parent, specifying the nature of such breaches and requesting that they be remedied, (ii) there shall have been a material breach of any agreement or covenant of the Company hereunder, and such failure to perform or comply shall not have been remedied within twenty (20) days after receipt by the Company of notice in writing from Parent, specifying the nature of such failure and requesting that it be remedied, or (iii) the Board of Directors of the Company (A) shall withdraw or modify in any manner adverse to Parent its approval or recommendation of this Agreement or the transactions contemplated herein, (B) shall approve or recommend an Alternative Proposal, or (C) shall resolve to take any of the actions specified in clause (A) or (B). Section 9.02 EFFECT OF TERMINATION. In the event of a valid termination of this Agreement by either the Company or Parent pursuant to Section 9.01, this Agreement shall forthwith become null and void and there shall be no liability on the part of either the Company or Parent or their respective officers or directors hereunder, except that Section 7.09, Section 9.03, the agreement contained in the last sentence of Section 7.01, Section 10.08 and Section 10.09 shall survive the termination. Section 9.03 TERMINATION FEE; EXPENSES. (a) In the event that (i) this Agreement is terminated by the Company pursuant to Section 9.01(e) or (ii) any person or group shall have made an Alternative Proposal that has not been withdrawn and this Agreement is terminated by (A) Parent pursuant to Section 9.01(c) or Section 9.01(g)(iii) or (B) by the Company pursuant to Section 9.01(b) and, in the case of this clause (ii) only, a definitive agreement with respect to such Alternative Proposal is executed within one (1) year after such termination, then the Company shall pay to Parent, by wire transfer of same day funds within five (5) business days after (x) such termination (in the case of clause (i)) or (y) such execution (in the case of clause (ii)), a termination fee of $9.0 million, plus an amount equal to all documented out-of-pocket expenses and fees incurred by Parent arising out of, or in connection with or related to, the Merger and other transactions contemplated hereby, not in excess of $1.5 million in the aggregate. (b) Nature of Fees. The parties agree that the agreements contained in this Section 9.03 are an integral part of the Merger and the other transactions contemplated hereby and constitute liquidated damages and not a penalty. The parties further agree that if any party is or becomes obligated to pay a termination fee pursuant to Section 9.03(a), the right to receive such termination fee shall be the sole remedy of the other party with respect to the facts and circumstances giving rise to such payment obligation. If this Agreement is terminated by a party as a result of a willful breach of a representation, warranty, covenant or agreement by the other party, the non-breaching party may pursue any remedies available to it at law or in equity and shall be entitled to recover any additional amounts thereunder. Notwithstanding anything to the contrary contained in this Section 9.03, if one party fails to promptly pay to the other any fee or expense due under this Section 9.03, in addition to any amounts paid or payable pursuant to such Section, the defaulting party shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment, together with interest on the amount of any unpaid fee at the publicly announced prime rate of Bank Boston in Boston, Massachusetts from the date such fee was required to be paid. Section 9.04 AMENDMENT. This Agreement may be amended by the Boards of Directors of the parties hereto, at any time before or after approval hereof by the shareholders of the Company and prior to the Effective Time, but after such approval only to the extent permitted by applicable law. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 9.05 WAIVER. At any time prior to the Effective Time, Parent or the Company may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions contained herein, to the extent permitted by applicable law. Any agreement on the part of a party hereto to any such extension or waiver shall be valid if set forth in an instrument in writing signed on behalf of such party. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. ARTICLE X GENERAL PROVISIONS ------------------- Section 10.01 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES. All representations, warranties and agreements in this Agreement shall not survive the Merger, except as otherwise provided in this Agreement and except for the agreements contained in this Section 10.01, in Articles I and II and in Sections 7.04, 7.07, 7.08, 7.09, 7.11, 7.12, 7.13, 10.07, 10.08 and 10.09. Parent may rely fully on the representations and warranties of the Company in Article IV hereof and on the accuracy of any schedule and the genuineness of any document attached hereto or referred to herein or delivered by the Company in connection with this Agreement, notwithstanding any due diligence investigation of the Company by Parent prior to the date hereof. Section 10.02 BROKERS. The Company represents and warrants that, except for Salomon Smith Barney Inc. whose fees have been disclosed to Parent prior to the date hereof, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the Merger or the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. Parent represents and warrants that, except for BMO Nesbitt Burns, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the Merger or the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent. Section 10.03 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if (i) delivered personally, (ii) sent by reputable overnight courier service, (iii) telecopied (which is confirmed), or (iv) five (5) days after being mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to the Company, to: Bangor Hydro-Electric Company 33 State Street Bangor, ME 04401 Attention: President Telephone: 207-941-6607 Telecopy: 207-973-2965 with a copy to: Winthrop, Stimson, Putnam & Roberts One Battery Park Plaza New York, New York 10004-1490 Attention: David P. Falck, Esq. Telephone: (212) 858-1000 Telecopy: (212) 858-1500 (b) If to Parent, to: NS Power Holdings Incorporated P.O. Box 910 Halifax, Nova Scotia Canada Attention: Secretary and General Counsel Telephone: 902-428-6520 Telecopy: 902-428-6171 with a copy to: Fulbright & Jaworski LLP 801 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2615 Attention: Marilyn Mooney Telephone: 202-662-4678 Telecopy: 202-662-4643 Section 10.04 MISCELLANEOUS. This Agreement (including the documents and instruments referred to herein) (i) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof other than the Confidentiality Agreement, (ii) shall not be assigned by operation of law or otherwise, and (iii) shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts executed in and to be fully performed in such State, without giving effect to its conflicts of law, rules or principles. Section 10.05 INTERPRETATION. (a) When a reference is made in this Agreement to Sections or Exhibits, such reference shall be to a Section or Exhibit of this Agreement, respectively, unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation, " and whenever the phrase "to the knowledge of the Company" is used in this Agreement, it shall be deemed to be followed by the words "after due inquiry." (b) Notwithstanding the use of the phrase "could reasonably be expected to" with regard to any material qualifications in any of the representations or warranties in Article IV or Article V of this Agreement, such phrase shall be deemed not to apply to matters addressed by such representations and warranties that constitute facts and circumstances existing at the date of execution of this Agreement. Section 10.06 COUNTERPARTS; EFFECT. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 10.07 PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and, except for Article II and for rights of Indemnified Parties as set forth in Section 7.04, nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Section 10.08 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. Section 10.09 ENFORCEMENT; SUBMISSION TO JURISDICTION; WAIVER. (a) The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of New York or in New York state court, this being in addition to any other remedy to which they are entitled at law or in equity. (b) With respect to any dispute arising out of this Agreement or any of the transactions contemplated by this Agreement, each of Parent, Merger Sub and the Company hereby irrevocably submits for itself and in respect to its property, generally and unconditionally, to the nonexclusive jurisdiction of the courts referred to in subsection (a) of this Section. Any service of process to be made in any action or proceeding may be made by delivery of process in accordance with the notice provisions contained in Section 10.03. Each of Parent, Merger Sub and the Company hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (i) the defense of sovereign immunity, (ii) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to serve process in accordance with this Section 10.09, (iii) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (iv) to the fullest extent permitted by applicable law that (A) the suit, action or proceeding in any such court is brought in an inconvenient forum, (B) the venue of such suit, action or proceeding is improper and (C) this Agreement, or the subject matter hereof, may not be enforced in or by such courts. IN WITNESS WHEREOF, the Company and Parent have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. BANGOR HYDRO-ELECTRIC COMPANY By: /s/ Robert S. Briggs Robert S. Briggs President NS POWER HOLDINGS INCORPORATED By: /s/ David McD. Mann Name: David McD. Mann Title: President and Chief Executive Officer By: /s/ Richard J. Smith Name: Richard J. Smith Title: Corporate Secretary and General Counsel EX-3 5 b3b2001.txt EXHIBIT 3(B) BANGOR HYDRO-ELECTRIC COMPANY DOMESTIC Minimum Fee $35 (See Section 1401 sub-Section 15) BUSINESS CORPORATION File No. 19240001 D Pages 2 Fee Paid $35 DCN 2020151400021 CHNG STATE OF MAINE ------FILED--------------- 01/08/2002 ____________________________________ ARTICLES OF AMENDMENT Shareholders Voting as One Class) ___Julie L Flynn____________ Deputy Secretary of State ____________Julie L Flynn__________________ A True Copy When Attested By Signature Bangor Hydro-Electric Company ___________________________________ ________________________ (Name of Corporation) Deputy Secretary of State Pursuant to 13-A MRSA Sections 805 and 807, the undersigned corporation adopts these Articles of Amendment: FIRST: All outstanding shares were entitled to vote on the following amendment as one class. SECOND: The amendment set out in Exhibit A attached was adopted by the shareholders on (date) December 19, 2001. ("X" one box only) X at a meeting legally called and held or ___ by unanimous written consent THIRD: Shares outstanding and entitled to vote and shares voted for and against said amendment were: Number of Shares Outstanding NUMBER NUMBER and Entitled to Vote Voted For Voted Against Common Stock 7,363,424 7,363,424 0 $5 par value Preferred Stock 47,340 35,210 1,614 $100 par value ---------- --------- ----- Total 7,410,764 7,398,634 1,614 FOURTH: If such amendment provides for exchange, reclassification or cancellation of issued shares, the manner in which this shall be effected is contained in Exhibit B attached if it is not set forth in the amendment itself. FIFTH: If the amendment changes the number of par values of authorized shares, the number of shares the corporation has authority to issue thereafter, is as follows: Class Series (If Any) Number of Shares Par Value (If Any) The aggregate par value of all such shares (of all classes and series) having par value is $_____________ The total number of all such shares (of all classes and series) without par value is _____________shares SIXTH: The address of the registered office of the corporation in the State of Maine is 33 State Street Bangor ME 04401 (street, city, state and zip code) DATED 12/31/01 . *By__/s/ Andrew Landry (signature) Andrew Landry, Clerk . MUST BE COMPLETED FOR VOTE (type or print name and capacity) OF SHAREHOLDERS I certify that I have custody of the minutes showing the above action by the shareholders. *By_______________________________ (signature) /s/ Andrew Landry ________________________________ _______________________________ (signature of clerk, secretary or asst. secretary) (type or print name and capacity) Exhibit A RESOLVED that the Articles of Incorporation of the Company, as amended to date, be further amended to reduce the minimum number of Directors of the Company from 9 Directors to 3 Directors. NOTE: This form should not be used if any class of shares is entitled to vote as a separate class for any of the reasons set out in Section 806, or because the articles so provide. For vote necessary for adoption see Section 805. ___________________________________________________________________________ *This document MUST be signed by (1) the Clerk OR (2) the President or a vice-pres. Together with the Secretary or an ass't. sec., or a 2nd certifying officer OR (3) if no such officers, then a majority of the Directors OR (4) if no such directors, then the Holders of a majority of all outstanding shares OR (5) the Holders of all of the outstanding shares. SUBMIT COMPLETED FORMS TO: CORPORATE EXAMING SECTION, SECRETARY OF STATE, 101 STATE HOUSE STATION, AUGUSTA, ME 04333-0101 FORM NO. MBCA-9 Rev. 4/16/2001 TEL. (207) 624-7740 EX-3 6 c3c2001.txt EXHIBIT 3(C) BANGOR HYDRO-ELECTRIC COMPANY BY-LAWS OF BANGOR HYDRO-ELECTRIC COMPANY As amended through December 19, 2001 BY-LAWS OF BANGOR HYDRO-ELECTRIC COMPANY ARTICLE I. Location of Offices The principal office of this corporation shall be at such place within the State of Maine as the Board of Directors may from time to time designate, and the Company shall have and maintain such other offices as the Board of Directors may deem expedient. ARTICLE II. Corporate Seal The corporation shall have a seal with the name of the Company in a circle, and the word "Seal" or such suitable device as the Board of Directors shall determine, in the center of the space thus enclosed. The seal of the corporation upon a certificate of stock, corporate bond or other corporate obligations for the payment of money may be facsimile, engraved or printed, where such certificate is signed by a Transfer Agent or Transfer Clerk and by a Registrar, and where such bond or obligation is certified by a Trustee. ARTICLE III. Meetings of Stockholders SECTION 1. The Annual Meeting of the Stockholders shall be held on the fourth Tuesday in April of each year, or within sixty days thereafter, upon such date as the Board of Directors of the Company may designate, in the City of Bangor, Maine, or at such other place within the State of Maine as may be designated by the Board of Directors of the Company, for the election of a Board of Directors and for the transaction of any other business that may be brought before such meeting. In case of the failure for any cause to hold such meeting and election on said fourth Tuesday in April or within sixty days thereafter as above provided, said election may be held at any special meeting of the Stockholders called for the purpose. SECTION 2. Unless waived in the manner prescribed by the Maine Business Corporation Act, written notice of the Annual Meeting or any special meeting of Stockholders stating the place, day and hour thereof, shall be given in the manner prescribed by the Maine Business Corporation Act. SECTION 3. Special meetings of the Stockholders may be called at any time by order of the Board of Directors or by written direction of a majority of the Board of Directors, or of Stockholders representing not less than one_fifth of the capital stock of the Company issued and outstanding. Such meetings shall be in Bangor, Maine, or at such other place within the State of Maine as may be designated by the Board of Directors of the Company. SECTION 4. The holders of one third of the stock of the Company issued and outstanding shall constitute a quorum for the transaction of business at any meeting, but a less number may convene any meeting and may adjourn the same from time to time until a quorum shall be present, and no notice of such adjournment shall be necessary. If Stockholders are to consider the number of authorized shares of common stock at any meeting, 50% of the stock of the Company issued and outstanding shall constitute a quorum for the transaction of such business. SECTION 5. Stockholders entitled to vote at any meeting of Stockholders may vote either in person or by proxy granted not more than sixty days before the meeting, the date of which shall be named therein, and said proxies shall not be valid after a final adjournment thereof. Stockholders may also be represented by a general power of attorney produced at the meeting and valid until it is revoked. At any meeting of Stockholders, each holder of Common Stock entitled to vote thereat shall be entitled to cast one_twelfth of a vote for each share of Common Stock held, and each holder of Preferred Stock entitled to vote thereat shall be entitled to cast one vote for each share of such Preferred Stock held. Except as may otherwise be required by law or by the Articles of Incorporation and except as the Board of Directors may otherwise fix and determine in the By-Laws with respect to any class or series of Preferred Stock having special voting powers, a majority of the total votes cast at any meeting of Stockholders shall be sufficient for the adoption or rejection of any question presented. SECTION 6. The stock transfer books of the Company may be closed by the order of the Board of Directors for such period, not to exceed sixty days, previous to any meeting of the Stockholders, or previous to the payment of any dividend upon the stock of the Company, or for any other purpose, as the Board may determine, during which time no transfer of stock on the books of the Company shall be made; and said books shall be re-opened the day following the date fixed for such meeting or for the payment of such dividend or for the accomplishment of such purpose. The Board of Directors may from time to time determine the date as of which Stockholders shall be entitled to notice of and to vote at any regular or special meeting of the Stockholders, but such date shall not be more than sixty days nor less than ten days prior to the date upon which such meeting is to be held. The date so determined shall be specified in the notice of the meeting. ARTICLE IV. Election of Directors SECTION 1. Directors shall be elected in the manner set forth in the Articles of Incorporation. ARTICLE V. Meetings of Directors SECTION 1. Regular meetings of the Board of Directors shall be held at such times and places as may from time to time be fixed by resolution of the Board. No notice shall be required for regular meetings, the times and places of which have been fixed by resolution. Special meetings of the Board of Directors may be held at any time or place upon the call of the Clerk or Assistant Clerk under the direction of the Chairman of the Board, the President, or any two Directors then in office, of which meetings reasonable notice in writing or otherwise shall be given to each director or sent to his or her residence or place of business, the time and place for holding the meeting to be designated in the notice. Unless otherwise indicated in the notice calling the meeting, any and all business may be transacted at any such special meeting. SECTION 2. A meeting of the Board of Directors for organization may be held without notice immediately after the meeting of the Stockholders at which such Board of Directors is elected, at which meeting officers of the Company may be chosen, but no other business shall be transacted, unless every director shall be present. SECTION 3. At the meetings of the Board of Directors, a majority shall constitute a quorum, but a less number may convene and adjourn any such meeting from time to time until a quorum is present, of which adjournment no notice need be given. All questions coming before any meeting of a Board of Directors for action shall be decided by a majority vote of the Directors present at such meeting, unless otherwise provided in these By-Laws. ARTICLE VI. Officers SECTION 1. Directors shall elect from their own number a Chair of the Board; shall appoint a President, a Treasurer and a Clerk; and may appoint one or more Vice Presidents and such other officers as the Directors may deem necessary or desirable in order to conduct the business of the Company. If the offices of the Chair of the Board and the President are not vested in one person, the Directors shall designate one of them as the chief executive officer of the Company. In the absence of a valid designation of the foregoing functions, the President shall be the chief executive officer. If the offices and functions of the Chair of the Board, the President and the chief executive officer are vested in one person, then in the event of accident or disability or other circumstances that render such person incapable of performing his or her duties, the Chair of the Executive Committee of the Board of Directors (or, if there be no such Chair, the Director of the longest tenure of service on the Board who is not an employee of the Company) shall assume the duties as temporary, acting Chair of the Board, and he or she shall promptly appoint, subject to ratification by the full Board at its earliest convenience, an officer of the Company to be the temporary, acting chief executive officer. The services of these temporary officers shall continue until the Chair of the Board, President and chief executive officer has resumed his or her duties, or until the Directors shall otherwise determine. If the offices and functions of the Chair of the Board, the President and the chief executive officer are not vested in one person, then in the event of accident, disability or other circumstances that render the chief executive officer incapable of performing his or her duties (1) if the chief executive officer is the Chair of the Board, the President shall assume the duties as temporary, acting chief executive officer and the Chair of the Executive Committee of the Board (or, if there be no such Chair, the Director of the longest tenure of service on the Board who in not an employee of the Company) shall assume the duties of temporary, acting Chair of the Board, or (2) if the chief executive officer is the President, the Chair of the Board shall assume the duties as temporary, acting chief executive officer, and he or she shall promptly appoint, subject to ratification by the full Board at its earliest convenience, an officer of the Company to be the temporary, acting President. The services of these temporary, acting officers shall continue until the chief executive officer has resumed his or her duties, or until the Directors shall otherwise determine. In the event of accident, disability or other circumstances that render the Chair of the Board incapable of performing his or her duties and the Chair of the Board is not the chief executive officer, the Chair of the Executive Committee of the Board of Directors (or, if there be no such Chair, the Director of the longest tenure of service on the Board who in not an employee of the Company) shall assume the duties as temporary, acting Chair of the Board, until the Chair of the Board has resumed his or her duties or until the Directors shall otherwise determine. Notwithstanding the foregoing, the Directors may by resolution make a different provision in any year for the assumption of responsibilities of the Chair of the Board, the chief executive officer and the President in the event of their inability to serve as aforesaid, which resolution shall be effective until the next meeting at which officers are appointed. A majority vote of the whole Board of Directors shall be necessary for the election of officers. All such officers shall hold office for one year and until their successors are chosen and duly qualified, provided however that the Board of Directors shall have power at any time to remove from office any of such officers as well as any other agent or employee of the Company, with or without cause. ARTICLE VII. Powers and Duties of Directors and Officers SECTION 1. The Board of Directors shall have and exercise all the powers and authority granted by law in order to carry out its responsibility to manage and control the business, property and affairs of the Company. The Board of Directors shall be vested with all the powers and authority of the corporation itself, except in such matters as may be especially excepted by the Articles of Incorporation or By-Laws of the Company or by the laws of the State of Maine. Subject to any contrary provisions of law, the Articles of Incorporation or these By-Laws, the Board of Directors shall have power to delegate from time to time such authority as it may deem necessary to any one or more members of the Board acting as a committee, in order that the business of the Company may be transacted with promptness and dispatch. SECTION 2. The Board of Directors by a resolution adopted by a majority of the full Board of Directors then in office may designate from among its members an Executive Committee consisting of two or more Directors, and may delegate to such Executive Committee all the authority of the Board of Directors in the management of the corporation's business and affairs, except as limited by law (including without limitation the Maine Business Corporation Act), or the resolution establishing the Executive Committee or any resolution thereafter adopted by the Board of Directors. Vacancies in the membership of the Executive Committee shall be filled by resolution adopted by a majority of the full Board of Directors then in office. The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board of Directors. Members of the Executive Committee may be removed from office, with or without cause, by resolution adopted by a majority of the full Board of Directors then in office. So far as practicable, the provisions of these By-Laws relating to the calling, noticing and conduct of meetings of the Board of Directors shall govern the calling, noticing and conduct of meetings of the Executive Committee. The Board of Directors, by a resolution adopted by a majority of the Directors who are not employees of the Company, shall establish an Audit Committee and a Compensation Committee, the membership of each of which shall consist of Directors who are not employees of the Company. The Audit Committee shall review the adequacy of the Company's financial reporting processes and internal controls and conduct such other business as may be delegated to it by the Board of Directors. The Compensation Committee shall review and recommend to the Board of Directors the compensation and benefits of the Directors and officers of the Company and the Company's overall compensation and benefits policies and conduct such other business as may be delegated to it by the Board of Directors. The Board of Directors, by resolution adopted by a majority of the Directors, may establish such other committees as it deems necessary or desirable in order to conduct the business and affairs of the Company with dispatch, and, to the extent permitted by law, empower such committees with such authority as the Board of Directors deems appropriate. Except as otherwise provided by law, the Articles of Incorporation, these By-Laws or a majority of the Board of Directors, the Chair of the Board may appoint members and chairs of committees of the Board, and shall ex officio be a member of all committees. SECTION 3. The Chair of the Board of Directors shall be responsible for the conduct of the business and functions of the Board of Directors, except to the extent that specific functions may be otherwise governed by law, the Articles of Incorporation, these By-Laws or resolution of the Board of Directors. He or she shall establish the schedule and agendas for and shall preside at meetings of the Stockholders and the Board of Directors, and shall attend to such other business as the Board of Directors may from time to time direct. SECTION 4. The President, in the capacity of chief executive officer of the Company, shall implement the overall direction and policies of the Board of Directors, and supervise and direct generally the business and affairs of the Company. The President may sign any deeds, mortgages, bonds, contracts, or other instruments that the Board of Directors has authorized for execution, except when the signing and execution thereof has been expressly delegated by the Board of Directors or these By-Laws to some other officer or agent of the Company or is required by law to be otherwise signed or executed. The President shall also make reports to the Board of Directors and the shareholders and generally perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors. In the event the President is not the chief executive officer of the Company, unless the Board of Directors shall otherwise specify, the foregoing powers and duties shall appertain to the chief executive officer, and the President shall have such powers and duties as the Board of Directors shall determine. SECTION 5. Vice Presidents shall have such responsibilities and duties as may be prescribed by the President, and in the absence of any specific delegation of responsibilities shall have such powers, duties and responsibilities as may reasonably be implied by their titles as necessary to the routine operation of the functions for which they are responsible in the normal course of the business of the Company. SECTION 6. The Treasurer or his or her designate shall receive and be responsible for all cash, notes and securities of the Company, and is authorized to give receipts for all moneys due and payable to the Company from whatever source, and to endorse checks, drafts and warrants in the name of the Company in banks and other financial institutions. All funds of the Company shall be deposited to the credit of the Company. They may be invested, and if so, must be invested pursuant to guidelines issued from time to time by the Board of Directors. He or she shall affix the seal of the Company to such instruments as it is necessary and proper to execute under seal and attest the same, and he or she shall discharge such other duties as pertain to this office, or as may be assigned to him from time to time by the Board of Directors or by the President. SECTION 7. The Clerk shall be a resident of the State of Maine, and shall be sworn to a faithful discharge of his duties. He or she shall keep a record of all votes of the Stockholders and Directors and record all the minutes of the meetings of the Stockholders and Directors in a book to be kept for that purpose. He or she shall keep a book containing a true and complete list of all Stockholders, their residences, and the amount of stock held by each, and shall keep such other books and perform such other duties as pertain to his or her office or as may be assigned to him or her from time to time by the Board of Directors or by the President. In the absence or disability of the Clerk and Assistant Clerk, the President may appoint a Clerk pro tempore. SECTION 8. The compensation and benefits of the officers shall be established by the Board of Directors. The compensation and benefits of officers who are Directors shall be established by a majority vote of Directors who are not employees of the Company. The compensation and benefits of the Board of Directors shall be established by a majority vote of the full Board of Directors. Directors who are employees of the Company shall receive no compensation for their service as Directors. SECTION 9. The Treasurer shall give, and other officers, agents and employees of the Company may be required to give, at the expense of the Company, bonds in such amount and form with such sureties as the Board of Directors may require and approve, for the faithful discharge of the duties of their respective offices and positions. SECTION 10. Any current or former Director, officer or employee who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a Director, officer or employee of the Company, or is or was serving at the request of the Company as a Director, officer, trustee, partner, fiduciary, employee or agent of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or other enterprise, shall be indemnified by the Company against expenses, including attorney's fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding to the full extent permitted by Maine law. Expenses incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding shall in all cases be authorized and paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt by the Company of: (1) A written undertaking by or on behalf of the officer, director or employee to repay that amount if he or she is finally adjudicated: (A) Not to have acted honestly or in the reasonable belief that his or her action was in or not opposed to the best interests of the Company or its shareholders or, in the case of a person serving as a fiduciary of an employee benefit plan or trust, in or not opposed to the best interests of such plan or trust or its participants or beneficiaries; (B) With respect to any criminal action or proceeding, to have had reasonable cause to believe that his or her conduct was unlawful; or (C) With respect to any claim, issue or matter asserted in any action, suit or proceeding brought by or in the right of the Company, to be liable to the Company, unless the court in which that action, suit or proceeding was brought permits indemnification in accordance with subsection (2) of 13-A M.R.S.A. Section 719; and (2) A written affirmation by the officer, Director or employee that he or she has met the standard of conduct necessary for indemnification by the Company as authorized by this section. The undertaking required by subparagraph (1) shall be an unlimited general obligation of the person seeking the advance, but need not be secured and may be accepted without reference to financial ability to make the repayment. ARTICLE VIII. Checks, Drafts and Negotiable Instruments All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. ARTICLE IX. Fiscal Year The fiscal year of the Company shall commence on the first day of January and end on the last day of December in each year. ARTICLE X. Stock SECTION 1. The authorized capital stock of the Company shall be $110,000,000 represented by 600,000 shares of Preferred Stock of the par value of $100 each, and 10,000,000 shares of Common Stock of the par value of $5 each. SECTION 2. The 600,000 shares of Preferred Stock shall be available for classification and reclassification in different classes or series from time to time. Subject to reclassification upon retirement by redemption or otherwise, 25,000 shares shall be 7% Preferred Stock, 17,500 shares shall be 4% Preferred Stock, Series A, and 4,840 shares shall be 4 1/4% Preferred Stock. The remaining shares, 552,660 in number, plus additional shares equal in number to any shares now outstanding or hereafter issued which may be retired by redemption or otherwise may be issued as additional shares of any class or series heretofore or hereafter authorized, or may be issued in one or more new classes or series which (subject to the provisions hereof) shall have such designations, preferences and voting powers, or restrictions or qualifications thereof as shall be fixed and determined by the Board of Directors in the By-Laws, including provisions (among others) with respect to dividends; redemption, conversion rights, if any; sinking fund, if any; restrictions or limitations, if any, upon the payment of dividends, issuance of capital stock, incurring of indebtedness and such other matters as the Board of Directors may determine; and voting powers, if any, which voting powers, if any, may be either general voting powers or special voting powers, or both. In fixing and determining the special voting powers of any class or series of Preferred Stock, the Board of Directors is specifically authorized to provide that if at any time dividends or required sinking fund payments payable on the Preferred Stock shall be in default in any amount to be specified in the By_Laws, then, until all dividends or required sinking fund payments so in default shall have been paid or declared and set apart for payment, the holders of shares of Preferred Stock of each and every class or series, voting as a single class, shall be entitled to elect in such manner as the Board of Directors may provide, the smallest number of Directors necessary to constitute a majority of the full Board of Directors, the balance of the Directors to be elected by the holders of shares having general voting powers. The Board of Directors is further specifically authorized so to provide with respect to any class or series of Preferred Stock hereafter authorized that the holders of shares of such class or series, either separately or together with the holders of all other classes and series of Preferred Stock, shall have the right to vote with respect to or to consent or object to such other matters as may be fixed and determined by the Board of Directors in the By-Laws. Except as hereinabove provided, each class or series of Preferred Stock shall be identical with each other class or series of Preferred Stock. Each share of Preferred Stock of any particular class or series shall be identical in all respects with every other share of Preferred Stock of the same class or series. SECTION 3. The holders of the Preferred Stock, of each and every class or series, are entitled to receive, when and as declared, out of the surplus or net profits of the Company, dividends at the rate applicable to their respective shares, payable as the Board of Directors may determine, before any dividends shall be set apart for or paid upon the Common Stock or before the Company shall purchase any of its Common Stock. The dividends upon the Preferred Stock shall be cumulative and accumulations of dividends shall not bear interest. Except as provided in paragraph (b) of Section 6, the Board of Directors may declare dividends upon the Common Stock, provided the dividends upon the Preferred Stock, with all accumulations, including accrued dividends to the date of payment of the Common Stock dividends, shall have been paid in full, or a sum sufficient for the payment thereof shall have been set apart for that purpose, but not otherwise. Except as provided in paragraph (b) of Section 6, the holders of the Common Stock are entitled to receive all additional surplus or net profits which the Directors may order distributed in dividends, after the dividends above provided for shall have been paid or set apart. SECTION 4. (a) If any dividend is declared on the Preferred Stock at a rate less than sufficient to pay the full dividend called for by all the Preferred Stock outstanding, the distribution of the dividend shall be pro rata, so that all holders of Preferred Stock shall receive the same proportion of the full dividend called for by their stock. (b) If at any time dividends payable on the Preferred Stock shall be in default in an amount equal to or exceeding four quarterly dividend payments, or if the Company shall fail to make any required sinking fund payment on the Preferred Stock, then, until all dividends or sinking fund payments so in default have been paid or declared and set apart for payment, the holders of shares of Preferred Stock of each and every class or series, voting as a single class, shall be entitled, at any annual meeting during which dividends or sinking fund payments are so in default, to elect the smallest number of Directors necessary to constitute a majority of the full Board of Directors, the balance of the Directors to be elected by the holders of shares having general voting powers. SECTION 5. In case of liquidation or dissolution of the Company, the assets, irrespective of whether they shall consist of capital assets or accumulated earnings, shall be distributed as follows: All holders of Preferred Stock shall be entitled to be paid in full both the par amount of their shares and an amount equal to the unpaid dividends accumulated and accrued thereon before any amount shall be paid to the holders of the Common Stock, and in case the assets shall not be sufficient to pay in full all of the Preferred Stock and dividends accumulated and accrued thereon, and applicable premium, then the principal thereof shall first be paid pro rata, thereafter a pro rata distribution of any excess shall be made on account of the accumulated dividends, based on the total amount of unpaid dividends accumulated and accrued thereon, and thereafter a pro rata distribution of any excess shall be made on account of applicable premium, based on the total amount of applicable premium, but after such payment to the holders of the Preferred Stock, the remaining assets and funds shall be paid to the holders of the Common Stock, according to their respective shares. SECTION 6. (a) The 7% Preferred Stock shall bear dividends at the rate of 7% per annum and shall not be redeemable. The 4% Preferred Stock, Series A, shall bear dividends at the rate of 4% per annum and shall be redeemable at 112% if called on or prior to October 1, 1950; at 111% thereafter through October 1, 1951; and after October 1, 1951 at 110%, plus accrued dividends in every case. The 4 1/4% Preferred Stock shall bear dividends at the rate of 4 1/4% per annum and shall be redeemable at 102% if called on or prior to April 1, 1954; at 101% thereafter through April 1, 1959; and after April 1, 1959 at 100%; plus accrued dividends in every case. SECTION 7. The Board of Directors, by resolution adopted prior to the issue of any stock having voting rights, shall determine whether the holders of any of the classes or series of the Preferred Stock and/or the holders of the Common Stock may have or may not have the preemptive right to subscribe for and take shares of such stock so to be issued. Except to the extent that the Board of Directors shall determine as above provided, no right to subscribe for or to take any stock, whether Preferred or Common, at any time issued by the Company shall appertain to any of the stock of this Company. SECTION 8. All certificates of stock shall be signed by, or bear the facsimile signatures of, the President or any Vice President and the Treasurer or Assistant Treasurer, and shall have affixed thereto the corporate seal or bear a facsimile thereof. SECTION 9. The Board of Directors shall provide for the transfer and registration of the shares of the Company's capital stock in such city or cities as it from time to time deems necessary or advisable. Said Board of Directors shall appoint such transfer agents, co_transfer agents, registrars and co_registrars as are required for the foregoing purpose. All capital stock certificates shall be countersigned by a transfer agent or co-transfer agent so appointed, and by a registrar or co-registrar so appointed. SECTION 10. Shares of stock of the Company shall be transferable only on the books of the Company by the holder thereof in person, or by his or her attorney duly authorized thereto in writing, and upon the surrender and cancellation of the certificate therefor duly endorsed. ARTICLE XI. Amendments SECTION 1. These By-Laws may be amended, altered or repealed at any annual meeting of the Stockholders of the Company by a vote of a majority in interest of the Stockholders present. These By-Laws may also be amended, altered or repealed at any special meeting of the Stockholders by a like vote, provided notice of the proposed amendment, alteration or repeal shall have been given in the notice of the meeting. SECTION 2. These By-Laws may also be amended, altered or repealed by the Board of Directors by a vote of a majority of all the Directors of the Company given at any regular or special meeting, provided notice of such proposed amendment or alteration shall have been given by resolution adopted at a meeting of the Board of Directors held not less than two weeks previous thereto and a copy of such resolutions shall have been sent to each member of the Board not less than one week prior to the meeting at which such amendment or alteration is acted upon. Any amendment to these By-Laws adopted by the Board of Directors as herein provided shall be reported to the Stockholders at the annual meeting of the Company. I, Andrew Landry, hereby certify that I am the duly elected and qualified Clerk of Bangor Hydro-Electric Company, and that the foregoing is a true copy of the Company's By-Laws, including all amendments thereto adopted to this date. __________________________________ Dated at Bangor, Maine, ________________, 19___. EX-10 7 a10a2001.txt EXHIBIT 10(A) BANGOR HYDRO-ELECTRIC COMPANY FLEET Fleet Bank FleetBoston Financial Mail Stop: ME DE 05205B PO Box 1280 Two Portland Square Portland, ME 04101-5006 207 874 5005 tel 207 874 5156 fax June 29, 2001 Bangor Hydro-Electric Company 33 State Street Bangor, Maine 04401 Re: WORKING CAPITAL FACILITY Ladies and Gentlemen: We are pleased to confirm that Fleet National Bank (the "Bank") has agreed, subject to the terms and conditions set forth herein and in the Note referred to below, to extend credit to Bangor Hydro-Electric Company (the "Borrower") in the form of a working capital line of credit for revolving credit loans (individually, a "Loan" and collectively, the "Loans") made from time to time during the period specified below to fund short term working capital purposes of the Borrower in an aggregate principal amount not to exceed $10,000,000 (the "Line of Credit") outstanding at any time. This Letter Agreement is referred to herein as the "Line Agreement". All other capitalized terms used herein without definition shall have the meanings ascribed thereto in the promissory note attached as Exhibit A hereto (the "Note"). The Line of Credit will remain available for drawdown from the date of this agreement (the "Closing Date") until the Final Maturity Date (the "Availability Period") provided no Event of Default hereunder or under the Note exists. In the event that (i) any Event of Default under the Note has occurred and is continuing, and regardless of whether the Obligations hereunder have been declared due and payable, the Bank may terminate the aforementioned commitment to extend Loans and (ii) any Event of Default described in Section 5.1(f) of the Note shall have occurred and be continuing as a result of the occurrence and continuance of an Event of Default under Sections 14.1(g) or 14.1(h) of the Credit Agreement, the aforementioned commitment to extend Loans shall, by notice in writing to the Borrower, terminate and all amounts outstanding shall become due and payable automatically without any further notice from the Bank. Section 1. REQUESTS FOR LOANS; CONDITIONS TO LENDING. (a) The Borrower may request Loans under the Line of Credit by notifying the Bank in writing or telephonically not later than 12:00 noon (Bangor, Maine time) on the day such Loan is to be made (in the case of Base Rate Loans) and 12:00 noon (Bangor, Maine time) on the third Business Day before the day such Loan is to be made (in the case of LIBOR Rate Loans) of the principal amount of such Loan (which in the case of LIBOR Rate Loans shall be in a minimum amount of $500,000). Each such Loan request shall specify (i) whether such Loan is requested as a Base Rate Loan or a LIBOR Rate Loan, and (ii) if such requested Loan is a LIBOR Rate Loan, the requested Interest Period for such Loan. (b) The Borrower may repay Loans from time to time without penalty, subject to the provisions of Section 3 hereof. The Bank, in its discretion, may relend amounts repaid under the Line of Credit, subject to the terms and conditions hereof. If the outstanding principal amount of the Loans under the Line of Credit ever exceeds $10,000,000, the Borrower shall immediately repay to the Bank the amount by which the principal amount of the Loans exceeds $10,000,000. (c) The obligations of the Bank to make any Loan, whether on or after the date hereof, shall be subject to the satisfaction of the following conditions precedent: (i) Each of the representations and warranties of the Borrower contained herein, in the Credit Agreement, in the Note or in any document or instrument delivered pursuant to or in connection herewith shall be true as of the date as of which they were made and shall also be true at and as of the time of the making of such Loan, with the same effect as if made at and as of that time (except to the extent that such representations and warranties relate expressly to an earlier date) and no Event of Default shall have occurred and be continuing. (ii) No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinion of the Bank would make it illegal for it to make such Loan. (iii) The Bank shall have received all information and such counterpart originals or certified or other copies of such documents required to be delivered hereunder or under the Note and all such documents shall be reasonably satisfactory in substance and in form to the Bank. (iv) The Bank shall have received a fee in an amount equal to $25,000, for its own account. Section 2. PAYMENTS AND INTEREST RATE. Section 2.1. IN GENERAL. (a) Except as otherwise provided in Section2.2 hereof, the unpaid principal amount of Base Rate Loans outstanding from time to time shall bear interest from the date each such Loan is made until repaid in full at the annual rate equal to the Base Rate plus the Applicable Margin then in effect. Interest on Base Rate Loans shall be payable on the last Business Day of each month. (b) Except as otherwise provided in Section2.2 hereof, the unpaid principal amount of LIBOR Rate Loans outstanding from time to time shall bear interest from the date each such Loan is made until repaid in full at the annual rate equal to the LIBOR Rate for such Loan for such Interest Period plus the Applicable Margin then in effect. Interest on LIBOR Rate Loans shall be payable at the end of each Interest Period. (c) Interest on the Loans shall also be payable (i) at any time upon written notice by the Bank to the Borrower and (ii) on the Final Maturity Date. Section 2.2. INTEREST ON OVERDUE AMOUNTS. Overdue principal and (to the extent permitted by applicable law) interest on the Loans and all other overdue amounts payable under this Agreement overdue by ten (10) days or more shall bear interest at a rate per annum equal to five percent (5.00%) above the applicable interest rate otherwise payable on such Loans, set forth in Section 2.1 hereof, compounded daily and payable upon demand to accrue from the date such payment is due until the obligation of the Borrower with respect to the payment thereof shall be discharged, whether before or after judgment. Section 3. CERTAIN GENERAL PROVISIONS. The terms and provisions contained in Sections 6.6, 6.7 and 6.10 of the Credit Agreement are hereby incorporated herein mutatis mutandis, as fully as if set forth herein in their entirety. Section 4. BASIC DOCUMENTATION REQUIREMENTS. Concurrent with the establishment of this Line of Credit and before the Bank shall have any obligation to make any Loans, you must deliver to the Bank the following: (i) this Line Agreement duly executed and delivered by the Borrower; (ii) the Note duly executed and delivered by the Borrower; (iii) an amendment to the Credit Agreement in form and substance satisfactory to the Bank in which the lenders party to the Credit Agreement approve of the Borrower's incurrence of debt pursuant to this Line Agreement; (iv) an opinion of counsel to the Borrower covering due authorization, execution, and validity of this Agreement, the Note, and all other documents and instruments executed in connection therewith, and such other matters incident to the transactions contemplated by this Agreement and the Note as the Bank may require; (v) (A) a certificate, certified by a duly authorized officer of the Borrower to be true and complete as of the date hereof, of (a) no changes (other than those attached thereto) to its charter or other incorporation documents since last delivered to the Bank, and (b) no changes to its by- laws (other than those attached thereto) since last delivered to the Bank; (vi) certified copies of the resolutions of the Board of Directors of the Borrower, approving each of this Line Agreement, the Note and each of the other instruments and documents to be executed by it and delivered to the Bank pursuant to this Line Agreement and the Note, certified by an officer of the Borrower, and certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect thereto; (vii) a certificate of a duly authorized officer of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign each document to which it is a signatory and which is to be delivered by it hereunder or pursuant to any other document executed in connection herewith to which it is a party; and (viii) a corporate good standing certificate for the Borrower in the jurisdiction of its organization and foreign qualifications in each other jurisdiction in which the nature of its business or ownership or use of its property requires such qualification. Section 5. NOTICES. Except as otherwise expressly provided in this Line Agreement or the Note, all notices and other communications made or required to be given pursuant to this Line Agreement or the Note shall be made as set forth in Section6.5 of the Note. Section 6. MISCELLANEOUS. This Line Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. This Line Agreement may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which shall constitute one agreement. In proving this Line Agreement it shall not be necessary to account for more than one such counterpart signed by the party to be charged. This Line Agreement together with the related Note express the entire understanding of the parties with respect to the transactions contemplated hereby. If there is any conflict between this Line Agreement and the terms of the Note, the terms of the Note shall prevail. Neither this Line Agreement nor any term hereof may be changed, waived, terminated or discharged except in a writing executed by the Bank and the Borrower, except that, unless otherwise provided herein, upon the final payment and satisfaction in full of all of the Obligations and the expiry of any obligation of the Bank to extend credit hereunder, this Agreement shall terminate. If you agree with the foregoing, please execute and return the enclosed copy of this Line Agreement whereupon it will become a binding contract between you and the Bank as of the Closing Date. [Remainder of page intentionally left blank] Sincerely, FLEET NATIONAL BANK. /s/ Neil Buitenhuys By:__________________________ Title: Vice President CONSENTED AND AGREED TO as of June __, 2001: BANGOR HYDRO-ELECTRIC COMPANY By: /s/ Frederick S. Samp Title: Vice President Exhibits Exhibit A Form of Note EX-10 8 b10b2001.txt EXHIBIT 10(B) BANGOR HYDRO-ELECTRIC COMPANY PROMISSORY NOTE $10,000,000 Bangor, Maine June 29, 2001 FOR VALUE RECEIVED, on the Final Maturity Date (as defined herein) BANGOR HYDRO-ELECTRIC COMPANY (the "Borrower") promises to pay to the order of FLEET NATIONAL BANK (together with any successors or assigns, the "Bank"), a national banking association with an office at 80 Exchange Street, Bangor, Maine 04401 (such address or any other which may be specified by the Bank, the "Lending Office"), the principal amount of TEN MILLION DOLLARS ($10,000,000), or such lesser amount of loans (the "Loans") advanced pursuant to the Line Agreement (as defined below) and to pay interest on the unpaid principal balance hereof from time to time outstanding, for the period commencing on the date hereof, at the rates per annum as set forth herein on the Final Maturity Date. This Note is issued pursuant to a certain letter agreement (the "Line Agreement") of even date herewith between the Borrower and the Bank. 1. CERTAIN DEFINED TERMS. As used herein, (i) "Obligations" means all indebtedness, obligations and liabilities of the Borrower under this Note, whether direct or indirect, absolute or contingent, matured or unmatured, due or to become due, arising by contract, operation of law or otherwise, whether now existing or hereafter arising, (ii) "holder" means the payee or any endorsee of this Note who or which is in possession of it, or the bearer hereof if this Note is at the time payable to the bearer, (iii) "Obligor" means the undersigned, any guarantor or other person primarily or secondarily liable hereunder or in respect hereof, including any person or entity who has pledged or granted to the Bank a security interest in, or other lien on, property on behalf of the undersigned as collateral for the Obligations, and (iv) "Final Maturity Date" shall mean October 1, 2001. Capitalized terms used herein and not otherwise defined shall have the same meanings as defined in the Amended and Restated Revolving Credit and Term Loan Agreement dated as of June 29, 1998 (as amended and in effect from time to time, the "Credit Agreement"), by and amount the Borrower, the Bank and the other lending institutions listed on Schedule 1 to the Credit Agreement and the Bank as the administrative agent and documentation agent for itself and such other lending institutions. 2. INTEREST. Interest shall accrue and be payable as set forth in the Line Agreement. 3. PAYMENT TERMS. 3.1 PAYMENTS. The Borrower further promises to pay, on the Final Maturity Date, an amount equal to the unpaid principal balance hereunder plus all unpaid and accrued interest. All payments hereunder shall be made by the undersigned to the Bank in United States currency at the Bank's address specified above (or at such other address as the Bank may specify), in immediately available funds, on or before 2:00 p.m. (Bangor, Maine time) on the due date thereof. Payments received by the Bank prior to the occurrence of an Event of Default (as defined in Section 5 below) will be applied first to fees, expenses and other amounts due hereunder (excluding principal and interest); second, to accrued interest; and third to outstanding principal; after the occurrence of an Event of Default, payments will be applied to the Obligations under this Note and the Line Agreement as the Bank determines in its sole discretion. The undersigned may from time to time pay all or a portion of any amount owed hereunder earlier than it is due, without premium or other charge. The Bank may, and the undersigned hereby authorizes the Bank to, debit the amount of any payment not made by the time specified above to any demand deposit account of the undersigned with the Bank. Principal amounts repaid hereunder may be reborrowed prior to the Final Maturity Date in accordance herewith and the Line Agreement. The Bank is hereby irrevocably authorized by the undersigned to enter on the schedule forming a part of this Note or otherwise in its records appropriate notations evidencing the date and amount of the initial advance hereunder and the date and amount of each payment of principal made with respect thereto, and to attach to and make a part of this Note a continuation of any such schedule as and when required. No failure on the part of the Bank to make any such notation shall in any way affect any advance or the rights or obligations of the Bank or any Obligor with respect thereto. The entries on the records of the Bank (including any appearing on this Note and any schedule attached hereto), shall be prima facie evidence of the aggregate principal amount outstanding under this Note and interest accrued thereon. 3.2 DEFAULT RATE. To the extent permitted by applicable law, upon and after the occurrence of an Event of Default (whether or not the Bank has accelerated payment of this Note), interest on principal and overdue interest shall, at the option of the Bank, be payable on demand at a rate per annum equal to 4.0% above the Base Rate. 3.3 DEPOSIT ACCOUNT. At the request of the Bank, the undersigned shall maintain with the Bank all of its deposits accounts, including a commercial demand deposit account. The undersigned request and authorize the Bank to debit such commercial demand deposit account for amounts due hereunder on any date such amounts become due. The undersigned shall maintain sufficient collected balances in this account to pay any such amounts as they become due. 3.4 PREPAYMENTS. The Borrower may prepay a LIBOR Rate Loan only upon three (3) Business Days prior written notice to the Bank (which notice shall be irrevocable), or any such prepayment shall occur only on the last day of the Interest Period for such LIBOR Rate Loan. The Borrower shall pay to the Bank, upon request of the Bank, such amount or amounts as shall be sufficient (in the reasonable opinion of the Bank) to compensate it for any loss, cost, or expense incurred as a result of: (a) any payment of a LIBOR Rate Loan on a date other than the last day of the Interest Period; (b) any failure by the Borrower to borrow a LIBOR Rate Loan on the date specified by the Borrower' written notice; and (c) any failure by the Borrower to pay a LIBOR Rate Loan on the date for payment specified in the Borrower's written notice. Without limiting the foregoing, the Borrower shall pay to the Bank a "yield maintenance fee" in an amount computed as follows: the current rate for United States Treasury securities (bills on a discounted basis shall be converted to a bond equivalent) with a maturity date closes to the term chosen pursuant to the LIBOR Rate Election as to which the prepayment is made, shall be subtracted from the LIBOR Rate in effect at the time of prepayment. If the result is zero or a negative number, there shall be no yield maintenance fee. If the result is a positive number, then the resulting percentage shall be multiplied by the amount of the principal balance being prepaid. The resulting amount shall be divided by 360 and multiplied by the number of days remaining in the term chosen pursuant to the LIBOR Rate Election as to which the prepayment is made. Said amount shall be reduced to present value calculated by using the above-referenced United States Treasury securities rate and the number of days remaining in the term chosen pursuant to the LIBOR Rate Election as to which prepayment is made. The resulting amount shall be the yield maintenance fee due to the Bank upon the prepayment of a LIBOR Rate Loan. Each reference in this paragraph to "LIBOR Rate Election" shall mean the election by the Borrower of the LIBOR Rate. If by reason of an Event of Default, the Bank elects to declare the Note to be immediately due and payable, then any yield maintenance fee with respect to a LIBOR Rate Loan shall become due and payable in the same manner as though the Borrower had exercised such right of prepayment. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower makes the following representations and warranties, and agrees to the following covenants, each of which representations, warranties and covenants shall be continuing and in force so long as this Note is in effect and any Obligations hereunder remain unpaid: (a) The address of the Borrower set forth on the last page hereof is the Borrower's chief executive office, and the Borrower will not change its chief executive office without giving the Bank at least 30 days' prior written notice thereof. (b) The Borrower is a duly organized and validly existing corporation and is in corporate good standing under the laws of the State of Maine, is properly licensed and has the corporate power and authority and the legal right to own its property and conduct the business in which it is engaged or presently proposes to engage and is duly licensed and qualified as a foreign organization in good standing under the laws of each jurisdiction where the failure to qualify as such would have a material adverse effect. (c) The Borrower has the corporate power and authority and the legal right to make, deliver and perform this Note and the Line Agreement. The Borrower has taken all necessary corporate action (including, but not limited to, the obtaining of any consent of stockholders required by law or by the Certificate of Incorporation or by-laws) to authorize the execution, delivery and performance of this Note and the Line Agreement and to authorize the transactions contemplated hereby and thereby. (d) Each of this Note and the Line Agreement, and each other instrument and document executed by the Borrower and delivered to the Bank pursuant to the terms hereof and thereof, constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally, and general principles of equity, and there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against, or affecting, the Borrower or any of its officers or directors calling into question the legality, validity or enforceability of any thereof. (e) The execution, delivery and performance of this Note do not and will not (i) violate any applicable law, rule or regulation of any governmental agency; (ii) contravene any provision of any agreement, instrument, order or undertaking binding on the Borrower or by which any of its properties are bound or affected; (iii) result in or require the imposition of any mortgage, pledge, security interest, lien or other charge or encumbrance of any kind or nature upon or with respect to any of the properties of the Borrower; or (iv) require the consent or approval of, or filing or registration with, any governmental or other agency or authority, or any other party. (f) The Borrower will use the proceeds of this Note solely to fund short term working capital purposes of the Borrower. (g) The Borrower will deliver to the Bank (i) the financial statements referred to in Section 9.4(a) of the Credit Agreement within 120 days of the Borrower's fiscal year end, together with the compliance certificate referred to in Section 9.4(c) of the Credit Agreement, (ii) the financial statements referred to in Section 9. 4(b) of the Credit Agreement within 45 days of the Borrower's fiscal quarter end, together with the compliance certificate referred to in Section 9.4(c) of the Credit Agreement, and (iii) such other financial statements and other information as the Bank may request. All such information shall be true and correct and shall fairly represent the financial condition of the Borrower as of the date and for the periods for which the same are furnished. The Borrower will notify the Bank promptly of the existence or upon the occurrence of any Event of Default or event which, with the giving of notices or the passage of time, or both would become an Event of Default. (h) The Borrower hereby makes each of its representations and warranties set forth in Section 8 of the Credit Agreement, and each of such representations and warranties are hereby incorporated by reference herein as if set forth fully herein. The Borrower shall at all times comply with each of its covenants and agreements set forth in Sections 9, 10 and 11 of the Credit Agreement, and each of such covenants are hereby incorporated by reference herein as if set forth fully herein. 5. DEFAULTS AND REMEDIES. 5.1 DEFAULT. The occurrence of any of the following events or conditions shall constitute an "Event of Default" hereunder: (a) the Borrower shall fail to pay when due and payable any principal hereunder when the same becomes due; (b) the Borrower shall fail to pay interest or fees hereunder when due; (c) the Borrower shall fail to perform any term, covenant or agreement contained in this Note or the Line Agreement; (d) any representation or warranty of the Borrower in this Note or the Line Agreement (whether by reference or otherwise) or in any certificate or notice given in connection therewith shall have been false or misleading in any material respect at the time made or deemed to have been made; (e) the Credit Agreement is terminated; or (f) an "Event of Default" as defined in the Credit Agreement (or in any substantially similar provision of any restatement thereof) shall have occurred and be continuing. 5.2 REMEDIES. Upon an Event of Default described in Sections 14.1(g) or (h) of the Credit Agreement (or in any substantially similar provision of any restatement thereof), immediately and automatically, and upon or after the occurrence of any other Event of Default at the option of the Bank, all Obligations of the undersigned shall become immediately due and payable without notice or demand. All rights and remedies of the Bank are cumulative and are exclusive of any rights or remedies provided by law or in equity or any other agreement, and may be exercised separately or concurrently. 5.3 TERMINATION OF COMMITMENT. Upon an Event of Default described in Sect. 14.1(g) or (h) of the Credit Agreement (or in any substantially similar provision of any restatement thereof), any unused portion of the credit hereunder and the Line Agreement shall forthwith terminate and the Bank shall be relieved of all further obligations to make Loans to the Borrower. If any other Event of Default shall have occurred and be continuing, the Bank may, by notice to the Borrower, terminate the unused portion of the credit hereunder and the Line Agreement, and upon such notice being given such unused portion of the credit hereunder shall terminate immediately and the Bank shall be relieved of all further obligations to make Loans. No termination of the credit hereunder shall relieve the Borrower or any other Obligor of any of the Obligations. 6. MISCELLANEOUS. 6.1 WAIVER; AMENDMENT. No delay or omission on the part of the Bank or any holder in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Note. No waiver of any right or any amendment hereto shall be effective unless in writing and signed by the Bank, nor shall a waiver on one occasion bar or waive the exercise of any such right on any future occasion. Without limiting the generality of the foregoing, the acceptance by the Bank of any late payment shall not be deemed to be a waiver of the Event of Default arising as a consequence thereof. Each Obligor, by execution hereof to which it is a party, waives presentment, demand, notice, protest, and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note or of any collateral for the Obligations, and assents to any extensions or postponements of the time of payment and to any other indulgences under this Note or with respect to any such collateral, to any substitutions, exchanges or releases of any such collateral, and to any additions or releases of any other parties or persons primarily or secondarily liable hereunder, that from time to time may be granted by the Bank in connection herewith. 6.2 SET-OFF. Regardless of the adequacy of any collateral or other means of obtaining repayment of the Obligations, the Bank is hereby authorized at any time and from time to time, without notice to the undersigned (any such notice being expressly waived by the undersigned) and to the fullest extent permitted by law, to set off and apply such deposits and other sums against the Obligations of the undersigned, although such Obligations may be contingent or unmatured. 6.3 INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the Bank and its affiliates from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all claims, liabilities, losses, damages and expenses of every nature and character arising out of this Note or the Line Agreement or the transactions contemplated hereby or thereby including, without limitation, (i) any actual or proposed use by the Borrower of the proceeds of any of the Loans, (ii) the Borrower entering into or performing this Note or the Line Agreement or (iii) any and all transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution, delivery, and performance of this Note or the Line Agreement. In litigation, or the preparation therefor, the Bank and its affiliates shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrower under this Sect. 6.3 are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. 6.4 EXPENSES. The undersigned will pay on demand all reasonable expenses of the Bank and its affiliates in connection with the negotiation, preparation, administration and interpretation of this Note, the default, collection, waiver or amendment of the Obligations or in connection with the Bank's exercise, preservation or enforcement of any of its rights, remedies or options hereunder, including, without limitation, the reasonable fees of outside legal counsel or the allocated costs of in-house legal counsel, accounting, consulting, brokerage or other similar professional fees or expenses, and any fees or expenses associated with any travel or other costs relating to any appraisals or examinations conducted in connection with the Obligations or any collateral therefor, and the amount of all such expenses shall, until paid, bear interest at the rate applicable to principal hereunder (including any default rate) and be an Obligation secured by any such collateral. 6.5 BANK RECORDS; NOTICE. The entries on the records of the Bank (including any appearing on this Note) shall be prima facie evidence of the aggregate principal amount outstanding under this Note and interest accrued thereon. Any communication to be made hereunder shall (i) be made in writing, but unless otherwise stated, may be made by telex, facsimile transmission or letter, and (ii) be made or delivered to the address of the party receiving notice which is identified with its signature below or in the case of the Bank, at its Lending Office (unless such party has, by five (5) days written notice, specified another address), and shall be deemed made or delivered, when dispatched, left at that address, or five (5) days after being marked, postage prepaid, to such address. 6.6 INFORMATION. The undersigned shall provide to the Bank any information relating to any Obligor or any collateral securing this Note as the Bank may reasonably require. All such information shall be true and correct in all material respects when taken as a whole and in the case of financial information, shall, where applicable fairly represent the financial condition and the operating results of such Obligor as of the date and for the periods for which the same are furnished. The undersigned shall upon reasonable notice permit representatives of the Bank to inspect its properties and its books and records, and to make copies or abstracts thereof during regular business hours. Each Obligor authorizes the Bank to release and disclose to its affiliates, agents and contractors any financial statements and other information relating to said Obligor provided to or prepared by or for the Bank in connection with any Obligation. The undersigned will notify the Bank promptly of the existence or upon the occurrence of any Event of Default or event which, with the giving of notice or the passage of time or both, would become an Event of Default. 6.7 GOVERNING LAW; CONSENT TO JURISDICTION. This Note is intended to take effect as a sealed instrument and shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts, without regard to its conflicts of law rules. Each of the undersigned agrees that any suit for the enforcement of this Note may be brought in the courts of such state or any federal court sitting in such state and consents to the non-exclusive jurisdiction of each such court and to service of process in any such suit being made upon the undersigned by mail at the address specified below. The undersigned hereby waive any objection that they may now or hereafter have to the venue of any such suit or any such court or that such suit was brought in an inconvenient court. 6.8 SEVERABILITY; AUTHORIZATION TO COMPLETE; PARAGRAPH HEADINGS. If any provision of this Note shall be invalid, illegal or unenforceable, such provisions shall be severable from the remainder of this Note and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. The Bank is hereby authorized, without further notice, to fill in any blank spaces in this Note, and to date this Note as of the date funds are first advanced hereunder. Paragraph headings are for the convenience of reference only and are not a part of this Note and shall not affect its interpretation. 6.9 JURY WAIVER. THE BANK (BY ITS ACCEPTANCE OF THIS NOTE) AND THE UNDERSIGNED AGREE THAT NONE OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS NOTE, THE LINE AGREEMENT, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH SHALL BE SUBJECT TO NO EXCEPTIONS. NONE OF THE BANK NOR THE UNDERSIGNED HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. 6.10 INTEREST RATE LIMITATION. All agreements between the undersigned, any other Obligor and the Bank are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration or otherwise, shall the amount paid or agreed to be paid to the Bank for use or the forbearance of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. 6.11 REPLACEMENT OF NOTE. Upon receipt of an affidavit of an officer of the Bank as to the loss, theft, destruction or mutilation of the Note or any other document delivered in connection with this Note which is not of public record, and, in the case of any such loss, theft, destruction or mutilation, upon cancellation of such Note or other document, the Borrower will issue, in lieu thereof, a replacement note or other document in the same principal amount thereof and otherwise of like tenor. IN WITNESS WHEREOF, the undersigned has caused this Note to be duly executed by its respective officers hereunto duly authorized as of the day and year first above written. BANGOR HYDRO-ELECTRIC COMPANY /s/ Frederick S. Samp __________________________________ Address: _______________ _______________ _______________ SCHEDULE $__________________ Note dated ________________, 2001 of BANGOR HYDRO- ELECTRIC COMPANY payable to the order of FLEET NATIONAL BANK. Date and Amount of Payment Notation Received made by - --------------------------------------------------------------------- - --------------------------------------------------------------------- EX-10 9 c10c2001.txt EXHIBIT 10(C) BANGOR HYDRO-ELECTRIC COMAPNY PROMISSORY NOTE $13,667,550.00 October 10, 2001 FOR VALUE RECEIVED, BANGOR HYDRO-ELECTRIC COMPANY, a Maine corporation ( "BHE"), promises to pay to the order of MUNICIPAL REVIEW COMMITTEE, INC., a Maine non profit corporation ("MRC"), at One Cumberland Place, Bangor, Maine 04402 or at such other place as may be designated in writing by MRC, the principal sum of THIRTEEN MILLION SIX HUNDRED SIXTY-SEVEN THOUSAND FIVEHUNDRED AND FIFTY DOLLARS ($13,667,550.00), together with interest on the principal sum from time to time outstanding at the fixed rate of Five Percent (5.0%) per annum until paid in full in accordance with the attached quarterly payment schedule, which BHE agrees to follow, subject to the possible adjustments described in the following two sentences. Notwithstanding such quarterly payment schedule, MRC shall have the right to defer some or all of any quarterly payment within any Note Year (as hereinafter defined) to another quarterly payment date within the same Note Year, upon at least (14) days' prior written notice to BHE, provided, however, that in no event shall any amounts due within a given Note Year be deferred beyond the final quarterly payment for such Note Year. If BHE has not received such written deferral notice within such time period, then it shall make the scheduled payment. For purposes of this Promissory Note, the term "Note Year" shall have the same meaning as set forth in Schedule 1. All payments shall be applied first to accrued and unpaid interest and then to outstanding principal, until paid in full. All interest hereunder shall be computed on the basis of the actual number of days elapsed over a three hundred and sixty-five (365) day year. DEFAULT INTEREST RATE: During any period after an event of default (as defined below) shall have occurred and until the same shall have been cured or expressly waived by MRC in writing, interest on any amount due hereunder shall accrue at the rate of eight percent (8%) per annum. DEFEASANCE: Although BHE shall not have any right to prepay this Note, it shall have the right to provide for a defeasance of its obligations hereunder, so that it may treat the Note as paid for all purposes and transfer its liability hereunder to the trust fund described below by following the following procedure: (i) BHE shall place in trust, for the benefit of MRC, with an independent third party trustee (the "Trustee") selected by BHE and satisfactory to MRC, moneys, which shall only be in the form of either (a) currency of the United States of America which is then legal tender for the payment of public and private debts, or (b) direct obligations of the United States of America (or of any agency or instrumentality thereof, but only if such obligations are guaranteed by the full faith and credit of the United States of America), which obligations shall not contain provisions permitting the redemption thereof at the option of the issuer, in an amount sufficient, without the need for further investment or reinvestment, but including any scheduled interest on such obligations, to pay (x) when due the then-remaining principal and interest due and to become due on this Note and (y) any and all amounts due or owing, or becoming due or owing, to the Trustee for its services and expenses; provided that such trust arrangements shall be certified by BHE as constituting an irrevocable deposit of said moneys and other obligations in trust for the exclusive use and benefit of MRC hereunder, free and clear of any claims or rights of BHE (except that BHE shall retain the right to receive any surplus that may remain after all obligations to MRC and the Trustee have been satisfied out of such fund); and (ii) BHE, at its cost, shall deliver to MRC and to the Trustee an opinion of a firm of independent certified public accountants of recognized national standing, confirming the sufficiency, to meet the requirements set forth in clause (i) hereof, of the moneys or other obligations placed in trust with the Trustee pursuant to clause (i) hereof. Upon compliance with the foregoing requirements and upon delivery to MRC of a note or other evidence, in form approved by MRC, of the rights of MRC to the moneys referred to in clause (i) of this provision, this Note shall be deemed to have been paid in full and shall be returned to BHE, marked "Paid", and MRC shall no longer be entitled to the benefits of any of the provisions of this Note. DEFAULT: The entire principal balance hereof, together with all interest and other charges, as applicable, shall become due and payable at the option of MRC, upon the occurrence of any one or more of the following events, each of which shall constitute an event of default hereunder: (a) the insolvency of BHE, or (b) the making of any assignment for the benefit of creditors of BHE, or (c) the appointment of a receiver, trustee or custodian for all or any portion of the property of BHE; or (d) the commencement of any proceedings under any state or federal bankruptcy or insolvency law or under laws for relief of debtors, by or against BHE; or (e) the dissolution or termination of existence of BHE; or (f) any default in the payment of any sums due under this Note when due, and the continuation of such default for ten (10) days after MRC delivers written notice to BHE of such default. REMEDIES: Upon the occurrence of any event of default under this Note MRC may declare due and payable at once all amounts outstanding hereunder. BHE hereby irrevocably agrees that any legal action or proceeding arising out of or relating to this Note may be brought in any state or federal court in the State of Maine, at the election of MRC. By the execution and delivery hereof, BHE hereby irrevocably submits to the nonexclusive jurisdiction of any such court in any such action or proceeding. BHE shall be liable for, and hereby agrees to pay, upon demand, all reasonable costs or expenses incurred by MRC in endeavoring to collect or enforce this Note. MRC shall not be deemed to have waived any of its rights or remedies under this Note by any act, delay, omission or failure or refusal to exercise any of such rights or remedies. No waiver by MRC of any kind shall be valid unless it is in writing and signed by an officer of MRC, and then only to the extent specifically stated. All of the rights and remedies of MRC shall be cumulative and not exclusive, and may be exercised on any one or more occasions either singularly or concurrently. WAIVERS: BHE hereby (1) waives presentment, notice of dishonor, protest, notice of protest, in connection with the delivery, acceptance, performance, default or enforcement of this Note and (2) consents and agrees that MRC may at any time and from time to time without affecting the liability of BHE for payment of the debt evidenced by this Note or for performance of any obligation contained herein: (a) extend the time for payment of any amounts due under this Note; or (b) grant any releases, compromises or indulgences with respect to this Note or any extensions, renewals, or acceleration hereof or substitutions herefor to BHE. MISCELLANEOUS: If, for any reason, any payment to MRC applied to amounts outstanding hereunder is required to be refunded by MRC to BHE or turned over by MRC to any other person or entity, BHE agrees to pay to MRC on demand an amount equal to the payment so refunded or turned over by MRC and the liability of BHE shall not be treated as having been discharged by the original payment to MRC giving rise to such refunded or turned over payment. All notices, demands or requests provided for or permitted to be given pursuant to this Note must be in writing and shall be given by personal delivery or by depositing the same in the United States mail, post paid and certified, return receipt requested at the addresses set forth below, as such addresses may be changed by notice given to the other party. MRC's Address: One Cumberland Place, P.O. Box 2579, Bangor, Maine 04402- 2579, Attention: Executive Director BHE's Address: 33 State Street, P.O. Box 932, Bangor, Maine 04402-0932, Attention: Vice President Finance and Law BHE hereby warrants that it is validly formed, in existence and in good standing at the present time, with all necessary authority to enter into, execute and deliver this Note. No invalidity or unenforceability of any portion or obligation of this Note shall affect the validity or enforceability of the remaining portions or obligations hereof. This Note and all actions taken pursuant hereto shall be governed by, and interpreted and construed in accordance with, the laws of the State of Maine. This Note evidences a loan for business and commercial purposes and not for personal, household, or family purposes. The use of captions in this Note is for purposes of convenience only, and no caption shall affect the meaning of this Note. This Note and the provisions hereof shall be binding upon BHE, its successors, legal representatives and assigns and shall inure to the benefit of MRC, its successors, legal representatives and assigns. This Note is intended to take effect as a sealed instrument, effective as of October 10, 2001, regardless of the actual date of execution and delivery. ATTESTED WITNESS: BANGOR HYDRO-ELECTRIC COMPANY ___________________________ By:_/s/ Frederick S. Samp Name: Frederick S. Samp Title: Vice President - Finance & Law Schedule 1 Scheduled Installment Payments Quarterly payments will be due August 1, November 1, February 1 and May 1 of each year commencing with the first such date after the date of the Promissory Note. The principal amount of an Installment Payment scheduled for any specific quarter in any specific Note Year shall be calculated in accordance with the following formula: IP = MDS x $19.50 x NYAF x QAF where IP = The principal amount of the Installment Payment scheduled to be paid in the quarter MDS = The Merger Date Shares, which is the number of shares of common stock for which warrants have not been exercised as of the Merger Date NYAF = Note Year Amortization Factor in accordance with Options A through D below. Option A will apply if the first payment under the Promissory Note is due on August 1. Option B will apply if the first payment under the Promissory Note is due on November 1. Option C will apply if the first payment under the Promissory Note is due on February 1. Option D will apply if the first payment under the Promissory Note is due on May 1. Note Year Option A Option B Option C Option D 1 10.50% 8.00% 5.50% 4.50% 2 11.00% 11.50% 12.00% 12.50% 3 12.50% 13.00% 13.50% 14.00% 4 14.00% 14.50% 15.00% 15.50% 5 14.50% 15.00% 15.50% 16.00% 6 17.50% 18.00% 18.50% 19.00% 7 20.00% 20.00% 20.00% 18.50% In the event that the Merger Date has not occurred before May 1, 2002, then the number of years in the foregoing chart shall be adjusted to the number of Note Years between the date of the first quarterly payment and June 30, 2008 and options A through D shall be adjusted on a pro rata basis among the remaining years in the amortization schedule. The result will be amortization schedule that will terminate as of June 30, 2008, will have the correct number of years and will add to 100 percent. Note Year is defined as the period beginning on July 1 and ending on June 30 QAF = Quarterly Adjustment Factor, which shall be - 35% for the first quarter in a Note Year; - 30% for the second quarter in a Note Year; - 25% for the third quarter in a Note Year; and - 10% for the fourth quarter in a Note Year; provided, however, that the MRC shall have the right to defer principal to a later quarter within the same Note Year by notice in accordance with the Promissory Note. Schedule 1 Calculation of Scheduled Installment Payments (1) Promissory Note for Payments by Bangor Hydro-Electric Company to the Municipal Review Committee, Inc. Principal sum of the note $ 13,667,550.00 based on 700,900 Merger Data Shares (MDS) $ 19.50 value per warrant Scheduled principal payments (2)
Scheduled Quarterly Principal Payments (5) Note Option B Annual 01-Aug 01-Nov 01-Feb 01-May Year (3) NYAF (4) Principal Amount 35% 30% 25% 10% 1 8.00% $ 1,093,404.00 $ 433,156.20 $ 370,075.20 $ 290,172.60 2 11.50% $ 1,571,768.25 $ 550,118.88 $ 471,530.48 $ 392,942.06 $ 157,176.83 3 13.00% $ 1,776,781.50 $ 621,873.52 $ 533,034.45 $ 444,195.38 $ 177,678.15 4 14.50% $ 1,981,794.75 $ 693,628.15 $ 594,538.43 $ 495,448.69 $ 198,179.48 5 15.00% $ 2,050,132.50 $ 717,546.37 $ 615,039.75 $ 512,533.13 $ 205,013.25 6 18.00% $ 2,460,159.00 $ 861,055.65 $ 738,047.70 $ 615,039.75 $ 246,015.90 7 20.00% $ 2,733,510.00 $ 956,728.50 $ 820,053.00 $ 683,377.50 $ 273,351.00 --------- ---------------- ---------------- ---------------- ---------------- ---------------- 100.00% $ 13,667,550.00 $ 4,400,951.07 $ 4,205,400.01 $ 3,513,611.71 $ 1,547,587.21 check sum $ 13,667,550.00 Scheduled interest payments Interest rate 5.00% Scheduled Quarterly Interest Payments (6) Note Option B Total 01-Aug 01-Nov 01-Feb 01-May Year (3) NYAF (4) Annual Interest 35% 30% 25% 10% 1 8.00% $ 367,423.78 $ 41,189.88 $ 165,429.92 $ 160,803.98 2 11.50% $ 591,377.81 $ 157,176.83 $ 150,300.34 $ 144,406.21 $ 139,494.43 3 13.00% $ 507,920.32 $ 137,529.72 $ 129,756.30 $ 123,093.37 $ 117,540.93 4 14.50% $ 414,212.18 $ 115,319.95 $ 106,649.60 $ 99,217.87 $ 93,024.76 5 15.00% $ 313,499.43 $ 90,547.52 $ 81,578.19 $ 73,890.19 $ 67,483.53 6 18.00% $ 201,254.67 $ 64,920.86 $ 54,157.67 $ 44,932.07 $ 37,244.07 7 20.00% $ 71,754.65 $ 34,168.88 $ 22,209.77 $ 11,959.11 $ 3,416.89 --------- ---------------- ---------------- ---------------- ---------------- ---------------- 100.00% $ 2,467,442.84 $ 599,663.76 $ 585,841.75 $ 662,928.74 $ 619,008.59 check sum $ 2,467,442.84 Total scheduled principal and interest payments Scheduled Quarterly Principal and Interest Payments (6) Note Option B Total Annual 01-Aug 01-Nov 01-Feb 01-May Year (3) NYAF (4) Principal and Intere 35% 30% 25% 10% 1 8.00% $ 1,460,827.78 $ - $ 474,346.08 $ 535,505.12 $ 450,976.58 2 11.50% $ 2,163,146.06 $ 707,295.71 $ 621,830.82 $ 537,348.27 $ 296,671.26 3 13.00% $ 2,284,701.82 $ 759,403.24 $ 662,790.75 $ 567,288.75 $ 295,219.08 4 14.50% $ 2,396,006.93 $ 808,948.10 $ 701,188.03 $ 594,666.56 $ 291,204.24 5 15.00% $ 2,363,631.93 $ 808,093.89 $ 696,617.94 $ 586,423.32 $ 272,496.78 6 18.00% $ 2,661,413.67 $ 925,976.51 $ 792,205.37 $ 659,971.82 $ 283,259.97 7 20.00% $ 2,805,264.65 $ 990,897.38 $ 842,262.77 $ 695,336.61 $ 276,767.89 --------- ---------------- ---------------- ---------------- ---------------- ---------------- 100.00% $ 16,134,992.84 $ 5,000,614.83 $ 4,791,241.76 $ 4,176,540.45 $ 2,166,595.80 check sum $ 16,134,992.84 Principal outstanding prior to each payment Principal Outstanding Prior to Each Quarterly Payment Note Option B Principal Amount 01-Aug 01-Nov 01-Feb 01-May Year (3) NYAF (4) Paid Each Year 35% 30% 25% 10% 1 8.00% $ 1,093,404.00 $ 13,667,550.00 $ 13,234,393.80 $ 12,864,318.60 2 11.50% $ 1,571,768.25 $ 12,574,146.00 $ 12,024,027.12 $ 11,552,496.64 $ 11,159,554.58 3 13.00% $ 1,776,781.50 $ 11,002,377.75 $ 10,380,504.23 $ 9,847,469.78 $ 9,403,274.40 4 14.50% $ 1,981,794.75 $ 9,225,596.25 $ 8,531,968.10 $ 7,937,429.67 $ 7,441,980.98 5 15.00% $ 2,050,132.50 $ 7,243,801.50 $ 6,526,255.13 $ 5,911,215.38 $ 5,398,682.25 6 18.00% $ 2,460,159.00 $ 5,193,669.00 $ 4,332,613.35 $ 3,594,565.65 $ 2,979,525.90 7 20.00% $ 2,733,510.00 $ 2,733,510.00 $ 1,776,781.50 $ 956,728.50 $ 273,351.00 --------- ---------------- ---------------- ---------------- ---------------- ---------------- 100.00% $ 13,667,550.00 Footnotes 1 This Schedule 1 supercedes the portion of the Schedule 1 to the Promissory Note labeled :"Sample Calculation of Scheduled Installment Payments," in order to clarify scheduled principal payments in the first Note Year. 2 Per the Promissory Note, Schedule 1, the principal amount of an Installment Payment scheduled for any quarter shall be calculated in accordance with the following formula: IP = MDS x $19.50 x NYAF x QAF where IP is the Installment Payment for the quarter MDS is the Merger Date Shares, which is the number of shares of common stock for which warrants have not been exercised as of the Merger Date NYAF is the Note Year Amortization Factor (see Note 4) QAF is the Quarterly Adjustment Factor (see Note 5) 3 A Note Year is defined as a period beginning on July 1 and ending on June 30. This Schedule 1 was produced on the expectation that the Closing Date, which would be the first day of the first Note Year, will be October 10, 2001 4 NYAF is the Note Year Amortization Factor defined on Schedule 1 of the Promissory Note. The values shown correspond to Option B, which is consistent with the expectation that the first payment under the Promissory Note will be due on November 1, 2001. 5 For Note Years 2 through 7, the Quarterly Adjustment Factors are (Promisory Note, Schedule 1): 35% for the first quarter in a Note Year 30% for the second quarter in a Note Year 25% for the third quarter in a Note Year 10% for the fourth quarter in a Note Year For Note Year 1, which is expected to contain only three quarterly payments, the principal to be paid each quarter of the first Note Year is determined as follows: Quarterly payment dates 01-Aug 01-Nov 01-Feb 01-May Quarterly Adjustment Factors from Schedule 1 35% 30% 25% 10% Principal that would have been due in a full year $ 382,691.40 $ 328,021.20 $ 273,351.00 $ 109,340.40 Principal due in first three quarters $ 382,691.40 $ 328,021.20 $ 273,351.00 Principal not accounted for in first year $ 109,340.40 Pro rata allocation of principal not accounted for $ 50,464.80 $ 42,054.00 $ 16,821.60 Principal due in first Note Year $ 433,156.20 $ 370,075.20 $ 290,172.60 Basis for pro rata allocation ( QAFn / 65% ) 46.2% 38.5% 15.4% 6 First interest payment based on Closing Date of October 10, 2001. Other quarterly interest payments calculated as (outstanding principal) x 5% x 1/4
EX-10 10 d10d2001.txt EXHIBIT 10(D) BANGOR HYDRO-ELECTRIC COMPANY AMENDMENT NO. 3 TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT This AMENDMENT NO. 3 TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT (this "Amendment No. 3") is made and entered into as of December 31, 2001, by and among BANGOR HYDRO-ELECTRIC COMPANY, a Maine corporation having its chief executive office at 33 State Street, Bangor, Maine 04402 (the "Borrower"), FLEET NATIONAL BANK (f/k/a BankBoston, N.A.), a national banking association having a place of business at 80 Exchange Street, Bangor, Maine 04401 ("Fleet"), and the other lending institutions listed on Schedule 1 to the Credit Agreement (as defined below) and Fleet as administrative agent and documentation agent for itself and such other lending institutions (the "Agent"). Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Credit Agreement. WHEREAS, the Borrower, the Banks, and the Agent entered into an Amended and Restated Revolving Credit and Term Loan Agreement dated as of June 29, 1998 (as amended by Amendment No. 1 to Amended and Restated Revolving Credit and Term Loan Agreement, dated as of June 29, 2001, and Amendment No. 2 to Amended and Restated Revolving Credit and Term Loan Agreement, dated as of October 1, 2001, as the same may be further amended and in effect from time to time, the "Credit Agreement"), pursuant to which the Banks extended credit to the Borrower on the terms set forth therein; and WHEREAS, the Borrower has requested an extension of the Revolving Credit Loan Maturity Date, and the parties hereto have agreed to extend the Revolving Credit Loan Maturity Date on the terms set forth herein; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree to amend the provisions of the Credit Agreement as follows: 1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT. Section 1 of the Credit Agreement is hereby amended by deleting the following definition of "Revolving Credit Loan Maturity Date" in its entirety and replacing it with the following new definition, inserted in proper alphabetical order: "Revolving Credit Loan Maturity Date. March 31, 2002." 2. CONDITIONS TO EFFECTIVENESS. This Amendment No. 3 shall become effective as of the date hereof, subject to the satisfaction of each of the following conditions: (a) receipt by the Agent of this Amendment No. 3 duly and properly authorized, executed and delivered by each of the respective parties hereto; (b) the Borrower shall have delivered to the Agent certified copies of corporate resolutions of the Borrower satisfactory to the Agent authorizing this Amendment No. 3; and (c) receipt by Bingham Dana LLP of payment of all fees and expenses incurred in the connection with the preparation of this Amendment No. 3. 3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Agent and the Banks as follows: (a) The execution, delivery and performance of each of this Amendment No. 3 and the transactions contemplated hereby are within the corporate power and authority of the Borrower and have been or will be authorized by proper corporate proceedings, and do not (a) require any consent or approval of the stockholders of the Borrower, (b) contravene any provision of the charter documents or by-laws of the Borrower or any law, rule or regulation applicable to the Borrower, or (c) contravene any provision of, or constitute an event of default or event which, but for the requirement that time elapse or notice be given, or both, would constitute an event of default under, any other material agreement, instrument or undertaking binding on the Borrower. (b) This Amendment No. 3 and the Credit Agreement, as amended as of the date hereof, and all of the terms and provisions hereof and thereof are the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally, and except as the remedy of specific performance or of injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. (c) The execution, delivery and performance of this Amendment No. 3 and the transactions contemplated hereby do not require any approval or consent of, or filing or registration with, any governmental or other agency or authority, or any other party. (d) The representations and warranties contained in Section 8 of the Credit Agreement are true and correct in all material respects as of the date hereof as though made on and as of the date hereof. (e) After giving effect to this Amendment No. 3, no Default or Event of Default under the Credit Agreement has occurred and is continuing. 4. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement, the other Loan Documents and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. This Amendment No. 3 and the Credit Agreement shall hereafter be read and construed together as a single document, and all references in the Credit Agreement, any other Loan Document or any agreement or instrument related to the Credit Agreement shall hereafter refer to the Credit Agreement as amended by this Amendment No. 3. 5. GOVERNING LAW. THIS AMENDMENT NO. 3 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 6. COUNTERPARTS. This Amendment No. 3 may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, each of the undersigned has duly executed this Amendment No. 3 as of the date first set forth above. THE BORROWER: BANGOR HYDRO-ELECTRIC COMPANY By: Mathieu A. Poulin Name: Mathiew A. Poulin Title: Treasurer THE BANKS: FLEET NATIONAL BANK (f/k/a BankBoston, N.A.), individually and as Administrative Agent and Documentation Agent By: Name: Title: PEOPLES HERITAGE BANK By: Name: Title: EX-10 11 e10e2001.txt EXHIBIT 10(E) BANGOR HYDRO-ELECTRIC COMPANY AMENDMENT NO. 2 TO PROMISSORY NOTE This AMENDMENT NO. 2 TO PROMISSORY NOTE (this "Amendment No. 2") is made and entered into as of December 31, 2001, by and among BANGOR HYDRO- ELECTRIC COMPANY, a Maine corporation having its chief executive office at 33 State Street, Bangor, Maine 04402 (the "Borrower"), and FLEET NATIONAL BANK, a national banking association having a place of business at 80 Exchange Street, Bangor, Maine 04401 (the "Bank"). Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Line Agreement (as defined below). WHEREAS, the Borrower and the Bank entered into a Line Agreement dated as of June 29, 2001 (as amended and in effect from time to time, the "Line Agreement"), pursuant to which the Bank executed a Promissory Note in favor of the Bank dated as of June 29, 2001 (as amended by Amendment No. 1 to Promissory Note, dated as of October 1, 2001, and as the same may be further amended and in effect from time to time, the "Note"), pursuant to which the Bank extended credit to the Borrower on the terms set forth therein and in the Line Agreement; and WHEREAS, the Borrower has requested an extension of the Final Maturity Date, and the parties hereto have agreed to extend the Final Maturity Date on the terms set forth herein; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree to amend the provisions of the Line Agreement as follows: 1. AMENDMENT TO SECTION 1 OF THE NOTE. Section 1 of the Note is hereby amended by deleting the date "December 31, 2001" and replacing it with the date "March 31, 2002." 2. CONDITIONS TO EFFECTIVENESS. This Amendment No. 2 shall become effective as of the date hereof, subject to the satisfaction of each of the following conditions: (a) receipt by the Bank of this Amendment No. 2 duly and properly authorized, executed and delivered by each of the respective parties hereto; (b) the Borrower shall have delivered to the Bank certified copies of corporate resolutions of the Borrower satisfactory to the Bank authorizing this Amendment No. 2; and (c) receipt by Bingham Dana LLP of payment of all fees and expenses incurred in the connection with the preparation of this Amendment No. 2. 3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Bank as follows: (a) The execution, delivery and performance of each of this Amendment No. 2 and the transactions contemplated hereby are within the corporate power and authority of the Borrower and have been or will be authorized by proper corporate proceedings, and do not (a) require any consent or approval of the stockholders of the Borrower, (b) contravene any provision of the charter documents or by-laws of the Borrower or any law, rule or regulation applicable to the Borrower, or (c) contravene any provision of, or constitute an event of default or event which, but for the requirement that time elapse or notice be given, or both, would constitute an event of default under, any other material agreement, instrument or undertaking binding on the Borrower. (b) This Amendment No. 2 and the Credit Agreement, as amended as of the date hereof, and all of the terms and provisions hereof and thereof are the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally, and except as the remedy of specific performance or of injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. (c) The execution, delivery and performance of this Amendment No. 2 and the transactions contemplated hereby do not require any approval or consent of, or filing or registration with, any governmental or other agency or authority, or any other party. (d) The representations and warranties contained in Section 8 of the Credit Agreement are true and correct in all material respects as of the date hereof as though made on and as of the date hereof. (e) After giving effect to this Amendment No. 2, no Default or Event of Default under the Credit Agreement has occurred and is continuing. 4. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement, the other Loan Documents and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. This Amendment No. 2 and the Credit Agreement shall hereafter be read and construed together as a single document, and all references in the Credit Agreement, any other Loan Document or any agreement or instrument related to the Credit Agreement shall hereafter refer to the Credit Agreement as amended by this Amendment No. 2. 5. GOVERNING LAW. THIS AMENDMENT NO. 2 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 6. COUNTERPARTS. This Amendment No. 2 may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, each of the undersigned has duly executed this Amendment No. 2 as of the date first set forth above. THE BORROWER: BANGOR HYDRO-ELECTRIC COMPANY By: /s/ Mathieu A. Poulin Name: Mathieu A. Poulin Title: Treasurer THE BANK: FLEET NATIONAL BANK By: Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----