Exhibit (a)(1)(i)
Amended Offering Circular
ALLEGHENY ENERGY, INC.
ALLEGHENY CAPITAL TRUST I
Offer of Premium for Conversion of Outstanding
11 7/8% Mandatorily Convertible Trust Preferred Securities
of
Allegheny Capital Trust I
(CUSIP No. 017271AA5)
into
Shares of Authorized but Unissued Common Stock
of
Allegheny Energy, Inc.
and
Solicitation of Consents for Proposed Amendments to the
Indenture Governing Allegheny Energy, Inc.'s 11 7/8% Notes due 2008
THE OFFER AND CONSENT SOLICITATION WILL EXPIRE ON APRIL 20, 2005, AT 12:00
MIDNIGHT, NEW YORK CITY TIME, OR AT SUCH OTHER TIME IF THIS DATE IS EXTENDED
OR TERMINATED BY ALLEGHENY ENERGY, INC. AND ALLEGHENY CAPITAL TRUST I (THE
"EXPIRATION DATE").
This offer and consent solicitation is being made to the holders of
Allegheny Capital Trust I's (the "Trust") 11 7/8% Mandatorily Convertible Trust
Preferred Securities (the "Preferred Securities"). On the Expiration Date,
Wilmington Trust Company, as conversion agent (the "Conversion Agent"), will
tender to Allegheny Energy, Inc., a Maryland corporation and the parent of the
Trust ("Allegheny"), an aggregate principal amount of Allegheny's 11 7/8% Notes
due 2008 (the "11 7/8% Notes") equal to the aggregate Liquidation Amount (as
defined below) of Preferred Securities tendered for conversion in the offer
and consent solicitation. The Conversion Agent will also exercise the warrants
that are attached to the tendered 11 7/8% Notes (the "Warrants") for shares of
Allegheny's common stock, par value $1.25 per share (the "Common Stock"), and
will thereafter distribute the Common Stock to tendering holders in
satisfaction of the shares of Common Stock the holders are entitled to receive
upon conversion of their Preferred Securities. The tendered Preferred
Securities and 11 7/8% Notes and the exercised Warrants will be retired and
cancelled.
Allegheny is offering holders of the Preferred Securities the right
to receive $160.00 in cash per $1,000 Liquidation Amount of Preferred
Securities if they tender their Preferred Securities for conversion into
Common Stock, during the period commencing on the date of this offering
circular through 12:00 midnight, New York City time, on April 20, 2005, or
such other time if this date is extended by the Trust and Allegheny (the
"Special Conversion Period").
Allegheny and the Trust are also soliciting consents from the holders
of the Preferred Securities to amend the indenture, dated as of July 24, 2003,
by and between Allegheny and Wilmington Trust Company, as trustee (the
"Indenture Trustee") (the "Indenture"). If you tender your Preferred
Securities, you will be deemed to have consented to the Proposed Amendments
described herein to the Indenture (the "Proposed Amendments"). The amendments
to the Indenture will remove substantially all of the restrictive covenants
contained in the Indenture, including the covenant restricting the amount of
indebtedness that Allegheny may incur.
The term "Liquidation Amount" means an amount with respect to the
assets of the Trust equal to $1,000 per Preferred Security, subject to certain
adjustments. The Liquidation Amount of a fractional Preferred Security is
equal to such fraction multiplied by $1,000. The term "Majority in Liquidation
Amount of the Preferred Securities" means, except to the extent otherwise
provided by the Trust Indenture Act of 1939, holders of outstanding Preferred
Securities, voting together as a single class, who are the record owners of an
aggregate Liquidation Amount representing more than 50% of the aggregate
Liquidation Amount (including the stated liquidation amount that would be paid
on redemption, liquidation or otherwise, plus accrued and unpaid distributions
and additional amounts (each as defined in the Amended and Restated
Declaration of Trust, dated July 24, 2003 (the "Declaration of Trust"), by and
among the Trust, Allegheny, as sponsor of the Trust, Wilmington Trust Company,
as institutional trustee (the "Institutional Trustee"), Wilmington Trust
Company, as Delaware Trustee (the "Delaware Trustee"), and Jeffrey D. Serkes,
as regular trustee (the "Regular Trustee")), if any, to the date upon which
the voting percentages are determined).
Generally, the Proposed Amendments to the Indenture will become
effective if the holders of at least a Majority in Liquidation Amount of the
Preferred Securities validly tender and do not withdraw their Preferred
Securities pursuant to this offer and consent solicitation (the "Requisite
Percentage"). However, as discussed in more detail herein, the consent of 75%
in Liquidation Amount of the Preferred Securities is required to amend the
restriction on anti-layering covenant (Section 4.11) of the Indenture (the
"Additional Amendment"). Allegheny and the Trust currently intend to
consummate the offer and consent solicitation if holders of the Requisite
Percentage validly tender and do not withdraw their Preferred Securities, even
if the required consent to effectuate the Additional Amendment is not
achieved.
If you elect to tender your Preferred Securities for conversion into
Common Stock during the Special Conversion Period, for each $1,000 in
Liquidation Amount of Preferred Securities tendered, you will receive:
o 83.33 shares of Common Stock, subject to any applicable
anti-dilution adjustments and
o $160.00 in cash (the "Conversion Amount"), which represents
(i) $148.44, the nominal amount of the remaining regularly
scheduled distributions from March 15, 2005 through June 15,
2006 (the first date on which Allegheny may redeem any or all
of the 11 7/8% Notes, irrespective of the aggregate principal
amount of 11 7/8% Notes outstanding, and the date that the
Preferred Securities become subject to the mandatory
conversion provisions of the Declaration of Trust), and (ii)
$11.56, an incentive payment to encourage holders to tender
and consent. The nominal amount of the regularly scheduled
distributions referred to above does not reflect any discount
based on the present value of such payments, although
Allegheny believes that certain holders of the Preferred
Securities may value the remaining distributions on a discounted
ii
basis. Although the nominal amount referred to above does not
reflect any discount, holders that value the remaining
distributions on a discounted basis will view the incentive
payment portion of the Conversion Amount to be greater than
$11.56. Allegheny cannot predict whether, or the rate at
which, holders will discount the value of the remaining
distribution payments referred to above.
The offer and consent solicitation will expire at 12:00 midnight, New
York City time, on April 20, 2005, or at such other time if this date is
extended or terminated by the Trust and Allegheny.
If you do not tender your Preferred Securities for conversion into
Common Stock during the Special Conversion Period, you will continue to hold
your Preferred Securities. Holders that convert Preferred Securities into
Common Stock after the Expiration Date will not receive the Conversion Amount
upon the conversion of their Preferred Securities.
This offer and consent solicitation is being made on the terms and
subject to the conditions set forth in this offering circular and in the
accompanying consent and letter of transmittal (the "Consent and Letter of
Transmittal"). Whether you tender pursuant to book-entry with The Depository
Trust Company ("DTC") or by delivering both the Preferred Securities and the
accompanying Consent and Letter of Transmittal to the Conversion Agent, you
will be required to complete and submit a notice of conversion, the form of
which is attached as Annex B hereto (the "Notice of Conversion"). If this
offer and consent solicitation is withdrawn or otherwise not completed, the
Trust and Allegheny will return the Preferred Securities that have been
tendered for conversion to you, without expense to you.
In lieu of issuing fractional shares of Common Stock, Allegheny will
pay to holders of Preferred Securities that have been converted in the offer
and consent solicitation who otherwise would have been entitled to a
fractional share of Common Stock, an amount in cash equal to the product of
such fraction and the average of the closing prices of the Common Stock, as
reported by the New York Stock Exchange (the "NYSE"), for the five trading
days ending on the last trading day before the Expiration Date. The Common
Stock is quoted on the NYSE under the symbol "AYE." The closing price per
share of the Common Stock on April 5, 2005 was $21.08.
See "Risk Factors" beginning on page 29 for a discussion of certain
factors that you should consider in connection with this offer and consent
solicitation. You can also find additional information regarding Allegheny's
business, results of operations and financial condition in the annual,
quarterly and current reports that Allegheny files with the Securities and
Exchange Commission (the "SEC"). See "Incorporation of Documents by Reference"
beginning on page 73.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THIS TRANSACTION OR DETERMINED IF THIS DOCUMENT IS ACCURATE OR
COMPLETE.
The information agent for the offer and consent solicitation is
Global Bondholder Services Corporation (the "Information Agent").
The date of this amended offering circular is April 6, 2005.
iii
TABLE OF CONTENTS
SUMMARY OF THE OFFER AND CONSENT SOLICITATION................................1
SUMMARY OF ADDITIONAL TERMS..................................................9
SUMMARY DESCRIPTION OF ALLEGHENY COMMON STOCK...............................18
ALLEGHENY ENERGY, INC.......................................................21
ALLEGHENY CAPITAL TRUST I...................................................22
CAPITALIZATION..............................................................23
SELECTED CONSOLIDATED FINANCIAL INFORMATION.................................24
RATIO OF EARNINGS TO FIXED CHARGES..........................................26
FORWARD-LOOKING STATEMENTS..................................................27
RISK FACTORS................................................................29
USE OF PROCEEDS.............................................................42
THE OFFER AND CONSENT SOLICITATION..........................................43
PROPOSED AMENDMENTS TO THE INDENTURE........................................61
DESCRIPTION OF ALLEGHENY COMMON STOCK.......................................66
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES......................68
INFORMATION AGENT...........................................................72
CONVERSION AGENT............................................................72
INCORPORATION OF DOCUMENTS BY REFERENCE.....................................73
WHERE YOU CAN FIND MORE INFORMATION.........................................73
MISCELLANEOUS...............................................................74
ANNEX A EXCERPTS FROM THE INDENTURE.......................................A-1
ANNEX B NOTICE OF CONVERSION..............................................B-1
iv
This offering circular summarizes various documents and other
information, copies of which will be made available to you upon request, as
indicated under the section titled "Where You Can Find More Information." The
summaries are qualified in their entirety by reference to the documents and
information to which they relate. In making a decision whether to participate
in the offer and consent solicitation, holders of Preferred Securities must
rely on their own independent examination of the terms and conditions of the
offer and consent solicitation, including the merits and risks involved. The
information contained in this offering circular is current only as of the date
hereof and neither the delivery of this offering circular nor the consummation
of the offer and consent solicitation shall create any implication that the
information contained herein is accurate or complete as of any date other than
the date hereof. The contents of this offering circular are not to be
construed as legal, business or tax advice. Holders of Preferred Securities
should consult their own attorney, business advisor and tax advisor for legal,
business or tax advice with respect to the offer and consent solicitation and
an investment in the Common Stock.
THIS OFFERING CIRCULAR AND THE ACCOMPANYING CONSENT AND LETTER OF
TRANSMITTAL CONTAIN IMPORTANT INFORMATION THAT YOU SHOULD READ BEFORE YOU MAKE
ANY DECISION WHETHER TO PARTICIPATE IN THE OFFER AND CONSENT SOLICITATION.
Unless the context otherwise requires, references in this offering
circular to "Allegheny," "we," "us" or "our" refer to Allegheny Energy, Inc.
and its consolidated subsidiaries. References in this offering circular to
"AE" refer to Allegheny Energy, Inc., a diversified utility holding company.
SUMMARY OF THE OFFER AND CONSENT SOLICITATION
This Summary contains basic information that you should consider when
determining whether to participate in the offer and consent solicitation. This
Summary is not complete and does not contain all of the information that you
should consider when making a decision to participate in the offer and consent
solicitation. You should carefully read this entire offering circular,
including the section titled "Risk Factors" and the information incorporated
by reference herein, before making a decision to participate in the offer and
consent solicitation.
Offerors........................................... Allegheny Energy, Inc. and Allegheny Capital
Trust I.
Securities Subject to the Offer and
Consent Solicitation............................... Allegheny Capital Trust I's 11 7/8% Mandatorily
Convertible Trust Preferred Securities.
The Offer.......................................... If you elect to tender your Preferred Securities
for conversion into Common Stock during the Special
Conversion Period, for each $1,000 in Liquidation
Amount of Preferred Securities, you will receive:
o 83.33 shares of Common Stock, subject to
any applicable anti-dilution adjustments;
and
o $160.00 in cash, which represents (i)
$148.44, the nominal amount of the
remaining regularly scheduled distributions
from March 15, 2005 through June 15, 2006
(the first date on which Allegheny may
redeem any or all of the 11 7/8% Notes,
irrespective of the aggregate principal
amount of 11 7/8% Notes outstanding, and the
date that the Preferred Securities become
subject to the mandatory conversion
provisions of the Declaration of Trust),
and (ii) $11.56, an incentive payment to
encourage holders to tender and consent.
The nominal amount of the regularly
scheduled distributions referred to above
does not reflect any discount based on the
present value of such payments, although
Allegheny believes that certain holders of
the Preferred Securities may value the
remaining distributions on a discounted
basis. Although the nominal amount
referred to above does not reflect any
discount, holders that value the remaining
distributions on a discounted basis will
view the incentive payment portion of the
Conversion Amount to be greater than
$11.56. Allegheny cannot predict whether,
or the rate at which, holders will discount
the value of the remaining distribution
payments referred to above.
The Consent Solicitation........................... Allegheny and the Trust also are soliciting
consents from the holders of the Preferred
Securities to amend certain provisions of the
Indenture. If you tender your Preferred
Securities, you will be deemed to have consented to
the Proposed Amendments to the Indenture described
herein.
Restricted Common Stock; Registration
Rights............................................. The issuance of Common Stock upon conversion of the
Preferred Securities is exempt from registration
pursuant to Section 3(a)(9) of the Securities Act
of 1933, as amended (the "Securities Act"). As a
result, neither Allegheny nor the Trust is required
to have an effective registration statement on file
with the SEC to register the issuance of the Common
Stock upon conversion of the Preferred Securities.
Your ability to transfer the Common Stock that you
will receive upon conversion of the Preferred
Securities will initially be restricted. Pursuant
to the Registration Rights Agreement (as defined
below), Allegheny filed a registration statement
with the SEC with respect to the Preferred
Securities and the underlying Common Stock on March
31, 2005. Allegheny intends to file an amendment
to this registration statement promptly following
the consummation of the offer and consent
solicitation to reflect the results of the offer
and to add certain information about the tendering
holders. Following the effectiveness of this
registration statement, the Common Stock issued
pursuant to the offer and consent solicitation may
be sold pursuant to this registration statement.
Prior to the effectiveness of this registration
statement, holders of the restricted Common Stock
issued upon conversion of their Preferred
Securities may also be able to sell the Common
Stock pursuant to Rule 144 under the Securities
Act. In addition, on July 24, 2005, the Common
Stock issuable pursuant to the offer and consent
solicitation may be eligible for resale pursuant to
Rule 144(k) under the Securities Act.
Fractional Shares.................................. Allegheny will not issue fractional shares upon
conversion of Preferred Securities. In lieu of
issuing fractional shares of Common Stock,
Allegheny will pay to holders of Preferred
Securities converted in the offer and consent
solicitation who otherwise would have been entitled
to a fractional share of Common Stock, an amount in
cash equal to the product of the fraction and the
average of the closing prices of the Common Stock,
as reported by the NYSE, for the five trading days
ending on the last trading day before the
Expiration Date.
Expiration Date.................................... To participate in the offer and consent
solicitation, you must properly tender and not
withdraw your Preferred Securities for conversion
no later than 12:00 midnight, New York City time,
on April 20, 2005, or at such other time if this
date is extended or terminated by the Trust and
Allegheny.
Certain Consequences to Non-Tendering
Holders............................................ Preferred Securities not tendered in the offer and
consent solicitation will remain outstanding after
the consummation of the offer and consent
solicitation. If a sufficiently large number of
Preferred Securities do not remain outstanding
after the consummation of the offer and consent
solicitation, the trading market for the remaining
outstanding Preferred Securities may be less liquid
and more sporadic, and market prices may fluctuate
significantly depending on the volume of trading in
Preferred Securities.
If at any time prior to June 15, 2006, the
aggregate principal amount of the 11 7/8% Notes is
less than $25 million, including as a result of
this offer and consent solicitation, Allegheny may
redeem all, but not less than all, of the remaining
11 7/8% Notes at a redemption price equal to 100% of
the principal amount thereof plus the applicable
premium and accrued and unpaid interest and special
interest, if any, to the date of redemption. The
proceeds from any optional redemption would be
applied by the Institutional Trustee to redeem
Preferred Securities having an aggregate
Liquidation Amount equal to the aggregate principal
amount of the 11 7/8% Notes redeemed by Allegheny.
In addition, the Warrants are mandatorily
exercisable if the Common Stock price equals or
exceeds $15 per share over a specified averaging
period after June 15, 2006. Upon the occurrence of
such an event, all outstanding Preferred Securities
would be automatically converted into Common
Stock.
Allegheny has the option to redeem all or a portion
of the 11 7/8% Notes on or after June 15, 2006 at the
optional redemption price (this price initially
being 105.9375% and declining to 102.96875% on or
after June 15, 2007, plus, in each case, accrued
and unpaid interest and special interest, if any,
to the redemption date). The proceeds from any
optional redemption would be applied by the
Institutional Trustee to redeem Preferred
Securities having an aggregate Liquidation Amount
equal to the aggregate principal amount of the 11 7/8%
Notes redeemed by Allegheny.
Conditions to the Offer and Consent
Solicitation....................................... The offer and consent solicitation is conditioned
upon:
o the absence of any determination that the
offer and consent solicitation violates any
law, or any rule or interpretation of the
SEC staff;
o the absence of any pending proceeding that
materially impairs the Trust's or
Allegheny's ability to complete the offer
and consent solicitation;
o the absence of any material adverse
development in any existing legal
proceeding involving the Trust, Allegheny
or any of Allegheny's subsidiaries;
o the absence of any material adverse change
in the trading price of the Common Stock in
any major securities or financial market,
or in the United States trading markets
generally;
o holders of at least a Majority in
Liquidation Amount of the Preferred
Securities validly tendering and not
withdrawing their Preferred Securities
prior to 12:00 midnight, New York City
time, on the Expiration Date; and
o the absence of any material adverse change
or any development involving a prospective
material adverse change in Allegheny's
business, financial condition or operations.
Procedures For Tendering Preferred
Securities......................................... If your Preferred Securities are held in the name
of a broker, dealer or other nominee, the Preferred
Securities may be tendered by your nominee through
DTC. If your Preferred Securities are held in
physical form, you must tender your Preferred
Securities, together with a completed Consent and
Letter of Transmittal (provided herewith) and any
other documents required thereby to the Conversion
Agent no later than 12:00 midnight, New York City
time, on the Expiration Date. In either situation,
you must complete and submit the Notice of
Conversion to the Conversion Agent no later than
12:00 midnight, New York City time, on the
Expiration Date.
Withdrawal Rights.................................. You may withdraw previously tendered Preferred
Securities and revoke your previously delivered
consent at any time prior to 12:00 midnight, New
York City time, on the Expiration Date. To
withdraw previously tendered Preferred Securities,
you are required to deliver a written notice of
withdrawal and revocation to the Conversion Agent,
with all the information required by the notice of
withdrawal and revocation, no later than 12:00
midnight, New York City time, on the Expiration
Date. A valid withdrawal of tendered Preferred
Securities will be deemed a revocation of the
related consent. A holder may not validly withdraw
a consent unless the holder validly withdraws the
holder's previously tendered Preferred Securities.
Risk Factors....................................... In deciding whether to participate in the offer and
consent solicitation, you should consider carefully
the discussion of risks, uncertainties and factors
set forth in the section titled "Risk Factors"
included elsewhere in this offering circular.
Reasons for the Offer and Consent
Solicitation....................................... Allegheny believes that it is in its best interest,
and in the collective best interest of its
stockholders and holders of the Preferred
Securities, that the Preferred Securities be
converted into Common Stock at this time.
Allegheny believes that the completion of the offer
and consent solicitation will, among other things,
enhance Allegheny's financial position by reducing
the amount of long term indebtedness, increasing
the amount of equity outstanding and increasing
Allegheny's flexibility to enter into certain
transactions by eliminating substantially all of
the restrictive covenants currently found in the
Indenture.
Material United States Federal Income Tax
Consequences of Participating in
the Offer and Consent Solicitation................. The exchange of Preferred Securities for Common
Stock and the Conversion Amount should be treated
as a recapitalization for United States federal
income tax consequences. Please see "Material
United States Federal Income Tax Consequences" for
a discussion of the material United States federal
income tax consequences related to the offer and
consent solicitation. You are urged to consult
your tax advisor regarding the U.S. federal income
tax consequences of the receipt of the Common Stock
and the Conversion Amount.
7
Conversion Agent................................... Wilmington Trust Company is the conversion agent
for the offer and consent solicitation.
Information Agent.................................. Global Bondholder Services Corporation is the
information agent for the offer and consent
solicitation.
8
SUMMARY OF ADDITIONAL TERMS
Who is making the offer and consent solicitation?
The Trust, as issuer of the Preferred Securities, and Allegheny are
making the offer and consent solicitation. Allegheny is the parent holding
company of an integrated energy business. Through its seven principal
operating subsidiaries, it owns and operates electric generating facilities
and delivers electric and natural gas service to approximately four million
people throughout Maryland, Ohio, Pennsylvania, Virginia and West Virginia.
Its business consists of two segments: (i) generation and marketing and (ii)
delivery and services. The Trust is a wholly-owned subsidiary of Allegheny.
Allegheny's headquarters are located at 800 Cabin Hill Drive,
Greensburg, Pennsylvania 15601, and Allegheny's telephone number at that
address is (724) 837-3000. The Common Stock is listed on the NYSE under the
symbol "AYE." For additional information concerning Allegheny, see the section
of this offering circular titled "Where You Can find More Information."
What securities are the subject of the offer and consent solicitation?
Allegheny and the Trust are concurrently seeking the conversion of
all of the outstanding Preferred Securities and consent from holders to amend
the Indenture governing Allegheny's 11 7/8% Notes. Each Preferred Security has a
Liquidation Amount of $1,000, subject to certain adjustments. As of the date
of this offering circular, there are 300,000 Preferred Securities outstanding
with an aggregate Liquidation Amount of $300 million.
The Trust is the sole holder of $300 million aggregate principal
amount of Allegheny's 11 7/8% Notes and attached Warrants for the purchase of
up to 24,999,000 shares of Common Stock, exercisable at $12 per share. The
Warrants may not be separated from the 11 7/8% Notes and may be exercised only
through the tender of the 11 7/8% Notes. The Warrants are mandatorily
exercisable if the Common Stock price equals or exceeds $15 per share over a
specified averaging period after June 15, 2006. Upon the occurrence of such an
event, all outstanding Preferred Securities would be automatically converted
into Common Stock. Allegheny has the option to redeem any or all of the 11 7/8%
Notes on or after June 15, 2006 at the optional redemption price (this price
initially being 105.9375% and declining to 102.96875% on or after June 15,
2007, plus, in each case, accrued and unpaid interest and special interest, if
any, to the redemption date). In addition, if at any time prior to June 15,
2006 the aggregate principal amount of the 11 7/8% Notes is less than $25
million, including as a result of this offer and consent solicitation,
Allegheny has the option to redeem all, but not less than all, of the remaining
11 7/8% Notes at a redemption price equal to 100% of the principal amount
thereof plus the applicable premium, accrued and unpaid interest and special
interest, if any, to the date of redemption. The proceeds from any optional
redemption would be applied by the Institutional Trustee to redeem Preferred
Securities having an aggregate Liquidation Amount equal to the aggregate
principal amount of the 11 7/8% Notes redeemed by Allegheny.
9
The Preferred Securities entitle the holders to quarterly
distributions on a corresponding principal amount of 11 7/8% Notes and to
direct the exercise of the Warrants in order to effect the conversion of the
Preferred Securities into Common Stock. On the Expiration Date, the Conversion
Agent will tender to Allegheny an aggregate principal amount of 11 7/8% Notes
equal to the aggregate Liquidation Amount of Preferred Securities tendered for
conversion in the offer and consent solicitation. The Conversion Agent will
also exercise the Warrants attached to such tendered 11 7/8% Notes for shares
of Common Stock, and will thereafter distribute the Common Stock to the holders
in satisfaction of the shares of Common Stock the holders are entitled to
receive upon conversion of their Preferred Securities. The tendered Preferred
Securities and 11 7/8% Notes and the exercised Warrants will be retired and
cancelled. Holders entitled to receive the Common Stock issuable upon
conversion of the Preferred Securities will be treated for all purposes as the
record holder or holders of the Common Stock on the Expiration Date. As
promptly as practicable thereafter, Allegheny will deliver the Conversion
Amount and the Common Stock to the Conversion Agent for distribution. The
Common Stock will be delivered in the form of certificated securities.
Allegheny guarantees the Trust's payment obligations on the Preferred
Securities. The Preferred Securities are not listed on any securities
exchange.
How will the offer and consent solicitation affect Allegheny's currently
outstanding Common Stock?
Allegheny had 137,474,924 shares of Common Stock outstanding as of
March 7, 2005. All such shares will remain outstanding following the
consummation of the offer and consent solicitation.
How many shares of Allegheny Common Stock will be outstanding assuming
conversion of all of the Preferred Securities?
If all of the holders of Preferred Securities tender their Preferred
Securities in accordance with the offer and consent solicitation, Allegheny
will have an aggregate of approximately 162,473,924 shares of Common Stock
outstanding.
What consent to the Indenture governing Allegheny's 11 7/8% Notes is being
solicited from the holders of the Preferred Securities?
Holders of Preferred Securities who tender their Preferred Securities
pursuant to this offer and consent solicitation will also be consenting to an
amendment to the Indenture (the "Supplemental Indenture"). The Supplemental
Indenture will eliminate substantially all of the restrictive covenants from
the Indenture. These covenants, among other matters, limit Allegheny's ability
to incur indebtedness, make restricted payments and investments, sell assets
and engage in affiliate transactions.
Generally, the amendments to the Indenture require the consent of
at least a Majority in Liquidation Amount of the Preferred Securities.
However, the consent of 75% in Liquidation Amount of the Preferred
Securities is required for the Additional
10
Amendment that would eliminate the anti-layering covenant of the Indenture
(Section 4.11).
If the requisite consent is obtained, the Supplemental Indenture
shall be binding on all holders, regardless of whether such holders tendered
their securities in the offer and consent solicitation. In addition, Allegheny
and the Trust currently intend to consummate the offer and consent
solicitation if holders of the Requisite Percentage validly tender and do not
withdraw their Preferred Securities, even if the required consent to
effectuate the Additional Amendment is not achieved.
What percentage of holders of Preferred Securities must consent to the
amendments to the Indenture for the amendments to become effective?
As discussed above, generally, holders of at least a Majority in
Liquidation Amount of the Preferred Securities must tender their Preferred
Securities for the amendments to the Indenture to become effective. However,
the consent of 75% in Liquidation Amount of the Preferred Securities is
required for the Additional Amendment that would eliminate the anti-layering
covenant (the "Additional Requisite Percentage"). The Additional Amendment
will only be made if the Additional Requisite Percentage is obtained. All
other amendments will be made if the Requisite Percentage is obtained,
regardless of whether the Additional Requisite Percentage is obtained. You
cannot tender and convert your Preferred Securities pursuant to the offer and
consent solicitation without consenting to the amendments to the Indenture.
Moreover, you should be aware that Allegheny and the Trust currently intend to
consummate the offer and consent solicitation if holders of the Requisite
Percentage validly tender and do not withdraw their Preferred Securities, even
if the required consent to effectuate the Additional Amendment is not
achieved.
Will Allegheny satisfy its obligations under the Registration Rights Agreement?
The Trust, Allegheny and the original purchasers of the Preferred
Securities entered into a Registration Rights Agreement, dated as of July 24,
2003, which requires the Trust and Allegheny to register for resale the
Preferred Securities and the Common Stock issued or issuable upon exercise of
the Warrants (the "Registration Rights Agreement"). Existing holders of the
11 7/8% Notes and the Preferred Securities are entitled to the benefits of the
Registration Rights Agreement which requires Allegheny to file a registration
statement with respect to the Preferred Securities and the underlying Common
Stock on or prior to March 31, 2005. Allegheny filed this registration
statement on March 31, 2005.
Will the Common Stock I receive upon conversion of the Preferred Securities be
freely tradable?
The Common Stock that you will receive upon conversion of the
Preferred Stock will initially be restricted. Pursuant to the Registration
Rights Agreement, Allegheny filed a registration statement with respect
to the Preferred Securities and the underlying Common Stock on
March 31, 2005. Allegheny intends to file an amendment to this
11
registration statement promptly following the consummation of the offer and
consent solicitation to reflect the results of the offer and to add certain
information about the tendering holders. Following the effectiveness of this
registration statement, the Common Stock issued pursuant to the offer and
consent solicitation may be sold pursuant to this registration statement. Prior
to the effectiveness of this registration statement, holders of the Common
Stock issued pursuant to the offer and consent solicitation may also be able to
sell the Common Stock pursuant to Rule 144 under the Securities Act. In
addition, on July 24, 2005, the Common Stock may be eligible for resale
pursuant to Rule 144(k) under the Securities Act. For further information, see
the section of this offering circular titled "The Offer and Consent
Solicitation."
What will happen to my Preferred Securities if I do not participate in the
offer and consent solicitation?
If you do not tender your Preferred Securities for conversion in the
offer and consent solicitation, your Preferred Securities will remain
outstanding. However, assuming that the holders of the Requisite Percentage of
Preferred Securities tender Preferred Securities in the offer and consent
solicitation, holders of Preferred Securities who do not tender will no longer
have the benefit of substantially all of the covenant protections that were
previously afforded by the Indenture. Holders that convert Preferred
Securities into Common Stock after the expiration of the offer and consent
solicitation will not receive the Conversion Amount upon the conversion of
their Preferred Securities. In addition, the amendments to the Indenture
effectively relieve the Trust from any obligation to make an offer to
repurchase the Preferred Securities upon a change of control of Allegheny and
effectively relieve the Institutional Trustee from any obligation to offer to
repurchase Preferred Securities upon certain sales of Allegheny's assets.
Non-tendering holders should consider that if at any time prior to
June 15, 2006 the aggregate principal amount of outstanding 11 7/8% Notes is
less than $25 million, including as a result of this offer and consent
solicitation, Allegheny has the option to redeem all, but not less than all, of
the remaining 11 7/8% Notes at a redemption price equal to 100% of the
principal amount thereof plus the applicable premium and accrued and unpaid
interest and special interest, if any, to the date of redemption. The proceeds
from this optional redemption would be applied by the Institutional Trustee to
redeem Preferred Securities having an aggregate Liquidation Amount equal to the
aggregate principal amount of the 11 7/8% Notes redeemed by Allegheny. In
addition, the Warrants are mandatorily exercisable if the Common Stock price
equals or exceeds $15 per share over a specified averaging period after June
15, 2006. Upon the occurrence of such an event, all outstanding Preferred
Securities would be automatically converted into Common Stock.
Allegheny has the option to redeem any or all of the 11 7/8% Notes
on or after June 15, 2006 at the optional redemption price (this price
initially being 105.9375% and declining to 102.96875% on or after June 15,
2007, plus, in each case, accrued and unpaid interest and special interest,
if any, to the redemption date). The proceeds from this optional redemption
would be applied by the Institutional Trustee to redeem
12
Preferred Securities having an aggregate Liquidation Amount equal to the
aggregate principal amount of the 11 7/8% Notes to be redeemed by Allegheny.
Are the financial condition and results of operations of Allegheny relevant to
my decision to tender and convert my Preferred Securities in the offer and
consent solicitation?
Yes. The price of the Common Stock and the Preferred Securities are
closely linked to Allegheny's financial condition and results of operations.
Are any Preferred Securities held by Allegheny's directors or officers?
No. None of Allegheny's directors or executive officers holds any
Preferred Securities.
Is Allegheny's board of directors recommending that I convert my Preferred
Securities?
While Allegheny's board of directors believes that the offer and
consent solicitation is in the best interest of Allegheny, its stockholders
and holders of the Preferred Securities, holders of Preferred Securities will
need to make an independent investment decision as to whether or not they wish
to tender their Preferred Securities in the offer and consent solicitation.
For further information, see the section of this offering circular titled "The
Offer and Consent Solicitation."
Does Allegheny have the authority to issue the Common Stock upon conversion of
the Preferred Securities?
Yes. The Common Stock that Allegheny will issue upon conversion of
the Preferred Securities consists of authorized shares of Common Stock which
it may issue without stockholder approval. The issuance of Common Stock upon
conversion of the Preferred Securities is exempt from registration pursuant to
Section 3(a)(9) of the Securities Act. As a result, neither Allegheny nor the
Trust is required to have an effective registration statement on file with the
SEC to register the issuance of the Common Stock upon conversion of the
Preferred Securities. Provided that the conditions described under the section
of this offering circular titled "The Offer and Consent Solicitation" have
been satisfied, and unless the offer and consent solicitation has been
terminated, on the Expiration Date, the Conversion Agent will tender to
Allegheny an aggregate principal amount of 11 7/8% Notes equal to the aggregate
Liquidation Amount of Preferred Securities tendered for conversion in the
offer and consent solicitation. The Conversion Agent will also exercise the
Warrants attached to the tendered 11 7/8% Notes for shares of Common Stock and
will thereafter distribute the Common Stock to tendering holders in
satisfaction of the shares of Common Stock such holders are entitled to
receive upon conversion of their Preferred Securities. The tendered Preferred
Securities and 11 7/8% Notes and the exercised Warrants will be retired and
cancelled. Holders entitled to receive the Common Stock issuable upon
conversion of the Preferred Securities will be treated for all purposes as the
record holder or holders of the Common Stock on the Expiration Date. As
promptly as practicable thereafter, Allegheny will deliver the Conversion
Amount and the Common Stock issuable upon conversion of the
13
Preferred Securities to the Conversion Agent for distribution. For
more information regarding the timing of the issuance of Common Stock in the
offer and consent solicitation, see the section of this offering circular
titled "The Offer and Consent Solicitation."
What are the Public Utility Holding Company Act of 1935 consequences to you of
participating in the offer and consent solicitation?
Allegheny is a registered holding company under the Public Utility
Holding Company Act of 1935, as amended ("PUHCA"). PUHCA and the rules and
regulations of the SEC promulgated under PUHCA impose a number of restrictions
on registered utility holding companies, in particular with respect to
acquisitions and financing transactions. In addition, Section 9(a)(2) of PUHCA
(sometimes referred to as the "two-bite" rule) requires any individual or
company that will own or acquire, directly or indirectly, 5% or more of the
voting securities of a public utility company under PUHCA must receive prior
approval from the SEC. Allegheny currently has multiple subsidiary companies
that are public utility companies under PUHCA. This means that any individual
or company that acquired 5% or more of Common Stock would be acquiring
indirectly 5% or more of the voting securities of multiple public utility
companies. This acquisition would require SEC approval under the two-bite rule
before it could be consummated. As such, holders that will acquire 5% or more
of our Common Stock as a result of tendering their Preferred Securities should
seek SEC approval prior to the tendering of such Preferred Securities.
Will the Trust or Allegheny receive any cash proceeds from the offer and
consent solicitation?
No. Neither the Trust nor Allegheny will receive any cash proceeds
from the conversion of the Preferred Securities nor from the consummation of
the offer and consent solicitation.
What is Allegheny's source of cash to pay the Conversion Amount?
Allegheny intends to fund the Conversion Amount with available cash
and/or borrowings under Allegheny's revolving credit facility.
Under what circumstances may the Trust and Allegheny extend or terminate the
offer and consent solicitation?
The Trust and Allegheny may extend the offer and consent solicitation
in their sole and absolute discretion, and they reserve the right to do so.
During any extension of the offer and consent solicitation, the Preferred
Securities that were previously tendered for conversion and not withdrawn will
remain subject to the offer and consent solicitation.
In addition, the Trust and Allegheny expressly reserve the right to
terminate the offer and consent solicitation in their sole and absolute
discretion and not pay the Conversion Amount if any of the events described
in the section of this offering circular titled "The Offer and Consent
Solicitation" occur. For more information regarding the
14
right to extend or terminate the offer and consent solicitation,
see the section of this offering circular titled "The Offer and Consent
Solicitation - Conditions to the Offer and Consent Solicitation."
How will I be notified if the offer and consent solicitation is extended,
amended or terminated?
If the Trust and Allegheny extend, amend or terminate the offer and
consent solicitation, the Trust and Allegheny will issue a press release or
another form of public announcement no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date
of the offer and consent solicitation. Any amendment to the offer and consent
solicitation will apply to any and all Preferred Securities. If the offer and
consent solicitation is amended in a manner determined by Allegheny and the
Trust to constitute a material change, Allegheny and the Trust will promptly
disclose this amendment by means of a public announcement or a supplement to
this offering circular that will be distributed to the holders of the
Preferred Securities and, if required by law, the offer and consent
solicitation will be extended for at least five business days after the
material change. In addition, if there is an increase or decrease in the
percentage of Preferred Securities being sought or the consideration being
offered to holders, the offer and consent solicitation will remain open for a
period of at least ten days from the date Allegheny and the Trust give notice
of the increase or decrease.
For more information regarding notification of extensions, amendments
or terminations of the offer and consent solicitation, see the section of this
offering circular titled "The Offer and Consent Solicitation."
What is the Notice of Conversion and do I need to execute and deliver a Notice
of Conversion in order to properly tender my Preferred Securities
To be deemed to validly tender Preferred Securities and participate
in the offer and consent solicitation, you must properly execute and deliver a
completed Notice of Conversion to the Conversion Agent no later than 12:00
midnight, New York City time, on the Expiration Date. The Notice of Conversion
is necessary in order for the Conversion Agent to properly accept the
Preferred Securities being tendered and to subsequently convert the Preferred
Securities into Common Stock. The Notice of Conversion requires you to provide
Allegheny with information such as to whom the shares of Common Stock should
be issued and where the shares of Common Stock should be delivered. In
addition, the Notice of Conversion will provide specific information about
each holder that will assist Allegheny in its filing of an amendment to the
registration statement to register the Common Stock for resale promptly
following the consummation of the offer and consent solicitation. Signatures
on the Notice of Conversion must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the security registrar, which
requirements include membership or participation in the Security Transfer
Agent Medallion Program or such other "signature guarantee program" as may be
determined by the security registrar in addition to, or in substitution for,
the Security Transfer Agent Medallion Program, all in accordance with the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
15
May I tender only a portion of the Preferred Securities that I hold?
Yes. Generally, you do not have to tender all of your Preferred
Securities to participate in the offer and consent solicitation. However, a
holder of Preferred Securities may not tender and convert Preferred Securities
with an aggregate Liquidation Amount of less than $1,000 unless such Preferred
Securities represent all of such holder's Preferred Securities.
Will I have to pay any fees or commissions if I tender and convert my Preferred
Securities?
If your Preferred Securities are held through a broker or other
nominee who tenders the Preferred Securities on your behalf, your broker may
charge you a commission for doing so. You should consult with your broker or
nominee to determine whether any charges will apply.
When will I receive the Common Stock issued upon conversion of my Preferred
Securities?
Subject to the satisfaction or waiver of all conditions to the offer
and consent solicitation, and assuming the Trust and Allegheny have not
elected to terminate or amend the offer and consent solicitation, the Trust
and Allegheny will accept for conversion Preferred Securities that are
properly tendered for conversion and not withdrawn prior to 12:00 midnight,
New York City time, on the Expiration Date. Common Stock will be delivered in
exchange for properly tendered Preferred Securities promptly following the
consummation of the offer and consent solicitation. The Conversion Amount will
also be paid promptly following the consummation of the offer and consent
solicitation. In addition, the Notice of Conversion requires you to provide
Allegheny with information such as to whom the shares of Common Stock should
be issued and where such shares of Common Stock should be delivered. For more
information regarding the obligation to issue Common Stock for tendered
Preferred Securities, see the sections of this offering circular titled "The
Offer and Consent Solicitation - Procedures for Tendering Preferred
Securities" and "The Offer and Consent Solicitation - Delivering Consents -
Acceptance of Preferred Securities for Conversion and Payment; Delivery of
Common Stock."
What will happen if my Preferred Securities are not accepted for conversion in
the offer and consent solicitation?
If the Trust or Allegheny decide for any reason not to accept any
Preferred Securities, the Trust and Allegheny will arrange for the Conversion
Agent to return the Preferred Securities to the tendering holder, at
Allegheny's expense, promptly after the expiration or termination of the offer
and consent solicitation. DTC will credit any withdrawn or unaccepted
Preferred Securities to the tendering holder's account at DTC. For more
information, see the section of this offering circular titled "The Offer and
Consent Solicitation."
16
Will holders of the Preferred Securities have appraisal or dissenters' rights
in connection with the offer and consent solicitation?
No. Appraisal or dissenters' rights are not available. You should
read this offering circular for information regarding the rights that are
available to you.
Are there any government or regulatory approvals required for the consummation
of the offer and consent solicitation?
Neither the Trust nor Allegheny is aware of any governmental, federal
or state regulatory approvals required for the consummation of the offer and
consent solicitation, other than their obligation to file a Schedule TO with
the SEC, and otherwise comply with applicable securities laws. Pursuant to the
regulations promulgated under PUHCA, holders that will acquire 5% or more of
our Common Stock as a result of tendering their Preferred Securities should
seek SEC approval prior to the tendering of such Preferred Securities.
Who can I ask questions about the offer and consent solicitation?
If you have questions regarding the information in this offering
circular or the offer and consent solicitation, please contact the Information
Agent, Global Bondholder Services Corporation, at the telephone number or
address listed below. If you have questions regarding the procedures for
tendering your Preferred Securities for conversion or delivering consents or
require assistance in tendering your Preferred Securities or delivering
consents, please contact the Conversion Agent, Wilmington Trust Company, at
the telephone number, facsimile number or address listed below. If you would
like additional copies of this offering circular or the documents incorporated
by reference herein, please contact the Information Agent at the telephone
number or address listed below.
Conversion Agent Information Agent
---------------- -----------------
Wilmington Trust Company Global Bondholder Services Corporation
Rodney Square North 65 Broadway - Suite 704
1100 North Market Street New York, New York 10006
Wilmington, Delaware 19890 Attention: Corporate Actions
By Facsimile: 1-302-636-4145 Banks and Brokers call: (212) 430-3774
Attention: Alisha Clendaniel Toll free: (866) 795-2200
To Confirm by Telephone: (302) 636-6470
Toll free: (800) 441-7120 ext. 6470
17
SUMMARY DESCRIPTION OF ALLEGHENY COMMON STOCK
The following summary highlights selected information about the terms
of the Common Stock that will be issued upon conversion of the Preferred
Securities. For a more detailed description of the Common Stock, see the
section of this offering circular titled "Description of Allegheny Capital
Stock."
Issuer............................................. Allegheny Energy, Inc.
Securities issuable upon conversion of
Preferred Securities............................... 83.33 shares of Common Stock for each $1,000 in
Liquidation Amount of Preferred Securities
tendered, subject to any applicable anti-dilution
adjustments.
If all of the outstanding Preferred Securities are
tendered and converted pursuant to the offer and
consent solicitation, Allegheny will issue an
aggregate amount of 24,999,000 shares of Common
Stock.
Listing............................................ Allegheny will apply for listing on the NYSE prior
to the consummation of the offer and consent
solicitation for the shares of Common Stock to be
issued upon conversion of the Preferred Securities.
Dividends.......................................... Allegheny has not paid any dividends on its Common
Stock since the third quarter of 2002. Allegheny
has no intention of paying any dividends on the
Common Stock in the foreseeable future. The terms
of Allegheny's outstanding debt instruments and
PUHCA restrict Allegheny's ability to pay dividends
on its Common Stock.
18
Registration....................................... The issuance of Common Stock upon conversion of the
Preferred Securities is exempt from registration
pursuant to Section 3(a)(9) of the Securities Act.
As a result, neither Allegheny nor the Trust is
required to have an effective registration
statement on file with the SEC to register the
issuance of the Common Stock upon conversion of the
Preferred Securities. Your ability to transfer the
Common Stock that you will receive upon conversion
of the Preferred Securities will initially be
restricted. Pursuant to the Registration Rights
Agreement, Allegheny filed a registration statement
with the SEC with respect to the Preferred
Securities and the underlying Common Stock on March
31, 2005.
Allegheny intends to file an amendment to this
registration statement promptly following the
consummation of the offer and consent solicitation
to reflect the results of the offer and to add
certain information about the tendering holders.
Following the effectiveness of this registration
statement, the Common Stock issued pursuant to the
offer and consent solicitation may be sold pursuant
to this registration statement.
Prior to the effectiveness of this registration
statement, holders of the restricted Common Stock
issued pursuant to the offer and consent
solicitation may be able to sell the Common Stock
pursuant to Rule 144 under the Securities Act. In
addition, on July 24, 2005, the Common Stock may be
eligible for resale pursuant to Rule 144(k) under
the Securities Act.
19
The following table sets forth the inter-day high and low sales
prices of our Common Stock for each quarter of the last two fiscal years and
the first and second (through April 5) quarters of 2005, as reported on the
NYSE.
2003 High Low
---- ---- ---
First Quarter.............................. $10.30 $4.70
Second Quarter............................. $9.82 $6.00
Third Quarter.............................. $9.63 $7.00
Fourth Quarter............................. $13.09 $9.10
2004 High Low
---- ---- ---
First Quarter.............................. $13.96 $11.75
Second Quarter............................. $15.46 $12.96
Third Quarter.............................. $16.20 $13.99
Fourth Quarter............................. $20.20 $15.60
2005 High Low
---- ---- ---
First Quarter.............................. $21.28 $18.25
Second Quarter (through April 5)........... $21.27 $20.28
20
ALLEGHENY ENERGY, INC.
We are the parent holding company of an integrated energy business.
Through our seven principal operating subsidiaries, we own and operate
electric generating facilities and deliver electric and natural gas service to
approximately four million people throughout Maryland, Ohio, Pennsylvania,
Virginia and West Virginia. Our business consists of two segments: (i)
generation and marketing and (ii) delivery and services.
Our generation and marketing segment owns, operates and manages
regulated and unregulated electric generating capacity. This segment comprises
the majority of our power generation operations. We conduct the operations of
this segment principally through three of our subsidiaries: Allegheny Energy
Supply Company, LLC ("AE Supply"), Monongahela Power Company ("Monongahela")
and Allegheny Generating Company ("AGC"). AE Supply owns, operates and manages
electric generation facilities. AE Supply also purchases and sells energy and
energy-related commodities, although it no longer engages in speculative
trading. Monongahela's West Virginia generation assets are included in this
segment. AE Supply and Monongahela co-own AGC, whose sole asset is a 40%
undivided interest in the Bath County, Virginia pumped-storage hydroelectric
station and its connecting transmission facilities.
Our delivery and services segment is comprised of our electric and
natural gas transmission and delivery ("T&D") operations. The principal
subsidiaries operating in this segment are Monongahela, The Potomac Edison
Company ("Potomac Edison") and West Penn Power Company ("West Penn," and,
together with Monongahela and Potomac Edison, the "Distribution Companies").
Each of the Distribution Companies is a public utility company and does
business under the Allegheny Power trade name. The Distribution Companies'
principal businesses are the operation of electric and natural gas public
utility systems. In addition, our delivery and services segment includes
Allegheny Ventures, Inc., which engages in telecommunications and unregulated
energy-related projects.
The rates we and our subsidiaries charge our retail customers are
subject to state regulation and approval in the states in which we operate. We
are a registered holding company under PUHCA.
We were incorporated in Maryland in 1925. Our principal executive
offices are located at 800 Cabin Hill Drive, Greensburg, Pennsylvania 15601,
and our telephone number at that address is (724) 837-3000.
21
ALLEGHENY CAPITAL TRUST I
Allegheny Capital Trust I, a wholly-owned subsidiary of Allegheny, is
a statutory business trust that was formed under the laws of the state of
Delaware on July 17, 2003.
The Trust exists for the exclusive purposes of: (i) issuing and
selling the Preferred Securities to investors which represent undivided
beneficial interests in the assets of the Trust, (ii) issuing and selling
common securities to Allegheny representing undivided common beneficial
interests in the assets of the Trust, (iii) distributing the Trust's income as
provided for in the Declaration of Trust and (iv) engaging in other activities
only as necessary or incidental to the activities described in (i) through
(iii). The assets of the Trust consist entirely of (i) the 11 7/8% Notes,
together with the attached Warrants, (ii) any cash on deposit in, or owing to,
the Trust account maintained by the Institutional Trustee for benefit of the
holders of the Preferred Securities and (iii) all proceeds and rights in
respect of the foregoing to be held by the Institutional Trustee pursuant to
the terms of the Declaration of Trust for the benefit of the Trust and the
holders of the Preferred Securities. The Trust may not borrow money, issue
debt, reinvest proceeds derived from investments, pledge any of its assets, or
otherwise undertake or permit to be undertaken any activity that would cause
the Trust to be subject to entry-level tax for United States federal income
tax purposes.
The principal address of the Trust is c/o Allegheny Energy, Inc., 800
Cabin Hill Drive, Greensburg, Pennsylvania 15601. The telephone number at that
address is (724) 837-3000.
22
CAPITALIZATION
The following table sets forth Allegheny's capitalization as of
December 31, 2004, on an actual basis and on an as adjusted basis to give
effect to the conversion of all of the Preferred Securities and the payment of
the Conversion Amount. You should read the data set forth below in conjunction
with Allegheny's audited financial statements and the accompanying notes which
are incorporated by reference into this offering circular.
As of December 31, 2004
(In millions) Actual As Adjusted
------------ ------------
Cash and cash equivalents(1)......................................... $ 189.5 $ 189.5
============ ============
Long-term debt due within one year2.................................. $ 385.1 $ 385.1
------------ ------------
Long-term debt1,(2).................................................. $ 4,540.8 $ 4,295.2
------------ ------------
Preferred stock of subsidiary........................................ $ 74.0 $ 74.0
------------ ------------
Common stockholders' equity:
Common stock, $1.25 par value per share, 260,000,000 shares
authorized, 137,380,644 shares outstanding actual,
162,379,644 shares outstanding as adjusted................... $ 171.8 $ 203.1
Other paid-in capital........................................... 1,600.2 1,853.6
Retained deficit................................................ (307.7) (337.8)
Treasury stock.................................................. (1.8) (1.8)
Accumulated other comprehensive loss............................ (108.7) (108.7)
------------ ------------
Total stockholders' equity(3)................................. $ 1,353.8 $ 1,608.4
------------ ------------
Total capitalization........................................ $ 6,353.7 $ 6,362.7
============ ============
___________
Notes:
1. Assumes that Allegheny will fund the Conversion Amount with borrowings
under its revolving credit facility and not use available cash. Actual
funding source will be determined at consummation of the offer and
consent solicitation.
2. Excludes $86.7 million of long-term debt related to our natural gas
operations that have been classified as assets held for sale. See Note 4
"Assets Held for Sale and Discontinued Operations" to our consolidated
financial statements included in our Annual Report on Form 10-K for the
year ended December 31, 2004.
3. The book value per share as of December 31, 2004 was $9.85.
23
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth our selected consolidated financial information
for the periods ended and as of the dates indicated. The selected consolidated
financial data for the years ended December 31, 2004, 2003 and 2002 are
derived from our audited consolidated financial statements and notes that are
incorporated by reference in this offering circular. You should read the data
set forth below in conjunction with Allegheny's consolidated financial
statements and related notes and other information incorporated by reference
in this offering circular.
Year Ended December 31,
--------------------------------------------
2004(1) 2003(1) 2002(1)
------------ ------------ ------------
(In millions except per share data)
Summary Statement of Operations Data:
Total operating revenues(2)............................ $ 2,756.1 $ 2,182.3 $ 2,743.8
Operating expenses(2).................................. 2,166.9 2,378.7 3,216.4
------------ ------------ ------------
Operating income (loss) (2)............................ $ 589.2 $ (196.4) $ (472.6)
============ ============ ============
Income (loss) from continuing operations, net
of tax(2)........................................... $ 129.7 $ (308.9) $ (465.8)
============ ============ ============
Loss from discontinued operations, net of tax(2)....... $ (440.3) $ (25.3) $ (36.4)
============ ============ ============
Net loss............................................... $ (310.6) $ (355.0) $ (632.7)
============ ============ ============
Per Share Data:
Income (loss) from continuing
operations, net of tax:
Basic......................................... $ 1.00 $ (2.44) $ (3.71)
Diluted....................................... $ 0.99 $ (2.44) $ (3.71)
Loss from discontinued
operations, net of tax:
Basic......................................... $ (3.40) $ (0.20) $ (0.29)
Diluted....................................... $ (2.82) $ (0.20) $ (0.29)
Net loss:
Basic......................................... $ (2.40) $ (2.80) $ (5.04)
Diluted....................................... $ (1.83) $ (2.80) $ (5.04)
Dividends declared per common share.................... $ -- $ -- $ 1.29
Summary Balance Sheet Data:
Short-term debt........................................ $ -- $ 53.6 $ 1,132.0
Long-term debt due within one year(2).................. 385.1 544.9 257.2
Debentures, notes and bonds3........................... -- -- 3,662.2
------------ ------------ ------------
Total short-term debt(3)............................... $ 385.1 $ 598.5 $ 5,051.4
============ ============ ============
Long-term debt(2),(3).................................. $ 4,540.8 $ 5,127.4 $ 115.9
Capital leases......................................... 23.8 32.5 39.1
------------ ------------ ------------
Total long-term obligations(2),(3)..................... $ 4,564.6 $ 5,159.9 $ 155.0
============ ============ ============
Total assets........................................... $ 9,045.1 $ 10,171.9 $ 10,973.2
============ ============ ============
___________
Notes:
1. See notes 1-11, 14, 27, and 28 to our consolidated financial statements
included in our Annual Report on Form 10-K for the year ended December 31,
2004 incorporated by reference in this offering circular, for
24
factors and transactions that affect trends and comparability of financial
data for the years ended 2002, 2003 and 2004.
2. Excludes $86.7 million of long-term debt related to our natural gas
operations that have been classified as assets held for sale. See Note 4
"Assets Held for Sale and Discontinued Operations" to our consolidated
financial statements included in our Annual Report on Form 10-K for the
year ended December 31, 2004.
3. Long-term debt at December 31, 2002 of $3,662.2 million was classified as
short-term as a result of debt covenant violations. As of December 31,
2003, the debt was reclassified as long-term.
25
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth Allegheny's ratio of earnings to fixed
charges, on a historical basis, for each of the periods indicated.
Year Ended December 31,
--------------------------------------------
2004 2003 2002
------------ ------------ ------------
(In thousands)
Earnings:
(Loss) income from continuing
operations...................................... $ 129,732 $ (308,875) $ (465,749)
Exclude amounts reflected in line
above:
Income tax expense (benefit).................... 79,669 (202,170) (313,112)
Minority interest in loss of subsidiaries... (882) (7,174) (13,509)
Preferred dividends of subsidiary............... 5,037 5,037 5,037
Amortization of capitalized interest............ 2,288 1,592 852
Loss from unconsolidated equity investees......... 663 948 33,767
Add fixed charges (see below)..................... 419,448 454,461 299,343
Less amounts included in fixed
charges:
Capitalized interest............................ (3,432) (15,394) (12,628)
Preference security dividend requirements
of consolidated subsidiary(1)............. (7,967) (8,233) (8,284)
------------ ------------ ------------
Total earnings (as defined)....................... $ 624,556 $ (79,808) $ (474,283)
============ ============ ============
Fixed charges:
Interest expensed and capitalized................. $ 404,505 $ 439,482 $ 280,298
Preference security dividend requirements of
consolidated subsidiary(1)...................... 7,967 8,233 8,284
Estimated interest component of
rental expense.................................. 6,976 6,746 10,761
------------ ------------ ------------
Total fixed charges (as defined).................. $ 419,448 $ 454,461 $ 299,343
============ ============ ============
Ratio of earnings to fixed charges..................... 1.49x Note (2) Note (2)
============ ============ ============
___________
Notes:
1. The preference security dividend requirement represents the amount of
pre-tax earnings required to pay the dividends on outstanding preference
securities of a subsidiary held by non-affiliates.
2. For the years ended December 31, 2003 and 2002, there are deficiencies of
earnings to cover the fixed charges of $534,269 and $773,626,
respectively.
26
FORWARD-LOOKING STATEMENTS
In addition to historical information, this offering circular and the
documents incorporated by reference herein contain a number of forward-looking
statements. Words such as "anticipate," "expect," "project," "intend," "plan,"
"believe" and words and terms of similar substance used in connection with any
discussion of future plans, actions or events may identify forward-looking
statements. These include statements with respect to:
o regulation and the status of retail generation service supply
competition in states served by the Distribution Companies;
o financing plans;
o demand for energy and the cost and availability of raw
materials, including coal;
o provider-of-last-resort and power supply contracts;
o results of litigation;
o results of operations;
o internal controls and procedures;
o capital expenditures;
o status and condition of plants and equipment;
o regulatory matters; and
o accounting issues.
Forward-looking statements involve estimates, expectations and
projections and, as a result, are subject to risks and uncertainties. There
can be no assurance that actual results will not differ materially from
expectations. Actual results have varied materially and unpredictably from
past expectations.
Factors that could cause actual results to differ materially include,
among others, the following:
o changes in the price of power and fuel for electric
generation;
o general economic and business conditions;
o changes in access to capital markets;
o complications or other factors that make it difficult or
impossible to obtain necessary lender consents or regulatory
authorizations on a timely basis;
27
o environmental regulations;
o the results of regulatory proceedings, including proceedings
related to rates;
o changes in industry capacity, development and other activities
by Allegheny's competitors;
o changes in the weather and other natural phenomena;
o changes in the underlying inputs and assumptions, including
market conditions, used to estimate the fair values of
commodity contracts;
o changes in laws and regulations applicable to Allegheny, its
markets or its activities;
o the loss of any significant customers or suppliers;
o dependence on other electric transmission and gas
transportation systems and their constraints or availability;
o changes in PJM Interconnection, L.L.C., a regional
transmission organization ("PJM"), including changes to
participant rules and tariffs;
o the effect of accounting guidance issued periodically by
accounting standard-setting bodies; and
o the continuing effects of global instability, terrorism and
war.
28
RISK FACTORS
You should carefully consider the risk factors set forth below, as
well as the other information appearing in this offering circular and the
documents to which you are referred to, including the documents incorporated
by reference, before deciding whether to participate in the offer and consent
solicitation.
Risks Relating to Regulation
We are subject to substantial governmental regulation. Compliance with current
and future regulatory requirements and procurement of necessary approvals,
permits and certificates may result in substantial costs to us.
We are subject to substantial regulation from federal, state and
local regulatory agencies. We are required to comply with numerous laws and
regulations and to obtain numerous authorizations, permits, approvals and
certificates from governmental agencies. These agencies regulate various
aspects of our business, including customer rates, service regulations, retail
service territories, generation plant operations, sales of securities, asset
sales and accounting policies and practices.
We are also subject to regulation by the SEC under PUHCA, which
imposes a number of restrictions on the operations of registered utility
holding companies and their subsidiaries. These restrictions include a
requirement that, subject to a number of exceptions, the SEC approve in
advance securities issuances, financings, acquisitions and dispositions of
utility assets, or of securities of utility companies, and acquisitions by
utility companies of other businesses. With limited exceptions, PUHCA requires
that transactions between affiliated companies in a registered holding company
system be performed at cost.
We cannot predict the impact of any future revision or changes in
interpretations of existing regulations or the adoption of new laws and
regulations applicable to us. Changes in regulations or the imposition of
additional regulations could influence our operating environment and may
result in substantial costs to us.
Our costs to comply with environmental laws are significant, and the cost of
compliance with present and future environmental laws could adversely affect
our cash flow and profitability.
Our operations are subject to extensive federal, state and local
environmental statutes, rules and regulations relating to air quality, water
quality, waste management, natural resources and site remediation.
Compliance with these laws and regulations may require us to expend
significant financial resources to, among other things, meet air emission
standards, conduct site remediation, perform environmental monitoring,
purchase emission allowances, use alternative fuels and modulate operations
of our generation facilities in order to reduce emissions. If we fail to
comply with applicable environmental laws and regulations, even if we are
unable to do so due to factors beyond our control, we may be subject to
civil liabilities or criminal penalties and may be required to incur
significant expenditures to come into compliance. Alleged violations of
29
environmental laws and regulations may require us to expend significant
resources defending ourself against these claims.
New environmental laws and regulations, or new interpretations of
existing laws and regulations, could impose more stringent limitations on our
generation operations or require us to incur significant additional costs.
Applicable standards under the United States Environmental Protection
Agency's (the "EPA") New Source Review ("NSR") initiatives remain in flux.
Under the Clean Air Act of 1970 (the "Clean Air Act"), modification of our
generation facilities in a manner that causes increased emissions could
subject our existing facilities to the far more stringent NSR standards
applicable to new facilities. The EPA has taken the view that many companies,
including many energy producers, have been modifying emissions sources in
violation of NSR standards in connection with work believed by the companies
to be routine maintenance.
On May 20, 2004, AE, AE Supply, Monongahela and West Penn received a
Notice of Intent to Sue from the Attorneys General of Connecticut, New Jersey
and New York and the Pennsylvania Department of Environmental Protection
alleging that they made major modifications to some of their coal-fired
generation facilities in West Virginia and Pennsylvania in violation of the
Prevention of Significant Deterioration provisions of the Clean Air Act. On
September 8, 2004, AE, AE Supply, Monongahela and West Penn received a
separate Notice of Intent to Sue from the Maryland Attorney General that
essentially mirrored the previous Notice.
AE Supply and Monongahela filed a declaratory judgment action against
the Attorneys General of New York, Connecticut and New Jersey in federal
district court in West Virginia on January 6, 2005. This action requests that
the court declare that AE Supply's and Monongahela's coal-fired power plants
in West Virginia and Pennsylvania are in compliance with the Clean Air Act.
The Attorneys General have filed a motion to dismiss the declaratory judgment
action. If the action is dismissed based upon their motion, the Attorneys
General may file an enforcement action against us in federal court in
Pennsylvania. It is also possible that the EPA and other state authorities may
join in the current declaratory judgment action or, if it is dismissed, a new
action filed by the Attorneys General.
In December 2004, Pennsylvania adopted Renewable Portfolio
Standard legislation. The new legislation requires that, by 2020, 18% of
the energy used in Pennsylvania be derived from renewable and alternative
sources. The new legislation includes a five-year exemption from this
requirement for companies, such as the Distribution Companies, that are
operating within transition periods under the current regulations governing
the transition to market competition in Pennsylvania. The full requirement
will apply to those companies when the applicable transition periods end.
The legislation also includes a provision that will allow the Pennsylvania
Public Utility Commission to modify or eliminate these obligations if
alternative energy sources are not reasonably available. Similar
legislation has been adopted in Maryland. The Maryland
30
law goes into effect on the later of the termination of the applicable
transition period or July 1, 2006.
In addition, we incur costs to obtain and comply with a variety of
environmental permits, licenses, inspections and other approvals. If there is
a delay in obtaining any required environmental regulatory approval, or if we
fail to obtain, maintain or comply with any required approval, operations at
affected facilities could be halted or subjected to additional costs.
Shifting state and federal regulatory policies impose risks on our operations
and capital structure.
Our operations are subject to evolving regulatory policies, including
initiatives regarding deregulation of the production and sale of electricity
and the restructuring of transmission regulation. State or federal regulators
may also take regulatory action as a result of the power outages that affected
the Northeast and Midwest United States and Canada in August 2003. Any new
requirements arising from these actions could lead to increased operating
expenses and capital expenditures, the amount of which cannot be predicted at
this time.
The continuation of below-market retail rate caps beyond the original
scheduled end of transition periods could have adverse consequences for us. In
the absence of a long-term power supply contract with a power generator, the
Distribution Companies must purchase their power requirements at negotiated or
market prices, whether from AE Supply or an alternative supplier. If retail
rates are capped below the prices at which the Distribution Companies can
obtain power, the power will be sold at a loss. Legislators, regulators and
consumer and other groups have sought to extend retail rate regulation in the
states in which the Distribution Companies do business through a variety of
mechanisms, including through the extension of the current rate cap regimes,
which are set below current market prices. We cannot predict to what extent
these efforts will be successful.
Delays, discontinuations or reversals of electricity market
restructurings in the markets in which we operate could have a material
adverse effect on our results of operations and financial condition. At a
minimum, these types of actions raise uncertainty concerning the continued
development of competitive power markets. Given our multi-state operations and
asset base, re-regulation of restructured obligations could prove intricate
and time-consuming and could lead to complications within our capital
structure.
In addition, as a result of the Federal Energy Regulatory
Commission's ("FERC") efforts to implement a long-term rate design for the
Midwest and Mid-Atlantic regions, the Distribution Companies may not fully
recover their transmission costs and may have costs shifted to them from other
transmission owners. Due to capped rates and the timing of state rate cases,
the Distribution Companies may not be able to pass through increased
transmission costs to these retail customers for some period of time.
31
Risks Related to our Substantial Debt
Covenants contained in our principal financing agreements restrict our
operating, financing and investing activities.
Our principal financing agreements contain restrictive covenants that
limit our ability to, among other things:
o borrow funds;
o incur liens and guarantee debt;
o enter into a merger or other change of control transaction;
o make investments;
o prepay debt;
o amend contracts; and
o pay dividends and other distributions on our equity securities.
These agreements limit our ability to implement strategic decisions,
including our ability to access capital markets or sell assets without using
the proceeds to reduce debt. In addition, we are required to meet certain
financial tests under some of our loan agreements, including interest coverage
ratios and leverage ratios. Our failure to comply with the covenants contained
in its financing agreements could result in an event of default, which could
materially and adversely affect its financial condition. Although we will be
relieved from substantially all of the restrictive covenants contained in the
Indenture upon consummation of the offer and consent solicitation, the terms
of our other principal financing agreements will continue to limit us as
described above. In some cases, the restrictive covenants contained in the
Indenture are more restrictive than those contained in our other principal
financing documents.
Our substantial debt could adversely affect our ability to operate successfully
and meet contractual obligations.
We are substantially leveraged. One of our principal challenges is to
manage our debt while continuing the long-term process of reducing the amount
of our debt. At December 31, 2004, we had $5.0 billion of debt on a
consolidated basis (including discontinued operations). Approximately $700
million of that amount represented our obligations, $2.8 billion represented
debt of AE Supply and AGC and the remainder constituted debt of one or more of
the Distribution Companies.
Our substantial debt could have important consequences to us. For
example, it could:
32
o make it more difficult for us to satisfy our obligations under
the agreements governing our debt;
o require us to dedicate a substantial portion of our cash flow
from operations to payments on our debt, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and other general corporate purposes;
o limit our flexibility in planning for, or reacting to, changes in
our business, regulatory environment and the industry in which we
operate;
o place us at a competitive disadvantage compared to our
competitors that have less debt;
o limit our ability to borrow additional funds; and
o increase our vulnerability to general adverse economic,
regulatory and industry conditions.
We may be unable to engage in desired financing transactions.
We have substantial debt service obligations for the foreseeable
future and may need to engage in refinancing and capital-raising transactions
in order to pay interest and retire principal. We also may undertake other
types of financing transactions in order to meet our other financial needs and
increase its equity ratios. We may be unable to successfully complete
financing transactions due to a number of factors, including:
o our equity ratios, which are below the minimum levels required
under our PUHCA financing authorizations;
o our credit ratings, most of which are currently below investment
grade;
o our overall financial condition and results of our operations;
and
o volatility in the capital markets.
We currently anticipate that, in order to repay the principal of our
outstanding debt, we may undertake one or more financing alternatives, such as
refinancing or restructuring our debt, selling assets, reducing or delaying
capital investments or raising additional capital. We can make no assurance
that we can complete any of these types of financing transactions on terms
satisfactory to us or at all, that any financing transaction would enable us
to pay the interest or principal on our debt or meet our other financial needs
or that any of these alternatives would be permitted under the terms of the
agreements governing our outstanding debt.
33
Our credit ratings and trading market liquidity may make it difficult for us
to hedge our physical power supply commitments and resource requirements.
While we have made significant progress retiring unnecessary
positions in the Western U.S. and other energy markets, our current credit
ratings, together with a lack of market liquidity have made it difficult for
us to retire a small number of remaining energy market positions. Market
liquidity has significantly declined over the past three years. Absent a
return to more liquid levels combined with an improvement in our credit
ratings, it may not be possible for us to retire these remaining positions.
Our credit position has also made it difficult for us to hedge our
power supply obligations and fuel requirements. In the absence of effective
hedges for these purposes, we must satisfy power shortfalls in the spot
markets, which are volatile and can be more costly than expected.
Our risk management, wholesale marketing, fuel procurement and energy
trading activities, including our decision to enter into power sales or
purchase agreements, rely on models that depend on judgments and assumptions
regarding factors such as the future market prices and demand for electricity
and other energy-related commodities. Even when our policies and procedures
are followed and decisions are made based on these models, our financial
position and results of operations may be adversely affected if the judgments
and assumptions underlying those models prove to be inaccurate.
Risks Relating to our Operations
Our generation facilities are subject to unplanned outages and significant
maintenance requirements.
The operation of power generation facilities involves many risks,
including the risk of breakdown or failure of equipment, fuel interruption and
performance below expected levels of output or efficiency. If our facilities,
or the facilities of other parties upon which we depend, operate below
expectations, we may lose revenues, have increased expenses or fail to receive
the amount of power for which we have contracted.
Many of our facilities were originally constructed many years ago.
Older equipment, even if maintained in accordance with good engineering
practices, may require significant capital expenditures to operate at peak
efficiency or availability. If we underestimate required maintenance
expenditures or are unable to make required capital expenditures due to
liquidity constraints, we risk incurring more frequent unplanned outages,
higher than anticipated maintenance expenditures, increased operation at
higher cost of some of our less efficient generation facilities and the need
to purchase power from third parties to meet our supply obligations.
Our operating results are subject to seasonal and weather fluctuations.
Electrical power generation is generally a seasonal business, and
weather patterns can have a material impact on our operating performance.
Demand for electricity peaks during the summer and winter months, and
market prices typically also peak during these
34
times. During periods of peak demand, the capacity of our generation
facilities may be inadequate, which could require it to purchase power at a
time when the market price for power is very high. In addition, although the
operational costs associated with the Delivery and Services segment are not
weather-sensitive, the segment's revenues are subject to seasonal fluctuation.
Accordingly, our annual results and liquidity position may depend
disproportionately on our performance during the winter and summer.
Our revenues, costs and results of operations are subject to other risks beyond
its control, including, but not limited to, accidents, storms, natural
catastrophes and terrorism.
Much of the value of our business consists of its portfolio of power
generation and T&D assets. Our ability to conduct our operations depends on
the integrity of these assets. The cost of repairing damage to our facilities
due to storms, natural disasters, wars, terrorist acts and other catastrophic
events may exceed reserves or insurance, if any, for repairs, which may
adversely impact our results of operations and financial condition. Although
we have taken, and will continue to take, reasonable precautions to safeguard
these assets, we can make no assurance that our facilities will not face
damage or disruptions or that we will have sufficient reserves or insurance to
cover the cost of repairs. In addition, in the current geopolitical climate,
enhanced concern regarding the risks of terrorism throughout the economy may
impact our operations in unpredictable ways. Insurance coverage may not cover
costs associated with any of these risks adequately or at all.
The terms of AE Supply's power sale agreements with the Distribution Companies
could require AE Supply to sell power below its costs or prevailing market
prices or require the Distribution Companies to purchase power at a price above
which they can sell power.
In connection with regulations governing the transition to market
competition, the Distribution Companies are required to provide electricity at
capped rates to retail customers who do not choose an alternate electricity
generation supplier or who return to utility service from alternate suppliers.
The Distribution Companies satisfy the majority of these obligations by
purchasing power from AE Supply under long-term agreements. Those agreements
provide for the supply of a significant portion of the Distribution Companies'
energy needs at the mandated capped rates and for the supply of a specified
remaining portion at rates based on market prices. The amount of energy priced
at market rates increases over each contract term. The majority of AE Supply's
normal operating capacity is dedicated to these contracts with the
Distribution Companies.
These power supply agreements present risks for both AE Supply and
the Distribution Companies. At times, AE Supply may not earn as much as it
otherwise could by selling power priced at capped rates to the Distribution
Companies instead of into competitive wholesale markets. In addition, AE
Supply's obligations under these power supply agreements could exceed its
available generation capacity, which may require AE Supply to buy power at
prices that are higher than the sale prices in the power supply agreements.
Changes in customer switching behavior could also alter AE
35
Supply's obligations under these agreements. Conversely, the Distribution
Companies' capped rates may be below current wholesale market prices through
the applicable transition periods. As a consequence, the Distribution Companies
may at times pay more for power than they can charge retail customers and may
be unable to pass the excess costs on to their retail customers.
The supply and price of fuel and emissions credits may impact our financial
results.
We are dependent on coal for much of its electric generation
capacity. We have coal supply contracts in place that partially mitigate our
exposure to negative fluctuations in coal prices. We can make no assurance,
however, that the counterparties to these agreements will fulfill their
obligations to supply coal. The suppliers under these agreements may
experience financial or technical problems that inhibit their ability to
fulfill their obligations. In addition, the suppliers under these agreements
may not be required to supply coal to us under certain circumstances, such as
in the event of a natural disaster. If we are unable to obtain our coal
requirements under these contracts, we may be required to purchase our coal at
higher prices, which could have a material adverse effect on our financial
condition, cash flow and results of operations.
We estimate that we may purchase sulfur dioxide emission allowances
for up to 50,000 tons for 2005 and an average of approximately 100,000 tons
per year for 2006 through 2008. Our allowance needs, to a large extent, are
affected at any given time by the amount of output produced, and the type of
fuel used, by our generation facilities. Fluctuations in the availability or
cost of emission allowances could have a material adverse effect on our
results of operations, cash flows and financial condition.
We are currently involved in significant litigation that, if not decided
favorably to us, could materially adversely affect our results of operations,
cash flows and financial condition.
We are currently involved in a number of lawsuits, including lawsuits
relating to breach of contract and its involvement in the energy trading
business. We intend to vigorously pursue these matters, but the results of
these lawsuits cannot be determined. Adverse outcomes in these lawsuits could
require us to make significant expenditures and could have a material adverse
effect on our results of operations, cash flows and financial condition.
The Distribution Companies and other AE subsidiaries are and may become subject
to legal claims arising from the presence of asbestos or other regulated
substances at some of their facilities.
The Distribution Companies have been named as defendants in pending
asbestos litigation involving multiple plaintiffs and multiple defendants. In
addition, asbestos and other regulated substances are, and may continue to be,
present at our owned facilities where suitable alternative materials are not
available. Our management believes that any remaining asbestos at our owned
facilities is contained. The continued presence of
36
asbestos and other regulated substances at our owned facilities, however, could
result in additional actions being brought against us.
We may be required to make significant contributions to satisfy underfunded
pension liabilities.
Our underfunded pension liabilities have increased in recent periods
due to declining interest rates and financial market performance and because
of the implementation of early retirement initiatives to reduce headcount. We
made a total contribution to pension plans during 2004 of $27.7 million,
including $0.3 million to the Supplemental Executive Retirement Plan. Minimum
required funding contributions are anticipated to increase beyond 2004.
However, these anticipated mandatory contributions will change in the future
if our assumptions regarding prevailing interest rates change, if actual
investments under-perform or out-perform expectations or if actuarial
assumptions or asset valuation methods change.
We also contributed $28.1 million to our postretirement benefits other than
pensions in 2004. These costs may increase in 2005.
Changes in PJM market policies and rules may impact our financial results.
Substantially all of our generation assets and power supply
obligations are located within the PJM market. Any changes in PJM policies or
market rules, including changes that are currently under consideration by
FERC, could adversely affect our financial results.
Energy companies are subject to adverse publicity, which may make us vulnerable
to negative regulatory and litigation outcomes.
The energy sector has been the subject of highly-publicized
allegations of misconduct. Negative publicity of this nature may make
legislatures, regulatory authorities and tribunals less likely to view energy
companies favorably, which could cause them to make decisions or take actions
that are adverse to us. Power outages, such as those that affected the
Northeast and Midwest United States and Canada in August 2003, could
exacerbate negative sentiment regarding the energy industry.
We are dependent on its ability to successfully access capital markets. An
inability to access capital may adversely affect our business.
We rely on access to the capital markets as a source of liquidity and
to satisfy any of its capital requirements that are not met by the cash flow
from its operations. Capital market disruptions, or a downgrade in our credit
ratings, could increase our cost of borrowing or could adversely affect our
ability to access one or more financial markets. Disruptions to the capital
markets could include, but are not limited to:
o a recession or an economic slowdown;
37
o the bankruptcy of one or more energy companies or
highly-leveraged companies;
o significant increases in the prices for oil or other fuel;
o a terrorist attack or threatened attacks;
o a significant transmission failure; or
o changes in technology.
Risks Relating to Internal Controls and Procedures
and Operational Enhancements
Our internal controls and procedures have been substantially deficient, and we
continue to expend significant resources to improve internal controls and
procedures.
In August 2002, our independent registered public accounting firm,
PricewaterhouseCoopers LLP ("PwC"), advised us that it considered AE's and its
subsidiaries' internal controls to have material weaknesses. The term
"material weakness" refers to an organization's internal control deficiency in
which the design or operation of a component of internal control does not
reduce to a relatively low level the risk that a material misstatement may be
contained in the organization's financial statements. In March 2004, PwC
advised AE's Audit Committee that although management had made significant
progress in addressing the specific control weaknesses previously identified,
not all of these deficiencies had been remedied and certain internal control
weaknesses remained. In September 2004, PwC advised AE's Audit Committee that
certain material weaknesses remained and required remediation. As of December
31, 2004, these material weaknesses have been remediated, although some
deficiencies remain. We intend to expend additional resources to further
improve our internal controls.
Refocusing our business subjects us to risks and uncertainties.
Since late 2002, we have been reassessing the business environment,
our position within the energy industry and our relative strengths and
weaknesses. As a result of this reassessment, we have implemented significant
changes to our operations as part of our overall strategy to function as an
integrated utility company, to the extent practicable and permissible under
relevant regulatory constraints. For example, we have reduced the size of our
workforce and made substantial changes to senior management. Additional
changes to our business will be considered as management seeks to strengthen
financial and operational performance. These changes may be disruptive to our
established organizational culture and systems. In addition, consideration and
planning of strategic changes diverts management attention and other resources
from day to day operations.
38
We may engage in sales of assets and businesses; however, market conditions and
other factors may hinder this strategy.
We may continue to sell non-core assets. Sales prices for energy
assets and businesses could fluctuate due to prevailing conditions. Asset
sales under poor market conditions could result in substantial losses. Buyers
also may find it difficult to obtain financing to purchase these assets. As
part of any asset sale, we face challenges associated with valuing the assets
correctly and limiting our environmental or other retained liabilities. These
transactions also may divert management attention and other resources from day
to day operations.
Several factors specific to us could make asset sales particularly
challenging. We and potential purchasers are subject to regulatory approvals,
which can impose delays and structuring complications on asset sale
transactions. Potential buyers may be reluctant to enter into agreements to
purchase assets from us if they believe that required consents and approvals
will result in significant delays or uncertainties in the transaction process.
We may fail to realize the benefits that we expect from our cost-savings
initiatives.
We have undertaken and expect to continue to undertake cost-savings
initiatives. However, we can make no assurance that we will realize on-going
cost savings or any other benefits from these initiatives. Even if we realize
the benefits of our cost savings initiatives, any cash savings that we achieve
may be offset by other costs, such as environmental compliance costs and
higher fuel, operating and maintenance costs, or could be passed on to
customers through revised rates. Staff reductions may reduce our workforce
below the level needed to effectively manage our business and service our
customers. Our failure to realize the anticipated benefits of our cost-savings
initiatives could have a material adverse effect on our business, results of
operations and financial condition.
Risks Relating to our Common Stock
Our stock price may be volatile.
In recent years, the stock market has experienced significant price
and volume fluctuations that are often unrelated to the operating performance
of specific companies. Our market price may fluctuate based on a number of
factors, including:
o our operating performance and the performance of other utilities;
o news announcements relating to us, our industry or our
competitors;
o changes in earnings estimates or recommendations by research
analysts;
o changes in general economic conditions;
39
o the number of shares to be publicly traded after this offer and
consent solicitation;
o dilution caused by the future exercise of securities convertible
into shares of our Common Stock;
o actions of our current stockholders; and
o other developments affecting us, our industry or our competitors.
Future sales of Common Stock may affect the market price of our Common Stock.
We cannot predict what effect, if any, future sales of our Common
Stock, or the availability of Common Stock for future sale, will have on the
market price of our Common Stock. Sales of substantial amounts of our Common
Stock in the public market following any public offering, or the perception
that such sales could occur, could adversely affect the market price of our
Common Stock and may make it more difficult for you to sell your Common Stock
at a time and price which you deem appropriate.
Risks Associated with not Converting the Preferred Securities
into Common Stock Pursuant to the Offer and Consent Solicitation
Depending upon the number of holders that convert their Preferred Securities
into Common Stock, there may be an even more illiquid trading market in which
to sell your Preferred Securities after the offer and consent solicitation ends
and the trading prices of Preferred Securities that remain outstanding will be
directly affected by the trading prices of our Common Stock.
Although we believe that there is currently a limited secondary
market for the Preferred Securities, this may stop at any time, especially
after the consummation of the offer and consent solicitation. As many holders
of our Preferred Securities may elect to convert their Preferred Securities
into Common Stock, there may be very few Preferred Securities outstanding
after the offer and consent solicitation and, therefore, very little interest
in trading our Preferred Securities. Holders of our Preferred Securities may
not be able to sell their Preferred Securities at favorable prices, if at all,
should they decide to do so after the consummation of the offer and consent
solicitation. In addition, the trading prices of the Preferred Securities in
the secondary market are directly affected by the trading prices of our Common
Stock, the general level of interest rates and our credit quality. It is
impossible to predict whether the price of our Common Stock or interest rates
will rise or fall. Fluctuations in interest rates may give rise to arbitrage
opportunities based upon changes in the relative value of the underlying
Common Stock. Any such arbitrage could, in turn, affect the trading prices of
the Preferred Securities that remain outstanding after the offer and consent
solicitation.
40
If the holders of a majority of our Preferred Securities accept the offer and
consent solicitation, then holders of Preferred Securities who do not tender
will lose the covenant protections, certain protective provisions and other
benefits that are currently afforded by the Indenture.
Holders who tender their Preferred Securities will be consenting to
an amendment to the Indenture to eliminate substantially all of the
restrictive covenants from the Indenture. If the Requisite Percentage of
holders tender their Preferred Securities in the offer and consent
solicitation, remaining holders of the Preferred Securities will lose
substantially all of the covenant protections currently afforded by the
Indenture, even though they did not tender their Preferred Securities in the
offer and consent solicitation. The provisions of the Indenture being amended
hereby do not require the consent of all holders of the Preferred Securities,
but rather only the Requisite Percentage is necessary (other than the
anti-layering covenant (Section 4.11) of the Indenture which requires the
consent of 75% in Liquidation Amount of the Preferred Securities). In
addition, if at any time prior to June 15, 2006 the aggregate principal amount
of the 11 7/8% Notes is less than $25 million, including as a result of this
offer and consent solicitation, Allegheny may redeem all, but not less than
all, of the remaining 11 7/8% Notes at a redemption price equal to 100% of the
principal amount thereof plus the applicable premium and accrued and unpaid
interest and special interest, if any, to the date of redemption. The proceeds
from this optional redemption would be applied by the Institutional Trustee to
redeem Preferred Securities having an aggregate Liquidation Amount equal to
the aggregate principal amount of the 11 7/8% Notes redeemed by Allegheny.
41
USE OF PROCEEDS
Neither the Trust nor Allegheny will receive any cash proceeds from
the offer and consent solicitation. Preferred Securities validly tendered and
converted into shares of Common Stock pursuant to the offer and consent
solicitation will be retired and cancelled. In addition, neither Allegheny nor
the Trust will receive any cash proceeds from the tender of the 11 7/8% Notes or
exercise of the attached Warrants.
42
THE OFFER AND CONSENT SOLICITATION
Important Information Regarding the Offer and Consent Solicitation
The issuance of Common Stock upon conversion of the Preferred
Securities is exempt from registration pursuant to Section 3(a)(9) of the
Securities Act.
Allegheny will not pay fees or commissions to any broker, dealer, or
other person for soliciting tenders of Preferred Securities pursuant to the
offer and consent solicitation.
Neither the Allegheny nor the Trust is aware of any jurisdiction
where the making of the offer and consent solicitation is not in compliance
with applicable law. If Allegheny or the Trust become aware of any
jurisdiction where the making of the offer and consent solicitation is not in
compliance with any valid applicable law, Allegheny and the Trust will make a
good faith effort to comply with such law. If, after such good faith effort,
Allegheny and the Trust cannot comply with such law, the offer and consent
solicitation will not be made to (nor will tenders be accepted from or on
behalf of) the holders of Preferred Securities residing in such jurisdiction.
You should rely only on the information included or incorporated by
reference in this offering circular. Allegheny and the Trust have not
authorized anyone to provide you with different information. You should not
assume that the information in this offer and consent solicitation or any
supplement is accurate as of any date other than the date on the cover of the
document. By tendering your Preferred Securities for conversion, you represent
that you are basing your decision solely on this offer and consent
solicitation and your own examination of Allegheny and the Trust and the terms
of the proposed conversion, including the merits and risks involved. The
contents of this offer and consent solicitation should not be construed as
legal, business or tax advice. You should consult your own attorney, business
advisor and tax advisor as to such matters.
Determination of Conversion Amount
Allegheny and the Trust have structured the offer and consent
solicitation to give holders of the Preferred Securities the opportunity to
receive a Conversion Amount in return for their agreement to convert their
Preferred Securities and consent to the Proposed Amendments. Allegheny
believes that it will be more advantageous to holders of the Preferred
Securities to agree to accept the offer and consent solicitation than to
retain their Preferred Securities or the rights such holders would possess if
they refrained from tendering in the offer and consent solicitation (or if
Allegheny and the Trust elected not to make the offer and consent
solicitation).
Non-tendering holders will continue to own their Preferred
Securities. Holders that convert Preferred Securities into Common Stock after
the Expiration Date will not receive the Conversion Amount upon the conversion
of such Preferred Securities. In addition, if the Requisite Percentage of
holders tender their Preferred Securities in the offer and consent
solicitation, remaining holders of the Preferred Securities will lose
substantially all of the covenant protections currently afforded by the
Indenture, even though they did not tender their Preferred Securities in the
offer and consent solicitation.
43
Background of and Reasons for the Offer and Consent Solicitation
Allegheny's board of directors has unanimously approved the offer and
consent solicitation. In making its determination, the board of directors
considered a number of factors, including the following:
o Amount of payments
Allegheny's board of directors believes that the Conversion
Amount offers holders of the Preferred Securities an amount
of money that is more advantageous than the benefits a
holder would possess if it refrained from tendering
Preferred Securities in the offer and consent solicitation
(or if Allegheny and the Trust elected not to make the offer
and consent solicitation). Holders that tender their
Preferred Securities for conversion will receive, in
addition to the Common Stock into which their Preferred
Securities are converted, a cash payment equal to all of the
remaining regularly scheduled distributions from March 15,
2006 through June 15, 2006, plus an incentive payment that
they will only receive if they participate in the offer and
consent solicitation. If Allegheny's Common Stock continues
to trade at or above $15 per share, the Preferred Securities
will mandatorily convert after June 15, 2006 with no
incentive payment being paid upon conversion. Holders that
participate in the offer and consent solicitation will
receive all of the shares of Common Stock that they would
otherwise receive upon this mandatory conversion.
Furthermore, holders that do not participate in the offer
and consent solicitation and voluntarily elect to convert
their Preferred Securities will receive the Common Stock
into which their Preferred Securities are converted and the
regularly scheduled distributions, but will not receive any
incentive payment. Additionally, on or after June 15, 2006,
if no mandatory or voluntary conversion has occurred,
Allegheny has the option to redeem any or all of the 11 7/8%
Notes at the initial optional redemption price of 105.9375%,
plus accrued and unpaid interest and special interest, if
any, to the redemption date. Holders who do not elect to
convert their Preferred Securities prior to this redemption
will not receive shares of Common Stock, and will only
receive cash in an amount equal to the optional redemption
price and the regularly scheduled distribution payments.
o Benefits to Allegheny
The board of directors believes completion of the offer and
consent solicitation will strengthen Allegheny's financial
position by reducing the amount of long term indebtedness
and increasing equity. The completion of the offer and
consent solicitation will also increase Allegheny's
flexibility to enter into certain transactions by eliminating
substantially all of the restrictive covenants currently
found in the Indenture. Certain of these restrictive
covenants limit Allegheny's ability to enhance its business.
44
In addition, consummation of the offer and consent
solicitation assists Allegheny in reaching the ratio of 30%
consolidated common equity to total capitalization that the
SEC, as a matter of policy under PUHCA, establishes as a
minimum for registered holding companies.
o Impact on existing holders of Common Stock
Allegheny's board of directors believes that its existing
stockholders will benefit from the early conversion of the
Preferred Securities. The board believes that existing
stockholders will benefit from the offer and consent
solicitation because the reduction in indebtedness and
additional equity improves Allegheny's financial position,
including a reduction in interest expense beginning in
Allegheny's third fiscal quarter of 2005 (assuming the
consummation of the offer and consent solicitation occurs
during Allegheny's second fiscal quarter of 2005). The board
also believes that existing stockholders will benefit from
the flexibility Allegheny obtains from the amendments to the
Indenture as a result of the offer and consent solicitation.
Allegheny's board of directors also believes that the
benefits of early conversion of the Preferred Securities
outweigh the dilution to the existing stockholders. The board
has reviewed the historical and current sales price of the
Common Stock and recognized that even if the offer and
consent solicitation did not occur, existing stockholders may
still experience dilution because the Preferred Securities
will mandatorily convert if the Common Stock price equals or
exceeds $15 per share over a specified averaging period
occurring after June 15, 2006. In addition, as a result of
certain redemption provisions, existing stockholders may
still experience dilution as holders of Preferred Securities
may decide to convert their Preferred Securities into Common
Stock rather than have their Preferred Securities be redeemed
by Allegheny. Allegheny has the option to redeem all or a
portion of the 11 7/8% Notes on or after June 15, 2006 at the
optional redemption price (this price initially being
105.9375% and declining to 102.96875% on or after June 15,
2007, plus, in each case, accrued and unpaid interest and
special interest, if any, to the redemption date). Moreover,
if at any time prior to June 15, 2006 the aggregate principal
amount of the 11 7/8% Notes is less than $25 million,
including as a result of this offer and consent solicitation,
Allegheny has the option of redeeming all, but not less than
all, of the remaining 11 7/8% Notes at a redemption price
equal to 100% of the principal amount thereof plus the
applicable premium, accrued and unpaid interest and special
interest, if any, to the date of redemption. If Allegheny
chooses any optional redemption, the proceeds would be
applied by the Institutional Trustee to redeem Preferred
Securities having an aggregate Liquidation Amount equal to
the aggregate principal amount of the 11 7/8% Notes to be
redeemed by Allegheny.
The board of directors also considered information provided
by management concerning Allegheny's business, financial
condition, results
45
of operations, current business strategy, future business
prospects, and material risk exposures.
In approving the offer and consent solicitation, the board
of directors weighed the costs and risks, including the
transaction costs associated with the offer, the risk of not
completing the offer and consent solicitation, and the
potential adverse impact of the offer on the trading market
for the Common Stock and any untendered Preferred
Securities. However, the board of directors determined that
the benefits of the offer and consent solicitation
outweighed these costs and risks.
Allegheny's board of directors has also approved the offer and consent
solicitation for the following reasons:
o Lack of coercion
The board of directors noted that holders are completely free to
accept or reject the offer and consent solicitation in their sole discretion.
If holders do not accept the offer and consent solicitation, they will retain
their Preferred Securities and will continue to have the ability to convert
their Preferred Securities, prior to maturity, into the same number of shares
of Common Stock being offered hereby, but without the Conversion Amount.
Accordingly, the conversion rights held by holders will not be forfeited or
diminished if a holder does not tender. Apart from reduced liquidity in the
market for the Preferred Securities following consummation of the offer and
consent solicitation and the loss of substantially all of the covenant
protections in the Indenture if the offer and consent solicitation is
successful, the board of directors is unaware of any potential adverse effect
of the offer on holders who decline to tender.
o Sophistication of holders
The board of directors believes that all or a substantial portion of
the Preferred Securities are held by sophisticated investors who are fully
capable of making an informed decision with respect to the offer and consent
solicitation.
Other
The foregoing discussion is not intended to be exhaustive. It is
intended to address the principal factors upon which the board of directors
based the offer and consent solicitation. In approving the offer and consent
solicitation, Allegheny's board of directors considered all factors as a whole
and did not assign specific weight to specific factors.
The offer and consent solicitation does not require the approval of
the holders or Allegheny's stockholders, and, given the voluntary nature of
the offer and consent solicitation, Allegheny does not believe any such
approvals are necessary or appropriate.
The board of directors has decided that Allegheny and the Trust should
make the offer and consent solicitation at this time for the reasons addressed
46
above under "Background of and Reasons for the Offer and Consent Solicitation."
The market risks that holders who tender their Preferred Securities for
conversion pursuant to the offer and consent solicitation may experience may
differ from the market risks that holders who do not tender and are subject to
mandatory conversion or optional redemption may experience. Holders should be
cognizant that the Warrants are mandatorily exercisable if the Common Stock
price equals or exceeds $15 per share over a specified averaging period after
June 15, 2006. Upon the occurrence of such an event, all outstanding Preferred
Securities would be automatically converted into Common Stock. Additionally,
Allegheny has the option to redeem all or a portion of the 11 7/8% Notes on or
after June 15, 2006 at the optional redemption price (this price initially
being 105.9375% and declining to 102.96875% on or after June 15, 2007, plus, in
each case, accrued and unpaid interest and special interest, if any, to the
redemption date). In addition, if prior to June 15, 2006 the aggregate
principal amount of the 11 7/8% Notes is less than $25 million, Allegheny has
the option to redeem all, but not less than all, of the remaining 11 7/8% Notes
at a redemption price equal to 100% of the principal amount thereof plus the
applicable premium, accrued and unpaid interest and special interest, if any,
to the date of redemption. The proceeds from any optional redemption would be
applied by the Institutional Trustee to redeem Preferred Securities having an
aggregate Liquidation Amount equal to the aggregate principal amount of the 11
7/8% Notes redeemed by Allegheny. Holders must make their own independent
assessment of these market risks.
NEITHER ALLEGHENY, THE TRUST NOR ALLEGHENY'S BOARD OF DIRECTORS NOR
ANY OF ALLEGHENY'S ADVISORS OR AGENTS, ARE MAKING ANY RECOMMENDATION REGARDING
WHETHER OR NOT YOU SHOULD TENDER PREFERRED SECURITIES IN THE OFFER AND CONSENT
SOLICITATION. ACCORDINGLY, YOU MUST MAKE YOUR OWN INDEPENDENT DETERMINATION AS
TO WHETHER OR NOT YOU WISH TO TENDER YOUR PREFERRED SECURITIES AT THIS TIME.
Terms of the Offer and Consent Solicitation
Allegheny is offering holders of the Preferred Securities the right
to receive a Conversion Amount equal to $160.00 in cash, which represents (i)
$148.44, the nominal amount of the remaining regularly scheduled distributions
from March 15, 2005 through June 15, 2006 (the first date on which Allegheny
may redeem any or all of the 11 7/8% Notes, irrespective of the aggregate
principal amount of 11 7/8% Notes outstanding, and the date that the Preferred
Securities become subject to the mandatory conversion provisions of the
Declaration of Trust), and (ii) $11.56, an incentive payment to encourage
holders to tender and consent. The nominal amount of the regularly scheduled
distributions referred to above does not reflect any discount based on the
present value of such payments, although Allegheny believes that certain holders
of the Preferred Securities may value the remaining distributions on a
discounted basis. Although the nominal amount referred to above does not reflect
any discount, holders that value the remaining distributions on a discounted
basis will view the incentive payment portion of the Conversion Amount to be
greater than $11.56. Allegheny cannot predict whether, or the rate at which,
holders will discount the value of the remaining distribution payments
47
referred to above. The Conversion Amount will be paid to holders that tender
their Preferred Securities for conversion into Common Stock during the Special
Conversion Period. Allegheny and the Trust are also soliciting consents from the
holders of Preferred Securities. If you tender your Preferred Securities, you
will be deemed to have consented to the Proposed Amendments described herein to
the Indenture. The amendment to the Indenture will remove substantially all of
the restrictive covenants contained in the Indenture, including the covenant
restricting the amount of indebtedness that Allegheny may incur.
The offer and consent solicitation will expire at 12:00 midnight, New
York City time, on April 20, 2005, or at such other time if this date is
extended or terminated by Allegheny and the Trust.
If you elect to tender your Preferred Securities for conversion into
Common Stock during the Special Conversion Period, for each $1,000 in
Liquidation Amount of Preferred Securities tendered, you will receive:
o 83.33 shares of Common Stock, subject to any applicable
anti-dilution adjustments, plus
o an amount in cash equal to $160.00 (the Conversion Amount),
which represents (i) $148.44, the nominal amount of the
remaining regularly scheduled distributions from March 15, 2005
through June 15, 2006 (the first date on which Allegheny may
redeem any or all of the 11 7/8% Notes, irrespective of the
aggregate principal amount of 11 7/8% Notes outstanding, and
the date that the Preferred Securities become subject to the
mandatory conversion provisions of the Declaration of Trust),
and (ii) $11.56, an incentive payment to encourage holders to
tender and consent. The nominal amount of the regularly
scheduled distributions referred to above does not reflect any
discount based on the present value of such payments, although
Allegheny believes that certain holders of the Preferred
Securities may value the remaining distributions on a
discounted basis. Although the nominal amount referred to above
does not reflect any discount, holders that value the remaining
distributions on a discounted basis will view the incentive
payment portion of the Conversion Amount to be greater than
$11.56. Allegheny cannot predict whether, or the rate at which,
holders will discount the value of the remaining distribution
payments referred to above.
The issuance of Common Stock upon conversion of the Preferred
Securities is exempt from registration pursuant to Section 3(a)(9) of the
Securities Act. Your ability to transfer the Common Stock that you will
receive upon conversion of the Preferred Stock will initially be restricted.
Pursuant to the Registration Rights Agreement, Allegheny filed a registration
statement with respect to the Preferred Securities and the underlying Common
Stock on March 31, 2005. Allegheny intends to file an amendment to this
registration statement promptly following the consummation of the offer and
48
consent solicitation to reflect the results of the offer and to add certain
information about the tendering holders. Following the effectiveness of this
registration statement, the Common Stock issued pursuant to the offer and
consent solicitation may be sold pursuant to this registration statement.
Prior to the effectiveness of this registration statement, holders of the
Common Stock may also be able to sell the Common Stock pursuant to Rule 144
under the Securities Act. In addition, on July 24, 2005, the restricted Common
Stock may be eligible for resale pursuant to Rule 144(k) under the Securities
Act.
If you do not convert your Preferred Securities into Common Stock
during the Special Conversion Period, you will continue to hold your Preferred
Securities. Holders that convert Preferred Securities into Common Stock after
the Expiration Date will not receive the Conversion Amount upon the conversion
of such Preferred Securities. In addition, if the Requisite Percentage of
holders tender their Preferred Securities in the offer and consent
solicitation, remaining holders of the Preferred Securities will lose
substantially all of the covenant protections currently afforded by the
Indenture, even though they did not tender their Preferred Securities in the
offer and consent solicitation.
The offer and consent solicitation is being made on the terms and
subject to the conditions set forth in this offering circular and in the
accompanying Consent and Letter of Transmittal. If the offer and consent
solicitation is withdrawn or otherwise not completed, Allegheny and the Trust
will return the Preferred Securities that have been tendered for conversion to
you, without expense to you.
Allegheny will issue the shares of Common Stock and the Conversion
Amount in payment for Preferred Securities converted in the offer and consent
solicitation promptly following the Expiration Date. On the Expiration Date,
the Conversion Agent will tender to Allegheny an aggregate principal amount of
11 7/8% Notes equal to the aggregate Liquidation Amount of Preferred Securities
tendered for conversion in the offer and consent solicitation. The Conversion
Agent will also exercise the Warrants attached to the tendered 11 7/8% Notes for
shares of Common Stock and will thereafter distribute the Common Stock to
tendering holders in satisfaction of the shares of Common Stock such holders
are entitled to received for conversion of their Preferred Securities. The
tendered Preferred Securities and 11 7/8% Notes and the exercised Warrants will
be retired and cancelled.
Subject to your right to withdraw your Preferred Securities tendered
for conversion, Allegheny and the Trust can amend the terms of the offer and
consent solicitation in their sole discretion and any amendment will apply to
any and all Preferred Securities. In addition, Allegheny and the Trust can
waive any condition to the offer and consent solicitation in their sole
discretion and accept any Preferred Securities tendered for conversion.
Furthermore, Allegheny and the Trust reserve the right at any time to
terminate the offer and consent solicitation in their sole discretion and not
accept for conversion any Preferred Securities tendered for conversion
pursuant to the offer and consent solicitation for any of the reasons set
forth below under "Conditions to the Offer and Consent Solicitation."
49
Allegheny and the Trust shall be deemed to have accepted validly
tendered Preferred Securities when, as and if Allegheny and the Trust have
given oral or written notice to the Conversion Agent. The Conversion Agent
will act as agent for the holders of Preferred Securities and for the purpose
of receiving the Common Stock and Conversion Amount consideration from
Allegheny. In order for Allegheny and the Trust to validly accept tendered
Preferred Securities, a tendering holder must also have properly completed and
submitted the Notice of Conversion.
If any tendered Preferred Securities are not accepted for payment
because of an invalid tender, the occurrence of other events set forth in this
offering circular or otherwise, all unaccepted Preferred Securities will be
returned, without expense, to the tendering holder promptly after the
Expiration Date. Allegheny and the Trust may undertake a subsequent tender for
conversion, or refinancing of, any Preferred Securities that continue to
remain outstanding after the offer and consent solicitation. No assurance can
be given that any such refinancing or additional tender for such Preferred
Securities will be undertaken or, if undertaken, will be on the same terms as
the terms of the offer and consent solicitation. Any subsequent tender offer
or refinancing will be made in compliance with applicable law, including Rule
13e-4(f)(6) under the Exchange Act.
The expiration date of the offer and consent solicitation will be
April 20, 2005, at 12:00 midnight, New York City time, or at such other time
if this date is extended or terminated by the Trust and Allegheny. In that
case, the applicable Expiration Date will be the latest date and time to which
the offer and consent solicitation has been extended. During any extension of
the offer and consent solicitation, the Preferred Securities that were
previously tendered for conversion and not withdrawn will remain subject to
the offer and consent solicitation.
Allegheny and the Trust reserve the right, in their sole discretion:
o to extend the Expiration Date of the offer and consent solicitation;
o to waive any condition to an offer and consent solicitation set forth
below under "Conditions to the Offer and Consent Solicitation "and accept
any Preferred Securities tendered for conversion;
o to terminate the offer and consent solicitation, if any of the conditions
set forth below under "Conditions to the Offer and Consent Solicitation"
have not been satisfied or waived prior to 12:00 midnight, New York City
time, on the Expiration Date; and
o to amend the terms of the offer and consent solicitation in any manner.
If Allegheny and the Trust extend, terminate or amend the offer and
consent solicitation, Allegheny and the Trust will notify the Conversion Agent
orally, followed by a written notice and will issue a press release or other
public announcement regarding the extension, termination or amendment. The
press release or other public announcement of an extension will be issued no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. Any amendment to the
50
offer and consent solicitation will apply to any and all Preferred Securities.
If the offer and consent solicitation is amended in a manner determined by
Allegheny and the Trust to constitute a material change, Allegheny and the
Trust will promptly disclose this amendment by means of a public announcement
or a supplement to this offering circular that will be distributed to the
holders of the Preferred Securities and, if required by law, the offer and
consent solicitation will be extended for at least five business days after the
material change. In addition, if there is an increase or decrease in the
percentage of Preferred Securities being sought or the consideration being
offered to holders, the offer and consent solicitation will remain open for a
period of at least ten days from the date Allegheny and the Trust give notice
of the increase or decrease.
Conditions to the Offer and Consent Solicitation
The completion of the offer and consent solicitation is contingent
upon:
o the absence of any determination that the offer and consent solicitation
violates any law or interpretation of the SEC staff;
o the absence of any pending proceeding that materially impairs the Trust's
or Allegheny's ability to complete the offer and consent solicitation;
o the absence of any material adverse development in any existing legal
proceeding involving the Trust or Allegheny or any of Allegheny's
subsidiaries;
o the absence of any material adverse change in the trading price of the
Common Stock in any major securities or financial market, or in the United
States trading markets generally;
o holders of at least a Majority in Liquidation Amount of the Preferred
Securities validly tendering and not withdrawing their Preferred
Securities at any time prior to the Expiration Date; and
o the absence of any material adverse change or any development involving a
prospective material adverse change in Allegheny's business, financial
condition or operations.
If any of these conditions are not satisfied or waived by Allegheny
and the Trust on or before the Expiration Date, Allegheny and the Trust will
not be obligated to accept for conversion any Preferred Securities properly
tendered for conversion pursuant to the offer and consent solicitation.
Notwithstanding the foregoing, Allegheny and the Trust cannot waive compliance
with the condition requiring the absence of any violation of law or
interpretation of the SEC Staff.
Fractional Shares
In lieu of issuing fractional shares of Common Stock, Allegheny
will pay to holders of Preferred Securities that have been converted in the
offer and consent solicitation who otherwise would have been entitled to a
fractional share of Common
51
Stock, an amount in cash equal to the product of such fraction and the average
of the closing prices of the Common Stock, as reported by the NYSE, for the
five trading days ending on the last trading day before the Expiration Date.
Allegheny will make available to the Conversion Agent the cash necessary to
make any payments for fractional shares. Allegheny expects the amount of cash
required to be nominal.
Waiver and Nonacceptance of Tenders and Consents
Allegheny and the Trust reserve the absolute and unconditional right
to waive any defects or irregularities in the tender of Preferred Securities
or delivery of consents. If any Preferred Securities are not accepted for
conversion for any reason, those Preferred Securities will be returned without
expense to the tendering holder promptly after the expiration or termination
of the offer and consent solicitation.
Procedures for Tendering Preferred Securities and Delivering Consents
Upon the terms and subject to the conditions of the offer and consent
solicitation and applicable law, Allegheny and the Trust will convert all
Preferred Securities validly tendered and not withdrawn. You may withdraw
tenders of Preferred Securities at any time prior to 12:00 midnight, New York
City time, on the Expiration Date.
The conversion of Preferred Securities will be made by the deposit by
Allegheny of the offer consideration, consisting of shares of Common Stock and
the Conversion Amount, with the Conversion Agent promptly following the
Expiration Date so that the offer consideration may be paid to you promptly
after the Expiration Date. The Conversion Agent will act as agent for you for
the purpose of issuing the offer consideration for the Preferred Securities
and consents to the Proposed Amendments, as well as issuing certificated
shares of Common Stock. Under no circumstances will interest on the offer
consideration be paid by Allegheny due to any delay on behalf of the
Conversion Agent.
Allegheny and the Trust expressly reserve the right, in their sole
discretion, to delay acceptance for conversion of, or the conversion of,
Preferred Securities in anticipation of any governmental regulatory approval.
See "Conditions to the Offer and Consent Solicitation."
In all cases, early conversion by the Conversion Agent of Preferred
Securities accepted for conversion under the offer and consent solicitation
will be made only after timely receipt by the Conversion Agent of:
o certificates representing your Preferred Securities or timely
confirmation of a book-entry transfer of your Preferred Securities into
the Conversion Agent's account at DTC;
o a properly completed and duly executed Consent and Letter of Transmittal,
or a manually signed facsimile thereof or, in the case of a book-entry
transfer, a properly transmitted "agent's message" (as described below);
52
o the Notice of Conversion; and
o any other documents required by the Consent and Letter of Transmittal.
On the Expiration Date, the Conversion Agent will tender to Allegheny
an aggregate principal amount of 11 7/8% Notes equal to the aggregate
Liquidation Amount of Preferred Securities. The Conversion Agent will also
exercise the Warrants attached to the tendered 11 7/8% Notes for shares of
Common Stock and will thereafter distribute the Common Stock to the holders in
satisfaction of the shares of Common Stock such holders are entitled to
received for conversion of their Preferred Securities. The tendered Preferred
Securities and 11 7/8% Notes and the exercised Warrants will be retired and
cancelled.
For purposes of the offer and consent solicitation, validly tendered
Preferred Securities, or defectively tendered Preferred Securities for which
Allegheny and the Trust have waived that defect, will be deemed to have been
accepted for tender by Allegheny and the Trust if, as and when Allegheny and
the Trust give oral or written notice thereof to the Conversion Agent.
Consents to the Proposed Amendments will be deemed to have been accepted by
Allegheny and the Trust if, as and when the Supplemental Indenture is
executed.
If the offer and consent solicitation is terminated or withdrawn, or
the Preferred Securities are not accepted for tender, no offer consideration
will be paid or payable. If any tendered Preferred Securities are not
converted under the offer and consent solicitation for any reason, or
certificates are submitted evidencing more Preferred Securities than are
tendered, those Preferred Securities not converted will be returned without
expense, to you, or, in the case of Preferred Securities tendered by
book-entry transfer, those Preferred Securities will be credited to the
account maintained at DTC from which those Preferred Securities were
delivered, unless otherwise requested by you under the "Special Issuance
Instructions" heading in the Consent and Letter of Transmittal, promptly after
the Expiration Date.
To receive the offer consideration you must tender your Preferred
Securities and deliver your Notice of Conversion under the offer and consent
solicitation on or before the Expiration Date. By tendering your Preferred
Securities, you will automatically be delivering your consent to the Proposed
Amendments with respect to those Preferred Securities.
The method of delivery of Preferred Securities and Consents and
Letters of Transmittal, any required signature guarantees and all other
required documents, including delivery through DTC and any acceptance of any
agent's message transmitted through DTC's Automated Tender Offer Program
("ATOP"), is at your election and risk. Except as otherwise provided in the
Consent and Letter of Transmittal, delivery will be deemed made only when
actually received by the Conversion Agent. If delivery is by mail, Allegheny
and the Trust suggest that you use properly insured registered mail with
return receipt requested, and that the mailing be made sufficiently in advance
of the Expiration Date.
53
If you have any questions or need help in tendering your Preferred
Securities, please call the Information Agent whose address and phone number
can be found elsewhere in this offering circular under the section titled
"Information Agent."
Tenders of Preferred Securities and delivery of consents
Your tender of Preferred Securities, and the subsequent acceptance by
Allegheny and the Trust, by one of the procedures set out below will
constitute a binding agreement with Allegheny and the Trust in accordance with
the terms and subject to the conditions set forth in this offering circular
and offer and consent solicitation, in the Consent and Letter of Transmittal
and, if applicable, in the notice of guaranteed delivery.
Notice of Conversion
To validly tender your Preferred Securities, you must properly
execute and deliver a completed Notice of Conversion to the Conversion Agent
no later than 12:00 midnight, New York City time, on the Expiration Date. The
Notice of Conversion is required in order for the Conversion Agent to properly
accept the Preferred Securities being tendered and to subsequently convert the
Preferred Securities into Common Stock. The Notice of Conversion will allow
you to provide the Conversion Agent with information such as to who the shares
of Common Stock should be issued and where such shares of Common Stock should
be delivered. In addition, the Notice of Conversion will provide specific
information with respect to tendering holders in order for Allegheny to
register the Common Stock issued pursuant to the offer and consent
solicitation for resale. Signatures on the Notice of Conversion must be
guaranteed by an "eligible guarantor institution" meeting the requirements of
the security registrar, which requirements include membership or participation
in the Security Transfer Agent Medallion Program or such other "signature
guarantee program" as may be determined by the security registrar in addition
to, or in substitution for, the Security Transfer Agent Medallion Program, all
in accordance with the Exchange Act.
Tenders of Preferred Securities held in physical form
To tender effectively Preferred Securities held in physical form and
deliver the related consents:
o you must complete and duly execute a Consent and Letter of Transmittal
and any other documents required by the Consent and Letter of
Transmittal, and the Consent and Letter of Transmittal and other required
documents must be received by the Conversion Agent at its address set out
elsewhere in this offering circular on or before the Expiration Date; and
o you must ensure that certificates representing those Preferred Securities
are received by the Conversion Agent at that address on or before the
Expiration Date.
Consents and Letters of Transmittal and Preferred Securities
should be sent only to the Conversion Agent and should not be sent to
Allegheny or the Trust. If your Preferred Securities are registered in
the name of a person other than the signatory to the
54
Consent and Letter of Transmittal, then, to tender those Preferred Securities
under the offer and consent solicitation, the Preferred Securities must be
endorsed or accompanied by an appropriate written instrument or instruments
of transfer signed exactly as that name appears on the Preferred Securities,
with the signature on the Preferred Securities or instruments of transfer
guaranteed as provided below. If these procedures are followed by a
beneficial owner tendering Preferred Securities on or before the Expiration
Date, the registered holder of these Preferred Securities must sign a valid
proxy because only registered holders may tender Preferred Securities and
deliver consents.
Tender of Preferred Securities held through a custodian
If your Preferred Securities are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and if you wish to
tender Preferred Securities and deliver a Consent and Letter of Transmittal,
you should contact that registered holder promptly and instruct him, her or it
to tender Preferred Securities and deliver a Consent and Letter of Transmittal
on your behalf. A letter of instructions is enclosed in the solicitation
materials provided along with this offering circular which may be used by you
in this process to instruct the registered holder to tender Preferred
Securities and deliver consents. If you wish to tender those Preferred
Securities and deliver consents yourself, you must, prior to completing and
executing the Consent and Letter of Transmittal and delivering those Preferred
Securities, either make appropriate arrangements to register ownership of the
Preferred Securities in your name or follow the procedures described in the
immediately preceding paragraph. The transfer of record ownership may take
considerable time. In connection with the submission of the Consent and Letter
of Transmittal, you must also properly execute and deliver the Notice of
Conversion to the Conversion Agent no later than 12:00 midnight, New York City
time, on the Expiration Date.
Consequences relating to PUHCA
Section 9(a)(2) of PUHCA (sometimes referred to as the "two-bite"
rule) requires any individual or company that will own or acquire, directly or
indirectly, 5% or more of the voting securities of a public utility company
under PUHCA must receive prior approval from the SEC. Allegheny currently has
multiple subsidiary companies that are public utility companies under PUHCA.
This means that any individual or company that acquired 5% or more of Common
Stock would be acquiring indirectly 5% or more of the voting securities of
multiple public utility companies. This acquisition would require SEC approval
under the two-bite rule before it could be consummated. As such, holders that
would acquire 5% or more of Common Stock as a result of tendering their
Preferred Securities should seek SEC approval prior to such tendering of their
Preferred Securities.
Tender of Preferred Securities held through DTC
To tender effectively Preferred Securities that are held through
DTC, if you are a DTC participant, you must electronically transmit your
acceptance through ATOP. By transmitting your acceptance, you will also be
giving your consent to the Proposed Amendments to the Indenture. Upon
receipt of your acceptance through ATOP, DTC
55
will edit and verify the acceptance and send an agent's message, as
described below, to the Conversion Agent for its acceptance.
The Conversion Agent will establish accounts with respect to the
Preferred Securities at DTC for purposes of the offer and consent solicitation
within two business days after the date of this offering circular and offer
and consent solicitation. Any financial institution that is a participant in
DTC may make book-entry delivery of the Preferred Securities by causing DTC to
transfer those Preferred Securities into the Conversion Agent's account in
accordance with DTC's procedures for that transfer.
Although delivery of Preferred Securities may be effected through
book-entry transfer into the Conversion Agent's account at DTC, the Consent
and Letter of Transmittal, or a manually signed facsimile thereof, with any
required signature guarantees, or an agent's message, as described below, in
connection with a book-entry transfer, and any other required documents, must,
in any case, be transmitted to and received by the Conversion Agent at the
address set out elsewhere in this offering circular on or before the
Expiration Date with the tender of the Preferred Securities. Delivery of
documents to DTC does not constitute delivery to the Conversion Agent. In
addition, even if you electronically transmit your acceptance through ATOP you
are still required to properly execute and submit the Notice of Conversion to
the Conversion Agent no later than 12:00 midnight, New York City time, on the
Expiration Date.
The confirmation of a book-entry transfer into the Conversion Agent's
account at DTC as described above is referred to in this offering circular as
a "book-entry confirmation." The term "agent's message" means a message
transmitted by DTC to, and received by, the Conversion Agent and forming a
part of the book-entry confirmation, which states that DTC has received an
express acknowledgment from a DTC participant that the participant has
received and agrees to be bound by the terms of the Consent and Letter of
Transmittal, including the consent to the Proposed Amendments, and that
Allegheny and the Trust may enforce that agreement against the participant.
Signature guarantees
Signatures on all Consents and Letters of Transmittal must be
guaranteed by a recognized participant in the Securities Transfer Agents
Medallion Program, unless your tender of Preferred Securities tendered and
delivery of consents delivered are tendered and delivered:
o by a registered holder of Preferred Securities, or by a participant in
DTC whose name appears on a security position listing as the owner of
those Preferred Securities, who has not completed any of the boxes
entitled "Special Issuance Instructions" on the Consent and Letter of
Transmittal; or
o for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers,
Inc. or a commercial bank or trust company having an office or
correspondent in the United States. Such entities are referred to as the
"eligible institutions."
56
If your Preferred Securities are registered in the name of a person
other than the signatory to the Consent and Letter of Transmittal or if
Preferred Securities not accepted for tender or not tendered are to be
returned to a person other than the registered holder, then the signature on
the Consent and Letter of Transmittal accompanying the tendered Preferred
Securities must be guaranteed. See Instruction 3 of the Consent and Letter of
Transmittal.
Mutilated, lost, stolen or destroyed certificates
If you desire to tender Preferred Securities, but the certificates
evidencing those Preferred Securities have been mutilated, lost, stolen or
destroyed, you should contact the Conversion Agent to receive information
about the procedures for obtaining replacement certificates for Preferred
Securities at the following address or telephone number: Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890, telephone (302) 636-6470
or toll free (800) 441-7120 ext. 6470.
Defective tenders
Except as provided below, unless the Preferred Securities being
tendered are deposited with the Conversion Agent on or before the Expiration
Date, accompanied by a properly completed and duly executed Consent and Letter
of Transmittal or a properly transmitted agent's message, Allegheny and the
Trust may at their option treat that tender as defective for purposes of the
right to receive the offer consideration. Exchange for the Preferred
Securities will be made only against deposit of the tendered Preferred
Securities and delivery of any other required documents.
Guaranteed delivery
If you want to tender Preferred Securities under the offer and consent
solicitation and
o your certificates representing those Preferred Securities are not
immediately available,
o time will not permit your Consent and Letter of Transmittal, the
certificates representing your Preferred Securities and all other
required documents to reach the Conversion Agent on or before the
Expiration Date, or
o the procedures for book-entry transfer, including delivery of an agent's
message, cannot be completed on or before the Expiration Date,
you may nevertheless tender your Preferred Securities with the effect that
tender will be deemed to have been received on or before the Expiration Date
if all the following conditions are satisfied:
o the tender is made by or through an eligible institution;
o a properly completed and duly executed notice of guaranteed
delivery or an agent's message with respect to guaranteed
delivery that is accepted by Allegheny and the
57
Trust is received by the Conversion Agent on before the Expiration
Date as provided below; and
o the certificates for the tendered Preferred Securities, in proper form
for transfer, or a book-entry confirmation of the transfer of those
Preferred Securities into the Conversion Agent's account at DTC as
described above, together with a Consent and Letter of Transmittal that
is properly completed and duly executed, with any signature guarantees
and any other documents required by the Consent and Letter of
Transmittal, or a properly transmitted agent's message, are received by
the Conversion Agent within two business days after the date of execution
of the notice of guaranteed delivery.
The notice of guaranteed delivery may be sent by hand delivery,
facsimile transmission or mail to the Conversion Agent and must include a
guarantee by an eligible institution in the form set out in the notice of
guaranteed delivery.
Under no circumstances will interest be paid by Allegheny by reason
of any delay in tendering Preferred Securities for the offer consideration to
any person using the guaranteed delivery procedures that results from this
guaranteed delivery. The offer consideration for Preferred Securities tendered
under the guaranteed delivery procedures will payable to such tendering holder
even if the Preferred Securities to be delivered subject to the guaranteed
delivery procedures are not so delivered to the Conversion Agent, and
therefore conversion by the Conversion Agent on account of those Preferred
Securities is not made, until after the Expiration Date.
Acceptance of Preferred Securities for Conversion and Payment; Delivery of
Common Stock and Conversion Amount
Promptly after the Expiration Date, upon satisfaction or waiver of
all the conditions to the offer and consent solicitation, if Allegheny and the
Trust have not terminated the offer and consent solicitation, Allegheny and
the Trust will accept any and all Preferred Securities that are properly
tendered for conversion and not withdrawn prior to 12:00 midnight, New York
City time, on the Expiration Date. The Common Stock issued pursuant to the
offer and consent solicitation will be delivered promptly and the Conversion
Amount will be paid promptly after the Expiration Date. For purposes of the
offer and consent solicitation, Allegheny and the Trust will be deemed to have
accepted validly tendered Preferred Securities, when, as, and if they have
given oral, followed by written, notice to the Conversion Agent.
On the Expiration Date, the Conversion Agent will tender to Allegheny
an aggregate principal amount of 11 7/8% Notes equal to the aggregate
Liquidation Amount of Preferred Securities tendered for conversion in the offer
and consent solicitation. The Conversion Agent will also exercise the Warrants
attached to the tendered 11 7/8% Notes for shares of Common Stock and will
thereafter distribute the Common Stock to tendering holders in satisfaction of
the shares of Common Stock such holders are entitled to received for conversion
of their Preferred Securities. The tendered Preferred Securities and 11 7/8%
Notes and the exercised Warrants will be retired and cancelled.
58
Withdrawal of Tenders
You may withdraw tenders of Preferred Securities at any time prior to
12:00 midnight, New York City time, on the applicable Expiration Date.
Preferred Securities also may be withdrawn after May 18, 2005 if the Preferred
Securities have not been previously accepted by Allegheny and the Trust for
conversion. A valid withdrawal of tendered Preferred Securities will be deemed
a revocation of the related consent. A holder may not validly revoke a consent
unless the holder validly withdraws its previously tendered Preferred
Securities. For a withdrawal of tendered Preferred Securities (and a
concurrent revocation of consents) to be effective, a written or facsimile
transmission notice of withdrawal or revocation, or a properly transmitted
"Request Message" through ATOP, must be received by the Conversion Agent no
later than 12:00 midnight, New York City time, on the Expiration Date at its
address set forth on the cover of the Consent and Letter of Transmittal. Any
such notice of withdrawal must: (i) specify the name of the person who
tendered the Preferred Securities to be withdrawn, (ii) contain the
description of the Preferred Securities to be withdrawn and identify the
certificate number or numbers shown on the particular certificates evidencing
such Preferred Securities (unless such Preferred Securities were tendered by
book-entry transfer) and the aggregate principal amount represented by such
Preferred Securities and (iii) (other than a notice transmitted through ATOP)
be signed by the holder of such Preferred Securities in the same manner as the
original signature on the Consent Letter of Transmittal by which such
Preferred Securities were tendered (including any required signature
guarantees) or be accompanied by (x) documents of transfer sufficient to have
the trustee register the transfer of the Preferred Securities into the name of
the person withdrawing such Preferred Securities (including, in the case of
Preferred Securities tendered by book-entry transfer, the account at DTC to
which such withdrawn Preferred Securities should be credited) and (y) a
properly completed irrevocable proxy authorizing such person to effect such
withdrawal on behalf of such holder. If the Preferred Securities to be
withdrawn have been delivered or otherwise identified to the Conversion Agent,
a signed notice of withdrawal is effective immediately upon written or
facsimile notice of such withdrawal even if physical release is not yet
effected. All questions as to the validity, form and eligibility, including
time of receipt, of these notices will be determined by Allegheny and the
Trust. Allegheny's and the Trust's determination will be final and binding.
Neither Allegheny or the Trust nor any other person is under any duty to give
notice of any defect or irregularity in any notice of withdrawal, and neither
the company nor any other person will incur any liability for failure to
provide any such notice.
Any Preferred Securities properly withdrawn will be deemed not to
have been validly tendered for conversion for purposes of the offer and
consent solicitation. Any Preferred Securities which have been tendered for
conversion but which are not accepted for conversion for any reason will be
returned without cost to the holder promptly after withdrawal,
non-acceptance of tender or termination of the offer and consent
solicitation. Any withdrawn or unaccepted Preferred Securities will be
credited to the tendering holder's account at DTC. Properly withdrawn
Preferred Securities may be re-tendered at any time but no later than 12:00
midnight, New York City time, on the Expiration Date by following one of the
procedures described above under "Procedures for Tendering
59
Preferred Securities and Delivering Consents." If a holder properly
withdraws and subsequently re-tenders prior to the Expiration Date, the
holder must validly re-execute and resubmit the Notice of Conversion.
60
PROPOSED AMENDMENTS TO THE INDENTURE
The Trust and Allegheny are soliciting consents from the holders of
Preferred Securities to the Proposed Amendments to the Indenture and to the
execution and delivery of the Supplemental Indenture. The Proposed Amendments
constitute a single proposal, and a tendering holder must consent to the
Proposed Amendments as an entirety and may not consent selectively to specific
Proposed Amendments. Depending on the number of consents received, the
Additional Amendment may or may not be made.
The Supplemental Indenture will effect the Proposed Amendments, the
principal purpose of which is to eliminate certain provisions in the
Indenture. Annex A sets forth the full text of the sections of the Indenture
to be deleted or amended by the Proposed Amendments. All statements herein
regarding the substance of any provision of the Proposed Amendments and the
Indenture are qualified in their entirety by reference to Annex A and the
Indenture. Copies of the Indenture are available upon request from the
Information Agent at the address and telephone number set forth elsewhere in
this offering circular.
The Proposed Amendments will delete or modify, among other things,
the covenants and provisions listed below from or in the Indenture and the
11 7/8% Notes. In addition, the Proposed Amendments will amend or delete
definitions (and other provisions) from the Indenture and the 11 7/8% Notes when
references to those definitions (and other provisions) will be amended or
eliminated as a result of the amendment or deletion of such covenants and
provisions from the Indenture and the 11 7/8% Notes. If the Proposed Amendments
become effective, holders of Preferred Securities will not be able to prevent
Allegheny from taking certain actions restricted or prohibited by the
covenants described below, such as those relating to incurring debt or liens,
selling assets and making investments and restricted payments, nor will the
holders be able to make Allegheny take certain actions required by the
covenants below, such as those relating to issuing a compliance certificate
and filing SEC reports. Moreover, if the Additional Requisite Percentage is
obtained then Allegheny will be able to incur debt that is senior to the 11 7/8%
Notes.
The Indenture Provisions to be Deleted and/or Modified
SECTION 4.03 Compliance Certificate. This provision requires
Allegheny to provide the Indenture Trustee with
(i) an annual officers' certificate regarding
Allegheny's compliance with the provisions of the
Indenture and regarding the occurrence of any
events of default under the Indenture and (ii)
upon the occurrence of certain defaults, an
officers' certificate specifying the nature of
the default and the actions Allegheny is taking
or proposes to take with respect thereto.
61
SECTION 4.04 Limitation on Incurrence of Additional
Indebtedness. This provision restricts the
ability of Allegheny and its restricted
subsidiaries to incur indebtedness, except under
limited circumstances.
SECTION 4.05 Limitation on Issuance of Parent Guarantees and
Subsidiary Guarantees. This provision restricts
Allegheny from issuing parent guarantees except
under limited circumstances and restricts its
restricted subsidiaries from issuing subsidiary
guarantees of any indebtedness of Allegheny.
SECTION 4.06 Limitation on Certain Asset Sales. This provision
restricts the ability of Allegheny and its
restricted subsidiaries to sell or otherwise
transfer their assets or property except under
certain circumstances.
SECTION 4.07 Limitation on Liens. This provision restricts the
ability of Allegheny and its restricted
subsidiaries to create or permit to exist certain
liens on their assets and properties.
SECTION 4.08 Insurance. This provision requires Allegheny and
its restricted subsidiaries to maintain insurance
with responsible and reputable insurance
companies or associations.
SECTION 4.09 Corporate Existence. This provision requires
Allegheny to keep in full force and effect its
corporate existence and the corporate,
partnership or other existence of each restricted
subsidiary and the material franchises of
Allegheny and its restricted subsidiaries.
SECTION 4.10 Offer to Repurchase Upon Change of Control. This
provision requires Allegheny to offer to each
holder of 11 7/8% Notes to repurchase all or any
part of each holder's 11 7/8% Notes upon a change
of control of Allegheny (as that term is defined
in the Indenture).
SECTION 4.11 Anti-Layering. This provision restricts Allegheny
from incurring indebtedness that is subordinate
or junior in right of payment to any credit
facility debt and senior to the 11 7/8%
62
Notes. Unlike the other Indenture sections
subject to the Proposed Amendments, the consent
of 75% in Liquidation Amount of the Preferred
Securities is required to amend this provision.
SECTION 4.12 Payment Restrictions Affecting Restricted
Subsidiaries. This provision restricts Allegheny
and its restricted subsidiaries from entering
into any agreement or arrangement that restricts
Allegheny or its restricted subsidiaries ability
to (a) dividend money to Allegheny or prepay or
repay indebtedness owed to Allegheny or another
restricted subsidiary or (b) transfer assets to
Allegheny or another restricted subsidiary,
except in limited circumstances.
SECTION 4.13 Compliance with Laws. This provision requires
Allegheny and its restricted subsidiaries to
comply in all material respects with applicable
laws.
SECTION 4.14 Maintenance of Properties, etc. This provision
requires Allegheny and its restricted
subsidiaries to operate, maintain and preserve,
all of its properties that are used or useful in
the conduct of its business.
SECTION 4.15 Limitation on Transactions with Affiliates. This
provision restricts the ability of Allegheny and
its restricted subsidiaries to engage in
transactions with affiliate (as defined in the
Indenture) of Allegheny.
SECTION 4.16 Ranking. This provision requires Allegheny to
ensure its obligations under the 11 7/8% Notes
will at all times rank in right of payment at
least pari passu to Allegheny's other unsecured
and unsubordinated indebtedness.
SECTION 4.17 Change in Nature of Business. This provision
restricts Allegheny and its restricted
subsidiaries from making any material change in
the nature of its business, other than through
asset sales.
63
SECTION 4.18 Limitations on Investments in Other Persons. This
provision restricts Allegheny and its restricted
subsidiaries from making or holding any
investment in any person except in limited
circumstances.
SECTION 4.19 Limitation on Restricted Payments. This provision
restricts the ability of Allegheny and its
restricted subsidiaries to make specified
payments, including payments of dividends, the
redemption of capital stock and the redemption of
obligations subordinate to the 11 7/8% Notes.
SECTION 4.20 Compliance with ERISA. This provision restricts
Allegheny from terminating or permitting of any
of its ERISA affiliates from terminating a
single-employer or multiple-employer plan except
under certain circumstances.
SECTION 4.21 SEC Reports. This provision requires Allegheny to
file specific reports with the SEC and to provide
such reports to the holders of the 11 7/8% Notes.
SECTION 5.01 Limitation on Consolidation, Merger and Sale of
Assets. This provision currently restricts the
ability of Allegheny and its restricted
subsidiaries to merge, consolidate or sell all or
substantially all of their respective assets.
SECTION 6.01, Paragraphs Events of Default. Section 6.01 of the Indenture
(d), (e), (f), (g) and (h) sets forth events that would constitute a default
by Allegheny under the Indenture.
Paragraphs (d) and (e) describe events of default
relating to the failure of Allegheny to comply
with its covenants and agreements in the
Indenture;
Paragraph (f) describes events of default
relating to defaults under other agreements,
indentures or instruments; and
Paragraphs (g) and (h) describe events of default
relating to judgments, orders, decrees and
bankruptcy proceedings.
64
Deletion of Definitions
The Proposed Amendments will amend or delete definitions (and other
provisions) from the Indenture and the 11 7/8% Notes when references to those
definitions (and other provisions) will be amended or eliminated as a result
of the amendment or deletion of such covenants and provisions from the
Indenture.
Supplemental Indenture
At the closing of the offer and consent solicitation, assuming the
Requisite Percentage is obtained for the amendments to the Indenture to become
effective, Allegheny and the Indenture Trustee will execute the Supplemental
Indenture which reflects the Proposed Amendments (including the Additional
Amendment if the Additional Requisite Percentage is obtained) to the
Indenture. After receipt by the Indenture Trustee of evidence that the
requisite number of consents necessary to effectuate the Proposed Amendments
(including the Additional Amendment if the Additional Requisite Percentage is
obtained) have been obtained and resolutions have been enacted by Allegheny's
board of directors authorizing the execution of such Supplemental Indenture,
the Supplemental Indenture will become effective upon execution by Allegheny
and the Indenture Trustee. Upon the effectiveness of the Supplemental
Indenture, the Trust will effectively be relieved from any obligation to make
an offer to repurchase the Preferred Securities upon a change of control of
Allegheny pursuant to Section 4.10 of the Indenture or upon certain asset
sales by Allegheny or its restricted subsidiaries pursuant to Section 4.06.
Consents to Proposed Amendments
In the consent solicitation, we are seeking consents to all of the
Proposed Amendments as a single proposal. Accordingly, a tender and related
consent by a holder of Preferred Securities is a consent to all of the
Proposed Amendments to the Indenture. In addition, a tender and related
consent purporting to consent to only some of the Proposed Amendments, or a
conditional, irregular or contingent consent, will be deemed a defective
tender and consent and will not be accepted. If any tendered Preferred
Securities are not accepted for payment because of an invalid tender and
related consent, those Preferred Securities will be returned, without expense,
to the tendering holder promptly after the Expiration Date. The valid tender
by a holder of Preferred Securities pursuant to this offer and consent
solicitation will be deemed to constitute the giving of a consent by such
holder to all of the Proposed Amendments, including the Additional Amendment.
If the Supplemental Indenture is executed, the holders whose
Preferred Securities are not exchanged pursuant to the offer and consent
solicitation will be bound thereby, even if they did not consent to the
Proposed Amendments, and such holders will not receive the Conversion Amount
offered hereby.
65
DESCRIPTION OF ALLEGHENY COMMON STOCK
The following is a summary of certain provisions of Allegheny's
Common Stock. The summary is qualified in its entirety by reference to the
full text of Allegheny's Certificate of Incorporation and Amended and Restated
Bylaws and Maryland law.
Allegheny is authorized to issue 260,000,000 shares of common stock,
having a par value of $1.25 per share. The Common Stock is the only class of
Allegheny capital stock authorized or outstanding. Each share of Common Stock
has the same relative rights as, and is identical in all respects to, each
other share of Common Stock. As of March 7, 2005, there were 137,474,924
shares of Common Stock outstanding, held by 28,360 holders of record.
All outstanding shares of Common Stock are, and any Common Stock
issued upon conversion of Preferred Securities will be, duly authorized, fully
paid and nonassessable.
As a Maryland corporation and a public utility holding company,
Allegheny is subject to statutory and regulatory limitations on the
authorization and payment of dividends. Subject to these restrictions,
Allegheny's board of directors may declare dividends on the Common Stock,
payable at such times as Allegheny's board of directors may determine, out of
legally available retained earnings or net income.
If Allegheny declares a dividend, the holders of Common Stock are
entitled to receive and share ratably in it. Allegheny will pay a dividend
declared on the Common Stock to the record holders as they appear in the
register on the record date for that dividend. The record date will not be
more than ninety days (90) before the dividend payment date, as fixed by
Allegheny's board of directors.
Upon Allegheny's liquidation, dissolution or winding-up, the holders
of Common Stock are entitled to receive a ratable portion of the assets
available for distribution to stockholders after the satisfaction in full of
all the prior rights of Allegheny's creditors, including holders of
Allegheny's indebtedness and all liabilities.
The holders of Common Stock possess exclusive voting rights in the
business and affairs of Allegheny, including the right to elect Allegheny's
board of directors and act on any matters required to be presented to them
under Maryland law or otherwise presented to them by Allegheny's board of
directors. Holders of Allegheny's Common Stock are entitled to one vote per
share, with the right to cumulative voting in the elections of directors.
Cumulative voting means that each stockholder entitled to vote in the election
of directors has the right to that number of votes equal to the number of
shares of stock held by that stockholder multiplied by the number of directors
to be elected. These votes may be cast for a single director or for any two or
more directors standing for election.
Under Maryland law and Allegheny's Articles of Incorporation, the
number of directors comprising Allegheny's board of directors may only be
fixed by a vote of the board of directors. Directors may only be removed with
cause by the affirmative vote of at least two-thirds of all the votes
entitled to be cast by the stockholders generally in the
66
election of directors. Directors need not be a stockholder of Allegheny.
Vacancies on the board of directors can be filled only by a majority of the
remaining directors on the board, even if such remaining directors do not
constitute a quorum. On July 19, 2004, Allegheny adopted Articles Supplementary
to its Articles of Incorporation, which eliminated the then-existing classified
board structure. In connection with the declassification of the board, directors
not standing for election at Allegheny's 2005 Annual Meeting of Stockholders
will resign, and each director will stand for election in 2005 to serve until
Allegheny's 2006 Annual Meeting of Stockholders and until a successor is duly
elected and qualified.
Generally, the affirmative votes of a majority of the votes cast at
any meeting at which quorum is present is required to authorize a resolution
put to vote at a meeting of the board of directors. Corporate action may also
be taken by a unanimous written resolution of the board of directors without a
meeting. A quorum shall be deemed to be present if not less than one-third of
the directors then in office are present, provided that at least two directors
are present in person. At any adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at the meeting
as originally notified.
No holder of Common Stock is entitled as a matter of right to
subscribe to any new or additional shares of Common Stock, or any security
convertible into Common Stock, unless the new or additional Common Stock is
offered for money and other than by a public offering. If these pre-emptive
rights become available to the holders of Common Stock, the period during
which they may be exercised may be limited by the board to no less than ten
days after the mailing of the notice announcing their availability.
The holders of Common Stock have no conversion or redemption rights.
67
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material United States federal
income tax consequences of the offer and consent solicitation. This discussion
is based on the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, judicial decisions, published positions of the Internal
Revenue Service ("IRS") and other applicable authorities, all as in effect as
of the date hereof and all of which are subject to change or differing
interpretations, in each case, possibly with retroactive effect. This
discussion is limited to "United States Holders" (as defined below) who hold
the Preferred Securities as capital assets under the Code. Furthermore, this
discussion does not address all of the United States federal income tax
consequences that may be relevant to a particular person in light of its
particular circumstances and does not apply to persons subject to special
treatment under the United States federal income tax laws, including financial
institutions, broker dealers, insurance companies, tax-exempt organizations,
partnerships (including any entity or arrangement treated as a partnership for
United States federal income tax purposes) and persons that hold the Preferred
Securities as part of a straddle, hedge, conversion, synthetic security or
constructive sale transaction for United States federal income tax purposes,
all of which may be subject to United States federal income tax rules that
differ from those summarized below. No assurance can be given that the IRS
would not assert, or that a court would not sustain, a position contrary to
any of those set forth below. Allegheny has treated, and intends to continue
to treat, for United States federal income tax purposes, (i) the 11 7/8% Notes
and the Warrants as a single convertible debt instrument of Allegheny (the
"Convertible Debt"), and (ii) the Trust as a grantor trust such that each
holder of Preferred Securities is treated as owning its proportionate share of
the assets of the Trust (i.e., the Convertible Debt) and is required to
include in its gross income all income, gain or loss with respect to its
proportionate share of those assets. This discussion assumes that such
treatment will be respected for United States federal income tax purposes.
Holders should consult their tax advisors as to the particular United States
income federal tax consequences to them of the offer and consent solicitation,
as well as the effects of state, local and foreign tax laws.
For purposes of this summary, a "United States Holder" means a
beneficial owner of a Preferred Security that is, for United States federal
income tax purposes, a citizen or resident of the United States, a corporation
(or entity treated as a corporation)created or organized in the United States
or under the laws of the United States or any political subdivision thereof,
an estate the income of which is subject to United States federal income
taxation regardless of its source, or a trust (i) if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust or (ii) that has a valid election in effect
to be treated as a United States person.
Tax Consequences of the Offer and Consent Solicitation to Tendering Holders
of Preferred Securities
Exchange of Preferred Securities for Common Stock and the Conversion
Amount. The exchange of Preferred Securities for Common Stock should qualify
as a recapitalization under section 368(a)(1)(E) of the Code. Accordingly, the
receipt of Common Stock in exchange for Preferred Securities pursuant to the
offer and consent solicitation should not be taxable to tendering holders. The
United States federal income tax consequences of the receipt of
68
the Conversion Amount are unclear, however. Subject to the
discussion below regarding accrued but unpaid interest, all or a portion of
the Conversion Amount may be treated either as separate consideration for
exchanging Preferred Securities for Common Stock and consenting to the
adoption of the Proposed Amendments, in which case such amount should be
treated as ordinary income for United States federal income tax purposes, or
as "boot" received in the recapitalization, in which case a holder of
Preferred Securities who exchanges such Preferred Securities for Common Stock
should recognize any gain (but not loss) realized on such exchange in an
amount equal to the lesser of the gain realized and, subject to the
discussion below regarding accrued but unpaid interest, the Conversion
Amount. The gain realized on the exchange will generally be an amount equal
to the excess, if any, of (i) the sum of (a) the fair market value, as of the
date of the exchange, of the Common Stock received pursuant to the offer and
consent solicitation and (b) the portion of the Conversion Amount treated as
"boot" over (ii) the holder's adjusted tax basis in the Preferred Securities
exchanged. Any amount treated as "boot" in the recapitalization should be
capital gain and should be long-term capital gain if, at the time of the
exchange, the holder's holding period for the Preferred Securities exceeded
one year.
A holder's holding period for the Common Stock received pursuant to
the offer and consent solicitation should include such holder's holding period
for the Preferred Securities exchanged therefor. To the extent that all or a
portion of the Conversion Amount is treated as "boot" received in the
recapitalization, a holder's aggregate adjusted tax basis in such Common Stock
should be equal to such holder's aggregate adjusted tax basis in its tendered
Preferred Securities, (i) reduced by an amount equal to the Conversion Amount
treated as "boot" and (ii) increased by the amount of any gain recognized by
such holder as a result of the receipt of the "boot" in the exchange. If,
however, all of the Conversion Amount is treated as separate consideration for
exchanging Preferred Securities for Common Stock and consenting to the
adoption of the Proposed Amendments, a holder's aggregate adjusted tax basis
in such Common Stock should be equal to such holder's aggregate adjusted tax
basis in its tendered Preferred Securities.
Accrued But Unpaid Interest. For United States federal income tax
purposes, a portion of the Conversion Amount would likely be treated as
accrued but unpaid interest. To the extent that the Conversion Amount includes
accrued but unpaid interest that the holder has not yet included in income,
including as original issue discount, such interest will not be taken into
account in determining the amount realized, but will instead be subject to tax
as ordinary interest income, regardless of whether the holder otherwise
recognizes an overall loss pursuant to the offer and consent solicitation.
Market Discount. A holder who acquired a Preferred Security with
market discount (generally the excess, if any, of the "revised issue price"
of such holder's proportionate share of the Convertible Debt over such
holder's tax basis in the Preferred Security immediately after its
acquisition, subject to a de minimis exception) will generally be required to
treat any gain recognized pursuant to the offer and consent
69
solicitation as ordinary interest income to the extent of the market discount
accrued during the holder's period of ownership, unless the holder elected to
include the market discount in income as it accrued. Accrued market discount on
a Preferred Security not previously treated as ordinary income by the holder
(including, as described above, in connection with the exchange of Preferred
Securities for Common Stock) should carry over to the Common Stock received
pursuant to the offer and consent solicitation.
Receipt of Cash in Lieu of a Fractional Share. A holder of Preferred
Securities that receives cash in lieu of a fractional share of Common Stock
should be treated for United States federal income tax purposes as having
received such fractional share of Common Stock and as having disposed of such
fractional share in exchange for cash. Accordingly, holder's who receive cash
in lieu of a fractional share of Common Stock should recognize a capital gain
or loss measured by the difference between the amount of cash received in lieu
of such fractional share and the holder's adjusted tax basis in such
fractional share.
Information Reporting and Backup Withholding. In general, information
reporting requirements will apply to all payments made to a holder pursuant to
the offer and consent solicitation. In addition, certain holders may be
subject to backup withholding (currently at a rate of 28%) with respect to
consideration received pursuant to the offer and consent solicitation unless
such holder is a corporation or other exempt recipient and, when required,
establishes this exemption or provides its correct taxpayer identification
number, certifies that it is not currently subject to backup withholding tax
and otherwise complies with applicable requirements of the backup withholding
tax rules. A holder that does not provide its correct taxpayer identification
number may be subject to penalties imposed by the IRS. Backup withholding is
not an additional tax. Any amounts withheld under the backup withholding rules
may be refunded or credited against the holder's United States federal income
tax liability, if any, provided that the required information is furnished to
the IRS in a timely manner.
Tax Consequences of the Offer and Consent Solicitation to Nontendering Holders
of Preferred Securities
The United States federal income tax consequences to holders that
do not tender their Preferred Securities pursuant to the offer and consent
solicitation will depend upon whether the adoption of the Proposed
Amendments results in a deemed exchange of such Preferred Securities (and
therefore of the underlying Convertible Debt) for United States federal
income tax purposes to such nontendering holders. In general, the
modification of a debt instrument will result in a deemed exchange of an old
debt instrument for a new debt instrument if the modification is
"significant" within the meaning of applicable Treasury Regulations. Under
these Treasury regulations, a modification is generally "significant" if,
based on all the facts and circumstances and taking into account all
modifications collectively, the legal rights and obligations that are
altered and the degree to which they are altered are economically significant.
Although there is no authority directly on point, Allegheny intends to treat
the adoption of the Proposed Amendments as not resulting in a "significant
modification" to the terms of the Preferred Securities (and therefore of the
underlying Convertible Debt) with respect to nontendering holders.
70
Under such position, nontendering holders should not recognize any gain or
loss as a result of the adoption of the Proposed Amendments. There can be no
assurance that the IRS will not challenge this position. If the IRS
successfully asserted that the adoption of the Proposed Amendments resulted
in a deemed exchange of "old" Preferred Securities for "new" Preferred
Securities for United States federal income tax purposes, the United States
federal income tax consequences to holders that do not tender their
Preferred Securities pursuant to the offer and consent solicitation would
depend upon, among other factors, whether the deemed exchange is treated as
a "recapitalization" under the Code and whether the "old" Preferred
Securities or "new" Preferred Securities are "publicly traded" within the
meaning of applicable Treasury regulations. Nontendering holders should
consult their tax advisors regarding the United States federal income tax
consequences to such holders of the adoption of the Proposed Amendments.
71
INFORMATION AGENT
All questions regarding the information in this offering circular or
the offer and consent solicitation, should be directed to the Information
Agent at the telephone number or address below
Global Bondholder Services Corporation
65 Broadway - Suite 704
New York, New York 10006
Attention: Corporate Actions
Banks and Brokers call: (212) 430-3774
Toll free: (866) 795-2200
CONVERSION AGENT
Allegheny has appointed Wilmington Trust Company as the Conversion
Agent. All completed Consents and Letters of Transmittal and Notices of
Conversion should be directed to the Conversion Agent at the address set forth
below. All questions regarding the procedures for tendering in the offer and
consent solicitation and requests for assistance in tendering your Preferred
Securities should also be directed to the Conversion Agent at the telephone
number or address below:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
By Facsimile: 1-302-636-4145:
Attention: Alisha Clendaniel
To Confirm by Telephone: (302) 636-6470
Toll free: (800) 441-7120 ext. 6470
DELIVERY OF A CONSENT AND LETTER OF TRANSMITTAL TO AN ADDRESS OTHER
THAN THE ADDRESS LISTED ABOVE OR TRANSMISSION OF INSTRUCTIONS BY FACSIMILE
OTHER THAN AS SET FORTH ABOVE IS NOT VALID DELIVERY OF THE CONSENT AND LETTER
OF TRANSMITTAL.
Allegheny will pay the Conversion Agent and the Information Agent
reasonable and customary compensation for their services in connection with
the offer and consent solicitation, plus reimbursement for out-of-pocket
expenses. Allegheny will indemnify the Conversion Agent against certain
liabilities and expenses in connection therewith, including liabilities under
the federal securities laws.
72
Allegheny will not pay fees or commissions to any broker, dealer, or
other person for soliciting tenders of Preferred Securities pursuant to the
offer and consent solicitation. Allegheny will, however, upon request through
the Information Agent, reimburse brokers, dealers, and commercial banks for
customary mailing and handling expenses incurred by such persons in forwarding
the offer and related materials to the beneficial owners of Preferred
Securities held by any such person as a nominee or in a fiduciary capacity. No
broker, dealer, commercial bank, or trust company has been authorized to act
as Allegheny's agent for purposes of the offer and consent solicitation.
Allegheny will pay or cause to be paid all stock transfer taxes, if
any, on the conversion of Preferred Securities to Common Stock, except as
otherwise provided in Instruction 4 in the Consent and Letter of Transmittal.
All fees and expenses attributable to the actions by the Trust or Allegheny in
connection with the offer and consent solicitation will be paid by Allegheny.
INCORPORATION OF DOCUMENTS BY REFERENCE
Allegheny incorporates by reference into this offering circular
information Allegheny files with the SEC, which means that Allegheny can
disclose important information to you by referring you to those documents. The
information incorporated by reference is deemed to be part of this offering
circular, and later information that Allegheny files with the SEC will
automatically update and supercede that information. This offering circular
incorporates by reference the documents set forth below which Allegheny has
previously filed with the SEC. These documents contain important information
about Allegheny and its financial condition.
The following documents are incorporated by reference:
o Allegheny's Annual Report on Form 10-K for the year ended
December 31, 2004; and
o Allegheny's Proxy Statement on Schedule 14A for the May 13,
2004 annual meeting of stockholders.
You may request a copy of these filings, at no cost, by writing or
telephoning Allegheny at the following address or telephone number:
Allegheny Energy, Inc.
Attention: Corporate Secretary
800 Cabin Hill Drive
Greensburg, Pennsylvania 15601
(724) 837-3000
WHERE YOU CAN FIND MORE INFORMATION
Allegheny files annual, quarterly and special reports, proxy
statements and other information with the SEC under the Exchange Act.
You may read and copy any of this
73
information at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet website that contains reports, proxy
statements and other information about issuers who file electronically with
the SEC. The address of that site is http://www.sec.gov. These reports, proxy
statements and other information may also be inspected at the offices of the
NYSE at 20 Broad Street, New York, New York 10005. General information about
Allegheny, including Allegheny's Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as any
amendments and exhibits to those reports, are available free of charge
through Allegheny's website at www.alleghenyenergy.com as soon as reasonably
practicable after Allegheny files them with, or furnishes them to, the SEC.
Information on Allegheny's website is not incorporated into this offering
circular.
MISCELLANEOUS
Neither the Trust nor Allegheny is aware of any jurisdiction where
the making of the offer and consent solicitation is not in compliance with
applicable law. If the Trust or Allegheny becomes aware of any jurisdiction
where the making of the offer and consent solicitation is not in compliance
with any valid applicable law, the Trust and Allegheny will make a good faith
effort to comply with such law. If, after this good faith effort, the Trust
and Allegheny cannot comply with applicable law, the offer and consent
solicitation will not be made to (nor will tenders be accepted from or on
behalf of) the holders of Preferred Securities residing in such jurisdiction.
Pursuant to Rule 13e-4 of the General Rules and Regulations under the
Exchange Act, the Trust and Allegheny have filed with the SEC an Issuer Tender
Offer Statement on Schedule TO which contains additional information with
respect to the offer and consent solicitation. The Schedule TO, including the
exhibits and any amendments thereto, may be examined, and copies may be
obtained, at the same places and in the same manner as is set forth under the
caption "Where You Can Find More Information."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE TRUST OR ALLEGHENY IN CONNECTION WITH THE
OFFER AND CONSENT SOLICITATION OTHER THAN THOSE CONTAINED IN THIS OFFER AND
CONSENT SOLICITATION OR IN THE CONSENT AND LETTER OF TRANSMITTAL. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE TRUST OR ALLEGHENY.
74
ANNEX A
-------
EXCERPTS FROM THE INDENTURE
The following are excerpts of those certain provisions of the
Indenture, referred to herein as the Proposed Amendments, that will be removed
from the Indenture, as indicated below, if the Requisite Percentage is
obtained.
Holders of the Preferred Securities who desire to be eligible to
receive the offered consideration, must tender their Preferred Securities and
deliver a consent to the Proposed Amendments no later than 12:00 midnight, New
York City time, on the Expiration Date. The Proposed Amendments will be
contained and reflected in a Supplemental Indenture to the Indenture. If the
Requisite Percentage is obtained, the Preferred Securities are accepted for
conversion and the Proposed Amendments are effected, the Proposed Amendments
will delete in their entirety, unless otherwise noted, the following
restrictive covenants and provisions, and references thereto, from the
Indenture. In addition to the amendments noted below, the Proposed Amendments
will amend or delete definitions from the Indenture and the 11 7/8% Notes when
references to such definition will be amended or eliminated as a result of the
amendment or deletion of such restrictive covenants and provisions. The
provisions of the Indenture reprinted below are qualified in their entirety by
reference to the Indenture.
If the Requisite Consents are obtained and the Proposed Amendments are
effected, the following provisions of the Indenture will be eliminated in
their entirety as reflected in the Supplemental Indenture.
Section 4.03. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept,
observed, performed and fulfilled its obligations under this Indenture,
and further stating, as to each such Officer signing such certificate,
that to the best of his or her knowledge the Company has kept, observed,
performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default
or Event of Default shall have occurred, describing all such Defaults or
Events of Default of which he or she may have knowledge and what action
the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has
occurred, a description of the event and what action the Company is taking
or proposes to take with respect thereto.
(b) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer
becoming aware of any Default or Event of Default,
A-1
an Officers' Certificate specifying such Default or Event of Default
and what action the Company is taking or proposes to take with
respect thereto.
Section 4.04. Incurrence of Indebtedness.
(a) The Company shall not, directly or indirectly, create, incur,
issue, assume or suffer to exist (collectively, "incur"), and shall not permit
any of its Restricted Subsidiaries to incur, any Indebtedness.
(b) Paragraph (a) of this Section 4.04 shall not prohibit the
existence or incurrence of any of the following items of Indebtedness by the
Company (collectively, "Company Permitted Debt"): (i) Existing Indebtedness;
(ii) Indebtedness represented by the Notes issued on the date of this
Indenture and any PIK Notes issued in satisfaction of the payment of interest
thereon; (iii) reimbursement obligations for amounts paid on behalf of the
Company by one or more Subsidiaries in accordance with applicable requirements
under PUHCA with respect to the provision of goods or services to the Company
and one or more Subsidiaries of the Company; (iv) Permitted Refinancing
Indebtedness with respect to (A) any Existing Indebtedness of the Company and
(B) any Indebtedness permitted to be incurred from time to time under this
paragraph (b), other than this clause (iv), and, in each case, Permitted
Refinancing Indebtedness in respect of subsequent Refinancings of such
Indebtedness, provided that Permitted Refinancing Indebtedness in respect of
Indebtedness incurred pursuant to clause (vi) (and Permitted Refinancing
Indebtedness in respect of subsequent Refinancings of such Indebtedness) of
this Paragraph (b) must be Subordinated Indebtedness; (v) Pari Passu
Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding in an amount not to exceed, together with
all Indebtedness incurred pursuant to clause 19) of paragraph (c) below,
$100,000,000; (vi) Subordinated Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding in an amount not to
exceed $150,000,000; (vii) Obligations under Permitted Hedging Agreements; and
(viii) Subordinated Indebtedness in an amount not to exceed $115,000,000, plus
accrued interest thereon from September 16, 2002 at the prime rate of any
money center bank, provided that such Subordinated Indebtedness is incurred in
connection with the settlement of litigation and in the form of an Obligation
to the relevant litigant or an Affiliate. Notwithstanding the foregoing,
Indebtedness may not be incurred pursuant to any of clauses (iv), (v) or (vi)
of the immediately preceding sentence (other than Permitted Refinancing
Indebtedness with respect to (A) Indebtedness incurred under the Credit
Facilities and (B) Indebtedness incurred under clause (iii) of such sentence,
and, in each case, Permitted Refinancing Indebtedness with respect to such
Refinanced Indebtedness), unless such Indebtedness matures no earlier than the
date that is 91 days after the date of the stated maturity of the Notes, and
has no required amortization or mandatory prepayment prior to such date.
(c) Paragraph (a) of this Section 4.04 shall not prohibit the
incurrence of any of the following items of Indebtedness by the Restricted
Subsidiaries (collectively, "Restricted Subsidiary Permitted Debt," and,
together with Company Permitted Debt, "Permitted Debt"): (i) Existing
Indebtedness; (ii) reimbursement obligations for amounts paid on behalf of
any Restricted Subsidiary by the Company or one or more Subsidiaries
A-2
of the Company in accordance with applicable requirements under PUHCA with
respect to the provision of goods or services to (A) the Company and one or
more Subsidiaries of the Company or (B) one or more Subsidiaries of the
Company; (iii) Indebtedness incurred by any Restricted Subsidiary pursuant to
the Money Pool; (iv) Attributable Debt with respect to Permitted
Sale/Leasebacks; (v) Permitted Capital Expenditure Indebtedness; (vi) Permitted
Refinancing Indebtedness with respect to all (A) Existing Indebtedness of
Restricted Subsidiaries and (B) any Indebtedness permitted to be incurred from
time to time under this paragraph (c), other than this clause (vi), and, in
each case, Permitted Refinancing Indebtedness in respect of subsequent
Refinancings of such Indebtedness; (vii) Indebtedness represented by the
Preferred Securities and Common Securities issued by Capital Trust (A) on the
date hereof in an aggregate liquidation amount equal to the aggregate principal
amount of the Initial Notes, and (B) upon and after the issuance of PIK Notes
hereunder, in an additional aggregate liquidation amount equal to the aggregate
principal amount of such PIK Notes, and in each case together with accrued and
unpaid distributions from time to time thereon; (viii) additional Indebtedness
in an aggregate principal amount (or accreted value, as applicable) at any time
outstanding in an amount not to exceed, together with all Indebtedness incurred
pursuant to clause (v) of paragraph (b) above, $100,000,000; (ix) Indebtedness
of a Restricted Subsidiary that is formed for the sole purpose of facilitating
an issuance of Company Permitted Debt (and has no operations apart from holding
securities of the Parent and distributing distributions thereon, and has no
liabilities apart from such Indebtedness, other than payment obligations
incidental to the administration of such Restricted Subsidiary), provided that
the principal amount and other payment terms of such Indebtedness is equal to
the corresponding terms of the Indebtedness of the Company deposited into or
with such Restricted Subsidiary and (x) Obligations under Permitted Hedging
Agreements of Restricted Subsidiaries. Notwithstanding the foregoing,
Indebtedness may not be incurred pursuant to clauses (vi) or (viii) of the
immediately preceding sentence (other than Permitted Refinancing Indebtedness
with respect to Indebtedness incurred under (A) the Credit Facilities and (B)
Indebtedness incurred under clauses (ii), (iii), (iv) and (v) of such sentence,
and, in each case, Permitted Refinancing Indebtedness with respect to such
Refinanced Indebtedness), unless such Indebtedness matures no earlier than the
date that is 91 days after the date of the stated maturity of the Notes, and
has no required amortization or mandatory prepayment prior to such date.
(d) For purposes of this Section 4.04, Indebtedness will not be
deemed to have required amortization or prepayment prior to a specified date
solely because the maturity of such debt would accelerate or such debt would
become subject to a mandatory or optional prepayment, redemption or repurchase
provision in the event of the occurrence of change of control of the Company
prior to such date.
(e) Notwithstanding the foregoing, issuance of Parent Guarantees or
Subsidiary Guarantees shall not be subject to this Section 4.04, but shall be
subject to Section 4.05.
A-3
Section 4.05. Issuance of Parent Guarantees and Subsidiary Guarantees;
Guarantees of Obligations Under Hedge Agreements.
(a) The Company shall not issue any Parent Guarantees, other than (i)
Parent Guarantees issued in connection with the incurrence of Permitted
Refinancing Indebtedness in respect of Existing Indebtedness (excluding
obligations of Subsidiaries of the Company in respect of Hedge Agreements)
that is guaranteed by a Parent Guarantee on the date hereof, and Permitted
Refinancing Indebtedness in respect of such Refinanced Indebtedness; (ii)
Parent Guarantees of the obligations of Subsidiaries of the Company under
Hedge Agreements, provided that the aggregate amount of outstanding
obligations of Subsidiaries of the Company under Hedge Agreements that are
guaranteed by Parent Guarantees (whether issued prior to, on or after the date
of this Indenture) under this clause (ii) does not at any time exceed
$250,000,000 and provided, further, that such Hedge Agreements are bona fide
Hedge Agreements entered into in the ordinary course of business and are
related to energy; (iii) Parent Guarantees of obligations of Restricted
Subsidiaries arising under customary representations and warranties
customarily given in connection with Asset Sales other than sale/leasebacks;
(iv) Parent Guarantees of obligations of AESC Companies issued in connection
with Sales of Assets (other than sale/leasebacks) by AESC Companies to third
parties unAffiliated with the Company or any Subsidiary, if the amount of each
such Parent Guarantee is limited to 50% or less of the proceeds of the related
Sale; (v) Parent Guarantees of Restricted Subsidiary Permitted Debt at any
time outstanding in an amount that does not exceed $100,000,000, provided that
the Company's Obligations under such Parent Guarantees shall be subordinated
to the same or a greater extent as Subordinated Indebtedness; (vi) Parent
Guarantees of Preferred Securities and Common Securities issued by Capital
Trust (A) on the date hereof in an aggregate liquidation amount equal to the
aggregate principal amount of the Initial Notes and (B) upon the issuance of
PIK Notes hereunder, in an aggregate liquidation amount equal to the aggregate
principal amount of such PIK Notes; (vii) Parent Guarantees of Indebtedness
incurred by Restricted Subsidiaries under Section 4.04(c)(ix); and (viii)
Parent Guarantees of Obligations of Subsidiaries of the Company under
Permitted Hedging Agreements.
(b) From and after the date of this Indenture, the Company shall
cause its Restricted Subsidiaries to not issue Subsidiary Guarantees.
Section 4.06. Asset Sales.
(a) The terms of this Section 4.06 shall apply only at and during
such time or times as of which a Covenant Commencement Event has occurred and
is continuing.
(b) The Company shall not, and shall cause each of its Restricted
Subsidiaries not to, sell (including by way of sale/leaseback), lease, assign,
transfer or otherwise dispose of, any of its or their Assets, or grant any
option or other right to purchase lease or otherwise acquire any such Assets,
except (i) for cash consideration, if the Net Cash Proceeds resulting therefrom
are applied in accordance with paragraph (c) of this Section 4.06; (ii) any of
the following: (A) Sales of inventory in the ordinary course of business and on
reasonable terms, (B) Sales of worn out, surplus, or obsolete equipment in the
A-4
ordinary course of business, (C) replacement of equipment undertaken in the
ordinary course of business with other equipment, (D) Sales of other immaterial
property (other than Equity Interests in, or Indebtedness or other obligations
of, any Restricted Subsidiary) in the ordinary course of business and on
reasonable terms, if no Default exists at the time of such Sale; provided that
Assets may not be sold pursuant to this clause (D) if the aggregate fair market
value of all property sold pursuant to this clause (D) exceeds $20,000,000 in
the aggregate, (E) dissolution or other Sale of NYC Energy, LLC (as long as the
lesser of the book value of the Equity Interests in NYC Energy, LLC and the net
proceeds resulting from such dissolution or Sale do not exceed $20,000), (F)
sales or other dispositions of electric energy, capacity, ancillary services or
emissions credits under any Environmental Laws, or contracts for the purchase
or sale of the same, in each case, for cash (and on customary market payment
terms) and in the ordinary course of business, (G) dissolution or other Sale of
Mon Synfuel, LLC (as long as the lesser of the book value of the Equity
Interests in Mon Synfuel, LLC and the net proceeds resulting from such
dissolution or Sale do not exceed $60,000), or (H) Sales of other Assets having
a value of not more than $25,000,000 in the aggregate; (iii) or any Sale of an
Asset to the Company or any Restricted Subsidiary, if such Sale (I) is made in
order to protect the value of an Asset of the Company or such Restricted
Subsidiary; (II) no Indebtedness is incurred in connection therewith; and (III)
no Lien is created, granted, incurred or assumed in connection therewith. The
transactions described in clauses (ii) and (iii) of this paragraph (b) are
hereinafter referred to as "Basket Asset Sales."
(c) Seventy-five percent (75%) of the Net Cash Proceeds to the
Company or its Restricted Subsidiaries of Asset Sales, other than Basket Asset
Sales, occurring during such time as any Covenant Commencement Event shall
have occurred and is continuing shall constitute "Excess Proceeds".
When the cumulative aggregate amount of Excess Proceeds exceeds
$10,000,000, the Company shall make an offer to Holders of the Notes to
purchase Notes pursuant to and subject to the conditions contained in this
Indenture (the "Asset Sale Offer"). The Company shall purchase Notes tendered
pursuant to the Asset Sale Offer at a purchase price of 105.9375% of their
principal amount, plus accrued but unpaid interest (including Special
Interest, if any) in accordance with the procedures (including prorating in
the event of oversubscription) set forth in this Indenture. If the aggregate
principal amount, plus accrued interest (including Special Interest, if any)
of the Notes tendered exceeds the Excess Proceeds allotted to their purchase,
the Company will select the securities to be purchased on a pro rata basis but
in denominations of $1,000 principal amount or multiples thereof. If any
Excess Proceeds remain after consummation of an Asset Sale Offer, the Company
may use those Excess Proceeds for any purpose not otherwise prohibited by this
Indenture. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds will be reset at zero.
The Company shall comply with the requirements of Section 14(e) of
and Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent those laws and regulations are applicable
in connection with each repurchase of Notes pursuant to an Asset Sale Offer.
To the extent that the provisions of any securities laws or regulations
conflict with the Asset Sale provisions of this Indenture, the
A-5
Company shall comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the Asset Sale
provisions of this Indenture by virtue of such conflict.
Section 4.07. Limitation on Liens.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, incur any Lien of any kind on any
asset now owned or hereafter acquired, except Permitted Liens.
Section 4.08. Insurance.
The Company shall maintain, and cause each of its Restricted
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is
usually carried by regulated electric utility companies engaged in similar
businesses and owning similar properties in the same general areas in which
the Company or such Restricted Subsidiary operates.
Section 4.09. Corporate Existence.
Subject to Section 4.06 and Article 5 hereof, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect (i) its corporate existence, and the corporate, partnership or other
existence of each of its Restricted Subsidiaries, in accordance with the
respective organizational documents (as the same may be amended from time to
time) of the Company or any such Restricted Subsidiary and (ii) the rights
(charter and statutory), licenses and franchises of the Company and its
Restricted Subsidiaries; provided that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership
or other existence of any of its Restricted Subsidiaries, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries, taken as a
whole, and the failure to so preserve or keep in full force and effect could
not reasonably be expected to have a Material Adverse Effect.
Section 4.10. Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall
make an offer (a "Change of Control Offer") to each Holder to repurchase
all or any part of each Holder's Notes at a purchase price equal to 100% of
the aggregate principal amount thereof plus the Change of Control Premium,
plus accrued and unpaid interest and Special Interest thereon, if any, to
the date of purchase (the "Change of Control Payment"). Within 30 days
following any Change of Control, the Company shall mail a notice to each
Holder stating: (1) that the Change of Control Offer is being made pursuant
to this Section 4.10 and that all Notes tendered will be accepted for
payment; (2) the purchase price and the purchase date, which shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"); (3) that any Note not
promptly tendered will continue to accrue interest and Special Interest, if
any; (4) that, unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
A-6
Control Offer shall cease to accrue interest and Special Interest, if any,
after the Change of Control Payment Date; (5) that Holders electing to have any
Notes or portions thereof purchased pursuant to a Change of Control Offer will
be required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; provided that after
such election, exercise of such surrendered Notes' Attached Warrants may not
occur absent such withdrawal, unless the Company does not purchase the Notes as
to which such election is made; (6) that Holders will be entitled to withdraw
their election, in whole or in part, if the Paying Agent receives, not later
than the close of business on the second Business Day preceding the Change of
Control Payment Date, a telegram, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Note the Holder
delivered for purchase, and a statement that such Holder is withdrawing his
election to have all or a portion of such Note purchased and a statement of the
principal amount for which such Holder is withdrawing its election (it being
understood that in the absence of such a statement it shall be assumed that
such election is being withdrawn in toto), provided that after such election
exercise of the Attached Warrants may not occur absent such withdrawal unless
the Company does not purchase the Notes as to which such election is made; and
(7) that Holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, together with such Notes' Attached Warrants. New Notes issued
shall be attached to Attached Warrants bearing a Like Warrant Number. The
Company shall comply with the requirements of Section 14(e) of and Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes in connection with a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Indenture relating to a Change of Control Offer, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Indenture by virtue of
such conflict.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof properly tendered and (3) deliver or cause to be delivered
to the Trustee the Notes properly accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent shall promptly mail to each
Holder of Notes so tendered the Change of Control Payment for the Notes, and
the Trustee shall promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered by such Holder, if any, together
with such Notes' Attached Warrants. New Notes issued shall be attached to
Attached Warrants bearing a Like Warrant Number. Prior to complying with any of
the provisions of this Section 4.10, but in any event within 90 days following
a Change of Control, the Company will either repay all outstanding Credit
Facility Debt or obtain the requisite consents, if any, under all agreements
governing outstanding Credit Facility Debt to permit the repurchase of
A-7
Notes required by this covenant. The Company shall publicly announce the
results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
(c) Notwithstanding anything to the contrary in this Section 4.10,
the Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in this Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes properly tendered and not withdrawn under such
Change of Control Offer.
Section 4.11. Anti-Layering.
The Company shall not incur any Indebtedness that is subordinate or
junior in right of payment to any Credit Facility Debt and senior to the
Notes.
Section 4.12. Payment Restrictions Affecting Restricted Subsidiaries.
The Company shall not, and shall cause each of its Restricted
Subsidiaries not to, enter into (i) any agreement or arrangement limiting the
ability of any Restricted Subsidiary of the Company to declare or pay
dividends or other distributions in respect of its Equity Interests or repay
or prepay any Indebtedness owed to, make loans or advances to, or otherwise
invest in, the Company or any Restricted Subsidiary, or (ii) any agreement
limiting the ability of any Restricted Subsidiary to transfer assets to the
Company or any Restricted Subsidiary (in each case, whether through a covenant
restricting dividends, loans, asset transfers or investments, a financial
covenant or otherwise), except, in either case, any covenant contained in an
instrument or agreement governing Existing Indebtedness or Permitted
Refinancing Indebtedness in respect of Existing Indebtedness (and Permitted
Refinancing Indebtedness in respect of subsequent Refinancings of such
Refinanced Indebtedness), the instrument evidencing or agreement governing
which contains such a covenant.
Section 4.13. Compliance with Laws.
The Company shall comply, and cause each of its Subsidiaries to
comply, in all material respects, with all Applicable Laws, except where the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
Section 4.14. Maintenance of Properties, etc.
The Company shall operate, maintain and preserve, and cause each of
its Restricted Subsidiaries to operate, maintain and preserve, all of its
properties that are used or useful in the conduct of its business in good
working order and condition (ordinary wear and tear excepted) in accordance
with prudent practices then being utilized in the electric utility industry
and in accordance with Applicable Laws (including Environmental Laws), except
where noncompliance could not reasonably be expected to have a Material
Adverse Effect.
A-8
Section 4.15. Transactions with Affiliates.
The Company shall conduct, and cause each of its Restricted
Subsidiaries to conduct, (i) all transactions permitted under the AYE Loan
Documents (as defined in the Principal Credit Agreement) and this Indenture
with any Affiliate of the Company on terms that are fair and reasonable and no
less favorable to it or such Subsidiary than it would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of the Company and
(ii) all transactions with a Person other than an Affiliate on terms that are
without regard to any benefit or detriment to any Affiliate of the Company
(other than any of its Restricted Subsidiaries). Without prejudice to the
foregoing, and to the extent not otherwise prohibited by any provision of this
Indenture, the following transactions shall be deemed to be in compliance with
the first sentence of this Section 4.15: (A) any transaction executed in
accordance with the requirements of PUHCA, (B) any agreements by the Company
or its Subsidiaries with a utility to provide provider of last resort
requirements, as such agreements are amended from time to time, so long as
such provider of last resort agreements are with an Affiliate of the Company
and approved by all applicable Governmental Authorities and (C) any
transaction authorized under a tariff which has been approved by the Federal
Energy Regulatory Commission.
Section 4.16. Ranking.
The Company shall ensure that its obligations under the Notes will at
all times rank in right of payment at least pari passu in right of payment to
all its other unsecured and unsubordinated Indebtedness, other than Credit
Facility Debt.
Section 4.17. Change in Nature of Business.
The Company shall not make, or permit any of its Restricted
Subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof, other than through Asset Sales and the Company
shall not engage, or permit any of its Restricted Subsidiaries to engage in
any business other than a Current Business, or any business or activity
relating, necessary, advisable or incidental to a Current Business.
Section 4.18. Investments in Other Persons.
The Company shall not make or hold, or permit any of its Restricted
Subsidiaries to make or hold, any Investment in any Person, except: (i) (A)
as permitted by Section 5.02(f) of the Principal Credit Agreement (whether or
not the Principal Credit Agreement is in effect), or (B) in the event of the
termination of the Principal Credit Agreement and the Refinancing of the
related Indebtedness (or of Permitted Refinancing Indebtedness in respect of
subsequent Refinancings of such Indebtedness) pursuant to an agreement or
agreements containing a Benchmark Investments Covenant, such Investments as
are permitted in accordance with such Benchmark Investments Covenant; (ii)
the deposit by the Company into Capital Trust of the Initial Notes, any PIK
Notes and the Attached Warrants with respect to the Initial Notes and any PIK
Notes, and payments by the Company to the Holders in accordance with the
terms of this Indenture and the Notes; (iii) Investments of the net proceeds
to the Company of the issuance of the Initial Notes
A-9
(together with such Notes' Attached Warrants), and Investments by Capital Trust
of the net proceeds to it from the issuance of Preferred Securities and Common
Securities on the date hereof; (iv) Investments by Restricted Subsidiaries
solely in the form of debt securities of the Company in connection with an
issuance of Indebtedness permitted to be issued under Section 404(c)(ix); (v)
Investments at any time in an amount not to exceed the Free Cash Amount at such
time; and (vi) Investments in an amount not to exceed $100,000,000 in the
aggregate and $50,000,000 in any twelve-month period.
Section 4.19. Restricted Payments.
The Company shall not and shall cause MPC and WPPC not to (i) declare
or pay any Restricted Payments except (A) cash distributions to holders of
Preferred Interests or interest payments, in cash, to holders of securities
convertible into or exchangeable for shares of capital stock of (or other
ownership or profit interests in) the Company, (B) Restricted Payments at any
time in an amount not to exceed the Free Cash Amount at such time, and (C)
Restricted Payments in an amount not to exceed $50,000,000 in the aggregate;
(ii) permit any of its Restricted Subsidiaries to purchase, redeem, retire,
defease or otherwise acquire for value any Equity Interests in it or (iii)
permit any of its Restricted Subsidiaries to issue or sell any Equity
Interests, other than, with respect to clauses (i), (ii) and (iii), in the
case of (A) the Restricted Subsidiaries, to the Company, (B) Mountaineer, to
MPC, (C) in connection with a transaction or series of related transactions
resulting in the sale of Mountaineer to an unAffiliated third party, the
proceeds of which are applied in accordance with the terms of the Asset Sale
Covenant, a Benchmark Asset Sale Covenant or Section 4.06 hereof and (D) any
Restricted Subsidiary that is established solely to effectuate any issuance of
Indebtedness or equity permitted under this Indenture. Notwithstanding the
foregoing, this Section 4.19 shall not restrict (i) payments by any Restricted
Subsidiary to the Company or to any other Restricted Subsidiary; (ii)
repurchases of Equity Interests pursuant to bona fide employee, management or
director compensation plans, agreements or arrangements; (iii) payments by
Capital Trust on the Preferred Securities and Common Securities in accordance
with the terms of the Declaration of Trust or such Preferred Securities or
Common Securities; (iv) any transaction or series of related transactions
pursuant to which MPC effects the sale of Mountaineer; and (v) at any time
during which any of the Company's unsecured debt obligations is ascribed an
Investment Grade Rating by at least one Nationally Recognized Statistical
Rating Organization, payments of cash dividends on the Company's common stock
in an amount representing a per annum yield (imputed on the basis of the
closing price per share of the Company's common stock on the principal
securities exchange for the trading thereof on the trading day next preceding
the declaration of such dividend) not to exceed the average (without regard to
market capitalization) of the dividend yields of the companies contained in
the Standard & Poor's 500 Electric Utility Index (or successor index) as of
the Business Day next preceding such declaration.
Section 4.20. Compliance with ERISA.
The Company shall not (i) terminate, or permit any of its
ERISA Affiliates to terminate, any Plan so as to result in any
material liability to it or any of its ERISA
A-10
Affiliates, if such material liability to the PBGC could reasonably be
expected to have a Material Adverse Effect, or (ii) permit to exist any
Termination Event with respect to a Plan which would have a Material
Adverse Effect to the extent such Termination Event is within the
reasonable control of the Company.
Section 4.21. Reports.
Commencing no later than March 17, 2004, whether or not required by
the rules and regulations of the SEC, so long as any Notes are outstanding,
the Company shall furnish to the Holders of Notes (i) all quarterly and
annual financial information that would be required to be contained in a
filing with the SEC on Forms 10-Q and 10-K if the Company were required to
file such forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the
annual information only, a report on the annual financial statements by the
Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the SEC on Form 8-K if the Company
were required to file such reports, in each case, within the time periods
specified in the SEC's rules and regulations. The filing of such reports
with the SEC will be deemed to constitute the furnishing of such reports for
all purposes hereunder.
Section 5.01. Merger, Consolidation, or Sale of Assets.
The Company shall not, directly or indirectly (1) consolidate or
merge with or into another Person (whether or not the Company is the surviving
corporation), or (2) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related transactions
to, another Person, unless (i) either (A) the Company is the surviving
corporation or (B) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment,
transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia (any such Person, the "Successor
Company"), (ii) the Successor Company assumes all the obligations of the
Company under the Notes, the Attached Warrants (in accordance with the terms
thereof), this Indenture and the Registration Rights Agreement, and the
Company's continuing obligations under the Purchase Agreement, pursuant to
agreements reasonably satisfactory to the Trustee, and (iii) immediately after
such transaction no Default exists. The provisions of this Section 5.01 shall
not be applicable to a sale, assignment, transfer, conveyance or other
disposition of assets between or among the Company and any of its Restricted
Subsidiaries.
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(d) the Company or any of its Restricted Subsidiaries fails to
comply with any of the provisions of Section 4.06 or 4.10 hereof for a
period of 30 days after receipt of
A-11
notice to the Company by the Trustee or the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding voting as a
single class;
(e) the Company or any of its Restricted Subsidiaries fails to
observe or perform any other covenant or other agreement in this Indenture for
60 days after notice to the Company by the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes then outstanding voting as a
single class;
(f) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries), whether such Indebtedness or guarantee now exists, or is
created after the date of this Indenture, which default is caused by a failure
to pay principal when due, upon maturity, whether by occurrence of stated
final maturity, required prepayment, acceleration, demand or otherwise (after
giving effect to any applicable grace period provided in such Indebtedness) (a
"Payment Default"), or results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $75,000,000 or more;
(g) the Company or any Restricted Subsidiary of the Company that is a
Significant Subsidiary or any Restricted Subsidiaries of the Company that
taken together would constitute a Significant Subsidiary of the Company:
(i) commences a voluntary case under the Bankruptcy Law,
(ii) consents to the entry of an order for relief against it
in an involuntary case under the Bankruptcy Law, (iii)
consents to the appointment of a custodian of it or for all
or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(h) proceeding is instituted with a court of competent jurisdiction
seeking entry of an order or decree under any Bankruptcy Law:
(i) for relief against the Company or any Restricted
Subsidiary of the Company that is a Significant Subsidiary or any
Restricted Subsidiaries of the Company that, taken together, would
constitute a Significant Subsidiary of the Company in an involuntary case;
(ii) to appoint a custodian of the Company or any
Restricted Subsidiary of the Company that is a Significant Subsidiary or
any Restricted Subsidiaries of the Company that, taken together, would
constitute a Significant Subsidiary of the Company
A-12
or for all or substantially all of the property of the Company or
any Restricted Subsidiary of the Company that is a Significant Subsidiary
or any Restricted Subsidiaries of the Company that, taken together, would
constitute a Significant Subsidiary of the Company; or
(iii) to order the liquidation of the Company or any
Restricted Subsidiary of the Company that is a Significant Subsidiary or
any Restricted Subsidiaries of the Company that, taken together, would
constitute a Significant Subsidiary of the Company;
and either such proceeding shall remain undismissed or
unstayed for a period of 60 consecutive days or the entry by any competent
governmental authority of any jurisdiction or a court having jurisdiction in
the premises of a decree or order approving or ordering any of the actions
sought in such proceeding (including the entry of an order for relief against
the Company or relevant Restricted Subsidiary or Restricted Subsidiaries, or
the appointment of a receiver, trustee, custodian or other similar official
for, it or any substantial part of its or their property).
A-13
ANNEX B
-------
NOTICE OF CONVERSION
The undersigned owner of Allegheny Capital Trust I's (the "Trust")
11 7/8% Mandatorily Convertible Trust Preferred Securities (the "Preferred
Securities") hereby exercises the option to convert these Preferred
Securities, or the portion below designated, into Allegheny Energy, Inc.'s
("Allegheny") common stock, par value $1.25 per share (the "Common Stock"), in
accordance with the terms and conditions set forth in the offer and consent
solicitation. The undersigned hereby directs Wilmington Trust Company (the
"Conversion Agent") to (i) exchange such Preferred Securities for a like
amount of the 11 7/8% Notes held by the Trust (at the rate of exchange specified
in the terms of the Preferred Securities set forth in the Declaration of
Trust) and (ii) immediately exercise the Warrants attached to such 11 7/8% Notes
on behalf of the undersigned, into Common Stock (at the exercise price
specified in the terms of the Preferred Securities set forth in the
Declaration of Trust). Capitalized terms not defined herein shall have the
respective meanings ascribed to them in the accompanying offering circular.
The undersigned also hereby directs the Conversion Agent that the
shares of Common Stock issuable and deliverable upon conversion, together with
any check in payment for fractional shares, be issued in the name of and
delivered to the undersigned, unless a different name has been indicated in
the assignment below. Allegheny will pay all transfer taxes, if any,
applicable to the transfer and conversion of Preferred Securities in the offer
and consent solicitation, except as provided in Instruction 4 to the Consent
and Letter of Transmittal.
1. Please indicate the Liquidation Amount of Preferred Securities to be
converted by the Conversion Agent and whether such Liquidation Amount
constitutes all or only a partial amount of the holder's Preferred
Securities.
-------------------------------------------------------------------
-------------------------------------------------------------------
2. Please indicate in the spaces below the name or names in which the
shares of Common Stock are to be issued, along with the address(es),
zip code(s), and social security or other identifying number(s), of
such person or persons:
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
Signature (for conversion only)
Signature Guarantee*:
B-1
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Security Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Security Registrant in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
Please provide in the space below the name and telephone number of the contact
person for notices to such holder of Preferred Securities.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Telephone: --------------------------------------------------------------------
B-2
Amended Offering Circular
ALLEGHENY ENERGY, INC.
ALLEGHENY CAPITAL TRUST I
Offer of Premium for Conversion of Outstanding
11 7/8% Mandatorily Convertible Trust Preferred Securities
of
Allegheny Capital Trust I
(CUSIP No. 017271AA5)
into
Shares of Authorized but Unissued Common Stock
of
Allegheny Energy, Inc.
and
Solicitation of Consents for Proposed Amendments to the
Indenture Governing Allegheny Energy, Inc.'s 11 7/8% Notes due 2008