-----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, A2twCN453rpaQp5UwG11y2mtxsnoam1woRkFMART4EEXDVG6mcojv/piz5BGtBML FMl14jF4AimFGJjmQ9j55Q== 0000043704-99-000006.txt : 19990326 0000043704-99-000006.hdr.sgml : 19990326 ACCESSION NUMBER: 0000043704-99-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREEN MOUNTAIN POWER CORP CENTRAL INDEX KEY: 0000043704 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 030127430 STATE OF INCORPORATION: VT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08291 FILM NUMBER: 99572527 BUSINESS ADDRESS: STREET 1: 25 GREEN MOUNTAIN DR STREET 2: P.O.BOX 850 CITY: SOUTH BURLINGTON STATE: VT ZIP: 05403 BUSINESS PHONE: 8028645731 MAIL ADDRESS: STREET 1: 25 GREEN MOUNTAIN DR STREET 2: P O BOX 850 CITY: SOUTH BURLINGTON STATE: VT ZIP: 05403 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K _X_ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ___ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to __________________ For the fiscal year ended December 31, 1998 Commission file number 1-8291 GREEN MOUNTAIN POWER CORPORATION _____________________________________________ (Exact name of registrant as specified in its charter) Vermont 03-0127430 ___________________________ ________________________________ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 25 Green Mountain Drive South Burlington, VT 05403 _________________________________ __________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (802) 864-5731 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of each exchange on which registered COMMON STOCK, PAR VALUE NEW YORK STOCK EXCHANGE $3.33-1/3 PER SHARE ________________________________________________________________________ Securities registered pursuant to Section 12 (g) of the Act: None ________________________________________________________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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 of the voting stock held by non- affiliates of the registrant as of March 12, 1999, was $55,551,767.19 based on the closing price for the Common Stock on the New York Stock Exchange as reported by The Wall Street Journal. The number of shares of Common Stock outstanding on March 12, 1999, was 5,322,325. DOCUMENTS INCORPORATED BY REFERENCE The Company's Definitive Proxy Statement relating to its Annual Meeting of Stockholders to be held on May 20, 1999, to be filed with the Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, is incorporated by reference in Items 10, 11, 12 and 13 of Part III of this Form 10-K. PART I ITEM 1. BUSINESS THE COMPANY Green Mountain Power Corporation (the Company) is a public utility operating company engaged in supplying electrical energy in the State of Vermont in a territory with approximately one quarter of the State's population. We serve approximately 83,500 customers. The Company was incorporated under the laws of the State of Vermont on April 7, 1893. Our sources of revenue for the year ended December 31, 1998 were as follows: 33.5% from residential customers, 33.5% from small commercial and industrial customers, 21.8% from large commercial and industrial customers, 9.0% from sales to other utilities, and 2.2% from other sources. During 1998, our energy resources for retail and wholesale sales of electricity were obtained as follows: 44.0% from hydroelectric sources (7.8% Company-owned, 0.1% New York Power Authority (NYPA), 32.8% Hydro-Quebec and 3.3% small power producers), 27.5% from a nuclear generating source (the Vermont Yankee nuclear plant described below), 2.0% from coal sources, 3.5% from wood, 2.4% from natural gas, 1.5% from oil, and 0.6% from wind. The remaining 18.5% was purchased on a short-term basis from other utilities through the New England Power Pool (NEPOOL). In 1998, we purchased 91.4% of the energy required to satisfy our retail and wholesale sales of electricity (including energy purchased from Vermont Yankee and under other long-term purchase arrangements). See Note K of Notes to Consolidated Financial Statements. A major source of the Company's power supply is our entitlement to a share of the power generated by the 531-MW Vermont Yankee nuclear generating plant owned and operated by Vermont Yankee Nuclear Power Corporation (Vermont Yankee). We have a 17.9% equity interest in Vermont Yankee. For information concerning Vermont Yankee, see "Power Resources - Vermont Yankee." We participate in NEPOOL, a regional bulk power transmission organization established to assure reliable and economical power supply in the Northeast. Our representative to NEPOOL is Vermont Electric Power Company, Inc. (VELCO), a transmission consortium owned by the Company and other Vermont utilities, in which we have a 30% equity interest. As a member of NEPOOL, we benefit from increased efficiencies of centralized economic dispatch, availability of replacement power for scheduled and unscheduled outages of our own power sources, sharing of bulk transmission facilities and reduced generation reserve requirements. Our principal service territory is an area roughly 25 miles in width extending 90 miles across north central Vermont between Lake Champlain on the west and the Connecticut River on the east. Included in this territory are the cities of Montpelier, Barre, South Burlington, Vergennes and Winooski, as well as the Village of Essex Junction and a number of smaller towns and communities. We also distribute electricity in four separate areas located in southern and southeastern Vermont that are interconnected with our principal service area through the transmission lines of VELCO and others. Included in these areas are the communities of Vernon (where the Vermont Yankee plant is located), Bellows Falls, White River Junction, Wilder, Wilmington and Dover. We supply at wholesale a portion of the power requirements of several municipalities and cooperatives in Vermont. We are obligated to meet the changing electrical requirements of these wholesale customers, in contrast to our obligation to other wholesale customers, which is limited to specified amounts of capacity and energy established by contract. Major business activities in our service areas include computer assembly and components manufacturing (and other electronics manufacturing), granite fabrication, service enterprises such as government, insurance and tourism (particularly winter recreation), and dairy and general farming. Our largest customer is International Business Machines (IBM). Electric energy sales to IBM for the years ended December 31, 1998, 1997 and 1996, accounted for 14.7%, 14.0% and 13.2%, respectively, of our operating revenues in those years. No other retail customer accounted for more than 1.0% of our revenue. Under the present regulatory system, the loss of IBM as a customer would require the Company to seek rate relief to recover the revenues previously paid by IBM from other customers in an amount sufficient to offset the fixed costs that IBM had been covering through its payments. EMPLOYEES As of December 31, 1998, the Company had 288 employees, exclusive of temporary employees, and our subsidiary, Mountain Energy Inc., had six employees. SEASONAL NATURE OF BUSINESS Winter recreational activities, longer hours of darkness and heating loads from cold weather usually cause our peak electric sales to occur in December, January or February. Our heaviest load in 1998 - 312.5 MW - occurred on January 14, 1998. We charge our customers higher rates for billing cycles in December through March and lower rates for the remaining months. These are called "seasonally differentiated rates". In order to eliminate the impact of the seasonally differentiated rates on earnings, we defer some of the revenues from those four months and account for them in later periods in which we have lower revenues or higher costs. By deferring certain revenues we are able to match our revenues to our costs more accurately. Under this structure, retail electric rates produce average revenues per kilowatthour during four peak season months (December through March) that are approximately 30% higher than during the eight off-season months (April through November). See "Energy Efficiency" and "Rate Design."
OPERATING STATISTICS For the Years Ended December 31 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- Net System Capability During Peak Month (MW) Hydro (1)............................................ 174.8 180.0 193.8 152.1 179.0 Lease transmissions.................................. 0.6 0.6 0.6 0.3 2.1 Nuclear (1).......................................... 95.7 95.7 95.7 81.9 107.2 Conventional steam................................... 53.0 53.0 52.9 77.8 67.1 Internal combustion.................................. 49.0 64.0 60.7 62.0 60.2 Combined cycle....................................... 22.1 22.1 22.1 22.0 22.6 Wind................................................. 1.7 1.5 -- -- -- ---------- ---------- ---------- ---------- ---------- Total capability (MW).............................. 396.9 416.9 425.8 396.1 438.2 Net system peak...................................... 312.5 311.5 313.0 297.1 308.3 ---------- ---------- ---------- ---------- ---------- Reserve (MW)......................................... 84.4 105.4 112.8 99.0 129.9 ========== ========== ========== ========== ========== Reserve % of peak.................................... 27.0% 33.8% 36.0% 33.3% 42.1% Net Production (MWH) Hydro (1)............................................ 972,723 1,073,246 1,192,881 1,043,617 742,088 Lease transmissions.................................. -- -- -- -- -- Nuclear (1).......................................... 607,708 772,030 680,613 682,814 763,690 Conventional steam................................... 750,602 560,504 705,331 673,982 651,105 Internal combustion.................................. 40,148 4,827 2,674 6,646 3,532 Combined cycle....................................... 118,322 104,836 51,162 92,723 37,808 ---------- ---------- ---------- ---------- ---------- Total production...................................2,489,503 2,515,443 2,632,661 2,499,782 2,198,223 Less non-requirements sales to other utilities....... 499,409 524,192 663,175 582,942 328,794 ---------- ---------- ---------- ---------- ---------- Production for requirements sales....................1,990,094 1,991,251 1,969,486 1,916,840 1,869,429 Less requirements sales & lease transmissions (MWH)..1,883,959 1,870,913 1,814,371 1,760,830 1,730,497 ---------- ---------- ---------- ---------- ---------- Losses and company use (MWH)......................... 106,135 120,338 155,115 156,010 138,932 ========== ========== ========== ========== ========== Losses as a percentage of total production............. 4.26% 4.78% 5.89% 6.24% 6.32% System load factor (2)................................. 71.8% 71.6% 69.7% 71.2% 67.7% Sales and Lease Transmissions (MWH) Residential - GMP.................................... 533,904 549,259 557,726 549,296 564,635 Lease transmissons................................... -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total Residential.................................. 533,904 549,259 557,726 549,296 564,635 Commercial & industrial - small...................... 665,707 645,331 630,839 608,688 604,686 Commercial & industrial - large...................... 636,436 608,051 584,249 556,278 521,400 Other................................................ 3,476 3,939 2,898 8,855 1,146 ---------- ---------- ---------- ---------- ---------- Total retail sales and lease transmissions.........1,839,522 1,806,580 1,775,712 1,723,117 1,691,867 Sales to municipals and cooperatives 44,437 64,333 38,659 37,713 38,630 ---------- ---------- ---------- ---------- ---------- Total requirements sales...........................1,883,959 1,870,913 1,814,371 1,760,830 1,730,497 Other sales for resale............................... 499,409 524,192 663,175 582,942 328,794 ---------- ---------- ---------- ---------- ---------- Total sales and lease transmissions................2,383,368 2,395,105 2,477,546 2,343,772 2,059,291 ========== ========== ========== ========== ========== Average Number of Electric Customers Residential.......................................... 71,301 70,671 70,198 69,659 68,811 Commercial and industrial - small.................... 12,170 11,989 11,828 11,712 11,611 Commercial and industrial - large.................... 23 23 25 24 24 Other................................................ 70 75 75 76 76 ---------- ---------- ---------- ---------- ---------- Total.............................................. 83,564 82,758 82,126 81,471 80,522 ========== ========== ========== ========== ========== Average Revenue per KWH (Cents) Residential including lease revenues................. 11.56 11.18 10.87 10.09 9.03 Lease charges........................................ -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total Residential.................................. 11.56 11.18 10.87 10.09 9.03 Commercial and industrial - small.................... 9.29 9.10 8.96 8.42 8.00 Commercial and industrial - large.................... 6.32 6.22 6.28 5.86 6.02 Total retail including lease revenues................ 8.96 8.94 8.92 8.36 7.96 Average Use and Revenue Per Residential Customer Kilowatt hours including lease transmissions......... 7,488 7,772 7,945 7,885 8,206 Revenues including lease revenues.................... $865 $869 $863 $796 $741 (1) See Note K of Notes to Consolidated Financial Statements. (2) Load factor is based on net system peak and firm MWH production less off-system losses.
STATE AND FEDERAL REGULATION General. The Company is subject to the regulatory authority of the Vermont Public Service Board (VPSB), which extends to retail rates, services and facilities, securities issues and various other matters. The separate Vermont Department of Public Service (the Department), created by statute in 1981, is responsible for development of energy supply plans for the State of Vermont (the State), purchases of power as an agent for the State and other general regulatory matters. The VPSB principally conducts quasi-judicial proceedings, such as rate setting. The Department, through a Director for Public Advocacy, is entitled to participate as a litigant in such proceedings and regularly does so. Our rate tariffs are uniform throughout our service area. We have entered into a number of jobs incentive agreements, providing for reduced capacity charges to large customers applicable only to new load. We have an economic development agreement with IBM that provides for contractually established charges, rather than tariff rates, for incremental loads. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Results of Operations - Operating Revenues and MWh Sales." Our wholesale rate on sales to two wholesale customers is regulated by the Federal Energy Regulatory Commission (FERC). Revenues from sales to these customers were approximately 0.9% of operating revenues for 1998. Late in 1989, we began serving a municipal utility, Northfield Electric Department, under our wholesale tariff. This customer increased our electricity sales in 1998 by approximately 24,064.6 MWh and peak requirements by approximately 5.5 MW. Revenues in 1998 from Northfield were $1,462,549. We provide transmission service to twelve customers within the State under rates regulated by the FERC; revenues for such services amounted to less than 1.0% of the Company's operating revenues for 1998. On April 24, 1996, the FERC issued Orders 888 and 889 that among other things required the filing of open access transmission tariffs by electric utilities. See Item 7. Management's Discussion and Analysis Of Financial Condition And Results Of Operations - "Transmission Issues - Federal Open Access Tariff Orders." NEPOOL's Open Access tariff for certain transmission facilities, including certain facilities between New York and New England, incorporates a load-based method of capacity allocation for NEPOOL transmission facilities. The Open Access tariff could reduce the amount of capacity available to the Company from such facilities in the future. See Item 7. Management's Discussion and Analysis Of Financial Condition and Results Of Operations - "Transmission Issues - NEPOOL Transmission Tariff." The Company has equity interests in Vermont Yankee, VELCO and Vermont Electric Transmission Company, Inc. (VETCO), a wholly owned subsidiary of VELCO. We have filed an exemption statement under Section 3(a)(2) of the Public Utility Holding Company Act of 1935, thereby securing exemption from the provisions of such Act, except for Section 9(a)(2), which prohibits the acquisition of securities of certain other utility companies without approval of the Securities and Exchange Commission (SEC). The SEC has the power to institute proceedings to terminate such exemption for cause. Licensing. Pursuant to the Federal Power Act, the FERC has granted licenses for the following hydro-electric projects owned by the Company: Project Issue Date Period - ------- ---------- ------ Bolton February 5, 1982 February 5, 1982 - February 4, 2022 Essex March 30, 1995 March 1, 1995 - March 1, 2025 Vergennes June 29, 1979 June 1, 1949 - May 31, 1999 Waterbury July 20, 1954 September 1, 1951 - August 31, 2001 Major project licenses provide that after an initial twenty-year period, a portion of the earnings of such project in excess of a specified rate of return is to be set aside in appropriated retained earnings in compliance with FERC Order #5, issued in 1978. Although the twenty-year periods expired in 1985, 1969 and 1971 in the cases of the Essex, Vergennes and Waterbury projects, respectively, the amounts appropriated are not material. The relicensing application for Vergennes is on file with the FERC and the relicensing application for Waterbury is being prepared for filing. We expect both projects to be relicensed for a 30 year term in the near future and does not have any competition for the licenses. Department of Public Service Twenty-Year Electric Plan. In December 1994, the Department adopted an update of its twenty-year electrical power-supply plan (the Plan) for the State. The Plan includes an overview of statewide growth and development as they relate to future requirements for electrical energy; an assessment of available energy resources; and estimates of future electrical energy demand. In June 1996, we filed with the VPSB and the Department an integrated resource plan pursuant to Vermont Statute 30 V.S.A. Section 218c. That filing is still pending before the VPSB. RECENT RATE DEVELOPMENTS On May 8, 1998, we filed a request with the VPSB to increase retail rates by 12.9 percent. The retail rate increase is needed to cover higher power supply costs, the cost of the January 1998 ice storm, higher taxes and investments in new plant and equipment. On November 18, 1998, by Memorandum of Understanding (MOU), the Company, the Department and IBM agreed to: - implementation of a temporary rate increase of 5.7 percent, effective December 15, 1998, with the potential for an additional surcharge in order to produce additional revenues necessary to provide the Company with the capacity to finance estimated 1999 Pine Street Barge Canal site expenditures of $5.8 million, and - to stay, effective November 16, 1998, further rate proceedings in this rate case until or after September 1, 1999, or such earlier date to which the parties may later agree or the VPSB may order. For further information regarding recent rate developments, see Item 7. Management's Discussion and Analysis Of Financial Condition and Results Of Operations - "Liquidity and Capital Resources" and Note I of Notes to Consolidated Financial Statements. COMPETITION AND RESTRUCTURING Electric utilities historically have had exclusive franchises for the retail sale of electricity in specified service territories. Legislative authority has existed since 1941 that would permit Vermont cities, towns and villages to own and operate public utilities. Since that time, no municipality served by the Company has established or, as far as is known to the Company, is presently taking steps to establish a municipal public utility. In 1987, the Vermont General Assembly enacted legislation that authorized the Department to sell electricity on a significantly expanded basis. Before the new law was passed, the Department's authority to make retail sales had been limited. It could sell at retail only to residential and farm customers and could sell only power that it had purchased from the Niagara and St. Lawrence projects operated by the New York Power Authority. Under the law, the Department can sell electricity purchased from any source at retail to all customer classes throughout the State, but only if it convinces the VPSB and other State officials that the public good will be served by such sales. The Department has made limited additional retail sales of electricity. The Department retains its traditional responsibilities of public advocacy before the VPSB and electricity planning on a statewide basis. Regulatory and legislative authorities at the federal level and among states across the country, including Vermont, are considering how to restructure the electric utility industry to facilitate competition for electricity sales at wholesale and retail levels. For further information regarding Competition and Restructuring, See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - "Future Outlook." POWER RESOURCES The Company has agreed to enter into a contract with Morgan Stanley Capital Group, Inc. as the result of our all power requirements solicitation in 1998. See Note L of Notes to Consolidated Financial Statements "Power Purchase and Supply Agreement". The Company generated, purchased or transmitted 1,977,647.5 MWh of energy for retail and requirements wholesale customers for the twelve months ended December 31, 1998. The corresponding maximum one-hour integrated demand during that period was 312.5 MW on January 14, 1998. This compares to the all-time peak of 322.6 MW on December 27, 1989. The following table shows the net generated and purchased energy, the source of such energy for the twelve-month period and the capacity in the month of the period system peak. See Note K of Notes to Consolidated Financial Statements. Net Generated and Net Generated and Purchased in Year Purchased at Time Ended 12/31/98 (a) of Annual Peak ___________________ ___________________ MWh % KW % WHOLLY OWNED PLANTS Hydro . . . . . . . . . . . . . 162,358.0 7.8 35,310 8.9 Diesel and Gas Turbine . . . . 4,647.8 0.2 46,030 11.6 Searsburg . . . . . . . . . . . 12,886.3 0.6 1,690 0.4 JOINTLY OWNED PLANTS Wyman #4 . . . . . . . . . . . 14,144.5 0.7 7,030 1.8 Stony Brook I . . . . . . . . . 21,471.3 1.0 7,990 2.0 McNeil . . . . . . . . . . . . 14,192.3 0.7 6,450 1.6 OWNED IN ASSOCIATION W/OTHERS Vermont Yankee Nuclear . . . . 571,407.1 27.5 95,680 24.1 NYPA LEASE TRANSMISSIONS State of Vermont (NYPA) . . . . 1,650.3 0.1 620 0.2 LONG-TERM PURCHASES Hydro-Quebec . . . . . . . . . 682,197.0 32.8 121,690 30.7 Merrimack #2 . . . . . . . . . 40,721.1 2.0 31,820 8.0 Stony Brook I . . . . . . . . 41,679.7 2.0 14,150 3.6 Small Power Producers . . . . . 126,507.7 6.1 24,650 6.2 SHORT-TERM PURCHASES . . . . . . 386,926.4 18.5 3,860 .9 ___________ ____ _______ _____ Less System Sales Energy . . . (103,142.0) NET OWN LOAD . . . . . . . . 1,977,647.5 100.0 396,970 100.0 =========== ====== ======= ====== (a) Excludes losses on off-system purchases, totaling 24,189 MWh per GA- 35 MWh production report. Vermont Yankee. The Company and Central Vermont Public Service Corporation acted as lead sponsors in the construction of the Vermont Yankee Nuclear Plant, a boiling-water reactor designed by General Electric Company. The plant, which became operational in 1972, has a generating capacity of 531 MW. Vermont Yankee has entered into power contracts with its sponsor utilities, including the Company, that expire at the end of the life of the unit. Pursuant to our power contract, we are required to pay 20% of Vermont Yankee's operating expenses (including depreciation and taxes), fuel costs (including charges in respect of estimated costs of disposal of spent nuclear fuel), decommissioning expenses, interest expense and return on common equity, whether or not the Vermont Yankee plant is operating. In 1969, we sold to other Vermont utilities a share of our entitlement to the output of Vermont Yankee. Accordingly, those utilities have an aggregate obligation to the Company to pay 2.735% of Vermont Yankee's operating expenses, fuel costs, decommissioning expenses, interest expense and return on common equity. As a result of the bankruptcy of one of those utilities, a portion of the entitlement has reverted back to us. Accordingly, those utilities have an obligation to pay us 2.338% of Vermont Yankee's operating expenses, fuel costs, decommissioning expenses, interest expense and return on common equity, whether or not the Vermont Yankee plant is operating. Vermont Yankee has also entered into capital funds agreements with its sponsor utilities that expire on December 31, 2002. Under our Capital Funds Agreement, we are required, subject to obtaining necessary regulatory approvals, to provide 20% of the capital requirements of Vermont Yankee not obtained from outside sources. On April 27, 1989, Vermont Yankee applied to the Nuclear Regulatory Commission (NRC) for an amendment to its operating license to extend the expiration date from December 2007 to March 2012, in order to take advantage of current NRC policy to issue operating licenses for a 40- year term measured from the grant of the operating license. Prior NRC policy, under which the operating license was issued, called for a term of 40 years from the date of the construction permit. On August 22, 1989, the State, opposing the license extension, filed a request for a hearing and petition for leave to intervene, which petition was subsequently granted. On December 17, 1990, the NRC issued an amendment to the operating license extending the expiration date to March 21, 2012, based upon a "no significant hazards" finding by the NRC staff and subject to the outcome of the evidentiary hearing on the State's assertions. On July 31, 1991, Vermont Yankee reached a settlement with the State, and the State filed a withdrawal of its intervention. The proceeding was dismissed on September 3, 1991. The NRC's most recently issued Systematic Assessment of Licensee Performance scores for Vermont Yankee are for the period January 19, 1997 to July 18, 1998. Operations, engineering, maintenance and plant support were rated good. These scores were identical to Vermont Yankee's scores for the prior 18 month-period except for plant support, which declined from superior. During periods when Vermont Yankee is unavailable, we incur replacement power costs in excess of those costs that we would have incurred for power purchased from Vermont Yankee. Replacement power is available to us from NEPOOL and through contractual arrangements with other utilities. Replacement power costs adversely affect cash flow and, absent deferral, amortization and recovery through rates, would adversely affect reported earnings. Routinely, in the case of scheduled outages for refueling, the VPSB has permitted the Company to defer, amortize and recover these excess replacement power costs for financial reporting and rate making purposes over the period until the next scheduled outage. Vermont Yankee has adopted an 18-month refueling schedule. On March 21, 1998, Vermont Yankee began a scheduled refueling outage, which concluded June 3, 1998. The 1999 refueling outage is scheduled to begin October 29, 1999. In the case of unscheduled outages of significant duration resulting in substantial unanticipated costs for replacement power, the VPSB generally has authorized deferral, amortization and recovery of such costs. Vermont Yankee's current estimate of decommissioning as approved by FERC is approximately $407 million, of which $260 million has been funded. Vermont Yankee is in the process of preparing an updated site decommissioning cost study. Preliminary results indicate that the revised estimate could exceed $500 million in 1998 dollars. Vermont Yankee is required to file the results of the new study with the FERC by March 31, 1999, and expects that any resulting change in rates will be effective January 1, 2000. At December 31, 1998, our portion of the net non-funded liability was $26 million, which we expect will be recovered through rates over Vermont Yankee's remaining operating life. During 1998, we incurred $27.2 million in Vermont Yankee annual capacity charges, which included $2 million for interest charges. Our share of Vermont Yankee's long-term debt at December 31, 1998 was $16.7 million. During the year ended December 31, 1998, we utilized 571,407.1 MWh of Vermont Yankee energy to meet 27.5% of our retail and requirements wholesale (Rate W) sales. The average cost of Vermont Yankee electricity in 1998 was 5.7 cents per KWh. Vermont Yankee's annual capacity factor for 1998 was 73.6%, compared to 93.5% in 1997 and 83.0% in 1996. The decrease in capacity was due to plant outages. The Price-Anderson Act currently sets the statutory limit of liability from a single incident at a nuclear power plant at $9.8 billion. Any damages beyond $9.8 billion are indemnified under the Price-Anderson Act, but subject to Congressional approval. The first $200 million of liability coverage is the maximum provided by private insurance. The Secondary Financial Protection Program is a retrospective insurance plan providing additional coverage up to $9.6 billion per incident by assessing each of the 109 reactor units that are currently subject to the Program in the United States a total of $88.1 million, limited to a maximum assessment of $10 million per incident per nuclear unit in any one year. The maximum assessment is adjusted at least every five years to reflect inflationary changes. The above insurance now covers all workers employed at nuclear facilities for bodily injury claims. Vermont Yankee had previously purchased a Master Worker insurance policy with limits of $200 million with one automatic reinstatement of policy limits to cover workers employed on or after January 1, 1988. Vermont Yankee no longer participates in this retrospectively-based worker policy and has replaced this policy with the guaranteed cost coverage mentioned above. However, Vermont Yankee does retain a potential obligation for retrospective adjustments due to past operations of several smaller facilities that did not join the new program. These exposures will cease to exist no later than December 31, 2007. Vermont Yankee's maximum retrospective obligation remains at $3.1 million. The Secondary Financial Protection layer, as referenced above, would be in excess of the Master Worker policy. Insurance has been purchased from Nuclear Electric Insurance Limited (NEIL) to cover the costs of property damage, decontamination or premature decommissioning resulting from a nuclear incident. All companies insured with NEIL are subject to retroactive assessments if losses exceed the accumulated funds available. The maximum potential assessment against Vermont Yankee with respect to NEIL losses arising during the current policy year is $11.0 million. Vermont Yankee's liability for the retrospective premium adjustment for any policy year ceases six years after the end of that policy year unless prior demand has been made. See Note L-3 of Notes to Consolidated Financial Statements. HYDRO-QUEBEC Highgate Interconnection. On September 23, 1985, the Highgate transmission facilities, which were constructed to import energy from Hydro-Quebec in Canada, began commercial operation. The transmission facilities at Highgate include a 225-MW AC-to-DC-to-AC converter terminal and seven miles of 345-kV transmission line. VELCO built and operates the converter facilities, which we own jointly with a number of other Vermont utilities. NEPOOL/Hydro-Quebec Interconnection. VELCO and certain other NEPOOL members have entered into agreements with Hydro-Quebec providing for the construction in two phases of a direct interconnection between the electric systems in New England and the electric system of Hydro- Quebec in Canada. The Vermont participants in this project, which has a capacity of 2,000 MW, will derive about 9.0% of the total power-supply benefits associated with the NEPOOL/Hydro-Quebec interconnection. The Company, in turn, receives about one-third of the Vermont share of those benefits. The benefits of the interconnection include: - - access to surplus hydroelectric energy from Hydro-Quebec at competitive prices; - - energy banking, under which participating New England utilities will transmit relatively inexpensive energy to Hydro-Quebec during off-peak periods and will receive equal amounts of energy, after adjustment for transmission losses, from Hydro-Quebec during peak periods when replacement costs are higher; and - - provision for emergency transfers and mutual backup to improve reliability for both the Hydro-Quebec system and the New England systems. Phase I. The first phase (Phase I) of the NEPOOL/Hydro-Quebec Interconnection consists of transmission facilities having a capacity of 690 MW that traverse a portion of eastern Vermont and extend to a converter terminal located in Comerford, New Hampshire. These facilities entered commercial operation on October 1, 1986. VETCO was organized to construct, own and operate those portions of the transmission facilities located in Vermont. Total construction costs incurred by VETCO for Phase I were $47,850,000. Of that amount, VELCO provided $10,000,000 of equity capital to VETCO through sales of VELCO preferred stock to the Vermont participants in the project. The Company purchased $3,100,000 of VELCO preferred stock to finance the equity portion of Phase I. The remaining $37,850,000 of construction cost was financed by VETCO's issuance of $37,000,000 of long-term debt in the fourth quarter of 1986 and the balance of $850,000 was financed by short-term debt. Under the Phase I contracts, each New England participant, including the Company, is required to pay monthly its proportionate share of VETCO's total cost of service, including its capital costs. Each participant also pays a proportionate share of the total costs of service associated with those portions of the transmission facilities constructed in New Hampshire by a subsidiary of New England Electric System. Phase II. Agreements executed in 1985 among the Company, VELCO and other NEPOOL members and Hydro-Quebec provided for the construction of the second phase (Phase II) of the interconnection between the New England Electric System and that of Hydro-Quebec. Phase II expands the Phase I facilities from 690 MW to 2,000 MW, and provides for transmission of Hydro-Quebec power from the Phase I terminal in northern New Hampshire to Sandy Pond, Massachusetts. Construction of Phase II commenced in 1988 and was completed in late 1990. The Phase II facilities commenced commercial operation November 1, 1990, initially at a rating of 1,200 MW, and increased to a transfer capability of 2,000 MW in July 1991. The Hydro-Quebec-NEPOOL Firm Energy Contract provides for the import of economical Hydro-Quebec energy into New England. The Company is entitled to 3.2% of the Phase II power-supply benefits. Total construction costs for Phase II were approximately $487,000,000. The New England participants, including the Company, have contracted to pay monthly their proportionate share of the total cost of constructing, owning and operating the Phase II facilities, including capital costs. As a supporting participant, the Company must make support payments under 30-year agreements. These support agreements meet the capital lease accounting requirements under SFAS 13. At December 31, 1998, the present value of the Company's obligation was $7,696,336. The Company's projected future minimum payments under the Phase II support agreements are $452,726 for each of the years 1999-2003 and an aggregate of $5,432,706 for the years 2004-2020. The Phase II portion of the project is owned by New England Hydro- Transmission Electric Company, Inc. and New England Hydro-Transmission Corporation, subsidiaries of New England Electric System, in which certain of the Phase II participating utilities, including the Company, own equity interests. The Company owns approximately 3.2% of the equity of the corporations owning the Phase II facilities. During construction of the Phase II project, the Company, as an equity sponsor, was required to provide equity capital. At December 31, 1998, the capital structure of such corporations was 41% common equity and 59% long-term debt. See Note J of Notes to Consolidated Financial Statements. At times, we request that portions of our power deliveries from Hydro-Quebec and other sources be routed through New York. Our ability to do so could be adversely affected by the proposed tariff that NEPOOL has filed with the FERC, which would reduce our allocation of capacity on transmission interfaces with New York. As a result, our ability to import power to Vermont from outside New England could be adversely affected, thereby impacting our power costs in the future. See Item 7. Management's Discussion and Analysis Of Financial Condition and Results Of Operations - "Transmission Issues" and Note J of Notes to Consolidated Financial Statements. Hydro-Quebec Power Supply Contracts. We have several purchase power contracts with Hydro-Quebec. The bulk of our purchases are comprised of two schedules, B and C3, pursuant to a Firm Contract dated December 1987. Under these two schedules, we purchase 114.2 MW. Under an arrangement negotiated in January 1996, the HQ 9601 and the HQ 9602 contracts, we received cash payments from Hydro-Quebec of $3,000,000 in 1996 and $1,100,000 in 1997. In accordance with such arrangement, we agreed to shift certain transmission requirements, purchase certain quantities of power and make certain minimum payments for periods in which power is not purchased. In addition, in November 1996, we entered into a Memorandum of Understanding with Hydro-Quebec under which Hydro- Quebec paid $8,000,000 to the Company in exchange for certain power purchase elections. See Item 7. Management's Discussion And Analysis Of Financial Condition and Results Of Operations - "Power Supply Expenses" and Notes J and K-2 of Notes to Consolidated Financial Statements. In 1998, we utilized 351,012.6 MWh under Schedule B, 260,329.3 MWh under Schedule C3, and 70,855.1 MWh under HQ 9601 and HQ 9602 to meet 32.8% of our retail and requirements wholesale sales. The average cost of Hydro-Quebec electricity in 1998 was 6.8 cents per KWh. New York Power Authority (NYPA). The Department allocates NYPA power to us, which, in turn, we deliver to our residential and farm customers. We purchased at wholesale 1,650.3 MWh to meet 0.1% of our retail and requirements wholesale sales of NYPA power at an average cost of 5.0 cents per KWh in 1998. Merrimack Unit #2. Merrimack Unit #2 is a coal-fired steam plant of 320.0 MW capacity located in Bow, New Hampshire, and owned by Northeast Utilities. We were entitled to 31.05 MW of capacity and related energy from the unit under a 30-year contract that expired May 1, 1998. In 1998, we utilized 40,721.1 MWh from the unit to meet 2.0% of our total retail and requirements wholesale sales. The average cost of electricity from this unit was 5.7 cents per KWh in 1998. See Note K-1 of Notes to Consolidated Financial Statements. Stony Brook I. The Massachusetts Municipal Wholesale Electric Company (MMWEC) is principal owner and operator of Stony Brook, a 352.0- MW combined-cycle intermediate generating station located in Ludlow, Massachusetts, which commenced commercial operation in November 1981. We entered into a Joint Ownership Agreement with MMWEC dated as of October 1, 1977, whereby we acquired an 8.8% ownership share of the plant, entitling us to 31.0 MW of capacity. In addition to this entitlement, we have contracted for 14.2 MW of capacity for the life of the Stony Brook I plant, for which we will pay a proportionate share of MMWEC's share of the plant's fixed costs and variable operating expenses. The three units that comprise Stony Brook I are all capable of burning oil. Two of the units are also capable of burning natural gas. The natural gas system at the plant was modified in 1985 to allow two units to operate simultaneously on natural gas. During 1998, we utilized 63,151.0 MWh from this plant to meet 3.0% of our retail and requirements wholesale sales at an average cost of 4.2 cents. See Note I-4 and K-1 of Notes to Consolidated Financial Statements. Wyman Unit #4. The W. F. Wyman Unit #4, which is located in Yarmouth, Maine, is an oil-fired steam plant with a capacity of 620 MW. Central Maine Power Company sponsored the construction of this plant. We have a joint-ownership share of 1.1% (7.1 MW) in the Wyman #4 unit, which began commercial operation in December 1978. During 1998, we utilized 14,144.5 MWh from this unit to meet 0.7% of our retail and requirements wholesale sales at an average cost of 2.4 cents per kWh, based only on operation, maintenance, and fuel costs incurred during 1998. See Note I-4 of Notes to Consolidated Financial Statements. McNeil Station. The J.C. McNeil station, which is located in Burlington, Vermont, is a wood chip and gas-fired steam plant with a capacity of 53.0 MW. We have an 11.0% or 5.8 MW interest in the J. C. McNeil plant, which began operation in June 1984. In 1989, the plant added the capability to burn natural gas on an as- available/interruptible service basis. During 1998, we utilized 14,192.3 MWh from this unit to meet 0.7% of our retail and requirements wholesale sales at an average cost of 4.7 cents per kWh, based only on operation, maintenance, and fuel costs incurred during 1998. See Note I-4 of Notes to Consolidated Financial Statements. Independent Power Producers. The VPSB has adopted rules that implement for Vermont the purchase requirements established by federal law in the Public Utility Regulatory Policies Act of 1978 (PURPA). Under the rules, qualifying facilities have the option to sell their output to a central state-purchasing agent under a variety of long- and short-term, firm and non-firm pricing schedules. Each of these schedules is based upon the projected Vermont composite system's power costs that would be required but for the purchases from independent producers. The State purchasing agent assigns the energy so purchased, and the costs of purchase, to each Vermont retail electric utility based upon its pro rata share of total Vermont retail energy sales. Utilities may also contract directly with producers. The rules provide that all reasonable costs incurred by a utility under the rules will be included in the utilities' revenue requirements for rate-making purposes. Currently, the State purchasing agent, Vermont Electric Power Producers, Inc. (VEPPI), is authorized to seek 150 MW of power from qualifying facilities under PURPA, of which our average pro rata share in 1998 was approximately 32.9% or 49.3 MW. The rated capacity of the qualifying facilities currently selling power to VEPPI is approximately 74.5 MW. These facilities were all online by the spring of 1993, and no other projects are under development. We do not expect any new projects to come online in the foreseeable future because the excess capacity in the region has eliminated the need for and value of additional qualifying facilities. In 1998, through both our direct contracts and VEPPI, we purchased 126,507.7 MWh of qualifying facilities production to meet 6.1% of our retail and requirements wholesale sales at an average cost of 10.9 cents per KWh. Short Term Opportunity Purchases and Sales. We have arrangements with numerous utilities and power marketers actively trading power in New England and New York under which we may make purchases or sales of power on short notice and generally for brief periods of time when it appears economic to do so. Opportunity purchases are arranged when it is possible to purchase power for less than it would cost us to generate the power with our own sources. Purchases also help us save on replacement power costs during an outage of one of our base load sources. Opportunity sales are arranged when we have surplus energy available at a price that is economic to other regional utilities at any given time. The sales are arranged based on forecasted costs of supplying the incremental power necessary to serve the sale. Prices are set so as to recover all of the forecasted fuel or production costs and to recover some, if not all, associated capacity costs. During 1998, we purchased 386,926.4 MWh, meeting 18.5% of our retail and requirements wholesale sales, at an average cost of 2.7 cents per kWh. NEPOOL. As a participant of NEPOOL, through VELCO, we take advantage of pool operations with central economic dispatch of participants' generating plants, pooling of transmission facilities and economy and emergency exchange of energy and capacity. The NEPOOL agreement also imposes obligations on us to maintain a generating capacity reserve as set by NEPOOL, but which is lower than the reserve which would be required if we were not a NEPOOL participant. Company Hydroelectric Power. The Company wholly owns and operates eight hydroelectric generating facilities located on river systems within its service area, the largest of which has a generating output of 7.8 MW. In 1998, these plants provided 162.358 MWh of low-cost energy, meeting 7.8% of our retail and requirements wholesale sales at an average cost of 3.3 cents per kWh, based on total embedded costs. See "State and Federal Regulation" - "Licensing." VELCO. The Company and six other Vermont electric distribution utilities own VELCO. Since commencing operation in 1958, VELCO has transmitted power for its owners in Vermont, including power from NYPA and other power contracted for by Vermont utilities. VELCO also purchases bulk power for resale at cost to its owners, and as a member of NEPOOL, represents all Vermont electric utilities in pool arrangements and transactions. See Note B of Notes to Consolidated Financial Statements. Long-Term Power Sales. In 1986, we entered into an agreement for the sale to United Illuminating of 23 MW of capacity produced by the Stony Brook I combined-cycle plant and provided for our recovery of all costs associated with the capacity and energy sold. The agreement commenced October 1, 1986 and expired October 31, 1998. Fuel. During 1998, our retail and requirements wholesale sales were provided by the following fuel sources: 44.0% from hydro (7.8% Company-owned, 0.1% NYPA, 32.8% Hydro-Quebec and 3.3% from small power producers), 27.5% from nuclear, 2.0% from coal, 3.5% from wood, 2.4% from natural gas, 1.5% from oil, 0.6% from wind, and 18.5% purchased on a short-term basis from other utilities through NEPOOL. Vermont Yankee has several "requirement based" contracts for the four components (uranium, conversion, enrichment and fabrication) used to produce nuclear fuel. These contracts are executed only if the need or requirement for fuel arises. Under these contracts, any disruption of operating activity would allow Vermont Yankee to cancel or postpone deliveries until actually required. The contracts extend through various time periods and contain clauses to allow Vermont Yankee the option to extend the agreements. Negotiation of new contracts and renegotiations of existing contracts routinely occurs, the latter often focuses on one of the four components. The price of the 1998 reload was approximately $22 million. The 1999 reload will also cost approximately $22 million. Future reload costs will depend on market and contract prices On January 20, 1997, Vermont Yankee entered into an agreement with a former uranium supplier whereby the supplier could opt to terminate a production purchase agreement dated August 4, 1978. Although there had been no transactions under the production purchase agreement for several years, Vermont Yankee maintained certain financial rights. In consideration for the option to terminate the production purchase agreement and the subsequent exercise of the option, Vermont Yankee received $600,000 in 1997, which was recorded as an offset to nuclear fuel expense. The potential future payments over a ten-year period range from zero to $2.4 million. No payments were received in 1998 under this agreement. Due to the uncertainty of this transaction, any benefits received will be recorded on a cash basis. Vermont Yankee has a contract with the United States Department of Energy (DOE) for the permanent disposal of spent nuclear fuel. Under the terms of this contract, in exchange for the one-time fee discussed below and a quarterly fee of 1 mil per kWh of electricity generated and sold, the DOE agrees to provide disposal services when a facility for spent nuclear fuel and other high-level radioactive waste is available, which is required by contract to be prior to January 31, 1998. The actual date for these disposal services is expected to be delayed many years. DOE currently estimates that a permanent disposal facility will not begin operation before 2010. A DOE temporary disposal site may be provided in a few years, but no decision has been made to proceed on providing a temporary disposal site at this time. The DOE contract obligates Vermont Yankee to pay a one-time fee of approximately $39.3 million for disposal costs for all spent fuel discharged through April 7, 1983. Although such amount has been collected in rates from the Vermont Yankee participants, Vermont Yankee has elected to defer payment of the fee to the DOE as permitted by the DOE contract. The fee must be paid no later than the first delivery of spent nuclear fuel to the DOE. Interest accrues on the unpaid obligation based on the thirteen-week Treasury Bill rate and is compounded quarterly. Through 1998, Vermont Yankee accumulated approximately $98 million in an irrevocable trust to be used exclusively for defeasing this obligation at some future date, provided the DOE complies with the terms of the aforementioned contract. We do not maintain long-term contracts for the supply of oil for our wholly-owned oil-fired peaking unit generating stations (80 MW). We did not experience difficulty in obtaining oil for our own units during 1998, and, while no assurance can be given, we do not anticipate any such difficulty during 1999. None of the utilities from which we expect to purchase oil- or gas-fired capacity in 1999 has advised us of grounds for doubt about maintenance of secure sources of oil and gas during the year. Merrimack #2 purchased coal under a long-term contract from Balley Mine in western Pennsylvania and occasionally on the spot market from northern West Virginia and southern Pennsylvania sources in 1998. Our contract with Merrimack #2 expired May 1,1998. Wood for the McNeil plant is furnished to the Burlington Electric Department from a variety of sources under short-term contracts ranging from several weeks' to six months' duration. The McNeil plant used 233,312 tons of wood chips and mill residue and 181.9 million cubic feet of natural gas in 1998. The McNeil plant is forecasting consumption of wood chips for 1999 to be 200,000 tons and natural gas consumption of 136 million cubic feet. The Stony Brook combined-cycle generating station is capable of burning either natural gas or oil in two of its turbines. Natural gas is supplied to the plant subject to its availability. During periods of extremely cold weather, the supplier reserves the right to discontinue deliveries to the plant in order to satisfy the demand of its residential customers. We assume, for planning and budgeting purposes, that the plant will be supplied with gas during the months of April through November, and that it will run solely on oil during the months of December through March. The plant maintains an oil supply sufficient to meet approximately one-half of its annual needs. Wind Project. Our 20 years of research and development work in wind generation was recognized in 1993 when we were selected by the DOE and the Electric Power Research Institute (EPRI) to build a commercial scale wind-powered facility. The DOE and EPRI provided partial funding for the wind project of approximately $3.9 million. The net cost to the Company of the project, located in the southern Vermont town of Searsburg, was $7.8 million. The eleven wind turbines have a rating of 6 MW and were commissioned July 1, 1997. In 1998, the plant provided 12,886.3 MWh, meeting 0.6% of our retail and requirements wholesale sales at an average cost of 7.0 cents cents per kWh. ENERGY EFFICIENCY In 1998, we continued to focus our energy efficiency services on programs that encouraged customers to install energy efficient equipment when they are planning to replace or buy new equipment rather than attempting to convince them to replace equipment that is still in good working order. This strategy, along with careful management, has helped us to keep our cost-per-kilowatthour saved below 2 cents which is a 56% reduction in costs since 1992. In 1998, our energy efficiency programs saved 8,320 megawatthours, 4% above targeted savings for the year. During the past eight years our efficiency programs have achieved a cumulative annual savings of 79,049 megawatthours, saving approximately $7 million per year for our customers. We continued to work with other Vermont utilities and the Vermont Department of Public Service to improve and expand a set of statewide demand side management programs. This effort should reduce cost of delivering these programs and provide a more standardized service to customers throughout the State. In 1998, we spent approximately $1.8 million on energy efficiency programs, approximately 1.0% of our 1998 retail revenue. RATE DESIGN The Company seeks to design rates to encourage the shifting of electrical use from peak hours to off-peak hours. Since 1976, we have offered optional time-of-use rates for residential and commercial customers. Currently, approximately 2,500 of our residential customers continue to be billed on the original 1976 time-of-use rate basis. In 1987, we received regulatory approval for a rate design that permitted us to charge prices for electric service that reflected as accurately as possible the cost burden imposed by each customer class. Our rate design objectives are to provide a stable pricing structure and to accurately reflect the cost of providing electric services. This rate structure helps to achieve these goals. Since inefficient use of electricity increases its cost, customers who are charged prices that reflect the cost of providing electrical service have real incentives to follow the most efficient usage patterns. Included in the VPSB's order approving this rate design was a requirement that our largest customers be charged time-of-use rates on a phased-in basis by 1994. At year end December 31, 1998, approximately 1,350 of our largest customers, comprising 48% of our retail revenues, continue to receive service on mandatory time-of-use rates. In May 1994, we filed our current rate design with the VPSB. The parties, including the Department, IBM and a low-income advocacy group, entered into a settlement that was approved by the VPSB on December 2, 1994. Under the settlement, the revenue allocation to each rate class was adjusted to reflect class-by-class cost changes since 1987, the differential between the winter and summer rates was reduced, the customer charge was increased for most classes, and usage charges were adjusted to be closer to the associated marginal costs. No modifications to base rate design have taken place since the VPSB Order issued on December 2, 1994. DISPATCHABLE AND INTERRUPTIBLE SERVICE CONTRACTS In 1998, we had interruptible/dispatchable power contracts with three major ski areas, interruptible-only contracts with five customers and dispatchable-only contracts with an additional twenty-four customers. The interruptible portion of the contracts allows the Company to control power supply capacity charges by reducing our capacity requirements. During 1998, we did not request any interruptions due to the surplus capacity in the region. The dispatchable portion of the contracts allows customers to purchase electricity during times designated by the Company when low cost power is available. The customer's demand during these periods is not considered in calculating the monthly billing. This program enables the Company and the customers to benefit from load control. We shift load from our high cost peak periods and the customer uses inexpensive power at a time when its use provides maximum value. These programs are available by tariff for qualifying customers. CONSTRUCTION AND CAPITAL REQUIREMENTS Our capital expenditures for 1996 through 1998 and projection for 1999 are set forth in Item 7. Management's Discussion And Analysis Of Financial Condition and Results Of Operations - "Liquidity and Capital Resources" -"Construction." Construction projections are subject to continuing review and may be revised from time-to-time in accordance with changes in the Company's financial condition, load forecasts, the availability and cost of labor and materials, licensing and other regulatory requirements, changing environmental standards and other relevant factors. For the period 1996-1998, internally generated funds, after payment of dividends, provided approximately 60 percent of total capital requirements for construction, sinking fund obligations and other requirements. Internally generated funds provided 25 percent of such requirements for 1998. We anticipate that for 1999, internally generated funds will provide approximately 90 percent of total capital requirements for regulated operations, the remainder to be derived from bank loans. ENVIRONMENTAL MATTERS We have been notified by the Environmental Protection Agency (EPA) that we are one of several potentially responsible parties for clean up at the Pine Street Barge Canal site in Burlington, Vermont. For information regarding the Pine Street Canal site and other environmental matters see Item 7. Management's Discussion and Analysis Of Financial Condition and Results of Operations - "Environmental Matters" and Note I-2 of Notes to Consolidated Financial Statements. UNREGULATED BUSINESSES In 1998, we sold the assets of our wholly owned subsidiary, Green Mountain Propane Gas Company. Through our subsidiary, Green Mountain Resources, Inc., we agreed to sell our remaining interest in Green Mountain Energy Resources to Green Funding I in early 1999. For information regarding our unregulated businesses, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations- "Unregulated Businesses." EXECUTIVE OFFICERS Executive Officers of the Company as of March 15, 1999: Name Age Nancy Rowden Brock 43 Vice President, Chief Financial Officer and Treasurer since December 1998. Chief Corporate Strategic Planning Officer from March 1998 to December 1998. Prior to joining the Company, she was Chief Financial Officer of SAL, Inc., 1997; and Senior Vice President, Chief Financial Officer and Treasurer for the Chittenden Corporation from 1988 to 1996. Christopher L. Dutton 50 President, Chief Executive Officer of the Company and Chairman of the Executive Committee of the Corporation since August 1997. Vice President, Finance and Administration, Chief Financial Officer and Treasurer from 1995 to 1997. Vice President and General Counsel from 1993 to January 1995. Vice President, General Counsel and Corporate Secretary from 1989 to 1993. Robert J. Griffin 42 Controller since October 1996. Manager of General Accounting from 1990 to 1996. Donna S. Laffan 49 Corporate Secretary since December 1993. Assistant Secretary from 1986 to 1993. John J. Lampron 54 Assistant Treasurer since July 1991. Prior to joining the Company, he was employed by Public Service Company of New Hampshire as an Assistant Vice President from 1982 to 1990. Michael H. Lipson 54 General Counsel since August 1997. Assistant General Counsel from 1994 to 1997. Senior Attorney from 1993 to 1994. Corporate Attorney from 1990 to 1993. Prior to joining the Company, he was a partner with Miller, Eggleston and Rosenberg Ltd. Craig T. Myotte 44 Assistant Vice President-Engineering and Operations since 1994. Assistant Vice President-Operations and Maintenance from 1991 to 1994. Walter S. Oakes 52 Assistant Vice President-Customer Operations since June 1994. Assistant Vice President, Human Resources from August 1993 to June 1994. Assistant Vice President- Corporate Services from 1988 to 1993. Mary G. Powell 38 Vice President, Administration since February 1999. Vice President, Human Resources and Organizational Development from March 1998 to February 1999. Prior to joining the Company, she was Senior Vice President, Human Resources and Senior Vice President Community Banking, Senior Vice President Administration, and Vice President of Human Resources for KEYCORP from October 1992 to March 1998. Stephen C. Terry 56 Senior Vice President, Corporate Development since August 1997. Vice President and General Manager, Retail Energy Services from 1995 to 1997. Vice President- External Affairs from 1991 to January 1995. Jonathan H. Winer 47 President of Mountain Energy, Inc. since March 1997. Vice President and Chief Operating Officer of Mountain Energy, Inc. from 1989 to March 1997. Officers are elected by the Board of Directors of the Company and its wholly-owned subsidiaries, as appropriate, for one-year terms and serve at the pleasure of such boards of directors. ITEM 2. PROPERTY GENERATING FACILITIES Our Vermont properties are located in five areas and are interconnected by transmission lines of VELCO and New England Power Company. We wholly own and operate eight hydroelectric generating stations with a total nameplate rating of 36.1 MW and an estimated claimed capability of 35.7 MW. We also own two gas-turbine generating stations with an aggregate nameplate rating of 59.9 MW and an estimated aggregate claimed capability of 73.2 MW. We have two diesel generating stations with an aggregate nameplate rating of 8.0 MW and an estimated aggregate claimed capability of 8.6 MW. We also have a wind generating facility with a nameplate rating of 6.1 MW. We also own: - - 17.9% of the outstanding common stock of Vermont Yankee, and are entitled to 17.662% (93.8 MW of a total 531 MW) of the capacity of the plant; - - 1.1% (7.1 MW of a total 620 MW) joint-ownership share of the Wyman #4 plant located in Maine; - - 8.8% (31.0 MW of a total 352 MW) joint-ownership share of the Stony Brook I intermediate units located in Massachusetts; and - - 11.0% (5.8 MW of a total 53 MW) joint-ownership share of the J.C. McNeil wood-fired steam plant located in Burlington, Vermont. See Item 1. Business - "Power Resources" for plant details and the table hereinafter set forth for generating facilities presently available. TRANSMISSION AND DISTRIBUTION The Company had, at December 31, 1998, approximately 1.5 miles of 115 kV transmission lines, 9.4 miles of 69 kV transmission lines, 5.4 miles of 44 kV and 284.6 miles of 34.5 kV transmission lines. Our distribution system includes about 2,409 miles of overhead lines of 2.4 kV to 34.5 kV, and about 459 miles of underground cable of 2.4 kV to 34.5 kV. At such date, we owned approximately 158,820 kVa of substation transformer capacity in transmission substations, 567,750 kVa of substation transformer capacity in distribution substations and 1,079,987 kVa of transformers for step-down from distribution to customer use. The Company owns 34.8% of the Highgate transmission inter-tie, a 225-MW converter and transmission line utilized to transmit power from Hydro-Quebec. We also own 29.5% of the common stock and 30% of the preferred stock of VELCO, which operates a high-voltage transmission system interconnecting electric utilities in the State of Vermont. PROPERTY OWNERSHIP The Company's wholly-owned plants are located on lands that we own in fee. Water power and floodage rights are controlled through ownership of the necessary land in fee or under easements. Transmission and distribution facilities that are not located in or over public highways are, with minor exceptions, located either on land owned in fee or pursuant to easements which, in nearly all cases, are perpetual. Transmission and distribution lines located in or over public highways are so located pursuant to authority conferred on public utilities by statute, subject to regulation by state or municipal authorities. INDENTURE OF FIRST MORTGAGE The Company's interests in substantially all of its properties and franchises are subject to the lien of the mortgage securing its First Mortgage Bonds and a second mortgage and security interest in the property securing the First Mortgage Bonds. GENERATING FACILITIES OWNED The following table gives information with respect to generating facilities presently available in which the Company has an ownership interest. See also Item 1. Business - "Power Resources." Winter Capability Type Location Name Fuel MW(1) ---- -------- ---- ---- --------- Wholly Owned Hydro Middlesex, VT Middlesex #2 Hydro 3.3 Marshfield, VT Marshfield #6 Hydro 4.9 Vergennes, VT Vergennes #9 Hydro 2.1 W. Danville, VT W. Danville #15 Hydro 1.1 Colchester, VT Gorge #18 Hydro 3.3 Essex Jct., VT Essex #19 Hydro 7.8 Waterbury, VT Waterbury #22 Hydro 5.0 Bolton, VT DeForge #1 Hydro 7.8 Diesel Vergennes, VT Vergennes #9 Oil 4.2 Essex Jct., VT Essex #19 Oil 4.4 Gas Berlin, VT Berlin #5 Oil 56.6 Turbine Colchester, VT Gorge #16 Oil 16.1 Wind Searsburg, VT Wind 1.2 Jointly Owned Steam Vernon, VT Vermont Yankee Nuclear 93.8(2) Yarmouth, ME Wyman #4 Oil 7.1 Burlington, VT McNeil Wood 6.6(3) Combined Ludlow, MA Stony Brook #1 Oil/Gas 31.0(2) Total Winter Capability 256.3 (1) Winter capability quantities are used since the Company's peak usage occurs during the winter months. Some unit ratings are reduced in the summer months due to higher ambient temperatures. Capability shown includes capacity and associated energy sold to other utilities. (2) For a discussion of the impact of various power supply sales on the availability of generating facilities, see Item 1. Business - "Power Resources - Long-Term Power Sales." (3) The Company's entitlement in McNeil is 5.8 MW. However, we receive up to 6.6 MW as a result of other owners' losses on this system. CORPORATE HEADQUARTERS The Company has an operating lease for its Corporate Headquarters, building, which it expects to vacate mid-year 1999. For a discussion regarding this lease, see Note I-6 of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS See the discussion Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations - "Environmental Matters" concerning a notice received by the Company in 1982 under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Outstanding shares of the Common Stock are listed and traded on the New York Stock Exchange under the symbol "GMP". The following tabulation shows the high and low sales prices for the Common Stock on the New York Stock Exchange during 1997 and 1998: HIGH LOW 1997 First Quarter 25 1/4 22 5/8 Second Quarter 24 5/8 22 3/8 Third Quarter 26 1/4 18 7/8 Fourth Quarter 19 1/4 17 9/16 1998 First Quarter 20 1/16 18 Second Quarter 19 1/16 14 1/8 Third Quarter 14 9/16 11 1/8 Fourth Quarter 15 1/16 10 1/16 The number of common stockholders of record as of March 12, 1999 was 7,032. Quarterly cash dividends were paid as follows during the past two years: First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1997 . . . . 53.0 cents 53.0 cents 27.5 cents 27.5 cents 1998 . . . . 27.5 cents 27.5 cents 27.5 cents 13.75 cents Dividend Policy - On November 23, 1998, the Company's Board of Directors announced a reduction in the quarterly dividend from $0.275 per share to $0.1375 per share on the Company's common stock. The current indicated annual dividend is $0.55 per share of common stock. Our current dividend policy reflects changes affecting the electric utility industry, which is moving away from the traditional cost-of- service regulatory model to a competition based market for power supply, and the rate case developments discussed in Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations - - "1998 Retail Rate Case". The current environment prompted us to reassess the appropriateness of our dividend. The Company's Board of Directors will continue to assess and adjust the dividend when appropriate, as the Vermont electric industry evolves towards competition. In addition, if other events beyond our control cause our financial situation to deteriorate further, the Board of Directors will also consider whether the current dividend level is appropriate or if the dividend should be reduced or eliminated. See Item 7. Management's Discussion And Analysis Of Financial Condition and Results Of Operations "Future Outlook - Competition and Restructuring" and Note C of Notes to Consolidated Financial Statements - - "Dividend Restrictions."
ITEM 6. SELECTED FINANCIAL DATA (In thousands except per share amounts) Results of operations for the years ended December 31 - ----------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- Operating Revenues...........................$184,304 $179,323 $179,009 $161,544 $148,197 Operating Expenses........................... 178,832 163,808 162,882 146,249 133,680 --------- --------- --------- --------- --------- Operating Income........................... 5,472 15,515 16,127 15,295 14,517 --------- --------- --------- --------- --------- Other Income AFUDC - equity............................. 104 357 175 27 263 Other...................................... (577) 1,216 3,055 3,607 3,418 --------- --------- --------- --------- --------- Total other income (deductions).......... (473) 1,573 3,230 3,634 3,681 --------- --------- --------- --------- --------- Interest Charges AFUDC - borrowed funds..................... (131) (315) (468) (547) (539) Other...................................... 8,007 7,965 7,866 7,973 7,735 --------- --------- --------- --------- --------- Total interest charges................... 7,876 7,650 7,398 7,426 7,196 --------- --------- --------- --------- --------- Net Income (Loss)............................ (2,877) 9,438 11,959 11,503 11,002 Dividends on Preferred Stock................. 1,296 1,433 1,010 771 794 --------- --------- --------- --------- --------- Net Income (Loss)Applicable to Common Stock.. ($4,173) $8,005 $10,949 $10,732 $10,208 ========= ========= ========= ========= ========= Common Stock Data Earnings (loss)per share................... ($0.80) $1.57 $2.22 $2.26 $2.23 Cash dividends declared per share.......... $0.9625 $1.61 $2.12 $2.12 $2.12 Weighted average shares outstanding........ 5,243 5,112 4,933 4,747 4,588 Financial Condition as of December 31 - ------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- Assets Utility Plant, Net..........................$195,556 $196,720 $189,853 $181,999 $175,987 Other Investments........................... 20,678 21,997 20,634 20,248 20,751 Current Assets.............................. 35,700 29,125 30,901 30,216 28,798 Deferred Charges............................ 30,576 27,390 43,224 42,951 35,659 Non-Utility Assets.......................... 27,314 42,060 39,927 37,868 33,416 --------- --------- --------- --------- --------- Total Assets...............................$309,824 $317,292 $324,539 $313,282 $294,611 ========= ========= ========= ========= ========= Capitalization and Liabilities Common Stock Equity.........................$106,755 $114,377 $111,554 $106,408 $101,319 Redeemable Cumulative Preferred Stock....... 16,085 17,735 19,310 8,930 9,135 Long-Term Debt, Less Current Maturities..... 88,500 93,200 94,900 91,134 74,967 Capital Lease Obligation.................... 7,696 8,342 9,006 9,778 10,278 Curent Liabilities.......................... 28,825 25,286 21,037 32,629 40,441 Deferred Credits and Other.................. 54,889 45,282 54,968 52,041 49,434 Non-Utility Liabilities..................... 7,074 13,070 13,764 12,362 9,037 --------- --------- --------- --------- --------- Total Capitalization and Liabilities.......$309,824 $317,292 $324,539 $313,282 $294,611 ========= ========= ========= ========= =========
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In this section, we explain the general financial condition and the results of operations for Green Mountain Power Corporation (the Company) and its subsidiaries, including: - - Factors that affect our business; - - Our earnings and costs in the periods presented and why they changed between periods; - - The source of our earnings; - - Our expenditures for capital projects and what we expect they will be in the future; - - Where we expect to get cash for future capital expenditures; and - - How all of the above affects our overall financial condition. There are statements in this section that contain projections or estimates and are considered to be "forward-looking" as defined by the Securities and Exchange Commission. In these statements, you may find words such as "believes," "expects," "plans," or similar words. These statements are not guarantees of our future performance. There are risks, uncertainties and other factors that could cause actual results to be different from those projected. Some of the reasons the results may be different are listed below and discussed under "Future Outlook", "Environmental Matters", "Liquidity and Capital Resources" and "Year 2000 Computer Compliance" in this section: - - Regulatory decisions or legislation; - - Weather; - - Energy supply and demand and pricing; - - Availability, terms, and use of capital; - - General economic and business environment; - - Nuclear and environmental issues; and - - Industry restructuring and cost recovery (including stranded costs). These forward-looking statements represent our estimates and assumptions as of the date of this report. EARNINGS SUMMARY The Company lost $0.80 per average share of common stock in 1998 as compared with earnings per share of common stock of $1.57 in 1997 and $2.22 in 1996. The 1998 loss represents a negative return on average common equity of 3.8 percent. The earned return on average common equity was 7.1 percent in 1997 and 10.0 percent in 1996. The decrease in earnings in 1998 resulted primarily from the following: - - A rate decision by the Vermont Public Service Board ("VPSB") in February 1998 that disallowed recovery of $6 million for Hydro- Quebec power supply expenses and other costs; - - A $5.25 million loss accrued in 1998 resulting from the continued disallowance of Hydro-Quebec power costs during 1999; - - Higher 1998 power supply expenses resulting from a one time $8 million payment received from Hydro-Quebec in 1997 that reduced 1997 power supply expenses accordingly; - - A $3.2 million charge associated with terminating the Company's corporate headquarters lease and with workforce reductions in 1998; and - - A $2.1 million (after-tax) loss experienced by Mountain Energy, Inc. in 1998, as compared to earnings of $142,0000 in 1997, resulting from a $1.2 million net write-off of a wind power investment and continued start-up operating losses incurred by Micronair LLC, a wholly-owned wastewater treatment investment. This loss was substantially off-set by a $1.8 million reduction in losses experienced by Green Mountain Resources, Inc. (GMRI) due to the absence of start-up expenses in 1998, as compared to 1997. The 1997 decrease in earnings was primarily due to diminished results by two of the Company's wholly-owned subsidiaries. - - Mountain Energy, Inc., the Company's subsidiary that invests in energy generation, energy efficiency and wastewater treatment projects, earned $1.2 million less in 1997 than in 1996. The decrease in earnings was primarily due to operating losses incurred by Micronair, LLC, a company in which Mountain Energy acquired a 71 percent interest in 1997, and a decline in rates paid for power generated by one of the California wind facilities in which it has invested. - - GMRI's loss in 1997 was $1.4 million greater than the loss in 1996 due primarily to the development costs of its investment in Green Mountain Energy Resources L.L.C. (GMER), the retail energy company in which the Company sold a 67 percent interest during the third quarter of 1997. FUTURE OUTLOOK Competition and Restructuring -- The electric utility business is experiencing rapid and substantial changes. These changes are the result of the following trends: - - Surplus generating capacity; - - Disparity in electric rates among and within various regions of the country; - - Improvements in generation efficiency; - - Increasing demand for customer choice; and - - New regulations and legislation intended to foster competition, also known as "restructuring". Electric utilities historically have had exclusive franchises for the retail sale of electricity in specified service territories. As a result, competition for retail customers has been limited to: - - Competition with alternative fuel suppliers, primarily for heating and cooling; - - Competition with customer-owned generation; and - - Direct competition among electric utilities to attract major new facilities to their service territories. These competitive pressures have led the Company and other utilities to offer, from time to time, special discounts or service packages to certain large customers. In states across the country, including the New England states, there has been legislation enacted to allow retail customers to choose their electricity suppliers, with incumbent utilities required to deliver that electricity over their transmission and distribution systems (also known as "retail wheeling"). Increased competitive pressure in the electric utility industry may restrict the Company's ability to charge energy prices high enough to recover embedded costs, such as the cost of purchased power obligations or of generation facilities owned by the Company. The amount by which such costs might exceed market prices is commonly referred to as "stranded costs." Regulatory and legislative authorities at the federal level and in states, including Vermont where legislation has not been enacted, are considering how to facilitate competition for electricity sales at the wholesale and retail levels. The 1998 session of the Vermont General Assembly adjourned on April 16, 1998 without enacting legislation that would allow Vermont customers to choose their electric supplier. There is currently no indication that restructuring legislation will be enacted in the 1999 session. In the future, the Vermont General Assembly through legislation, or the VPSB through a subsequent report, action or proceeding, may allow customers to choose their electric supplier. If this happens without providing for recovery of a significant portion of the costs associated with our power supply contracts, the Company's business, including our operating results, cash flows and ability to pay dividends at the current level, would be adversely affected. If actions by the Vermont General Assembly or the VPSB threaten the Company's financial integrity, we will evaluate all potential alternatives available to us at that time, including, but not limited to, the filing of a petition for reorganization under the United States Bankruptcy Code. In August 1998, the VPSB hosted an open workshop to examine the extent to which realistic opportunities exist to increase the value or lower the costs of Vermont's existing power supply arrangements, and, if such opportunities exist, to consider the best processes for attracting the highest value proposals. Topics included: - - Vermont's current power supply situation; - - Case studies in reforming power supply; and - - Opportunities in Vermont to reform the power supply. In September 1998, the VPSB issued an Order (Docket No. 6140) opening an investigation into the reform of Vermont's electric power supply and ordered all Vermont electric utilities to participate. That Order also requested participants to file with the VPSB position papers to address the scope of the investigation and present substantive proposals for reform. The Company, together with Central Vermont Public Service Corporation (CVPS), Citizens Utilities Company and Associated Industries of Vermont (AIV), an industrial trade association, filed a position paper responding to the Order. We participated in the VPSB's technical conference in October at which the scope of the investigation was discussed. We filed our response to that conference indicating the priorities and action steps we believe should be taken in order to provide the greatest assistance in the effort to mitigate Vermont's power supply costs. On July 22, 1998, Governor Howard B. Dean announced the appointment of the Working Group on Vermont's Electricity Future (Working Group) to examine the structure of the utility industry in Vermont. The Working Group was comprised of five citizens who were charged with evaluating and devising sound public policy relating to the future of the Vermont electric industry. The Working Group issued its report on December 18, 1998. The fundamental conclusions of the report are: - - Bankruptcy is not a solution to Vermont restructuring efforts and is not an appropriate means to resolve the above-market costs associated with Vermont's power supply portfolio. - - Financing mechanisms, including asset securitization, that have been implemented in other states that have restructured their electric industries should be made available in Vermont. Such mechanisms would enable the utilities to provide an up-front lump- sum payment to suppliers of power to Vermont utilities in exchange for terminating or substantially reducing the pricing in their contracts. The legislature or regulators could authorize such financing mechanisms. - - The utilities in Vermont should exit the power generation and supply business as part of the restructuring of the electric industry in Vermont. The Working Group believes that Vermont should move rapidly into a restructured competitive environment in which the incumbent utilities would serve as distribution providers. - - As a component of a restructuring plan, serious consideration should be given to consolidation of the 22 utilities in Vermont, beginning with the amalgamation of Citizens Utilities' Vermont operations with Green Mountain Power Corporation and Central Vermont Public Service Corporation. On January 8, 1999, the Company, CVPS, AIV and Citizen Utilities filed Consolidated Comments and Procedural Recommendations with the VPSB regarding the Working Group's report. We have recommended to the VPSB that it give priority to considering the Working Group's principal recommendations, as discussed above, and approve the procedures necessary for their implementation. The idea of consolidation of Vermont's utilities needs further exploration and the Company, CVPS and Citizens Utilities have signed confidentiality agreements so that such exploration may proceed. Consistent with the Company's charter, we will consider the benefits of any merger or consolidation for our shareholders as well as the social, legal and economic effects upon our customers, employees, suppliers and others in similar relationships with us, and upon the communities in which we do business. Risk Factors -- The major risk factors for the Company arising from electric industry restructuring, including risks pertaining to the recovery of stranded costs, are: - - Regulatory and legal decisions; - - The market price of power; and - - The amount of market share retained by the Company. There can be no assurance that any final restructuring plan ordered by the VPSB, the courts, or through legislation will include a mechanism that would allow for full recovery of our stranded costs and include a fair return on those costs as they are being recovered. If laws are enacted or regulatory decisions are made that do not offer an adequate opportunity to recover stranded costs, we believe we have compelling legal arguments to challenge such laws or decisions. The largest category of our potential stranded costs is future costs under long-term power purchase contracts, which, based on current forecasts, are above-market. We intend to pursue aggressively mitigation efforts in order to maximize the recovery of these costs. The magnitude of our stranded costs is largely dependent upon the future market price of power. We have discussed various market price scenarios with interested parties for the purpose of identifying stranded costs. Preliminary market price assumptions, which are likely to change, have resulted in estimates of the Company's stranded costs of between $245 million and $620 million. If retail competition is implemented in Vermont, there will be an impact on the Company's revenues from electricity sales. However, we are unable to predict at this time the extent of this impact. The Company, itself or through another marketing affiliate, may elect to endeavor to retain and attract larger commercial customers in a competitive retail environment, but neither its relative prospects nor the margins it will realize on any such sales can be estimated at this time. Historically, electric utility rates have been based on a utility's cost of service. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Statement of Financial Accounting Standards No. 71 (SFAS 71) allows regulated entities, in appropriate circumstances, to establish regulatory assets and liabilities, and thereby defer the income statement impact of certain costs and revenues that are expected to be realized in future rates. The Company has established regulatory assets and liabilities under SFAS 71. As described in the Notes to Consolidated Financial Statements, the Company complies with the provisions of SFAS 71. In the event the Company determines that it no longer meets the criteria for following SFAS 71, the accounting impact would be an extraordinary, non-cash charge to operations of an amount that could be material. Factors that could give rise to the discontinuance of SFAS 71 include: - - Deregulation; - - A change in the regulators' approach to setting rates from cost- based regulation to another form of regulation; - - Increasing competition that limits our ability to sell utility services or product at rates that will recover costs; and - - Regulatory actions that result from resistance to rate increases that limit our ability to sell utility services or products at rates that will recover costs if we are unable to obtain relief from prior regulatory actions through appeals to the VPSB or the courts. See Note I of the Notes to Consolidated Financial Statements and "Liquidity and Capital Resources". Under SFAS 5, Accounting for Contingencies, the enactment of restructuring legislation or issuance of a regulatory order containing provisions that do not allow for stranded cost recovery, consisting principally of above market power costs, would require the Company to estimate and record losses immediately, on an undiscounted basis, for any above market power purchase contracts and other costs which are probable of not being recoverable from customers, to the extent that those costs are estimable. We are unable to predict what form enacted legislation or such an order will take, and we cannot predict if or to what extent SFAS 71 will continue to be applicable in the future. Members of the staff of the Securities and Exchange Commission have raised questions concerning the continued applicability of SFAS 71 to certain other electric utilities facing restructuring. On July 24, 1997, the Emerging Issues Task Force of the Financial Accounting Standards Board indicated that utilities should immediately discontinue application of SFAS 71 for those business segments which will become unregulated, if the utility has a final plan in place for transition to competition. To the extent that the discontinued segment has stranded costs that are recoverable through rates, those costs would continue to be accounted for under SFAS 71. SFAS 121, Accounting for the Impairment of Long Lived Assets, requires that any assets, including regulatory assets, that are no longer probable of recovery through future revenues be revalued based upon future cash flows. SFAS 121 requires that a rate-regulated enterprise recognize an impairment loss for regulatory assets that are no longer probable of recovery. As of December 31, 1998, based upon the regulatory environment within which we currently operate, no impairment loss was recorded. Competitive influences or regulatory developments may impact this status in the future. We cannot predict whether restructuring legislation enacted by the Vermont General Assembly or any subsequent report or actions of, or proceedings before, the VPSB or the Vermont General Assembly would have a material adverse effect on our operations, financial condition or credit ratings. The failure to recover a significant portion of our purchased power costs, or to retain and attract customers in a competitive environment, would likely have a material adverse effect on our business, including our operating results, cash flows and ability to pay dividends at current levels. For a discussion of a major risk factor arising from Vermont regulatory treatment of the Company's recent rate filing, see "Liquidity and Capital Resources", and Note I of the Notes to Consolidated Financial Statements. UNREGULATED BUSINESSES The following is a discussion of the Company's unregulated enterprises. Our unregulated businesses lost 39 cents per share of common stock in 1998 as compared to a loss of 31 cents per share of common stock in 1997. Mountain Energy, Inc. (MEI), which invests in energy generation, energy efficiency and waste water treatment projects, lost $2.1 million in 1998, compared to earnings of $0.1 million in 1997. The 1998 decrease in earnings was due primarily to continued start-up operating losses incurred by Micronair, LLC and a write-off related to a wind facility in California. Since its formation in 1989, MEI has invested more than $20 million in operating energy projects, including two California wind projects, hydroelectric projects in California and New Hampshire, a gas co- generation facility in Illinois and energy efficiency installations in Maine, New York, New Jersey, Massachusetts and Hawaii. In 1997, MEI broadened its investment portfolio by acquiring an initial 35 percent ownership interest in Micronair, LLC, which owns certain patent rights to a wastewater treatment system that provides an innovative and efficient solution to the bio-solids disposal issues facing the United States. The Micronairr system enhances both the processing and energy efficiency at wastewater facilities, virtually eliminating bio-solids as a byproduct. In 1998, MEI acquired the remaining interest in Micronair. In 1998, MEI acquired a 33.9 percent equity interest in CASTion Corporation, an industrial wastewater treatment company. CASTion's Controlled Atmospheric Separation Technology (CAST ) separates clean water from industrial process waste streams, in some cases recapturing valuable minerals and chemicals for reuse. The potential market continues to grow as public and regulatory tolerance for wastewater discharges wanes. CASTion has fourteen systems in commercial operation. Green Mountain Propane Gas, Limited (GMPG), which sold propane gas at retail in Vermont and New Hampshire, experienced a $139,000 loss in 1998 as compared to a $136,000 loss in 1997. On February 20, 1998, GMPG and the Company entered into a sales agreement with VGS Propane, LLC for the sale of all GMPG assets. The sale was completed on March 16, 1998. The Company's unregulated rental water heater business earned $416,000 in 1998, a slight increase from 1997's net income of $381,000. The 1998 and 1997 results contributed 8 cents and 7 cents of earnings, respectively, per share to the Company's consolidated results. Green Mountain Resources, Inc. (GMRI) was formed in April 1996 to explore opportunities in the emerging competitive retail energy market. In 1998, GMRI lost $0.2 million compared to a loss of $2.0 million in 1997. GMRI's loss in 1997 was primarily due to development costs associated with its investment in Green Mountain Energy Resources L.L.C. (GMER). On August 6, 1997, GMRI entered into an agreement with Green Funding I, L.L.C. (GFI), whereby GMRI and GFI would jointly own GMER, a Delaware limited liability company of which GMRI was previously the sole owner. GMER is a company that has created retail brands of electricity that are sold to consumers in competitive markets. GMRI received a payment of $4 million from GMER at the closing in 1997 as reimbursement for certain development expenses GMRI had incurred. Under the terms of the original agreement through which GFI acquired its interest in GMER, GMRI's ownership percentage of GMER would be diluted if GFI and/or third parties proposed to contribute additional capital to GMER, and GMRI did not make pro rata additional capital contributions at such time. During 1998, GFI made additional, substantial investments in GMER and it was anticipated that GFI or other parties would make additional, substantial investments in 1999. GMRI elected not to provide additional capital contributions, which reduced its ownership percentage in GMER. In view of the likely need for future investment in GMER's business, we considered it to be in the best interest of our shareholders to sell GMRI's remaining interest in GMER. In December 1998, GMRI and GFI replaced the 1997 agreement with a new agreement, which among other things, provided for the sale of GMRI's remaining interest in GMER in return for $1 million to be paid and recorded as income in the first quarter of 1999. The funds were received and will be used for the Company's general operating expenses. The new agreement provides us substantial relief from a "non- compete clause" in the 1997 agreement that would have restricted our activities in the retail energy business for seven years. RESULTS OF OPERATIONS Operating Revenues and MWh Sales - Operating revenues and megawatthour (MWh) sales for the years 1998, 1997 and 1996 consisted of: 1998 1997 1996 ---- ---- ---- (Dollars in thousands) Operating Revenues: Retail . . . . . . . . . . . $164,855 $ 158,790 $ 154,916 Sales for Resale . . . . . . 16,529 17,847 20,667 Other . . . . . . . . . . . 2,920 2,686 3,426 -------- --------- --------- Total Operating Revenues . . . $184,304 $ 179,323 $ 179,009 ======== ========= ========= Megawatthour Sales: Retail . . . . . . . . . . . 1,839,522 1,806,580 1,775,711 Sales for Resale . . . . . . 543,846 588,525 701,835 --------- --------- --------- Total Megawatthour sales . . . 2,383,368 2,395,105 2,477,546 ========= ========= ========= Average Number of Customers: Residential . . . . . . . . 71,301 70,671 70,198 Commercial & Industrial . . 12,193 12,012 11,853 Other . . . . . . . . . . . 70 75 75 ------ ------ ------ Total Customers . . . . . . . 83,564 82,758 82,126 ====== ====== ====== Differences in operating revenues were due to changes in the following: 1997 1996 to to 1998 1997 ---- ---- (In Thousands) Operating Revenues: Retail Rates . . . . . . . . . . . . . . . $ 3,113 $ 1,161 Retail Sales Volume . . . . . . . . . . . 2,952 2,713 Resales and Other Revenues . . . . . . . . (1,084) (3,560) --------- -------- Increase in Operating Revenues . . . . . . . $ 4,981 $ 314 ========= ======== In 1998, total electricity sales decreased 0.5 percent due principally to a decrease in wholesale sales caused by a reduction in low-margin, off-system sales. Total operating revenues increased 2.8 percent in 1998. Total retail revenues increased 3.8 percent in 1998 primarily due to: - - A 3.9 percent increase in sales of electricity to our commercial and industrial customers resulting from increased use of air conditioning during the spring and summer months; and - - A 3.79 percent retail rate increase for service rendered March 1, 1998. The increase was partially offset by a 2.8 percent reduction in sales to residential customers caused by warmer than normal winter months. Wholesale revenues decreased 7.4 percent in 1998 primarily due to a reduction in low-margin, off-system sales. Total operating revenues were virtually unchanged in 1997. Total retail revenues increased 2.5 percent in 1997 primarily due to an increase in sales of electricity to our small commercial and industrial customers resulting from modest customer growth and an increase in sales to IBM. The increase in retail revenues was nearly offset by a 13.6 percent decrease in wholesale revenues caused by a reduction in low- margin, off-system sales, which had a minimal impact on earnings and a 21.6 percent decrease in other operating revenues caused by a one-time adjustment in 1996 to account for higher charges under a transmission and interconnection agreement between CVPS and the Company. IBM, the Company's single largest customer, operates manufacturing facilities in Essex Junction, Vermont. IBM's electricity requirements for its main plant and an adjacent plant accounted for 14.7, 14.0, and 13.2 percent of our operating revenues in 1998, 1997 and 1996, respectively. No other retail customer accounted for more than one percent of our revenue in any such year. In February 1995, the Company and IBM entered into an Economic Development Agreement (EDA I) that governed the prices to be paid by IBM at its Essex Junction facility for incremental electric usage during 1995, 1996 and 1997. The contract, intended to promote growth in IBM's operations and create jobs in our service area, applied only to that portion of IBM's load that exceeded its 1994 consumption level. Most of IBM's electric usage is billed under our tariff rate. The EDA I price, although lower than our tariff rate, exceeded our marginal costs of providing this incremental electric service to IBM. The VPSB approved the EDA I in June 1995. Prior to the expiration of the EDA I on December 31, 1997, the Company and IBM negotiated a new, similar EDA (EDA II). The agreement has most of the features of the EDA I, including use of the 1994 base to determine incremental load and pricing above our marginal costs. A separate pricing provision applies to load above 1997 levels. The agreement is for one year, subject to extension for another year at IBM's option. The VPSB approved the EDA II on May 21 1998. We believe that the EDA I and EDA II benefit us because the agreements encourage the incremental purchase of electricity by IBM at a price above our marginal cost of providing such incremental service. Power Supply Expenses -- Power supply expenses constituted 67.7 percent, 61.3 percent and 61.5 percent of total operating expenses for the years 1998, 1997 and 1996, respectively. These expenses increased by $20.7 million (20.6 percent) in 1998 and $120,000 (0.1 percent) in 1997. Total power supply expenses increased 20.6 percent in 1998 primarily due to: - - The absence in 1998 of the $8 million reduction of Hydro-Quebec power costs resulting from the rate treatment of a payment received from Hydro-Quebec in 1997; - - A $5.25 million loss accrued in 1998 resulting from the continued disallowance of Hydro-Quebec power costs during 1999; and - - A $4.8 million increase in scheduled Hydro-Quebec contract capacity costs in 1998. Company-owned generation increased 20.4 percent in 1998 due to an increase in the use of high-cost generating facilities that replaced power that was unavailable from Hydro-Quebec during a severe ice storm that affected much of Vermont, the Northeast United States and Quebec in January 1998. Total power supply expenses were slightly higher in 1997, although the cost of several individual sources were significantly different from their costs in 1996. Power supply expenses from Vermont Yankee increased 7.3 percent in 1997 primarily due to the deferral in 1996 and the amortization in 1997 of costs associated with a scheduled refueling outage. Company-owned generation expenses increased 60.0 percent in 1997 primarily due to the increased usage of Company-owned plants necessitated by the outage of certain nuclear power plants in the region. These increases were nearly offset by a 6.2 percent decrease in power supply expenses from other resources primarily due to the recognition of $8 million received from Hydro-Quebec under a Memorandum of Understanding entered into in 1996 (as described below) consistent with a VPSB accounting order dated December 31, 1996. During 1994, we negotiated an arrangement with Hydro-Quebec that reduces the cost impacts associated with the purchase of Schedules B and C3 under the 1987 Contract over the November 1995 through October 1999 period (the July 1994 Agreement). Under the July 1994 Agreement, we will, in essence, take delivery of the amounts of energy as specified in the 1987 Contract, but the associated fixed costs will be significantly reduced from those specified in the 1987 Contract. As part of the July 1994 Agreement, we are obligated to purchase $4 million (in 1994 dollars) worth of research and development work from Hydro-Quebec over the four-year period, and made a $6.5 million (in 1994 dollars) cash payment to Hydro-Quebec in 1995. Hydro-Quebec retains the right to curtail annual energy deliveries by 10 percent up to five times, over the 2000 to 2015 period, if documented drought conditions exist in Quebec. Under an arrangement negotiated in January 1996, we received cash payments from Hydro-Quebec of $3.0 million in 1996 and $1.1 million in 1997. Consistent with allowed ratemaking treatment, the $3.0 million payment reduced purchase power expense by $1.75 million in 1996; the balance of the payment reduced power costs in 1997. The $1.1 million payment reduced purchase power expense ratably over the period beginning June 1997 and ending May 1998. We received VPSB approval of this accounting treatment in an Accounting Order dated December 31, 1996. Under the 1996 arrangement we are required to shift up to 40 megawatts of our Schedule C3 deliveries to an alternate transmission path, and use the associated portion of the NEPOOL/Hydro-Quebec interconnection facilities to purchase power for the period from September 1996 through June 2001 at prices that vary based upon conditions in effect when the purchases are made. The 1996 arrangement also provides for minimum payments by the Company to Hydro-Quebec for periods in which power is not purchased under the arrangement. Although our level of benefits will depend on various factors, we estimate that the 1996 arrangement will provide a minimum benefit of $1.8 million on a net present value basis. During 1998, we purchased or sold to others 44.2 percent of the minimum purchase obligation for that year. We recorded a liability of $0.3 million for our remaining 1998 minimum purchase obligation. Under a separate agreement executed on December 5, 1997, Hydro- Quebec provided a cash payment of $8.0 million to the Company in 1997. In return for this payment, we provided Hydro-Quebec an option for the purchase of power. Commencing April 1, 1998 and effective through the term of the 1987 Contract, Hydro-Quebec can exercise an option to purchase up to 52,500 MWh on an annual basis, at energy prices established in accordance with the 1987 Contract, for an amount of energy equivalent to the Company's firm capacity entitlements in the 1987 Contract. The cumulative amount of energy purchased over the remaining term of the 1987 Contract shall not exceed 950,000 MWh. Hydro-Quebec's option to curtail energy deliveries pursuant to the July 1994 Agreement can be exercised in addition to this purchase option. Over the same period, Hydro-Quebec can exercise an option on an annual basis to purchase up to 600,000 MWh at the 1987 Contract energy price. Hydro-Quebec can purchase no more than 200,000 MWh in any given year. In 1998, Hydro-Quebec called on us to deliver 51,968 MWh to a third party at a net cost to us of $232,958, which was due to higher energy replacement costs. (See Note K of the Notes to Consolidated Financial Statements). The Company and the other Vermont Joint Owners (VJO) of the Hydro- Quebec contract have sought arbitration to determine whether the suspension of deliveries of power to Vermont during and after the January 1998 ice storm constitutes a default by Hydro-Quebec under the terms of the contract, or if there are other possible claims against Hydro-Quebec arising from the suspension of deliveries. Hydro-Quebec appears to maintain that the "force majeure" (superior or irreversible force) provision in the contract applies, which could excuse its non- delivery of power under certain circumstances. Arbitration of the dispute may lead to one or more remedies having an impact on our obligation under the contract. On February 11, 1999, we entered into a contract with Morgan Stanley Capital Group, Inc. (MS) as a result of our power requirements solicitation in 1998. A master power purchase and sales agreement (PPSA) dated February 11, 1999 defines the general contract terms under which the parties may transact. The sales under the PPSA commenced on February 12, 1999, and will terminate after all obligations under each transaction entered into by MS and the Company have been fulfilled, currently anticipated to be June 30, 2001. The PPSA has been noticed to the VPSB and filed with the Federal Energy Regulatory Commission (FERC). The parties have also agreed to enter into two transactions subject to the PPSA. - - Sale by the Company to MS. -- On a daily basis, and at MS's discretion, we will sell power from all or part of our portfolio of power resources to MS at predefined operating and pricing parameters. We can decide to sell power to MS from any power resource available to us, provided the sales of power are consistent with the predefined operating and pricing parameters. We retain all rights and obligations related to our power resources, such as dispatch, plant modifications and transfer of ownership. This transaction does not constitute a sale or lease of any Company resource. - - Sale by MS to the Company. -- MS will sell to us, at a predefined price, power sufficient to serve pre-established load requirements. MS has the right but not the obligation, upon a request from us, to supply additional power at prices negotiated by both parties. The power sold to us may be, but is not required to be, power that MS has purchased from us under the transaction described above. The parties have agreed to the protocols that will be used to schedule power sales and purchases between the parties and to secure necessary transmission with respect to the two transactions described above. The PPSA provides us with a means of managing price risks associated with changing fossil fuel prices. We remain responsible for balancing supply resources when actual loads vary from the pre- established load requirements that MS is obligated to satisfy, and for resource performance and availability. Other Operating Expenses - Other operating expenses increased 26.9 percent in 1998 primarily due to: - - Higher overhead costs resulting from less overhead charged to GMRI, whose earnings are accounted for on the equity basis; - - Losses associated with the expected termination of the lease for our corporate headquarters building; and - - Charges associated with a workforce reduction in 1998. Other operating expenses decreased 4.7 percent in 1997 primarily due to an increase in work performed on behalf of GMRI, effectively reducing payroll and overhead expenses for the Company. Additionally, the organizational changes attributable to the creation of GMER resulted in fewer Company employees, causing a reduction in payroll expense. Transmission Expenses - Transmission expenses decreased 15.6 percent in 1998 primarily due to a refund received from CVPS in 1998 as a result of reduced levels of demand on the CVPS transmission system in 1997. We also received a refund in 1998 for charges that were incorrectly assessed to us during 1997 by New England Power Company. Transmission expenses increased 2.7 percent in 1997 primarily due to higher tariffs under a new operating agreement with New England Power Company. Maintenance Expenses - Maintenance expenses increased 8.5 percent in 1998 primarily due to scheduled plant maintenance activities at the Stony Brook plant and the repair of damage caused by lightning at our wind facility. Maintenance expenses increased 7.2 percent in 1997 due to scheduled increases in plant maintenance. Depreciation and Amortization - In 1998, depreciation and amortization expenses decreased 1.8 percent primarily due to a decrease in the amortization of expenditures related to the Pine Street Barge Canal site as a result of the VPSB Order of February 27, 1998, which suspended the amortization charges. This decrease was partially offset by an increase in depreciation expenses associated with additional investment in our utility plant. Depreciation and amortization expenses were virtually unchanged in 1997. Income Taxes -- The effective federal income tax rates for the years 1998, 1997 and 1996 were 26.1 percent, 32.8 percent and 27.2 percent, respectively. Income taxes decreased in 1998 due to a decrease in taxable income. The increase in 1997 income taxes is primarily due to an increase in taxable income, an increase in the combined federal and state income tax rate and an increase in the reserve for unaudited income tax years. Other Income - Other income decreased $2 million in 1998, as compared to 1997, primarily due to: - - A $2.1 million (afer-tax)loss experienced by Mountain Energy, Inc. resulting from a $1.2 million net write-off of a wind power investment and start up operating losses incurred by Micronair LLC; and - - A $900,000 disallowance in costs associated with the wind facility ordered by the VPSB in its February 27, 1998 Order. In addition, the allowance for funds used during construction decreased in 1998 resulting from lower construction work in progress balances during the period. These decreases were partially offset by $1.8 million reduction in losses experienced by GMRI due to the absence of start-up expenses in 1998 as compared to 1997. Other income decreased 51.3 percent in 1997 primarily due to diminished results by two of our wholly-owned subsidiaries. - - Mountain Energy, Inc., the Company's subsidiary that invests in energy generation and energy and waste water efficiency projects, earned $1.2 million less in 1997 primarily due to start-up operating losses incurred by Micronair LLC, a company in which Mountain Energy bought a 71 percent interest in 1997, and a decline in rates paid for power generated by one of the California wind facilities in which it has invested. - - GMRI's loss in 1997 was $1.4 million greater than the loss in 1996 due primarily to the development costs of its investment in GMER, the retail energy company in which the Company sold a controlling interest during the third quarter of 1997. Interest Charges - Interest charges increased 3.0 percent in 1998 primarily due to an increase in short-term interest expense related to a higher amount of short-term debt outstanding during the year and a decrease in the allowance for funds used during construction resulting from lower construction work in progress balances in 1998. The increases were partially offset by a decrease in long-term interest charges related to a lower amount of long-term debt outstanding in 1998. Interest charges increased 3.4 percent in 1997 primarily due to an increase in long-term interest related to the sale of $10 million and $4 million of our first mortgage bonds in November and December 1996, respectively. This increase was partially offset by a decrease in interest charges related to a lower amount of short-term debt outstanding during the year. Dividends on Preferred Stock - Dividends on preferred stock decreased by 9.6 percent in 1998 primarily due to the repurchase in 1997 of the following preferred stock: 150 shares of the 4.75 percent, Class B; 1,600 shares of the 9.375 percent, Class D, Series 1; and 14,000 shares of the 8.625 percent, Class D, Series 3. Dividends on preferred stock increased 41.8 percent in 1997 and 31.0 percent in 1996 primarily due to the issuance of 120,000 shares of the Company's 7.32 percent, Class E, Series 1 preferred stock in October 1996. TRANSMISSION ISSUES Federal Open Access Tariff Orders -- On April 24, 1996, the FERC issued Orders 888 and 889 which, among other things, required the filing of open access transmission tariffs by electric utilities, and the functional separation by utilities of their transmission operations from power marketing operations. Order 888 also supports the full recovery of legitimate and verifiable wholesale power costs previously incurred under federal or state regulation. On July 9, 1996, we filed with the FERC the non-discriminatory open access tariffs required by Order 888 and subsequent modifications to the tariff. The tariff defined our transmission system to include sub- transmission facilities that we own including Phase I and Phase II facilities and our entitlement to facilities owned by VELCO. Our tariffs included charges related to the use of the VELCO transmission system by customers. Other Vermont utilities required to make filings with the FERC under Order 888 followed the same course of action. On July 17, 1997, the FERC approved our Open Access Transmission Tariff, and on August 30, 1997, we filed our compliance refund report. In accordance with Order 889, we have also functionally separated our transmission operations and filed with the FERC a code of conduct for our transmission operations. We are currently revising the Code of Conduct in response to a FERC Order issued on November 3, 1997. We do not anticipate any material adverse effects or loss of wholesale customers due to the FERC orders mentioned above. NEPOOL Transmission Tariff -- Under an allocation agreement among VELCO, Northeast Utilities and New England Power Corporation (the Three- Party Agreement), VELCO currently has 14 percent of the capacity of transmission facilities between New England, New York and Canada. VELCO's capacity for such transmission facilities is allocated among Vermont electric utilities, including the Company. Our ability to use these delivery paths has been adversely impacted by a proposed NEPOOL open access tariff (NEPOOL Fourth Supplement to Amendment 33) on file with the FERC. Under the tariff, transmission capability or transfer capacity between New York and New England will no longer be allocated in a manner consistent with the Three-Party Agreement. Instead, rights to the transfer capacity will be made more generally available to the market subject to certain contingencies related to NEPOOL generation availability and accounting for the delivery of various grand-fathered contracts. Efforts by us and other VELCO members to negotiate with NEPOOL participants for the preservation of rights to deliver long-term firm contracts necessary to serve native load on these delivery routes were unsuccessful. Consequently, on November 18, 1997 VELCO filed with the FERC on behalf of the Vermont utilities (including the Company) a motion to intervene and seeking summary judgment with respect to the NEPOOL filing of the Fourth Supplement to Amendment 33. The Company and other Vermont utilities have argued that the Fourth Supplement was a proposal to terminate the Vermont utilities' existing and future rights under the Three Party Agreement allocating the New York and New England transmission ties and, specifically, the PV20 tie with the New York Power Authority (NYPA). The FERC, in an order dated April 20, 1998, took no action on VELCO's motion other than to recommend that VELCO seek resolution of the issue pursuant to the dispute resolution process under the proposed NEPOOL Open Access tariff. The Vermont utilities continue to deliberate on the appropriate approach to the NEPOOL Open Access tariff dispute resolution process, which includes an assessment of economic consequences of the tariff as currently implied. ENVIRONMENTAL MATTERS The electric industry typically uses or generates a range of potentially hazardous products in its operations. We must meet various land, water, air and aesthetic requirements as administered by local, state and federal regulatory agencies. We believe that we are in substantial compliance with these requirements, and that there are no outstanding material complaints about our compliance with present environmental protection regulations, except for developments related to the Pine Street Barge Canal site. We maintain a program to ensure that we are in compliance with environmental regulations. This includes employee training, regular inspection of our facilities, research and development projects, waste handling and spill prevention procedures, program monitoring and other activities. Pine Street Barge Canal Site The Federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as the "Superfund" law, generally imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. We have been notified by the Environmental Protection Agency (EPA) that we are one of several potentially responsible parties (PRPs) for cleanup of the Pine Street Barge Canal site in Burlington, Vermont, where coal tar and other industrial materials were deposited. From the late 19th century until 1967, gas was manufactured at the Pine Street Barge Canal site by a number of enterprises, including the Company. In 1990, we were one of the 14 parties that agreed to pay a total of $945,000 of the EPA's past response costs under a Consent Decree. We remain a PRP for other past, ongoing and future response costs. In November 1992, the EPA proposed a cleanup plan estimated by the EPA to cost $47 million. In June 1993, the EPA withdrew this cleanup plan in response to public concern about the plan and its cost. In 1994, the EPA established a coordinating council, with representatives of the PRPs, environmental and community groups, the City of Burlington and the State of Vermont, presided over by a neutral facilitator. In June 1998, the Coordinating Council reached a consensus agreement on a recommended plan for remediation of the Pine Street Barge Canal site. As part of the Council's process of reaching a consensus recommendation, the Company and certain other parties conditionally agreed to fund environmentally beneficial projects in the greater Burlington area, the cost of which may reach $3 million. In June 1998, the EPA formally proposed the Council's recommended plan and received public comments. On September 29, 1998, the EPA issued its final Record of Decision, announcing selection of the proposed remedy. The proposed remedy includes: - - Construction of an underwater cover over canal sediments that present the highest risk to the environment; - - Placement of a soil cap over certain contaminated wetland areas and restoration of those areas; - - Improvements that will better distribute storm water entering the site; and - - Monitoring of the site to ensure that the cap is effective over the long term and that harmful contamination does not migrate offsite. The EPA estimates that the present value cost of the remedy would be $4.4 million, although actual costs may be higher. As of December 31, 1998, our total expenditures related to the Pine Street Barge Canal site since 1982 were approximately $16 million. This includes those amounts not recovered in rates, amounts recovered in rates, and amounts for which rate recovery has been sought but which are presently awaiting further VPSB action. The bulk of these expenditures consisted of transaction costs. Transaction costs include legal and consulting costs associated with the Company's opposition to the EPA's earlier proposals for the site, as well as litigation and related costs necessary to obtain settlements with insurers and other PRPs to provide amounts required to fund the clean up (remediation costs) and to address liability claims at the site. A smaller amount of past expenditures was for site-related response costs, including costs incurred pursuant to the EPA and state orders that resulted in funding response activities at the site, and to reimbursing the EPA and the State for oversight and related response costs. The EPA and the State have asserted and affirmed that all costs related to these orders are appropriate costs of response under CERCLA for which the Company and other PRPs were legally responsible. The EPA has made claims against us for additional past costs associated with the Pine Street Barge Canal site in an amount exceeding $11 million. The EPA also has advised us that we may be responsible for implementation of further response activities at the site. In early 1998, the United States and the State asked us to begin "fast-track" negotiation of tentative terms of settlement of all cost reimbursement and natural resource damages claims of the United States and the State. Those negotiations began immediately, and included discussion of our potential contribution claims against the United States. In May 1998, a confidential tentative agreement was reached on issues under discussion. We expect to complete negotiation soon of a final settlement with the United States and the State over terms of a Consent Decree that will cover claims addressed in the earlier negotiations and implementation of the selected remedy. The Consent Decree must be submitted to a federal court for approval and adoption as its order. We have entered into various confidential settlement agreements with other PRPs that provide for sharing of past response costs, future cleanup costs and related future federal and state monetary claims. We estimate that we have recovered or secured, or will recover, through past settlements of litigation claims against insurers and other parties, amounts that exceed estimated future remediation costs, future federal and state government oversight costs and past EPA response costs. We have concluded that our unrecovered transaction costs mentioned above, which were necessary to recover settlements sufficient to remediate the site, to oppose much more costly solutions proposed by the EPA, to resolve monetary claims of the EPA and the State and to remediate the site, are likely to be in the range of $5 to $9 million. In 1998, we recorded a liability of $5 million to recognize the low end of this range of costs. The estimated liability is not discounted, and it is possible that our estimate of future costs could change by a material amount. We also have recorded an offsetting regulatory asset and we believe it is probable that we will receive future revenues to recover these costs. Through rate cases filed in 1991, 1993, 1994, and 1995, we sought and received recovery for ongoing expenses associated with the Pine Street Barge Canal site. Specifically, we proposed rate recognition of our non-recovered expenditures incurred between January 1, 1991 and June 30, 1995 (in the total of approximately $8.7 million) for technical consultants and legal assistance in connection with the EPA's enforcement action at the site and insurance litigation. While reserving the right to argue in the future about the appropriateness of full rate recovery of the Pine Street Barge Canal costs, the Department, and as applicable, other intervenors, reached agreements with the Company in these cases that the full amount of the Pine Street Barge Canal costs reflected in those rate cases should be recovered in rates. Our rates, as approved by the VPSB in those proceedings, reflected the Pine Street Barge Canal related expenditures referred to above. We proposed in our rate filing made on June 16, 1997, recovery of an additional $3.0 million in such expenditures. In an order in that case released March 2, 1998, the VPSB suspended the amortization of expenditures associated with the Pine Street Barge Canal site pending further proceedings. Although it did not eliminate the rate base deferral of these expenditures, or make any specific order in this regard, the VPSB indicated that it was inclined to agree with other parties in the case that the ultimate costs associated with the Pine Street Barge Canal site, taking into account recoveries from insurance carriers and other PRPs, should be "shared" between customers and shareholders of the Company. In response to our Motion for Reconsideration, the VPSB on June 8, 1998, stated "our intent, and we believe the fair reading of our Order, was to reserve for a future docket issues pertaining to the sharing of remediation-releated costs between the Company and its customers." See "1997 Retail Rate Case" below. An authoritative accounting standard, Statement of Position (SOP) 96-1, has been issued by the accounting profession addressing environmental remediation obligations. This SOP is effective for years beginning in 1997, and addresses, among other things, regulatory benchmarks that are likely triggers of the accrual of estimated losses, the costs included in the measurement, including incremental costs of remediation efforts such as post-remediation monitoring and long-term operation and maintenance costs and costs of compensation and related benefits of employees devoting time to the remediation. This SOP, adopted by the Company in January 1997 as required, did not have a material adverse effect on our financial position or results of operations in 1998. Clean Air Act -- Because we purchase most of our power supply from other utilities, we do not anticipate that we will incur any material direct cost increases as a result of the Federal Clean Air Act or proposals to make more stringent regulations under that Act. Furthermore, only one of our power supply purchase contracts, which expired in early 1998, related to a generating plant that was affected by Phase I of the acid rain provisions of this legislation, which went into effect January 1, 1995. LIQUIDITY AND CAPITAL RESOURCES Construction -- Our capital requirements result from the need to construct facilities or to invest in programs to meet anticipated customer demand for electric service. If restructuring does occur, we will reassess our capital expenditures for generation and other projects and the terms of financing thereof. Capital expenditures over the past three years and forecasted for 1999 are as follows: (Dollars in thousands and net of AFUDC and Customer Advances for Construction) Total Net Generation Transmission Distribution Conservation Other Expenditures Actual: 1996 $6,287* $528 $8,422 $3,090 $3,511 $21,838 1997 3,462* 986 9,680 2,094 3,291 19,513 1998 543 751 6,063 1,244 4,568 13,169 Forecasted: 1999 $1,344 $500 $8,698 $2,200 $8,618** $21,360 *Includes $4.978 and $2.868 million for wind project in 1996 and 1997, respectively. **Includes $5.8 million related to Pine Street Barge Canal site. 1997 Retail Rate Case -- On June 16, 1997, the Company filed a request with the VPSB to increase retail rates by 16.7 percent ($26 million in additional annual revenues) and to increase the target return on common equity from 11.25 percent to 13 percent. In our final submissions to the VPSB we asked for an increase of 14.4 percent ($22 million in additional annual revenues) due to changed estimates of costs to be incurred in the rate year. On March 2, 1998, the VPSB released its Order dated February 27, 1998, in the then pending rate case. The VPSB authorized us to increase our rates by 3.61 percent, which gave us increased annual revenues of $5.6 million. The difference between the $22 million we asked for and the $5.6 million the VPSB authorized was due to the following: - - Disallowance of the cost of power associated with the Hydro-Quebec contract discussed below; - - The VPSB's modification of our calculation of rate base; - - The exclusion of future capital projects from rate base; - - Suspension of recovery of Pine Street Barge Canal site expenditures; - - Various cost of service reductions in payroll and operations and maintenance; and - - A reduction in our requested allowed return on equity from 13 percent to 11.25 percent. The VPSB Order denied us the right to charge customers $5.48 million of the annual costs for power purchased under our contract with Hydro-Quebec. The VPSB denied recovery of these costs for the following reasons: - - The VPSB claimed that we had acted imprudently by committing to the power contract with Hydro-Quebec in August 1991 (the imprudence disallowance); and - - To the extent that the costs of power to be purchased from Hydro- Quebec are now higher than current estimates of market prices for power during the contract term, after accounting for the imprudence disallowance, the contract power is not "used and useful". Generally accepted accounting principles (GAAP) required that we record in the first quarter of 1998 the losses resulting from the disallowed recovery of a portion of the 1998 Hydro-Quebec power contract costs. The amount charged to first quarter income of $4.6 million (pre- tax) was less than the full disallowance because we expected that new rates would become effective in January 1999 as the result of our May 8, 1998 rate filing. The agreement to suspend our 1998 rate case, as described below, delays the date of a final decision on the 1998 rate case to December 15, 1999, and we recognized an additional loss of $5.25 million in the last quarter of 1998 representing the effect of the presumed continued disallowance of Hydro-Quebec power costs through December 15, 1999. In its February 27, 1998 Order, the VPSB described its policies that do not allow a utility to recover imprudent expenditures and the costs of power supply contract purchases that the VPSB decides are not used and useful. The VPSB also stated in its Order that the methods and measures used in this rate case were provisional and applied to this rate case only. If the VPSB were to apply the same, or similar, methods and measures that they used in the 1997 rate case Order to future power contract costs in our 1998 retail rate case, we would likely be required to take a charge to income of approximately $170 million pre-tax. This $170 million estimate represents primarily the 20 percent disallowance for Hydro-Quebec power costs that the VPSB considered imprudent in its Order. We will not be able to estimate the loss to be recorded for power purchased after December 15, 1999, if any, until the pending 1998 rate case is completed. If the VPSB does not modify in future regulatory proceedings its ruling that the costs of power purchased from Hydro-Quebec are above estimated market rates and are not used and useful and, therefore, a portion of such costs is not recoverable, we would likely conclude that the VPSB has changed its approach to setting rates from cost-based rate making to another form of regulation. We would then be required to discontinue application of Statement of Financial Accounting Standards No. 71(SFAS 71), Accounting for the Effects of Certain Types of Regulation, described below, and eliminate all regulatory assets and liabilities that arose from prior actions of the VPSB. The write-off of these regulatory assets and liabilities, net of any tax effects, would be charged to income as an extraordinary item for the financial reporting period in which the discontinuation of SFAS 71 occurs. SFAS 71 provides guidance in preparing financial statements for public utilities that meet certain criteria of SFAS 71. The three criteria that we must meet in order to follow the accounting guidance under SFAS 71 are: - - Our rates for regulated services and products provided to our customers must be established by or be subject to approval by an independent, third-party regulator; - - The regulated rates are designed to recover our specific costs of providing the regulated services or products; and - - Depending on demand for regulated services and products, and the level of competition, direct and indirect, it is reasonable to assume that our rates are set at levels that will recover our costs and that these rates can be charged to and collected from our customers. This criterion must also take into account anticipated changes in levels of demand or competition during the recovery period for any capitalized costs. We meet these criteria at present and, therefore the provisions of SFAS 71 apply to us. Under SFAS 71 we are required to defer certain costs that would typically be expensed under GAAP; these costs are referred to as deferred charges or regulatory assets. Our ability to defer a cost is subject to our ability to provide evidence that the following additional criteria are met: - - It is probable that the inclusion of the capitalized (deferred) cost in allowed costs for ratemaking purposes will provide future revenue in an amount at least equal to the capitalized (deferred) cost; and - - The future revenue will be provided to permit recovery of the previously incurred cost rather than to provide for expected levels of similar future costs. Based on the December 31, 1998 balance sheet, if we were required to discontinue the application of SFAS 71, we would be required to take an after-tax charge to earnings of approximately $24.6 million attributable to net regulatory assets. On March 20, 1998, we filed with the VPSB a Motion for Reconsideration of and to Alter or Amend the VPSB's Order released on March 2, 1998. The principal areas in which we requested that the VPSB change its ruling included the following: - - A correction to the VPSB's calculation of the $5.48 million Hydro- Quebec contract power cost disallowance; - - Reversal of the accounting treatment specified by the VPSB for cash payments made by Hydro-Quebec under arrangements that we had previously negotiated in order to avoid rate increases in prior years for customers; - - Restoration of $418,000 of costs associated with the construction of the Searsburg wind generation facility; - - Restoration of various other compensation and payroll costs; - - Reversal of the suspension of amortization of costs associated with the Pine Street Barge Canal site; and - - Reconsideration of our request to increase the allowed rate of return from 11.25 percent to 12 percent. Immediately following the issuance of the June 8, 1998 VPSB Order on our Motion for Reconsideration, which largely reaffirmed the earlier Order, Duff & Phelps and Standard & Poor's lowered our securities credit ratings. Moody's also subsequently lowered our securities credit ratings. In June 1998, we appealed the VPSB's February 27, 1998 Order and the June 8, 1998 Reconsideration Order to the Vermont Supreme Court. The briefing of the case by all parties was completed in January 1999. A hearing before the Vermont Supreme Court is scheduled for March 16, 1999. A number of other Vermont utilities have submitted briefs in support of the Company. We believe that the decisions in the VPSB's February 27, 1998 Order and June 8, 1998 Reconsideration Order are factually inaccurate and legally incorrect. Specifically, we are appealing the VPSB's determination that we were imprudent in committing to the Hydro-Quebec contract in August 1991, and VPSB ruling that because the contract power is priced over-market under current forecasts of market prices, it is therefore considered "not used and useful." The Company asserts, among other arguments, that the VPSB's Order deprives the Company's shareholders of their property in an unconstitutional manner. The VPSB's decision, if not changed, could have a significant negative impact on our reported financial condition, and could impact our credit ratings, dividend policy and financial viability. 1998 Retail Rate Case -- On May 8, 1998, we filed a request with the VPSB to increase our retail rates by 12.93 percent due to the following increases in our cost of service: - - The higher cost of power; - - The cost of the January 1998 ice storm; and - - Investments in new plant and equipment. The VPSB suspended the tariff filings on June 15, 1998. We submitted testimony in the case that included analysis of viable alternatives to the Hydro-Quebec contract at various times in 1991 and 1992. The VPSB had taken the viewpoint in our 1997 rate case that we would have been able to terminate the Hydro-Quebec contract without penalty during that time period, and would have been able to access the market for power at that time. Our analysis showed that, based on price only, the Hydro-Quebec contract was less expensive than virtually all other long term power resources available at that time. The analysis also showed that when other non-price benefits, like environmental benefits and the reliability of a system power resource, are taken into account, the Hydro-Quebec contract was still less costly than alternatives. We have testified that even today, when costs and benefits for society are accounted for, as Vermont regulators and statutes require, the Hydro-Quebec power is not more costly than market power. In testimony submitted on September 21, 1998, the Vermont Department of Public Service (Department) argued for the following: - - A $22 million disallowance of Hydro-Quebec contract costs; - - A rate decrease of 3.6 percent; - - The elimination of our common stock dividend; and - - Various other restrictions. Additionally, the Department's recommendation was that approximately $12.5 million of the disallowance of Hydro-Quebec contract costs be suspended for one year, which would provide us with a 4.5 percent rate increase only for that year, followed by automatic reinstatement of the larger power cost disallowance with a resulting decrease (in 2000) from our rate levels today, absent further VPSB order. The Department recommended this one year delay in the Hydro- Quebec contract cost disallowance in order to allow us time to negotiate lower costs of power under the Hydro-Quebec contract. IBM, our largest customer, argued for a rate decrease of 0.2 percent, a disallowance of Hydro-Quebec power costs in the amount of $13 million, and the elimination of the common stock dividend. In our rebuttal case, we intended to present the VPSB with testimony that: - - The Department's and IBM's recommendations amount to improper rate making that will have adverse economic and accounting impacts under applicable accounting rules; - - The only cogent evidence of alternative portfolios of power resources available in 1991 presented to the VPSB is from our witnesses and the only conclusion that can be drawn from that evidence justifies a determination that there should be no Hydro- Quebec power contract cost disallowance; and - - We require substantial rate relief in order to ensure our financial stability, access to capital markets and the continuation of adequate, reliable and safe service to our customers. We also intended to present to the VPSB considerable evidence that: - - We have made, and continue to make, efforts to achieve a negotiated reformulation of the arrangement with Hydro-Quebec; - - Placing us at risk of bankruptcy will not improve our prospects of achieving success in such a negotiation; - - Bankruptcy reorganization is not an appropriate public policy solution to high power cost obligations; and - - Our default of obligations to Hydro-Quebec and other creditors would cause substantial risks of default in the same contractual relationships by many other Vermont utilities under "step-up" or similar provisions contained in such arrangements. On November 18, 1998, by Memorandum of Understanding (MOU), the Company, the Department and IBM agreed to stay, effective November 16, 1998, rate proceedings in the 1998 rate case until or after September 1, 1999, or such earlier date as the parties may later agree to or the VPSB may order. The MOU provides for a 5.7 percent temporary retail rate increase, to produce $9.19 million in annualized additional revenue, effective with service rendered December 15, 1998. An additional surcharge in 1999 will be permitted, without further VPSB order, in order to produce additional revenues necessary to provide the Company with the capacity to finance estimated 1999 Pine Street Barge Canal site expenditures of $5.8 million. The stay and suspension of this pending rate case and the temporary rate levels agreed to in the MOU are designed to allow us to continue to provide adequate and efficient service to our customers while we seek mitigation of power supply costs. Following the stay, which expires on September 1, 1999 or such earlier date as agreed to by the parties or ordered by the VPSB, the remaining proceedings in the case would commence and, as noted above, a final VPSB decision would be issued by December 15, 1999. In the event that the VPSB issues a final order that allows a retail rate increase that is less than the temporary rates, all sums collected in excess of such final rates would be refunded by adjusting rates on a prospective basis, by customer class, to reflect the appropriate refund amounts. The MOU does not provide for any specific disallowance of power costs under our purchase power contract with Hydro-Quebec. Issues respecting recovery of such power costs are preserved for future proceedings. We agreed not to file with the VPSB a petition requesting any further increase in retail electric rates prior to September 1, 1999, except that this MOU does not preclude us from filing a request for additional temporary rate increases pursuant to 30 V.S.A. Section 226(a). The temporary rates include $1 million that is to be used for enhanced right of way maintenance and pole testing and treatment. Regulatory asset account balances of $5.1 million, which are subject to recovery in this docket, are to be amortized over seven years, beginning January 1999. These balances reflect only the amount filed in the May 1998 rate case, and are related to regulatory commission expense, tree trimming, storm damage and the costs associated with the ice storm of 1998. This amortization period will be subject to review by the VPSB after the expiration of the stay. In the event that the Vermont Supreme Court issues an order reversing the VPSB's orders in our 1997 rate case prior to issuance of a final order in the 1998 rate case, any resulting adjustments in rates will not become effective until the VPSB issues a final order in the 1998 rate case. The MOU provides that nothing in it will reduce or limit our entitlement to full recovery of any amounts due us if we should prevail on the appeal. The MOU was approved by the VPSB on December 11, 1998. The temporary rates, as adjusted by any surcharge related to the Pine Street Barge Canal site described above, will remain in effect until the VPSB issues a final order in the rate case docket, expected by December 15, 1999. Notwithstanding the interim rate settlement, we are unable to predict whether the MOU or other future events, singularly or in combination, could cause our lending banks to refuse to allow further borrowings under our revolving loan agreement, to seek to enter into a new credit agreement with us and/or to immediately call in all outstanding loans. If we are unable to borrow on a short-term basis, we will evaluate all potential alternatives available at the time, including, but not limited to, the filing of a petition for reorganization under the United States Bankruptcy Code. Dividend Policy -- On November 23, 1998, the Board of Directors of the Company announced a reduction in the quarterly dividend on the Company's common stock from $0.275 per share to $0.1375 per share. The new indicated annual dividend rate is $0.55 per share. Our dividend policy reflects changes affecting the electric utility industry, which is moving away from the traditional cost-of- service regulatory model to a competition based market for power supply, as well as earnings projections associated with the rate case developments referred to above. Our current environment has prompted us to reassess the appropriateness of our dividend. The Board of Directors will continue to assess and adjust the dividend when appropriate, as the Vermont electricity industry evolves towards competition. In addition, if other events beyond our control cause our financial situation to deteriorate further, the Board of Directors will also consider whether the current dividend level is appropriate or if the dividend should be reduced or eliminated. Financing and Capitalization -- For the period 1996 through 1998, internally generated funds, after payment of dividends, provided approximately 60 percent of total capital requirements for construction, sinking funds and other requirements. Internally generated funds provided 25 percent of such requirements for 1998. We anticipate that for 1999, internally generated funds will provide approximately 90 percent of total capital requirements for regulated operations. At December 31, 1998, our capitalization consisted of 50.1 percent common equity, 42.3 percent long-term debt and 7.6 percent preferred equity. We have a revolving credit agreement in the amount of $45 million with three banks, with borrowings outstanding of $7 million on December 31, 1998. We also have an uncommitted line of credit in the amount of $500,000, under which no amounts were outstanding at December 31, 1998. The revolving credit agreement requires us to certify on a quarterly basis that we have not suffered a "material adverse change." Similarly, as a condition to further borrowings, we must certify that nothing has happened that has had or could reasonably be expected to have a materially adverse effect on us since the date that we last borrowed under this agreement. When the VPSB issued its Order dated February 27, 1998, disallowing certain costs associated with our contract to purchase power from Hydro-Quebec, the three banks required modification of the terms of the revolving credit agreement that had been made originally on August 12, 1997, which was unsecured and had a three-year term. The modified agreement allows us to continue to borrow until such time that: - - A "material adverse effect" has occurred; - - We are no longer in compliance with all other provisions of the agreement, in which case further borrowing will not be permitted; or - - There has been a "material adverse change", in which case the banks may declare us in default. The modified terms also call in part for the following: - - A reduction in the term of the agreement from three years to one year, expiring June 30,1999; - - A second priority mortgage, lien and security interest in the collateral pledged under our first mortgage bond indenture granted to the banks; and - - An increase in the interest rates, facility fees and other fees required to be paid by us under the agreement. Required regulatory approval was obtained on June 3, 1998. The restated credit agreement and related loan documents were effective on August 17, 1998. There are a number of future events that, singularly or in combination, could lead the banks to refuse to allow further borrowings under the existing credit agreement, to seek to enter into a new credit agreement with us and/or to immediately call in all outstanding loans. Some of those events are: - - The VPSB issues an order in our pending 1998 rate case that triggers a "material adverse change" for us; or - - Hydro-Quebec is unwilling to make new arrangements regarding the cost of power that we purchase under our contract with them. Due to the negative outcome of the 1997 rate case, which was decided by the VPSB's orders dated February 27 and June 8, 1998, (See Note I of the Notes to Consolidated Financial Statements), the credit ratings of our securities by the three rating agencies that rate us were lowered as follows: Duff & Phelps Moody's Standard & Poor's From To From To From To ------------- ----------- --------------- First Mortgage Bonds BBB+ BBB Baa2 Baa3 A- BBB Unsecured medium term BBB BBB- - - BBB BB+ Preferred stock BBB BB+ baa3 ba1 BBB BB Standard & Poor's also lowered our corporate credit rating from "BBB+" to "BBB-". Duff & Phelps' and Standard & Poor's credit ratings for us were placed and remain on Rating Watch-Down and Credit Watch Negative, respectively, due to the high level of regulatory and public policy uncertainty in Vermont and certain positions argued by the Department in our rate cases. Moody's also lowered our ratings due to "a difficult regulatory environment in Vermont and the resulting high degree of financial uncertainty for GMP" and placed all of our ratings on review for possible further downgrade. See Note F of the Notes to Consolidated Financial Statements for a discussion of the bank credit facilities available to the Company. Standard & Poor's announced the generic implementation of a single credit rating scale for both debt and preferred stock. As a result, on February 23, 1999, they re-rated all preferred stock issues, including the Company's, which resulted in the Company's preferred stock being rated BB. Corporate Headquarters Lease - As part of our efforts to reduce operating costs, we evaluated options to our corporate headquarters lease, which runs through June 2009. We are in the process of negotiating the termination of our operating lease for our corporate headquarters and two of our service centers. See Note I of the Notes to Consolidated Financial Statements. It is probable that we will purchase the lease and sell our corporate headquarters in 1999. We have recorded a loss of approximately $1.9 million (pre-tax) in 1998 to reflect the probable loss of completing these transactions. We would retain ownership of our two service centers. Year 2000 Computer Compliance -- We use computer software, hardware, and other equipment in our business that could be affected by the date transition to the next century. Our primary Year 2000 concern is the possibility of interruptions in delivery of electricity to our customers. We are not able to predict the impact of any interruption on our operations or earnings, but the impact could be material. In the past several years, we purchased and have nearly completed installing new customer service and financial management systems. These systems have greatly reduced our exposure to date-related problems. We will implement and test further upgrades to these systems during 1999 to ensure that they are Year 2000 compliant. We have also replaced equipment that would have been affected by the date change. Management has established a project team to address Year 2000 issues. The team is focused on three elements that are integral to the project: business continuity, project management and risk management. Business continuity involves the continuation of reliable electric supply and service in a safe and cost-effective manner. Project management involves defining and meeting the project scope schedule and budget. Risk management involves customer management, contingency planning and legal issues. In addition to these internal efforts, we are working with various industry groups to coordinate electric utility industry Year 2000 efforts. The approach to identifying and addressing non-compliant software applications and embedded systems consists of the following stages: inventory and awareness, assessment, renovation, testing and implementation. The first stage is to inventory all applications and systems. The assessment stage involves determining whether software applications and embedded systems are Year 2000 compliant and prioritizing remediation needs based on risk management. The renovation stage involves remediating or upgrading applications and systems to make them Year 2000 ready. The testing stage determines whether the renovated applications and systems are Year 2000 ready. The implementation stage occurs when the tested applications and systems are deployed. We have also developed contingency plans for major outages and are adapting these to the special problems posed by the date change to the next century. If an unexpected outage does occur we can operate equipment manually and will have personnel at important locations on New Years Eve 1999 and into 2000. Our Year 2000 project focuses on those facets of our business that are required to deliver reliable electric service. The project encompasses the computer systems that support our core business functions such as customer information and billing, finance, procurement, supply and personnel as well as the components of metering, transmission, distribution and generation support. The project also focuses on embedded systems, instrumentation and control systems in facilities. The following table summarizes the status of our progress toward achieving Year 2000 readiness. The figures set forth in the table represent the estimated extent to which each phase of the Year 2000 project for software applications and embedded systems have been completed. Software Embedded Applications Systems Inventory . . . . . . . .100% 100% Assessment . . . . . . . 75% 100% Renovation . . . . . . . 30% 90% Testing . . . . . . . . . 30% 90% Implementation . . . . . 30% 90% Our current schedule is subject to change, depending on developments that may arise through unforeseen business circumstances, and through remediation and testing phases of our compliance effort. Our ability to deliver electricity to our customers could also be impacted if one of our major power suppliers or vendors of telecommunication service experienced a date-related system failure. An interruption in power supplied by other delivery systems, such as the independent system operator (ISO) for New England, could also cause power delivery problems for us. We are participating in the efforts of the ISO's New England Joint Oversight Committee to ensure that the systems and delivery of electricity in New England are in compliance. We have asked these companies to send written reports on their status in eliminating Year 2000 issues that could negatively affect their ability to serve us. All other major vendors or businesses that we depend on for services or supplies have also been asked to report on their status. The total cost of remediating or upgrading software that would not otherwise be replaced in accordance with our business plans is approximately $376,000. Approximately $50,000 has been expended as of December 31, 1998 for external labor, hardware and software costs, and for the costs of employees who are dedicated to the Year 2000 project. The foregoing amounts do not include the cost of new software applications installed as a result of strategic replacement projects described earlier. Such replacement projects have not been accelerated because of Year 2000 issues. The cost of the project and the dates on which we plan to complete our Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third parties' Year 2000 readiness and other factors. Further, we expect to incur additional costs after 1999 to remediate and replace less critical software applications and embedded systems. We have also begun the process of developing contingency plans to address the most reasonably likely worst case scenarios that could occur in the event that various Year 2000 issues are not resolved in a timely manner. Contingency planning is an ongoing process and will continue through the fourth quarter of 1999. The phases of our contingency planning process include business impact analysis, contingency planning and testing. Business impact analysis requires business unit personnel to evaluate the impact of mission-critical systems failure on our core business operations, focusing on specific failure scenarios and how they can be mitigated. The necessary conditions for enacting the plans will be documented along with the appropriate personnel responsible in each of the business units should a Year 2000 failure occur. Additionally we have participated in system readiness drills to simulate major outages and restart capability and will continue to participate in scheduled drills in 1999. Based on our current schedule for completion of Year 2000 tasks, we believe that our planning is adequate to secure Year 2000 readiness of our critical systems. Nevertheless, achieving Year 2000 readiness is subject to various risks and uncertainties, many of which are described above. We are not able to predict all the factors that could cause actual results to differ materially from our current expectations as to our Year 2000 readiness. However, if we, or third parties with whom we have significant business relationships, fail to achieve Year 2000 readiness with respect to critical systems, there could be a material adverse effect on our results of operations, financial position and cash flows. Effects of Inflation -- Financial statements are prepared in accordance with generally accepted accounting principles and report operating results in terms of historic costs. This accounting provides reasonable financial statements but does not always take inflation into consideration. As rate recovery is based on these historical costs and known and measurable changes, the Company is able to receive some rate relief for inflation. It does not receive immediate rate recovery relating to fixed costs associated with Company assets. Such fixed costs are recovered based on historic figures. Any effects of inflation on plant costs are generally offset by the fact that these assets are financed through long-term debt. MANAGEMENT AND ORGANIZATIONAL CHANGES In 1998, in response to changes in the electric utility industry, we initiated work to reduce our non-power supply costs and position the Company as a distribution company with potential to grow. Through an early retirement incentive option and voluntary severance packages offered in 1998, we reduced the core workforce by 10 percent. The cost associated with this workforce change was approximately $3 million pretax in 1998, but is expected to result in significant future cost savings. We expensed $1.3 million of these costs, and received an accounting order from the VPSB allowing us to defer the remaining $1.7 million expended in 1998, which we plan to seek and expect to receive recovery of in our current or future rate proceedings. Concurrently, three of the senior management team left the Company on December 31, 1998, thereby reducing the executive ranks by 20 percent. The officers were: - - Richard B. Hieber, Senior Vice President and Chief Operating Officer, - - Edwin M. Norse, Vice President, Chief Financial Officer and Treasurer, and - - Robert C. Young, Assistant Vice President, Customer Operations. On November 23, 1998, Nancy R. Brock was elected Vice President, Chief Financial Officer and Treasurer by the Company's Board of Directors. On February 8, 1999, the Company's Board of Directors elected Mary G. Powell, Vice President, Administration. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA GREEN MOUNTAIN POWER CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES Page Financial Statements Consolidated Statements of Income For the Years Ended December 31, 1998, 1997, and 1996 . . . . . . . . 48 Consolidated Statements of Cash Flows For the Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . 49 Consolidated Balance Sheets as of December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . 50 Consolidated Capitalization Data as of December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . 52 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 53 Quarterly Financial Information . . . . . . . . . . . . . . . . . . . . . 67 Report of Independent Public Accountants . . . . . . . . . . . . . . . . 81 Schedules For the Years Ended December 31, 1998, 1997 and 1996: II Valuation and Qualifying Accounts and Reserves . . . . . . . . . 82 All other schedules are omitted as they are either not required, not applicable or the information is otherwise provided. Consents and Reports of Independent Public Accountants . . . . . . . . .81,95 Arthur Andersen LLP
CONSOLIDATED STATEMENTS OF INCOME GREEN MOUNTAIN POWER CORPORATION For the Years Ended December 31 1998 1997 1996 ----------------- --------------- --------------- (In thousands, except amounts per share) Operating Revenues.............................................. $184,304 $179,323 $179,009 ----------------- --------------- --------------- Operating Expenses Power Supply Vermont Yankee Nuclear Power Corporation................... 32,910 32,817 30,596 Company-owned generation................................... 6,412 5,327 3,330 Purchases from others...................................... 81,706 62,222 66,320 Other operating............................................... 21,291 16,780 17,615 Transmission................................................. 9,389 11,122 10,833 Maintenance................................................... 5,190 4,785 4,463 Depreciation and amortization................................. 16,059 16,359 16,280 Taxes other than income....................................... 7,242 7,205 6,982 Income taxes.................................................. (1,367) 7,191 6,463 ----------------- --------------- --------------- Total operating expenses................................... 178,832 163,808 162,882 ----------------- --------------- --------------- Operating Income......................................... 5,472 15,515 16,127 ----------------- --------------- --------------- Other Income Equity in earnings of affiliates and non-utility operations..................................... (28) 427 2,880 Allowance for equity funds used during construction........... 104 357 175 Other income (deductions), net................................ (549) 789 175 ----------------- --------------- --------------- Total other income (deductions)............................. (473) 1,573 3,230 ----------------- --------------- --------------- Income before interest charges............................ 4,999 17,088 19,357 ----------------- --------------- --------------- Interest Charges Long-term debt................................................ 6,991 7,274 6,872 Other......................................................... 1,016 691 994 Allowance for borrowed funds used during construction............................................... (131) (315) (468) ----------------- --------------- --------------- Total interest charges...................................... 7,876 7,650 7,398 ----------------- --------------- --------------- Net Income (Loss)............................................... (2,877) 9,438 11,959 Dividends on preferred stock.................................... 1,296 1,433 1,010 ----------------- --------------- --------------- Net Income (Loss) Applicable to Common Stock.................... ($4,173) $8,005 $10,949 ================= =============== =============== Common Stock Data Earnings (loss) per share..................................... ($0.80) $1.57 $2.22 Cash dividends declared per share............................. $0.9625 $1.61 $2.12 Weighted average shares outstanding........................... 5,243 5,112 4,933 The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS GREEN MOUNTAIN POWER CORPORATION For the Years Ended December 31 1998 1997 1996 --------- --------- --------- (In thousands) Operating Activities: Net Income (Loss).................................................... ($2,877) $9,438 $11,959 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................... 16,059 16,359 16,280 Dividends from associated companies less equity income........... 812 (90) 254 Allowance for funds used during construction..................... (235) (672) (643) Deferred purchased power costs................................... (7,830) (331) (5,917) Amortization of purchased power costs............................ 6,405 5,212 5,187 Deferred income taxes............................................ (112) (2,715) 1,937 Amortization of investment tax credits........................... (282) (282) (282) Environmental proceedings costs, net............................. 3,010 (2,123) (1,720) Conservation expenditures........................................ (1,833) (2,411) (3,207) Changes in: Accounts receivable............................................ (1,611) 368 347 Accrued utility revenues....................................... (105) 156 (139) Fuel, materials and supplies................................... 122 359 (309) Prepayments and other current assets........................... (983) (6,749) (354) Accounts payable............................................... (1,893) 1,728 221 Taxes accrued.................................................. (2,473) 1,856 415 Interest accrued............................................... (108) (71) (465) Other current liabilities...................................... 3,229 (164) 1,065 Other............................................................ 644 6,635 1,738 --------- --------- --------- Net cash provided by operating activities.......................... 9,939 26,503 26,367 --------- --------- --------- Investing Activities: Construction expenditures.......................................... (10,900) (16,409) (17,541) Investment in non-utility property................................. (1,442) 218 (2,203) Proceeds from sale of propane subsidiary........................... 11,500 -- -- --------- --------- --------- Net cash used in investing activities............................ (842) (16,191) (19,744) --------- --------- --------- Financing Activities: Issuance of preferred stock........................................ -- -- 12,000 Reduction in preferred stock....................................... (1,650) (1,575) (1,620) Issuance of common stock........................................... 1,587 3,023 4,642 Short-term debt, net............................................... 4,384 1,600 (7,400) Issuance of long-term debt......................................... -- -- 14,000 Reduction in long-term debt........................................ (6,767) (4,201) (16,201) Cash dividends..................................................... (6,332) (9,637) (11,455) --------- --------- --------- Net cash used in financing activities............................ (8,778) (10,790) (6,034) --------- --------- --------- Net increase (decrease) in cash and cash equivalents............... 319 (478) 589 Cash and cash equivalents at beginning of year..................... 271 749 160 --------- --------- --------- Cash and Cash Equivalents at End of Year............................... $590 $271 $749 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEETS GREEN MOUNTAIN POWER CORPORATION December 31 1998 1997 --------- --------- (In thousands) ASSETS Electric Utility Utility Plant Utility plant, at original cost...........................$276,853 $265,441 Less accumulated depreciation............................. 94,604 87,689 --------- --------- Net utility plant....................................... 182,249 177,752 Property under capital lease.............................. 7,696 8,342 Construction work in progress............................. 5,611 10,626 --------- --------- Total utility plant, net................................ 195,556 196,720 --------- --------- Other Investments Associated companies, at equity .......................... 15,048 15,860 Other investments ........................................ 5,630 6,137 --------- --------- Total other investments................................. 20,678 21,997 --------- --------- Current Assets Cash and cash equivalents................................. 439 118 Accounts receivable, customers and others, less allowance for doubtful accounts of $449 and $385.................. 18,977 17,365 Accrued utility revenues.................................. 6,611 6,505 Fuel, materials and supplies, at average cost............. 3,139 3,261 Prepayments............................................... 6,091 1,563 Other..................................................... 443 313 --------- --------- Total current assets.................................... 35,700 29,125 --------- --------- Deferred Charges Demand side management programs........................... 10,590 13,692 Purchased power costs..................................... 5,708 4,283 Other..................................................... 14,278 9,415 --------- --------- Total deferred charges.................................. 30,576 27,390 --------- --------- Non-Utility Cash and cash equivalents................................. 151 153 Other current assets...................................... 7,823 11,501 Property and equipment.................................... 1,213 10,784 Intangible assets......................................... 1,658 2,116 Equity investment in energy-related businesses............ 12,357 12,824 Other assets.............................................. 4,112 4,682 --------- --------- Total non-utility assets................................ 27,314 42,060 --------- --------- Total Assets..................................................$309,824 $317,292 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. GREEN MOUNTAIN POWER CORPORATION December 31 1998 1997 --------- --------- (In thousands) CAPITALIZATION AND LIABILITIES Electric Utility Capitalization (See Capitalization Data) Common Stock Equity Common stock............................................ $17,711 $17,318 Additional paid-in capital.............................. 71,914 70,720 Retained Earnings....................................... 17,508 26,717 Treasury stock, at cost................................. (378) (378) --------- --------- Total common stock equity............................. 106,755 114,377 Redeemable cumulative preferred stock..................... 16,085 17,735 Long-term debt, less current maturities .................. 88,500 93,200 --------- --------- Total capitalization.................................. 211,340 225,312 --------- --------- Capital Lease Obligation ..................................... 7,696 8,342 --------- --------- Current Liabilities Current maturuties of long-term debt...................... 1,700 1,700 Short-term debt........................................... 7,000 2,616 Accounts payable, trade, and accrued liabilities.......... 5,453 6,828 Accounts payable to associated companies.................. 7,143 7,661 Dividends declared........................................ 362 350 Customer deposits......................................... 336 721 Taxes Accrued............................................. 370 2,843 Interest accrued.......................................... 1,203 1,311 Other..................................................... 5,258 1,256 --------- --------- Total current liabilities............................. 28,825 25,286 --------- --------- Deferred Credits Accumulated deferred income taxes......................... 23,389 23,501 Unamortized investment tax credits........................ 4,260 4,542 Pine street Marsh clean-up................................ 5,000 -- Other..................................................... 22,240 17,239 --------- --------- Total deferred credits................................ 54,889 45,282 --------- --------- Non-Utility Current liabilities....................................... 720 1,119 Other liabilities......................................... 6,354 11,951 --------- --------- Total non-utility liabilities......................... 7,074 13,070 --------- --------- Total Capitalization and Liabilities..........................$309,824 $317,292 ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED CAPITALIZATION DATA GREEN MOUNTAIN POWER CORPORATION December 31 Issued and Outstanding CAPITAL STOCK Authorized 1998 1997 1998 1997 ----------- ---------- ---------- --------- --------- (In thousands) Common Stock,$3.33 1/3 par value (Note C)........................ 10,000,000 5,313,296 5,195,432 $17,711 $17,318 ========= ========= ----------------------------------------------------------------------------------------------------------------- Outstanding Authorized Issued 1998 1997 1998 1997 ---------- ----------- ---------- ---------- --------- --------- (In thousands) Redeemable Cumulative Preferred Stock, $100 par value (Note D) 4.75%,Class B, redeemable at $101 per share...................................... 15,000 15,000 2,250 2,850 $225 $270 7%,Class C, redeemable at $101 per share...................................... 15,000 15,000 4,200 4,650 420 465 9.375%,Class D,Series 1, redeemable at $101 per share........................ 40,000 40,000 6,400 9,600 640 800 8.625%,Class D,Series 3, redeemable at $101.919 per share.................... 70,000 70,000 28,000 56,000 2,800 4,200 7.32%,Class E,Series 1,............................... 200,000 120,000 120,000 120,000 12,000 12,000 --------- --------- Total Preferred Stock.................................... $16,085 $17,735 ========= ========= LONG-TERM DEBT (Note E) 1998 1997 --------- --------- (In thousands) First Mortgage Bonds 7% Series due 1998..........................................................................................$ -- $3,000 5.71% Series due 2000....................................................................................... 5,000 5,000 6.21% Series due 2001....................................................................................... 8,000 8,000 6.29% Series due 2002....................................................................................... 8,000 8,000 6.41% Series due 2003....................................................................................... 8,000 8,000 10.0% Series due 2004 - Cash sinking fund,$1,700,000 annually................................................................................................ 10,200 11,900 7.05% Series due 2006....................................................................................... 4,000 4,000 7.18% Series due 2006....................................................................................... 10,000 10,000 6.7% Series due 2018........................................................................................ 15,000 15,000 9.64% Series due 2020....................................................................................... 9,000 9,000 8.65% Series due 2022 - Cash sinking fund,commences 2012.................................................... 13,000 13,000 --------- --------- Total Long-term Debt Outstanding.............................................................................. 90,200 94,900 Less Current Maturities (due within one year)............................................................... 1,700 1,700 --------- --------- Total Long-term Debt, Net..................................................................................... $88,500 $93,200 ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements A. SIGNIFICANT ACCOUNTING POLICIES 1. The Company. Green Mountain Power Corporation (the Company) is an investor-owned electric services company located in Vermont that serves approximately one-quarter of the State's population. The most significant portion of the Company's net income is derived from its regulated electric utility operation, which purchases and generates electric power and distributes it to 83,500 retail and wholesale customers. At December 31, 1998, the Company's primary subsidiary investment was in Mountain Energy Inc., which invests in energy generation, energy efficiency and wastewater treatment projects across the United States. In 1998 the Company sold the assets of its wholly owned propane gas subsidiary, Green Mountain Propane Gas Company (GMPG). The impact of this transaction did not have a material impact on the Company's results of operations. In 1998, through its subsidiary, Green Mountain Resources, Inc. (GMRI), the Company agreed to sell its remaining interest in Green Mountain Energy Resources L.L.C. (GMER) to Green Funding I in early 1999. The results of these subsidiaries, the Company's unregulated rental water heater program and its other unregulated wholly-owned subsidiaries (GMP Real Estate Corporation and Lease-Elec, Inc.) are included in earnings of affiliates and non-utility operations in the Other Income section of the Consolidated Statements of Income. Summarized financial information is as follows: For the years ended December 31 1998 1997 1996 ---- ---- ---- (In thousands) Revenues . . . . . . . . . . . . . $ 4,967 $11,842 $11,997 Expenses . . . . . . . . . . . . . 7,035 13,439 11,207 -------- -------- ------ Net Income (Loss) . . . . . . . . $(2,068) ($1,597) $790 ======== ======== ====== The Company carries its investments in various associated companies - -- Vermont Yankee Nuclear Power Corporation (Vermont Yankee), Vermont Electric Power Company, Inc. (VELCO), New England Hydro-Transmission Corporation, and New England Hydro-Transmission Electric Company -- at equity. 2. Basis of Presentation The Company's utility operations, including accounting records, rates, operations and certain other practices of its electric utility business, are subject to the regulatory authority of the Federal Energy Regulatory Commission (FERC) and the Vermont Public Service Board (VPSB). The accompanying consolidated financial statements conform to generally accepted accounting principles applicable to rate-regulated enterprises in accordance with Statement of Financial Accounting Standards (SFAS) 71, Accounting for Certain Types of Regulation. Under SFAS 71, the Company accounts for certain transactions in accordance with permitted regulatory treatment. As such, regulators may permit incurred costs, typically treated as expenses, to be deferred and recovered in future revenues. Conditions that give rise to the discontinuance of SFAS 71 include (1) increasing competition that restricts the Company's ability to establish prices to recover its costs of providing regulated service, and (2) a change in the manner in which rates are set by regulators from cost-based regulation to another form of regulation. In the event that the Company no longer meets the criteria under SFAS 71, the Company would be required to write off its net regulatory assets and liabilities which totaled $24.6 million as of December 31, 1998. SFAS 121, Accounting for the Impairment of Long Lived Assets, requires that any assets, including regulatory assets, which are no longer probable of recovery through future revenues, be revalued based upon future cash flows. SFAS 121 requires that a rate-regulated enterprise recognize an impairment loss for regulatory assets which are no longer probable of recovery. As of December 31, 1998, based upon the regulatory environment within which the Company currently operates, no impairment loss was recorded under SFAS 121. Competitive influences or regulatory developments may impact this status in the future. 3. Statements of Cash Flows. The following amounts of interest (net of amounts capitalized) and income taxes were paid for the years ending December 31: 1998 1997 1996 ---- ---- ---- (In thousands) Interest . . . . . . . . . . . . . . $7,857 $7,800 $8,104 Income Taxes (Net of refunds) . . . . 2,285 5,853 3,727 4. Utility Plant. The cost of plant additions includes all construction-related direct labor and materials, as well as indirect construction costs, including the cost of money (Allowance for Funds Used During Construction or AFUDC). The costs of renewals and betterments of property units are capitalized. The costs of maintenance, repairs and replacements of minor property items are charged to maintenance expense. The costs of units of property removed from service, net of removal costs and salvage, are charged to accumulated depreciation. 5. Depreciation. The Company provides for depreciation on the straight-line method based on the cost and estimated remaining service life of the depreciable property outstanding at the beginning of the year and adjusted for salvage value and cost of removal of the property. The annual depreciation provision was approximately 3.7 percent of total depreciable property at the beginning of 1998 and 3.6 percent at the beginning of 1997 and 1996. 6. Operating Revenues. Operating revenues consist principally of sales of electric energy. The Company records accrued utility revenues, based on estimates of electric service rendered and not billed at the end of an accounting period, in order to match revenues with related costs. 7. Deferred Charges. In a manner consistent with authorized or expected ratemaking treatment, the Company defers and amortizes certain replacement power, maintenance and other costs associated with the Vermont Yankee nuclear plant. In addition, the Company accrues and amortizes other replacement power expenses to reflect more accurately its cost of service to better match revenues and expenses consistent with regulatory treatment. The Company defers and amortizes costs associated with its investment in the demand side management program. At December 31, 1998, other deferred charges totaled $14.3 million, consisting of regulatory proceedings expenses, regulatory deferrals of storm damages, deferred termination costs associated with the Company's workforce reduction, preliminary survey and investigation charges, rights-of-way maintenance, unamortized debt expense, repair costs for the Essex and Vergennes hydroelectric facilities and transmission interconnection charges and various other projects and deferrals. 8. Earnings (Loss) Per Share. Earnings (loss) per share are based on the weighted average number of shares of common stock outstanding during each year. Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128) effective for financial statements issued for annual periods ending after December 15, 1997, replaces the definition of primary earnings per share, calculated in accordance with the provisions of APB 15, with a new calculation, basic earnings per share. Fully diluted earnings per share, now called diluted earnings per share, is still required. Since the Company has not issued any potentially dilutive securities, both calculations are the same. 9. Major Customers. The Company had one major retail customer, IBM, metered at two locations, that accounted for 14.7, 14.0 and 13.2 percent of operating revenues in 1998, 1997 and 1996, respectively. 10. Pension and Retirement Plans. The Company has a defined pension plan covering substantially all of its employees. The retirement benefits are based on the employees' level of compensation and length of service. The Company's policy is to fund all accrued pension costs. As a result of a rate order issued by the VPSB, the Company now accounts for its deferred pension plan under the provisions of SFAS 87, Employers' Accounting for Pensions. Prior to this, the Company recorded annual expense based on amounts funded in accordance with methods approved in the rate-setting process. The Company provides certain health care benefits for retired employees and their dependents. Employees become eligible for these benefits if they reach normal retirement age while working for the Company. The Company accrues the cost of these benefits during the service life of covered employees. Accrued postretirement health care expenses are recovered in rates if those expenses are funded. In order to maximize the tax deductible contributions that are allowed under IRS regulations, the Company amended its pension plan to establish a 401-h subaccount and separate VEBA trusts for its union and non-union employees. The plan assets consist primarily of cash equivalent funds, fixed income securities and equity securities. In 1998, the Company adopted SFAS 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. The provisions of SFAS 132 revise employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of these plans but standardizes the disclosure requirements for pensions and other postretirement benefits to the extent possible. The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans as of December 31, 1998 and 1997.
Other Pension Benefits Postretirement Benefits --------------------- ------------------------- 1998 1997 1998 1997 --------------------- ------------------------- (In thousands) (In thousands) Change in Projected Benefit Obligation: Projected benefit obligation as of prior year end.. $28,630 $25,615 $11,046 $9,202 Service cost....................................... 787 720 282 228 Interest cost...................................... 2,043 2,069 799 763 Loss on immediate retirement....................... -- -- 42 -- Special termination benefit........................ 2,026 -- 44 -- Change in discount rate............................ -- -- 897 964 Other.............................................. -- -- -- 435 Actuarial loss..................................... 438 2,290 -- -- Benefits paid...................................... (3,064) (1,852) (558) (546) Curtailment........................................ -- (212) -- -- --------------------- ------------------------- Projected benefit obligation as of year end......... $30,860 $28,630 $12,552 $11,046 ===================== ========================= Change in Plan Assets: Fair value of plan assets as of prior year end..... $35,773 $31,286 $7,893 $6,327 Contributions...................................... -- -- 76 -- Actual return on plan assets....................... 5,321 6,339 1,766 1,566 Benefits paid...................................... (3,064) (1,852) -- -- --------------------- ------------------------- Fair value of plan assets as of year end............ $38,030 $35,773 $9,735 $7,893 ===================== ========================= Funded status as of year end........................ $7,170 $7,143 ($2,817) ($3,153) Unrecognized transition obligation (asset).......... (1,021) (1,249) 4,926 5,278 Unrecognized prior service cost..................... 1,113 1,247 (743) (805) Unrecognized net actuarial gain..................... (7,569) (5,962) (1,471) (1,400) Adjustments due to actions of regulator............. -- (1,179) -- -- ---------------------- -------------------------- Prepaid (accrued) benefit cost as of year end....... ($307) $-- ($105) ($80) ====================== ========================== The plan assets consist primarily of cash equivalent funds, fixed income securities and equity securities. The Company also has a supplemental pension plan for certain employees. Pension costs for the years ended December 31, 1998, 1997 and 1996 were $397,000, $456,000 and $494,000, respectively, under this plan. This plan is funded in part through insurance contracts. Other Pension Benefits Postretirement Benefits --------------------- ------------------------- 1998 1997 1998 1997 --------------------- ------------------------- Weighted average assumptions as of year end: Discount rate....................................... 6.75% 7.25% 6.75% 7.25% Expected return on plan assets...................... 9.00% 9.00% 8.50% 8.50% Rate of compensation increase....................... 4.00% 4.50% -- -- Net periodic pension and other postretirement benefit costs include the following components: Other Pension Benefits Postretirement Benefits ------------------------------ ------------------------------------ 1998 1997 1996 1998 1997 1996 ------------------------------ ------------------------------------ (In Thousands) Service cost........................................ $787 $720 $689 $282 $228 $247 Interest cost....................................... 2,043 2,069 1,912 799 763 698 Expected return on plan assets...................... (3,081) (2,739) (2,513) (671) (539) (464) Amortization of transition asset.................... (228) (228) (228) -- -- -- Amortization of net gain from earlier periods....... -- -- -- (17) (28) (45) Amortization of prior service cost.................. 134 143 141 (61) (61) (61) Amortization of the transition obligation........... -- -- -- 351 351 352 Recognized net actuarial gain....................... (195) (83) (27) -- -- -- Special termination benefit......................... 2,026 -- -- 44 -- -- Effect of voluntary retirement programs............. -- -- 416 -- -- -- Adjustment due to actions of regulator.............. -- 126 (366) -- -- -- ------------------------------ ------------------------------------ Net periodic benefit cost........................... $1,486 $8 $24 $727 $714 $727 ============================== ==================================== For postretirement benefit cost measurement purposes, a 5.6 percent annual rate of increase in the per capita cost of covered benefits was assumed for 1998; the rate was assumed to decrease gradually to 5.0 percent by the year 2002 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation as of December 31, 1998 by $1.9 million and the aggregate of the service and interest components of net periodic postretirement benefit cost fot the year ended December 31, 1998 by $170,000. The special termination benefit recorded in 1998 resulted from the early retirement incentive option offered to employees in 1998. The curtailment recorded in 1997 resulted from the effect of the voluntary retirement option offered to employees in 1996. Prior to 1998 the Company recorded annual expense and prepaid (accrued) benefit cost on the cash basis in accordance with methods approved in the rate-setting process. The adjustment to accomplish this accounting was through the line item "Adjustments due to actions of regulator."
11. Fair Value of Financial Instruments. If the first mortgage bonds and preferred stock outstanding at December 31, 1998 were refinanced using new issue debt rates of interest, which, on average, are lower than the Company's outstanding rates, the present value of those obligations would increase from the amounts outstanding on the December 31, 1998 balance sheet by approximately 4 percent. In the event of such a refinancing, there would be no gain or loss, inasmuch as under established regulatory precedent, any such difference would be reflected in rates and have no effect upon income. 12. Deferred Credits. At December 31, 1998, the Company had other deferred credits and long-term liabilities of $22.2 million, consisting of operating lease equalization, reserves for damage claims and environmental liabilities and accruals for employee benefits and deferred compensation. 13. Segments and Related Information. In 1998, the Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. The Company has two reportable segments, the electric utility and Mountain Energy, Inc. The electric utility is engaged in supplying electrical energy in the State of Vermont and also reports the results of its wholly-owned unregulated subsidiaries (GMPG, GMRI, GMP Real Estate, Lease-Elec, Inc., and the rental water heater program) as a separate line item in the Other Income Section in the Consolidated Statement of Income. Mountain Energy, Inc. is an unregulated business that invests in energy generation, energy efficiency and waste water treatment projects. Segment information for the year ended December 31, 1998 includes the following: Electric Mountain Energy -------- --------------- (In thousands) Revenues-external . . . . . . . . . . . . $184,304 $2,092 Interest income . . . . . . . . . . . . --- 1,344 Depreciation and amortization . . . . . . 16,059 382 Interest expense . . . . . . . . . . . . 7,876 183 Income taxes . . . . . . . . . . . . . . (1,367) (1,463) Earnings (loss) of equity investments . . (28) 1,840 Segment loss . . . . . . . . . . . . . . (2,087) (2,086) Segment assets . . . . . . . . . . . . . 283,014 26,810 Capital expenditures . . . . . . . . . . 10,879 21 Equity investments . . . . . . . . . . . 15,048 12,413 Segment information for the year ended December 31, 1997 includes the following: Electric Mountain Energy -------- --------------- (In thousands) Revenues-external . . . . . . . . . . . . $179,323 $4,500 Interest income . . . . . . . . . . . . . --- 2,654 Depreciation and amortization . . . . . . 16,359 125 Interest expense . . . . . . . . . . . . 7,650 207 Income taxes . . . . . . . . . . . . . . 7,191 104 Earnings of equity investments . . . . . 427 305 Segment profit . . . . . . . . . . . . . 7,863 142 Segment assets . . . . . . . . . . . . . 292,246 25,046 Capital expenditures . . . . . . . . . . 16,394 15 Equity investments . . . . . . . . . . . 15,860 11,449 Segment information for the year ended December 31, 1996 includes the following: Electric Mountain Energy -------- --------------- (In thousands) Revenues-external . . . . . . . . . . . $179,009 $2,848 Interest income . . . . . . . . . . . . --- 1,276 Depreciation and amortization . . . . . 16,280 13 Interest expense . . . . . . . . . . . . 7,398 213 Income taxes . . . . . . . . . . . . . . 6,463 803 Earnings of equity investments . . . . . 2,880 1,631 Segment profit . . . . . . . . . . . . . 9,633 1,316 Segment assets . . . . . . . . . . . . . 285,877 21,498 Capital expenditures . . . . . . . . . . 17,538 3 Equity investments . . . . . . . . . . . 15,769 12,944 Net income (loss) of Mountain Energy, Inc. is included in the Equity (Loss) in Earnings of Affiliates and Non-Utility Operations line of the Consolidated Statement of Income. The following table is a reconciliation of Mountain Energy's income (loss) to the equity (loss) in earnings of affiliates and non-utility operations: For the year ended December 31, 1998 1997 1996 ---- ---- ---- (In thousands) Mountain Energy income (loss) . . . . . . . ($2,086) $ 142 $ 1,316 Electric equity (loss) in earnings of affiliates and non-utility operations . . 2,058 285 1,564 -------- ------ ------- Total equity (loss) in earnings of affiliates and non-utility operations . . ($28) $ 427 $ 2,880 ======== ======= ======= 14. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect assets and liabilities, the disclosure of contingent assets and liabilities, and revenues and expenses. Actual results could differ from those estimates. 15. New Accounting Pronouncements. Statement of Position (SOP 98-1). In 1998, the Company adopted SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. The provisions of SOP 98-1 require that administrative and general costs, training costs, and overheads incurred during software development be expensed. The Company has historically capitalized these costs. Adoption of SOP 98-1 did not have a material impact on the Company's reported financial position or its results of operations for 1998. SFAS 133. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 1999. SFAS 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the Company's election, before January 1, 1998). The Company has not yet quantified the impacts of adopting SFAS 133 on its financial statements and has not determined the timing of or method of its adoption of SFAS 133. However, SFAS 133 could increase volatility in earnings and other comprehensive income. 16. Reclassification. Certain items on the prior years' financial statements have been reclassified for consistent presentation with the current year. B. INVESTMENTS IN ASSOCIATED COMPANIES The Company accounts for investments in the following companies by the equity method: Percent Ownership Investment in Equity at December 31, 1998 December 31, -------------------- -------------------- 1998 1997 ---- ---- (In thousands) VELCO - Common . . . . . . . . . . 29.5% $1,828 $1,833 - Preferred . . . . . . . . 30.0% 829 961 ----- ----- Total VELCO . . . . . . . . . . . 2,657 2,794 Vermont Yankee - Common . . . . . 17.9% 9,759 9,701 New England Hydro-Transmission - Common . . . . . . . . . . . 3.18% 1,015 1,063 New England Hydro-Transmission Electric - Common . . . . . 3.18% 1,615 1,811 ------- ------- $15,046 $15,369 ======= ======= Undistributed earnings in associated companies totaled $699,000 at December 31, 1998. VELCO. VELCO is a corporation engaged in the transmission of electric power within the State of Vermont. VELCO has entered into transmission agreements with the State of Vermont and other electric utilities, and under these agreements bills all costs, including interest on debt and a fixed return on equity, to the State and others using its transmission system. The Company's purchases of transmission services from VELCO were $7.1 million, $7.6 million and $7.7 million for the years 1998, 1997 and 1996, respectively. Pursuant to VELCO's Amended Articles of Association, the Company is entitled to approximately 30 percent of the dividends distributed by VELCO. The Company has recorded its equity in earnings on this basis and also is obligated to provide its proportionate share of the equity capital requirements of VELCO through continuing purchases of its common stock, if necessary. Summarized financial information for VELCO is as follows: December 31, 1998 1997 1996 ---- ---- ---- (In thousands) Company's equity in net income . . . . . . . . $ 338 $ 354 $ 383 ====== ====== ====== Total assets . . . . . . . . . . . . . . . . . $67,658 $70,566 $74,065 Less: Liabilities and long-term debt . . . . . . 58,690 61,162 61,159 ------ ------ ------- Net assets . . . . . . . . . . . . . . . . . . $8,968 $9,404 $ 9,906 ====== ====== ======= Company's equity in net assets . . . . . . . . $2,657 $2,794 $ 2,952 ====== ====== ======= Vermont Yankee. The Company is responsible for 17.9 percent of Vermont Yankee's expenses of operations, including costs of equity capital and estimated costs of decommissioning, and is entitled to a similar share of the power output of the nuclear plant, which has a net capacity of 531 megawatts. Vermont Yankee's current estimate of decommissioning costs is approximately $407 million, of which $260 million has been funded. At December 31, 1998, the Company's portion of Vermont Yankee's net unfunded liability was $26 million, which it expects will be recovered through rates over Vermont Yankee's remaining operating life. Vermont Yankee is in the process of preparing an updated site decommissioning cost study. Preliminary results indicate that the revised estimate could exceed $500 million in 1998 dollars. Vermont Yankee is required to file the results of the new study with the FERC by March 31, 1999, and expects that any resulting change in rates will be effective January 1, 2000. As a sponsor of Vermont Yankee, the Company also is obligated to provide 20 percent of capital requirements not obtained by outside sources. During 1998, the Company incurred $27.2 million in Vermont Yankee annual capacity charges, which included $2.0 million for interest charges. The Company's share of Vermont Yankee's long-term debt at December 31, 1998 was $16.7 million. The Price-Anderson Act currently sets the statutory liability from a single incident at a nuclear power plant at $9.8 billion. Any damages beyond $9.8 billion are indemnified under the Price-Anderson Act, but subject to Congressional approval. The first $200 million of liability coverage is the maximum provided by private insurance. The Secondary Financial Protection Program is a retrospective insurance plan providing additional coverage up to $9.6 billion per incident by assessing each of the 109 reactor units that are currently subject to the Program in the United States for a total of $88.1 million, limited to a maximum assessment of $10 million per incident per nuclear unit in any one year. The maximum assessment is adjusted at least every five years to reflect inflationary changes. The above insurance now covers all workers employed at nuclear facilities for bodily injury claims. Vermont Yankee had previously purchased a Master Worker insurance policy with limits of $200 million with one automatic reinstatement of policy limits to cover workers employed on or after January 1, 1988. Vermont Yankee no longer participates in this retrospectively based worker policy and has replaced this policy with the guaranteed cost coverage mentioned above. However, Vermont Yankee does retain a potential obligation for retrospective adjustments due to past operations of several smaller facilities that did not join the new program. These exposures will cease to exist no later than December 31, 2007. Vermont Yankee's maximum retrospective obligation remains at $3.1 million. The Secondary Financial Protection layer, as referenced above, would be in excess of the Master Worker policy. Insurance has been purchased from Nuclear Electric Insurance Limited (NEIL) to cover the costs of property damage, decontamination or premature decommissioning resulting from a nuclear incident. All companies insured with NEIL are subject to retroactive assessments if losses exceed the accumulated funds available. The maximum potential assessment against Vermont Yankee with respect to NEIL losses arising during the current policy year is $11.0 million. Vermont Yankee's liability for the retrospective premium adjustment for any policy year ceases six years after the end of that policy year unless prior demand has been made. For recent events related to Vermont Yankee, see NOTE L-3 -- Subsequent Events. Summarized financial information for Vermont Yankee is as follows: December 31, 1998 1997 1996 ---- ---- ---- (In thousands) Earnings: Operating revenues . . . . . . . . . $195,249 $173,106 $181,715 Net income applicable to common Stock . . . . . . . . . . . . . . 7,125 6,834 6,985 Company's equity in net income . . . 1,267 1,244 1,232 Total assets . . . . . . . . . . . . . $635,874 $610,024 $565,000 Less: Liabilities and long-term debt . . . 581,231 555,735 510,202 -------- -------- -------- Net assets . . . . . . . . . . . . . . $ 54,643 $ 54,289 54,798 ======== ======== ======== Company's equity in net assets . . . . $ 9,759 $ 9,701 $ 9,768 ======== ======== ======== C. COMMON STOCK EQUITY The Company maintains a Dividend Reinvestment and Stock Purchase Plan (DRIP) under which 300,504 shares were reserved and unissued at December 31, 1998. The Company also funds an Employee Savings and Investment Plan (ESIP). At December 31, 1998, there were 86,807 shares reserved and unissued under the ESIP. During 1995, the Company's Board of Directors, with subsequent approval of the Company's common shareholders, adopted the Compensation Program for Officers and Certain Key Management Personnel. The program links a portion of the officers and key management personnels' compensation to corporate performance results. Participants are entitled to receive cash and restricted and unrestricted stock grants in predetermined proportions. Participants who receive restricted stock are entitled to receive dividends and have voting rights but assumption of full beneficial ownership is contingent upon two restrictions of a five year duration, including no transferability and forfeiture of the stock upon termination of employment with the Company. Participants who receive unrestricted stock assume full beneficial ownership upon grant and may retain or sell such shares. During 1998, 6,531 shares were returned to the Company resulting from the termination of employment of several participants. At December 31, 1998, there were 26,614 shares reserved and unissued under the Compensation Program. On June 17, 1998, the Company adopted a Shareholder Rights Plan that authorized assignment of one share purchase right for each outstanding share of Common Stock, par value $3.33 1/3 per share, of the Company. The Rights were assigned on June 26, 1998 to the shareholders of record on that date. Each Right entitles the registered holder to purchase from the Company one Share at a price of $45.00 per Share, when the Rights become exercisable. The Plan is designed to improve the Company's ability to represent the interests of shareholders in dealing with unilateral actions by hostile acquirors that are calculated to deprive the Company's Board and its shareholders of their ability to determine the destiny of the Company and to optimize shareholder value. Changes in common stock equity for the years ended December 31, 1996, 1997 and 1998 are as follows:
Common Stock Treasury Stock ------------------------ Paid-in Retained ------------------------ Stock Shares Amount Capital Earnings Shares Amount Equity ------ ------ ------- -------- ------ ------ ------ (Dollars in thousands) BALANCE, December 31, 1995............... 4,850,496 $16,168 $64,206 $26,412 15,856 ($378) $106,408 Common Stock Issuance: DRIP................................... 149,968 500 3,188 3,688 ESIP................................... 29,644 99 668 767 Compensation Program: Restricted Shares.................... 2,392 8 59 67 Stock Grant.......................... 4,643 15 105 120 Net Income............................... 11,959 11,959 Cash Dividends on Capital Stock: Common Stock -$2.12 per share..... (10,445) (10,445) Preferred Stock -$4.75 per share..... (14) (14) -$7.00 per share..... (35) (35) -$9.375 per share.... (101) (101) -$8.625 per share.... (543) (543) -$7.32 per share..... (317) (317) ------------------------------------------------------------------------------------ BALANCE, December 31, 1996............... 5,037,143 16,790 68,226 26,916 15,856 (378) 111,554 Common Stock Issuance: DRIP................................... 120,631 402 2,182 2,584 ESIP................................... 26,702 89 507 596 Compensation Program: Restricted Shares.................... 6,190 21 119 140 Stock Grant.......................... 4,766 16 92 108 Net Income............................... 9,438 9,438 Cash Dividends on Capital Stock: Common Stock -$1.61 per share..... (8,204) (8,204) Preferred Stock -$4.75 per share..... (13) (13) -$7.00 per share..... (33) (33) -$9.375 per share.... (86) (86) -$8.625 per share.... (423) (423) -$7.32 per share..... (878) (878) Other-Preferred Stock Issuance Expense... (406) (406) ------------------------------------------------------------------------------------ BALANCE, December 31, 1997............... 5,195,432 17,318 70,720 26,717 15,856 (378) 114,377 Common Stock Issuance: DRIP................................... 88,004 293 928 1,221 ESIP................................... 36,391 121 427 548 Compensation Program: Restricted Shares.................... (6,531) (21) (161) (182) Net Loss................................. (2,877) (2,877) Cash Dividends on Capital Stock: Common Stock -$0.9625 per share... (5,035) (5,035) Preferred Stock -$4.75 per share..... (12) (12) -$7.00 per share..... (32) (32) -$9.375 per share.... (72) (72) -$8.625 per share.... (302) (302) -$7.32 per share..... (879) (879) ------------------------------------------------------------------------------------ BALANCE, December 31, 1998............... 5,313,296 $17,711 $71,914 $17,508 15,856 ($378) $106,755 ====================================================================================
Dividend Restrictions. Certain restrictions on the payment of cash dividends on common stock are contained in the Company's indenture relating to long-term debt and in the Restated Articles of Association. Under the most restrictive of such provisions, $8.5 million of retained earnings were free of restrictions at December 31, 1998. The properties of the Company include several hydroelectric projects licensed under the Federal Power Act, with license expiration dates ranging from 1999 to 2025. At December 31, 1998, $59,000 of retained earnings had been appropriated as excess earnings on hydroelectric projects as required by Section 10(d) of the Federal Power Act. D. PREFERRED STOCK The holders of the preferred stock are entitled to specific voting rights with respect to certain types of corporate actions. They are also entitled to elect the smallest number of directors necessary to constitute a majority of the Board of Directors in the event of preferred stock dividend arrearages equivalent to or exceeding four quarterly dividends. Similarly, the holders of the preferred stock are entitled to elect two directors in the event of a default in any purchase or sinking fund requirements provided for any class of preferred stock. Certain classes of preferred stock are subject to annual purchase or sinking fund requirements. The sinking fund requirements are mandatory. The purchase fund requirements are mandatory, but holders may elect not to accept the purchase offer. The redemption or purchase price to satisfy these requirements may not exceed $100 per share plus accrued dividends. All shares redeemed or purchased in connection with these requirements must be canceled and may not be reissued. The annual purchase and sinking fund requirements for certain classes of preferred stock are as follows: Purchase and Sinking Fund 8.625%, Class D, Series 3 . . . . . . . . September 1 14,000 Shares 4.75%, Class B . . . . . . . . . . . . . . December 1 450 Shares 7%, Class C . . . . . . . . . . . . . . . December 1 450 Shares 9.375%, Class D, Series 1 . . . . . . . . December 1 1,600 Shares Under the Restated Articles of Association relating to Redeemable Cumulative Preferred Stock, the annual aggregate amount of purchase and sinking fund requirements for the next five years are $1,650,000 for 1999, $1,640,000 for 2000, $235,000 for 2001-2002 and $75,000 for 2003. Certain classes of preferred stock are redeemable at the option of the Company or, in the case of voluntary liquidation, at various prices on various dates. The prices include the par value of the issue plus any accrued dividends and a redemption premium. The redemption premium for Class B, C and D, Series 1, is $1.00 per share. The redemption premium for the Class D, Series 3 is $0.916 per share until September 1, 1999, after which there is no redemption premium. E. LONG-TERM DEBT Utility. Substantially all of the property and franchises of the Company are subject to the lien of the indenture under which first mortgage bonds have been issued. The annual sinking fund requirements (excluding amounts that may be satisfied by property additions) and long-term debt maturities for the next five years are: Sinking Funds Maturities Total ------- ---------- ----- (In thousands) 1999 . . . . . . . . . . . $1,700 $ --- $1,700 2000 . . . . . . . . . . . 1,700 5,000 6,700 2001 . . . . . . . . . . . 1,700 8,000 9,700 2002 . . . . . . . . . . . 1,700 8,000 9,700 2003 . . . . . . . . . . . 1,700 8,000 9,700 Non-Utility. At December 31, 1998, Mountain Energy, Inc., the Company's subsidiary that invests in energy generation, energy efficiency and wastewater treatment projects, had unsecured long-term debt of $1,416,667. The annual sinking fund requirements and maturities for the next two years are: Sinking Funds Maturities Total ------- ---------- ----- (In thousands) 1999 . . . . . . . . . . . . . $167 $ --- $ 167 2000 . . . . . . . . . . . . . 83 1,167 1,250 F. SHORT-TERM DEBT The Company has a revolving credit agreement in the amount of $45 million with three banks, with borrowings outstanding of $7.0 million on December 31, 1998 and an uncommitted line of credit in the amount of $500,000, under which no amounts were outstanding at December 31, 1998. The revolving credit agreement requires the Company to certify on a quarterly basis that the Company has not suffered a "material adverse change." Similarly, as a condition to further borrowings, the Company must certify that nothing has happened that has had or could reasonably be expected to have a materially adverse effect on the Company since the date that it last borrowed under this agreement. When the VPSB issued its Order dated February 27, 1998, disallowing certain costs associated with the Company's contract to purchase power from Hydro-Quebec, the three banks required modification of the terms of the revolving credit agreement, which had been made originally on August 12, 1997, which was unsecured and had a three-year term. The modified agreement allows the Company to continue to borrow until such time that: - - A "material adverse effect" has occurred; - - The Company is no longer in compliance with all other provisions of the agreement, in which case further borrowing will not be permitted; or - - There has been a "material adverse change", in which case the banks may declare the Company in default. The modified terms also call in part for the following: - - A reduction in the term of the Agreement from three years to one, expiring June 30, 1999; - - A second priority mortgage, lien and security interest in the collateral pledged under our first mortgage bond indenture granted to the banks; and - - An increase in the interest rates, facility fees and other fees required to be paid by the Company under the agreement. Required regulatory approval was obtained on June 3, 1998. The restated credit agreement and related loan documents were effective on August 17, 1998. There are a number of future events that, singularly or in combination, could lead the banks to refuse to allow further borrowings under the existing credit agreement, to seek to enter into a new credit agreement with the Company and/or to immediately call in all outstanding loans. Some of those events are: - - The VPSB issues an order in the Company's pending 1998 rate case that triggers a "material adverse change" for the Company; or - - Hydro-Quebec is unwilling to make new arrangements regarding the cost of power that the Company purchases under its contract with Hydro-Quebec. The weighted average interest rate on borrowings outstanding at December 31, 1998 and December 31, 1997 was 6.2 percent and 7.0 percent, respectively. There was no non-utility short term debt outstanding at December 31, 1998. G. INCOME TAXES Utility. The Company accounts for income taxes using an asset and liability approach. This approach accounts for deferred income taxes by applying statutory rates in effect at year end to the differences between the book and tax bases of assets and liabilities. The regulatory assets and liabilities represent taxes that will be collected from or returned to customers through rates in future periods. As of December 31, 1998 and 1997, the net regulatory assets were $2,214,000 and $1,704,000, respectively. The temporary differences which gave rise to the net deferred tax liability at December 31, 1998 and December 31, 1997, were as follows: At December 31, At December 31, 1998 1997 --------------- --------------- (In thousands) Deferred Tax Assets Contributions in aid of construction . . . $8,551 $ 7,946 Deferred compensation and post retirement benefits . . . . . . . 4,455 3,199 Alternative minimum tax credit . . . . . (56) 15 Self-insurance and other reserves . . . . 2,009 67 Pine street reserve . . . . . . . . . . . 2,469 1,142 Other . . . . . . . . . . . . . . . . . . 995 2,003 ------ ------ 18,423 14,372 ------ ------ Deferred Tax Liabilities Property-related and other . . . . . . . 34,806 31,864 Demand side management costs . . . . . . 3,557 4,775 Deferred purchased power costs . . . . . 3,449 1,234 ------ ------ 41,812 37,873 ------ ------ Net accumulated deferred income tax liability . . . . . . . . . . . . . . .($23,389) ($23,501) ========= ========= The following table reconciles the change in the net accumulated deferred income tax liability to the deferred income tax expense included in the income statement for the period: Year Ended December 31, 1998 1997 1996 ---- ---- ---- (In thousands) Net change in deferred income tax liability per above table . . . . . . . ($112) ($3,225) $1,434 Change in income tax related regulatory assets and liabilities . . . . . . . . 510 509 504 Change in alternative minimum tax credit . (70) 567 109 ----- -------- ------- Deferred income tax expense for the Period . . . . . . . . . . . . . . . . . . $328 ($2,149) $2,047 ===== ======== ====== The components of the provision (benefit) for income taxes are as follows: Year Ended December 31, 1998 1997 1996 ---- ---- ---- (In thousands) Current federal income taxes . . . . . ($1,047) $7,355 $3,708 Current state income taxes . . . . . . (366) 2,267 990 -------- ------ ----- Total current income taxes . . . . . . ($1,413) 9,622 4,698 -------- ------ ----- Deferred federal income taxes . . . . . 219 (1,623) 1,588 Deferred state income taxes . . . . . . 109 (526) 459 -------- ------- ------ Total deferred income taxes . . . . . . 328 (2,149) 2,047 -------- ------- ------ Investment tax credits - net . . . . . (282) (282) (282) -------- ------- ------- Income taxes charged (credited) to operations . . . . . . . . . . . ($1,367) $7,191 $6,463 ======== ====== ====== Total federal income taxes differ from the amounts computed by applying the statutory tax rate to income before taxes. The reasons for the differences are as follows: Year Ended December 31, 1998 1997 1996 ---- ---- ---- (Dollars in thousands) Income (loss) before income tax . . . ($4,244) $16,630 $ 18,422 Federal statutory rate. . . . . . . . 34% 34.5% 34% Computed "expected" federal income taxes . . . . . . . . . . . ($1,443) $ 5,737 $ 6,263 Increase (decrease) in taxes resulting from: Tax versus book depreciation . . . 153 349 327 Dividends received and paid Credit . . . . . . . . . . . . . . (480) (575) (524) AFUDC - equity funds . . . . . . . (36) (123) (59) Amortization of ITC . . . . . . . . (282) (282) (282) State tax benefit (provision) . . . 87 (601) (493) Excess deferred taxes . . . . . . . (60) (60) (60) Taxes attributable to subsidiaries 845 682 (140) Tax reserve . . . . . . . . . . . . 45 270 (101) Other . . . . . . . . . . . . . . . 61 53 83 -------- ------- ------- Total federal income taxes . . . . . ($1,110) $5,450 $5,014 ======== ======= ======= Effective federal income tax rate . . 26.1% 32.8% 27.2% The decrease in 1998 is primarily due to taxes attributable to the subsidiaries. The increase in 1997 is due to taxes attributable to the subsidiaries in 1996 as well as an increase in the tax reserve for 1996. Non-Utility. The Company's non-utility subsidiaries had accumulated deferred income taxes of $4.6 million on their balance sheets at December 31, 1998, largely attributable to property-related transactions. The components of the provision (benefit) for income taxes for the non-utility operations are: Year Ended December 31, 1998 1997 1996 ---- ---- ---- (In thousands) State income taxes . . . . . . . . . ($503) $78 $154 Federal income taxes . . . . . . . . (1,332) (1,071) 207 Investment tax credits . . . . . . . (111) (45) (45) -------- -------- ----- Income tax (benefit)/provision charged (credited) to operations $(1,946) ($1,038) $316 ======== ======== ===== The effective federal income tax rates for the non-utility operations were 32.6 percent, 37.0 percent, and 22.4 percent for the years ended December 31, 1998, 1997 and 1996, respectively. The decrease in 1998 is primarily due to a relatively large state tax benefit in 1998. The increase in 1997 is primarily due to a relatively large federal tax benefit in 1997. H. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following quarterly financial information, in the opinion of management, includes all adjustments necessary to a fair statement of results of operations for such periods. Variations between quarters reflect the seasonal nature of the Company's business and the timing of rate changes. 1998 Quarter Ended March June Sept. Dec. Total ----- ---- ----- ---- ----- (Dollars in thousands, except per share) Operating Revenues . . . . . . .$46,932 $43,733 $47,984 $45,655 $184,304 Operating Income . . . . . . . . 316 2,811 3,147 (802) 5,472 Net Income . . . . . . . . . . . (3,065) 1,271 1,943 (3,026) (2,877) Net Income Applicable to Common Stock . . . . . . . . . (3,405) 931 1,633 (3,332) (4,173) Earnings per Average Share of Common Stock . . . . . . . . . ($0.66) $0.18 $0.31 ($0.63) ($0.80) Weighted Average Number of Common Shares Outstanding . . 5,196 5,222 5,261 5,291 5,243 1997 Quarter Ended March June Sept. Dec. Total ----- ---- ----- ---- ----- (Dollars in thousands, except per share) Operating Revenues . . . . . . $47,204 $42,682 $43,574 $45,863 $179,323 Operating Income . . . . . . . 4,251 2,991 4,542 3,731 15,515 Net Income . . . . . . . . . . 3,315 1,230 3,371 1,522 9,438 Net Income Applicable to Common Stock . . . . . . . . 2,941 856 3,022 1,186 8,005 Earnings per Average Share Common Stock . . . . . . . . $0.58 $0.17 $0.59 $0.23 $1.57 Weighted Average Number of Common Shares Outstanding . 5,044 5,096 5,138 5,168 5,112 I. COMMITMENTS AND CONTINGENCIES 1. Industry Restructuring. The electric utility business is experiencing rapid and substantial changes. These changes are the result of the following trends: - - Surplus generating capacity; - - Disparity in electric rates among and within various regions of the country; - - Improvements in generation efficiency; - - Increasing demand for customer choice; and - - New regulations and legislation intended to foster competition, also known as "restructuring". For further discussion, see Management's Discussion and Analysis of Financial Condition and Results of Operations - "Future Outlook". 2. Environmental Matters. The electric industry typically uses or generates a range of potentially hazardous products in its operations. The Company must meet various land, water, air and aesthetic requirements as administered by local, state and federal regulatory agencies. The Company believes that it is in substantial compliance with these requirements, and that there are no outstanding material complaints about its compliance with present environmental protection regulations, except for developments related to the Pine Street Barge Canal site. Pine Street Barge Canal Site The Federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as the "Superfund" law, generally imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. The Company has been notified by the Environmental Protection Agency (EPA) that it is one of several potentially responsible parties (PRPs) for cleanup of the Pine Street Barge Canal site in Burlington, Vermont, where coal tar and other industrial materials were deposited. From the late 19th century until 1967, gas was manufactured at the Pine Street Barge Canal site by a number of enterprises, including the Company. In 1990, the Company was one of the 14 parties that agreed to pay a total of $945,000 of the EPA's past response costs under a Consent Decree. The Company remains a PRP for other past, ongoing and future response costs. In November 1992, the EPA proposed a cleanup plan estimated by the EPA to cost $47 million. In June 1993, the EPA withdrew this cleanup plan in response to public concern about the plan and its cost. In 1994, the EPA established a coordinating council, with representatives of the PRPs, environmental and community groups, the City of Burlington and the State of Vermont, presided over by a neutral facilitator. In June 1998, the Coordinating Council reached a consensus agreement on a recommended plan for remediation of the Pine Street Barge Canal site. As part of the Council's process of reaching a consensus recommendation, the Company and certain other parties conditionally agreed to fund environmentally beneficial projects in the greater Burlington area, the cost of which may reach $3 million. In June 1998, the EPA formally proposed the Council's recommended plan and received public comments. On September 29, 1998, the EPA issued its final Record of Decision, announcing selection of the proposed remedy. The proposed remedy includes: - - Construction of an underwater cover over canal sediments that present the highest risk to the environment; - - Placement of a soil cap over certain contaminated wetland areas and restoration of those areas; - - Improvements that will better distribute storm water entering the site; and - - Monitoring of the site to ensure that the cap is effective over the long term and that harmful contamination does not migrate offsite. The EPA estimates that the present value cost of the remedy will be $4.4 million, although actual costs may be higher. As of December 31, 1998, the Company's total expenditures related to the Pine Street Barge Canal site since 1982 were approximately $16 million. This includes those amounts not recovered in rates, amounts recovered in rates, and amounts for which rate recovery has been sought but which are presently awaiting further VPSB action. The bulk of these expenditures consisted of transaction costs. Transaction costs include legal and consulting costs associated with the Company's opposition to the EPA's earlier proposals for the site, as well as litigation and related costs necessary to obtain settlements with insurers and other PRPs to provide amounts required to fund the clean up (remediation costs) and to address liability claims at the site. A smaller amount of past expenditures was for site-related response costs, including costs incurred pursuant to the EPA and state orders that resulted in funding response activities at the site, and to reimbursing the EPA and the State for oversight and related response costs. The EPA and the State have asserted and affirmed that all costs related to these orders are appropriate costs of response under CERCLA for which the Company and other PRPs were legally responsible. The EPA has made claims against the Company for additional past costs associated with the Pine Street Barge Canal site in an amount exceeding $11 million. The EPA also has advised the Company that the Company may be responsible for implementation of further response activities at the site. In early 1998, the United States and the State asked the Company to begin "fast-track" negotiation of tentative terms of settlement of all cost reimbursement and natural resource damages claims of the United States and the State. Those negotiations began immediately, and included discussion of the Company's potential contribution claims against the United States. In May 1998, a confidential tentative agreement was reached on issues under discussion. The Company expects to complete negotiation soon of a final settlement with the United States and the State over terms of a Consent Decree that will cover claims addressed in the earlier negotiations and implementation of the selected remedy. The Consent Decree must be submitted to a federal court for approval and adoption as its order. The Company has entered into various confidential settlement agreements with other PRPs that provide for sharing of past response costs, future cleanup costs and related future federal and state monetary claims. The Company estimates that it has recovered or secured, or will recover, through past settlements of litigation claims against insurers and other parties, amounts that exceed estimated future remediation costs, future federal and state government oversight costs and past EPA response costs. The Company has concluded that its unrecovered transaction costs mentioned above, which were necessary to recover settlements sufficient to remediate the site, to oppose much more costly solutions proposed by the EPA, to resolve monetary claims of the EPA and the State and to remediate the site, are likely to be in the range of $5 to $9 million. In 1998, the Company recorded a liability of $5 million to recognize the low end of this range of costs. The estimated liability is not discounted, and it is possible that the Company's estimate of future costs could change by a material amount. The Company also has recorded an offsetting regulatory asset and the Company believes it is probable that it will receive future revenues to recover these costs. Through rate cases filed in 1991, 1993, 1994, and 1995, the Company sought and received recovery for ongoing expenses associated with the Pine Street Barge Canal site. Specifically, the Company proposed rate recognition of its non-recovered expenditures incurred between January 1, 1991 and June 30, 1995 (in the total of approximately $8.7 million) for technical consultants and legal assistance in connection with the EPA's enforcement action at the site and insurance litigation. While reserving the right to argue in the future about the appropriateness of full rate recovery of the Pine Street Barge Canal costs, the Department, and as applicable, other intervenors, reached agreements with the Company in these cases that the full amount of the Pine Street Barge Canal costs reflected in those rate cases should be recovered in rates. The Company's rates, as approved by the VPSB in those proceedings, reflected the Pine Street Barge Canal related expenditures referred to above. The Company proposed in its rate filing made on June 16, 1997, recovery of an additional $3.0 million in such expenditures. In an order in that case released March 2, 1998, the VPSB suspended the amortization of expenditures associated with the Pine Street Barge Canal site pending further proceedings. Although it did not eliminate the rate base deferral of these expenditures, or make any specific order in this regard, the VPSB indicated that it was inclined to agree with other parties in the case that the ultimate costs associated with the Pine Street Barge Canal site, taking into account recoveries from insurance carriers and other PRPs, should be "shared" between customers and shareholders of the Company. In response to the Company's Motion for Reconsideration, the VPSB on June 8, 1998 stated "our intent, and we believe the fair reading of our Order, was to reserve for a future docket issues pertaining to the sharing of remediation-related costs between the Company and its customers." An authoritative accounting standard, Statement of Position (SOP) 96-1, has been issued by the accounting profession addressing environmental remediation obligations. This SOP is effective for years beginning in 1997, and addresses, among other things, regulatory benchmarks that are likely triggers of the accrual of estimated losses, the costs included in the measurement, including incremental costs of remediation efforts such as post-remediation monitoring and long-term operation and maintenance costs and costs of compensation and related benefits of employees devoting time to the remediation. This SOP, adopted by the Company in January 1997 as required, did not have a material adverse effect on its financial position or results of operations in 1998. Clean Air Act -- Because the Company purchases most of its power supply from other utilities, it does not anticipate that it will incur any material direct cost increases as a result of the Federal Clean Air Act or proposals to make more stringent regulations under that Act. Furthermore, only one of the Company's power supply purchase contracts, which expired in early 1998, related to a generating plant that was affected by Phase I of the acid rain provisions of this legislation, which went into effect January 1, 1995. 3. Operating Leases. The Company has an operating lease for its corporate headquarters building and two of its service center buildings. See Item 6 below. 4. Jointly-Owned Facilities. The Company had joint-ownership interests in electric generating and transmission facilities at December 31, 1998, as follows: Ownership Share of Utility Accumulated Interest Capacity Plant Depreciation --------- -------- ------- ------------ (In %) (In MW) (In thousands) Highgate . . . . . . 33.8 67.6 $10,532 $3,573 McNeil . . . . . . . 11.0 5.9 $ 8,729 $3,898 Stony Brook (No. 1) . 8.8 31.0 $10,331 $6,752 Wyman(No.4) . . . . . 1.1 6.8 $ 2,370 $1,448 Metallic Neutral Return (1). . .. . 59.4 --- $ 1,563 $ 494 (1) Neutral conductor for NEPOOL/Hydro-Quebec Interconnection The Company's share of expenses for these facilities is reflected in the Consolidated Statements of Income. Each participant in these facilities must provide for its own financing. 5. 1997 Retail Rate Case -- On June 16, 1997, the Company filed a request with the VPSB to increase retail rates by 16.7 percent ($26 million in additional annual revenues) and to increase the target return on common equity from 11.25 percent to 13 percent. In its final submissions to the VPSB, the Company asked for an increase of 14.4 percent ($22 million in additional annual revenues) due to changed estimates of costs to be incurred in the rate year. On March 2, 1998, the VPSB released its Order dated February 27, 1998, in the then pending rate case. The VPSB authorized the Company to increase its rates by 3.61 percent, which gave it increased annual revenues of $5.6 million. The difference between the $22 million we asked for and the $5.6 million the VPSB authorized was due to the following: - - Disallowance of the cost of power associated with the Hydro-Quebec contract discussed below; - - The VPSB's modification of our calculation of rate base; - - The exclusion of future capital projects from rate base; - - Suspension of recovery of Pine Street Barge Canal site expenditures; - - Various cost of service reductions in payroll and operations and maintenance; and - - A reduction in our requested allowed return on equity from 13 percent to 11.25 percent. The VPSB Order denied us the right to charge customers $5.48 million of the annual costs for power purchased under our contract with Hydro-Quebec. The VPSB denied recovery of these costs for the following reasons: - - The VPSB claimed that we had acted imprudently by committing to the power contract with Hydro-Quebec in August 1991 (the imprudence disallowance); and - - To the extent that the costs of power to be purchased from Hydro- Quebec are now higher than current estimates of market prices for power during the contract term, after accounting for the imprudence disallowance, the contract power is not "used and useful". Generally accepted accounting principles (GAAP) required that we record in the first quarter of 1998 the losses resulting from the disallowed recovery of a portion of the 1998 Hydro-Quebec power contract costs. The amount charged to first quarter income of $4.6 million (pre- tax) was less than the full disallowance because we expected that new rates would become effective in January 1999 as the result of our May 8, 1998 rate filing. The agreement to suspend our 1998 rate case, as described below, delays the date of a final decision on the 1998 rate case to December 15, 1999, and we recognized an additional loss of $5.25 million in the last quarter of 1998 representing the effect of the presumed continued disallowance of Hydro-Quebec power costs through December 15, 1999. In its February 27, 1998 Order, the VPSB described its policies that do not allow a utility to recover imprudent expenditures and the costs of power supply contract purchases that the VPSB decides are not used and useful. The VPSB also stated in its Order that the methods and measures used in this rate case were provisional and applied to this rate case only. If the VPSB were to apply the same, or similar, methods and measures that they used in the 1997 rate case Order to future power contract costs in our 1998 retail rate case, we would likely be required to take a charge to income of approximately $170 million pre-tax. This $170 million estimate represents primarily the 20 percent disallowance for Hydro-Quebec power costs that the VPSB considered imprudent in its Order. We will not be able to estimate the loss to be recorded for power purchased after December 15, 1999, if any, until the pending 1998 rate case is completed. If the VPSB does not modify in future regulatory proceedings its ruling that the costs of power purchased from Hydro-Quebec are above estimated market rates and are not used and useful and, therefore, a portion of such costs is not recoverable, we would likely conclude that the VPSB has changed its approach to setting rates from cost-based rate making to another form of regulation. We would then be required to discontinue application of Statement of Financial Accounting Standards No. 71(SFAS 71), Accounting for the Effects of Certain Types of Regulation, described below, and eliminate all regulatory assets and liabilities that arose from prior actions of the VPSB. The write-off of these regulatory assets and liabilities, net of any tax effects, would be charged to income as an extraordinary item for the financial reporting period in which the discontinuation of SFAS 71 occurs. SFAS 71 provides guidance in preparing financial statements for public utilities that meet certain criteria of SFAS 71. The three criteria that we must meet in order to follow the accounting guidance under SFAS 71 are: - - Our rates for regulated services and products provided to our customers must be established by or be subject to approval by an independent, third-party regulator; - - The regulated rates are designed to recover our specific costs of providing the regulated services or products; and - - Depending on demand for regulated services and products, and the level of competition, direct and indirect, it is reasonable to assume that our rates are set at levels that will recover our costs and that these rates can be charged to and collected from our customers. This criterion must also take into account anticipated changes in levels of demand or competition during the recovery period for any capitalized costs. We meet these criteria at present and, therefore the provisions of SFAS 71 apply to us. Under SFAS 71 we are required to defer certain costs that would typically be expensed under GAAP; these costs are referred to as deferred charges or regulatory assets. Our ability to defer a cost is subject to our ability to provide evidence that the following additional criteria are met: - - It is probable that the inclusion of the capitalized (deferred) cost in allowed costs for ratemaking purposes will provide future revenue in an amount at least equal to the capitalized (deferred) cost; and - - The future revenue will be provided to permit recovery of the previously incurred cost rather than to provide for expected levels of similar future costs. Based on the December 31, 1998 balance sheet, if we were required to discontinue the application of SFAS 71, we would be required to take an after-tax charge to earnings of approximately $24.6 million attributable to net regulatory assets. On March 20, 1998, we filed with the VPSB a Motion for Reconsideration of and to Alter or Amend the VPSB's Order released on March 2, 1998. The principal areas in which we requested that the VPSB change its ruling included the following: - - A correction to the VPSB's calculation of the $5.48 million Hydro- Quebec contract power cost disallowance; - - Reversal of the accounting treatment specified by the VPSB for cash payments made by Hydro-Quebec under arrangements that we had previously negotiated in order to avoid rate increases in prior years for customers; - - Restoration of $418,000 of costs associated with the construction of the Searsburg wind generation facility; - - Restoration of various other compensation and payroll costs; - - Reversal of the suspension of amortization of costs associated with the Pine Street Barge Canal site; and - - Reconsideration of our request to increase the allowed rate of return from 11.25 percent to 12 percent. Immediately following the issuance of the June 8, 1998 VPSB Order on our Motion for Reconsideration, which largely reaffirmed the earlier Order, Duff & Phelps and Standard & Poor's lowered our securities credit ratings. Moody's also subsequently lowered our securities credit ratings. In June 1998, we appealed the VPSB's February 27, 1998 Order and the June 8, 1998 Reconsideration Order to the Vermont Supreme Court. The briefing of the case by all parties was completed in January 1999. A hearing before the Vermont Supreme Court is scheduled for March 16, 1999. A number of other Vermont utilities have submitted briefs in support of the Company. The Company believes that the decisions in the VPSB's February 27, 1998 Order and June 8, 1998 Reconsideration Order are factually inaccurate and legally incorrect. Specifically, the Company is appealing the VPSB's determination that it was imprudent in committing to the Hydro-Quebec contract in August, 1991, and the VPSB's ruling that because the contract power is priced over-market under current forecasts of market prices, it is therefore considered "not used and useful". The Company asserts, among other arguments, that the VPSB's Order deprives the Company's shareholders of their property in an unconstitutional manner. The VPSB's decision, if not changed, could have a significant negative impact on the Company's reported financial condition, and could impact its credit ratings, dividend policy and financial viability. 1998 Retail Rate Case -- On May 8, 1998, the Company filed a request with the VPSB to increase its retail rates by 12.93 percent due to the following increases in its cost of service: - - The higher cost of power; - - The cost of the January 1998 ice storm; and - - Investments in new plant and equipment. The VPSB suspended the tariff filings on June 15, 1998. The Company submitted testimony in the case that included analysis of viable alternatives to the Hydro-Quebec contract at various times in 1991 and 1992. The VPSB had taken the viewpoint in the Company's 1997 rate case that the Company would have been able to terminate the Hydro-Quebec contract without penalty during that time period, and would have been able to access the market for power at that time. The Company's analysis showed that, based on price only, the Hydro-Quebec contract was less expensive than virtually all other long term power resources available at that time. The analysis also showed that when other non- price benefits, like environmental benefits and the reliability of a system power resource, are taken into account, the Hydro-Quebec contract was still less costly than alternatives. The Company has testified that even today, when costs and benefits for society are accounted for, as Vermont regulators and statutes require, the Hydro-Quebec power is not more costly than market power. In testimony submitted on September 21, 1998, the Department argued for the following: - - A $22 million disallowance of Hydro-Quebec contract costs; - - A rate decrease of 3.6 percent; - - The elimination of the Company's common stock dividend; and - - Various other restrictions. Additionally, the Department's recommendation was that approximately $12.5 million of the disallowance of Hydro-Quebec contract costs be suspended for one year, which would provide the Company with a 4.5 percent rate increase only for that year, followed by automatic reinstatement of the larger power cost disallowance with a resulting decrease (in 2000) from its rate levels today, absent further VPSB order. The Department recommended this one year delay in the Hydro- Quebec contract cost disallowance in order to allow the Company time to negotiate lower costs of power under the Hydro-Quebec contract. IBM, the Company's largest customer, argued for a rate decrease of 0.2 percent, a disallowance of Hydro-Quebec power costs in the amount of $13 million, and the elimination of the common stock dividend. In its rebuttal case, the Company intended to present the VPSB with testimony that: - - The Department's and IBM's recommendations amount to improper rate making that will have adverse economic and accounting impacts under applicable accounting rules; - - The only cogent evidence of alternative portfolios of power resources available in 1991 presented to the VPSB is from the Company's witnesses and the only conclusion that can be drawn from that evidence justifies a determination that there should be no Hydro-Quebec power contract cost disallowance; and - - The Company requires substantial rate relief in order to ensure its financial stability, access to capital markets and the continuation of adequate, reliable and safe service to its customers. The Company also intended to present to the VPSB considerable evidence that: - - It has made, and continues to make, efforts to achieve a negotiated reformulation of the arrangement with Hydro-Quebec; - - Placing it at risk of bankruptcy will not improve the Company's prospects of achieving success in such a negotiation; - - Bankruptcy reorganization is not an appropriate public policy solution to high power cost obligations; and - - Its default of obligations to Hydro-Quebec and other creditors would cause substantial risks of default in the same contractual relationships by many other Vermont utilities under "step-up" or similar provisions contained in such arrangements. On November 18, 1998, by Memorandum of Understanding (MOU), the Company, the Department and IBM agreed to stay, effective November 16, 1998, rate proceedings in the 1998 rate case until or after September 1, 1999, or such earlier date as the parties may later agree to or the VPSB may order. The MOU provides for a 5.7 percent temporary retail rate increase, to produce $9.19 million in annualized additional revenue, effective with service rendered December 15, 1998. An additional surcharge in 1999 will be permitted, without further VPSB order, to produce additional revenues necessary to provide the Company with the capacity to finance estimated 1999 Pine Street Barge Canal site expenditures of $5.8 million. The stay and suspension of this pending rate case and the temporary rate levels agreed to in the MOU are designed to allow the Company to continue to provide adequate and efficient service to its customers while it seeks mitigation of power supply costs. Following the stay, which expires on September 1, 1999 or such earlier date as agreed to by the parties or ordered by the VPSB, the remaining proceedings in the case would commence and, as noted above, a final VPSB decision would be issued by December 15, 1999. In the event that the VPSB issues a final order that allows a retail rate increase that is less than the temporary rates, all sums collected in excess of such final rates would be refunded by adjusting rates on a prospective basis, by customer class, to reflect the appropriate refund amounts. The MOU does not provide for any specific disallowance of power costs under the Company's purchase power contract with Hydro-Quebec. Issues respecting recovery of such power costs are preserved for future proceedings. The Company agreed not to file with the VPSB a petition requesting any further increase in retail electric rates prior to September 1, 1999, except that this MOU does not preclude it from filing a request for additional temporary rate increases pursuant to 30 V.S.A. Section 226(a). The temporary rates include $1 million that is to be used for enhanced right-of-way maintenance and pole testing and treatment. Regulatory asset account balances of $5.3 million, which are subject to recovery in this docket, are to be amortized over seven years, beginning January 1999. These balances reflect only the amount filed in the May 1998 rate case, and are related to regulatory commission expense, tree trimming, storm damage and the costs associated with the ice storm of 1998. This amortization period will be subject to review by the VPSB after the expiration of the stay. In the event that the Vermont Supreme Court issues an order reversing the VPSB's orders in the Company's 1997 rate case prior to issuance of a final order in the 1998 rate case, any resulting adjustments in rates will not become effective until the VPSB issues a final order in the 1998 rate case. The MOU provides that nothing in it will reduce or limit the Company's entitlement to full recovery of any amounts due it if it should prevail on the appeal. The MOU was approved by the VPSB on December 11, 1998. The temporary rates, as adjusted by any surcharge related to the Pine Street Barge Canal site described above, will remain in effect until the VPSB issues a final order in the rate case docket, expected by December 15, 1999. Notwithstanding the interim rate settlement, the Company is unable to predict whether the MOU or other future events, singularly or in combination, could cause its lending banks to refuse to allow further borrowings under its revolving loan agreement, to seek to enter into a new credit agreement with the Company and/or to immediately call in all outstanding loans. If the Company is unable to borrow on a short-term basis, it will evaluate all potential alternatives available at the time, including, but not limited to, the filing of a petition for reorganization under the United States Bankruptcy Code. 6. Corporate Headquarters Lease - As part of the Company's efforts to reduce operating costs, it evaluated options to its corporate headquarters lease, which runs through June 2009. The Company is in the process of negotiating the termination of its operating lease for its corporate headquarters and two of its service centers. It is probable that the Company will purchase the lease and sell the corporate headquarters in 1999. The Company has recorded a loss of approximately $1.9 million (pre-tax) in 1998 to reflect the probable loss of completing these transactions. The Company would retain ownership of its two service centers. 7. Deferred Charges Not Included in Rate Base. The Company has incurred and deferred approximately $7.3 million in costs for tree trimming, storm damage and regulatory commission work of which $5.3 million will be amortized over seven years beginning in January 1999. Currently, the Company also amortizes costs based on historical averages and does not receive a return on amounts deferred in excess of historical averages. Management expects to seek and receive ratemaking treatment for deferred costs in future filings. 8. Other Legal Matters. The Company is involved in legal and administrative proceedings in the normal course of business and does not believe that the ultimate outcome of these proceedings will have a material effect on the financial position or the results of operations of the Company. J. OBLIGATIONS UNDER TRANSMISSION INTERCONNECTION SUPPORT AGREEMENT Agreements executed in 1985 among the Company, VELCO, other NEPOOL members and Hydro-Quebec provided for the construction of the second phase (Phase II) of the interconnection between the New England electric systems and that of Hydro-Quebec. Phase II expands the Phase I facilities from 690 megawatts to 2,000 megawatts and provides for transmission of Hydro-Quebec power from the Phase I terminal in northern New Hampshire to Sandy Pond, Massachusetts. Construction of Phase II commenced in 1988 and was completed in late 1990. The Company is entitled to 3.2 percent of the Phase II power-supply benefits. Total construction costs for Phase II were approximately $487 million. The New England participants, including the Company, have contracted to pay monthly their proportionate share of the total cost of constructing, owning and operating the Phase II facilities, including capital costs. As a supporting participant, the Company must make support payments under thirty-year agreements. These support agreements meet the capital lease accounting requirements under SFAS 13. At December 31, 1998, the present value of the Company's obligation was $7.7 million. Projected future minimum payments under the Phase II support agreements are as follows: Year ending December 31, 1999 . . . . . . . . . . . . $ 452,726 2000 . . . . . . . . . . . . 452,726 2001 . . . . . . . . . . . 452,726 2002 . . . . . . . . . . . 452,726 2003 . . . . . . . . . . . 452,726 Total for 2004-2020 . . . . 5,432,706 ---------- $7,696,336 ========== The Phase II portion of the project is owned by New England Hydro- Transmission Electric Company and New England Hydro-Transmission Corporation, subsidiaries of New England Electric System, in which certain of the Phase II participating utilities, including the Company, own equity interests. The Company holds approximately 3.2 percent of the equity of the corporations owning the Phase II facilities. K. LONG-TERM POWER PURCHASES 1. Unit Purchases. Under long-term contracts with various electric utilities in the region, the Company is purchasing certain percentages of the electrical output of production plants constructed and financed by those utilities. Such contracts obligate the Company to pay certain minimum annual amounts representing the Company's proportionate share of fixed costs, including debt service requirements (amounts necessary to retire the principal of and to pay the interest on the portion of the related long-term debt ascribed to the Company) whether or not the production plants are operating. The cost of power obtained under such long-term contracts, including payments required to be made when a production plant is not operating, is reflected as "Power Supply Expenses" in the accompanying Consolidated Statements of Income. Information (including estimates for the Company's portion of certain minimum costs and ascribed long-term debt) with regard to significant purchased power contracts of this type in effect at December 31, 1998 follows: Stony Vermont Brook Yankee ----- ------- (Dollars in thousands) Plant capacity . . . . . . . . . . . . .352.0 MW 531.0 MW Company's share of output . . . . . . . 4.4% 17.7% Contract period . . . . . . . . . . . . (1) (2) Company's annual share of: Interest . . . . . . . . . . . . . . $ 207 $ 2,040 Other debt service . . . . . . . . . 333 --- Other capacity . . . . . . . . . . . 221 29,637 ------ ------- Total annual capacity . . . . . . . . $ 761 $31,677 ====== ======= Company's share of long-term Debt . . . . . . . . . . . . . . . . . $3,931 $16,696 ====== ======= (1) Life of plant estimated to be 1981 - 2006. (2) License for plant operations expires in 2012. 2. Hydro-Quebec System Power Purchases. Under various contracts, the details of which are described in the table below, the Company purchases capacity and associated energy produced by the Hydro-Quebec system. Such contracts obligate the Company to pay certain fixed capacity costs whether or not energy purchases above a minimum level set forth in the contracts are made. Such minimum energy purchases must be made whether or not other, less expensive energy sources might be available. These contracts are intended to complement the other components in the Company's power supply to achieve the most economic power-supply mix reasonably available. The Company's current purchases pursuant to the contract with Hydro-Quebec entered into December 4, 1987 (the 1987 Contract) are as follows: (1) Schedule B -- 68 megawatts of firm capacity and associated energy to be delivered at the Highgate interconnection for 20 years that began in September 1995; and (2) Schedule C3 -- 46 megawatts of firm capacity and associated energy to be delivered at interconnections to be determined at any time for 20 years, which began in November 1995. During 1994, the Company negotiated an arrangement with Hydro- Quebec that reduces the cost impacts associated with the purchase of Schedules B and C3 under the 1987 Contract, over the November 1995 through October 1999 period (the July 1994 Agreement). Under the July 1994 Agreement, the Company, in essence, will take delivery of the amounts of energy as specified in the 1987 Contract, but the associated fixed costs will be significantly reduced from those specified in the 1987 Contract. As part of the July 1994 Agreement, the Company is obligated to purchase $4 million (in 1994 dollars) worth of research and development work from Hydro-Quebec over the four-year period, and made a $6.5 million (in 1994 dollars) cash payment to Hydro-Quebec in 1995. Hydro- Quebec retains the right to curtail annual energy deliveries by 10 percent up to five times, over the 2000 to 2015 period, if documented drought conditions exist in Quebec. During the first year of the July 1994 Agreement (the period from November 1995 through October 1996), the average cost per kilowatt-hour of Schedules B and C3 combined was cut from 6.4 to 4.2 cents per kilowatt-hour, a 34 percent (or $16 million) cost reduction. Over the period from November 1996 through December 2000 and accounting for the cash payments to Hydro-Quebec, the combined unit costs will be lowered from 6.5 to 5.8 cents per kilowatthour, reducing unit costs by 10 percent and saving $20.7 million in nominal terms. All of the Company's contracts with Hydro-Quebec call for the delivery of system power and are not related to any particular facilities in the Hydro-Quebec system. Consequently, there are no identifiable debt-service charges associated with any particular Hydro- Quebec facility that can be distinguished from the overall charges paid under the contracts. A summary of the Hydro-Quebec contracts, including the July 1994 Agreement, but excluding the January and November 1996 arrangements (described below) including historic and projected charges for the years indicated, follows: The 1987 Contract Schedule B Schedule C3 ---------- ----------- (Dollars in thousands) Capacity Acquired . . . . . . . . . . . . 68 MW 46 MW Contract Period . . . . . . . . . . . .1995-2015 1995-2015 Minimum Energy Purchase (annual load factor) . . . . . . . . . . 75% 75% Annual Energy Charge . . . . . . . . . . $9,271 $6,825 (1998) (1998) $15,151 10,451 (1999-2015)* (1999-2015)* Annual Capacity Charge . . . . . . . . . $17,303 $3,394 (1998) (1998) $17,074 $11,593 (1999-2015)* (1999-2015)* Average Cost per KWH . . . . . . . . . . 7.6 cents** 4.0 cents (1998)*** (1998)*** 7.0 cents 6.9 cents (1999-2015)****(1999-2015)**** *Estimated average. **Higher per kwh rate for Schedule B in 1998, as compared to future years, is due to the 1998 ice storm. Schedule B was delivered at a capacity factor of 63%; future years are estimated to be at 75% capacity factor. ***Excludes amortization of payments to Hydro-Quebec for the July 1994 Agreement. ****Estimated average in nominal dollars, levelized over the period indicated. Includes amortization of payments to Hydro-Quebec for the July 1994 Agreement. Under an arrangement negotiated in January 1996, the Company received cash payments from Hydro-Quebec of $3.0 million in 1996 and $1.1 million in 1997. Consistent with allowed ratemaking treatment, the $3.0 million payment reduced purchase power expense by $1.75 million in 1996; the balance of the payment reduced power costs in 1997. The $1.1 million payment reduced purchase power expense ratably over the period beginning June 1997 and ending May 1998. The Company received VPSB approval of this accounting treatment in an Accounting Order dated December 31, 1996. Under the 1996 arrangement, the Company is required to shift up to 40 megawatts of its Schedule C3 deliveries to an alternate transmission path, and use the associated portion of the NEPOOL/Hydro-Quebec interconnection facilities to purchase power for the period from September 1996 through June 2001 at prices that vary based upon conditions in effect when the purchases are made. The 1996 arrangement also provides for minimum payments by the Company to Hydro-Quebec for periods in which power is not purchased under the arrangement. Although the level of benefits to the Company will depend on various factors, the Company estimates that the 1996 arrangement will provide a minimum benefit of $1.8 million on a net present value basis. During 1998, the Company purchased or sold to others 44.2 percent of the minimum purchase obligation for that year. The Company recorded a liability of $0.3 million for its remaining 1998 minimum purchase obligation. Under a separate agreement executed on December 5, 1997, Hydro- Quebec provided a cash payment of $8.0 million to the Company in 1997. In return for this payment, the Company provided Hydro-Quebec an option for the purchase of power. Commencing April 1, 1998 and effective through the term of the 1987 Contract, Hydro-Quebec can exercise an option to purchase up to 52,500 MWh on an annual basis, at energy prices established in accordance with the 1987 Contract, for an amount of energy equivalent to the Company's firm capacity entitlements in the 1987 Contract. The cumulative amount of energy purchased over the remaining term of the 1987 Contract shall not exceed 950,000 MWh. Hydro-Quebec's option to curtail energy deliveries pursuant to the July 1994 Agreement can be exercised in addition to this purchase option. Over the same period, Hydro-Quebec can exercise an option on an annual basis to purchase up to 600,000 MWh at the 1987 Contract energy price. Hydro-Quebec can purchase no more than 200,000 MWh in any given year. In 1998, Hydro-Quebec called on the Company to deliver 51,968 MWh to a third party at a net cost to the Company of $232,958 which was due to higher energy replacement costs. L. SUBSEQUENT EVENTS 1. Power Purchase and Supply Agreement -- On February 11, 1999, the Company entered into a contract with Morgan Stanley Capital Group, Inc. (MS) as a result of the Company's power requirements solicitation in 1998. A master power purchase and sales agreement (PPSA) dated February 11, 1999 defines the general contract terms under which the parties may transact. The sales under the PPSA commenced on February 12, 1999, and will terminate after all obligations under each transaction entered into by MS and the Company have been fulfilled, currently anticipated to be June 30, 2001. The PPSA has been noticed to the VPSB and filed with the FERC. The parties have also agreed to enter into two transactions subject to the PPSA. - - Sale by the Company to MS. -- On a daily basis, and at MS's discretion, the Company will sell power from all or part of its portfolio of power resources to MS at predefined operating and pricing parameters. The Company can decide to sell power to MS from any power resource available to it, provided the sales of power are consistent with the predefined operating and pricing parameters. The Company retains all rights and obligations related to its power resources, such as dispatch, plant modifications and transfer of ownership. This transaction does not constitute a sale or lease of any Company resource. - - Sale by MS to the Company. - MS will sell to the Company, at a predefined price, power sufficient to serve pre-established load requirements. MS has the right but not the obligation, upon a request from the Company, to supply additional power at prices negotiated by both parties. The power sold to the Company may be, but is not required to be, power that MS has purchased from the Company under the transaction described above. The parties have agreed to the protocols that will be used to schedule power sales and purchases between the parties and to secure necessary transmission with respect to the two transactions described above. The PPSA provides the Company with a means of managing price risks associated with changing fossil fuel prices. The Company remains responsibile for balancing supply resources when actual loads vary from the pre-established load requirements that MS is obligated to satisfy and for resource performance and availability. 2. Green Mountain Resources, Inc. (GMRI) was formed in April 1996 to explore opportunities in the emerging competitive retail energy market. In 1998, GMRI lost $0.2 million compared to a loss of $2.0 million in 1997. GMRI's loss in 1997 was primarily due to development costs associated with its investment in Green Mountain Energy Resources L.L.C. (GMER). On August 6, 1997, GMRI entered into an agreement with Green Funding I, L.L.C. (GFI), whereby GMRI and GFI would jointly own GMER, a Delaware limited liability company of which GMRI was previously the sole owner. GMER is a company that has created retail brands of electricity that are sold to consumers in competitive markets. GMRI received a payment of $4 million from GMER at the closing in 1997 as reimbursement for certain development expenses GMRI had incurred. Under the terms of the original agreement through which GFI acquired its interest in GMER, GMRI's ownership percentage of GMER would be diluted if GFI and/or third parties proposed to contribute additional capital to GMER, and GMRI did not make pro rata additional capital contributions at such time. During 1998, GFI made substantial, additional investments in GMER and it was anticipated that GFI or other parties would make substantial, additional investments in 1999. GMRI elected not to provide additional capital contributions, which reduced its ownership percentage in GMER. In view of the likely need for future investment in GMER's business, the Company considered it to be in the best interest of its shareholders to sell GMRI's remaining interest in GMER. In December 1998, GMRI and GFI replaced the 1997 agreement with a new agreement, which among other things, provided for the sale of GMRI's remaining interest in GMER in return for $1 million to be paid and recorded as income in the first quarter of 1999. The funds were received and will be used for the Company's general operating expenses. The new agreement provides the Company substantial relief from a "non-compete clause" in the 1997 agreement that would have restricted its activities in the retail energy business for seven years. 3. Vermont Yankee. On February 25, 1999, the Board of Directors of Vermont Yankee Nuclear Power Corporation granted an exclusive right to AmerGen Energy Company to conduct due diligence and negotiate a possible agreement to purchase the assets of Vermont Yankee. Due diligence will occur over a 120-day period. AmerGen was formed in 1997 as a joint venture by PECO Energy of Philadelphia, Pennsylvania and British Energy of Edinburgh, United Kingdom to purchase and operate nuclear plants in the United States. Regulatory approval by the Nuclear Regulatory Commission, the Securities and Exchange Commission and the VPSB and others will be needed prior to completion of any final sale transaction. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Green Mountain Power Corporation: We have audited the accompanying consolidated balance sheets and capitalization data of Green Mountain Power Corporation (a Vermont corporation) as of December 31, 19987 and 1997, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note I.5, the Company has appealed the Vermont Public Service Board's February 27, 1998 rate order to the Vermont Supreme Court. In addition, the Company is involved in a rate proceeding initiated in 1998 that is anticipated to reach final decision by December 15, 1999. The outcomes of the appeal process and the rate proceeding could have a significant adverse impact on the Company's reported financial condition and 1999 results of operations and could impact the Company's financial viability. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Green Mountain Power Corporation as of December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Boston, Massachusetts February 5, 1999 (except with respect to the matters discussed in Note L as to which the date is February 26, 1999)
Schedule II GREEN MOUNTAIN POWER CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended December 31, 1998, 1997 and 1996 Additions Balance at ------------------------------- Balance at Beginning of Charged to Charged to End of Description Period Cost & Expenses Other Accounts Deductions Period - ----------------------------------- ------------- -------------- -------------- ------------- ------------- Injuries and Damages 1998................................. $663,785 $2,735,000 $5,000,000 $500,000 $7,898,785 1997................................. $237,892 $427,546 $ -- $1,653 $663,785 1996................................. $103,301 $572,000 $ -- $437,409 $237,892 Bad Debt Reserve (2) 1998................................. $493,405 $393,949 $83,299 (1) $575,653 $395,000 1997................................. $498,024 $637,010 $173,899 (1) $815,528 $493,405 1996................................. $417,684 $677,272 $72,344 (1) $669,276 $498,024 (1) Represents collection of accounts previously written off. (2) Includes non-utility bad debt reserve.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEMS 10, 11, 12 & 13 Certain information regarding executive officers called for by Item 10, "Directors and Executive Officers of the Registrant," is furnished under the caption, "Executive Officers" in Item 1 of Part I of this Report. The other information called for by Item 10, as well as that called for by Items 11, 12, and 13, "Executive Compensation," "Security Ownership of Certain Beneficial Owners and Management" and "Certain Relationships and Related Transactions," will be set forth under the captions "Election of Directors," "Board Compensation, Meetings, Committees and Other Relationships" "Section 16(a) Beneficial Ownership Reporting Compliance," "Executive Compensation and Other Information," "Compensation Committee Report on Executive Compensation," "Performance Graph," "Pension Plan Information and Other Benefits" and "Securities Ownership of Certain Beneficial Owners and Management" in the Company's definitive proxy statement relating to its annual meeting of stockholders to be held on May 20, 1999. Such information is incorporated herein by reference. Such proxy statement pertains to the election of directors and other matters. Definitive proxy materials will be filed with the Securities and Exchange Commission pursuant to Regulation 14A in April 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Filed Herewith On Page Item 14(a)(1). The financial statements and financial 47 statement schedules of the Company are listed on the Index to financial statements set forth in Item 8 hereof.
ITEM 14 (a) (3). EXHIBITS Incorporated by Reference from Exhibit SEC Docket or Number Exhibit Page Filed Herewith - ------- ------- ------------------- 3-a Restated Articles of Association, as certified 3-a Form 10-K 1993 June 6, 1991. (1-8291) 3-a-1 Amendment to 3-a above, dated as of May 20, 1993. 3-a-1 Form 10-K 1993 (1-8291) 3-a-2 Amendment to 3-a above, dated as of October 11, 1996. 3-a-2 Form 10-Q Sept. 1996 (1-8291) 3-b By-laws of the Company, as amended 3-b Form 10-K 1996 February 10, 1997. (1-8291) 4-b-1 Indenture of First Mortgage and Deed of Trust 4-b 2-27300 dated as of February 1, 1955. 4-b-2 First Supplemental Indenture dated as of 4-b-2 2-75293 April 1, 1961. 4-b-3 Second Supplemental Indenture dated as of 4-b-3 2-75293 January 1, 1966. 4-b-4 Third Supplemental Indenture dated as of 4-b-4 2-75293 July 1, 1968. 4-b-5 Fourth Supplemental Indenture dated as of 4-b-5 2-75293 October 1, 1969. 4-b-6 Fifth Supplemental Indenture dated as of 4-b-6 2-75293 December 1, 1973. 4-b-7 Seventh Supplemental Indenture dated as 4-a-7 2-99643 August 1, 1976. 4-b-8 Eighth Supplemental Indenture dated as of 4-a-8 2-99643 December 1, 1979. 4-b-9 Ninth Supplemental Indenture dated as of 4-b-9 2-99643 July 15, 1985. 4-b-10 Tenth Supplemental Indenture dated as of 4-b-10 Form 10-K 1989 June 15, 1989. (1-8291) 4-b-11 Eleventh Supplemental Indenture dated as of 4-b-11 Form 10-Q Sept September 1, 1990. 1990 (1-8291) 4-b-12 Twelfth Supplemental Indentrue dated as of 4-b-12 Form 10-K 1991 March 1, 1992. (1-8291) 4-b-13 Thirteenth Supplemental Indenture dated as of 4-b-13 Form 10-K 1991 March 1, 1992. (1-8291) 4-b-14 Fourteenth Supplemental Indenture dated as of 4-b-14 Form 10-K 1993 November 1, 1993. (1-8291) 4-b-15 Fifteenth Supplemental Indenture dated as of 4-b-15 Form 10-K 1993 November 1, 1993. (1-8291) 4-b-16 Sixteenth Supplemental Indenture dated as of 4-b-16 Form 10-K 1995 December 1, 1995. (1-8291) 4-b-17 Revised form of Indenture as filed as an Exhibit 4-b-17 Form 10-Q Sept. 1995 to Registration Statement No. 33-59383. (1-8291) 4-b-18 Credit Agreement by and among Green Mountain Power 4-b-18 Form 10-K 1997 The Bank of Nova Scotia, State Street Bank and (1-8291) Trust Company, Fleet National Bank, and Fleet National Bank, as Agent 4-b-18 Amendment to Exhibit 4-b-18 4-b-18a Form 10-Q Sept. 1998 (a) (1-8291) 10-a Form of Insurance Policy issued by Pacific 10-a 33-8146 Insurance Company, with respect to indemnification of Directors and Officers. 10-b-1 Firm Power Contract dated September 16, 1958, 13-b 2-27300 between the Company and the State of Vermont and supplements thereto dated September 19, 1958; November 15, 1958; October 1, 1960 and February 1, 1964. 10-b-2 Power Contract, dated February 1, 1968, between 13-d 2-34346 the Company and Vermont Yankee Nuclear Power Corporation. 10-b-3 Amendment, dated June 1, 1972, to Power Contract 13-f-1 2-49697 between the Company and Vermont Yankee Nuclear Power Corporation. 10-b-3 Amendment, dated April 15, 1983, to Power 10-b-3(a) 33-8164 (a) Contract between the Company and Vermont Yankee Nuclear Power Corporation. 10-b-3 Additional Power Contract, dated 10-b-3(b) 33-8164 (b) February 1, 1984,between the Company and Vermont Yankee Nuclear Power Corporation. 10-b-4 Capital Funds Agreement, dated February 1, 13-e 2-34346 1968, between the Company and Vermont Yankee Nuclear Power Corporation. 10-b-5 Amendment, dated March 12, 1968, to Capital 13-f 2-34346 Funds Agreement between the Company and Vermont Yankee Nuclear Power Corporation. 10-b-6 Guarantee Agreement, dated November 5, 1981, 10-b-6 2-75293 of the Company for its proportionate share of the obligations of Vermont Yankee Nuclear Power Corporation under a $40 million loan arrangement. 10-b-7 Three-Party Power Agreement among the Company, 13-i 2-49697 VELCO and Central Vermont Public Service Corporation dated November 21, 1969. 10-b-8 Amendment to Exhibit 10-b-7, dated June 1, 1981. 10-b-8 2-75293 10-b-9 Three-Party Transmission Agreement among the 13-j 2-49697 Company, VELCO and Central Vermont Public Service Corporation, dated November 21, 1969. 10-b-10 Amendment to Exhibit 10-b-9, dated June 1, 1981. 10-b-10 2-75293 10-b-12 Unit Purchase Contract dated February 10, 1968, 13-h 2-34346 between the Company and Vermont Electric Power Company, Inc., for purchase of "Merrimack" power from Public Service Company of New Hampshire. 10-b-14 Agreement with Central Maine Power Company et 5.16 2-52900 al, to enter into joint ownership of Wyman plant, dated November 1, 1974. 10-b-15 New England Power Pool Agreement as amended to 4.8 2-55385 November 1, 1975. 10-b-16 Bulk Power Transmission Contract between the 13-v 2-49697 Company and VELCO dated June 1, 1968. 10-b-17 Amendment to Exhibit 10-b-16, dated June 1, 1970. 13-v-i 2-49697 10-b-20 Power Sales Agreement, dated August 2, 1976, as 10-b-20 33-8164 amended October 1, 1977, and related Transmission Agreement, with the Massachusetts Municipal Wholesale Electric Company. 10-b-21 Agreement dated October 1, 1977, for Joint 10-b-21 33-8164 Ownership, Construction and Operation of the MMWEC Phase I Intermediate Units, dated October 1, 1977. 10-b-28 Contract dated February 1, 1980, providing for 10-b-28 33-8164 the sale of firm power and energy by the Power Authority of the State of New York to the Vermont Public Service Board. 10-b-30 Bulk Power Purchase Contract dated April 7, 10-b-32 2-75293 1976, between VELCO and the Company. 10-b-33 Agreement amending New England Power Pool 10-b-33 33-8164 Agreement dated as of December 1, 1981, providing for use of transmission inter- connection between New England and Hydro-Quebec. 10-b-34 Phase I Transmission Line Support Agreement 10-b-34 33-8164 dated as of December 1, 1981, and Amendment No. 1 dated as of June 1, 1982, between VETCO and participating New England utilities for construction, use and support of Vermont facilities of transmission interconnection between New England and Hydro-Quebec. 10-b-35 Phase I Terminal Facility Support Agreement 10-b-35 33-8164 dated as of December 1, 1981, and Amendment No. 1 dated as of June 1, 1982, between New England Electric Transmission Corporation and participating New England utilities for construction, use and support of New Hampshire facilities of transmission interconnection between New England and Hydro-Quebec. 10-b-36 Agreement with respect to use of Quebec 10-b-36 33-8164 Interconnection dated as of December 1, 1981, among participating New England utilities for use of transmission interconnection between New England and Hydro-Quebec. 10-b-39 Vermont Participation Agreement for Quebec 10-b-39 33-8164 Interconnection dated as of July 15, 1982, between VELCO and participating Vermont utilities for allocation of VELCO's rights and obligations as a participating New England utility in the transmission inter- connection between New England and Hydro-Quebec. 10-b-40 Vermont Electric Transmission Company, Inc. 10-b-40 33-8164 Capital Funds Agreement dated as of July 15, 1982, between VETCO and VELCO for VELCO to provide capital to VETCO for construction of the Vermont facilities of the transmission inter-connection between New England and Hydro-Quebec. 10-b-41 VETCO Capital Funds Support Agreement dated as 10-b-41 33-8164 of July 15, 1982, between VELCO and participating Vermont utilities for allocation of VELCO's obligation to VETCO under the Capital Funds Agreement. 10-b-42 Energy Banking Agreement dated March 21, 1983, 10-b-42 33-8164 among Hydro-Quebec, VELCO, NEET and parti- cipating New England utilities acting by and through the NEPOOL Management Committee for terms of energy banking between participating New England utilities and Hydro-Quebec. 10-b-43 Interconnection Agreement dated March 21, 1983, 10-b-43 33-8164 between Hydro-Quebec and participating New England utilities acting by and through the NEPOOL Management Committee for terms and conditions of energy transmission between New England and Hydro-Quebec. 10-b-44 Energy Contract dated March 21, 1983, between 10-b-44 33-8164 Hydro-Quebec and participating New England utilities acting by and through the NEPOOL Management Committee for purchase of surplus energy from Hydro-Quebec. 10-b-45 Firm-Power Agreement dated as of October 5, 1982, 10-b-45 33-8164 between Ontario Hydro and Vermont Department of Public Service. 10-b-46 Sales Agreement, dated January 20, 1983, between 10-b-46 33-8164 Central Maine Power Company and the Company for excess power. 10-b-48 Sales Agreement, dated February 1, 1983, 10-b-48 33-8164 between Niagara Mohawk and Vermont Electric Power Company for purchase of energy. 10-b-50 Agreement for Joint Ownership, Construction and 10-b-50 33-8164 Operation of the Highgate Transmission Interconnection, dated August 1, 1984, between certain electric distribution companies, including the Company. 10-b-51 Highgate Operating and Management Agreement, 10-b-51 33-8164 dated as of August 1, 1984, among VELCO and Vermont electric-utility companies, including the Company. 10-b-52 Allocation Contract for Hydro-Quebec Firm Power 10-b-52 33-8164 dated July 25, 1984, between the State of Vermont and various Vermont electric utilities, including the Company. 10-b-53 Highgate Transmission Agreement dated as of 10-b-53 33-8164 August 1, 1984, between the Owners of the Project and various Vermont electric distribution companies. 10-b-54 Lease and Sublease Agreement dated June 1, 1984, 10-b-54 33-8164 between Burlington Associates and the Company. 10-b-55 Ground Lease Agreement dated June 1, 1984, 10-b-55 33-8164 between GMP Real Estate Corporation and Burlington Associates. 10-b-56 Assignment of Lease and Agreement, dated June 1, 10-b-56 33-8164 1984, from Burlington Associates to Teachers Insurance and Annuity Association of America. 10-b-57 Mortgage dated June 1, 1984, from GMP Real Estate 10-b-57 33-8164 Corporation, Mortgagor, to Teachers Insurance and Annuity Association of America, Mortgagee. 10-b-58 Lease and Operating Agreement dated June 28,1985, 10-b-58 33-8164 between the State of Vermont and the Company. 10-b-59 Service Contract dated June 28, 1985, between the 10-b-59 33-8164 State of Vermont and the Company. 10-b-61 Agreements entered in connection with Phase II 10-b-61 33-8164 of the NEPOOL/Hydro-Quebec + 450 KV HVDC Transmission Interconnection. 10-b-62 Agreement between UNITIL Power Corp. and the 10-b-62 33-8164 Company to sell 23 MW capacity and energy from Stony Brook Intermediate Combined Cycle Unit. 10-b-63 Sales Agreement dated as of June 20, 1986, 10-b-63 33-8164 between the Company and UNITIL Power Corp. for sale of system power. 10-b-64 Sales Agreement dated as of June 20, 1986, 10-b-64 33-8164 between the Company and Fitchburg Gas and Electric Light Company for sale of 10 MW capacity and energy from the Vermont Yankee plant. 10-b-65 Sales Agreement dated September 18, 1985, 10-b-65 Form 10-K 1991 between the Company and Fitchburg Gas and (1-8291) Electric Light Company for the sale of system power. 10-b-66 Sales Agreement dated January 1, 1987, between 10-b-66 Form 10-K 1991 the Company and Bozrah Light and Power (1-8291) Company for sale of power. 10-b-67 Sales Agreement dated August 31, 1987, amending 10-b-67 Form 10-K 1992 the agreement dated June 20, 1986, between (1-8291) the Company and UNITIL Power Corp. for sale of system power. 10-b-68 Firm Power and Energy Contract dated December 4, 10-b-68 Form 10-K 1992 1987, between Hydro-Quebec and participating (1-8291) Vermont utilities, including the Company, for the purchase of firm power for up to thirty years. 10-b-69 Firm Power Agreement dated as of October 26, 1987, 10-b-69 Form 10-K 1992 between Ontario Hydro and Vermont Department of (1-8291) Public Service. 10-b-70 Firm Power and Energy Contract dated as of 10-b-70 Form 10-K 1992 February 23, 1987, between the Vermont Joint (1-8291) Owners of the Highgate facilities and Hydro- Quebec for up to 50 MW of capacity. 10-b-70 Amendment to 10-b-70. 10-b-70(a) Form 10-K 1992 (a) (1-8291) 10-b-71 Interconnection Agreement dated as of 10-b-71 Form 10-K 1992 February 23, 1987, between the Vermont Joint (1-8291) Owners of the Highgate facilities and Hydro-Quebec. 10-b-72 Participation Agreement dated as of April 1, 1988, 10-b-72 Form 10-Q between Hydro-Quebec and participating Vermont June 1988 utilities, including the Company, implementing (1-8291) the purchase of firm power for up to 30 years under the Firm Power and Energy Contract dated December 4, 1987 (previously filed with the Company's Annual Report on Form 10-K for 1987, Exhibit Number 10-b-68). 10-b-72 Restatement of the Participation Agreement filed 10-b-72(a) Form 10-K 1988 (a) as Exhibit 10-b-72 on Form 10-Q for June 1988. (1-8291) 10-b-73 Agreement dated as of May 1, 1988, between 10-b-73 Form 10-Q Rochester Gas and Electric Corporation and the Sept. 1988 Company, implementing the Company's purchase of up (1-8291) to 50 MW of electric capacity and associated energy. 10-b-74 Agreement dated as of November 1, 1988, between 10-b-74 Form 10-Q for the Company and Fitchburg Gas and Electric Light Sept. 1988 Company, for sale of electric capacity and (1-8291) associated energy. 10-b-74 Amendment to Exhibit 10-b-74. 10-b-74(a) Form 10-Q (a) Sept 1989 (1-8291) 10-b-75 Allocation Agreement dated as of March 25, 1988, 10-b-75 Form 10-Q between Ontario Hydro and the State of Vermont, Sept. 1988 for firm power and associated energy from (1-8291) Ontario Hydro. 10-b-77 Firm Power and Energy Contract dated December 29, 10-b-77 Form 10-K 1988 1988, between Hydro-Quebec and participating (1-8291) Vermont utilities, including the Company, for the purchase of up to 54 MW of firm power and energy. 10-b-78 Transmission Agreement dated December 23, 1988, 10-b-78 Form 10-K 1988 between the Company and Niagara Mohawk Power (1-8291) Corporation (Niagara Mohawk), for Niagara Mohawk to provide electric transmission to the Company from Rochester Gas and Electric and Central Hudson Gas and Electric. 10-b-79 Lease Agreement dated November 1, 1988, between 10-b-79 Form 10-K 1988 the Company and International Business Machines (1-8291) Corporation (IBM) for the lease to IBM of the gas turbines and associated facilities located on land adjacent to IBM's Essex Junction, Vermont, plant. 10-b-80 Sales Agreement dated January 1, 1989, between 10-b-80 Form 10-K 1988 the Company and Public Service of New Hampshire (1-8291) (PSNH)for PSNH to purchase electric capacity from the Company. 10-b-81 Sales Agreement dated May 24, 1989, between 10-b-81 Form 10-Q the Town of Hardwick, Hardwick Electric Department June 1989 and the Company for the Company to purchase (1-8291) all of the output of Hardwick's generation and transmission sources and to provide Hardwick with all-requirements energy and capacity except for that provided by the Vermont Department of Public Service or Federal Preference Power. 10-b-82 Sales Agreement dated July 14, 1989, between 10-b-82 Form 10-Q Northfield Electric Department and the Company June 1989 for the Company to purchase all of the output (1-8291) of Northfield's generation and transmission sources and to provide Northfield with all- requirements energy and capacity except for that provided by the Vermont Department of Public Service or Federal Preference Power. 10-b-83 Power Purchase and Operating Agreement dated as 10-b-83 Form 10-Q of April 20, 1990, between CoGen Lime Rock, June 1990 Inc., and the Company for the production of (1-8291) energy to meet customer needs. 10-b-84 Capacity, Transmission and Energy Service 10-b-84 Form 10-K 1992 Agreement dated December 23, 1992, between (1-8291) the Company and Connecticut Light and Power Company (CL&P) for CL&P to supply power to Bozrah Light and Power Company. *10-b-85 Power Purchase and Sale Agreement between 10-b-85 Morgan Stanley Capital Group Inc. and the Company Management contracts or compensatory plans or arrangements required to be filed as exhibits to this form 10-K pursuant to Item 14(c). 10-d-1b Green Mountain Power Corporation Second Amended 10-d-1b Form 10-K 1993 and Restated Deferred Compensation Plan for (1-8291) Directors. 10-d-1c Green Mountain Power Corporation Second Amended 10-d-1c Form 10-K 1993 and Restated Deferred Compensation Plan for (1-8291) Officers. 10-d-1d Amendment No. 93-1 to the Amended and Restated 10-d-1d Form 10-K 1993 Deferred Compensation Plan for Officers. (1-8291) 10-d-1e Amendment No. 94-1 to the Amended and Restated 10-d-1e Form 10-Q Deferred Compensation Plan for Officers. June 1994 (1-8291) 10-d-2 Green Mountain Power Corporation Medical Expense 10-d-2 Form 10-K 1991 Reimbursement Plan. (1-8291) 10-d-4 Green Mountain Power Corporation Officer 10-d-4 Form 10-K 1991 Insurance Plan. (1-8291) 10-d-4a Green Mountain Power Corporation Officers' 10-d-4a Form 10-K 1990 Insurance Plan as amended. (1-8291) 10-d-8 Green Mountain Power Corporation Officers' 10-d-8 Form 10-K 1990 Supplemental Retirement Plan. (1-8291) 10-d-15b Green Mountain Power Corporation Compensation Program 10-d-15b for Officers and Key Management Personnel as amended August 4, 1997 *10-d-21 Severance Agreement with N. R. Brock 10-d-21 *10-d-22 Severance Agreement with C. L. Dutton 10-d-22 *10-d-23 Severance Agreement with R. J. Griffin 10-d-23 *10-d-24 Severance Agreement with J. J. Lampron 10-d-24 *10-d-25 Severance Agreement with M. H. Lipson 10-d-25 *10-d-26 Severance Agreement with C. T. Myotte 10-d-26 *10-d-27 Severance Agreement with W. S. Oakes 10-d-27 *10-d-28 Severance Agreement with M. G. Powell 10-d-28 *10-d-29 Severance Agreement with S. C. Terry 10-d-29 *10-d-30 Severance Agreement with J. H. Winer 10-d-30 21 Subsidiaries of the Registrant 21 Form 10-K 1996 (1-8291) *23-a-1 Consent of Arthur Andersen LLP *24 Power of Attorney *27 Financial Data Schedule ____________________ * Filed herewith
Item 14(b). A report on Form 8-K was filed on January 8, 1999, setting forth the conclusions of a report issued December 18, 1998 by the Working Group on Vermont's Electricity Future, and the financial implications of the sale by the Company's wholly owned subsidiary, Green Mountain Resources Inc., of its remaining interest in Green Mountain Energy. 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. GREEN MOUNTAIN POWER CORPORATION By: /s/ Christopher L. Dutton _________________________ Christopher L. Dutton, President and Chief Executive Officer Date: March 25, 1999 Pursuant to the requirements of the Securities 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. SIGNATURE TITLE DATE /s/ Christopher L. Dutton President and Director March 25, 1999 Christopher L. Dutton (Principal Executive Officer) /s/ Nancy R. Brock Vice President, Treasurer and March 25, 1999 Nancy R. Brock Chief Financial Officer (Principal Financial Officer) /s/ Robert J. Griffin Controller March 25, 1999 Robert J. Griffin (Principal Accounting Officer) *Thomas P. Salmon Chairman of the Board *Nordahl L. Brue ) *William H. Bruett ) *Lorraine E. Chickering ) *John V. Cleary ) Directors *Euclid A. Irving ) *Martin L. Johnson ) *Ruth W. Page ) *By: /s/ Christopher L. Dutton_ March 25, 1999 Christopher L. Dutton (Attorney - in - Fact) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Green Mountain Power Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Green Mountain Power Corporation included in this Form 10-K and have issued our report thereon dated February 5, 1999. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index on page 47 of this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements, and in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Boston, Massachusetts March 25, 1999 /s/ Arthur Andersen LLP EX-1 2 Exhibit 10-b-85 POWER PURCHASE AND SALE AGREEMENT BETWEEN MORGAN STANLEY CAPITAL GROUP INC. AND GREEN MOUNTAIN POWER CORPORATION Dated as of February 11, 1999 POWER PURCHASE AND SALE AGREEMENT BETWEEN MORGAN STANLEY CAPITAL GROUP INC. AND GREEN MOUNTAIN POWER CORPORATION This Power Purchase and Sale Agreement dated as of February 11, 1999, together with permitted amendments and Transactions hereunder ("Agreement") is entered into by and between Green Mountain Power Corporation, a corporation organized and existing under the laws of Vermont, together with any permitted successor or assign ("GMP"), and Morgan Stanley Capital Group Inc., a corporation organized and existing under the laws of Delaware, together with any permitted successor or assign ("MS"). WITNESSETH WHEREAS, GMP is an investor owned electric utility which owns electric generation and transmission facilities; WHEREAS, MS is a power marketer authorized by the FERC to purchase and sell electric energy for resale at negotiated, market-based rates; WHEREAS, GMP is a member of NEPOOL and VELCO and has contracted with NEPOOL and VELCO for the provision of certain transmission, scheduling and other ancillary services necessary to operate its generation and related businesses; WHEREAS, the Parties believe that their respective objectives can be achieved through the combination of arrangements set forth in this Agreement and in agreements to individual Transactions pursuant to this master agreement; and, NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, and for other good and valuable consideration, GMP and the MS hereby agree as follows: 1 Overview 1.1 Definitions, Construction All capitalized terms used herein and not otherwise defined, whether singular or plural, shall have the respective meanings set forth in Schedule A. Defined terms in this Agreement shall include in the singular number the plural and in the plural number the singular. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. Any reference in this Agreement to "Section," "Article," "Exhibit" or "Schedule" shall be references to this Agreement. Unless the context requires otherwise, any reference in this Agreement to any document shall mean such document and all schedules, exhibits, and attachments thereto as amended and in effect from time to time. Unless otherwise stated, any reference in this Agreement to any person shall include its permitted successors and assigns and, in the case of any governmental authority, any person succeeding to its functions and capacities. The words "hereof," "herein," "hereto" and "hereunder" and words of similar import when used in this Agreement shall, unless otherwise expressly specified, refer to this Agreement as a whole and not to any particular provision of this Agreement. Whenever the term "including" is used herein in connection with a listing of items included within a prior reference, such listing shall be interpreted to be illustrative only, and shall not be interpreted as a limitation on or exclusive listing of the items included within the prior reference. In the event of a conflict between the text of this Agreement and any Transaction hereunder, the terms of the Transaction shall prevail. The Parties acknowledge that each Party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 1.2 Transactions 1.2.1 Formation of Transaction Agreements This Agreement is a master agreement whose terms shall govern individual Transactions that are agreed to hereunder and separately documented by the Parties, from time to time, for the purchase and sale of electric Energy and/or capacity, as well as for other services which the Parties agree are subject to the terms of this master Agreement. To be valid, an agreement to an individual Transaction under this Agreement must at least include the price, quantity and period of deliveries. In the case of a conflict between a Transaction agreement and this master Agreement, the terms of the Transaction shall control. The terms of individual Transactions shall be recorded in written Confirmations signed by the Parties, provided that the Parties may enter into and electronically record binding verbal Transaction agreements. If the Parties make a verbal Transaction agreement, MS shall, and GMP may, send to the other Party by facsimile transmission or other mutually agreed upon means, within three (3) Business Days, a written Confirmation, which, if accurate, shall be promptly signed and returned by facsimile. In the absence of obvious error, such Confirmation will be deemed accepted unless an objection is stated within three Business Days following receipt of such written Confirmation. (The sending of conflicting Confirmations shall be deemed a sufficient statement of objections by each Party.) In the event of an objection to the terms of a Confirmation, the Parties shall promptly cooperate to reduce their agreement, if any, to a mutually acceptable written Confirmation, and either Party may resort to any electronic recording of such verbal agreement in order to resolve the dispute. In this process, either Party may request and shall receive an accurate copy of the other Party's recording, if one exists, of the asserted agreement. 1.2.2 GMP Pricing Sales by GMP shall be at prices agreed to by the Parties pursuant to Section 1.2.1, provided that such prices shall not exceed the prices that GMP is authorized to charge under its FERC Electric Tariff No. 2, as amended from time to time, or with respect to resales of purchased power, shall not exceed the price paid for such purchased power. 1.2.3 MS Pricing Sales by MS shall be at prices agreed to by the Parties pursuant to Section 1.2.1, and shall be pursuant to MS's Rate Schedule No. 1, as amended from time to time. 2. Transmission and Deliveries 2.1 NEPOOL PTF Unless otherwise specifically agreed, all purchases and sales of Firm Energy and/or OPCAP (or other products as may be agreed to by the Parties) will be at the NEPOOL PTF ("NEPOOL PTF"). All deliveries will be made in the form of three-phase, sixty-cycle alternating current. 2.2 Responsibilities 2.2.1 Transmission Each Party at its cost shall arrange and be responsible for transmission services on its side of the NEPOOL PTF, including ancillary services and related costs. Each Party shall Schedule and arrange for Scheduling services with any Transmission Providers, as necessary to deliver Firm Energy and/or OPCAP to the NEPOOL PTF to which such Party is obligated to deliver the Contract Quantity and to receive from the NEPOOL PTF from which a Party is obligated to take the Contract Quantity. However, to the extent MS has Nominated purchases from GMP and sale to GMP to meet GMP Load served by MS, GMP shall be responsible for Scheduling transmission to and from the NEPOOL PTF. Each Party shall designate authorized representatives for communications regarding the Scheduling of the Contract Quantity required to be delivered and received pursuant to this Agreement. Each Party shall promptly notify the other Party of any differences between Nominated or Scheduled quantities and actual quantities delivered and received. 2.2.2 Losses All deliveries of Firm Energy pursuant to this Agreement will be adjusted for losses in transmission and transformation to the NEPOOL PTF by the Party supplying such Firm Energy. The receiving Party will be responsible for losses from the NEPOOL PTF to its system. 2.2.3 Preservation of Rights The Parties shall employ their best commercially reasonable efforts to preserve transmission rights and reservations needed in order to accommodate the Transactions agreed to pursuant to this Agreement in any FERC transmission or other proceeding or any NEPOOL, VELCO or ISO agreements. 2.2.4 Firm Energy Title and Risk of Loss As between the Parties, Seller shall be deemed to be in exclusive possession and control (and responsible for any Claims relating thereto) of the Contract Quantity on its side of the NEPOOL PTF. As between the Parties, Buyer shall be deemed to be in exclusive control (and responsible for any Claims relating thereto) of the Contract Quantity at and from the NEPOOL PTF. Title to Firm Energy and OPCAP shall transfer from Seller to Buyer at the NEPOOL PTF. 2.3 Risk of Intraday Disruption The risk of an Intraday interruption in Firm Energy flows and/or OPCAP under an MS Schedule, which is not defined as a Force Majeure event, will be allocated as follows: 2.3.1 Interrupted Delivery Caused by GMP The cost of disruption in delivery of Firm Energy or OPCAP to or from the NEPOOL PTF that is caused by GMP or events (other than Force Majeure) on GMP's side of the NEPOOL PTF and not by MS shall be borne by GMP in accordance with the provisions of Article 3. 2.3.2 Interrupted Delivery caused by MS The cost of disruption in delivery of Firm Energy and/or OPCAP to or from the NEPOOL PTF that is caused by MS or events (other than Force Majeure) on MS's side of the NEPOOL PTF and not by GMP shall be borne by MS in accordance with the provisions of Article 3. 2.3.3 Action to Minimize Interruption or Curtailment Each Party will transmit and deliver Firm Energy and deliver OPCAP to the other utilizing existing regulations, sound judgement and prudent utility practices to determine the availability of transmission capacity to perform its obligations under this agreement. Transmission or delivery may be reduced or interrupted by either Party as required to render service to retail customers directly served by a Party's transmission or distribution system or to safeguard its system if the Party determines that such service is causing or substantially contributing to a condition or a potential condition that has, or that the Party would expect to have, an adverse impact on its transmission or distribution system or its customers, provided that nothing herein shall modify the Parties' rights and obligations under Article 3. 2.4 Nominations and Scheduling (a) A Party shall Schedule or Nominate Firm Energy and/or OPCAP through (i) a recorded telephone conversation between the Parties, (ii) a facsimile transmission, or (iii) such other method of communication, including electronic communication, as the Parties may mutually agree is appropriate. Such requests shall be confirmed in the manner, if any, established by the Parties' agreement for the type of communication in question. (b) The Parties agree not to contest or assert any defense to the validity or enforceability of telephonic requests under Laws relating to whether certain agreements are to be in writing or signed by the party to be thereby bound, or the authority of any employee of such Party to make such communication. Each Party consents to the recording of its representatives' telephone conversations without any further notice and will be responsible for notifying its representatives, employees and agents of the Parties' agreement to such recordings. (c) The Parties will agree, from time to time, upon additional procedures for Nominations and Scheduling of deliveries of Energy and/or capacity (including OPCAP) as they deem appropriate. 3 Damages 3.1 Seller's Failure to Deliver Unless excused by Force Majeure or the unexcused failure of Buyer's performance, if Seller fails to deliver, or cause to be delivered, the Contract Quantity, Seller shall pay Buyer, on the date payment would otherwise be due, an amount for each MWh of such deficiency equal to the positive difference, if any, obtained by subtracting (i) the Contract Price for the undelivered portion of the Contract Quantity from (ii) the Replacement Price. "Replacement Price" means the price at which Buyer, acting in a commercially reasonable manner, is able to purchase substitute Firm Energy and/or OPCAP not delivered by Seller (plus additional transmission charges incurred by Buyer, if any). For purposes of this Agreement, effective with the commencement of the Second Effective Date at NEPOOL whereby trades of energy between members of NEPOOL will financially settle via the use of a market clearing price, the Replacement Price shall become the then effective and published NEPOOL market clearing price for deliveries of Firm Energy and/or OPCAP during the relevant period. 3.2 Buyer's Failure to Receive Unless excused by Force Majeure or the unexcused failure of Seller's performance, if Buyer fails to receive, or cause to be received, the Contract Quantity, Buyer shall pay Seller, on the date payment would otherwise be due, an amount for each MWh of such deficiency equal to the positive difference, if any, obtained by subtracting (i) the Sales Price from (ii) the Contract Price for that portion of the Contract Quantity which was not received. "Sales Price" means the price at which Seller, acting in a commercially reasonable manner, is able to resell the Firm Energy and/or OPCAP not received by Buyer (less additional transmission charges incurred by Seller, if any). Subject to the provisions of Section 9.3 concerning duties to mitigate, if Seller is unable to resell all of the quantity of Firm Energy and/or OPCAP within the Contract Quantity that Buyer failed to receive, the Sales Price for the quantity Seller is unable to resell shall be deemed to be zero. For purposes of this Agreement, effective with the commencement of the Second Effective Date at NEPOOL whereby trades of energy between members of NEPOOL will financially settle via the use of a market clearing price, the Sales Price shall become the then effective and published NEPOOL market clearing price for deliveries of Firm Energy and/or OPCAP during the relevant period. 4 Other Responsibilities 4.1 GMP Responsibilities GMP shall, at its cost, also be responsible for the following: (i) Communicating with other participants in the Control Area including but not limited to NEPOOL, the ISO and VELCO and discharging all obligations for the GMP generation system and the GMP transmission system, except as otherwise expressly provided by the Parties; (ii) Providing all necessary Scheduling information such that MS can arrange for necessary transmission services to transmit and utilize the Energy provided to MS pursuant to this Agreement. As applicable, such information shall include, but not be limited to, the size, ramping characteristics and duration of proposed transactions and the proposed Interface with NEPOOL PTFs; (iii) Ensuring that all actions undertaken by GMP will comply with Law and GMP's Open Access Transmission Tariff; (iv) Satisfying at its own expense all reserve requirements for its system, including requirements for spinning, and planning reserves; and (vii) Remaining in, and in compliance with the requirements of, NEPOOL and VELCO to the extent necessary to implement Transactions under this Agreement. 4.2 MS Responsibilities MS shall, at its cost, also be responsible for the following: (i) Providing all necessary Scheduling information such that GMP can arrange for necessary transmission services to transmit and utilize the Energy provided to GMP pursuant to this Agreement. As applicable, such information shall include, but not be limited to, the size, ramping characteristics and duration of proposed transactions and the proposed Interface with NEPOOL PTFs. (ii) Communicating with other Transmission Providers and NEPOOL in order to fulfill MS's obligations to GMP. 4.3 Stranded Costs (a) In the event GMP, or any affiliate or subsidiary becomes entitled to receive compensation associated with stranded generation, transmission, distribution or other assets or costs, MS shall have no claim or entitlement to any such compensation. (b) Likewise, MS shall have neither obligation nor liability for the payment of any amounts attributable to or in any way arising from stranded costs or stranded investments associated with or otherwise relating to the GMP Contract Resources or any liability associated therewith or any other assets or liabilities of GMP whether such amounts are characterized as competitive transition charges, wire charges or other costs or charges. (c) Neither the institution of retail wheeling in nor other market loss with or without the recovery of stranded costs, shall in any way excuse GMP from its obligations under this Agreement, including its obligations to take and pay for Firm Energy in the quantities and at the prices agreed upon in individual Transactions. 5 Term 5.1 Term This Agreement shall become effective on the date first written above (the "Effective Date"), and, except as provided in Section 11.8, in Article 12 or otherwise by the Parties in writing, shall continue until the Termination Date which shall be the later of (i) 30 days after either Party gives written notice of termination to the other Party or (ii) all obligations have been fulfilled under each Transaction agreed to by the Parties under this Agreement. 5.2 Early Termination GMP may provide notice to MS that it desires to terminate this Agreement prior to the Termination Date. In the event the Parties mutually agree to such early termination, MS shall terminate the agreement by calculating an amount owed by MS to GMP or by GMP to MS and terminating subject to the liquidation provisions of Section 12.3. 6 Confidential Information 6.1 Prior Confidentiality Agreements Superseded Any preexisting confidentiality agreement pertaining to the negotiation and development of this Agreement shall, upon the effective date, be superseded by the confidentiality provisions of this Agreement. 6.2 Authorized Disclosure Each Party agrees to preserve, to the maximum extent permitted by law, the confidentiality of the terms of this Agreement and other Confidential Information supplied to it by the other Party either during the negotiations leading to this Agreement or during the course of implementing or winding up this Agreement. This confidentiality commitment shall apply to the Parties and to their affiliates, agents and advisors who receive such information. Notwithstanding anything contained in this Article 6, Confidential Information may be disclosed to any governmental, judicial or regulatory authority requiring such Confidential Information, provided that: (i) such Confidential Information is submitted under applicable provisions, if any, for confidential treatment by such governmental, judicial or regulatory authority; (ii) prior to such disclosure, the Party who supplied the information is given notice of the disclosure requirement (if the other Party's counsel determines that such notice is permitted by law) so that it may take whatever action it deems appropriate, including intervention in any proceeding and the seeking of an injunction to prohibit such disclosure; and (iii) the Party subject to the governmental, judicial or regulatory authority endeavors to protect the confidentiality of any Confidential Information to the extent reasonable under the circumstances and to use its good faith efforts to prevent the further disclosure of any Confidential Information provided to any governmental, judicial or regulatory authority. The Parties recognize that MS is required to file periodic reports with the FERC which disclose certain price, quantity, and related data, and such filings shall not be deemed a violation of this section. The Parties also recognize that GMP is required to file this PPSA with FERC, the SEC, and the Vermont Public Service Board (for informational purposes in the case of the latter two), and such filings shall not be deemed a violation of this section. 6.3 Return of Confidential Information Upon (i) the termination of this Agreement and (ii) the request of a Party, the other Party shall return or destroy all written Confidential Information (including written confirmation of oral communications other than communications relating to purchases and sales of Firm Energy and/or OPCAP) provided by the requesting Party which was stamped "confidential," provided that a Party may keep a copy of a document marked "Confidential" if such Party's counsel determines that it is required to do so by law, order or regulation or pending the outcome of any dispute involving the Parties or transactions under this Agreement. In the event of such request, documents, analyses, compilations, studies or other materials prepared by a Party or its Representatives that contain or reflect Confidential Information from the other Party, other than computer archival and backup tapes or archival and backup files (collectively "Computer Tapes") and billing and trading records (collectively, "Other Records") shall be destroyed (such destruction to be confirmed in writing by a duly authorized officer of the returning Party) or shall be retained on a confidential basis consistent with the terms of this Agreement. Computer Tapes and Other Records shall be kept confidential in accordance with the terms of this Agreement. Notwithstanding the foregoing, neither Party shall be required to destroy or return documents covered by this provision prior to the later of the expiration of applicable statutes of limitations for actions that might arise with respect to the subject matter of such documents or final action with respect to any legal action or arbitration involving such documents. Confidential information received from the other Party shall be kept confidential for at least two (2) years after the expiration of this Agreement or of the Transaction(s) to which such Confidential Information relates. 6.4 Right to Remedies In the event of an unauthorized disclosure to a third party, the limitations on remedies contained in Section 9.2 shall not apply, and, in the event of a breach, Parties will not have an adequate remedy at law and accordingly shall, in addition to any other available legal or equitable remedies, be entitled to an injunction against such breach without any requirement to post a bond as a condition of such relief. 7 Billing, Payment and Records 7.1 Billing Statements (a) GMP shall deliver to MS no later than on the tenth (10th) day of each month (or the first Business Day thereafter), a statement (the "Statement") setting forth for the immediately prior month for each product or service the applicable quantities, prices, and amounts due from MS to GMP and from GMP to MS pursuant to the pricing terms of each Transaction, as well as the net amount due from one party to the other. MS also may send to GMP a statement setting forth MS's calculation of amounts due under any or all such Transactions. (b) To the extent actual price or quantity data are unavailable, a Party may, with written notice to the other Party, calculate a monthly Statement using good faith estimates of amounts due subject to a true up in the Statement issued by such Party for the following month. 7.2 Payments The Party owing the other shall pay the amount owing under the Statement, which payment shall be due on or before the later of the following: (i) the fifth (5th) day after receipt of the Statement or (ii) the fifteenth (15th) day of the month in which the Statement is received (or the first Business Day thereafter). The Parties shall discharge their monthly payment obligations through netting, in which case the Party, if any, owing the greater aggregate amount shall pay to the other Party the difference between the amounts owed, as set forth in this Section. Payment shall be made by wire transfer to the payment address provided in writing by each Party to the other, which payment address may be changed from time to time with prior written notice. If either Party, in good faith, disputes any part of any Statement, it shall provide a written explanation of the basis for the dispute, and shall pay the portion of the amount covered by such Statement that is conceded to be correct no later than the due date as calculated in this Section 7.2. If any amount disputed is determined to be due to the other Party, it shall be paid within three (3) Business Days of such determination, along with interest calculated at the Interest Rate from the original due date until the date paid. Overdue payments or refunds, if any, shall bear interest from, and including, the due date to, but excluding, the date of payment at a rate equal to the Interest Rate. 7.3 Audit Rights (a) Each Party or any third party representative of a Party shall have the right, at its sole expense and during normal working hours, to examine copies of the records of the other Party to the extent reasonably necessary to verify the accuracy of any Statement, charge or computation made pursuant to this Agreement. If requested, a Party shall provide to the other Party statements evidencing the quantities of Energy and/or capacity delivered at the NEPOOL PTF. With respect to records (i) held in the custody of a third party, (ii) held by GMP but which cannot be disclosed to MS, or (iii) held by MS, but which cannot be disclosed to GMP in each case pursuant to a confidentiality obligation of such Party, if an audit is requested by a Party, the Parties shall select an independent auditor to perform the audit consistent with the rights of GMP or MS, as the case may be, under this Agreement, and such confidentiality arrangements as may be required by the confidentiality obligation in question. Subject to any additional limitations that may be imposed under the GMP or MS contract in question, such examinations by an independent auditor shall not be performed more frequently than once each calendar year. The Party requesting the audit shall pay all costs, including those of the independent auditor, associated with the audit. (b) If any such examination reveals any inaccuracy in any Statement, (i) the necessary adjustments in such Statement will be promptly made and included in a revised Statement submitted by GMP and (ii) the payments thereof will be promptly made and shall bear interest calculated at the Interest Rate from the date the overpayment or underpayment was made; provided, however, that no adjustment for any statement or payment will be made unless objection to the accuracy thereof was made prior to the lapse of two (2) years from the rendition thereof; and provided, further, that this provision of this Agreement will survive any termination of this Agreement for a period of two (2) years from the date of such termination for the purpose of such Statement and payment objections. 7.4 Subsequent Payment Adjustments The Parties understand that in certain cases monthly billings will need to be made on an estimated basis. Each Party shall cooperate in good-faith with the other Party to obtain the requisite information and perform the necessary computations so as to "true-up" or otherwise adjust any estimated or adjusted billings promptly. Any refund to the other Party of monies erroneously collected under this Agreement shall be paid with interest at the Interest Rate. 7.5 Records Each Party shall keep such records as may be needed to afford a clear history of the Nominated or Scheduled purchases and sales hereunder. In maintaining such records, GMP and MS may rely upon the logs and other meter information routinely recorded by Transmission Providers or utilities responsible for coordination of the purchases and sales. 8 Taxes 8.1 Seller's Obligation Seller is liable for and shall pay, or cause to be paid, or reimburse Buyer if Buyer has paid, all Taxes applicable to the sale of electric Energy arising prior to the NEPOOL PTF. If Buyer is required to remit any such Tax, the amount shall be deducted from any sums becoming due to Seller. Seller shall indemnify, defend and hold harmless Buyer from any Claims for such Taxes. 8.2 Buyer's Obligation Buyer is liable for and shall pay, cause to be paid, or reimburse Seller if Seller has paid, all Taxes applicable to a purchase of electric Energy arising at and from the NEPOOL PTF, including any Taxes imposed or collected by a taxing authority with jurisdiction over Buyer. Buyer shall indemnify, defend and hold harmless Seller from any Claims for such Taxes. 8.3 Exemption Certificates Either Party, upon written request of the other, shall provide a certificate of exemption or other reasonably satisfactory evidence of exemption if either Party or a purchase or sale is exempt from Taxes, and shall use reasonable efforts to obtain and cooperate with obtaining any exemption from or reduction of any Taxes. Each Party shall use reasonable efforts to administer this Agreement and implement the provisions in accordance with the intent to minimize Taxes. 9 Indemnification and Remedies 9.1 General Indemnity Subject to Section 9.2 with respect to a Party's (or any affiliate's) own claim of damages, Seller and Buyer shall each indemnify, defend and hold harmless the other Party from any injury, damage, Claims or other losses arising from any act or incident occurring when title to the Contract Quantity is vested in the indemnifying Party pursuant to Section 2.2.4 unless caused by the other Party's negligence or willful misconduct, provided that GMP shall indemnify and hold MS harmless with respect to any damage, injury or other Claims arising with respect to GMP's facilities. 9.2 Limitation on Remedies THE PARTIES CONFIRM THAT THE EXPRESS REMEDIES AND MEASURES OF DAMAGES PROVIDED IN THIS AGREEMENT SATISFY THE ESSENTIAL PURPOSES HEREOF. FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY. THE RESPONSIBLE PARTY'S LIABILITY SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED REGARDLESS OF THE FAULT, NEGLIGENCE OR STRICT LIABILITY OF THE PARTY WHOSE LIABILITY IS RELEASED OR LIMITED THEREBY. IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY HEREIN PROVIDED, THE RESPONSIBLE PARTY'S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES (INCLUDING INTEREST AS PERMITTED BY APPLICABLE LAW) ONLY. SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. UNLESS EXPRESSLY HEREIN PROVIDED, NO PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, MULTIPLE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR IN CONTRACT UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, INCLUDING DAMAGES PROVIDED IN ARTICLE 3, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT, AND THE LIQUIDATED DAMAGES CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS. THE PARTIES AGREE TO RESOLVE THEIR DISPUTES THROUGH ARBITRATION PURSUANT TO ARTICLE 13, BUT IF FOR ANY REASON ARBITRATION IS UNAVAILABLE, THE PARTIES AGREE TO SEEK TO RESOLVE THEIR DISPUTES IN A UNITED STATES DISTRICT COURT (ASSUMING SUCH COURT HAS SUBJECT JURISDICTION AND, IF IT DOES NOT, THEN IN THE STATE COURT OF NEW YORK, SITTING IN NEW YORK CITY) WITHOUT A JURY TRIAL, THE RIGHT TO WHICH IS IRREVOCABLY WAIVED BY EACH PARTY. 9.3 Duty to Mitigate Each Party agrees that it has a duty to mitigate damages and covenants that it will use commercially reasonable efforts to minimize any damages it may incur as a result of the other Party's performance or non- performance of this Agreement. 9.4 Disclaimer EXCEPT AS EXPRESSLY SET FORTH HEREIN, GMP, WITH RESPECT TO THE SALE OF ENERGY AND/OR CAPACITY TO MS, AND MS, WITH RESPECT TO THE SALE OF ENERGY AND/OR CAPACITY TO GMP, EXPRESSLY NEGATE ANY OTHER REPRESENTATION OR WARRANTY, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY WITH RESPECT TO CONFORMITY TO MODELS OR SAMPLES, MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE. 10 Notices All notices, requests, statements or payments shall be made as specified in Exhibit 1. Notices required to be in writing shall be delivered by letter, facsimile or other documentary form. Notice by facsimile or hand delivery shall be deemed to have been received by the close of the Business Day on which it was transmitted or hand delivered (unless transmitted or hand delivered after the close of the Business Day, in which case it shall be deemed received at the close of the next Business Day). Notice by overnight mail or courier shall be deemed to have been received two (2) Business Days after it was sent. A Party may change its address by providing notice of same in accordance herewith. The Parties may agree on alternative methods of giving operational and scheduling notices, consistent with the requirements of NEPOOL or other transmission providers. 11 Representations and Warranties 11.1 Mutual Representations On the Effective Date, the Commencement Date of each Transaction and the date of entering into each purchase or sale of Firm Energy, OPCAP or any other capacity, service or commodity hereunder, each Party represents and warrants to the other Party: (i) it is duly organized, validly existing and in good standing under the laws of the state of its incorporation; (ii) it has all requisite corporate power to own, operate and lease its properties and carry on its business as now conducted; (iii) it has all regulatory authorizations, necessary for it to legally perform its obligations under this Agreement; (iv) the execution, delivery and performance of this Agreement and any other documentation it is required to deliver under this Agreement are within its powers, have been duly authorized by all necessary action and do not violate any of the terms or conditions in its governing documents, any contract or other agreement to which it is a party or any Law applicable to it; (v) the individual(s) executing and delivering this Agreement and any other documentation required to be delivered under this Agreement are duly empowered and authorized to do so; (vi) this Agreement constitutes each Party's legally valid and binding obligation enforceable against it in accordance with the terms thereof, subject to any Equitable Defenses; (vii) no Event of Default with respect to it has occurred and is continuing, and no such event or circumstance would occur as a result of its entering into this Agreement; (viii) it is an entity subject to the procedures and substantive provisions of the United States Bankruptcy Code applicable to U.S. corporations generally; (ix) there are no Bankruptcy Proceedings pending or, to its knowledge, threatened against it; (x) there are no Legal Proceedings that would be reasonably likely to materially adversely affect its ability to perform this Agreement; (xi) it has knowledge and experience in financial matters and in the electric industry that enable it to evaluate the merits and risks of this Agreement and it is capable of assuming such risks; (xii) it is acting as principal for its own account, and it has made its own independent decisions to enter into this Agreement and each Transaction hereunder and as to whether this Agreement and each Transaction hereunder is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary; (xiii) it is not relying on any communication (written or oral) of the other Party as investment advice or as a recommendation to enter into this Agreement and any Transaction hereunder; (xiv) the other Party is not acting as a fiduciary for or an adviser to it in respect to this Agreement and any Transaction hereunder; and (xv) it engages in producing, using commercially, and/or handling as a merchant electric Energy. 11.2 Additional Representations (a) MS further represents and warrants that on the Effective Date, the Commencement Date, and the date of entering into each purchase or sale of Firm Energy, OPCAP or other capacity, service or commodity hereunder (i) MS is a power marketer authorized by the FERC to purchase and sell electric Energy at negotiated, market-based rates pursuant to its Rate Schedule on file with and approved by the FERC; (ii) neither MS nor any of its Affiliates or subsidiaries will, during the Term, take any action that could reasonably be anticipated to cause GMP, if applicable, or MS to lose its authority as a power marketer under the Federal Power Act to make wholesale sales of power at market-based, negotiated rates; and (iii) MS will, at all times during the Term, act in accordance with Prudent Utility Practice and will comply with all applicable regulatory requirements including NEPOOL guidelines and the Administrative Procedures. (b) GMP further represents and warrants that on the Effective Date, the Commencement Date, and the date of entering into each purchase or sale of Firm Energy, OPCAP or other service or commodity hereunder (i) GMP is authorized to purchase and sell electric Energy, OPCAP and other capacity, services or commodity at rates and under terms contemplated by this Agreement; (ii) GMP will not, during the Term, take any action that could reasonably be anticipated to cause GMP or MS to lose its authority to sell as contemplated under this Agreement; (iii) GMP will, at all times during the Term, act in accordance with Prudent Utility Practice and will comply with all applicable regulatory requirements including NEPOOL guidelines and the Administrative Procedures; (iv) nothing in GMP's contracts with others prevent it from fully performing its obligations under this Agreement. (b) Each Party represents and warrants that it shall not seek to modify this Agreement under Sections 205 or 206 of the Federal Power Act or any other provision of law except with the consent of both Parties or as needed to implement a final decision of an arbitration panel duly constituted under this Agreement. The Parties shall oppose requests by others to modify this Agreement. 11.3 Mutual Assistance Each Party represents and warrants that it will assist the other to the extent practicable with (i) obtaining all required Regulatory Approvals, if any, associated with this Agreement; and (ii) defending transmission capacity reservations. 11.4 Good Title Each of GMP and MS represents and warrants that it will deliver to the other good title to electric Energy or OPCAP sold hereunder, free and clear of all liens, claims and encumbrances arising prior to transfer of title at the NEPOOL PTF. 11.5 Power Quality Each of GMP and MS represents and warrants that it will deliver, or cause to be delivered, to the other Party electric Energy at the NEPOOL PTF that is three phase, sixty hertz, and at system nominal voltages. 11.6 Other Contracts Neither GMP nor MS nor any of their respective Affiliates or subsidiaries will, during the Term, take any action, enter into any contracts or otherwise incur obligations that could reasonably be anticipated to interfere with or adversely affect its ability to perform its obligations under this Agreement. 11.7 Continuing Representations and Warranties Each Party covenants that it will cause these representations and warranties to be materially true and correct throughout the Term. 11.8 Other Representation Subject to Approvals Notwithstanding the foregoing, as of the Effective Date, to the extent regulatory approval is needed by GMP with respect to its ability to use this Agreement as a basis for future sales for resale, and to extent GMP accurately discloses, prior to the Parties' agreeing to a particular Transaction, the need to get prior regulatory approval for such Transaction, GMP shall not be deemed to make the representations and warranties contained in Sections 11.1(iii) until it obtains the identified regulatory authorizations for this Agreement and/or individual Transactions. With respect to this Agreement, GMP agrees to obtain any such necessary authorizations and to make such representations and warranties prior to May 15, 1999. If GMP fails to make such representations and warranties by May 15, 1999, then MS may (i) terminate this Agreement and each Transaction hereunder or (ii) extend the date by which it may terminate this Agreement if such representations and warranties are not provided, in either case by giving written notice to GMP of MS's election by close of the fifth (5th) Business Day after May 15, 1999, or, at any time thereafter if there is an extension by MS. Termination pursuant to this Section shall be effective as of the end of the third (3rd) Business Day following MS' notice of termination. 12 Defaults and Remedies 12.1 Events of Default An "Event of Default" shall mean with respect to a Party ("Defaulting Party"): (a) The failure by the Defaulting Party to make, when due, any payment required or to post collateral when required pursuant to Section 15.2 if such failure is not remedied within three (3) Business Days after receipt of written notice of such failure is given to the Defaulting Party by the other Party ("Notifying Party"); provided, that the payment is not the subject of a good faith dispute as described in Section 7.2; or (b) Any representation or warranty made by the Defaulting Party herein shall prove to have been false or misleading in any material respect when made or deemed to be repeated; or (c) The failure by the Defaulting Party to perform any obligation or covenant set forth in this Agreement (other than its obligations to make any payment or obligations which are otherwise specifically covered in this Section 12.1 as a separate Event of Default and excluding failures of receipt or delivery which are the subject of timely payments consistent with Article 7) and such failure is not excused by Force Majeure or cured within ten (10) Business Days after receipt of written notice thereof to the Defaulting Party; or (d) Either Party's loss of FERC authorization to charge the prices for the sale of electric Energy included in this Agreement or otherwise to perform its obligations hereunder in accordance with the terms of this Agreement, or (e) the circumstance in which either Party or its credit support provider: (i) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (ii) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (iii) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (iv) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding- up or liquidation; (v) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (vi) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (vii) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets; (viii) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (i) to (vii) (inclusive); (ix) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; (x) merges with any other person which does not assume the obligations of such Party or such that there is a material adverse change in the financial condition of such Party or credit support provider; or (xi) fails to make payment when due under one or more agreements or instruments relating to Specified Indebtedness in an aggregate amount (individually or collectively) of not less than ten million dollars ($10,000,000) which has resulted in such Specified Indebtedness becoming due and payable under such agreements or instruments, before it would otherwise have been due and payable, or defaults in making one or more payments in an aggregate amount (individually or collectively) of not less than ten million dollars ($10,000,000) under such agreements or instruments (after giving effect to any applicable notice requirement or grace period). 12.2 Early Termination; Remedies If an Event of Default occurs with respect to a Defaulting Party at any time during the Term, the other party ("Non-Defaulting Party") may for so long as the Event of Default is continuing, establish a date (which date shall be at least three (3) Business Days after the Non-Defaulting Party delivers notice to the Defaulting Party) ("Early Termination Date") on which each Transaction under this Agreement shall terminate; provided, however, that if the Event of Default is that the Defaulting Party becomes subject to a Bankruptcy Proceeding, then each Transaction under this Agreement shall automatically terminate without notice and without any other action by either Party as if an Early Termination Date had been immediately declared prior to such Event of Default. Upon the Early Termination Date (or at the earliest date thereafter permitted by law), the Parties' obligations to sell, purchase, deliver, receive, incur or pay obligations under this Agreement, other than with respect to payment of all obligations under this Article 12 of this Agreement, shall terminate, and the Parties shall be liable for the obligations contained in Sections 12.3 below. Regardless of whether an Early Termination Date is declared, if an Event of Default shall have occurred, the Non-Defaulting Party shall be entitled to exercise any remedy available at law or equity consistent with this Agreement to recover its damages, including attorneys' fees, resulting from any Event of Default. Each Party reserves to itself all rights, setoffs, counterclaims and other remedies and defenses, consistent with Section 9, which such Party has or may be entitled to arising from or out of this Agreement. It is recognized that, for purposes of this Article, this Agreement and each Transaction between the Parties for Energy or capacity or ancillary services pursuant to or in fulfillment of this Agreement shall constitute a single agreement and, but for the same forming a single agreement, the Parties would not make the commitments or enter into this Agreement or the transactions pursuant to or in fulfillment of this Agreement. 12.3 Liquidation and Closeout (a) Upon the Early Termination Date, the Non-Defaulting Party shall have the right to liquidate all purchases and sales of Energy and/or capacity (including OPCAP), including options and outstanding obligations to purchase and/or sell Energy ("Transactions") (including any portion of a Transaction not yet fully delivered), then outstanding by: (i) Closing out each Transaction being liquidated at its Market Value, as defined below, so that each such Transaction is canceled and a settlement payment in an amount equal to the difference between such Market Value and the Contract Value, as defined below, of such Transaction shall be due to the Buyer under the Transaction if such Market Value exceeds the Contract Value and to the Seller if the opposite is the case; and (ii) Discounting each amount then due under clause (1) above to present value using a rate of interest determined in the manner set forth below (to take account of the period between the date of liquidation and the date on which such amount would have otherwise been due pursuant to the relevant Transaction); and (iii) Setting off or aggregating, as appropriate, all such settlement payments (discounted as appropriate) and (at the election of the Non-Defaulting Party) any or all other amounts owing between the Parties under this Agreement so that all such amounts are aggregated and/or netted to a single liquidated amount payable by one party to the other. Such net amount due shall be paid by the close of business on the Business Day following the Early Termination Date. (b) For purposes of this Article 12, "Contract Value" means the quantities of Energy and/or capacity (including OPCAP) remaining to be purchased under each Transaction multiplied by the applicable contract price(s) remaining to be paid. "Market Value" means the quantities of Energy and/or capacity (including OPCAP) remaining to be delivered under each Transaction multiplied by the market prices per unit remaining to be purchased. Notwithstanding the foregoing, the Contract Value of a Transaction in the nature of an option may be determined by reference to the option premium under the contract, and the Market Value of an option may be determined as the market price a Party would pay or receive, at the time of valuation, to purchase or sell an equivalent option. (MS' rights to purchase Energy and/or capacity (including OPCAP) from GMP based on GMP Contract Resources, whether for resale to GMP or for sales to others, is an example of Transaction in the nature of an option.) For purposes of these provisions, determination of the quantity remaining to be purchased or sold shall take into account options likely to be exercised in light of the foreseeable difference between the Contract Price and the market price for such sales or purchases. The market price for Energy and/or capacity (including OPCAP) to be purchased or sold and the market price for an option may be established by the Non-defaulting Party by taking the average of proposals solicited in a commercially reasonable manner from three (3) bona fide power suppliers, brokers or market makers which are not affiliated with either Party, or in any other commercially reasonable manner selected by the Non-defaulting Party. The Non-Defaulting Party shall give notice that a liquidation pursuant to this Article 12 has occurred to the Defaulting Party no later than the Business Day following such liquidation, provided that failure to give such notice shall not affect the validity or enforceability of the liquidation or give rise to any claim by the Defaulting Party against the Non-Defaulting Party. Nothing in this paragraph shall be construed to relieve the Non-Defaulting Party of its obligation to give prior notice of the designation of an Early Termination Date under Section 12.2 above. The Parties agree that, for the purpose of this Agreement, a Transaction shall constitute a "forward contract" within the meaning of the United States Bankruptcy Code. 12.4 Failure to Pay Notwithstanding any other provision of this Agreement, if either Party fails to pay the other any amounts when due, the other Party shall have the right to (i) suspend performance under this Agreement until such amounts plus interest at the Interest Rate have been paid and/or (ii) exercise any remedy available at law or in equity to enforce payment of such amount plus interest; provided, however, that if a Party, in good faith, shall dispute the amount of any such billing or part thereof and shall pay such amounts as it concedes to be correct, there shall be no Event of Default, and no suspension or early termination shall be permitted absent a separate other Event of Default that would independently warrant such suspension or early termination. 12.5 Notice Each Party agrees promptly to notify the other upon becoming aware of any event or circumstance that constitutes an Event of Default. 13 Arbitration 13.1 Applicability; Selection of Arbitrators (a) Except as otherwise expressly provided in this Agreement, any dispute arising out of or in connection with this Agreement or its performance, including the existence and validity of this Agreement, which cannot be resolved after discussion between the Parties as set forth herein shall be submitted to binding arbitration; provided that where this Agreement provides a specific remedy the arbitrators' authority shall be limited to enforcing the specific remedies. The foregoing shall not limit a Party's rights to elect remedies in accordance with Article 12. (b) Any dispute between the Parties with respect to this Agreement which cannot be resolved through negotiations shall be submitted to arbitration in accordance with the following procedures. A Party seeking arbitration shall serve on the other Party a request for arbitration ("Impasse Notice') which shall specify the issue or issues in dispute and summarize the complaining Party's claim with respect thereto. Except as provided below, any such arbitration shall be before an arbitrator who is selected by the Parties through mutual agreement or before three arbitrators who shall be selected as set forth below. Each arbitrator shall be qualified by substantial relevant commercial experience in the electricity or commodities business and shall be independent of either Party. Within ten (10) Business Days after the other Party's receipt of the request for arbitration, authorized representatives of the Parties shall confer and attempt in good faith to agree upon the appointment of a single arbitrator. If such agreement is not accomplished within twenty (20) Business Days after the receipt of the request for arbitration, each Party shall appoint, within five (5) Business Days thereafter, an arbitrator who is independent of each Party and qualified by substantial relevant commercial experience to make a judgment on the matter in dispute. The two arbitrators shall mutually agree upon a third arbitrator within ten (10) Business Days of their appointments. If they cannot so agree, either Party may request that the American Arbitration Association appoint a third arbitrator with substantial relevant commercial experience in accordance with its Commercial Arbitration Rules, which rules shall govern the conduct of the arbitration in the absence of contrary agreement by the Parties. 13.2 Discovery, Hearing Discovery and other pre-hearing procedures shall be conducted as agreed by the Parties, or if they cannot agree, as determined by a majority of the arbitrators. Unless otherwise specified by the arbitrator(s), the following schedule will be followed. Within fifteen (15) days after completion of discovery, the Party submitting the Impasse Notice initiating arbitration shall submit by overnight delivery to the other Party and the arbitrators a precise statement of the dispute, means of resolving the dispute, and the factual and/or legal support therefor. Within ten (10) days after receiving such statement, the other Party shall submit by overnight mail to the first Party and the arbitrators a precise statement of the alternative means of resolving the dispute and the factual and/or legal support therefor. The Parties shall conduct a hearing no later than sixty (60) days following selection of the third arbitrator, or thirty (30) days after all prehearing discovery has been completed, whichever is later, at which the Parties shall present such evidence and witnesses as they may choose. Hearings for any arbitration under this Agreement shall be conducted New York City, New York. 13.3 Decision The arbitrators shall consider the terms and conditions of this Agreement, and any relevant evidence and testimony, and shall render their decision within thirty (30) calendar days following conclusion of the hearing. The decision rendered by a majority of the arbitrators, made in writing, shall be final and binding upon the Parties. Such decision shall include a statement of the reasons for the decision and separately list findings of fact and conclusions of law. The arbitrator(s) shall not have the power to amend, delete from, or add to this Agreement. Subject to such limitation the decision of the arbitrator(s) shall be final and binding. Any such decision may be filed in a court of competent jurisdiction and may be enforced by any Party as a final judgment in such court. The arbitrators shall have no authority to award consequential, special, exemplary, punitive, multiple or consequential damages. 13.4 Expenses Unless otherwise ordered by the Arbitrators, the expenses of arbitration shall be borne equally by GMP and the MS, except that each Party shall bear the compensation and expenses of its nominated arbitrator, own counsel, witnesses and employees; provided further, that any costs incurred by a Party in seeking judicial enforcement of any decision rendered in writing by the arbitrators, or a majority of the arbitrators, shall be chargeable to and borne exclusively by the Party against whom such court order is obtained. 14 Force Majeure If either GMP or MS is rendered unable by an event of Force Majeure to carry out, in whole or part, its obligations hereunder and such Party gives notice and full details of the event to the other Party as soon as practicable after the occurrence of the event, then during the pendency of such Force Majeure but for no longer period, the obligations of the Party affected by the event (other than the obligation to make payments then due or becoming due with respect to performance prior to the event) shall be canceled to the extent required. The Party affected by the Force Majeure shall remedy the Force Majeure with all reasonable dispatch. 15 Material Changes 15.1 Settlements; Modifications of Certain GMP Contracts In the event GMP enters into an amendment, renewal, cancellation, modification or alteration ("Alteration") of the NEPOOL or VELCO agreements, or successor agreements to any of the foregoing, and as a result the economic return anticipated to be derived by MS pursuant to this Agreement could reasonably be expected to be adversely affected, GMP shall promptly give notice of such change to MS. MS shall determine within thirty (30) days after such notice whether to consent to any such Alteration, during which period MS and GMP shall negotiate with respect to any modification to this Agreement that in MS's judgement can satisfactorily protect MS from the Alteration. Within such thirty (30) day period, MS must provide notice to GMP of its consent to the Alteration or alternatively of its intent to treat the change as an Event of Default, and terminate and liquidate this Agreement according to the procedures of Article 12. In addition, if a mutually satisfactory modification is not agreed to by the Parties, GMP shall hold MS harmless from any economic harm resulting from such Alteration pending such termination. 15.2 Creditworthiness Without limiting the rights of either Party under Article 12 with respect to an Event of Default, if the credit rating of either Party ("Affected Party") or its credit support provider, if any, declines to an Unsatisfactory Rating by two recognized credit rating organizations, the other Party ("Unaffected Party") may request Credit Assurances, which shall be provided by the Affected Party by the tenth (10th) Business Day after receiving notice of such request. If such Credit Assurances are not received within ten (10) Business Days, the Unaffected Party may terminate and liquidate this Agreement pursuant to Article 12 by giving to the other Party, in writing, the greater of ten (10) Business Days notice or the minimum notice required by law. If, after giving Credit Assurances, the Affected Party's credit rating by each of the two recognized credit rating agencies ceases to be an Unsatisfactory Rating, then the Credit Assurances shall no longer be required, and shall promptly be returned by the Unaffected Party. For purposes of this Section 15.2, "Unsatisfactory Rating" means the Party has senior secured long-term debt not supported by third party credit enhancement that is rated equal to or less than one of the following (i) BB if by Standard & Poor's Rating Group, a division of McGraw Hill, Inc., (ii) Ba2 by Moody's Investors Services, Inc., or (iii) BB if by Duff and Phelps. (If a Party does not have rated senior secured long-term debt, the word "secured" shall be replaced with "unsecured" in applying the preceding sentence to such Party.) If any of such credit rating agencies ceases to rate such Party's credit, the other Party may consider the equivalent credit rating of any other recognized credit rating agency that evaluates the credit of such Party. 15.3 Material Changes in Law If at any time during the term of this Contract, a new Law or interpretation of an existing Law (i) alters the prices chargeable by either GMP or MS, or (ii) prevents a Party from performing a material term of this Agreement, then GMP and MS shall negotiate in good faith to amend this Agreement in a manner that will most nearly restore to the Parties the economic benefits and burdens of this Agreement prior to such change. If GMP and MS are not able to agree, within sixty (60) days after a Party first receives notice of the change from the affected Party, on the terms of the appropriate amendment to restore the Parties to their previous position, then a Party adversely affected by the change may terminate this Agreement and the Parties shall determine the appropriate terms of termination including a settlement payment by one Party to the other which shall be determined in the manner of Section 12.3 based on the Parties' positions under this Contract prior to the change in Law triggering this Section. If the Parties cannot agree, the Settlement payment shall be determined by arbitration pursuant to Article 13. 16 Miscellaneous 16.1 Assignment. This Agreement shall be binding upon and inure to the benefit of the permitted successors and permitted assigns of the Parties. Except for an assignment as part of a sale of a Party's entire electricity business to a creditworthy entity that is fully capable of, and committed to performing this Agreement, this Agreement may not be assigned by any Party unless prior consent to such assignment is given in writing by the other Party, which consent shall not be unreasonable withheld. Any assignment made without a consent required hereunder shall be void and of no force or effect as against the non-consenting party. No sale, assignment, transfer or other disposition permitted by this Agreement shall affect, release or discharge any Party from its rights or obligations under this Agreement, except as may be expressly provided by this Agreement. 16.2 Applicable Law THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE PARTIES ARISING OUT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED, ENFORCED AND PERFORMED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 16.3 Survival of Obligations Upon the expiration of the Parties' delivery, sale and purchase obligations under this Agreement, any monies, penalties or other charges due and owing Seller shall be paid, any corrections or adjustments to payments previously made shall be determined, and any refunds due Buyer made, as soon as practicable. All indemnity and confidentiality obligations and audit rights shall survive the termination of this Agreement in accordance with their respective terms. The Parties' obligations provided in this Agreement shall remain in effect for the purpose of complying with the provisions of this Section. 16.4 Entire Agreement This Agreement and the Exhibits thereto constitute the entire agreement between the Parties as of the time of execution relating to the subject matter contemplated by this Agreement and supersedes all prior agreements, whether oral or written. 16.5 No Partnership Nothing in this Agreement shall ever be deemed to create or constitute a partnership, joint venture or association between the Parties, or to impose a trust or partnership duty, obligation or liability on or with regard to the Parties. 16.6 Amendment No amendment or modification to this Agreement shall be enforceable unless reduced to writing and executed by both Parties. 16.7 Third Parties The provisions of this Agreement shall not impart rights enforceable by any person or entity not a Party or not a permitted successor or assignee of a Party bound by this Agreement. 16.8 Waiver No waiver by any Party of any one or more defaults by the other in the performance of any of the provisions of this Agreement shall be construed as a waiver of any other default or defaults, whether of a like kind or different nature. 16.9 Non-Severability This Agreement is an integrated whole. Should any provision of this Agreement for any reason be declared invalid or unenforceable by order of any court or regulatory body having jurisdiction, the Parties shall promptly negotiate to restore this Agreement as near as possible to its original intent and effect. If the Parties are unable to reach such an agreement on modifications, within ten (10) Business Days, either Party may deem the court or regulatory order to be an Event of Default by given written notice to the other Party. In such an event the Parties shall implement Sections 12.2 and 12.3 based on the terms of the Agreement prior to such Event of Default. 16.10 Headings The headings used for the Articles and Sections are for convenience and reference purposes only, and shall not be construed to modify, expand, or restrict the provisions of this Agreement. 16.11 Counterparts This Agreement may be executed in multiple counterparts to be construed as one, effective as of the Effective Date. 16.12 Further Assurances If any Party reasonably determines or is reasonably advised that any further instruments or any other things are necessary or desirable to carry out the terms of the Agreement, the other Parties shall execute and deliver all such instruments and assurances and do all things reasonably necessary and proper to carry out the terms of this Agreement. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized officers and copies delivered to each Party. GREEN MOUNTAIN POWER CORPORATION By: Christopher L. Dutton Title: President and CEO MORGAN STANLEY CAPITAL GROUP INC. By: Simon Greenshields Title: Vice President SCHEDULE A - DEFINITIONS "Administrative Procedures" means applicable NEPOOL procedures for administration of scheduling receipts and deliveries of capacity and Energy. "Affiliate" means, with respect to any person, any other person (other than an individual) that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such person. For this purpose, "control" means the direct or indirect ownership interest of more than fifty (50) percent of the outstanding capital stock or other equity interests having ordinary voting power. "Bankruptcy Proceeding" means, with respect to a Party, that such Party (i) makes any general assignment or any general arrangement for the benefit of creditors, (ii) files a petition or otherwise commences, authorizes or acquiesces in the commencement of a proceeding or cause of action under any bankruptcy or similar law for the protection of creditors, or has such a petition involuntarily filed against it and such petition is not withdrawn or dismissed within thirty (30) days after such filing, (iii) otherwise becomes bankrupt or insolvent (however evidenced), (iv) is unable (or admits in writing its inability) generally to pay its debts as they fall due, (v) is dissolved (other than pursuant to a consolidation, acquisition, amalgamation or merger), (vi) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, acquisition, amalgamation or merger), (vii) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for all or substantially all of its assets, (viii) has a secured party take possession of all or substantially all of its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all of its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within thirty (30) days thereafter, (ix) causes or is subject to any event with respect to which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (i) to (viii) (inclusive); or (x) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts. "Business Day" means a day on which the Federal Reserve Member Banks in New York City are open for business; and a Business Day shall open at 8:00 a.m. and close at 5:00 p.m. local time for each Party's principal place of business. "Buyer" means either MS or GMP, as the case may be, when it is the Party who is obligated to purchase and receive, or cause to be received, Energy or capacity in connection with a sale hereunder. "Claims" means all claims or actions, threatened or filed and whether groundless, false or fraudulent, that directly or indirectly relate to the subject matter of an indemnity, and the resulting losses, damages, expenses, attorneys' fees and court costs, whether incurred by settlement or otherwise, and whether such claims or actions are threatened or filed prior to or after the termination of this Agreement. "Commencement Date" shall mean the earliest date of Energy or capacity deliveries under the terms of a Transaction agreement. "Computer Tapes" has the meaning specified in Section 6.3. "Confidential Information" means this Agreement and any other written data or information (or an oral communication if the party requesting confidentiality for such oral communication promptly confirms such communication in writing) which is privileged, confidential or proprietary, except information which (i) is a matter of public knowledge at the time of its disclosure or is thereafter published in or otherwise ascertainable from any source available to the public without breach of this Agreement, (ii) constitutes information which is obtained from a third party (who or which is not an Affiliate of one of the Parties) other than by or as a result of unauthorized disclosure, or (iii) prior to the time of disclosure had been independently developed by the receiving Party or its Affiliates not utilizing improper means. "Contract Price" means the price in United States dollars (per MWh) to be paid by Buyer to Seller for the purchase of Firm Energy or capacity (including OPCAP) that is Nominated or Scheduled pursuant to a Transaction under this Agreement. "Contract Quantity" means the amount of Firm Energy or capacity (including OPCAP) that Seller agrees to sell and deliver, or cause to be delivered, to Buyer and Buyer agrees to purchase and receive, or cause to be received, from Seller pursuant to the terms of a Transaction under this Agreement. "Credit Assurances" means a letter of credit or cash collateral. The amount of Credit Assurances that may be required shall be commercially reasonable and shall not exceed the amount that would be due to the Unaffected Party under Section 12.3 event of a default, as reasonably determined by the Unaffected Party. "Defaulting Party" has the meaning specified Section 12.1. "Early Termination Date" has the meaning specified in Section 12.2. "Effective Date" means the first date set forth above with respect to this Agreement and, in the case of a Transaction, the date the Parties enter into such agreement unless otherwise specified by the Parties. "Energy" is energy as defined by NEPOOL . "EPT" means Eastern Prevailing Time and refers to the time in effect in the Eastern Time Zone of the United States, whether Eastern Standard Time or Eastern Daylight Savings Time. "Equitable Defenses" means bankruptcy, insolvency, reorganization and other laws affecting creditors' rights generally, and with regard to equitable remedies, the discretion of the court before which proceedings to obtain the same may be pending. "Event of Default" has the meaning specified in Section 12.1. "FERC" means the Federal Energy Regulatory Commission or any successor agency that enforces the Federal Power Act, as amended from time to time. "Firm Energy" is energy the purchase and/or sale of which is not interruptible for any reason other than Force Majeure. "Force Majeure" means an event which is not within the reasonable control of the Party (or, in the case of third party obligations or facilities, the third party) claiming suspension (the "Claiming Party"), and which by the exercise of due diligence the Claiming Party is unable to overcome in a commercially reasonable manner or obtain or cause to be obtained a commercially reasonable substitute performance therefor. Force Majeure includes, but is not restricted to: failure of transmission facilities; acts of God; fire; civil disturbance; labor dispute; labor or material shortage; sabotage; breakage of equipment or machinery; action or restraint by court order or public or governmental authority (so long as the Claiming Party has not applied for or assisted in the application for, and has opposed where and to the extent reasonable, such government action); provided, however, that neither (i) the loss of Buyer's markets nor Buyer's inability economically to use or resell Firm Energy purchased hereunder, nor (ii) the loss or failure of Seller's Firm Energy supply in the absence of a Force Majeure event broadly affecting the same geographic area, nor (iii) Seller's ability to sell Firm Energy to a market at a more advantageous price, shall constitute an event of Force Majeure. Interruption by a Transmission Provider shall not be deemed to be Force Majeure unless (1) the Party contracting with such Transmission Provider shall have made arrangement with such Transmission Provider for the firm transmission, as defined under the Transmission Provider's tariff, of the Firm Energy to be delivered or received hereunder and (2) such interruption or curtailment of firm transmission is due to force majeure as defined under the Transmission Provider's tariff, or the Transmission Provider is otherwise excused from liability for such interruption or curtailment under the standards of Order No. 888, or successor FERC orders, for reasons other than the actions of the Party claiming Force Majeure under this Agreement. The failure of a Claiming Party to settle or prevent a strike or other labor dispute with employees shall not be considered to be a matter within such Claiming Party's control. "GMP Contracts" means, as of a particular date, contracts, operating procedures and understandings (whether written or oral, and if oral, written statements of the terms thereof) in effect on such date affecting GMP's rights and obligations with respect to GMP Contract Resources and to the transmission system. "Impasse Notice" has the meaning specified in Section 13.1. "Interest Rate" means the Prime Rate plus two percent, or the maximum lawful rate permitted by applicable Law, whichever is less. "Interval" means a period of delivery (in hours) agreed to by the Parties in connection with a Transaction. "Intraday" means occurring within the 24-hour period beginning with the start of the first Interval of a Day. "ISO" means the Independent System Operator for the control area containing GMP load and generating assets and is currently ISO New England. "Law" means any law, rule, regulation, order, writ, judgment, decree or other legal or regulatory determination by a court, regulatory agency or governmental authority of competent jurisdiction. "Legal Proceeding" means any suit, proceeding, judgment, ruling or order by or before any court or any governmental authority. "MS" means Morgan Stanley Capital Group Inc., or any successor thereto. "MS Schedule" means the complete schedule of supply sources Nominated by MS from GMP or other sources available to MS for each of the Intervals in a succeeding day. "MWh" means megawatt-hour, a unit of energy. "NEPOOL" means New England Power Pool. "NEPOOL PTF" means the Pool Transmission Facility within NEPOOL as used in NEPOOL's tariffs or such other point(s) as may be agreed upon by the Parties. "NERC" means the North American Electric Reliability Council. "Nominate" or "Nominated" means that a Party has notified the other Party of the quantity of Firm Energy or capacity that it desires to purchase for a succeeding day or other period. "Non-Defaulting Party" has the meaning specified in Section 12.2. "Non-Peak Season" means, for any calendar year, the remaining period of the calendar year not included within the Peak Season. "OASIS" means Open Access Same-Time Information System, the information system and standards of conduct contained in Part 37 of the FERC's regulations (18 C.F.R. Part 37), as amended from time to time. "OPCAP" is operable capacity as defined by the NEPOOL. "Other Records" has the meaning specified in Section 6.3 "Party" means GMP or MS, as applicable, including permitted assignees of each pursuant to this Agreement. "Peak Season" means, for any calendar year, the period from June 1 through and including September 30, and the period from December 1 through and including March 15, as applicable. "Point of Interconnection" means any point of interconnection between the GMP transmission system and the transmission facilities of an interconnected utility, electric cooperative or other transmission owner or operator. In the case of imports to GMP, the Point of Interconnection will be at the interface; in the case of exports from GMP, the Point of Interconnection will be to and through the interface. "Pool" means the entity that will transact in Firm Energy and/or OPCAP, whether buying or selling, at the Pool Price and would be used by GMP or MS as supplier or buyer of last resort to cover imbalances between supply and load. This entity is currently NEPOOL. "Prime Rate" means for any date, the per annum rate of interest announced from time to time by Citibank, N.A., as its "prime" rate for commercial loans, effective for such date as established from time to time by such bank. "Prudent Utility Practice" means any of the practices, methods and acts engaged in or approved by a significant portion of the electric industry during the relevant time period, or any of the practices, methods and acts that, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at lowest reasonable cost consistent with good business practices, reliability, safety, and expedition. Prudent Utility Practice is not intended to be limited to the optimum practice, method or act, to the exclusion of all others, but rather to include a spectrum of possible practices, methods, or acts generally acceptable in the region in light of the circumstances. "Regulatory Approvals" means all current and future valid and applicable orders, approvals, consents, authorizations, permits or certificates issued by any courts or regulatory bodies (state or federal) having jurisdiction over a Party, this Agreement, or the performance hereof. "Replacement Price" has the meaning specified in Section 3.1. "Representatives" has the meaning specified in Section 6.3. "Sales Price" has the meaning specified in Section 3.2. "Scheduling," "Scheduled" or "Schedule" means or relates to the acts of Seller, Buyer and their designated representatives, including each Party's Transmission Providers, if applicable, of notifying, requesting and confirming to each other and NEPOOL the quantity(ies) of Firm Energy, Energy and/or capacity (including OPCAP) to be delivered in each Interval on any given day or days at a specified NEPOOL PTF. "Seller" means either MS or GMP, as the case may be, when it is the Party who is obligated to sell and deliver, or cause to be delivered, Firm Energy and/or OPCAP. "Specified Indebtedness" means a loan or other obligation to pay monies or GMP's obligation to deliver Energy or pay money to Hydro Quebec. "Statement" has the meaning specified in Section 7.1. "Taxes" means any or all ad valorem, property, occupation, severance, generation, first use, conservation, Btu or energy, transmission, utility, gross receipts, privilege, sales, use, consumption, excise, lease, transaction, and other or new Taxes, governmental charges, licenses, fees, permits and assessments, or increases therein, other than taxes based on net income or net worth. "Term" has the meaning specified in Section 5.1 with respect to this Agreement and, in the case of an individual Transaction, shall mean the period from the Effective Date to the conclusion of such transaction. "Termination Date" has the meaning specified in Section 5.1. "Transaction" means purchases and sales between MS and GMP as further specified in Section 12.3. "Transmission Provider" means the entity or entities transmitting Firm Energy on behalf of Seller or Buyer to or from the NEPOOL PTF(s) in connection with a particular purchase or sale. EX-2 3 Exhibit 10-d-21 PERSONAL AND CONFIDENTIAL December 6, 1998 Nancy R. Brock Vice President and Chief Financial Officer and Treasurer Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Nancy: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change of control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. The Company had previously entered into a letter agreement with you dated April 15, 1998 which was initially effective April 15, 1998 through December 31, 1998 (the "Agreement"). Commencing January 1, 1999 and each January 1 thereafter, the Agreement is automatically extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given you notice that it did not wish to extend the Agreement. In accordance with the provisions regarding modification found in section 8 of the Agreement, the Agreement is hereby modified by amending the Agreement in its entirety and restating the Agreement to read as follows: In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in subsection 4(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this Agreement in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in section 4 hereof and hereinafter a "Change of Control") under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on December 6, 1998 (the "Effective Date") and shall continue in effect through December 31, 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement. 2. Terms of Employment Before a Change of Control. Prior to a Change of Control, your terms of employment ("Terms of Employment") shall be as follows: (a) General duties. Excluding periods of vacation and sick leave to which you are entitled, you will continue to exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by you immediately before the Effective Date. (b) Place of employment. Your services will be performed at the location where you were employed immediately before the Effective Date. If the Company and you agree, however, the location of your employment may be changed without affecting your rights under this Agreement. (c) Expenses generally. You are entitled to receive prompt reimbursement for all reasonable expenses you incur. Reimbursement must be made in accordance with the Company's policies and procedures in effect on the Effective Date (which may include a requirement that you submit an itemized expense voucher). (d) Meetings, conventions, and seminars. You are encouraged and are expected to attend seminars, professional meetings and conventions, and educational courses. The cost of travel, tuition or registration, food, and lodging for attending those activities must be paid by the Company. Other costs are your expense, unless the Company authorizes those costs. If those other costs are authorized expenses, you must be reimbursed after satisfying the Company's policies and procedures for such reimbursement (which may include a requirement that you submit an itemized expense voucher). (e) Promotional expenses. You are encouraged and are expected, from time to time, to incur reasonable expenses for promoting the Company's business. Such promotional expenses include travel, entertainment (including memberships in social and athletic clubs), professional advancement, and community service expenses. You agree to bear those expenses except to the extent that those expenses are incurred at the Company's specific direction or those expenses are specifically authorized by the Company as expenses that the Company may pay directly or indirectly through reimbursement to you. (f) Outside activities. You may (i) serve on corporate, civic, or charitable boards or committees; (ii) deliver lectures, fulfill speaking engagements, or teach at educational institutions; and (iii) manage personal investments. Such activities must not significantly interfere with the performance of your responsibilities for the Company. To the extent that any such activities have been conducted by you before the Effective Date, such prior conduct of activities and any subsequent conduct of activities similar in nature and scope may not be deemed to interfere with the performance of your responsibilities to the Company. (g) Compensation and fringe benefits. Your compensation (including your annual base salary and any bonuses or incentive compensation) and benefits generally are the same as those in effect on the Effective Date. Your compensation and benefits are, however, subject to periodic review and adjustment by the Company. This section of this Agreement does not change the terms of any fringe benefit program or employee benefit plan maintained by the Company and does not give you any additional vested interest in any compensation or benefit to which you are not already entitled under any such program or plan on the Effective Date. Generally, your benefits include the following items, all of which are subject to periodic review and adjustment: (i) You are entitled to receive all group life, accidental death and dismemberment, long-term disability, and medical insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect on the Effective Date; (ii) You are entitled to paid vacation in accordance with the Company's policies in effect on the Effective Date; (iii) You are entitled to sick leave in accordance with the Company's policies in effect on the Effective Date; and (iv) You are entitled to participate in all employee benefit plans and programs in which you participate on the Effective Date, whether or not such plans or programs are subject to the Employee Retirement Income Act of 1974, as amended ("ERISA"), including but not limited to the Company's Retirement Plan, Supplemental Retirement Plan or any successor plans thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers and any stock-based compensation plans maintained by the Company or successor plans thereto and any savings or thrift plan maintained by the Company, 3. Extension of Agreement Upon Change of Control. If a Change of Control shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least thirty-six (36) months beyond the month in which such Change of Control occurred. The Terms of Employment set forth in section 2 continue in effect after a Change of Control and may not be changed to terms and conditions less favorable than those in effect on the day immediately preceding a Change of Control. 4. Change of Control. (i) No benefits shall be payable hereunder unless there shall have been a Change of Control, as set forth below. For purposes of this Agreement, a Change of Control shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (a "20% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a Change of Control shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 20% Holder or to the 20% Holder's relationship to the Company, including, without limitation, the acquisition by the 20% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new Change of Control for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a Change of Control, you are the beneficial owner of two percent or more of the then-outstanding equity securities of the Company, or its successor in interest, a majority of the Continuing Directors may elect, within five business days after such Change of Control, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change of Control; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change of Control, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such Potential Change of Control, (ii) the termination by you of your employment by reason of Long-Term Disability or Retirement (at your normal retirement age), as defined in subsection 5(i), or (iii) the occurrence of a Change of Control. 5. Termination Following Change of Control. If any of the events described in subsection 4(i) hereof constituting a Change of Control shall have occurred, you shall be entitled to the benefits provided in subsection 6(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Long-Term Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Death, Long-Term Disability, or Retirement. If, as a result of your incapacity due to physical or mental illness which is determined to be total and permanent and to prevent you from performing, with or without reasonable accommodation, the essential functions of your employment by a physician and any other consultants selected by the Company or its insurers and acceptable to you or your legal representative, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Long -Term Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. Your death ("Death") during the term of this Agreement will terminate the Agreement. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 6(iv) and 6(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (C) your willful and continued breach of a material term of this Agreement. For purposes of this subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A), (B), or (C) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change of Control of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), (H) or (I), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 6(iv) and 6(v), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Vice President and Chief Financial Officer and Treasurer of Green Mountain Power Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time- to-time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the Change of Control, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or the failure by the Company to continue your participation in any such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (F) the failure by the Company to continue to provide you with the benefits substantially similar to those enjoyed by you under any of the following plans or programs maintained by the Company at the time of a Change of Control or the taking of any action which would directly or indirectly materially reduce any of such benefits, including but not limited to: (i) fringe benefits, in accordance with the Company's policies in effect at the time of a Change of Control; (ii) group life, accidental death and dismemberment, long-term disability, and medical and dental insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect at the time of a Change of Control; (iii) paid vacation in accordance with your agreements with the Company's and/or the Company's policies in effect at the time of a Change of Control; (iv) sick leave in accordance with the Company's policies in effect at the time of a Change of Control; and (v) the Company's Retirement and Supplemental Retirement Plans or any successors thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers, any stock-based compensation plans maintained by the Company or successor plans thereto, any savings or thrift plan maintained by the Company, whether or not such plans or programs are subject to ERISA; (G) any action by the Company that eliminates, materially reduces or jeopardizes the ability of the Company to fulfill its obligations under the Company's Deferred Compensation or Supplemental Retirement Plan, or both such plans, including by way of example and not of limitation, the sale or other disposition of assets of the Company, and all, or substantially all, of the proceeds from such sale or other disposition do not remain with the Company; (H) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in section 7 hereof; (I) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (iv) below (and if applicable, the requirements of subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective; or (J) your resignation, if tendered during the thirty days immediately following the first twelve months after a Change of Control. Your right to terminate your employment pursuant to this subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this subsection, any good faith determination of Good Reason made by you shall be conclusive. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with section 9 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Long-Term Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to subsection (ii) or (iii) above or for any other reason (other than Long- Term Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 6. Compensation Upon Termination or During Short-Term Disability. Following a Change of Control, as defined by subsection 4(i), upon termination of your employment or during a period of Short-Term Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness (hereinafter "Short-Term Disability") you shall continue to receive your base salary at the rate in effect at the commencement of the Short-Term Disability, together with all compensation and benefits payable or available to you and your family under any other plan in effect during such period, until this Agreement is terminated pursuant to section 5(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Long-Term Disability, Retirement, or by reason of your Death, your benefits and your family's or heirs' benefits, if applicable, shall be determined under the Company's retirement, insurance and other compensation programs with respect to other peer executives and their families as in effect on the Date of Termination, or if more favorable to you, your family or your heirs, as in effect during the 120-day period immediately preceding a Change of Control, in accordance with the terms of such programs. You, or, if applicable, your heirs or estate, shall also receive your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Long-Term Disability, Death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, Death or Long-Term Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you the following: the sum of (1) your full base salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) your most recent annual bonus or variable compensation award and (II) the annual bonus or variable compensation award paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which you were employed for less than twelve full months), for the most recently completed fiscal year since the Change of Control, if any, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation or sick pay, in each case to the extent not theretofore paid; (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 2.99 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code. (C) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (D), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (D) In addition, if the excise tax imposed under Code section 4999 on "excess parachute payments," as defined in Code section 280G, is provoked by (i) any amount paid or payable to or for the benefit of you under this section as legal fees and expenses, or (ii) any payments or benefits which you receive or have the right to receive from the Company (including the Severance Payment) or any affiliated entity or any payments or benefits under any plan or program maintained by the Company or any affiliated entity, the Company must indemnify you and hold you harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company must pay you an additional amount that is sufficient to pay any excise tax imposed by Code section 4999 on the payments and benefits to which you are entitled without the additional amount, plus the excise and income taxes on the additional amount. The determination of any additional amount that must be paid under this section must be made by the Company in good faith. (E) The payments provided for in paragraphs (B), (C) and (D) above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall provide you and your family at Company expense with group life, disability, medical and dental insurance benefits substantially similar to those which you and your family are receiving immediately prior to the Notice of Termination. The Company shall pay any applicable premiums on behalf of you and your family for continuation of medical coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Benefits otherwise receivable by you and your family pursuant to this subsection 6(iv) shall be reduced to the extent comparable benefits are actually received by you and your family during the thirty-six (36) month period following your termination, and any such benefits actually received by you and your family shall be reported to the Company. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Long-Term Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraph (E) of subsection 6(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you would have accrued under the terms of the Company's Retirement Plan without regard to any amendment to the Company's Retirement Plan made subsequent to a Change of Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan. For the purposes of this subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan immediately prior to the Change of Control. (vi) The Company shall, at its sole expense as incurred, provide you with outplacement services the scope and provider of which shall be selected by you in your sole discretion. (vii) Offsets Against Severance Payment. (A) The Severance Payment to which you are entitled under this Agreement may be reduced under this subsection, but not below zero. Reductions in the Severance Payment must be made under this subsection in the manner herein described. The Company must make any required determination or calculation in good faith. (B) You are not required to seek or accept any employment that is not Comparable Employment. If you obtain any employment during the months remaining in your employment period after the Date of Termination, the Severance Payment must be reduced by all amounts actually earned by you from such employment during those months; except that no such reduction may be made because of earnings from employment in which you could have engaged while you were employed by the Company. For example, the Severance Payment may not be reduced because of your fees for service as a director of a corporation other than the Company or your earnings from part-time employment or from any other employment that would not have impaired your ability to perform the duties described in Agreement section 2. (C) During the months remaining in your employment period after the Date of Termination and unless you are then eligible to retire under the Company's Retirement Plan, you must seek and accept any Comparable Employment that is offered to you. If the Company establishes that Comparable Employment was offered to you and that you did not accept it, the full amount of wages that you could have earned from Comparable Employment reduces the Severance Payment to which you are entitled under this Agreement. (D) For purposes of this Agreement, Comparable Employment means employment that entitles you to the same (or higher) total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control and to similar status, title(s), office(s), and management responsibilities; employment with a general character and grade similar to the general character and grade of your former employment with the Company; and employment suited to your education, training, and experience. For purposes of the Agreement, employment is not Comparable Employment if such employment is located more than forty miles from the location at which you are based on the Date of Termination; is short-term or temporary employment; entitles you to total compensation that is less than the total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control; requires you to take serious bodily or financial risks; entitles you to a lower status, title(s), office(s), and management responsibilities; or would not have impaired your ability to perform the duties described in section 2 of this Agreement. (E) To prevent hardship, repayment of the Severance Payment under this section may be made by you in installments, determined in the Company's sole discretion, but a repayment arrangement may not be used as a disguised loan. (vii) In addition to all other amounts payable to you under this section 6, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 7. Agreement Binding on Successors. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 8. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly-owned subsidiary, this Agreement shall apply to an executive of any wholly-owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly-owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly-owned subsidiary of the Company, or from any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly-owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly-owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly-owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 9. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under section 6 shall survive the expiration of the term of this Agreement. 11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit your continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which you may qualify. Amounts which are vested benefits or which you are otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to a Change of Control shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 12. Confidentiality. (i) Confidential information. You must hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, or data relating to the Company and its business, which is obtained by you during your employment by the Company and which is not public knowledge (other than by acts by you or your representatives in violation of this Agreement). After the termination of your employment with the Company, you must not, without the Company's prior written consent, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it to receive such information, knowledge, or data. In no event may an asserted violation of this section constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement. (ii) Records and files. All records and files concerning the Company or the Company's clients and customers belong to and remain the property of the Company. 13. Termination of Employment Prior to a Change of Control of the Company. You and the Company acknowledge that prior to a Change of Control or a Potential Change of Control, your employment may be terminated by the Company in accordance with the notice provisions set forth in section 1 of this Agreement, and by you at any time, in which case you shall have no further rights under this Agreement. 14. Anti-assignment. You may not assign, alienate, anticipate, or otherwise encumber any rights, duties, or amounts that you might be entitled to receive under this Agreement. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Funding. The Company is not required to establish a trust or other funding vehicle to pay benefits under this Agreement, except to the extent otherwise required by the Code or ERISA with respect to any employee benefit plan. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 19. Governing Law. This Agreement shall be governed by the laws of State of Vermont. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: ___________________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this _____ day of December, 1998. __________________________ Nancy R. Brock Vice President and Chief Financial Officer and Treasurer Green Mountain Power Corporation EX-3 4 Exhibit 10-d-22 PERSONAL AND CONFIDENTIAL December 6, 1998 Christopher L. Dutton President and Chief Executive Officer Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Chris: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change of control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. The Company had previously entered into a letter agreement with you dated October 25, 1990 which was initially effective October 25, 1990 through December 31, 1991 (the "Agreement"). Commencing January 1, 1992 and each January 1 thereafter, the Agreement is automatically extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given you notice that it did not wish to extend the Agreement. In accordance with the provisions regarding modification found in section 8 of the Agreement, the Agreement is hereby modified by amending the Agreement in its entirety and restating the Agreement to read as follows: In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in subsection 4(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this Agreement in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in section 4 hereof and hereinafter a "Change of Control") under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on December 6, 1998 (the "Effective Date") and shall continue in effect through December 31, 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement. 2. Terms of Employment Before a Change of Control. Prior to a Change of Control, your terms of employment ("Terms of Employment") shall be as follows: (a) General duties. Excluding periods of vacation and sick leave to which you are entitled, you will continue to exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by you immediately before the Effective Date. (b) Place of employment. Your services will be performed at the location where you were employed immediately before the Effective Date. If the Company and you agree, however, the location of your employment may be changed without affecting your rights under this Agreement. (c) Expenses generally. You are entitled to receive prompt reimbursement for all reasonable expenses you incur. Reimbursement must be made in accordance with the Company's policies and procedures in effect on the Effective Date (which may include a requirement that you submit an itemized expense voucher). (d) Meetings, conventions, and seminars. You are encouraged and are expected to attend seminars, professional meetings and conventions, and educational courses. The cost of travel, tuition or registration, food, and lodging for attending those activities must be paid by the Company. Other costs are your expense, unless the Company authorizes those costs. If those other costs are authorized expenses, you must be reimbursed after satisfying the Company's policies and procedures for such reimbursement (which may include a requirement that you submit an itemized expense voucher). (e) Promotional expenses. You are encouraged and are expected, from time to time, to incur reasonable expenses for promoting the Company's business. Such promotional expenses include travel, entertainment (including memberships in social and athletic clubs), professional advancement, and community service expenses. You agree to bear those expenses except to the extent that those expenses are incurred at the Company's specific direction or those expenses are specifically authorized by the Company as expenses that the Company may pay directly or indirectly through reimbursement to you. (f) Outside activities. You may (i) serve on corporate, civic, or charitable boards or committees; (ii) deliver lectures, fulfill speaking engagements, or teach at educational institutions; and (iii) manage personal investments. Such activities must not significantly interfere with the performance of your responsibilities for the Company. To the extent that any such activities have been conducted by you before the Effective Date, such prior conduct of activities and any subsequent conduct of activities similar in nature and scope may not be deemed to interfere with the performance of your responsibilities to the Company. (g) Compensation and fringe benefits. Your compensation (including your annual base salary and any bonuses or incentive compensation) and benefits generally are the same as those in effect on the Effective Date. Your compensation and benefits are, however, subject to periodic review and adjustment by the Company. This section of this Agreement does not change the terms of any fringe benefit program or employee benefit plan maintained by the Company and does not give you any additional vested interest in any compensation or benefit to which you are not already entitled under any such program or plan on the Effective Date. Generally, your benefits include the following items, all of which are subject to periodic review and adjustment: (i) You are entitled to receive all group life, accidental death and dismemberment, long-term disability, and medical insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect on the Effective Date; (ii) You are entitled to paid vacation in accordance with the Company's policies in effect on the Effective Date; (iii) You are entitled to sick leave in accordance with the Company's policies in effect on the Effective Date; and (iv) You are entitled to participate in all employee benefit plans and programs in which you participate on the Effective Date, whether or not such plans or programs are subject to the Employee Retirement Income Act of 1974, as amended ("ERISA"), including but not limited to the Company's Retirement Plan, Supplemental Retirement Plan or any successor plans thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers and any stock-based compensation plans maintained by the Company or successor plans thereto and any savings or thrift plan maintained by the Company, 3. Extension of Agreement Upon Change of Control. If a Change of Control shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least thirty-six (36) months beyond the month in which such Change of Control occurred. The Terms of Employment set forth in section 2 continue in effect after a Change of Control and may not be changed to terms and conditions less favorable than those in effect on the day immediately preceding a Change of Control. 4. Change of Control. (i) No benefits shall be payable hereunder unless there shall have been a Change of Control, as set forth below. For purposes of this Agreement, a Change of Control shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (a "20% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a Change of Control shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 20% Holder or to the 20% Holder's relationship to the Company, including, without limitation, the acquisition by the 20% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new Change of Control for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a Change of Control, you are the beneficial owner of two percent or more of the then-outstanding equity securities of the Company, or its successor in interest, a majority of the Continuing Directors may elect, within five business days after such Change of Control, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change of Control; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change of Control, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such Potential Change of Control, (ii) the termination by you of your employment by reason of Long-Term Disability or Retirement (at your normal retirement age), as defined in subsection 5(i), or (iii) the occurrence of a Change of Control. 5. Termination Following Change of Control. If any of the events described in subsection 4(i) hereof constituting a Change of Control shall have occurred, you shall be entitled to the benefits provided in subsection 6(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Long-Term Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Death, Long-Term Disability, or Retirement. If, as a result of your incapacity due to physical or mental illness which is determined to be total and permanent and to prevent you from performing, with or without reasonable accommodation, the essential functions of your employment by a physician and any other consultants selected by the Company or its insurers and acceptable to you or your legal representative, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Long -Term Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. Your death ("Death") during the term of this Agreement will terminate the Agreement. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 6(iv) and 6(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (C) your willful and continued breach of a material term of this Agreement. For purposes of this subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A), (B), or (C) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change of Control of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), (H) or (I), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 6(iv) and 6(v), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as President and Chief Executive Officer of Green Mountain Power Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time- to-time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the Change of Control, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or the failure by the Company to continue your participation in any such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (F) the failure by the Company to continue to provide you with the benefits substantially similar to those enjoyed by you under any of the following plans or programs maintained by the Company at the time of a Change of Control or the taking of any action which would directly or indirectly materially reduce any of such benefits, including but not limited to: (i) fringe benefits, in accordance with the Company's policies in effect at the time of a Change of Control; (ii) group life, accidental death and dismemberment, long-term disability, and medical and dental insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect at the time of a Change of Control; (iii) paid vacation in accordance with your agreements with the Company's and/or the Company's policies in effect at the time of a Change of Control; (iv) sick leave in accordance with the Company's policies in effect at the time of a Change of Control; and (v) the Company's Retirement and Supplemental Retirement Plans or any successors thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers, any stock-based compensation plans maintained by the Company or successor plans thereto, any savings or thrift plan maintained by the Company, whether or not such plans or programs are subject to ERISA; (G) any action by the Company that eliminates, materially reduces or jeopardizes the ability of the Company to fulfill its obligations under the Company's Deferred Compensation or Supplemental Retirement Plan, or both such plans, including by way of example and not of limitation, the sale or other disposition of assets of the Company, and all, or substantially all, of the proceeds from such sale or other disposition do not remain with the Company; (H) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in section 7 hereof; (I) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (iv) below (and if applicable, the requirements of subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective; or (J) your resignation, if tendered during the thirty days immediately following the first twelve months after a Change of Control. Your right to terminate your employment pursuant to this subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this subsection, any good faith determination of Good Reason made by you shall be conclusive. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with section 9 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Long-Term Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to subsection (ii) or (iii) above or for any other reason (other than Long- Term Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 6. Compensation Upon Termination or During Short-Term Disability. Following a Change of Control, as defined by subsection 4(i), upon termination of your employment or during a period of Short-Term Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness (hereinafter "Short-Term Disability") you shall continue to receive your base salary at the rate in effect at the commencement of the Short-Term Disability, together with all compensation and benefits payable or available to you and your family under any other plan in effect during such period, until this Agreement is terminated pursuant to section 5(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Long-Term Disability, Retirement, or by reason of your Death, your benefits and your family's or heirs' benefits, if applicable, shall be determined under the Company's retirement, insurance and other compensation programs with respect to other peer executives and their families as in effect on the Date of Termination, or if more favorable to you, your family or your heirs, as in effect during the 120-day period immediately preceding a Change of Control, in accordance with the terms of such programs. You, or, if applicable, your heirs or estate, shall also receive your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Long-Term Disability, Death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, Death or Long-Term Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you the following: the sum of (1) your full base salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) your most recent annual bonus or variable compensation award and (II) the annual bonus or variable compensation award paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which you were employed for less than twelve full months), for the most recently completed fiscal year since the Change of Control, if any, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation or sick pay, in each case to the extent not theretofore paid; (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 2.99 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code. (C) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (D), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (D) In addition, if the excise tax imposed under Code section 4999 on "excess parachute payments," as defined in Code section 280G, is provoked by (i) any amount paid or payable to or for the benefit of you under this section as legal fees and expenses, or (ii) any payments or benefits which you receive or have the right to receive from the Company (including the Severance Payment) or any affiliated entity or any payments or benefits under any plan or program maintained by the Company or any affiliated entity, the Company must indemnify you and hold you harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company must pay you an additional amount that is sufficient to pay any excise tax imposed by Code section 4999 on the payments and benefits to which you are entitled without the additional amount, plus the excise and income taxes on the additional amount. The determination of any additional amount that must be paid under this section must be made by the Company in good faith. (E) The payments provided for in paragraphs (B), (C) and (D) above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall provide you and your family at Company expense with group life, disability, medical and dental insurance benefits substantially similar to those which you and your family are receiving immediately prior to the Notice of Termination. The Company shall pay any applicable premiums on behalf of you and your family for continuation of medical coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Benefits otherwise receivable by you and your family pursuant to this subsection 6(iv) shall be reduced to the extent comparable benefits are actually received by you and your family during the thirty-six (36) month period following your termination, and any such benefits actually received by you and your family shall be reported to the Company. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Long-Term Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraph (E) of subsection 6(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you would have accrued under the terms of the Company's Retirement Plan without regard to any amendment to the Company's Retirement Plan made subsequent to a Change of Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan. For the purposes of this subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan immediately prior to the Change of Control. (vi) The Company shall, at its sole expense as incurred, provide you with outplacement services the scope and provider of which shall be selected by you in your sole discretion. (vii) Offsets Against Severance Payment. (A) The Severance Payment to which you are entitled under this Agreement may be reduced under this subsection, but not below zero. Reductions in the Severance Payment must be made under this subsection in the manner herein described. The Company must make any required determination or calculation in good faith. (B) You are not required to seek or accept any employment that is not Comparable Employment. If you obtain any employment during the months remaining in your employment period after the Date of Termination, the Severance Payment must be reduced by all amounts actually earned by you from such employment during those months; except that no such reduction may be made because of earnings from employment in which you could have engaged while you were employed by the Company. For example, the Severance Payment may not be reduced because of your fees for service as a director of a corporation other than the Company or your earnings from part-time employment or from any other employment that would not have impaired your ability to perform the duties described in Agreement section 2. (C) During the months remaining in your employment period after the Date of Termination and unless you are then eligible to retire under the Company's Retirement Plan, you must seek and accept any Comparable Employment that is offered to you. If the Company establishes that Comparable Employment was offered to you and that you did not accept it, the full amount of wages that you could have earned from Comparable Employment reduces the Severance Payment to which you are entitled under this Agreement. (D) For purposes of this Agreement, Comparable Employment means employment that entitles you to the same (or higher) total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control and to similar status, title(s), office(s), and management responsibilities; employment with a general character and grade similar to the general character and grade of your former employment with the Company; and employment suited to your education, training, and experience. For purposes of the Agreement, employment is not Comparable Employment if such employment is located more than forty miles from the location at which you are based on the Date of Termination; is short-term or temporary employment; entitles you to total compensation that is less than the total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control; requires you to take serious bodily or financial risks; entitles you to a lower status, title(s), office(s), and management responsibilities; or would not have impaired your ability to perform the duties described in section 2 of this Agreement. (E) To prevent hardship, repayment of the Severance Payment under this section may be made by you in installments, determined in the Company's sole discretion, but a repayment arrangement may not be used as a disguised loan. (vii) In addition to all other amounts payable to you under this section 6, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 7. Agreement Binding on Successors. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 8. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly-owned subsidiary, this Agreement shall apply to an executive of any wholly-owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly-owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly-owned subsidiary of the Company, or from any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly-owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly-owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly-owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 9. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under section 6 shall survive the expiration of the term of this Agreement. 11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit your continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which you may qualify. Amounts which are vested benefits or which you are otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to a Change of Control shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 12. Confidentiality. (i) Confidential information. You must hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, or data relating to the Company and its business, which is obtained by you during your employment by the Company and which is not public knowledge (other than by acts by you or your representatives in violation of this Agreement). After the termination of your employment with the Company, you must not, without the Company's prior written consent, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it to receive such information, knowledge, or data. In no event may an asserted violation of this section constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement. (ii) Records and files. All records and files concerning the Company or the Company's clients and customers belong to and remain the property of the Company. 13. Termination of Employment Prior to a Change of Control of the Company. You and the Company acknowledge that prior to a Change of Control or a Potential Change of Control, your employment may be terminated by the Company in accordance with the notice provisions set forth in section 1 of this Agreement, and by you at any time, in which case you shall have no further rights under this Agreement. 14. Anti-assignment. You may not assign, alienate, anticipate, or otherwise encumber any rights, duties, or amounts that you might be entitled to receive under this Agreement. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Funding. The Company is not required to establish a trust or other funding vehicle to pay benefits under this Agreement, except to the extent otherwise required by the Code or ERISA with respect to any employee benefit plan. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 19. Governing Law. This Agreement shall be governed by the laws of State of Vermont. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: ___________________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this _____ day of December, 1998. __________________________ Christopher L. Dutton President and Chief Executive Officer Green Mountain Power Corporation EX-4 5 Exhibit 10-d-23 PERSONAL AND CONFIDENTIAL December 6, 1998 Robert J. Griffin Controller Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Bob: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change of control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. The Company had previously entered into a letter agreement with you dated October 14, 1996 which was initially effective October 14, 1996 through December 31, 1997 (the "Agreement"). Commencing January 1, 1998 and each January 1 thereafter, the Agreement is automatically extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given you notice that it did not wish to extend the Agreement. In accordance with the provisions regarding modification found in section 8 of the Agreement, the Agreement is hereby modified by amending the Agreement in its entirety and restating the Agreement to read as follows: In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in subsection 4(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this Agreement in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in section 4 hereof and hereinafter a "Change of Control") under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on December 6, 1998 (the "Effective Date") and shall continue in effect through December 31, 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement. 2. Terms of Employment Before a Change of Control. Prior to a Change of Control, your terms of employment ("Terms of Employment") shall be as follows: (a) General duties. Excluding periods of vacation and sick leave to which you are entitled, you will continue to exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by you immediately before the Effective Date. (b) Place of employment. Your services will be performed at the location where you were employed immediately before the Effective Date. If the Company and you agree, however, the location of your employment may be changed without affecting your rights under this Agreement. (c) Expenses generally. You are entitled to receive prompt reimbursement for all reasonable expenses you incur. Reimbursement must be made in accordance with the Company's policies and procedures in effect on the Effective Date (which may include a requirement that you submit an itemized expense voucher). (d) Meetings, conventions, and seminars. You are encouraged and are expected to attend seminars, professional meetings and conventions, and educational courses. The cost of travel, tuition or registration, food, and lodging for attending those activities must be paid by the Company. Other costs are your expense, unless the Company authorizes those costs. If those other costs are authorized expenses, you must be reimbursed after satisfying the Company's policies and procedures for such reimbursement (which may include a requirement that you submit an itemized expense voucher). (e) Promotional expenses. You are encouraged and are expected, from time to time, to incur reasonable expenses for promoting the Company's business. Such promotional expenses include travel, entertainment (including memberships in social and athletic clubs), professional advancement, and community service expenses. You agree to bear those expenses except to the extent that those expenses are incurred at the Company's specific direction or those expenses are specifically authorized by the Company as expenses that the Company may pay directly or indirectly through reimbursement to you. (f) Outside activities. You may (i) serve on corporate, civic, or charitable boards or committees; (ii) deliver lectures, fulfill speaking engagements, or teach at educational institutions; and (iii) manage personal investments. Such activities must not significantly interfere with the performance of your responsibilities for the Company. To the extent that any such activities have been conducted by you before the Effective Date, such prior conduct of activities and any subsequent conduct of activities similar in nature and scope may not be deemed to interfere with the performance of your responsibilities to the Company. (g) Compensation and fringe benefits. Your compensation (including your annual base salary and any bonuses or incentive compensation) and benefits generally are the same as those in effect on the Effective Date. Your compensation and benefits are, however, subject to periodic review and adjustment by the Company. This section of this Agreement does not change the terms of any fringe benefit program or employee benefit plan maintained by the Company and does not give you any additional vested interest in any compensation or benefit to which you are not already entitled under any such program or plan on the Effective Date. Generally, your benefits include the following items, all of which are subject to periodic review and adjustment: (i) You are entitled to receive all group life, accidental death and dismemberment, long-term disability, and medical insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect on the Effective Date; (ii) You are entitled to paid vacation in accordance with the Company's policies in effect on the Effective Date; (iii) You are entitled to sick leave in accordance with the Company's policies in effect on the Effective Date; and (iv) You are entitled to participate in all employee benefit plans and programs in which you participate on the Effective Date, whether or not such plans or programs are subject to the Employee Retirement Income Act of 1974, as amended ("ERISA"), including but not limited to the Company's Retirement Plan, Supplemental Retirement Plan or any successor plans thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers and any stock-based compensation plans maintained by the Company or successor plans thereto and any savings or thrift plan maintained by the Company, 3. Extension of Agreement Upon Change of Control. If a Change of Control shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least thirty-six (36) months beyond the month in which such Change of Control occurred. The Terms of Employment set forth in section 2 continue in effect after a Change of Control and may not be changed to terms and conditions less favorable than those in effect on the day immediately preceding a Change of Control. 4. Change of Control. (i) No benefits shall be payable hereunder unless there shall have been a Change of Control, as set forth below. For purposes of this Agreement, a Change of Control shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (a "20% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a Change of Control shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 20% Holder or to the 20% Holder's relationship to the Company, including, without limitation, the acquisition by the 20% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new Change of Control for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a Change of Control, you are the beneficial owner of two percent or more of the then-outstanding equity securities of the Company, or its successor in interest, a majority of the Continuing Directors may elect, within five business days after such Change of Control, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change of Control; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change of Control, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such Potential Change of Control, (ii) the termination by you of your employment by reason of Long-Term Disability or Retirement (at your normal retirement age), as defined in subsection 5(i), or (iii) the occurrence of a Change of Control. 5. Termination Following Change of Control. If any of the events described in subsection 4(i) hereof constituting a Change of Control shall have occurred, you shall be entitled to the benefits provided in subsection 6(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Long-Term Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Death, Long-Term Disability, or Retirement. If, as a result of your incapacity due to physical or mental illness which is determined to be total and permanent and to prevent you from performing, with or without reasonable accommodation, the essential functions of your employment by a physician and any other consultants selected by the Company or its insurers and acceptable to you or your legal representative, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Long -Term Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. Your death ("Death") during the term of this Agreement will terminate the Agreement. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 6(iv) and 6(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (C) your willful and continued breach of a material term of this Agreement. For purposes of this subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A), (B), or (C) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change of Control of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), (H) or (I), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 6(iv) and 6(v), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Controller of Green Mountain Power Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time- to-time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the Change of Control, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or the failure by the Company to continue your participation in any such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (F) the failure by the Company to continue to provide you with the benefits substantially similar to those enjoyed by you under any of the following plans or programs maintained by the Company at the time of a Change of Control or the taking of any action which would directly or indirectly materially reduce any of such benefits, including but not limited to: (i) fringe benefits, in accordance with the Company's policies in effect at the time of a Change of Control; (ii) group life, accidental death and dismemberment, long-term disability, and medical and dental insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect at the time of a Change of Control; (iii) paid vacation in accordance with your agreements with the Company's and/or the Company's policies in effect at the time of a Change of Control; (iv) sick leave in accordance with the Company's policies in effect at the time of a Change of Control; and (v) the Company's Retirement and Supplemental Retirement Plans or any successors thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers, any stock-based compensation plans maintained by the Company or successor plans thereto, any savings or thrift plan maintained by the Company, whether or not such plans or programs are subject to ERISA; (G) any action by the Company that eliminates, materially reduces or jeopardizes the ability of the Company to fulfill its obligations under the Company's Deferred Compensation or Supplemental Retirement Plan, or both such plans, including by way of example and not of limitation, the sale or other disposition of assets of the Company, and all, or substantially all, of the proceeds from such sale or other disposition do not remain with the Company; (H) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in section 7 hereof; (I) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (iv) below (and if applicable, the requirements of subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective; or (J) your resignation, if tendered during the thirty days immediately following the first twelve months after a Change of Control. Your right to terminate your employment pursuant to this subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this subsection, any good faith determination of Good Reason made by you shall be conclusive. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with section 9 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Long-Term Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to subsection (ii) or (iii) above or for any other reason (other than Long- Term Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 6. Compensation Upon Termination or During Short-Term Disability. Following a Change of Control, as defined by subsection 4(i), upon termination of your employment or during a period of Short-Term Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness (hereinafter "Short-Term Disability") you shall continue to receive your base salary at the rate in effect at the commencement of the Short-Term Disability, together with all compensation and benefits payable or available to you and your family under any other plan in effect during such period, until this Agreement is terminated pursuant to section 5(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Long-Term Disability, Retirement, or by reason of your Death, your benefits and your family's or heirs' benefits, if applicable, shall be determined under the Company's retirement, insurance and other compensation programs with respect to other peer executives and their families as in effect on the Date of Termination, or if more favorable to you, your family or your heirs, as in effect during the 120-day period immediately preceding a Change of Control, in accordance with the terms of such programs. You, or, if applicable, your heirs or estate, shall also receive your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Long-Term Disability, Death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, Death or Long-Term Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you the following: the sum of (1) your full base salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) your most recent annual bonus or variable compensation award and (II) the annual bonus or variable compensation award paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which you were employed for less than twelve full months), for the most recently completed fiscal year since the Change of Control, if any, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation or sick pay, in each case to the extent not theretofore paid; (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to one (1) times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code. (C) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (D), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (D) In addition, if the excise tax imposed under Code section 4999 on "excess parachute payments," as defined in Code section 280G, is provoked by (i) any amount paid or payable to or for the benefit of you under this section as legal fees and expenses, or (ii) any payments or benefits which you receive or have the right to receive from the Company (including the Severance Payment) or any affiliated entity or any payments or benefits under any plan or program maintained by the Company or any affiliated entity, the Company must indemnify you and hold you harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company must pay you an additional amount that is sufficient to pay any excise tax imposed by Code section 4999 on the payments and benefits to which you are entitled without the additional amount, plus the excise and income taxes on the additional amount. The determination of any additional amount that must be paid under this section must be made by the Company in good faith. (E) The payments provided for in paragraphs (B), (C) and (D) above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall provide you and your family at Company expense with group life, disability, medical and dental insurance benefits substantially similar to those which you and your family are receiving immediately prior to the Notice of Termination. The Company shall pay any applicable premiums on behalf of you and your family for continuation of medical coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Benefits otherwise receivable by you and your family pursuant to this subsection 6(iv) shall be reduced to the extent comparable benefits are actually received by you and your family during the thirty-six (36) month period following your termination, and any such benefits actually received by you and your family shall be reported to the Company. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Long-Term Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraph (E) of subsection 6(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you would have accrued under the terms of the Company's Retirement Plan without regard to any amendment to the Company's Retirement Plan made subsequent to a Change of Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan. For the purposes of this subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan immediately prior to the Change of Control. (vi) The Company shall, at its sole expense as incurred, provide you with outplacement services the scope and provider of which shall be selected by you in your sole discretion. (vii) Offsets Against Severance Payment. (A) The Severance Payment to which you are entitled under this Agreement may be reduced under this subsection, but not below zero. Reductions in the Severance Payment must be made under this subsection in the manner herein described. The Company must make any required determination or calculation in good faith. (B) You are not required to seek or accept any employment that is not Comparable Employment. If you obtain any employment during the months remaining in your employment period after the Date of Termination, the Severance Payment must be reduced by all amounts actually earned by you from such employment during those months; except that no such reduction may be made because of earnings from employment in which you could have engaged while you were employed by the Company. For example, the Severance Payment may not be reduced because of your fees for service as a director of a corporation other than the Company or your earnings from part-time employment or from any other employment that would not have impaired your ability to perform the duties described in Agreement section 2. (C) During the months remaining in your employment period after the Date of Termination and unless you are then eligible to retire under the Company's Retirement Plan, you must seek and accept any Comparable Employment that is offered to you. If the Company establishes that Comparable Employment was offered to you and that you did not accept it, the full amount of wages that you could have earned from Comparable Employment reduces the Severance Payment to which you are entitled under this Agreement. (D) For purposes of this Agreement, Comparable Employment means employment that entitles you to the same (or higher) total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control and to similar status, title(s), office(s), and management responsibilities; employment with a general character and grade similar to the general character and grade of your former employment with the Company; and employment suited to your education, training, and experience. For purposes of the Agreement, employment is not Comparable Employment if such employment is located more than forty miles from the location at which you are based on the Date of Termination; is short-term or temporary employment; entitles you to total compensation that is less than the total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control; requires you to take serious bodily or financial risks; entitles you to a lower status, title(s), office(s), and management responsibilities; or would not have impaired your ability to perform the duties described in section 2 of this Agreement. (E) To prevent hardship, repayment of the Severance Payment under this section may be made by you in installments, determined in the Company's sole discretion, but a repayment arrangement may not be used as a disguised loan. (vii) In addition to all other amounts payable to you under this section 6, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 7. Agreement Binding on Successors. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 8. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly-owned subsidiary, this Agreement shall apply to an executive of any wholly-owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly-owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly-owned subsidiary of the Company, or from any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly-owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly-owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly-owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 9. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under section 6 shall survive the expiration of the term of this Agreement. 11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit your continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which you may qualify. Amounts which are vested benefits or which you are otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to a Change of Control shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 12. Confidentiality. (i) Confidential information. You must hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, or data relating to the Company and its business, which is obtained by you during your employment by the Company and which is not public knowledge (other than by acts by you or your representatives in violation of this Agreement). After the termination of your employment with the Company, you must not, without the Company's prior written consent, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it to receive such information, knowledge, or data. In no event may an asserted violation of this section constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement. (ii) Records and files. All records and files concerning the Company or the Company's clients and customers belong to and remain the property of the Company. 13. Termination of Employment Prior to a Change of Control of the Company. You and the Company acknowledge that prior to a Change of Control or a Potential Change of Control, your employment may be terminated by the Company in accordance with the notice provisions set forth in section 1 of this Agreement, and by you at any time, in which case you shall have no further rights under this Agreement. 14. Anti-assignment. You may not assign, alienate, anticipate, or otherwise encumber any rights, duties, or amounts that you might be entitled to receive under this Agreement. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Funding. The Company is not required to establish a trust or other funding vehicle to pay benefits under this Agreement, except to the extent otherwise required by the Code or ERISA with respect to any employee benefit plan. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 19. Governing Law. This Agreement shall be governed by the laws of State of Vermont. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: ___________________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this _____ day of December, 1998. __________________________ Robert J. Griffin Controller Green Mountain Power Corporation EX-5 6 Exhibit 10-d-24 PERSONAL AND CONFIDENTIAL December 6, 1998 John J. Lampron Assistant Treasurer Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear John: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change of control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. The Company had previously entered into a letter agreement with you dated January 3, 1992 which was initially effective January 3, 1992 through December 31, 1992 (the "Agreement"). Commencing January 1, 1993 and each January 1 thereafter, the Agreement is automatically extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given you notice that it did not wish to extend the Agreement. In accordance with the provisions regarding modification found in section 8 of the Agreement, the Agreement is hereby modified by amending the Agreement in its entirety and restating the Agreement to read as follows: In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in subsection 4(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this Agreement in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in section 4 hereof and hereinafter a "Change of Control") under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on December 6, 1998 (the "Effective Date") and shall continue in effect through December 31, 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement. 2. Terms of Employment Before a Change of Control. Prior to a Change of Control, your terms of employment ("Terms of Employment") shall be as follows: (a) General duties. Excluding periods of vacation and sick leave to which you are entitled, you will continue to exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by you immediately before the Effective Date. (b) Place of employment. Your services will be performed at the location where you were employed immediately before the Effective Date. If the Company and you agree, however, the location of your employment may be changed without affecting your rights under this Agreement. (c) Expenses generally. You are entitled to receive prompt reimbursement for all reasonable expenses you incur. Reimbursement must be made in accordance with the Company's policies and procedures in effect on the Effective Date (which may include a requirement that you submit an itemized expense voucher). (d) Meetings, conventions, and seminars. You are encouraged and are expected to attend seminars, professional meetings and conventions, and educational courses. The cost of travel, tuition or registration, food, and lodging for attending those activities must be paid by the Company. Other costs are your expense, unless the Company authorizes those costs. If those other costs are authorized expenses, you must be reimbursed after satisfying the Company's policies and procedures for such reimbursement (which may include a requirement that you submit an itemized expense voucher). (e) Promotional expenses. You are encouraged and are expected, from time to time, to incur reasonable expenses for promoting the Company's business. Such promotional expenses include travel, entertainment (including memberships in social and athletic clubs), professional advancement, and community service expenses. You agree to bear those expenses except to the extent that those expenses are incurred at the Company's specific direction or those expenses are specifically authorized by the Company as expenses that the Company may pay directly or indirectly through reimbursement to you. (f) Outside activities. You may (i) serve on corporate, civic, or charitable boards or committees; (ii) deliver lectures, fulfill speaking engagements, or teach at educational institutions; and (iii) manage personal investments. Such activities must not significantly interfere with the performance of your responsibilities for the Company. To the extent that any such activities have been conducted by you before the Effective Date, such prior conduct of activities and any subsequent conduct of activities similar in nature and scope may not be deemed to interfere with the performance of your responsibilities to the Company. (g) Compensation and fringe benefits. Your compensation (including your annual base salary and any bonuses or incentive compensation) and benefits generally are the same as those in effect on the Effective Date. Your compensation and benefits are, however, subject to periodic review and adjustment by the Company. This section of this Agreement does not change the terms of any fringe benefit program or employee benefit plan maintained by the Company and does not give you any additional vested interest in any compensation or benefit to which you are not already entitled under any such program or plan on the Effective Date. Generally, your benefits include the following items, all of which are subject to periodic review and adjustment: (i) You are entitled to receive all group life, accidental death and dismemberment, long-term disability, and medical insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect on the Effective Date; (ii) You are entitled to paid vacation in accordance with the Company's policies in effect on the Effective Date; (iii) You are entitled to sick leave in accordance with the Company's policies in effect on the Effective Date; and (iv) You are entitled to participate in all employee benefit plans and programs in which you participate on the Effective Date, whether or not such plans or programs are subject to the Employee Retirement Income Act of 1974, as amended ("ERISA"), including but not limited to the Company's Retirement Plan, Supplemental Retirement Plan or any successor plans thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers and any stock-based compensation plans maintained by the Company or successor plans thereto and any savings or thrift plan maintained by the Company, 3. Extension of Agreement Upon Change of Control. If a Change of Control shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least thirty-six (36) months beyond the month in which such Change of Control occurred. The Terms of Employment set forth in section 2 continue in effect after a Change of Control and may not be changed to terms and conditions less favorable than those in effect on the day immediately preceding a Change of Control. 4. Change of Control. (i) No benefits shall be payable hereunder unless there shall have been a Change of Control, as set forth below. For purposes of this Agreement, a Change of Control shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (a "20% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a Change of Control shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 20% Holder or to the 20% Holder's relationship to the Company, including, without limitation, the acquisition by the 20% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new Change of Control for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a Change of Control, you are the beneficial owner of two percent or more of the then-outstanding equity securities of the Company, or its successor in interest, a majority of the Continuing Directors may elect, within five business days after such Change of Control, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change of Control; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change of Control, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such Potential Change of Control, (ii) the termination by you of your employment by reason of Long-Term Disability or Retirement (at your normal retirement age), as defined in subsection 5(i), or (iii) the occurrence of a Change of Control. 5. Termination Following Change of Control. If any of the events described in subsection 4(i) hereof constituting a Change of Control shall have occurred, you shall be entitled to the benefits provided in subsection 6(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Long-Term Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Death, Long-Term Disability, or Retirement. If, as a result of your incapacity due to physical or mental illness which is determined to be total and permanent and to prevent you from performing, with or without reasonable accommodation, the essential functions of your employment by a physician and any other consultants selected by the Company or its insurers and acceptable to you or your legal representative, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Long -Term Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. Your death ("Death") during the term of this Agreement will terminate the Agreement. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 6(iv) and 6(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (C) your willful and continued breach of a material term of this Agreement. For purposes of this subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A), (B), or (C) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change of Control of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), (H) or (I), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 6(iv) and 6(v), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Assistant Treasurer of Green Mountain Power Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time- to-time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the Change of Control, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or the failure by the Company to continue your participation in any such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (F) the failure by the Company to continue to provide you with the benefits substantially similar to those enjoyed by you under any of the following plans or programs maintained by the Company at the time of a Change of Control or the taking of any action which would directly or indirectly materially reduce any of such benefits, including but not limited to: (i) fringe benefits, in accordance with the Company's policies in effect at the time of a Change of Control; (ii) group life, accidental death and dismemberment, long-term disability, and medical and dental insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect at the time of a Change of Control; (iii) paid vacation in accordance with your agreements with the Company's and/or the Company's policies in effect at the time of a Change of Control; (iv) sick leave in accordance with the Company's policies in effect at the time of a Change of Control; and (v) the Company's Retirement and Supplemental Retirement Plans or any successors thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers, any stock-based compensation plans maintained by the Company or successor plans thereto, any savings or thrift plan maintained by the Company, whether or not such plans or programs are subject to ERISA; (G) any action by the Company that eliminates, materially reduces or jeopardizes the ability of the Company to fulfill its obligations under the Company's Deferred Compensation or Supplemental Retirement Plan, or both such plans, including by way of example and not of limitation, the sale or other disposition of assets of the Company, and all, or substantially all, of the proceeds from such sale or other disposition do not remain with the Company; (H) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in section 7 hereof; (I) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (iv) below (and if applicable, the requirements of subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective; or (J) your resignation, if tendered during the thirty days immediately following the first twelve months after a Change of Control. Your right to terminate your employment pursuant to this subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this subsection, any good faith determination of Good Reason made by you shall be conclusive. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with section 9 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Long-Term Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to subsection (ii) or (iii) above or for any other reason (other than Long- Term Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 6. Compensation Upon Termination or During Short-Term Disability. Following a Change of Control, as defined by subsection 4(i), upon termination of your employment or during a period of Short-Term Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness (hereinafter "Short-Term Disability") you shall continue to receive your base salary at the rate in effect at the commencement of the Short-Term Disability, together with all compensation and benefits payable or available to you and your family under any other plan in effect during such period, until this Agreement is terminated pursuant to section 5(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Long-Term Disability, Retirement, or by reason of your Death, your benefits and your family's or heirs' benefits, if applicable, shall be determined under the Company's retirement, insurance and other compensation programs with respect to other peer executives and their families as in effect on the Date of Termination, or if more favorable to you, your family or your heirs, as in effect during the 120-day period immediately preceding a Change of Control, in accordance with the terms of such programs. You, or, if applicable, your heirs or estate, shall also receive your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Long-Term Disability, Death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, Death or Long-Term Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you the following: the sum of (1) your full base salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) your most recent annual bonus or variable compensation award and (II) the annual bonus or variable compensation award paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which you were employed for less than twelve full months), for the most recently completed fiscal year since the Change of Control, if any, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation or sick pay, in each case to the extent not theretofore paid; (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 2.99 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code. (C) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (D), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (D) In addition, if the excise tax imposed under Code section 4999 on "excess parachute payments," as defined in Code section 280G, is provoked by (i) any amount paid or payable to or for the benefit of you under this section as legal fees and expenses, or (ii) any payments or benefits which you receive or have the right to receive from the Company (including the Severance Payment) or any affiliated entity or any payments or benefits under any plan or program maintained by the Company or any affiliated entity, the Company must indemnify you and hold you harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company must pay you an additional amount that is sufficient to pay any excise tax imposed by Code section 4999 on the payments and benefits to which you are entitled without the additional amount, plus the excise and income taxes on the additional amount. The determination of any additional amount that must be paid under this section must be made by the Company in good faith. (E) The payments provided for in paragraphs (B), (C) and (D) above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall provide you and your family at Company expense with group life, disability, medical and dental insurance benefits substantially similar to those which you and your family are receiving immediately prior to the Notice of Termination. The Company shall pay any applicable premiums on behalf of you and your family for continuation of medical coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Benefits otherwise receivable by you and your family pursuant to this subsection 6(iv) shall be reduced to the extent comparable benefits are actually received by you and your family during the thirty-six (36) month period following your termination, and any such benefits actually received by you and your family shall be reported to the Company. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Long-Term Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraph (E) of subsection 6(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you would have accrued under the terms of the Company's Retirement Plan without regard to any amendment to the Company's Retirement Plan made subsequent to a Change of Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan. For the purposes of this subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan immediately prior to the Change of Control. (vi) The Company shall, at its sole expense as incurred, provide you with outplacement services the scope and provider of which shall be selected by you in your sole discretion. (vii) Offsets Against Severance Payment. (A) The Severance Payment to which you are entitled under this Agreement may be reduced under this subsection, but not below zero. Reductions in the Severance Payment must be made under this subsection in the manner herein described. The Company must make any required determination or calculation in good faith. (B) You are not required to seek or accept any employment that is not Comparable Employment. If you obtain any employment during the months remaining in your employment period after the Date of Termination, the Severance Payment must be reduced by all amounts actually earned by you from such employment during those months; except that no such reduction may be made because of earnings from employment in which you could have engaged while you were employed by the Company. For example, the Severance Payment may not be reduced because of your fees for service as a director of a corporation other than the Company or your earnings from part-time employment or from any other employment that would not have impaired your ability to perform the duties described in Agreement section 2. (C) During the months remaining in your employment period after the Date of Termination and unless you are then eligible to retire under the Company's Retirement Plan, you must seek and accept any Comparable Employment that is offered to you. If the Company establishes that Comparable Employment was offered to you and that you did not accept it, the full amount of wages that you could have earned from Comparable Employment reduces the Severance Payment to which you are entitled under this Agreement. (D) For purposes of this Agreement, Comparable Employment means employment that entitles you to the same (or higher) total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control and to similar status, title(s), office(s), and management responsibilities; employment with a general character and grade similar to the general character and grade of your former employment with the Company; and employment suited to your education, training, and experience. For purposes of the Agreement, employment is not Comparable Employment if such employment is located more than forty miles from the location at which you are based on the Date of Termination; is short-term or temporary employment; entitles you to total compensation that is less than the total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control; requires you to take serious bodily or financial risks; entitles you to a lower status, title(s), office(s), and management responsibilities; or would not have impaired your ability to perform the duties described in section 2 of this Agreement. (E) To prevent hardship, repayment of the Severance Payment under this section may be made by you in installments, determined in the Company's sole discretion, but a repayment arrangement may not be used as a disguised loan. (vii) In addition to all other amounts payable to you under this section 6, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 7. Agreement Binding on Successors. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 8. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly-owned subsidiary, this Agreement shall apply to an executive of any wholly-owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly-owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly-owned subsidiary of the Company, or from any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly-owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly-owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly-owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 9. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under section 6 shall survive the expiration of the term of this Agreement. 11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit your continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which you may qualify. Amounts which are vested benefits or which you are otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to a Change of Control shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 12. Confidentiality. (i) Confidential information. You must hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, or data relating to the Company and its business, which is obtained by you during your employment by the Company and which is not public knowledge (other than by acts by you or your representatives in violation of this Agreement). After the termination of your employment with the Company, you must not, without the Company's prior written consent, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it to receive such information, knowledge, or data. In no event may an asserted violation of this section constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement. (ii) Records and files. All records and files concerning the Company or the Company's clients and customers belong to and remain the property of the Company. 13. Termination of Employment Prior to a Change of Control of the Company. You and the Company acknowledge that prior to a Change of Control or a Potential Change of Control, your employment may be terminated by the Company in accordance with the notice provisions set forth in section 1 of this Agreement, and by you at any time, in which case you shall have no further rights under this Agreement. 14. Anti-assignment. You may not assign, alienate, anticipate, or otherwise encumber any rights, duties, or amounts that you might be entitled to receive under this Agreement. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Funding. The Company is not required to establish a trust or other funding vehicle to pay benefits under this Agreement, except to the extent otherwise required by the Code or ERISA with respect to any employee benefit plan. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 19. Governing Law. This Agreement shall be governed by the laws of State of Vermont. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: ___________________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this _____ day of December, 1998. __________________________ John L. Lampron Assistant Treasurer Green Mountain Power Corporation EX-6 7 Exhibit 10-d-25 PERSONAL AND CONFIDENTIAL December 6, 1998 Michael H. Lipson, Esq. General Counsel Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Michael: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change of control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. The Company had previously entered into a letter agreement with you dated November 23, 1994 which was initially effective November 23, 1994 through December 31, 1995 (the "Agreement"). Commencing January 1, 1996 and each January 1 thereafter, the Agreement is automatically extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given you notice that it did not wish to extend the Agreement. In accordance with the provisions regarding modification found in section 8 of the Agreement, the Agreement is hereby modified by amending the Agreement in its entirety and restating the Agreement to read as follows: In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in subsection 4(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this Agreement in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in section 4 hereof and hereinafter a "Change of Control") under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on December 6, 1998 (the "Effective Date") and shall continue in effect through December 31, 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement. 2. Terms of Employment Before a Change of Control. Prior to a Change of Control, your terms of employment ("Terms of Employment") shall be as follows: (a) General duties. Excluding periods of vacation and sick leave to which you are entitled, you will continue to exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by you immediately before the Effective Date. (b) Place of employment. Your services will be performed at the location where you were employed immediately before the Effective Date. If the Company and you agree, however, the location of your employment may be changed without affecting your rights under this Agreement. (c) Expenses generally. You are entitled to receive prompt reimbursement for all reasonable expenses you incur. Reimbursement must be made in accordance with the Company's policies and procedures in effect on the Effective Date (which may include a requirement that you submit an itemized expense voucher). (d) Meetings, conventions, and seminars. You are encouraged and are expected to attend seminars, professional meetings and conventions, and educational courses. The cost of travel, tuition or registration, food, and lodging for attending those activities must be paid by the Company. Other costs are your expense, unless the Company authorizes those costs. If those other costs are authorized expenses, you must be reimbursed after satisfying the Company's policies and procedures for such reimbursement (which may include a requirement that you submit an itemized expense voucher). (e) Promotional expenses. You are encouraged and are expected, from time to time, to incur reasonable expenses for promoting the Company's business. Such promotional expenses include travel, entertainment (including memberships in social and athletic clubs), professional advancement, and community service expenses. You agree to bear those expenses except to the extent that those expenses are incurred at the Company's specific direction or those expenses are specifically authorized by the Company as expenses that the Company may pay directly or indirectly through reimbursement to you. (f) Outside activities. You may (i) serve on corporate, civic, or charitable boards or committees; (ii) deliver lectures, fulfill speaking engagements, or teach at educational institutions; and (iii) manage personal investments. Such activities must not significantly interfere with the performance of your responsibilities for the Company. To the extent that any such activities have been conducted by you before the Effective Date, such prior conduct of activities and any subsequent conduct of activities similar in nature and scope may not be deemed to interfere with the performance of your responsibilities to the Company. (g) Compensation and fringe benefits. Your compensation (including your annual base salary and any bonuses or incentive compensation) and benefits generally are the same as those in effect on the Effective Date. Your compensation and benefits are, however, subject to periodic review and adjustment by the Company. This section of this Agreement does not change the terms of any fringe benefit program or employee benefit plan maintained by the Company and does not give you any additional vested interest in any compensation or benefit to which you are not already entitled under any such program or plan on the Effective Date. Generally, your benefits include the following items, all of which are subject to periodic review and adjustment: (i) You are entitled to receive all group life, accidental death and dismemberment, long-term disability, and medical insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect on the Effective Date; (ii) You are entitled to paid vacation in accordance with the Company's policies in effect on the Effective Date; (iii) You are entitled to sick leave in accordance with the Company's policies in effect on the Effective Date; and (iv) You are entitled to participate in all employee benefit plans and programs in which you participate on the Effective Date, whether or not such plans or programs are subject to the Employee Retirement Income Act of 1974, as amended ("ERISA"), including but not limited to the Company's Retirement Plan, Supplemental Retirement Plan or any successor plans thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers and any stock-based compensation plans maintained by the Company or successor plans thereto and any savings or thrift plan maintained by the Company, 3. Extension of Agreement Upon Change of Control. If a Change of Control shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least thirty-six (36) months beyond the month in which such Change of Control occurred. The Terms of Employment set forth in section 2 continue in effect after a Change of Control and may not be changed to terms and conditions less favorable than those in effect on the day immediately preceding a Change of Control. 4. Change of Control. (i) No benefits shall be payable hereunder unless there shall have been a Change of Control, as set forth below. For purposes of this Agreement, a Change of Control shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (a "20% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a Change of Control shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 20% Holder or to the 20% Holder's relationship to the Company, including, without limitation, the acquisition by the 20% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new Change of Control for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a Change of Control, you are the beneficial owner of two percent or more of the then-outstanding equity securities of the Company, or its successor in interest, a majority of the Continuing Directors may elect, within five business days after such Change of Control, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change of Control; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change of Control, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such Potential Change of Control, (ii) the termination by you of your employment by reason of Long-Term Disability or Retirement (at your normal retirement age), as defined in subsection 5(i), or (iii) the occurrence of a Change of Control. 5. Termination Following Change of Control. If any of the events described in subsection 4(i) hereof constituting a Change of Control shall have occurred, you shall be entitled to the benefits provided in subsection 6(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Long-Term Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Death, Long-Term Disability, or Retirement. If, as a result of your incapacity due to physical or mental illness which is determined to be total and permanent and to prevent you from performing, with or without reasonable accommodation, the essential functions of your employment by a physician and any other consultants selected by the Company or its insurers and acceptable to you or your legal representative, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Long -Term Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. Your death ("Death") during the term of this Agreement will terminate the Agreement. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 6(iv) and 6(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (C) your willful and continued breach of a material term of this Agreement. For purposes of this subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A), (B), or (C) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change of Control of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), (H) or (I), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 6(iv) and 6(v), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as General Counsel of Green Mountain Power Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time- to-time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the Change of Control, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or the failure by the Company to continue your participation in any such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (F) the failure by the Company to continue to provide you with the benefits substantially similar to those enjoyed by you under any of the following plans or programs maintained by the Company at the time of a Change of Control or the taking of any action which would directly or indirectly materially reduce any of such benefits, including but not limited to: (i) fringe benefits, in accordance with the Company's policies in effect at the time of a Change of Control; (ii) group life, accidental death and dismemberment, long-term disability, and medical and dental insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect at the time of a Change of Control; (iii) paid vacation in accordance with your agreements with the Company's and/or the Company's policies in effect at the time of a Change of Control; (iv) sick leave in accordance with the Company's policies in effect at the time of a Change of Control; and (v) the Company's Retirement and Supplemental Retirement Plans or any successors thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers, any stock-based compensation plans maintained by the Company or successor plans thereto, any savings or thrift plan maintained by the Company, whether or not such plans or programs are subject to ERISA; (G) any action by the Company that eliminates, materially reduces or jeopardizes the ability of the Company to fulfill its obligations under the Company's Deferred Compensation or Supplemental Retirement Plan, or both such plans, including by way of example and not of limitation, the sale or other disposition of assets of the Company, and all, or substantially all, of the proceeds from such sale or other disposition do not remain with the Company; (H) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in section 7 hereof; (I) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (iv) below (and if applicable, the requirements of subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective; or (J) your resignation, if tendered during the thirty days immediately following the first twelve months after a Change of Control. Your right to terminate your employment pursuant to this subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this subsection, any good faith determination of Good Reason made by you shall be conclusive. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with section 9 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Long-Term Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to subsection (ii) or (iii) above or for any other reason (other than Long- Term Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 6. Compensation Upon Termination or During Short-Term Disability. Following a Change of Control, as defined by subsection 4(i), upon termination of your employment or during a period of Short-Term Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness (hereinafter "Short-Term Disability") you shall continue to receive your base salary at the rate in effect at the commencement of the Short-Term Disability, together with all compensation and benefits payable or available to you and your family under any other plan in effect during such period, until this Agreement is terminated pursuant to section 5(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Long-Term Disability, Retirement, or by reason of your Death, your benefits and your family's or heirs' benefits, if applicable, shall be determined under the Company's retirement, insurance and other compensation programs with respect to other peer executives and their families as in effect on the Date of Termination, or if more favorable to you, your family or your heirs, as in effect during the 120-day period immediately preceding a Change of Control, in accordance with the terms of such programs. You, or, if applicable, your heirs or estate, shall also receive your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Long-Term Disability, Death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, Death or Long-Term Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you the following: the sum of (1) your full base salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) your most recent annual bonus or variable compensation award and (II) the annual bonus or variable compensation award paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which you were employed for less than twelve full months), for the most recently completed fiscal year since the Change of Control, if any, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation or sick pay, in each case to the extent not theretofore paid; (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 2.99 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code. (C) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (D), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (D) In addition, if the excise tax imposed under Code section 4999 on "excess parachute payments," as defined in Code section 280G, is provoked by (i) any amount paid or payable to or for the benefit of you under this section as legal fees and expenses, or (ii) any payments or benefits which you receive or have the right to receive from the Company (including the Severance Payment) or any affiliated entity or any payments or benefits under any plan or program maintained by the Company or any affiliated entity, the Company must indemnify you and hold you harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company must pay you an additional amount that is sufficient to pay any excise tax imposed by Code section 4999 on the payments and benefits to which you are entitled without the additional amount, plus the excise and income taxes on the additional amount. The determination of any additional amount that must be paid under this section must be made by the Company in good faith. (E) The payments provided for in paragraphs (B), (C) and (D) above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall provide you and your family at Company expense with group life, disability, medical and dental insurance benefits substantially similar to those which you and your family are receiving immediately prior to the Notice of Termination. The Company shall pay any applicable premiums on behalf of you and your family for continuation of medical coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Benefits otherwise receivable by you and your family pursuant to this subsection 6(iv) shall be reduced to the extent comparable benefits are actually received by you and your family during the thirty-six (36) month period following your termination, and any such benefits actually received by you and your family shall be reported to the Company. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Long-Term Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraph (E) of subsection 6(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you would have accrued under the terms of the Company's Retirement Plan without regard to any amendment to the Company's Retirement Plan made subsequent to a Change of Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan. For the purposes of this subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan immediately prior to the Change of Control. (vi) The Company shall, at its sole expense as incurred, provide you with outplacement services the scope and provider of which shall be selected by you in your sole discretion. (vii) Offsets Against Severance Payment. (A) The Severance Payment to which you are entitled under this Agreement may be reduced under this subsection, but not below zero. Reductions in the Severance Payment must be made under this subsection in the manner herein described. The Company must make any required determination or calculation in good faith. (B) You are not required to seek or accept any employment that is not Comparable Employment. If you obtain any employment during the months remaining in your employment period after the Date of Termination, the Severance Payment must be reduced by all amounts actually earned by you from such employment during those months; except that no such reduction may be made because of earnings from employment in which you could have engaged while you were employed by the Company. For example, the Severance Payment may not be reduced because of your fees for service as a director of a corporation other than the Company or your earnings from part-time employment or from any other employment that would not have impaired your ability to perform the duties described in Agreement section 2. (C) During the months remaining in your employment period after the Date of Termination and unless you are then eligible to retire under the Company's Retirement Plan, you must seek and accept any Comparable Employment that is offered to you. If the Company establishes that Comparable Employment was offered to you and that you did not accept it, the full amount of wages that you could have earned from Comparable Employment reduces the Severance Payment to which you are entitled under this Agreement. (D) For purposes of this Agreement, Comparable Employment means employment that entitles you to the same (or higher) total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control and to similar status, title(s), office(s), and management responsibilities; employment with a general character and grade similar to the general character and grade of your former employment with the Company; and employment suited to your education, training, and experience. For purposes of the Agreement, employment is not Comparable Employment if such employment is located more than forty miles from the location at which you are based on the Date of Termination; is short-term or temporary employment; entitles you to total compensation that is less than the total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control; requires you to take serious bodily or financial risks; entitles you to a lower status, title(s), office(s), and management responsibilities; or would not have impaired your ability to perform the duties described in section 2 of this Agreement. (E) To prevent hardship, repayment of the Severance Payment under this section may be made by you in installments, determined in the Company's sole discretion, but a repayment arrangement may not be used as a disguised loan. (vii) In addition to all other amounts payable to you under this section 6, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 7. Agreement Binding on Successors. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 8. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly-owned subsidiary, this Agreement shall apply to an executive of any wholly-owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly-owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly-owned subsidiary of the Company, or from any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly-owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly-owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly-owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 9. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under section 6 shall survive the expiration of the term of this Agreement. 11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit your continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which you may qualify. Amounts which are vested benefits or which you are otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to a Change of Control shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 12. Confidentiality. (i) Confidential information. You must hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, or data relating to the Company and its business, which is obtained by you during your employment by the Company and which is not public knowledge (other than by acts by you or your representatives in violation of this Agreement). After the termination of your employment with the Company, you must not, without the Company's prior written consent, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it to receive such information, knowledge, or data. In no event may an asserted violation of this section constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement. (ii) Records and files. All records and files concerning the Company or the Company's clients and customers belong to and remain the property of the Company. 13. Termination of Employment Prior to a Change of Control of the Company. You and the Company acknowledge that prior to a Change of Control or a Potential Change of Control, your employment may be terminated by the Company in accordance with the notice provisions set forth in section 1 of this Agreement, and by you at any time, in which case you shall have no further rights under this Agreement. 14. Anti-assignment. You may not assign, alienate, anticipate, or otherwise encumber any rights, duties, or amounts that you might be entitled to receive under this Agreement. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Funding. The Company is not required to establish a trust or other funding vehicle to pay benefits under this Agreement, except to the extent otherwise required by the Code or ERISA with respect to any employee benefit plan. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 19. Governing Law. This Agreement shall be governed by the laws of State of Vermont. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: ___________________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this _____ day of December, 1998. __________________________ Michael H. Lipson General Counsel Green Mountain Power Corporation EX-7 8 Exhibit 10-d-26 PERSONAL AND CONFIDENTIAL December 6, 1998 Craig T. Myotte Assistant Vice President, Engineering and Operations Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Craig: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change of control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. The Company had previously entered into a letter agreement with you dated July 16, 1991 which was initially effective July 16, 1991 through December 31, 1991 (the "Agreement"). Commencing January 1, 1992 and each January 1 thereafter, the Agreement is automatically extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given you notice that it did not wish to extend the Agreement. In accordance with the provisions regarding modification found in section 8 of the Agreement, the Agreement is hereby modified by amending the Agreement in its entirety and restating the Agreement to read as follows: In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in subsection 4(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this Agreement in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in section 4 hereof and hereinafter a "Change of Control") under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on December 6, 1998 (the "Effective Date") and shall continue in effect through December 31, 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement. 2. Terms of Employment Before a Change of Control. Prior to a Change of Control, your terms of employment ("Terms of Employment") shall be as follows: (a) General duties. Excluding periods of vacation and sick leave to which you are entitled, you will continue to exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by you immediately before the Effective Date. (b) Place of employment. Your services will be performed at the location where you were employed immediately before the Effective Date. If the Company and you agree, however, the location of your employment may be changed without affecting your rights under this Agreement. (c) Expenses generally. You are entitled to receive prompt reimbursement for all reasonable expenses you incur. Reimbursement must be made in accordance with the Company's policies and procedures in effect on the Effective Date (which may include a requirement that you submit an itemized expense voucher). (d) Meetings, conventions, and seminars. You are encouraged and are expected to attend seminars, professional meetings and conventions, and educational courses. The cost of travel, tuition or registration, food, and lodging for attending those activities must be paid by the Company. Other costs are your expense, unless the Company authorizes those costs. If those other costs are authorized expenses, you must be reimbursed after satisfying the Company's policies and procedures for such reimbursement (which may include a requirement that you submit an itemized expense voucher). (e) Promotional expenses. You are encouraged and are expected, from time to time, to incur reasonable expenses for promoting the Company's business. Such promotional expenses include travel, entertainment (including memberships in social and athletic clubs), professional advancement, and community service expenses. You agree to bear those expenses except to the extent that those expenses are incurred at the Company's specific direction or those expenses are specifically authorized by the Company as expenses that the Company may pay directly or indirectly through reimbursement to you. (f) Outside activities. You may (i) serve on corporate, civic, or charitable boards or committees; (ii) deliver lectures, fulfill speaking engagements, or teach at educational institutions; and (iii) manage personal investments. Such activities must not significantly interfere with the performance of your responsibilities for the Company. To the extent that any such activities have been conducted by you before the Effective Date, such prior conduct of activities and any subsequent conduct of activities similar in nature and scope may not be deemed to interfere with the performance of your responsibilities to the Company. (g) Compensation and fringe benefits. Your compensation (including your annual base salary and any bonuses or incentive compensation) and benefits generally are the same as those in effect on the Effective Date. Your compensation and benefits are, however, subject to periodic review and adjustment by the Company. This section of this Agreement does not change the terms of any fringe benefit program or employee benefit plan maintained by the Company and does not give you any additional vested interest in any compensation or benefit to which you are not already entitled under any such program or plan on the Effective Date. Generally, your benefits include the following items, all of which are subject to periodic review and adjustment: (i) You are entitled to receive all group life, accidental death and dismemberment, long-term disability, and medical insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect on the Effective Date; (ii) You are entitled to paid vacation in accordance with the Company's policies in effect on the Effective Date; (iii) You are entitled to sick leave in accordance with the Company's policies in effect on the Effective Date; and (iv) You are entitled to participate in all employee benefit plans and programs in which you participate on the Effective Date, whether or not such plans or programs are subject to the Employee Retirement Income Act of 1974, as amended ("ERISA"), including but not limited to the Company's Retirement Plan, Supplemental Retirement Plan or any successor plans thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers and any stock-based compensation plans maintained by the Company or successor plans thereto and any savings or thrift plan maintained by the Company, 3. Extension of Agreement Upon Change of Control. If a Change of Control shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least thirty-six (36) months beyond the month in which such Change of Control occurred. The Terms of Employment set forth in section 2 continue in effect after a Change of Control and may not be changed to terms and conditions less favorable than those in effect on the day immediately preceding a Change of Control. 4. Change of Control. (i) No benefits shall be payable hereunder unless there shall have been a Change of Control, as set forth below. For purposes of this Agreement, a Change of Control shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (a "20% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a Change of Control shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 20% Holder or to the 20% Holder's relationship to the Company, including, without limitation, the acquisition by the 20% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new Change of Control for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a Change of Control, you are the beneficial owner of two percent or more of the then-outstanding equity securities of the Company, or its successor in interest, a majority of the Continuing Directors may elect, within five business days after such Change of Control, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change of Control; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change of Control, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such Potential Change of Control, (ii) the termination by you of your employment by reason of Long-Term Disability or Retirement (at your normal retirement age), as defined in subsection 5(i), or (iii) the occurrence of a Change of Control. 5. Termination Following Change of Control. If any of the events described in subsection 4(i) hereof constituting a Change of Control shall have occurred, you shall be entitled to the benefits provided in subsection 6(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Long-Term Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Death, Long-Term Disability, or Retirement. If, as a result of your incapacity due to physical or mental illness which is determined to be total and permanent and to prevent you from performing, with or without reasonable accommodation, the essential functions of your employment by a physician and any other consultants selected by the Company or its insurers and acceptable to you or your legal representative, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Long -Term Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. Your death ("Death") during the term of this Agreement will terminate the Agreement. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 6(iv) and 6(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (C) your willful and continued breach of a material term of this Agreement. For purposes of this subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A), (B), or (C) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change of Control of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), (H) or (I), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 6(iv) and 6(v), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Assistant Vice President, Engineering and Operations of Green Mountain Power Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time- to-time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the Change of Control, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or the failure by the Company to continue your participation in any such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (F) the failure by the Company to continue to provide you with the benefits substantially similar to those enjoyed by you under any of the following plans or programs maintained by the Company at the time of a Change of Control or the taking of any action which would directly or indirectly materially reduce any of such benefits, including but not limited to: (i) fringe benefits, in accordance with the Company's policies in effect at the time of a Change of Control; (ii) group life, accidental death and dismemberment, long-term disability, and medical and dental insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect at the time of a Change of Control; (iii) paid vacation in accordance with your agreements with the Company's and/or the Company's policies in effect at the time of a Change of Control; (iv) sick leave in accordance with the Company's policies in effect at the time of a Change of Control; and (v) the Company's Retirement and Supplemental Retirement Plans or any successors thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers, any stock-based compensation plans maintained by the Company or successor plans thereto, any savings or thrift plan maintained by the Company, whether or not such plans or programs are subject to ERISA; (G) any action by the Company that eliminates, materially reduces or jeopardizes the ability of the Company to fulfill its obligations under the Company's Deferred Compensation or Supplemental Retirement Plan, or both such plans, including by way of example and not of limitation, the sale or other disposition of assets of the Company, and all, or substantially all, of the proceeds from such sale or other disposition do not remain with the Company; (H) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in section 7 hereof; (I) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (iv) below (and if applicable, the requirements of subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective; or (J) your resignation, if tendered during the thirty days immediately following the first twelve months after a Change of Control. Your right to terminate your employment pursuant to this subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this subsection, any good faith determination of Good Reason made by you shall be conclusive. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with section 9 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Long-Term Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to subsection (ii) or (iii) above or for any other reason (other than Long- Term Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 6. Compensation Upon Termination or During Short-Term Disability. Following a Change of Control, as defined by subsection 4(i), upon termination of your employment or during a period of Short-Term Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness (hereinafter "Short-Term Disability") you shall continue to receive your base salary at the rate in effect at the commencement of the Short-Term Disability, together with all compensation and benefits payable or available to you and your family under any other plan in effect during such period, until this Agreement is terminated pursuant to section 5(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Long-Term Disability, Retirement, or by reason of your Death, your benefits and your family's or heirs' benefits, if applicable, shall be determined under the Company's retirement, insurance and other compensation programs with respect to other peer executives and their families as in effect on the Date of Termination, or if more favorable to you, your family or your heirs, as in effect during the 120-day period immediately preceding a Change of Control, in accordance with the terms of such programs. You, or, if applicable, your heirs or estate, shall also receive your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Long-Term Disability, Death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, Death or Long-Term Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you the following: the sum of (1) your full base salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) your most recent annual bonus or variable compensation award and (II) the annual bonus or variable compensation award paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which you were employed for less than twelve full months), for the most recently completed fiscal year since the Change of Control, if any, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation or sick pay, in each case to the extent not theretofore paid; (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 2.99 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code. (C) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (D), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (D) In addition, if the excise tax imposed under Code section 4999 on "excess parachute payments," as defined in Code section 280G, is provoked by (i) any amount paid or payable to or for the benefit of you under this section as legal fees and expenses, or (ii) any payments or benefits which you receive or have the right to receive from the Company (including the Severance Payment) or any affiliated entity or any payments or benefits under any plan or program maintained by the Company or any affiliated entity, the Company must indemnify you and hold you harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company must pay you an additional amount that is sufficient to pay any excise tax imposed by Code section 4999 on the payments and benefits to which you are entitled without the additional amount, plus the excise and income taxes on the additional amount. The determination of any additional amount that must be paid under this section must be made by the Company in good faith. (E) The payments provided for in paragraphs (B), (C) and (D) above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall provide you and your family at Company expense with group life, disability, medical and dental insurance benefits substantially similar to those which you and your family are receiving immediately prior to the Notice of Termination. The Company shall pay any applicable premiums on behalf of you and your family for continuation of medical coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Benefits otherwise receivable by you and your family pursuant to this subsection 6(iv) shall be reduced to the extent comparable benefits are actually received by you and your family during the thirty-six (36) month period following your termination, and any such benefits actually received by you and your family shall be reported to the Company. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Long-Term Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraph (E) of subsection 6(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you would have accrued under the terms of the Company's Retirement Plan without regard to any amendment to the Company's Retirement Plan made subsequent to a Change of Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan. For the purposes of this subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan immediately prior to the Change of Control. (vi) The Company shall, at its sole expense as incurred, provide you with outplacement services the scope and provider of which shall be selected by you in your sole discretion. (vii) Offsets Against Severance Payment. (A) The Severance Payment to which you are entitled under this Agreement may be reduced under this subsection, but not below zero. Reductions in the Severance Payment must be made under this subsection in the manner herein described. The Company must make any required determination or calculation in good faith. (B) You are not required to seek or accept any employment that is not Comparable Employment. If you obtain any employment during the months remaining in your employment period after the Date of Termination, the Severance Payment must be reduced by all amounts actually earned by you from such employment during those months; except that no such reduction may be made because of earnings from employment in which you could have engaged while you were employed by the Company. For example, the Severance Payment may not be reduced because of your fees for service as a director of a corporation other than the Company or your earnings from part-time employment or from any other employment that would not have impaired your ability to perform the duties described in Agreement section 2. (C) During the months remaining in your employment period after the Date of Termination and unless you are then eligible to retire under the Company's Retirement Plan, you must seek and accept any Comparable Employment that is offered to you. If the Company establishes that Comparable Employment was offered to you and that you did not accept it, the full amount of wages that you could have earned from Comparable Employment reduces the Severance Payment to which you are entitled under this Agreement. (D) For purposes of this Agreement, Comparable Employment means employment that entitles you to the same (or higher) total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control and to similar status, title(s), office(s), and management responsibilities; employment with a general character and grade similar to the general character and grade of your former employment with the Company; and employment suited to your education, training, and experience. For purposes of the Agreement, employment is not Comparable Employment if such employment is located more than forty miles from the location at which you are based on the Date of Termination; is short-term or temporary employment; entitles you to total compensation that is less than the total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control; requires you to take serious bodily or financial risks; entitles you to a lower status, title(s), office(s), and management responsibilities; or would not have impaired your ability to perform the duties described in section 2 of this Agreement. (E) To prevent hardship, repayment of the Severance Payment under this section may be made by you in installments, determined in the Company's sole discretion, but a repayment arrangement may not be used as a disguised loan. (vii) In addition to all other amounts payable to you under this section 6, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 7. Agreement Binding on Successors. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 8. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly-owned subsidiary, this Agreement shall apply to an executive of any wholly-owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly-owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly-owned subsidiary of the Company, or from any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly-owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly-owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly-owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 9. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under section 6 shall survive the expiration of the term of this Agreement. 11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit your continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which you may qualify. Amounts which are vested benefits or which you are otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to a Change of Control shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 12. Confidentiality. (i) Confidential information. You must hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, or data relating to the Company and its business, which is obtained by you during your employment by the Company and which is not public knowledge (other than by acts by you or your representatives in violation of this Agreement). After the termination of your employment with the Company, you must not, without the Company's prior written consent, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it to receive such information, knowledge, or data. In no event may an asserted violation of this section constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement. (ii) Records and files. All records and files concerning the Company or the Company's clients and customers belong to and remain the property of the Company. 13. Termination of Employment Prior to a Change of Control of the Company. You and the Company acknowledge that prior to a Change of Control or a Potential Change of Control, your employment may be terminated by the Company in accordance with the notice provisions set forth in section 1 of this Agreement, and by you at any time, in which case you shall have no further rights under this Agreement. 14. Anti-assignment. You may not assign, alienate, anticipate, or otherwise encumber any rights, duties, or amounts that you might be entitled to receive under this Agreement. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Funding. The Company is not required to establish a trust or other funding vehicle to pay benefits under this Agreement, except to the extent otherwise required by the Code or ERISA with respect to any employee benefit plan. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 19. Governing Law. This Agreement shall be governed by the laws of State of Vermont. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: ___________________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this _____ day of December, 1998. __________________________ Craig T. Myotte Assistant Vice President Engineering and Operations Green Mountain Power Corporation EX-8 9 Exhibit 10-d-27 PERSONAL AND CONFIDENTIAL December 6, 1998 Walter S. Oakes Assistant Vice President, Customer Operations Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Walter: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change of control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. The Company had previously entered into a letter agreement with you dated October 25, 1990 which was initially effective October 25, 1990 through December 31, 1991 (the "Agreement"). Commencing January 1, 1992 and each January 1 thereafter, the Agreement is automatically extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given you notice that it did not wish to extend the Agreement. In accordance with the provisions regarding modification found in section 8 of the Agreement, the Agreement is hereby modified by amending the Agreement in its entirety and restating the Agreement to read as follows: In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in subsection 4(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this Agreement in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in section 4 hereof and hereinafter a "Change of Control") under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on December 6, 1998 (the "Effective Date") and shall continue in effect through December 31, 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement. 2. Terms of Employment Before a Change of Control. Prior to a Change of Control, your terms of employment ("Terms of Employment") shall be as follows: (a) General duties. Excluding periods of vacation and sick leave to which you are entitled, you will continue to exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by you immediately before the Effective Date. (b) Place of employment. Your services will be performed at the location where you were employed immediately before the Effective Date. If the Company and you agree, however, the location of your employment may be changed without affecting your rights under this Agreement. (c) Expenses generally. You are entitled to receive prompt reimbursement for all reasonable expenses you incur. Reimbursement must be made in accordance with the Company's policies and procedures in effect on the Effective Date (which may include a requirement that you submit an itemized expense voucher). (d) Meetings, conventions, and seminars. You are encouraged and are expected to attend seminars, professional meetings and conventions, and educational courses. The cost of travel, tuition or registration, food, and lodging for attending those activities must be paid by the Company. Other costs are your expense, unless the Company authorizes those costs. If those other costs are authorized expenses, you must be reimbursed after satisfying the Company's policies and procedures for such reimbursement (which may include a requirement that you submit an itemized expense voucher). (e) Promotional expenses. You are encouraged and are expected, from time to time, to incur reasonable expenses for promoting the Company's business. Such promotional expenses include travel, entertainment (including memberships in social and athletic clubs), professional advancement, and community service expenses. You agree to bear those expenses except to the extent that those expenses are incurred at the Company's specific direction or those expenses are specifically authorized by the Company as expenses that the Company may pay directly or indirectly through reimbursement to you. (f) Outside activities. You may (i) serve on corporate, civic, or charitable boards or committees; (ii) deliver lectures, fulfill speaking engagements, or teach at educational institutions; and (iii) manage personal investments. Such activities must not significantly interfere with the performance of your responsibilities for the Company. To the extent that any such activities have been conducted by you before the Effective Date, such prior conduct of activities and any subsequent conduct of activities similar in nature and scope may not be deemed to interfere with the performance of your responsibilities to the Company. (g) Compensation and fringe benefits. Your compensation (including your annual base salary and any bonuses or incentive compensation) and benefits generally are the same as those in effect on the Effective Date. Your compensation and benefits are, however, subject to periodic review and adjustment by the Company. This section of this Agreement does not change the terms of any fringe benefit program or employee benefit plan maintained by the Company and does not give you any additional vested interest in any compensation or benefit to which you are not already entitled under any such program or plan on the Effective Date. Generally, your benefits include the following items, all of which are subject to periodic review and adjustment: (i) You are entitled to receive all group life, accidental death and dismemberment, long-term disability, and medical insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect on the Effective Date; (ii) You are entitled to paid vacation in accordance with the Company's policies in effect on the Effective Date; (iii) You are entitled to sick leave in accordance with the Company's policies in effect on the Effective Date; and (iv) You are entitled to participate in all employee benefit plans and programs in which you participate on the Effective Date, whether or not such plans or programs are subject to the Employee Retirement Income Act of 1974, as amended ("ERISA"), including but not limited to the Company's Retirement Plan, Supplemental Retirement Plan or any successor plans thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers and any stock-based compensation plans maintained by the Company or successor plans thereto and any savings or thrift plan maintained by the Company, 3. Extension of Agreement Upon Change of Control. If a Change of Control shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least thirty-six (36) months beyond the month in which such Change of Control occurred. The Terms of Employment set forth in section 2 continue in effect after a Change of Control and may not be changed to terms and conditions less favorable than those in effect on the day immediately preceding a Change of Control. 4. Change of Control. (i) No benefits shall be payable hereunder unless there shall have been a Change of Control, as set forth below. For purposes of this Agreement, a Change of Control shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (a "20% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a Change of Control shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 20% Holder or to the 20% Holder's relationship to the Company, including, without limitation, the acquisition by the 20% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new Change of Control for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a Change of Control, you are the beneficial owner of two percent or more of the then-outstanding equity securities of the Company, or its successor in interest, a majority of the Continuing Directors may elect, within five business days after such Change of Control, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change of Control; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change of Control, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such Potential Change of Control, (ii) the termination by you of your employment by reason of Long-Term Disability or Retirement (at your normal retirement age), as defined in subsection 5(i), or (iii) the occurrence of a Change of Control. 5. Termination Following Change of Control. If any of the events described in subsection 4(i) hereof constituting a Change of Control shall have occurred, you shall be entitled to the benefits provided in subsection 6(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Long-Term Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Death, Long-Term Disability, or Retirement. If, as a result of your incapacity due to physical or mental illness which is determined to be total and permanent and to prevent you from performing, with or without reasonable accommodation, the essential functions of your employment by a physician and any other consultants selected by the Company or its insurers and acceptable to you or your legal representative, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Long -Term Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. Your death ("Death") during the term of this Agreement will terminate the Agreement. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 6(iv) and 6(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (C) your willful and continued breach of a material term of this Agreement. For purposes of this subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A), (B), or (C) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change of Control of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), (H) or (I), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 6(iv) and 6(v), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Assistant Vice President, Customer Operations of Green Mountain Power Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time- to-time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the Change of Control, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or the failure by the Company to continue your participation in any such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (F) the failure by the Company to continue to provide you with the benefits substantially similar to those enjoyed by you under any of the following plans or programs maintained by the Company at the time of a Change of Control or the taking of any action which would directly or indirectly materially reduce any of such benefits, including but not limited to: (i) fringe benefits, in accordance with the Company's policies in effect at the time of a Change of Control; (ii) group life, accidental death and dismemberment, long-term disability, and medical and dental insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect at the time of a Change of Control; (iii) paid vacation in accordance with your agreements with the Company's and/or the Company's policies in effect at the time of a Change of Control; (iv) sick leave in accordance with the Company's policies in effect at the time of a Change of Control; and (v) the Company's Retirement and Supplemental Retirement Plans or any successors thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers, any stock-based compensation plans maintained by the Company or successor plans thereto, any savings or thrift plan maintained by the Company, whether or not such plans or programs are subject to ERISA; (G) any action by the Company that eliminates, materially reduces or jeopardizes the ability of the Company to fulfill its obligations under the Company's Deferred Compensation or Supplemental Retirement Plan, or both such plans, including by way of example and not of limitation, the sale or other disposition of assets of the Company, and all, or substantially all, of the proceeds from such sale or other disposition do not remain with the Company; (H) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in section 7 hereof; (I) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (iv) below (and if applicable, the requirements of subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective; or (J) your resignation, if tendered during the thirty days immediately following the first twelve months after a Change of Control. Your right to terminate your employment pursuant to this subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this subsection, any good faith determination of Good Reason made by you shall be conclusive. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with section 9 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Long-Term Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to subsection (ii) or (iii) above or for any other reason (other than Long- Term Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 6. Compensation Upon Termination or During Short-Term Disability. Following a Change of Control, as defined by subsection 4(i), upon termination of your employment or during a period of Short-Term Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness (hereinafter "Short-Term Disability") you shall continue to receive your base salary at the rate in effect at the commencement of the Short-Term Disability, together with all compensation and benefits payable or available to you and your family under any other plan in effect during such period, until this Agreement is terminated pursuant to section 5(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Long-Term Disability, Retirement, or by reason of your Death, your benefits and your family's or heirs' benefits, if applicable, shall be determined under the Company's retirement, insurance and other compensation programs with respect to other peer executives and their families as in effect on the Date of Termination, or if more favorable to you, your family or your heirs, as in effect during the 120-day period immediately preceding a Change of Control, in accordance with the terms of such programs. You, or, if applicable, your heirs or estate, shall also receive your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Long-Term Disability, Death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, Death or Long-Term Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you the following: the sum of (1) your full base salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) your most recent annual bonus or variable compensation award and (II) the annual bonus or variable compensation award paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which you were employed for less than twelve full months), for the most recently completed fiscal year since the Change of Control, if any, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation or sick pay, in each case to the extent not theretofore paid; (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 2.99 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code. (C) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (D), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (D) In addition, if the excise tax imposed under Code section 4999 on "excess parachute payments," as defined in Code section 280G, is provoked by (i) any amount paid or payable to or for the benefit of you under this section as legal fees and expenses, or (ii) any payments or benefits which you receive or have the right to receive from the Company (including the Severance Payment) or any affiliated entity or any payments or benefits under any plan or program maintained by the Company or any affiliated entity, the Company must indemnify you and hold you harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company must pay you an additional amount that is sufficient to pay any excise tax imposed by Code section 4999 on the payments and benefits to which you are entitled without the additional amount, plus the excise and income taxes on the additional amount. The determination of any additional amount that must be paid under this section must be made by the Company in good faith. (E) The payments provided for in paragraphs (B), (C) and (D) above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall provide you and your family at Company expense with group life, disability, medical and dental insurance benefits substantially similar to those which you and your family are receiving immediately prior to the Notice of Termination. The Company shall pay any applicable premiums on behalf of you and your family for continuation of medical coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Benefits otherwise receivable by you and your family pursuant to this subsection 6(iv) shall be reduced to the extent comparable benefits are actually received by you and your family during the thirty-six (36) month period following your termination, and any such benefits actually received by you and your family shall be reported to the Company. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Long-Term Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraph (E) of subsection 6(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you would have accrued under the terms of the Company's Retirement Plan without regard to any amendment to the Company's Retirement Plan made subsequent to a Change of Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan. For the purposes of this subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan immediately prior to the Change of Control. (vi) The Company shall, at its sole expense as incurred, provide you with outplacement services the scope and provider of which shall be selected by you in your sole discretion. (vii) Offsets Against Severance Payment. (A) The Severance Payment to which you are entitled under this Agreement may be reduced under this subsection, but not below zero. Reductions in the Severance Payment must be made under this subsection in the manner herein described. The Company must make any required determination or calculation in good faith. (B) You are not required to seek or accept any employment that is not Comparable Employment. If you obtain any employment during the months remaining in your employment period after the Date of Termination, the Severance Payment must be reduced by all amounts actually earned by you from such employment during those months; except that no such reduction may be made because of earnings from employment in which you could have engaged while you were employed by the Company. For example, the Severance Payment may not be reduced because of your fees for service as a director of a corporation other than the Company or your earnings from part-time employment or from any other employment that would not have impaired your ability to perform the duties described in Agreement section 2. (C) During the months remaining in your employment period after the Date of Termination and unless you are then eligible to retire under the Company's Retirement Plan, you must seek and accept any Comparable Employment that is offered to you. If the Company establishes that Comparable Employment was offered to you and that you did not accept it, the full amount of wages that you could have earned from Comparable Employment reduces the Severance Payment to which you are entitled under this Agreement. (D) For purposes of this Agreement, Comparable Employment means employment that entitles you to the same (or higher) total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control and to similar status, title(s), office(s), and management responsibilities; employment with a general character and grade similar to the general character and grade of your former employment with the Company; and employment suited to your education, training, and experience. For purposes of the Agreement, employment is not Comparable Employment if such employment is located more than forty miles from the location at which you are based on the Date of Termination; is short-term or temporary employment; entitles you to total compensation that is less than the total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control; requires you to take serious bodily or financial risks; entitles you to a lower status, title(s), office(s), and management responsibilities; or would not have impaired your ability to perform the duties described in section 2 of this Agreement. (E) To prevent hardship, repayment of the Severance Payment under this section may be made by you in installments, determined in the Company's sole discretion, but a repayment arrangement may not be used as a disguised loan. (vii) In addition to all other amounts payable to you under this section 6, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 7. Agreement Binding on Successors. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 8. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly-owned subsidiary, this Agreement shall apply to an executive of any wholly-owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly-owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly-owned subsidiary of the Company, or from any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly-owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly-owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly-owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 9. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under section 6 shall survive the expiration of the term of this Agreement. 11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit your continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which you may qualify. Amounts which are vested benefits or which you are otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to a Change of Control shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 12. Confidentiality. (i) Confidential information. You must hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, or data relating to the Company and its business, which is obtained by you during your employment by the Company and which is not public knowledge (other than by acts by you or your representatives in violation of this Agreement). After the termination of your employment with the Company, you must not, without the Company's prior written consent, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it to receive such information, knowledge, or data. In no event may an asserted violation of this section constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement. (ii) Records and files. All records and files concerning the Company or the Company's clients and customers belong to and remain the property of the Company. 13. Termination of Employment Prior to a Change of Control of the Company. You and the Company acknowledge that prior to a Change of Control or a Potential Change of Control, your employment may be terminated by the Company in accordance with the notice provisions set forth in section 1 of this Agreement, and by you at any time, in which case you shall have no further rights under this Agreement. 14. Anti-assignment. You may not assign, alienate, anticipate, or otherwise encumber any rights, duties, or amounts that you might be entitled to receive under this Agreement. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Funding. The Company is not required to establish a trust or other funding vehicle to pay benefits under this Agreement, except to the extent otherwise required by the Code or ERISA with respect to any employee benefit plan. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 19. Governing Law. This Agreement shall be governed by the laws of State of Vermont. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: ___________________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this _____ day of December, 1998. __________________________ Walter S. Oakes Assistant Vice President, Customer Operations Green Mountain Power Corporation EX-9 10 Exhibit 10-d-28 PERSONAL AND CONFIDENTIAL December 6, 1998 Mary G. Powell Vice President, Human Resources Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Mary: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change of control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. The Company had previously entered into a letter agreement with you dated April 15, 1998 which was initially effective April 15, 1998 through December 31, 1998 (the "Agreement"). Commencing January 1, 1999 and each January 1 thereafter, the Agreement is automatically extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given you notice that it did not wish to extend the Agreement. In accordance with the provisions regarding modification found in section 8 of the Agreement, the Agreement is hereby modified by amending the Agreement in its entirety and restating the Agreement to read as follows: In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in subsection 4(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this Agreement in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in section 4 hereof and hereinafter a "Change of Control") under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on December 6, 1998 (the "Effective Date") and shall continue in effect through December 31, 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement. 2. Terms of Employment Before a Change of Control. Prior to a Change of Control, your terms of employment ("Terms of Employment") shall be as follows: (a) General duties. Excluding periods of vacation and sick leave to which you are entitled, you will continue to exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by you immediately before the Effective Date. (b) Place of employment. Your services will be performed at the location where you were employed immediately before the Effective Date. If the Company and you agree, however, the location of your employment may be changed without affecting your rights under this Agreement. (c) Expenses generally. You are entitled to receive prompt reimbursement for all reasonable expenses you incur. Reimbursement must be made in accordance with the Company's policies and procedures in effect on the Effective Date (which may include a requirement that you submit an itemized expense voucher). (d) Meetings, conventions, and seminars. You are encouraged and are expected to attend seminars, professional meetings and conventions, and educational courses. The cost of travel, tuition or registration, food, and lodging for attending those activities must be paid by the Company. Other costs are your expense, unless the Company authorizes those costs. If those other costs are authorized expenses, you must be reimbursed after satisfying the Company's policies and procedures for such reimbursement (which may include a requirement that you submit an itemized expense voucher). (e) Promotional expenses. You are encouraged and are expected, from time to time, to incur reasonable expenses for promoting the Company's business. Such promotional expenses include travel, entertainment (including memberships in social and athletic clubs), professional advancement, and community service expenses. You agree to bear those expenses except to the extent that those expenses are incurred at the Company's specific direction or those expenses are specifically authorized by the Company as expenses that the Company may pay directly or indirectly through reimbursement to you. (f) Outside activities. You may (i) serve on corporate, civic, or charitable boards or committees; (ii) deliver lectures, fulfill speaking engagements, or teach at educational institutions; and (iii) manage personal investments. Such activities must not significantly interfere with the performance of your responsibilities for the Company. To the extent that any such activities have been conducted by you before the Effective Date, such prior conduct of activities and any subsequent conduct of activities similar in nature and scope may not be deemed to interfere with the performance of your responsibilities to the Company. (g) Compensation and fringe benefits. Your compensation (including your annual base salary and any bonuses or incentive compensation) and benefits generally are the same as those in effect on the Effective Date. Your compensation and benefits are, however, subject to periodic review and adjustment by the Company. This section of this Agreement does not change the terms of any fringe benefit program or employee benefit plan maintained by the Company and does not give you any additional vested interest in any compensation or benefit to which you are not already entitled under any such program or plan on the Effective Date. Generally, your benefits include the following items, all of which are subject to periodic review and adjustment: (i) You are entitled to receive all group life, accidental death and dismemberment, long-term disability, and medical insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect on the Effective Date; (ii) You are entitled to paid vacation in accordance with the Company's policies in effect on the Effective Date; (iii) You are entitled to sick leave in accordance with the Company's policies in effect on the Effective Date; and (iv) You are entitled to participate in all employee benefit plans and programs in which you participate on the Effective Date, whether or not such plans or programs are subject to the Employee Retirement Income Act of 1974, as amended ("ERISA"), including but not limited to the Company's Retirement Plan, Supplemental Retirement Plan or any successor plans thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers and any stock-based compensation plans maintained by the Company or successor plans thereto and any savings or thrift plan maintained by the Company, 3. Extension of Agreement Upon Change of Control. If a Change of Control shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least thirty-six (36) months beyond the month in which such Change of Control occurred. The Terms of Employment set forth in section 2 continue in effect after a Change of Control and may not be changed to terms and conditions less favorable than those in effect on the day immediately preceding a Change of Control. 4. Change of Control. (i) No benefits shall be payable hereunder unless there shall have been a Change of Control, as set forth below. For purposes of this Agreement, a Change of Control shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (a "20% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a Change of Control shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 20% Holder or to the 20% Holder's relationship to the Company, including, without limitation, the acquisition by the 20% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new Change of Control for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a Change of Control, you are the beneficial owner of two percent or more of the then-outstanding equity securities of the Company, or its successor in interest, a majority of the Continuing Directors may elect, within five business days after such Change of Control, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change of Control; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change of Control, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such Potential Change of Control, (ii) the termination by you of your employment by reason of Long-Term Disability or Retirement (at your normal retirement age), as defined in subsection 5(i), or (iii) the occurrence of a Change of Control. 5. Termination Following Change of Control. If any of the events described in subsection 4(i) hereof constituting a Change of Control shall have occurred, you shall be entitled to the benefits provided in subsection 6(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Long-Term Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Death, Long-Term Disability, or Retirement. If, as a result of your incapacity due to physical or mental illness which is determined to be total and permanent and to prevent you from performing, with or without reasonable accommodation, the essential functions of your employment by a physician and any other consultants selected by the Company or its insurers and acceptable to you or your legal representative, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Long -Term Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. Your death ("Death") during the term of this Agreement will terminate the Agreement. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 6(iv) and 6(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (C) your willful and continued breach of a material term of this Agreement. For purposes of this subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A), (B), or (C) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change of Control of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), (H) or (I), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 6(iv) and 6(v), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Vice President, Human Resources of Green Mountain Power Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time- to-time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the Change of Control, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or the failure by the Company to continue your participation in any such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (F) the failure by the Company to continue to provide you with the benefits substantially similar to those enjoyed by you under any of the following plans or programs maintained by the Company at the time of a Change of Control or the taking of any action which would directly or indirectly materially reduce any of such benefits, including but not limited to: (i) fringe benefits, in accordance with the Company's policies in effect at the time of a Change of Control; (ii) group life, accidental death and dismemberment, long-term disability, and medical and dental insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect at the time of a Change of Control; (iii) paid vacation in accordance with your agreements with the Company's and/or the Company's policies in effect at the time of a Change of Control; (iv) sick leave in accordance with the Company's policies in effect at the time of a Change of Control; and (v) the Company's Retirement and Supplemental Retirement Plans or any successors thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers, any stock-based compensation plans maintained by the Company or successor plans thereto, any savings or thrift plan maintained by the Company, whether or not such plans or programs are subject to ERISA; (G) any action by the Company that eliminates, materially reduces or jeopardizes the ability of the Company to fulfill its obligations under the Company's Deferred Compensation or Supplemental Retirement Plan, or both such plans, including by way of example and not of limitation, the sale or other disposition of assets of the Company, and all, or substantially all, of the proceeds from such sale or other disposition do not remain with the Company; (H) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in section 7 hereof; (I) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (iv) below (and if applicable, the requirements of subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective; or (J) your resignation, if tendered during the thirty days immediately following the first twelve months after a Change of Control. Your right to terminate your employment pursuant to this subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this subsection, any good faith determination of Good Reason made by you shall be conclusive. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with section 9 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Long-Term Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to subsection (ii) or (iii) above or for any other reason (other than Long- Term Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 6. Compensation Upon Termination or During Short-Term Disability. Following a Change of Control, as defined by subsection 4(i), upon termination of your employment or during a period of Short-Term Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness (hereinafter "Short-Term Disability") you shall continue to receive your base salary at the rate in effect at the commencement of the Short-Term Disability, together with all compensation and benefits payable or available to you and your family under any other plan in effect during such period, until this Agreement is terminated pursuant to section 5(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Long-Term Disability, Retirement, or by reason of your Death, your benefits and your family's or heirs' benefits, if applicable, shall be determined under the Company's retirement, insurance and other compensation programs with respect to other peer executives and their families as in effect on the Date of Termination, or if more favorable to you, your family or your heirs, as in effect during the 120-day period immediately preceding a Change of Control, in accordance with the terms of such programs. You, or, if applicable, your heirs or estate, shall also receive your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Long-Term Disability, Death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, Death or Long-Term Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you the following: the sum of (1) your full base salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) your most recent annual bonus or variable compensation award and (II) the annual bonus or variable compensation award paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which you were employed for less than twelve full months), for the most recently completed fiscal year since the Change of Control, if any, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation or sick pay, in each case to the extent not theretofore paid; (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 2.99 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code. (C) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (D), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (D) In addition, if the excise tax imposed under Code section 4999 on "excess parachute payments," as defined in Code section 280G, is provoked by (i) any amount paid or payable to or for the benefit of you under this section as legal fees and expenses, or (ii) any payments or benefits which you receive or have the right to receive from the Company (including the Severance Payment) or any affiliated entity or any payments or benefits under any plan or program maintained by the Company or any affiliated entity, the Company must indemnify you and hold you harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company must pay you an additional amount that is sufficient to pay any excise tax imposed by Code section 4999 on the payments and benefits to which you are entitled without the additional amount, plus the excise and income taxes on the additional amount. The determination of any additional amount that must be paid under this section must be made by the Company in good faith. (E) The payments provided for in paragraphs (B), (C) and (D) above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall provide you and your family at Company expense with group life, disability, medical and dental insurance benefits substantially similar to those which you and your family are receiving immediately prior to the Notice of Termination. The Company shall pay any applicable premiums on behalf of you and your family for continuation of medical coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Benefits otherwise receivable by you and your family pursuant to this subsection 6(iv) shall be reduced to the extent comparable benefits are actually received by you and your family during the thirty-six (36) month period following your termination, and any such benefits actually received by you and your family shall be reported to the Company. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Long-Term Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraph (E) of subsection 6(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you would have accrued under the terms of the Company's Retirement Plan without regard to any amendment to the Company's Retirement Plan made subsequent to a Change of Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan. For the purposes of this subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan immediately prior to the Change of Control. (vi) The Company shall, at its sole expense as incurred, provide you with outplacement services the scope and provider of which shall be selected by you in your sole discretion. (vii) Offsets Against Severance Payment. (A) The Severance Payment to which you are entitled under this Agreement may be reduced under this subsection, but not below zero. Reductions in the Severance Payment must be made under this subsection in the manner herein described. The Company must make any required determination or calculation in good faith. (B) You are not required to seek or accept any employment that is not Comparable Employment. If you obtain any employment during the months remaining in your employment period after the Date of Termination, the Severance Payment must be reduced by all amounts actually earned by you from such employment during those months; except that no such reduction may be made because of earnings from employment in which you could have engaged while you were employed by the Company. For example, the Severance Payment may not be reduced because of your fees for service as a director of a corporation other than the Company or your earnings from part-time employment or from any other employment that would not have impaired your ability to perform the duties described in Agreement section 2. (C) During the months remaining in your employment period after the Date of Termination and unless you are then eligible to retire under the Company's Retirement Plan, you must seek and accept any Comparable Employment that is offered to you. If the Company establishes that Comparable Employment was offered to you and that you did not accept it, the full amount of wages that you could have earned from Comparable Employment reduces the Severance Payment to which you are entitled under this Agreement. (D) For purposes of this Agreement, Comparable Employment means employment that entitles you to the same (or higher) total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control and to similar status, title(s), office(s), and management responsibilities; employment with a general character and grade similar to the general character and grade of your former employment with the Company; and employment suited to your education, training, and experience. For purposes of the Agreement, employment is not Comparable Employment if such employment is located more than forty miles from the location at which you are based on the Date of Termination; is short-term or temporary employment; entitles you to total compensation that is less than the total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control; requires you to take serious bodily or financial risks; entitles you to a lower status, title(s), office(s), and management responsibilities; or would not have impaired your ability to perform the duties described in section 2 of this Agreement. (E) To prevent hardship, repayment of the Severance Payment under this section may be made by you in installments, determined in the Company's sole discretion, but a repayment arrangement may not be used as a disguised loan. (vii) In addition to all other amounts payable to you under this section 6, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 7. Agreement Binding on Successors. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 8. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly-owned subsidiary, this Agreement shall apply to an executive of any wholly-owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly-owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly-owned subsidiary of the Company, or from any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly-owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly-owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly-owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 9. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under section 6 shall survive the expiration of the term of this Agreement. 11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit your continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which you may qualify. Amounts which are vested benefits or which you are otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to a Change of Control shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 12. Confidentiality. (i) Confidential information. You must hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, or data relating to the Company and its business, which is obtained by you during your employment by the Company and which is not public knowledge (other than by acts by you or your representatives in violation of this Agreement). After the termination of your employment with the Company, you must not, without the Company's prior written consent, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it to receive such information, knowledge, or data. In no event may an asserted violation of this section constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement. (ii) Records and files. All records and files concerning the Company or the Company's clients and customers belong to and remain the property of the Company. 13. Termination of Employment Prior to a Change of Control of the Company. You and the Company acknowledge that prior to a Change of Control or a Potential Change of Control, your employment may be terminated by the Company in accordance with the notice provisions set forth in section 1 of this Agreement, and by you at any time, in which case you shall have no further rights under this Agreement. 14. Anti-assignment. You may not assign, alienate, anticipate, or otherwise encumber any rights, duties, or amounts that you might be entitled to receive under this Agreement. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Funding. The Company is not required to establish a trust or other funding vehicle to pay benefits under this Agreement, except to the extent otherwise required by the Code or ERISA with respect to any employee benefit plan. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 19. Governing Law. This Agreement shall be governed by the laws of State of Vermont. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: ___________________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this _____ day of December, 1998. __________________________ Mary G. Powell Vice President, Human Resources Green Mountain Power Corporation EX-10 11 Exhibit 10-d-29 PERSONAL AND CONFIDENTIAL December 6, 1998 Stephen C. Terry Senior Vice President, Corporate Development Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Steve: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change of control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. The Company had previously entered into a letter agreement with you dated October 25, 1990 which was initially effective October 25, 1990 through December 31, 1991 (the "Agreement"). Commencing January 1, 1992 and each January 1 thereafter, the Agreement is automatically extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given you notice that it did not wish to extend the Agreement. In accordance with the provisions regarding modification found in section 8 of the Agreement, the Agreement is hereby modified by amending the Agreement in its entirety and restating the Agreement to read as follows: In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in subsection 4(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this Agreement in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in section 4 hereof and hereinafter a "Change of Control") under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on December 6, 1998 (the "Effective Date") and shall continue in effect through December 31, 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement. 2. Terms of Employment Before a Change of Control. Prior to a Change of Control, your terms of employment ("Terms of Employment") shall be as follows: (a) General duties. Excluding periods of vacation and sick leave to which you are entitled, you will continue to exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by you immediately before the Effective Date. (b) Place of employment. Your services will be performed at the location where you were employed immediately before the Effective Date. If the Company and you agree, however, the location of your employment may be changed without affecting your rights under this Agreement. (c) Expenses generally. You are entitled to receive prompt reimbursement for all reasonable expenses you incur. Reimbursement must be made in accordance with the Company's policies and procedures in effect on the Effective Date (which may include a requirement that you submit an itemized expense voucher). (d) Meetings, conventions, and seminars. You are encouraged and are expected to attend seminars, professional meetings and conventions, and educational courses. The cost of travel, tuition or registration, food, and lodging for attending those activities must be paid by the Company. Other costs are your expense, unless the Company authorizes those costs. If those other costs are authorized expenses, you must be reimbursed after satisfying the Company's policies and procedures for such reimbursement (which may include a requirement that you submit an itemized expense voucher). (e) Promotional expenses. You are encouraged and are expected, from time to time, to incur reasonable expenses for promoting the Company's business. Such promotional expenses include travel, entertainment (including memberships in social and athletic clubs), professional advancement, and community service expenses. You agree to bear those expenses except to the extent that those expenses are incurred at the Company's specific direction or those expenses are specifically authorized by the Company as expenses that the Company may pay directly or indirectly through reimbursement to you. (f) Outside activities. You may (i) serve on corporate, civic, or charitable boards or committees; (ii) deliver lectures, fulfill speaking engagements, or teach at educational institutions; and (iii) manage personal investments. Such activities must not significantly interfere with the performance of your responsibilities for the Company. To the extent that any such activities have been conducted by you before the Effective Date, such prior conduct of activities and any subsequent conduct of activities similar in nature and scope may not be deemed to interfere with the performance of your responsibilities to the Company. (g) Compensation and fringe benefits. Your compensation (including your annual base salary and any bonuses or incentive compensation) and benefits generally are the same as those in effect on the Effective Date. Your compensation and benefits are, however, subject to periodic review and adjustment by the Company. This section of this Agreement does not change the terms of any fringe benefit program or employee benefit plan maintained by the Company and does not give you any additional vested interest in any compensation or benefit to which you are not already entitled under any such program or plan on the Effective Date. Generally, your benefits include the following items, all of which are subject to periodic review and adjustment: (i) You are entitled to receive all group life, accidental death and dismemberment, long-term disability, and medical insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect on the Effective Date; (ii) You are entitled to paid vacation in accordance with the Company's policies in effect on the Effective Date; (iii) You are entitled to sick leave in accordance with the Company's policies in effect on the Effective Date; and (iv) You are entitled to participate in all employee benefit plans and programs in which you participate on the Effective Date, whether or not such plans or programs are subject to the Employee Retirement Income Act of 1974, as amended ("ERISA"), including but not limited to the Company's Retirement Plan, Supplemental Retirement Plan or any successor plans thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers and any stock-based compensation plans maintained by the Company or successor plans thereto and any savings or thrift plan maintained by the Company, 3. Extension of Agreement Upon Change of Control. If a Change of Control shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least thirty-six (36) months beyond the month in which such Change of Control occurred. The Terms of Employment set forth in section 2 continue in effect after a Change of Control and may not be changed to terms and conditions less favorable than those in effect on the day immediately preceding a Change of Control. 4. Change of Control. (i) No benefits shall be payable hereunder unless there shall have been a Change of Control, as set forth below. For purposes of this Agreement, a Change of Control shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (a "20% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a Change of Control shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 20% Holder or to the 20% Holder's relationship to the Company, including, without limitation, the acquisition by the 20% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new Change of Control for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a Change of Control, you are the beneficial owner of two percent or more of the then-outstanding equity securities of the Company, or its successor in interest, a majority of the Continuing Directors may elect, within five business days after such Change of Control, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change of Control; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change of Control, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such Potential Change of Control, (ii) the termination by you of your employment by reason of Long-Term Disability or Retirement (at your normal retirement age), as defined in subsection 5(i), or (iii) the occurrence of a Change of Control. 5. Termination Following Change of Control. If any of the events described in subsection 4(i) hereof constituting a Change of Control shall have occurred, you shall be entitled to the benefits provided in subsection 6(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Long-Term Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Death, Long-Term Disability, or Retirement. If, as a result of your incapacity due to physical or mental illness which is determined to be total and permanent and to prevent you from performing, with or without reasonable accommodation, the essential functions of your employment by a physician and any other consultants selected by the Company or its insurers and acceptable to you or your legal representative, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Long -Term Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. Your death ("Death") during the term of this Agreement will terminate the Agreement. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 6(iv) and 6(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (C) your willful and continued breach of a material term of this Agreement. For purposes of this subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A), (B), or (C) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change of Control of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), (H) or (I), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 6(iv) and 6(v), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Senior Vice President, Corporate Development of Green Mountain Power Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time- to-time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the Change of Control, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or the failure by the Company to continue your participation in any such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (F) the failure by the Company to continue to provide you with the benefits substantially similar to those enjoyed by you under any of the following plans or programs maintained by the Company at the time of a Change of Control or the taking of any action which would directly or indirectly materially reduce any of such benefits, including but not limited to: (i) fringe benefits, in accordance with the Company's policies in effect at the time of a Change of Control; (ii) group life, accidental death and dismemberment, long-term disability, and medical and dental insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect at the time of a Change of Control; (iii) paid vacation in accordance with your agreements with the Company's and/or the Company's policies in effect at the time of a Change of Control; (iv) sick leave in accordance with the Company's policies in effect at the time of a Change of Control; and (v) the Company's Retirement and Supplemental Retirement Plans or any successors thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers, any stock-based compensation plans maintained by the Company or successor plans thereto, any savings or thrift plan maintained by the Company, whether or not such plans or programs are subject to ERISA; (G) any action by the Company that eliminates, materially reduces or jeopardizes the ability of the Company to fulfill its obligations under the Company's Deferred Compensation or Supplemental Retirement Plan, or both such plans, including by way of example and not of limitation, the sale or other disposition of assets of the Company, and all, or substantially all, of the proceeds from such sale or other disposition do not remain with the Company; (H) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in section 7 hereof; (I) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (iv) below (and if applicable, the requirements of subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective; or (J) your resignation, if tendered during the thirty days immediately following the first twelve months after a Change of Control. Your right to terminate your employment pursuant to this subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this subsection, any good faith determination of Good Reason made by you shall be conclusive. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with section 9 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Long-Term Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to subsection (ii) or (iii) above or for any other reason (other than Long- Term Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 6. Compensation Upon Termination or During Short-Term Disability. Following a Change of Control, as defined by subsection 4(i), upon termination of your employment or during a period of Short-Term Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness (hereinafter "Short-Term Disability") you shall continue to receive your base salary at the rate in effect at the commencement of the Short-Term Disability, together with all compensation and benefits payable or available to you and your family under any other plan in effect during such period, until this Agreement is terminated pursuant to section 5(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Long-Term Disability, Retirement, or by reason of your Death, your benefits and your family's or heirs' benefits, if applicable, shall be determined under the Company's retirement, insurance and other compensation programs with respect to other peer executives and their families as in effect on the Date of Termination, or if more favorable to you, your family or your heirs, as in effect during the 120-day period immediately preceding a Change of Control, in accordance with the terms of such programs. You, or, if applicable, your heirs or estate, shall also receive your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Long-Term Disability, Death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, Death or Long-Term Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you the following: the sum of (1) your full base salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) your most recent annual bonus or variable compensation award and (II) the annual bonus or variable compensation award paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which you were employed for less than twelve full months), for the most recently completed fiscal year since the Change of Control, if any, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation or sick pay, in each case to the extent not theretofore paid; (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 2.99 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code. (C) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (D), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (D) In addition, if the excise tax imposed under Code section 4999 on "excess parachute payments," as defined in Code section 280G, is provoked by (i) any amount paid or payable to or for the benefit of you under this section as legal fees and expenses, or (ii) any payments or benefits which you receive or have the right to receive from the Company (including the Severance Payment) or any affiliated entity or any payments or benefits under any plan or program maintained by the Company or any affiliated entity, the Company must indemnify you and hold you harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company must pay you an additional amount that is sufficient to pay any excise tax imposed by Code section 4999 on the payments and benefits to which you are entitled without the additional amount, plus the excise and income taxes on the additional amount. The determination of any additional amount that must be paid under this section must be made by the Company in good faith. (E) The payments provided for in paragraphs (B), (C) and (D) above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall provide you and your family at Company expense with group life, disability, medical and dental insurance benefits substantially similar to those which you and your family are receiving immediately prior to the Notice of Termination. The Company shall pay any applicable premiums on behalf of you and your family for continuation of medical coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Benefits otherwise receivable by you and your family pursuant to this subsection 6(iv) shall be reduced to the extent comparable benefits are actually received by you and your family during the thirty-six (36) month period following your termination, and any such benefits actually received by you and your family shall be reported to the Company. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Long-Term Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraph (E) of subsection 6(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you would have accrued under the terms of the Company's Retirement Plan without regard to any amendment to the Company's Retirement Plan made subsequent to a Change of Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan. For the purposes of this subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan immediately prior to the Change of Control. (vi) The Company shall, at its sole expense as incurred, provide you with outplacement services the scope and provider of which shall be selected by you in your sole discretion. (vii) Offsets Against Severance Payment. (A) The Severance Payment to which you are entitled under this Agreement may be reduced under this subsection, but not below zero. Reductions in the Severance Payment must be made under this subsection in the manner herein described. The Company must make any required determination or calculation in good faith. (B) You are not required to seek or accept any employment that is not Comparable Employment. If you obtain any employment during the months remaining in your employment period after the Date of Termination, the Severance Payment must be reduced by all amounts actually earned by you from such employment during those months; except that no such reduction may be made because of earnings from employment in which you could have engaged while you were employed by the Company. For example, the Severance Payment may not be reduced because of your fees for service as a director of a corporation other than the Company or your earnings from part-time employment or from any other employment that would not have impaired your ability to perform the duties described in Agreement section 2. (C) During the months remaining in your employment period after the Date of Termination and unless you are then eligible to retire under the Company's Retirement Plan, you must seek and accept any Comparable Employment that is offered to you. If the Company establishes that Comparable Employment was offered to you and that you did not accept it, the full amount of wages that you could have earned from Comparable Employment reduces the Severance Payment to which you are entitled under this Agreement. (D) For purposes of this Agreement, Comparable Employment means employment that entitles you to the same (or higher) total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control and to similar status, title(s), office(s), and management responsibilities; employment with a general character and grade similar to the general character and grade of your former employment with the Company; and employment suited to your education, training, and experience. For purposes of the Agreement, employment is not Comparable Employment if such employment is located more than forty miles from the location at which you are based on the Date of Termination; is short-term or temporary employment; entitles you to total compensation that is less than the total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control; requires you to take serious bodily or financial risks; entitles you to a lower status, title(s), office(s), and management responsibilities; or would not have impaired your ability to perform the duties described in section 2 of this Agreement. (E) To prevent hardship, repayment of the Severance Payment under this section may be made by you in installments, determined in the Company's sole discretion, but a repayment arrangement may not be used as a disguised loan. (vii) In addition to all other amounts payable to you under this section 6, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 7. Agreement Binding on Successors. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 8. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly-owned subsidiary, this Agreement shall apply to an executive of any wholly-owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly-owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly-owned subsidiary of the Company, or from any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly-owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly-owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly-owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 9. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under section 6 shall survive the expiration of the term of this Agreement. 11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit your continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which you may qualify. Amounts which are vested benefits or which you are otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to a Change of Control shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 12. Confidentiality. (i) Confidential information. You must hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, or data relating to the Company and its business, which is obtained by you during your employment by the Company and which is not public knowledge (other than by acts by you or your representatives in violation of this Agreement). After the termination of your employment with the Company, you must not, without the Company's prior written consent, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it to receive such information, knowledge, or data. In no event may an asserted violation of this section constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement. (ii) Records and files. All records and files concerning the Company or the Company's clients and customers belong to and remain the property of the Company. 13. Termination of Employment Prior to a Change of Control of the Company. You and the Company acknowledge that prior to a Change of Control or a Potential Change of Control, your employment may be terminated by the Company in accordance with the notice provisions set forth in section 1 of this Agreement, and by you at any time, in which case you shall have no further rights under this Agreement. 14. Anti-assignment. You may not assign, alienate, anticipate, or otherwise encumber any rights, duties, or amounts that you might be entitled to receive under this Agreement. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Funding. The Company is not required to establish a trust or other funding vehicle to pay benefits under this Agreement, except to the extent otherwise required by the Code or ERISA with respect to any employee benefit plan. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 19. Governing Law. This Agreement shall be governed by the laws of State of Vermont. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: ___________________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this _____ day of December, 1998. __________________________ Stephen C. Terry Senior Vice President Corporate Development Green Mountain Power Corporation EX-11 12 Exhibit 10-d-30 PERSONAL AND CONFIDENTIAL December 6, 1998 Jonathan H. Winer President, Mountain Energy Green Mountain Power Corporation P.O. Box 850 South Burlington, VT 05402-0850 Dear Jonathan: Green Mountain Power Corporation (the "Company") considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change of control of the Company may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its shareholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is known to be contemplated. The Company had previously entered into a letter agreement with you dated October 25, 1990 which was initially effective October 25, 1990 through December 31, 1991 (the "Agreement"). Commencing January 1, 1992 and each January 1 thereafter, the Agreement is automatically extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given you notice that it did not wish to extend the Agreement. In accordance with the provisions regarding modification found in section 8 of the Agreement, the Agreement is hereby modified by amending the Agreement in its entirety and restating the Agreement to read as follows: In order to induce you to remain in the employ of the Company and in consideration of your agreement set forth in subsection 4(ii) hereof, the Company agrees that you shall receive the severance benefits set forth in this Agreement in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in section 4 hereof and hereinafter a "Change of Control") under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on December 6, 1998 (the "Effective Date") and shall continue in effect through December 31, 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement. 2. Terms of Employment Before a Change of Control. Prior to a Change of Control, your terms of employment ("Terms of Employment") shall be as follows: (a) General duties. Excluding periods of vacation and sick leave to which you are entitled, you will continue to exercise such authority and perform such executive duties as are commensurate with the authority being exercised and duties being performed by you immediately before the Effective Date. (b) Place of employment. Your services will be performed at the location where you were employed immediately before the Effective Date. If the Company and you agree, however, the location of your employment may be changed without affecting your rights under this Agreement. (c) Expenses generally. You are entitled to receive prompt reimbursement for all reasonable expenses you incur. Reimbursement must be made in accordance with the Company's policies and procedures in effect on the Effective Date (which may include a requirement that you submit an itemized expense voucher). (d) Meetings, conventions, and seminars. You are encouraged and are expected to attend seminars, professional meetings and conventions, and educational courses. The cost of travel, tuition or registration, food, and lodging for attending those activities must be paid by the Company. Other costs are your expense, unless the Company authorizes those costs. If those other costs are authorized expenses, you must be reimbursed after satisfying the Company's policies and procedures for such reimbursement (which may include a requirement that you submit an itemized expense voucher). (e) Promotional expenses. You are encouraged and are expected, from time to time, to incur reasonable expenses for promoting the Company's business. Such promotional expenses include travel, entertainment (including memberships in social and athletic clubs), professional advancement, and community service expenses. You agree to bear those expenses except to the extent that those expenses are incurred at the Company's specific direction or those expenses are specifically authorized by the Company as expenses that the Company may pay directly or indirectly through reimbursement to you. (f) Outside activities. You may (i) serve on corporate, civic, or charitable boards or committees; (ii) deliver lectures, fulfill speaking engagements, or teach at educational institutions; and (iii) manage personal investments. Such activities must not significantly interfere with the performance of your responsibilities for the Company. To the extent that any such activities have been conducted by you before the Effective Date, such prior conduct of activities and any subsequent conduct of activities similar in nature and scope may not be deemed to interfere with the performance of your responsibilities to the Company. (g) Compensation and fringe benefits. Your compensation (including your annual base salary and any bonuses or incentive compensation) and benefits generally are the same as those in effect on the Effective Date. Your compensation and benefits are, however, subject to periodic review and adjustment by the Company. This section of this Agreement does not change the terms of any fringe benefit program or employee benefit plan maintained by the Company and does not give you any additional vested interest in any compensation or benefit to which you are not already entitled under any such program or plan on the Effective Date. Generally, your benefits include the following items, all of which are subject to periodic review and adjustment: (i) You are entitled to receive all group life, accidental death and dismemberment, long-term disability, and medical insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect on the Effective Date; (ii) You are entitled to paid vacation in accordance with the Company's policies in effect on the Effective Date; (iii) You are entitled to sick leave in accordance with the Company's policies in effect on the Effective Date; and (iv) You are entitled to participate in all employee benefit plans and programs in which you participate on the Effective Date, whether or not such plans or programs are subject to the Employee Retirement Income Act of 1974, as amended ("ERISA"), including but not limited to the Company's Retirement Plan, Supplemental Retirement Plan or any successor plans thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers and any stock-based compensation plans maintained by the Company or successor plans thereto and any savings or thrift plan maintained by the Company, 3. Extension of Agreement Upon Change of Control. If a Change of Control shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of at least thirty-six (36) months beyond the month in which such Change of Control occurred. The Terms of Employment set forth in section 2 continue in effect after a Change of Control and may not be changed to terms and conditions less favorable than those in effect on the day immediately preceding a Change of Control. 4. Change of Control. (i) No benefits shall be payable hereunder unless there shall have been a Change of Control, as set forth below. For purposes of this Agreement, a Change of Control shall be deemed to have occurred if (A) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (a "20% Holder"); or (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company (the "Board") and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A) or (C) of this subsection) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company; or (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, however, that a Change of Control shall not be deemed to have occurred under clauses (A) or (C) above if a majority of the Continuing Directors (as defined below) determine within five business days after the occurrence of any event specified in clauses (A) or (C) above that control of the Company has not in fact changed and it is reasonably expected that such control of the Company in fact will not change. Notwithstanding that, in the case of clause (A) above, the Board shall have made a determination of the nature described in the preceding sentence, if there shall thereafter occur any material change in facts involving, or relating to, the 20% Holder or to the 20% Holder's relationship to the Company, including, without limitation, the acquisition by the 20% Holder of l% or more additional outstanding voting stock of the Company, the occurrence of such material change in facts shall result in a new Change of Control for the purpose of this Agreement. In such event, the second immediately preceding sentence hereof shall be effective. As used herein, the term "Continuing Director" shall mean any member of the Board on the date of this Agreement and any successor of a Continuing Director who is recommended to succeed the Continuing Director by a majority of Continuing Directors. If, following a Change of Control, you are the beneficial owner of two percent or more of the then-outstanding equity securities of the Company, or its successor in interest, a majority of the Continuing Directors may elect, within five business days after such Change of Control, to terminate any benefits payable to you under this Agreement after the date of such an election by the Continuing Directors. (ii) For purposes of this Agreement, a "Potential Change of Control" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change of Control; (B) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change of Control; (C) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportion as their ownership of stock of the Company, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change of Control has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change of Control, you will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the occurrence of such Potential Change of Control, (ii) the termination by you of your employment by reason of Long-Term Disability or Retirement (at your normal retirement age), as defined in subsection 5(i), or (iii) the occurrence of a Change of Control. 5. Termination Following Change of Control. If any of the events described in subsection 4(i) hereof constituting a Change of Control shall have occurred, you shall be entitled to the benefits provided in subsection 6(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Long-Term Disability or Retirement, (B) by the Company for Cause, or (C) by you other than for Good Reason. (i) Death, Long-Term Disability, or Retirement. If, as a result of your incapacity due to physical or mental illness which is determined to be total and permanent and to prevent you from performing, with or without reasonable accommodation, the essential functions of your employment by a physician and any other consultants selected by the Company or its insurers and acceptable to you or your legal representative, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Long -Term Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. Your death ("Death") during the term of this Agreement will terminate the Agreement. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination, by you for Good Reason as defined in Subsections 6(iv) and 6(iii), respectively) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (C) your willful and continued breach of a material term of this Agreement. For purposes of this subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A), (B), or (C) of the first sentence of this subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change of Control of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G), (H) or (I), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Subsections 6(iv) and 6(v), respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as President of Mountain Energy or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control; (B) a reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time- to-time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; (C) the relocation of the Company's principal executive offices (presently located at Green Mountain Drive, South Burlington, Vermont) to a location more than fifty miles distant from the present location prior to the Change of Control, or the closing thereof, or the Company's requiring you to be based anywhere other than within fifty miles of the present location, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral similarly affecting all executives of the Company and all executives of any person in control of the Company; (E) the failure by the Company to offer you any compensation plan introduced to other executives of similar responsibility or any substitute plans adopted prior to the Change of Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or the failure by the Company to continue your participation in any such compensation plan (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change of Control; (F) the failure by the Company to continue to provide you with the benefits substantially similar to those enjoyed by you under any of the following plans or programs maintained by the Company at the time of a Change of Control or the taking of any action which would directly or indirectly materially reduce any of such benefits, including but not limited to: (i) fringe benefits, in accordance with the Company's policies in effect at the time of a Change of Control; (ii) group life, accidental death and dismemberment, long-term disability, and medical and dental insurance benefits available to you according to Company policies and employee benefit plans maintained by the Company that are in effect at the time of a Change of Control; (iii) paid vacation in accordance with your agreements with the Company's and/or the Company's policies in effect at the time of a Change of Control; (iv) sick leave in accordance with the Company's policies in effect at the time of a Change of Control; and (v) the Company's Retirement and Supplemental Retirement Plans or any successors thereto, any incentive compensation plans maintained by the Company or any successor thereto, the Company's Deferred Compensation Plan for Certain Officers, any stock-based compensation plans maintained by the Company or successor plans thereto, any savings or thrift plan maintained by the Company, whether or not such plans or programs are subject to ERISA; (G) any action by the Company that eliminates, materially reduces or jeopardizes the ability of the Company to fulfill its obligations under the Company's Deferred Compensation or Supplemental Retirement Plan, or both such plans, including by way of example and not of limitation, the sale or other disposition of assets of the Company, and all, or substantially all, of the proceeds from such sale or other disposition do not remain with the Company; (H) the failure of the Company to obtain a satisfactory agreement from any successor company to assume and agree to perform this Agreement, as contemplated in section 7 hereof; (I) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of subsection (iv) below (and if applicable, the requirements of subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective; or (J) your resignation, if tendered during the thirty days immediately following the first twelve months after a Change of Control. Your right to terminate your employment pursuant to this subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. For purposes of this subsection, any good faith determination of Good Reason made by you shall be conclusive. (iv) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with section 9 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Long-Term Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (B) if your employment is terminated pursuant to subsection (ii) or (iii) above or for any other reason (other than Long- Term Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to subsection (ii) above shall not be less than thirty (30) days, and in the case of a termination pursuant to subsection (iii) above shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within fifteen (15) days after any Notice of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this subsection. Amounts paid under this subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 6. Compensation Upon Termination or During Short-Term Disability. Following a Change of Control, as defined by subsection 4(i), upon termination of your employment or during a period of Short-Term Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Company as a result of incapacity due to physical or mental illness (hereinafter "Short-Term Disability") you shall continue to receive your base salary at the rate in effect at the commencement of the Short-Term Disability, together with all compensation and benefits payable or available to you and your family under any other plan in effect during such period, until this Agreement is terminated pursuant to section 5(i) hereof. Thereafter, or in the event your employment shall be terminated by the Company or by you for Long-Term Disability, Retirement, or by reason of your Death, your benefits and your family's or heirs' benefits, if applicable, shall be determined under the Company's retirement, insurance and other compensation programs with respect to other peer executives and their families as in effect on the Date of Termination, or if more favorable to you, your family or your heirs, as in effect during the 120-day period immediately preceding a Change of Control, in accordance with the terms of such programs. You, or, if applicable, your heirs or estate, shall also receive your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, Long-Term Disability, Death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement, Death or Long-Term Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you the following: the sum of (1) your full base salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) your most recent annual bonus or variable compensation award and (II) the annual bonus or variable compensation award paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which you were employed for less than twelve full months), for the most recently completed fiscal year since the Change of Control, if any, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any accrued vacation or sick pay, in each case to the extent not theretofore paid; (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 2.99 times your "base amount," as defined in section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). Such base amount shall be determined in accordance with temporary or final regulations, if any, promulgated under section 280G of the Code. (C) The Company shall pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder), such payment to be made at the later of the times provided in paragraph (D), below or within five (5) days after your request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. (D) In addition, if the excise tax imposed under Code section 4999 on "excess parachute payments," as defined in Code section 280G, is provoked by (i) any amount paid or payable to or for the benefit of you under this section as legal fees and expenses, or (ii) any payments or benefits which you receive or have the right to receive from the Company (including the Severance Payment) or any affiliated entity or any payments or benefits under any plan or program maintained by the Company or any affiliated entity, the Company must indemnify you and hold you harmless against all claims, losses, damages, penalties, expenses, and excise taxes. To effect this indemnification, the Company must pay you an additional amount that is sufficient to pay any excise tax imposed by Code section 4999 on the payments and benefits to which you are entitled without the additional amount, plus the excise and income taxes on the additional amount. The determination of any additional amount that must be paid under this section must be made by the Company in good faith. (E) The payments provided for in paragraphs (B), (C) and (D) above, shall (except as otherwise provided therein) be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (iv) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Disability or (B) by you for Good Reason, then for a thirty-six (36) month period after such termination, the Company shall provide you and your family at Company expense with group life, disability, medical and dental insurance benefits substantially similar to those which you and your family are receiving immediately prior to the Notice of Termination. The Company shall pay any applicable premiums on behalf of you and your family for continuation of medical coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Benefits otherwise receivable by you and your family pursuant to this subsection 6(iv) shall be reduced to the extent comparable benefits are actually received by you and your family during the thirty-six (36) month period following your termination, and any such benefits actually received by you and your family shall be reported to the Company. (v) If your employment shall be terminated (A) by the Company other than for Cause, Retirement or Long-Term Disability or (B) by you for Good Reason, then in addition to the retirement benefits to which you are entitled under the Company's Retirement Plan and Supplemental Retirement Plan or any successor plans thereto, the Company shall pay you in cash at the time and in the manner provided in paragraph (E) of subsection 6(iii), a lump sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you would have accrued under the terms of the Company's Retirement Plan without regard to any amendment to the Company's Retirement Plan made subsequent to a Change of Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder, determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination over (y) the retirement pension (determined as a straight life annuity commencing at age sixty-five) which you had then accrued pursuant to the provisions of the Company's Retirement Plan. For the purposes of this subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's Retirement Plan immediately prior to the Change of Control. (vi) The Company shall, at its sole expense as incurred, provide you with outplacement services the scope and provider of which shall be selected by you in your sole discretion. (vii) Offsets Against Severance Payment. (A) The Severance Payment to which you are entitled under this Agreement may be reduced under this subsection, but not below zero. Reductions in the Severance Payment must be made under this subsection in the manner herein described. The Company must make any required determination or calculation in good faith. (B) You are not required to seek or accept any employment that is not Comparable Employment. If you obtain any employment during the months remaining in your employment period after the Date of Termination, the Severance Payment must be reduced by all amounts actually earned by you from such employment during those months; except that no such reduction may be made because of earnings from employment in which you could have engaged while you were employed by the Company. For example, the Severance Payment may not be reduced because of your fees for service as a director of a corporation other than the Company or your earnings from part-time employment or from any other employment that would not have impaired your ability to perform the duties described in Agreement section 2. (C) During the months remaining in your employment period after the Date of Termination and unless you are then eligible to retire under the Company's Retirement Plan, you must seek and accept any Comparable Employment that is offered to you. If the Company establishes that Comparable Employment was offered to you and that you did not accept it, the full amount of wages that you could have earned from Comparable Employment reduces the Severance Payment to which you are entitled under this Agreement. (D) For purposes of this Agreement, Comparable Employment means employment that entitles you to the same (or higher) total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control and to similar status, title(s), office(s), and management responsibilities; employment with a general character and grade similar to the general character and grade of your former employment with the Company; and employment suited to your education, training, and experience. For purposes of the Agreement, employment is not Comparable Employment if such employment is located more than forty miles from the location at which you are based on the Date of Termination; is short-term or temporary employment; entitles you to total compensation that is less than the total compensation (including employment related benefits) to which you were entitled immediately prior to a Change of Control; requires you to take serious bodily or financial risks; entitles you to a lower status, title(s), office(s), and management responsibilities; or would not have impaired your ability to perform the duties described in section 2 of this Agreement. (E) To prevent hardship, repayment of the Severance Payment under this section may be made by you in installments, determined in the Company's sole discretion, but a repayment arrangement may not be used as a disguised loan. (vii) In addition to all other amounts payable to you under this section 6, you shall be entitled to receive all benefits payable to you under the Company's Retirement Plan, Savings and Thrift Plan, Supplemental Retirement Plan and any other plan or agreement relating to retirement benefits. 7. Agreement Binding on Successors. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 8. Subsidiary Corporations. Upon approval of the Board of Directors of the appropriate wholly-owned subsidiary, this Agreement shall apply to an executive of any wholly-owned subsidiary of the Company with the same force and effect as if said executive were employed directly by the Company. Upon approval by said subsidiary's Board of Directors, the executive of the wholly-owned subsidiary shall be entitled to the same benefits from the Company as those granted to executives of the Company. For purposes of this Agreement the transfer of an employee from the Company to any wholly-owned subsidiary of the Company, or from any wholly-owned subsidiary to the Company, or from one wholly-owned subsidiary to another shall not constitute a termination of such employee's employment. As applied to an executive of a wholly-owned subsidiary, the duties and obligations of the Company shall, wherever appropriate, refer to the duties and obligations of the Company's wholly-owned subsidiary which employs the executive; provided, however, that the Company rather than the wholly-owned subsidiary shall remain liable to the executive for payment of benefits due hereunder. 9. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notice to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any previous agreements between the Company and you on the matters herein addressed. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Vermont. All reference to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under section 6 shall survive the expiration of the term of this Agreement. 11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit your continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which you may qualify. Amounts which are vested benefits or which you are otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to a Change of Control shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 12. Confidentiality. (i) Confidential information. You must hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, or data relating to the Company and its business, which is obtained by you during your employment by the Company and which is not public knowledge (other than by acts by you or your representatives in violation of this Agreement). After the termination of your employment with the Company, you must not, without the Company's prior written consent, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it to receive such information, knowledge, or data. In no event may an asserted violation of this section constitute a basis for deferring or withholding any amounts otherwise payable to you under this Agreement. (ii) Records and files. All records and files concerning the Company or the Company's clients and customers belong to and remain the property of the Company. 13. Termination of Employment Prior to a Change of Control of the Company. You and the Company acknowledge that prior to a Change of Control or a Potential Change of Control, your employment may be terminated by the Company in accordance with the notice provisions set forth in section 1 of this Agreement, and by you at any time, in which case you shall have no further rights under this Agreement. 14. Anti-assignment. You may not assign, alienate, anticipate, or otherwise encumber any rights, duties, or amounts that you might be entitled to receive under this Agreement. 15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Funding. The Company is not required to establish a trust or other funding vehicle to pay benefits under this Agreement, except to the extent otherwise required by the Code or ERISA with respect to any employee benefit plan. 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Burlington, Vermont in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 19. Governing Law. This Agreement shall be governed by the laws of State of Vermont. ACKNOWLEDGMENT OF ARBITRATION The parties hereto understand that this Agreement contains an agreement to arbitrate. After signing this document, the parties understand that they will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead the parties agree to submit any such dispute to an impartial arbitrator. This letter is submitted in duplicate. If it sets forth our agreement on the subject matter hereof, kindly sign both copies and return one copy to me within thirty (30) days (after which this offer of severance benefits will lapse). These letters will then constitute our agreement on this subject. By: ___________________________ Thomas P. Salmon, Chairman Board of Directors Green Mountain Power Corporation Agreed to this _____ day of December, 1998. __________________________ Jonathan H. Winer President, Mountain Energy Green Mountain Power Corporation EX-12 13 Exhibit 23-a-1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 5, 1999 included in this Form 10-K into the Company's previously filed Registration Statements on Form S-3, File Nos. 33-58411 and 33-59383, and into the Company's previously filed Registration Statements on Form S-8, File Nos. 33-58413 and 33-60511. Boston, Massachusetts March 25, 1999 /s/ Arthur Andersen LLP EX-13 14 Exhibit 24 POWER OF ATTORNEY We, the undersigned directors of Green Mountain Power Corporation, hereby severally constitute Christopher L. Dutton, Nancy R. Brock, and Michael H. Lipson, and each of them singly, our true and lawful attorney with full power of substitution, to sign for us and in our names in the capacities indicated below, the Annual Report on Form 10-K of Green Mountain Power Corporation for the fiscal year ended December 31, 1998, and generally to do all such things in our name and behalf in our capacities as directors to enable Green Mountain Power Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, all requirements of the Securities and Exchange Commission, and all requirements of any other applicable law or regulation, hereby ratifying and confirming our signatures as they may be signed by our said attorney, to said Annual Report. SIGNATURE TITLE DATE _/s/ Christopher L. Dutton President and Director February 8, 1999 Christopher L. Dutton (Principal Executive Officer) _/s/ Thomas P. Salmon Thomas P. Salmon Chairman of the Board February 8, 1999 _/s/ Nordahl L. Brue Nordahl L. Brue Director February 8, 1999 _/s/ William H. Bruett William H. Bruett Director February 8, 1999 _/s/ Lorraine E. Chickering Lorraine E. Chickering Director February 8, 1999 _/s/ John V. Cleary John V. Cleary Director February 8, 1999 _/s/ Euclid A. Irving Euclid A. Irving Director February 8, 1999 _/s/ Martin L. Johnson Martin L. Johnson Director February 8, 1999 _/s/ Ruth W. Page Ruth W. Page Director February 8, 1999 EX-27 15
UT This schedule contains summary financial information extracted from the Consolidated Balance Sheet as of December 31, 1998 and the related Consolidated Statements of Income and Cash Flows for the twelve months ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1998 DEC-31-1998 PER-BOOK 195,556 20,678 35,700 30,576 27,314 309,824 17,711 71,536 17,508 106,755 3,440 12,645 88,500 7,000 0 0 1,700 0 7,696 0 82,088 309,824 184,304 (1,367) 180,199 178,832 5,472 (473) 4,999 7,876 (2,877) 1,296 (4,173) 5,036 6,991 9,939 (0.80) (0.80)
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