Filed pursuant to Rule 424(b)(4)
Registration Nos. 333-07281 and 333-07281-01
PROSPECTUS
2,800,000 Preferred Securities
Delmarva Power Financing I
8.125% CUMULATIVE TRUST PREFERRED CAPITAL SECURITIES
(Liquidation amount $25.00 per Preferred Security)
Guaranteed to the extent Delmarva Power Financing I has funds
as set forth herein by
Delmarva Power & Light Company
---------------
The 8.125% Cumulative Trust Preferred Capital Securities (the "Preferred
Securities") offered hereby are being issued by and represent undivided
preferred beneficial interests in the assets of Delmarva Power Financing I
("Delmarva Financing"), a statutory business trust created under the laws
of the State of Delaware. Delmarva Power & Light Company (the "Company"),
a Delaware and Virginia corporation, will be the owner of the undivided
common beneficial interests in the assets represented by common securities
of Delmarva Financing (the "Common Securities," together with the Preferred
Securities herein referred to as the "Trust Securities"). Wilmington Trust
Company is the Property Trustee (the "Property Trustee") of Delmarva
Financing. Delmarva Financing exists for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in 8.125% Junior
Subordinated Debentures, Series I, Due September 30, 2036, to be issued
by the Company (the "Subordinated Debentures") in an aggregate principal
amount equal to the aggregate liquidation amount of the Trust Securities.
The Preferred Securities will have a preference under certain circumstances
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise over the Common Securities. See "Description of
the Preferred Securities -- Subordination of Common Securities."
(continued on following page)
---------------
SEE "RISK FACTORS," BEGINNING ON PAGE 5, FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD
AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENT OF DISTRIBUTIONS ON THE
PREFERRED SECURITIES MAY BE DEFERRED AND CERTAIN RELATED UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES.
---------------
Application has been made to list the Preferred Securities on the
New York Stock Exchange. Trading of the Preferred Securities on the
New York Stock Exchange is expected to commence within a thirty-day
period after the date of this Prospectus. See "Underwriting."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
PRICE $25 PER PREFERRED SECURITY AND ACCRUED DISTRIBUTIONS, IF ANY
---------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND DELMARVA
PUBLIC(1) COMMISSIONS(2) FINANCING(3)(4)
--------- -------------- ---------------
Per Preferred Security . . $25.00 (3) $25.00
Total . . . . . . . . . . . $70,000,000 (3) $70,000,000
---------------
(1) Plus accrued distributions, if any, from October 3, 1996.
(2) Delmarva Financing and the Company have agreed to indemnify the
several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "1933
Act"). See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures, the
Company has agreed, in the Underwriting Agreement, to pay to the
Underwriters, as compensation for their services, $.7875 per Preferred
Security (or $2,205,000 in the aggregate); provided that such
compensation will be $.50 per Preferred Security sold to certain
institutions. See "Underwriting."
(4) Expenses of the offering, which are payable by the Company, are
estimated to be $210,000.
---------------
The Preferred Securities are offered, subject to prior sale, when, as
and if accepted by the Underwriters and subject to approval of certain
legal matters by Reid & Priest LLP, counsel for the Underwriters. It is
expected that delivery of the Preferred Securities will be made on or about
October 3, 1996 through the book-entry facilities of The Depository Trust
Company against payment therefor in immediately available funds.
---------------
MORGAN STANLEY & CO. MERRILL LYNCH & CO.
Incorporated
SMITH BARNEY INC.
DEAN WITTER REYNOLDS INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
September 26, 1996
<PAGE>
(cover continued)
Holders (as defined in the Trust Agreement) of the Preferred Securities
will be entitled to receive preferential cumulative cash distributions
accruing from the date of original issuance and payable quarterly in
arrears on the last day of March, June, September and December of each
year, commencing December 31, 1996, at the per annum rate of 8.125% of
the liquidation amount of $25 per Preferred Security (together, at any
given time, with any accrued but unpaid amounts and interest thereon,
if any, "Distributions"). Interest on the Subordinated Debentures is
the sole source of income for Delmarva Financing from which payment of
Distributions on the Preferred Securities can be made. The Company has
the right to defer payments of interest on the Subordinated Debentures
by extending the interest payment period thereon at any time or from
time to time for up to 20 consecutive quarters with respect to each
deferral period (each, an "Extension Period"); provided that no such
Extension Period may extend beyond the maturity of the Subordinated
Debentures. Prior to the end of an Extension Period the Company may,
and at the end of such Extension Period the Company shall, pay interest
then accrued and unpaid (together with interest thereon at the stated
rate borne thereby, compounded quarterly to the extent permitted by
applicable law). Upon the termination of any Extension Period and the
payment of all amounts then due, including interest on deferred interest
payments, the Company may elect a new Extension Period, subject to the
above requirements. See "Description of the Subordinated Debentures --
Option to Extend Interest Payment Period."
If interest payments on the Subordinated Debentures are deferred,
Distributions on the Preferred Securities also will be deferred and the
Company will not be permitted, subject to certain exceptions set forth
herein, to (i) declare or pay dividends or distributions on (other than
dividends or distributions paid in shares of Common Stock of the Company)
or redeem, purchase, acquire or make a liquidation payment with respect to,
any of its capital stock, or (ii) make any payment of principal of,
interest or premium, if any, on, or repay, repurchase or redeem any
indebtedness that is pari passu with the Subordinated Debentures (including
other Debt Securities, as defined under "Description of Subordinated
Debentures -- General") or make any guarantee payment with respect to such
indebtedness. During an Extension Period, Distributions on the Preferred
Securities will continue to accrue and Distributions that are in arrears
will bear interest on the amount thereof at the per annum rate of 8.125%
(to the extent permitted by applicable law, compounded quarterly), and
Holders of Preferred Securities will be required to accrue interest
income for United States federal income tax purposes in advance of receipt
of cash related to such interest income. See "Description of the
Preferred Securities -- Distributions" and "Certain United States Federal
Income Tax Consequences -- Potential Extension of Interest Payment Period
and Original Issue Discount."
The payment of Distributions and payments on the liquidation of Delmarva
Financing or the redemption of the Preferred Securities are guaranteed by
the Company to the extent that Delmarva Financing has sufficient funds
available to make such payments (the "Guarantee"). See "Description of
the Guarantee." If the Company fails to make interest payments on the
Subordinated Debentures held by Delmarva Financing, Delmarva Financing will
have insufficient funds to pay Distributions on the Preferred Securities.
In such event, a Holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce payment to such Holder
of the principal of or interest on Subordinated Debentures having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such Holder. The Company's obligations under the Guarantee
and the Subordinated Debentures are unsecured and rank subordinate and
junior in right of payment to Senior Indebtedness (as defined under
"Description of the Subordinated Debentures -- Subordination") of the
Company. The Company has agreed in an Agreement as to Expenses and
Liabilities (the "Expense Agreement") to provide funds to pay obligations
of Delmarva Financing to parties other than Holders of Trust Securities.
The Subordinated Debentures and the Guarantee, together with the
<PAGE>
(cover continued)
obligations of the Company with respect to the Preferred Securities under
the Indenture (as defined under "Summary Information -- General"), the
Trust Agreement (as defined under "Delmarva Financing") and the Expense
Agreement, constitute a full and unconditional guarantee of the Preferred
Securities by the Company.
The Trust Securities are subject to mandatory redemption upon repayment
of the Subordinated Debentures at maturity or upon their earlier
redemption. Any redemption of Trust Securities by Delmarva Financing will
be in amounts having an aggregate liquidation amount equal to the aggregate
principal of Subordinated Debentures to be redeemed and will be at a
redemption price equal to 100% of such liquidation amount, plus accrued and
unpaid Distributions, if any, to the redemption date (the "Redemption
Price"). See "Description of the Preferred Securities -- Redemption." The
Company will have the option at any time on or after September 30, 2001,
to redeem the Subordinated Debentures, in whole or in part. The Company
also will have the option, upon the occurrence and during the continuation
of a Special Event (as defined under "Description of the Preferred
Securities -- Special Event Redemption or Distribution"), (i) to redeem the
Subordinated Debentures, in whole but not in part, which will result in the
redemption of all of the Trust Securities by Delmarva Financing or (ii) to
cause the termination of Delmarva Financing and, in connection therewith,
after satisfaction of all amounts due to creditors of Delmarva Financing,
if any, to cause the distribution of Subordinated Debentures to the Holders
of the Trust Securities. If the Subordinated Debentures are distributed to
the Holders of the Trust Securities, the Company will use its best efforts
to have the Subordinated Debentures listed on the New York Stock Exchange
("NYSE") or on such other exchange as the Preferred Securities then are
listed. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution."
The Subordinated Debentures are unsecured and rank subordinate and
junior in right of payment to all Senior Indebtedness of the Company. The
terms of the Subordinated Debentures place no limitation on the amount of
Senior Indebtedness that may be incurred by the Company. As of June 30,
1996, the Company had approximately $1.0 billion of principal amount of
indebtedness for borrowed money and capital lease obligations constituting
Senior Indebtedness. See "Description of the Subordinated Debentures --
Subordination."
In the event of the liquidation of Delmarva Financing, the Holders of
the Trust Securities will be entitled to receive either (i) Subordinated
Debentures in an aggregate principal amount of $25 per Trust Security or
(ii) a liquidation amount of $25 per Trust Security, plus accrued and
unpaid Distributions thereon to the date of payment, subject to certain
limitations. See Description of the "Preferred Securities -- Liquidation
Distribution upon Termination."
The Preferred Securities will be represented by a global certificate
registered in the name of The Depository Trust Company ("DTC") or its
nominee. Beneficial interests in the Preferred Securities will be shown
on, and transfers thereof will be effected only through, records maintained
by participants in DTC. Except as described herein, Preferred Securities
in certificated form will not be issued in exchange for the global
certificate. See "Description of the Preferred Securities -- Book-Entry
Only Issuance -- The Depository Trust Company."
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
DELMARVA FINANCING, THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR
SOLICITATION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE OF THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
PREFERRED SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
---------------
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . 1
SUMMARY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CERTAIN CONSOLIDATED FINANCIAL INFORMATION OF
DELMARVA POWER & LIGHT COMPANY . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
DELMARVA FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . 8
RECENT DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 8
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
DESCRIPTION OF THE PREFERRED SECURITIES . . . . . . . . . . . . . . . . 9
DESCRIPTION OF THE GUARANTEE . . . . . . . . . . . . . . . . . . . . . 17
DESCRIPTION OF THE SUBORDINATED DEBENTURES . . . . . . . . . . . . . . 19
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . 26
VALIDITY OF THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . 29
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Certain securities of the
Company are listed on the NYSE and the Philadelphia Stock Exchange, and
reports and other information concerning the Company may be inspected and
copied at the offices of both Exchanges.
No separate financial statements of Delmarva Financing are included
herein. The Company considers that such financial statements would not be
material to Holders of the Preferred Securities because the Company is a
reporting company under the 1934 Act and Delmarva Financing has no
independent operations, but exists for the sole purpose of issuing the
Trust Securities and holding as trust assets the Subordinated Debentures.
Delmarva Financing intends not to file separate reports under the 1934
Act but must apply for and be granted relief by the Commission to avoid the
requirement to file such reports.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission
pursuant to the 1934 Act, are hereby incorporated by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995;
2. The Company's Quarterly Report on Form 10-Q for the quarters ended
March 31, and June 30, 1996;
3. The Company's Current Reports on Form 8-K dated February 22, 1996,
May 26, and August 9 (filed on August 14), 1996.
Each document filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act prior to the
termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and shall be a part hereof
from the date of filing of such document. The documents that are
incorporated or deemed to be incorporated by reference in this Prospectus
are referred to sometimes hereinafter as the "Incorporated Documents."
Any statement contained in an Incorporated Document shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed
Incorporated Document modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of
any document referred to above which has been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference into such
documents). Requests for such copies should be directed to: Mr. Donald P.
Connelly, Secretary, Delmarva Power & Light Company, 800 King Street, P.O.
Box 231, Wilmington, Delaware 19899, telephone number (302) 429-3011.
<PAGE>
SUMMARY INFORMATION
The following is a summary of certain information contained herein and
should be read in conjunction with such information contained elsewhere in
this Prospectus and is subject to and qualified by reference to such
information. Capitalized terms used herein have the respective meanings
ascribed to them elsewhere in this Prospectus.
GENERAL
The Preferred Securities represent undivided preferred beneficial
interests in the assets of Delmarva Financing and will have a preference
under certain circumstances with respect to Distributions and amounts
payable on liquidation, redemption or otherwise over the Common Securities.
The sole assets of Delmarva Financing will be the Subordinated Debentures.
The Subordinated Debentures are unsecured subordinated debt securities
issued under an Indenture (the "Indenture") between the Company and
Wilmington Trust Company, as trustee (the "Debenture Trustee").
DISTRIBUTIONS
Holders of the Preferred Securities will be entitled to receive
cumulative cash Distributions accruing from the date of original issuance
and payable quarterly in arrears on the last day of March, June, September
and December of each year, commencing December 31, 1996, at the per annum
rate set forth on the cover page of this prospectus to the persons in whose
names the Preferred Securities are registered at the close of business on
the relevant record dates.
Delmarva Financing will hold Subordinated Debentures in an aggregate
principal amount equal to the liquidation amount of the Trust Securities.
Delmarva Financing will use interest payments on the Subordinated
Debentures to make Distributions on the Preferred Securities. The
Subordinated Debentures are unsecured and rank subordinate and junior in
right of payment to all Senior Indebtedness of the Company.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right to defer payments of interest on the
Subordinated Debentures by extending the interest payment period thereon
for Extension Periods of up to 20 consecutive quarters with respect to each
deferral period; provided, however, that no Extension Period may extend
beyond the maturity of the Subordinated Debentures. If interest payments
on the Subordinated Debentures are deferred, Distributions on the Preferred
Securities also will be deferred and the Company will not be permitted,
subject to certain exceptions set forth herein, to (i) declare or pay
dividends or distributions on (other than dividends or distributions paid
in shares of Common Stock of the Company) or redeem, purchase, acquire or
make a liquidation payment with respect to, any of its capital stock, or
(ii) make any payment of principal of, interest or premium, if any, on, or
repay, repurchase or redeem any indebtedness that is pari passu with the
Subordinated Debentures (including other Debt Securities, as defined
herein) or make any guarantee payment with respect to such indebtedness.
During an Extension Period, Distributions on the Preferred Securities will
continue to accrue and Distributions that are in arrears will bear interest
on the amount thereof at the per annum rate set forth on the cover page of
this Prospectus (to the extent permitted by applicable law, compounded
quarterly), and Holders of Preferred Securities will be required to accrue
interest income for United States federal income tax purposes in advance of
receipt of cash related to such interest income. Upon the termination of
any Extension Period and the payment of all amounts then due, the Company
may elect another Extension Period.
REDEMPTION
The Preferred Securities are subject to mandatory redemption upon
repayment of the Subordinated Debentures at maturity or upon their earlier
redemption. The Subordinated Debentures are redeemable, at the option of
the Company, in whole or in part, on or after September 30, 2001, or,
in whole but not in part, upon the occurrence of a Special Event and in
certain other circumstances. See "Description of the Preferred Securities
-- Redemption and -- Special Event Redemption or Distribution" and
"Description of the Subordinated Debentures -- Optional Redemption."
No sinking fund will be established for the benefit of the Preferred
Securities.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence and during the continuation of a Special Event, the
Company has the option to (i) redeem the Subordinated Debentures, in whole
but not in part, and therefore cause a mandatory redemption of all of the
Trust Securities at the Redemption Price within 90 days following the
occurrence of such Special Event or (ii) cause the termination of Delmarva
Financing, subject, in the case of a Tax Event (as defined under
"Description of the Preferred Securities -- Special Event Redemption or
Distribution"), to receipt of a No Recognition Opinion (as defined under
"Description of the Preferred Securities -- Special Event Redemption or
Distribution") and in connection therewith, after the satisfaction of all
amounts due to creditors of Delmarva Financing, if any, cause the
Subordinated Debentures to be distributed to the Holders of the Trust
Securities on a pro rata basis. If the Subordinated Debentures are
distributed to the Holders of the Preferred Securities, the Company will
use its best efforts to have the Subordinated Debentures listed on the NYSE
or on such other exchange as the Preferred Securities are then listed. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution."
THE GUARANTEE
The payment of Distributions and payments on the liquidation of Delmarva
Financing or the redemption of Preferred Securities are guaranteed by the
Company to the extent that Delmarva Financing has sufficient funds
available therefor. See "Description of the Guarantee."
LISTING
Application has been made to list the Preferred Securities on the NYSE.
Trading of the Preferred Securities on the NYSE is expected to commence
within a 30-day period after the date of this Prospectus.
USE OF PROCEEDS
The proceeds to be received by Delmarva Financing from the sale of the
Preferred Securities will be used to purchase Subordinated Debentures of
the Company. The Company expects to use the proceeds of such purchase to
redeem its 7.52% Preferred Stock ($100 par value) and to purchase shares
of preferred stock tendered in connection with the Company's Offer to
Purchase commenced August 22, 1996. To the extent the proceeds are not
immediately so used, they may be invested temporarily in short-term
interest-bearing obligations. See "Use of Proceeds."
<PAGE>
CERTAIN CONSOLIDATED FINANCIAL INFORMATION OF
DELMARVA POWER & LIGHT COMPANY
(THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND PERCENTAGES)
TWELVE MONTHS
ENDED JUNE 30,
--------
1996
----
(UNAUDITED)
Income Summary:
Operating Revenues . . . . . . $1,067,498
Net Income . . . . . . . . . . 120,106
Earnings Applicable to
Common Stock . . . . . . . . 110,302
Earnings per share of
Common Stock . . . . . . . . $1.82
Ratio of Earnings to
Fixed Charges(5) . . . . . . 3.47
Ratio of Earnings to
Fixed Charges and
Preferred Dividends(5) . . . 2.89
YEAR ENDED DECEMBER 31,(1)
--------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Income Summary:
Operating Revenues . $995,103 $991,021 $970,607 $864,044 $855,821
Net Income . . . . . 117,488 108,310(2) 111,076 98,526(3) 93,236
Earnings Applicable
to Common Stock . 107,546 98,940(2) 101,074 90,177(3) 85,259
Earnings per share
of Common Stock . $1.79 $1.67(2) $1.76 $1.69(3) $1.69(4)
Ratio of Earnings to
Fixed Charges(5) . 3.54 3.49 3.47 3.03 2.58
Ratio of Earnings to
Fixed Charges and
Preferred
Dividends(5) . . . 2.92 2.85 2.88 2.51 2.24
JUNE 30, 1996
-------------
(UNAUDITED)
ACTUAL AS ADJUSTED(6)
------- --------------
OUTSTANDING RATIO OUTSTANDING RATIO
----------- ----- ----------- -----
Capitalization Summary:
Common Stockholders'
Equity . . . . . . . . . . $928,642 45.6% $928,642 45.6%
Preferred Stock -
Not Subject to
Mandatory Redemption . . 168,085 8.3% 98,085 4.8%
Company Obligated
Mandatorily Redeemable
Preferred Securities
of Subsidiary Trust(7) . -- 0.0% 70,000 3.5%
939,769 46.1% 939,769 46.1%
Long-Term Debt(8) . . . . . ---------- ------ ---------- ------
$2,036,496 100.0% $2,036,496 100.0%
Total Capitalization . . . . . ========== ====== ========== ======
____________________________________________
(1) Derived from audited financial information.
(2) An early retirement offer decreased earnings net of income taxes and
earnings per share by $10.7 million and $0.18, respectively.
(3) The settlement of a lawsuit with PECO Energy Company increased
earnings net of income taxes and earnings per share by $11.4 million
and $0.21, respectively.
(4) Includes $0.25 for the cumulative effect of a change in accounting for
unbilled revenues.
(5) For purposes of computing these ratios, earnings have been computed by
adding income taxes and fixed charges to net income. Fixed charges
include gross interest expense and the estimated interest component of
rentals. For the ratio of earnings to fixed charges and preferred
dividends, preferred dividends represent annualized preferred dividend
requirements multiplied by the ratio that pre-tax income bears to net
income. For 1994, the exclusion of an early retirement offer charge
results in an adjusted ratio of earnings to fixed charges of 3.74 and
an adjusted ratio of earnings to fixed charges and preferred dividends
of 3.05. For 1992, the exclusion of the gain from a settlement
reached in a lawsuit with PECO Energy Company results in an adjusted
ratio of earnings to fixed charges of 2.78 and an adjusted ratio of
earnings to fixed charges and preferred dividends of 2.30. For 1991,
net income and income taxes related to the cumulative effect of a
change in accounting for unbilled revenues are excluded in the
computation of these ratios.
(6) Assumes that the net proceeds to the Company from the sale of
Preferred Securities offered hereby will be used to redeem preferred
stock of the Company.
(7) As described in this Prospectus, all of the assets of Delmarva
Financing will be approximately $72 million of Subordinated
Debentures.
(8) Excludes $1,507,000 of long-term debt due within one year, and
includes $86,500,000 of variable rate demand bonds, which the Company
intends to use as a source of long-term financing.
<PAGE>
RISK FACTORS
Prospective purchasers of Preferred Securities should review carefully
the information contained elsewhere herein and should particularly consider
the following risk factors with respect to the Preferred Securities:
SUBORDINATION OF THE GUARANTEE AND THE SUBORDINATED DEBENTURES
The Company's obligations under the Guarantee and the Subordinated
Debentures are unsecured and rank subordinate and junior in right of
payment to Senior Indebtedness of the Company, except any liabilities that
may be made pari passu expressly by their terms. See "Description of the
Guarantee -- Status of the Guarantee" and "Description of the Subordinated
Debentures -- Subordination." As of June 30, 1996, Senior Indebtedness of
the Company aggregated approximately $1.0 billion. There are no terms of
the Preferred Securities, the Guarantee or the Subordinated Debentures that
limit the Company's ability to incur additional indebtedness, including
indebtedness that would rank senior to the Guarantee and the Subordinated
Debentures.
The ability of Delmarva Financing to pay amounts due on the Preferred
Securities is solely dependent upon the Company making payments on the
Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
The Company has the right to defer payments of interest on the
Subordinated Debentures by extending the interest payment period thereon
for Extension Periods of up to 20 consecutive quarters with respect to each
deferral period; provided that no Extension Period may extend beyond the
maturity of the Subordinated Debentures. Prior to the end of an Extension
Period, the Company may, and at the end of such Extension Period the
Company shall, pay all interest then accrued and unpaid (together with
interest thereon at the stated rate borne thereby, compounded quarterly
to the extent permitted by applicable law). Upon the termination of any
Extension Period and the payment of all amounts then due, including
interest on deferred interest payments, the Company may select a new
Extension Period, subject to the above requirements. If interest payments
on the Subordinated Debentures are deferred, Distributions on the Preferred
Securities also will be deferred and the Company will not be permitted,
subject to certain exceptions set forth herein, to (i) declare or pay
dividends or distributions on (other than dividends or distributions paid
in shares of Common Stock of the Company) or redeem, purchase, acquire or
make a liquidation payment with respect to, any of its capital stock, or
(ii) make any payment of principal of, interest or premium, if any, on, or
repay, repurchase or redeem any indebtedness that is pari passu with the
Subordinated Debentures (including other Debt Securities) or make any
guarantee payment with respect to such indebtedness. During an Extension
Period, Distributions on the Preferred Securities will continue to accrue
and Distributions that are in arrears will bear interest on the amount
thereof at the per annum rate set forth on the cover page of this
Prospectus (to the extent permitted by applicable law, compounded
quarterly). See "Description of the Preferred Securities -- Distributions"
and "Description of the Subordinated Debentures -- Option to Extend
Interest Payment Period."
Because the Company has the right to extend the interest payment
period on the Subordinated Debentures, the Subordinated Debentures will be
treated as having been issued with original issue discount ("OID") for
United States federal income tax purposes. As a result, Holders of
Preferred Securities will be required to include in their gross income
Distributions as they accrue, rather than when they are paid, regardless of
the Holder's regular method of accounting. OID on the Preferred Securities
will be treated as interest and generally will be equal to the
Distributions on the Preferred Securities each year. Should an Extension
Period occur, a Holder of Preferred Securities will continue to accrue
interest (in the form of OID) in income in respect of its pro rata share of
the Subordinated Debentures held by Delmarva Financing for United States
federal income tax purposes. As a result, a Holder of Preferred Securities
will include such interest in gross income for United States federal income
tax purposes in advance of the receipt of cash, and will not receive the
cash related to such income from Delmarva Financing if the Holder disposes
of the Preferred Securities prior to the record date for the payment of
Distributions. See "Certain United States Federal Income Tax
Consequences -- Potential Extension of Interest Payment Period and
Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures. However, should the Company elect to exercise
such right in the future, the market price of the Preferred Securities is
likely to be adversely affected. A Holder that disposes of its Preferred
Securities during an Extension Period, therefore, might not receive the
same return on its investment as a Holder that continues to hold its
Preferred Securities. In addition, as a result of the existence of the
Company's right to defer interest payments, the market price of the
Preferred Securities (which represent a preferred undivided beneficial
interest in the Subordinated Debentures) may be more volatile than other
securities on which OID accrues that do not have such rights.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION; ADVERSE EFFECT OF POSSIBLE TAX
LAW CHANGES
Upon the occurrence and during the continuation of a Special Event,
the Company has the option to (i) redeem the Subordinated Debentures, in
whole but not in part, and therefore cause a mandatory redemption of all of
the Trust Securities at the Redemption Price within 90 days following the
occurrence of such Special Event or (ii) cause the termination of Delmarva
Financing and, in connection therewith, after satisfaction of all amounts
due to creditors of Delmarva Financing, if any, cause Subordinated
Debentures to be distributed to the Holders of Trust Securities within 90
days following the occurrence of such Special Event.
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the
"Revenue Bill"), the revenue portion of President Clinton's budget
proposal, was released. The Revenue Bill, among other things, generally
would treat as equity an instrument, issued by a corporation, that has a
maximum term of more than 20 years and that is not shown as indebtedness on
the separate balance sheet of the issuer or, where the instrument is issued
to a related party (other than a corporation), where the holder or some
other related party issues a related instrument that is not shown as
indebtedness on the issuer's consolidated balance sheet. The above-
described provision was proposed to be effective generally for instruments
issued on or after December 7, 1995. If the provision were to apply to the
Subordinated Debentures, the Company would be unable to deduct interest on
the Subordinated Debentures. However, on March 29, 1996, the Chairmen of
the Senate Finance and House Ways and Means Committees issued a joint
statement to the effect that it was their intention that the effective date
of the President's legislative proposals, if adopted, will be no earlier
than the date of appropriate Congressional action. There can be no
assurance, however, that current or future legislative proposals or final
legislation will not affect the ability of the Company to deduct interest
on the Subordinated Debentures. If legislation were enacted limiting, in
whole or in part, the deductibility by the Company of interest on the
Subordinated Debentures for United States federal income tax purposes, such
enactment could give rise to a Tax Event which would permit the Company to
cause a redemption of the Preferred Securities or a distribution of the
Subordinated Debentures in liquidation of Delmarva Financing, as described
more fully under "Description of the Preferred Securities -- Special Event
Redemption or Distribution." There can be no assurance that a Tax Event
will not occur.
There can be no assurance as to the market prices for Subordinated
Debentures that may be distributed in exchange for Preferred Securities if
a dissolution or liquidation of Delmarva Financing were to occur.
Accordingly, the Subordinated Debentures that a Holder of Preferred
Securities may receive on termination and liquidation of the Delmarva
Financing may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered hereby. Because Holders of
Preferred Securities may receive Subordinated Debentures upon the
occurrence of a Special Event, prospective purchasers of Preferred
Securities also are making an investment decision with regard to the
Subordinated Debentures and should review carefully all the information
regarding the Subordinated Debentures contained herein. See "Description
of the Preferred Securities -- Special Event Redemption or Distribution"
and "Description of the Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE; LIMITATION AS TO FUNDS AVAILABLE TO DELMARVA
FINANCING
The Guarantee guarantees to the Holders of the Preferred Securities to
the extent not paid by Delmarva Financing, the payment (but not the
collection) of (i) any accrued and unpaid Distributions required to be paid
on the Preferred Securities, to the extent Delmarva Financing has
sufficient funds available therefor, (ii) the Redemption Price with respect
to Preferred Securities called for redemption by Delmarva Financing, to the
extent Delmarva Financing has sufficient funds available therefor and (iii)
upon a voluntary or involuntary dissolution, winding-up or termination of
Delmarva Financing (unless the Subordinated Debentures are distributed to
Holders of the Preferred Securities), the lesser of (a) the aggregate of
the liquidation amount and all accrued and unpaid Distributions on the
Preferred Securities to the date of payment and (b) the amount of assets of
Delmarva Financing remaining available for distribution to Holders of the
Preferred Securities in liquidation of Delmarva Financing. If the Company
were to default on its obligations under the Subordinated Debentures,
Delmarva Financing would lack available funds for the payment of
Distributions or amounts payable on redemption of the Preferred Securities
or otherwise, and in such event Holders of the Preferred Securities would
not be able to rely upon the Guarantee for payment of such amounts. See
"Description of the Guarantee" and "Description of the Subordinated
Debentures -- Subordination" herein.
LIMITED VOTING RIGHTS
Holders of Preferred Securities generally will have limited voting
rights relating only to the modification of the Preferred Securities and
the exercise of remedies upon the occurrence of an Event of Default.
Holders of Preferred Securities will not be entitled to vote to appoint,
remove or replace the Property Trustee, which voting rights are vested
exclusively in the Holder of the Common Securities, except upon the
occurrence of certain events described herein. The Administrative Trustees
(as defined under "Delmarva Financing") and the Company may amend the Trust
Agreement to ensure that Delmarva Financing will be classified for United
States federal income tax purposes as a grantor trust without the consent
of Holders, even if such action adversely affects the interests of Holders.
See "Description of the Preferred Securities -- Voting Rights," "--
Amendments," "-- Removal of Property Trustee" and "-- Co-Trustees and
Separate Property Trustees."
TRADING CHARACTERISTICS OF PREFERRED SECURITIES
Application has been made to list the Preferred Securities on the
NYSE. If approved for listing, the Preferred Securities may trade at a
price that does not fully reflect the value of accrued but unpaid interest
with respect to the underlying Subordinated Debentures. A Holder that
disposes of Preferred Securities between record dates for payments of
Distributions thereon will be required to include accrued but unpaid
interest on the Subordinated Debentures through the date of disposition in
income as ordinary income and to add such amount to such Holder's adjusted
tax basis in such Holder's pro rata share of the underlying Subordinated
Debentures deemed disposed of. To the extent the selling price is less
than such Holder's adjusted tax basis (which will include, in the form of
OID, all accrued and unpaid interest), such Holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax
purposes. See "Certain United States Federal Income Tax Consequences --
Potential Extension of Interest Payment Period and Original Issue Discount"
and "-- Sale, Exchange and Redemption of the Preferred Securities."
THE COMPANY
The Company was incorporated in Delaware on April 22, 1909, and in
Virginia on December 31, 1979. The Company's principal executive offices
are located at 800 King Street, P.O. Box 231, Wilmington, Delaware 19899,
(302) 429-3011.
The Company is an investor-owned public utility which provides
electric service to approximately 437,500 customers in Delaware, ten
primarily Eastern Shore counties in Maryland and the Eastern Shore area of
Virginia in an area consisting of about 6,000 square miles with a
population of approximately 1,141,000. The Company also provides natural
gas service to approximately 98,000 customers in an area consisting of
about 275 square miles with a population of approximately 470,000 in
northern Delaware, including the City of Wilmington.
DELMARVA FINANCING
Delmarva Financing is a statutory business trust created under
Delaware law pursuant to (i) a trust agreement (the "Original Trust
Agreement") executed by the Company, as depositor for Delmarva Financing,
the Property Trustee and an Administrative Trustee, who is an employee of
the Company (together with such other Administrative Trustees from time to
time appointed by the Company, the "Administrative Trustees") and (ii) the
filing of a certificate of trust (the "Certificate of Trust") with the
Delaware Secretary of State on June 28, 1996. Such Original Trust
Agreement will be amended and restated in its entirety (as so amended and
restated, the "Trust Agreement") substantially in the form filed as an
exhibit to the Registration Statement of which this Prospectus forms a
part. The Trust Agreement will be qualified as an indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
Delmarva Financing exists for the exclusive purposes of (i) issuing Trust
Securities representing undivided beneficial interests in the assets of
Delmarva Financing, (ii) holding the Subordinated Debentures as trust
assets and (iii) engaging in only those other activities necessary or
incidental thereto. All of the Common Securities, which will represent
approximately 3% of the total capital of Delmarva Financing, will be owned
by the Company. The Common Securities will rank pari passu, and payments
will be made thereon pro rata, with the Preferred Securities, except as
described under "Description of the Preferred Securities -- Subordination
of the Common Securities." Delmarva Financing has a term of approximately
45 years, but may terminate earlier as provided in the Trust Agreement.
Delmarva Financing's business and affairs will be conducted by the
Administrative Trustees. The office of the Property Trustee in the State
of Delaware is Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890. The principal place of business of Delmarva Financing is
c/o Delmarva Power & Light Company, 800 King Street, P.O. Box 231,
Wilmington, Delaware 19899.
RECENT DEVELOPMENT
On August 12, 1996, the Company and Atlantic Energy, Inc. ("AE")
announced that they had signed a merger agreement pursuant to which the
Company and AE's subsidiary, Atlantic City Electric Company, would become
subsidiaries of a new holding company to be registered under the Public
Utility Holding Company Act of 1935, as amended. AE would be merged into
the holding company. The transaction has been approved unanimously by the
board of directors of each company and is subject to the approval of the
holders of common stock of each company. The proposed transaction also is
subject to approval by various regulatory agencies, principally state
public utility commissions, the Federal Energy Regulatory Commission, the
Nuclear Regulatory Commission and the Commission. A filing also must be
made with the Department of Justice and the Federal Trade Commission, and
the waiting period with respect thereto must have expired before the merger
may be consummated. Although the Company cannot predict when all
regulatory approvals will be obtained, both the Company and AE presently
expect that the review process can be completed within 12 to 18 months.
If the proposed merger is consummated, the Subordinated Debentures and
the Guarantee would continue to be obligations of the Company, and the
Company would continue to own the Common Securities.
USE OF PROCEEDS
The proceeds to be received by Delmarva Financing from the sale of the
Preferred Securities will be used to purchase the Subordinated Debentures.
The Company expects to use the proceeds of the sale of the Subordinated
Debentures to redeem all or part of its 7.52% Preferred Stock ($100 par
value) and to purchase the shares of its Preferred Stock tendered in
connection with the Company's Offer to Purchase commenced August 22, 1996
(the "Offer to Purchase"). If 100% of such shares of Preferred Stock are
tendered in connection with the Offer to Purchase, the funding requirement
with respect to such tender would be $2,918,000 for the 3.70% Preferred
Stock ($100 par value), $2,435,200 for the 4% Preferred Stock ($100 par
value), $3,312,500 for the 4.20% Preferred Stock ($100 par value),
$3,375,500 for the 4.28% Preferred Stock ($100 par value), $3,596,000 for
the 4.56% Preferred Stock ($100 par value), $6,308,800 for the 5%
Preferred Stock ($100 par value), $20,930,000 for the 6 3/4% Preferred
Stock ($100 par value), $44,992,000 for the 7 3/4% Preferred Stock -- $25
Par, and $14,717,775 for the Adjustable Rate Preferred Stock, Series A
($100 par value). The Company expects that less than 100% of such shares
will be tendered in connection with the Offer to Purchase. To the extent
the proceeds are not immediately so used, they may be invested temporarily
in short-term interest-bearing obligations.
DESCRIPTION OF THE PREFERRED SECURITIES
The following summaries of certain provisions of the Preferred
Securities and the Trust Agreement do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the
provisions of the Trust Agreement, including the definitions therein of
certain terms, and the Trust Indenture Act. Wherever particular sections
or defined terms of the Trust Agreement are referred to, such sections or
defined terms are incorporated herein by reference. The Trust Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
GENERAL
The Preferred Securities and the Common Securities will be created
pursuant to the terms of the Trust Agreement. The Preferred Securities
represent undivided preferred beneficial interests in the assets of
Delmarva Financing and will have a preference under certain circumstances
with respect to Distributions and amounts payable on liquidation,
redemption or otherwise over the Common Securities. The Common Securities
will rank pari passu, and payments will be made thereon pro rata, with the
Preferred Securities, except as described under "-- Subordination of Common
Securities." (Section 4.03). The Subordinated Debentures will be owned by
Delmarva Financing and held by the Property Trustee in trust for the
benefit of the Holders of the Trust Securities. (Section 2.09). The
Subordinated Debentures and the Guarantee, together with the obligations of
the Company with respect to the Preferred Securities under the Indenture,
the Trust Agreement and the Expense Agreement, constitute a full and
unconditional guarantee of the Preferred Securities by the Company.
DISTRIBUTIONS
The Distributions payable on the Preferred Securities will be fixed at
the rate per annum of the stated liquidation amount thereof set forth on
the cover page of this Prospectus. The term "Distributions" as used herein
includes interest payable on overdue Distributions, unless otherwise
stated. The amount of Distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months and for any
period shorter than a full month, on the basis of the actual number of days
elapsed. (Section 4.01(b)). Distributions that are in arrears will bear
interest on the amount thereof at the per annum rate set forth on the cover
page of this Prospectus (to the extent permitted by applicable law,
compounded quarterly).
Distributions on the Preferred Securities will be cumulative, will
accrue from and including the date of initial issuance thereof, and will be
payable quarterly in arrears, on March 31, June 30, September 30 and
December 31 of each year, commencing December 31, 1996, except as otherwise
described below. Such Distributions will accrue to, and including, the
first Distribution payment date (as defined below), and for each subsequent
Distribution payment date will accrue from, and excluding, the last
Distribution payment date through which Distributions have been paid or
duly provided for. In the event that any date on which Distributions are
otherwise payable on the Preferred Securities is not a Business Day,
payment of the Distribution payable on such date will be made on the next
succeeding Business Day, except that, if such Business Day is in the next
succeeding calendar year, payment of such Distribution shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date (each date on which Distributions are
otherwise payable in accordance with the foregoing, a "Distribution payment
date"). (Section 4.01(a)). "Business Day" is used herein to mean any day
other than (i) a Saturday or a Sunday, (ii) a day on which banking
institutions in The City of New York are authorized or required by law or
executive order to remain closed and (iii) a day on which the Corporate
Trust Office of the Property Trustee or the Debenture Trustee is closed for
business. (Section 1.01)
The Company has the right under the Indenture to defer interest
payments on the Subordinated Debentures at any time or from time to time by
extending the interest payment period thereon for Extension Periods up to
20 consecutive quarters, with the consequence that quarterly Distributions
on the Preferred Securities would be deferred (but would continue to accrue
with interest payable on unpaid Distributions at the rate per annum set
forth on the cover page of this Prospectus, compounded quarterly) by
Delmarva Financing during any such Extension Period. (Section 4.01(b)).
In the event that the Company exercises this right, during the Extension
Period the Company may not (i) declare or pay dividends or distributions
(other than dividends or distributions in Common Stock of the Company) on,
or redeem, purchase, acquire, or make a liquidation payment with respect to
any of its capital stock, or (ii) make any payment of principal of,
interest or premium, if any, on, or repay, repurchase or redeem any
indebtedness that is pari passu with the Subordinated Debentures (including
other Debt Securities) or make any guarantee payment with respect to such
indebtedness. See "Description of the Subordinated Debentures -- Option to
Extend Interest Payment Period."
Distributions on the Preferred Securities will be payable to the
Holders thereof as they appear on the register of Delmarva Financing on the
relevant record dates, each of which, so long as the Preferred Securities
are held in book-entry form, will be one Business Day prior to the relevant
Distribution payment date. Subject to any applicable laws and regulations
and the Trust Agreement, each such payment will be made as described under
"-- Book-Entry Only Issuance -- The Depository Trust Company." In the
event any Preferred Securities are not in book-entry form, the relevant
record date for such Preferred Securities shall be the date 15 days prior
to the relevant Distribution payment date or if such date is not a Business
Day, the next succeeding Business Day. (Section 4.01(d)).
REDEMPTION
Upon the repayment of the Subordinated Debentures, whether at maturity
or upon earlier redemption as provided in the Indenture, the proceeds from
such repayment shall be applied by the Property Trustee to redeem a Like
Amount (as defined herein) of Trust Securities, upon not less than 30 nor
more than 60 days' notice, at the Redemption Price. (Section 4.02). See
"Description of the Subordinated Debentures -- Optional Redemption."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence and during the continuation of a Tax Event or an
Investment Company Event (each, as defined below, a "Special Event"), the
Company has the option to (i) redeem the Subordinated Debentures in whole,
but not in part, and therefore cause a mandatory redemption of all of the
Trust Securities at the Redemption Price within 90 days following the
occurrence of such Special Event, or (ii) cause the termination of Delmarva
Financing and in connection therewith, after satisfaction of all amounts
due to creditors of Delmarva Financing, if any, cause the Subordinated
Debentures to be distributed to the Holders of the Trust Securities within
90 days following the occurrence of such Special Event; provided that in
the case of the occurrence of a Tax Event, as a condition to any such
termination and distribution, the Administrative Trustees shall have
received an opinion of nationally recognized independent tax counsel
experienced in such matters, which opinion may rely on any then applicable
published revenue rulings of the Internal Revenue Service, to the effect
that the Holders of the Preferred Securities will not recognize any gain or
loss for United States federal income tax purposes as a result of the
termination of the Trust and the distribution of the Subordinated
Debentures (a "No Recognition Opinion"). See "Certain United States
Federal Income Tax Consequences -- Receipt of Subordinated Debentures or
Cash Upon Liquidation of Delmarva Financing." If the Company does not
elect either option (i) or (ii) above, the Preferred Securities will remain
outstanding and, in the event a Tax Event has occurred and is continuing,
Additional Interest (as defined under "Description of the Subordinated
Debentures -- Additional Interest") will be payable on the Subordinated
Debentures.
"Like Amount" means, as the context requires, (i) with respect to a
redemption of Trust Securities, Trust Securities having a liquidation
amount equal to the principal amount of Subordinated Debentures to be
contemporaneously redeemed and (ii) with respect to a distribution of
Subordinated Debentures to Holders of Trust Securities in connection with a
liquidation of Delmarva Financing, Subordinated Debentures having a
principal amount equal to the liquidation amount of the Trust Securities
with respect to which such Subordinated Debentures are to be distributed.
(Section 1.01)
"Tax Event" means the receipt by Delmarva Financing of an opinion of
counsel (which may be counsel to the Company or an affiliate but not an
employee thereof and which must be acceptable to the Property Trustee)
experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein affecting
taxation, or as a result of any official administrative or judicial
pronouncement or decision interpreting or applying such laws or
regulations, which amendment or change is effective or which pronouncement
or decision is announced on or after the date of original issuance of the
Preferred Securities, there is more than an insubstantial risk that at such
time or within 90 days of the date thereof (i) Delmarva Financing is, or
will be, subject to United States federal income tax with respect to income
received or accrued on the Subordinated Debentures, (ii) interest payable
by the Company on the Subordinated Debentures, is not, or will not be,
fully deductible by the Company for United States federal income tax
purposes, or (iii) Delmarva Financing is, or will be, subject to more than
a de minimis amount of other taxes, duties or other governmental charges.
(Section 1.01)
"Investment Company Event" means the occurrence of a change in law or
regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or
regulatory authority to the effect that Delmarva Financing is or will be
considered an "investment company" that is required to be registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), which
change in law becomes effective on or after the date of original issuance
of the Preferred Securities. (Section 1.01).
On the date fixed for the distribution of Subordinated Debentures upon
termination of Delmarva Financing (i) the Trust Securities no longer will
be deemed to be outstanding and (ii) all rights of the Holders thereof will
cease, except the right to receive Subordinated Debentures upon surrender
of the certificates representing their Trust Securities. (Section 9.04).
If the Subordinated Debentures are distributed to the Holders of
Preferred Securities, the Company will use its best efforts to list the
Subordinated Debentures on the NYSE or on such other exchange on which the
Preferred Securities then are listed.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date (as defined
below) shall be redeemed at the Redemption Price with the proceeds from the
contemporaneous redemption of Subordinated Debentures. Redemptions of the
Preferred Securities shall be made and the Redemption Price shall be deemed
payable on each date selected for redemption (the "Redemption Date") only
if Delmarva Financing has funds available for the payment of such
Redemption Price. (Section 4.02(c)). See also "-- Subordination of Common
Securities."
If Delmarva Financing shall give a notice of redemption in respect of
Preferred Securities, then, on or before the Redemption Date, the Property
Trustee will deposit irrevocably with the paying agent for such Preferred
Securities funds sufficient to pay the applicable Redemption Price and will
give such paying agent irrevocable instructions to pay the Redemption Price
to the Holders thereof upon surrender of their certificates evidencing such
Preferred Securities. Notwithstanding the foregoing, Distributions payable
on or prior to the Redemption Date for any Preferred Securities called for
redemption shall be payable to the Holders of such Preferred Securities on
the relevant record dates for the related Distribution payment dates. If
notice of redemption shall have been given and funds deposited as required,
then on the Redemption Date, all rights of Holders of such Preferred
Securities so called for redemption will cease, except the right of the
Holders of such Preferred Securities to receive the Redemption Price, but
without interest thereon, and such Preferred Securities will cease to be
outstanding. In the event that any date fixed for redemption of Preferred
Securities is not a Business Day, then payment of the amount payable on
such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay).
In the event that payment of the Redemption Price in respect of Preferred
Securities called for redemption is not paid either by Delmarva Financing
or by the Company pursuant to the Guarantee, Distributions on such
Preferred Securities will continue to accrue at the then applicable rate,
from the original Redemption Date to the date of payment. (Section
4.02(d)).
If less than all the Trust Securities are to be redeemed on a
Redemption Date, then the aggregate liquidation amount of such securities
to be redeemed shall be allocated on a pro rata basis to the Common
Securities and the Preferred Securities. The particular Preferred
Securities to be redeemed shall be selected not more than 60 days prior to
the Redemption Date by the Property Trustee from the outstanding Preferred
Securities not previously called for redemption, by such method as the
Property Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of Preferred Securities in liquidation amounts
equal to $25 or integral multiples thereof. The Property Trustee shall
notify the Registrar promptly in writing of the Preferred Securities
selected for redemption and, in the case of any Preferred Securities
selected for partial redemption, the liquidation amount thereof to be
redeemed. For all purposes of the Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Preferred
Securities shall relate, in the case of any Preferred Securities redeemed
or to be redeemed only in part, to the portion of the liquidation amount of
Preferred Securities that has been or is to be redeemed.
(Section 4.02(e)).
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Trust
Securities, shall be made pro rata based on the liquidation amount of the
Trust Securities; provided that if on any Distribution payment date or
Redemption Date any Event of Default resulting from an Event of Default
under the Indenture (a "Debenture Event of Default") shall have occurred
and be continuing, no payment of any Distribution on, or Redemption Price
of, any Common Security, and no other payment on account of the redemption,
liquidation or other acquisition of Common Securities, shall be made unless
payment in full in cash of all accrued and unpaid Distributions on all
Preferred Securities for all distribution periods terminating on or prior
thereto, or in the case of payment of the Redemption Price, the full amount
of such Redemption Price on all Preferred Securities, shall have been made
or provided for. (Section 4.03(a)).
In the case of an Event of Default resulting from a Debenture Event of
Default under the Indenture, the Company as Holder of the Common Securities
will be deemed to have waived any such Event of Default until the effect of
all such Events of Default with respect to the Preferred Securities have
been cured, waived or otherwise eliminated. Until all such Events of
Default have been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the Holders of the Preferred
Securities, and only Holders of Preferred Securities will have the right to
direct the Property Trustee to act. (Section 4.03(b)).
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to the Trust Agreement, Delmarva Financing shall terminate
and shall be liquidated by the Property Trustee on December 31, 2041 or, if
earlier, on the first to occur of: (i) the bankruptcy, dissolution or
liquidation of the Company; (ii) the redemption of all of the Preferred
Securities, (iii) the termination and liquidation of Delmarva Financing
upon the occurrence of a Special Event and, in the case of a Tax Event,
receipt by the Property Trustee of a No Recognition Opinion, and (iv) the
entrance by a court of competent jurisdiction of an order for judicial
termination of Delmarva Financing. (Sections 9.01 and 9.02).
If an early termination occurs as described in clause (i), (iii) or
(iv) above, Delmarva Financing shall be liquidated by the Property Trustee
by distributing to each Holder of Preferred Securities and Common
Securities a Like Amount of Subordinated Debentures, unless such
distribution is determined by the Property Trustee not to be practical, in
which event such Holders will be entitled to receive, out of the assets of
Delmarva Financing available for distribution to Holders after adequate
provision, as determined by the Property Trustee, has been made for the
satisfaction of all amounts due to creditors, if any, an amount equal to
the aggregate liquidation amount of the Trust Securities plus accrued and
unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid
only in part because Delmarva Financing has insufficient assets available
to pay in full the aggregate Liquidation Distribution, then the amounts
payable directly by Delmarva Financing on the Trust Securities shall be
paid on a pro rata basis, except that if a Debenture Event of Default has
occurred and is continuing, or if a Debenture Event of Default has not
occurred solely by reason of a requirement that time lapse or notice be
given, the Liquidation Distribution with respect to the Preferred
Securities shall be paid in full prior to making any Liquidation
Distribution with respect to the Common Securities. (Sections 9.04(a) and
(e)).
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an Event of Default under
the Trust Agreement:
(i) the occurrence of a Debenture Event of Default (see
"Description of the Subordinated Debentures -- Events of Default"); or
(ii) default by Delmarva Financing in the payment of any
Distribution when it becomes due and payable, and continuation of such
default for a period of 30 days; or
(iii) default by Delmarva Financing in the payment of any
Redemption Price of any Trust Security when it becomes due and
payable; or
(iv) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Trustees in the Trust
Agreement (other than a covenant or warranty a default in the
performance of which or the breach of which is specifically dealt with
in clause (ii) or (iii) above), and continuation of such default or
breach for a period of 60 days after there has been given, by
registered or certified mail, to the Property Trustee by the Holders
of Preferred Securities having at least 10% of the total liquidation
amount of the outstanding Preferred Securities, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a Notice of Default thereunder; or
(v) the occurrence of certain events of bankruptcy or insolvency
with respect to Delmarva Financing. (Section 1.01).
Within five Business Days after the occurrence of any Event of
Default, the Property Trustee shall transmit to the Holders of Trust
Securities, the Administrative Trustees and the Company notice of such
Event of Default known to the Property Trustee, unless such Event of
Default shall have been cured or waived. (Section 8.02(a)).
VOTING RIGHTS
Holders of Trust Securities shall be entitled to one vote for each $25
in liquidation amount represented by their Trust Securities in respect of
any matter as to which such Holders of Trust Securities are entitled to
vote. Except as described below and under "-- Amendments," and under
"Description of the Guarantee -- Amendments and Assignment" and as
otherwise required by law and the Trust Agreement, the Holders of the
Preferred Securities will have no voting rights. (Section 6.01(a)). In
the event that the Company elects to defer payments of interest on the
Subordinated Debentures as described under "-- Distributions," the Holders
of the Preferred Securities do not have the right to appoint a special
representative or trustee or otherwise act to protect their interests.
So long as any Subordinated Debentures are held by the Property
Trustee, the Property Trustee shall not (i) direct the time, method and
place of conducting any proceeding for any remedy available to the
Debenture Trustee, or executing any trust or power conferred on the
Debenture Trustee with respect to the Subordinated Debentures, (ii) waive
any past default which is waivable under Section 813 of the Indenture,
(iii) exercise any right to rescind or annul a declaration that the
principal of all the Subordinated Debentures shall be due and payable or
(iv) consent to any amendment, modification or termination of the Indenture
or the Subordinated Debentures, where such consent shall be required,
without, in each case, obtaining the prior approval of the Holders of
Preferred Securities having at least 66 2/3% of the liquidation amount of
the outstanding Preferred Securities; provided that where a consent under
the Indenture would require the consent of each Holder of Subordinated
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of each Holder of Preferred Securities.
The Property Trustee shall not revoke any action previously authorized or
approved by a vote of the Preferred Securities. If the Property Trustee
fails to enforce its rights under the Subordinated Debentures or the Trust
Agreement, any Holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce the Property Trustee's
rights under the Subordinated Debentures or the Trust Agreement, to the
fullest extent permitted by law, without first instituting any legal
proceeding against the Property Trustee or any other person or entity.
(Section 6.01(a) and (b)). The Property Trustee shall notify all Holders
of the Preferred Securities of any notice of Event of Default received from
the Debenture Trustee. In addition to obtaining the foregoing approvals of
the Holders of the Preferred Securities, prior to taking any of the
foregoing actions, the Property Trustee shall receive an opinion of counsel
experienced in such matters to the effect that Delmarva Financing will be
classified as a "grantor trust" and will not be classified as an
association taxable as a corporation for United States federal income tax
purposes on account of such action. Notwithstanding the foregoing, a
Holder of Preferred Securities may institute a proceeding for enforcement
of payment to such Holder directly of principal of or interest on the
Subordinated Debentures having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such Holder on or after
the due dates specified in the Subordinated Debentures.
AMENDMENTS
The Trust Agreement may be amended from time to time by a majority of
the Administrative Trustees, the Property Trustee and the Company, without
the consent of any Holders of Trust Securities, (i) to cure any ambiguity,
correct or supplement any provision therein which may be inconsistent with
any other provision therein, or to make any other provisions with respect
to matters or questions arising under the Trust Agreement, which shall not
be inconsistent with the other provisions of the Trust Agreement, provided
that any such amendment shall not adversely affect in any material respect
the interests of any Holder of Trust Securities, (ii) to modify, eliminate
or add to any provisions of the Trust Agreement to such extent as shall be
necessary to ensure that Delmarva Financing will not be classified for
United States federal income tax purposes other than as a "grantor trust"
at any time that any Trust Securities are outstanding or to ensure Delmarva
Financing's exemption from the status of an "investment company" under the
1940 Act, or (iii) to effect the acceptance of a successor Trustee
appointment. In the case of clause (i), any amendments of the Trust
Agreement shall become effective when notice thereof is given to the
Holders of Trust Securities (Section 10.03(a)).
Except as provided below, any provision of the Trust Agreement may be
amended by a majority of the Administrative Trustees, the Property Trustee
and the Company with (i) the consent of Holders of Trust Securities
representing not less than a majority of the liquidation amount of the
Trust Securities then outstanding and (ii) receipt by the Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Trustees in accordance with such amendment will not
affect Delmarva Financing's status as a grantor trust for United States
federal income tax purposes or affect Delmarva Financing's exemption from
status of an "investment company" under the 1940 Act. (Section 10.03(b)).
Without the consent of each affected Holder of Trust Securities, the
Trust Agreement may not be amended to (i) change the amount or timing of
any Distributions with respect to the Trust Securities or otherwise
adversely affect the amount of any Distributions required to be made in
respect of the Trust Securities as of a specified date, (ii) restrict the
right of a Holder of Trust Securities to institute suit for the enforcement
of any such payment on or after such date or (iii) change the requirement
that each affected Holder consent to amendments in respect of clauses (i)
or (ii) above. (Section 10.03(c)).
REMOVAL OF PROPERTY TRUSTEE
Unless an Event of Default under the Indenture shall have occurred and
be continuing, the Property Trustee may be removed at any time by the
Company, as the Holder of the Common Securities. If an Event of Default
under the Indenture has occurred and is continuing, the Property Trustee
may be removed at such time by act of the Holders of Preferred Securities
having a majority of the liquidation amount of the outstanding Preferred
Securities. In no event will the Holders of the Preferred Securities have
the right to vote to appoint, remove or replace the Administrative
Trustees, which voting rights are vested exclusively in the Company as the
Holder of the Common Securities. No resignation or removal of the Property
Trustee and no appointment of a successor trustee shall be effective until
the acceptance of appointment by the successor Property Trustee in
accordance with the provisions of the Trust Agreement. (Section 8.10).
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default under the Indenture shall have occurred and
be continuing, at any time or times, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any
part of the Trust Property (as defined in the Trust Agreement) may at the
time be located, the Company and the Property Trustee shall have power to
appoint, and upon the written request of the Property Trustee, the Company
shall for such purpose join with the Property Trustee in the execution,
delivery and performance of all instruments and agreements necessary or
proper to appoint one or more persons approved by the Property Trustee
either to act as co-trustee, jointly with the Property Trustee, of all or
any part of such Trust Property, or to act as separate trustee of any such
property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such person or persons in such
capacity, any property, title, right or power deemed necessary or
desirable, subject to the provisions of the Trust Agreement. If the
Company does not join in such appointment within 15 days after the receipt
by it of a request so to do, or in case an Event of Default under the
Indenture has occurred and is continuing, the Property Trustee alone shall
have power to make such appointment. (Section 8.09(a)).
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
DTC will act as securities depositary for all of the Preferred
Securities. The Preferred Securities initially will be issued only as
fully-registered securities registered in the name of Cede & Co. ("DTC's
nominee"). One or more fully-registered global Preferred Securities
certificates, representing the aggregate number of Preferred Securities,
will be issued and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and
a "clearing agency" registered pursuant to the provisions of Section 17A of
the 1934 Act. DTC holds securities that its participants ("Participants")
deposit with DTC. DTC also facilitates the settlement among Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement
of securities certificates. Direct Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of
its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system also is available to others, such
as securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial
relationship with a Direct Participant ("Indirect Participants"). The
rules applicable to DTC and its Direct Participants and Indirect
Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made
by or through Direct Participants, which will receive a credit for the
Preferred Securities on DTC's records. The ownership interest of each
actual purchaser of each Preferred Security (the "Beneficial Owner") is in
turn to be recorded on the Participants' records. Beneficial Owners will
not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their
holdings, from the Participants through which the Beneficial Owners
purchased Preferred Securities. Transfers of ownership interests in the
Preferred Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in the
Preferred Securities, except in the event that use of the book-entry system
for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities
deposited by Direct Participants with DTC are registered in the name of
DTC's nominee, Cede & Co. The deposit of Preferred Securities with DTC and
their registration in the name of Cede & Co. will effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners
of the Preferred Securities. DTC's records reflect only the identity of
the Direct Participants to whose accounts such Preferred Securities are
credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by
Participants to Beneficial Owners will be governed by arrangements among
them, subject to any statutory or regulatory requirements that may be in
effect from time to time.
Redemption notices shall be sent to Cede & Co. as the registered
Holder of Preferred Securities. If less than all of the Preferred
Securities are being redeemed, DTC's current practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to
be redeemed.
Although voting with respect to the Preferred Securities is limited,
in those cases where a vote is required, neither DTC nor Cede & Co. will
itself consent or vote with respect to Preferred Securities. Under its
usual procedures, DTC would mail an Omnibus Proxy to Delmarva Financing as
soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co. consenting or voting rights to those Direct Participants to whose
accounts the Preferred Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy). The Company and
Delmarva Financing believe that the arrangements among DTC, Direct and
Indirect Participants, and Beneficial Owners will enable the Beneficial
Owners to exercise rights equivalent in substance to the rights that can be
exercised directly by a holder of a beneficial interest in Delmarva
Financing.
Payment of Distributions on the Preferred Securities will be made to
DTC. DTC's practice is to credit Direct Participants' accounts on the
relevant Distribution payment date in accordance with their respective
holdings shown on DTC's records unless DTC has reason to believe that it
will not receive payments on such payment date. Payments by Participants
to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name," and such payments
will be the responsibility of such Participant and not of DTC, the Property
Trustee, Delmarva Financing or the Company, subject to any statutory or
regulatory requirements to the contrary that may be in effect from time to
time. Payment of Distributions to DTC is the responsibility of Delmarva
Financing, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Participants.
Except as provided herein, a Beneficial Owner will not be entitled to
receive physical delivery of Preferred Securities. Accordingly, each
Beneficial Owner must rely on the procedures of DTC to exercise any rights
under the Preferred Securities.
DTC may discontinue providing its services as securities depositary
with respect to the Preferred Securities at any time by giving reasonable
notice to Delmarva Financing and the Company. Under such circumstances, in
the event that a successor securities depositary should not be obtained,
Preferred Securities certificates would be required to be printed and
delivered. Additionally, the Administrative Trustees (with the consent of
the Company) may decide to discontinue use of the system of book-entry
transfers through DTC (or any successor depositary) with respect to the
Preferred Securities. In that event, certificates for the Preferred
Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Company and Delmarva
Financing believe to be reliable, but neither the Company nor Delmarva
Financing takes responsibility for the accuracy thereof.
FORM, EXCHANGE, AND TRANSFER
The following provisions shall apply to the Preferred Securities only
in the event that the Preferred Securities are no longer held in book-entry
only form.
Preferred Securities will be issuable only in fully registered form,
each having a liquidation amount of $25 and any integral multiple thereof.
Preferred Securities will be exchangeable for other Preferred Securities,
of any authorized denomination and of like tenor and aggregate liquidation
amount. Preferred Securities may be presented for exchange as provided
above or for registration of transfer (duly endorsed or accompanied by a
duly executed instrument of transfer) at the office of the Transfer Agent
designated for such purpose. Initially, Wilmington Trust Company will act
as Registrar and Transfer Agent for the Preferred Securities. (Section
5.03(b)).
No service charge will be made for any registration of transfer or
exchange of Preferred Securities, but Delmarva Financing may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. (Section 5.03(d)). Such transfer or
exchange will be effected upon the Transfer Agent being satisfied with the
documents of title and identity of the person making the request. The
Administrative Trustees may at any time designate additional Transfer
Agents or rescind the designation of any Transfer Agent or approve a change
in the office through which any Transfer Agent acts.
Delmarva Financing will not be required to (i) issue, register the
transfer of, or exchange any Preferred Securities during a period beginning
at the opening of business 15 calendar days before the day of mailing of a
notice of redemption of any Preferred Securities called for redemption and
ending at the close of business on the day of such mailing or (ii) register
the transfer of or exchange any Preferred Securities so selected for
redemption, in whole or in part, except the unredeemed portion of any such
Preferred Securities being redeemed in part. (Section 5.03(c)).
CONCERNING THE PROPERTY TRUSTEE
The Company maintains deposit accounts and conducts other banking
transactions with the Property Trustee in the ordinary course of their
businesses. The Property Trustee also acts as the Guarantee Trustee
and the Debenture Trustee.
MISCELLANEOUS
Application has been made to list the Preferred Securities on the
NYSE.
The Property Trustee will act as the resident trustee in the State of
Delaware, will hold the Subordinated Debentures on behalf of Delmarva
Financing, will maintain a payment account with respect to the Trust
Securities and will act as trustee under the Trust Agreement for the
purposes of the Trust Indenture Act. The Administrative Trustees will
administer the day-to-day operations of Delmarva Financing.
The Administrative Trustees are authorized and directed to conduct the
affairs of Delmarva Financing and to operate Delmarva Financing so that
Delmarva Financing will not be deemed to be an "investment company"
required to be registered under the 1940 Act or taxed as a corporation for
United States federal income tax purposes and so that the Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Administrative
Trustees and the Company are authorized to take any action, not
inconsistent with applicable law, the Certificate of Trust or the Trust
Agreement, that the Administrative Trustees and the Company determine in
their discretion to be necessary or desirable for such purposes, as long as
such action does not materially adversely affect the interests of the
Holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar
rights.
DESCRIPTION OF THE GUARANTEE
The following summary of certain provisions of the Guarantee does
not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by reference to, the Guarantee,
including the definitions therein of certain terms, and the Trust Indenture
Act. Whenever particular Sections or defined terms of the Guarantee are
referred to, such Sections or defined terms are incorporated herein by
reference. The Guarantee is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
GENERAL
The Guarantee will be qualified as an indenture under the Trust
Indenture Act. Wilmington Trust Company will act as indenture trustee
under the Guarantee for the purpose of compliance with the Trust Indenture
Act (the "Guarantee Trustee") and will hold the Guarantee for the benefit
of the Holders of the Preferred Securities.
The Company will agree fully and unconditionally to the extent set
forth herein, to pay the Guarantee Payments (as defined below) in full to
the Holders of the Preferred Securities (except to the extent paid by or on
behalf of Delmarva Financing), as and when due, regardless of any defense,
right of set-off or counterclaim that the Company may have or assert. The
following payments with respect to the Preferred Securities, to the extent
not paid by or on behalf of Delmarva Financing (the "Guarantee Payments"),
will be subject to the Guarantee (without duplication): (i) any accrued and
unpaid Distributions required to be paid on the Preferred Securities, but
only to the extent the Property Trustee has available in the payment
account sufficient funds to make such payment, (ii) the Redemption Price
with respect to any Preferred Securities called for redemption by Delmarva
Financing, but only to the extent the Property Trustee has available in the
payment account sufficient funds to make such payment and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of Delmarva
Financing (other than in connection with a redemption of all of the
Preferred Securities), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid Distributions on the Preferred Securities
to the date of payment and (b) the amount of assets of Delmarva Financing
remaining available for distribution to Holders of Preferred Securities in
liquidation of Delmarva Financing. The Company's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the Holders of Preferred Securities or by causing
Delmarva Financing to pay such amounts to such Holders. (Section 5.01).
The Guarantee will be a guarantee with respect to the Preferred
Securities issued by Delmarva Financing from the time of issuance of the
Preferred Securities, but will not apply to (i) any payment of
Distributions if and to the extent that Delmarva Financing does not have
funds available to make such payments, or (ii) collection of payment. If
the Company does not make interest payments on the Subordinated Debentures
held by Delmarva Financing, Delmarva Financing will not have funds
available to pay Distributions on the Preferred Securities. The Guarantee
will rank subordinate and junior in right of payment to Senior Indebtedness
of the Company (except those made pari passu by their terms). See "Status
of the Guarantee." The Company has agreed in the Expense Agreement to
provide funds to Delmarva Financing as needed to pay obligations of
Delmarva Financing to parties other than Holders of Trust Securities. The
Subordinated Debentures and the Guarantee, together with the obligations of
the Company with respect to the Preferred Securities under the Indenture,
the Trust Agreement, the Guarantee and the Expense Agreement, constitute a
full and unconditional guarantee of the Preferred Securities by the
Company. No single document standing alone or operating in conjunction
with fewer than all of the other documents constitutes such guarantee. It
is only the combined operation of these documents that has the effect of
providing a full and unconditional guarantee by the Company of the
Preferred Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely
affect the rights of Holders of Preferred Securities (in which case no vote
will be required), the terms of the Guarantee may be changed only with the
prior approval of the Holders of Preferred Securities having at least 66
2/3% of the liquidation amount of the outstanding Preferred Securities.
(Section 8.02). All guarantees and agreements contained in the Guarantee
shall bind the successors, assigns, receivers, trustees and representatives
of the Company and shall inure to the benefit of the Holders of the
Preferred Securities then outstanding. (Section 8.01).
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of
the Company to perform any of its payment obligations thereunder. The
Holders of Preferred Securities having a majority of the liquidation amount
of the Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of
any trust or power conferred upon the Guarantee Trustee under the
Guarantee. Any Holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against Delmarva
Financing, the Guarantee Trustee or any other person or entity. (Section
5.04).
The Company, as Guarantor, will be required to provide annually to the
Guarantee Trustee a statement as to the performance by the Company of
certain of its obligations under the Guarantee and as to any default in
such performance and an officer's certificate as to the Company's
compliance with all conditions under the Guarantee. (Section 2.04).
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default by the
Company in performance of the Guarantee, has undertaken to perform only
such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her
own affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at
the request of any Holder of Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might
be incurred thereby. (Section 3.01). See "Description of the Preferred
Securities -- Concerning the Property Trustee."
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect
upon full payment of the Redemption Price of all Preferred Securities, the
distribution of Subordinated Debentures to Holders of Preferred Securities
in exchange for all of the Preferred Securities or full payment of the
amounts payable upon liquidation of Delmarva Financing. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at
any time any Holder of Preferred Securities must restore payment of any
sums paid under the Preferred Securities or the Guarantee. (Section 7.01).
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company to the same extent as the Subordinated
Debentures. (Section 6.01). The Trust Agreement provides that each Holder
of Preferred Securities by acceptance thereof agrees to the subordination
provisions and other terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Guarantor to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or
entity).
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
The following summary of the Subordinated Debentures and certain
provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definition therein of certain terms and the Trust Indenture Act. Whenever
particular sections or defined terms in the Indenture are referred to
herein, such sections or defined terms are incorporated herein by
reference. The Indenture is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
GENERAL
The Indenture provides for the issuance of subordinated debentures
(including the Subordinated Debentures), notes or other evidence of
indebtedness by the Company (each a "Debt Security") in an unlimited amount
from time to time. The Subordinated Debentures constitute a separate
series under the Indenture.
The Subordinated Debentures will be limited in aggregate principal
amount to the sum of the aggregate liquidation amount of the Trust
Securities. The Subordinated Debentures are unsecured, subordinated
obligations of the Company which rank junior to all of the Company's Senior
Indebtedness. The Subordinated Debentures will bear interest at the same
rate, payable at the same times, as the Distributions payable on the Trust
Securities, and will have a maturity and redemption provisions correlative
to those of the Trust Securities.
The entire outstanding principal amount of the Subordinated Debentures
will become due and payable, together with any accrued and unpaid interest
thereon, including Additional Interest, if any, on September 30, 2036.
The amounts payable as principal and interest on the Subordinated
Debentures will be sufficient to provide for payment of Distributions
payable on the Trust Securities.
If Subordinated Debentures are distributed to Holders of Preferred
Securities in a termination of Delmarva Financing, such Subordinated
Debentures will be issued in fully-registered certificated form in
denominations of $25 and integral multiples thereof and may be transferred
or exchanged at the offices described below.
Payments of principal and interest on Subordinated Debentures will be
payable, the transfer of Subordinated Debentures will be registrable, and
Subordinated Debentures will be exchangeable for Subordinated Debentures of
other denominations of a like aggregate principal amount, at the corporate
trust office of the Debenture Trustee in Wilmington, Delaware; provided,
however, that payment of interest may be made at the option of the Company
by check mailed to the address of the persons entitled thereto and that the
payment in full of principal with respect to any Subordinated Debenture
will be made only upon surrender of such Subordinated Debenture to the
Debenture Trustee.
OPTIONAL REDEMPTION
On or after September 30, 2001, the Company will have the option,
at any time and from time to time, to redeem the Subordinated Debentures,
in whole or in part, at a redemption price equal to 100% of the principal
amount of the Subordinated Debentures being redeemed, together with any
accrued but unpaid interest, including Additional Interest, if any, to
the Redemption Date.
If a Special Event shall occur and be continuing, the Company shall
have the option to redeem the Subordinated Debentures, in whole but not in
part, at a redemption price equal to 100% of the principal amount of
Subordinated Debentures then outstanding plus any accrued and unpaid
interest, including Additional Interest, if any, to the Redemption Date.
The Subordinated Debentures will be subject to optional redemption in whole
but not in part upon the termination and liquidation of Delmarva Financing
pursuant to an order for the dissolution, termination or liquidation of
Delmarva Financing entered by a court of competent jurisdiction.
For so long as Delmarva Financing is the Holder of all the outstanding
Subordinated Debentures, the proceeds of any such redemption will be used
by Delmarva Financing to redeem Trust Securities in accordance with their
terms. The Company may not redeem less than all the Subordinated
Debentures unless all accrued and unpaid interest (including any Additional
Interest) has been paid in full on all outstanding Subordinated Debentures
for all quarterly interest periods terminating on or prior to the date of
redemption.
Any optional redemption of Subordinated Debentures shall be made upon
not less than 30 nor more than 60 days' notice from the Debenture Trustee
to the Holders of Subordinated Debentures, as provided in the Indenture.
INTEREST
The Subordinated Debentures shall bear interest at the rate per annum
set forth on the cover page of this Prospectus. Such interest is payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year, commencing December 31, 1996.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months and for any period shorter
than a full month, on the basis of the actual number of days elapsed
(Section 310). In the event that any date on which interest is payable on
the Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day which
is a Business Day, except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if
made on the date the payment was originally payable (Section 113).
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right under the Indenture to extend the interest
payment period from time to time on the Subordinated Debentures for an
Extension Period of up to 20 consecutive quarters during which period
interest will be compounded quarterly. At the end of an Extension Period,
the Company must pay all interest then accrued and unpaid (together with
interest thereon at the rate specified for the Subordinated Debentures
compounded quarterly, to the extent permitted by applicable law). However,
during any such Extension Period, the Company shall not (i) declare or pay
any dividend or distribution (other than a dividend or distribution in
Common Stock of the Company) on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock or (ii) make
any payment of principal of, interest or premium, if any, on, or repay,
repurchase or redeem any indebtedness that is pari passu with the
Subordinated Debentures (including other Debt Securities), or make any
guarantee payments with respect to such indebtedness. Prior to the
termination of any such Extension Period, the Company may further extend
the interest payment period provided, however, that such Extension Period
together with all such previous and further extensions thereof shall not
exceed 20 consecutive quarters at any one time or extend beyond the
maturity date of the Subordinated Debentures. Any Extension Period with
respect to payment of interest on the Subordinated Debentures, other Debt
Securities or on any similar securities will apply to all such securities
and will also apply to Distributions with respect to the Preferred
Securities and all other securities with terms substantially the same as
the Preferred Securities. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Company may select a
new Extension Period, subject to the above requirements. No interest shall
be due and payable during an Extension Period, except at the end thereof.
The Company will give Delmarva Financing and the Debenture Trustee notice
of its election of an Extension Period prior to the earlier of (i) one
Business Day prior to the record date for the distribution which would
occur but for such election or (ii) the date the Company is required to
give notice to the NYSE or other applicable self-regulatory organization of
the record date and will cause Delmarva Financing to send notice of such
election to the Holders of Preferred Securities.
ADDITIONAL INTEREST
So long as any Preferred Securities remain outstanding, if Delmarva
Financing shall be required to pay, with respect to its income derived from
the interest payments on the Subordinated Debentures, any amounts for or on
account of any taxes, duties, assessments or governmental charges of
whatever nature imposed by the United States, or any other taxing
authority, then, in any such case, the Company will pay as interest on such
Subordinated Debentures such additional interest (the "Additional
Interest") as may be necessary in order that the net amounts received and
retained by Delmarva Financing after the payment of such taxes, duties,
assessments or governmental charges shall result in Delmarva Financing's
having such funds as it would have had in the absence of the payment of
such taxes, duties, assessments or governmental charges. (Section 312).
DEFEASANCE
The principal amount of any series of Debt Securities issued under the
Indenture will be deemed to have been paid for purposes of the Indenture
and the entire indebtedness of the Company in respect thereof will be
deemed to have been satisfied and discharged, if there shall have been
irrevocably deposited with the Debenture Trustee or any paying agent, in
trust: (i) money in an amount which will be sufficient, or (ii) in the
case of a deposit made prior to the maturity of the Subordinated
Debentures, Government Obligations (as defined below), which do not contain
provisions permitting the redemption or other prepayment thereof at the
option of the issuer thereof, the principal of and the interest on which
when due, without any regard to reinvestment thereof, will provide moneys
which, together with the money, if any, deposited with or held by the
Debenture Trustee, will be sufficient, or (iii) a combination of (i) and
(ii) which will be sufficient, to pay when due the principal of and
premium, if any, and interest, if any, due and to become due on the Debt
Securities of such series that are outstanding; provided that if such
deposit shall have been made prior to the maturity of such Debt Securities,
the Company shall have delivered to the Debenture Trustee an opinion of
counsel to the effect that the holders of such Debt Securities will not
recognize income, gain or loss for federal income tax purposes as a result
of the satisfaction and discharge of the Company's indebtedness in respect
of such Debt Securities, and such holders will be subject to federal income
taxation on the same amounts and in the same manner and at the same times
as if such satisfaction and discharge had not occurred. For this purpose,
"Government Obligations" include direct obligations of, or obligations
unconditionally guaranteed by, the United States of America entitled to the
benefit of the full faith and credit thereof and certificates, depositary
receipts or other instruments which evidence a direct ownership interest in
such obligations or in any specific interest or principal payments due in
respect thereof. (Section 701).
SUBORDINATION
The Subordinated Debentures will be subordinate and junior in right of
payment to all Senior Indebtedness of the Company to the extent provided in
the Indenture. No payment of principal of (including redemption and
sinking fund payments), or interest on, the Subordinated Debentures may be
made (i) upon the occurrence of certain events of bankruptcy, insolvency or
reorganization, (ii) if any Senior Indebtedness is not paid when due, (iii)
if any other default has occurred pursuant to which the Holders of Senior
Indebtedness have accelerated the maturity thereof and with respect to (ii)
and (iii), such default has not been cured or waived, or (iv) if the
maturity of any series of Debt Securities has been accelerated, because of
an event of default with respect thereto, which remains uncured. Upon any
payment or distribution of assets of the Company to creditors upon any
dissolution, winding-up, liquidation or reorganization, whether voluntary
or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all principal of, and premium, if any, and interest due or to
become due on, all Senior Indebtedness must be paid in full before the
Holders of the Subordinated Debentures are entitled to receive or retain
any payment thereon. (Section 1502). Subject to the prior payment of all
Senior Indebtedness, the rights of the Holders of the Subordinated
Debentures will be subrogated to the rights of the Holders of Senior
Indebtedness to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the Subordinated Debentures are
paid in full. (Section 1504).
The term "Senior Indebtedness" is defined in the Indenture to mean all
obligations (other than non-recourse obligations and the indebtedness
issued under the Indenture) of, or guaranteed or assumed by, the Company
for borrowed money, including both senior and subordinated indebtedness for
borrowed money (other than the Debt Securities), or for the payment of
money relating to any lease which is capitalized on the consolidated
balance sheet of the Company and its subsidiaries in accordance with
generally accepted accounting principles as in effect from time to time, or
evidenced by bonds, debentures, notes or other similar instruments, and in
each case, amendments, renewals, extensions, modifications and refundings
of any such indebtedness or obligations, whether existing as of the date of
this Indenture or subsequently incurred by the Company unless, in the case
of any particular indebtedness, renewal, extension or refunding, the
instrument creating or evidencing the same or the assumption or guarantee
of the same expressly provides that such indebtedness, renewal, extension
or refunding is not superior in right of payment to or is pari passu with
the Subordinated Debentures; provided that the Company's obligations under
the Guarantee shall not be deemed to be Senior Indebtedness. (Section 101).
CONSOLIDATION, MERGER, AND SALE OF ASSETS
Under the terms of the Indenture, the Company may not consolidate with
or merge into any other entity or convey, transfer or lease its properties
and assets substantially as an entirety to any entity, unless (i) the
corporation formed by such consolidation or into which the Company is
merged or the entity which acquires by conveyance or transfer, or which
leases, the property and assets of the Company substantially as an entirety
shall be a entity organized and validly existing under the laws of any
domestic jurisdiction and such entity expressly assumes the Company's
obligations on all Debt Securities and under the Indenture,
(ii) immediately after giving effect to the transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing, and
(iii) the Company shall have delivered to the Debenture Trustee
certificates and opinions required by the Indenture. (Section 1101).
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indenture with respect to the Debt Securities of any series: (i) failure
to pay any interest on the Debt Securities of such series within 30 days
after the same becomes due and payable, provided that deferral of payment
during an Extension Period will not constitute an Event of Default; (ii)
failure to pay principal or premium, if any, on the Debt Securities of such
series when due and payable; (iii) failure to perform, or breach of, any
other covenant or warranty of the Company in the Indenture (other than a
covenant or warranty of the Company in the Indenture solely for the benefit
of one or more series of Debt Securities other than such series) for 60
days after written notice to the Company by the Debenture Trustee, or to
the Company and the Debenture Trustee by the Holders of at least 10% in
principal amount of the Debt Securities of such series outstanding under
the Indenture as provided in the Indenture; (iv) the entry by a court
having jurisdiction in the premises of (a) a decree or order for relief in
respect of the Company in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or (b) a decree or order adjudging the Company a bankrupt or
insolvent, or approving as properly filed a petition by one or more persons
other than the Company seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official for the Company or for any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and any such decree or order for relief or any such other
decree or order shall have remained unstayed and in effect for a period of
90 consecutive days; and (v) the commencement by the Company of a voluntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it
to the entry of a decree or order for relief in respect of the Company in a
case or other similar proceeding or to the commencement of any bankruptcy
or insolvency case or proceeding against it under any applicable federal or
state law or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or of any substantial part
of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due, or the authorization of such action by
the Company's board of directors. (Section 801).
An Event of Default with respect to the Debt Securities of a
particular series may not necessarily constitute an Event of Default with
respect to Debt Securities of any other series issued under the Indenture.
If an Event of Default due to the default in payment of principal of
or interest on any series of Debt Securities or due to the default in the
performance or breach of any other covenant or warranty of the Company
applicable to the Debt Securities of such series but not applicable to all
series occurs and is continuing, then either the Debenture Trustee or the
Holders of 25% in principal amount of the outstanding Debt Securities of
such series may declare the principal of all of the Debt Securities of such
series and interest accrued thereon to be due and payable immediately
(subject to the subordination provisions of the Indenture). If an Event of
Default due to the default in the performance of any other covenants or
agreements in the Indenture applicable to all outstanding Debt Securities
or due to certain events of bankruptcy, insolvency or reorganization of the
Company has occurred and is continuing, either the Debenture Trustee or the
Holders of not less than 25% in principal amount of all outstanding Debt
Securities, considered as one class, and not the Holders of the Debt
Securities of any one of such series may make such declaration of
acceleration (subject to the subordination provisions of the Indenture).
If, in the event of an Event of Default, the Debenture Trustee fails,
or the Holders of not less than 25% of the aggregate principal amount of
the outstanding Debt Securities of such series fail, to declare the
principal due and payable, the holders of at least 25% in aggregate
liquidation amount of the related series of Preferred Securities shall have
such right. Except as set forth above, the existence of an Event of
Default does not entitle the holders of Preferred Securities to accelerate
the maturity thereof or declare amounts due and payable.
At any time after the declaration of acceleration with respect to the
Debt Securities of any series has been made and before a judgment or decree
for payment of the money due has been obtained, the Event or Events of
Default giving rise to such declaration of acceleration will, without
further act, be deemed to have been waived, and such declaration and its
consequences will, without further act, be deemed to have been rescinded
and annulled, if
(i) the Company has paid or deposited with the Debenture Trustee a
sum sufficient to pay
(a) all overdue interest on all Debt Securities of such
series;
(b) the principal of and premium, if any, on any Debt
Securities of such series which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate or rates
prescribed therefor in such Debt Securities;
(c) interest upon overdue interest at the rate or rates
prescribed therefor in such Debt Securities, to the extent that payment of
such interest is lawful; and
(d) all amounts due to the Debenture Trustee under the
Indenture; and
(ii) any other Event or Events of Default with respect to Debt
Securities of such series, other than the nonpayment of the principal of
the Debt Securities of such series which has become due solely by such
declaration of acceleration, have been cured or waived as provided in the
Indenture. (Section 802).
Subject to the provisions of the Indenture relating to the duties of
the Debenture Trustee in case an Event of Default shall occur and be
continuing, the Debenture Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request or direction
of any of the Holders of the Subordinated Debentures, unless such Holders
shall have offered to the Debenture Trustee reasonable indemnity. (Section
903). If an Event of Default has occurred and is continuing in respect of
a series of Debt Securities, subject to such provisions for the
indemnification of the Debenture Trustee, the Holders of a majority in
principal amount of the outstanding Debt Securities of such series will
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or exercising
any trust or power conferred on the Debenture Trustee, with respect to the
Debt Securities of such series; provided that if an Event of Default occurs
and is continuing with respect to more than one series of Debt Securities,
the Holders of a majority of the aggregate principal amount of the
outstanding Debt Securities of all such series, considered as one class,
will have the right to make such direction, and not the Holders of the Debt
Securities of any one of such series; and provided, further, that such
direction will not be in conflict with any rule of law or with the
Indenture. (Section 812).
No Holder of Debt Securities of any series will have any right to
institute any proceeding with respect to the Indenture, or for the
appointment of a receiver or a trustee, or for any other remedy thereunder,
unless (i) such Holder has previously given to the Debenture Trustee
written notice of a continuing Event of Default with respect to the Debt
Securities of such series, (ii) the Holders of not less than a majority in
aggregate principal amount of the outstanding Debt Securities of all series
in respect of which an Event of Default shall have occurred and be
continuing, considered as one class, have made written request to the
Debenture Trustee, and such Holder or Holders have offered reasonable
indemnity to the Debenture Trustee to institute such proceeding in respect
of such Event of Default in its own name as trustee and (iii) the Debenture
Trustee has failed to institute any proceeding, and has not received from
the Holders of a majority of the aggregate principal amount of the
outstanding Debt Securities of such series a direction inconsistent with
such request, within 60 days after such notice, request and offer. (Section
807). However, such limitations do not apply to a suit instituted by a
Holder of a Debt Security for the enforcement of payment of the principal
of or any premium or interest on such Debt Security on or after the
applicable due date specified in such Debt Security. (Section 808).
The Company will be required to furnish to the Debenture Trustee
annually a statement by an appropriate officer as to such officer's
knowledge of the Company's compliance with all conditions and covenants
under the Indenture, such compliance to be determined without regard to any
period of grace or requirement of notice under the Indenture. (Section
606).
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If an Event of Default has occurred and is continuing, then the
Holders of Preferred Securities would rely on the enforcement by the
Property Trustee or the Debenture Trustee, acting for the benefit of the
Property Trustee, of its rights as a holder of the Subordinated Debentures
against the Company. Notwithstanding the foregoing, if an Event of Default
has occurred and is continuing and such event is attributable to the
failure of the Company to pay principal of or interest on the Subordinated
Debentures on the date such interest or principal is otherwise payable (or
in the case of redemption, on the Redemption Date), then a Holder of
Preferred Securities may directly institute a proceeding against the
Company for enforcement of payment to such Holder of the principal of or
interest on the Subordinated Debentures having a principal amount equal to
the aggregate liquidation amount of the Preferred Securities of such Holder
after the respective due dates specified in the Subordinated Debentures.
In connection with such an enforcement proceeding, the Company will be
subrogated to the rights of such Holder of Preferred Securities with
respect to payments on the Preferred Securities to the extent of any
payment made by the Company to such Holder of Preferred Securities in such
proceeding.
The Holders of the Preferred Securities would not be able to exercise
directly against the Company any rights other than those set forth in the
preceding paragraph available to the holders of the Subordinated Debentures
unless the Property Trustee or the Debenture Trustee, acting for the
benefit of the Property Trustee, fails to do so for 60 days. In such
event, to the fullest extent permitted by law, the holders of at least 25%
of the aggregate liquidation amount of the outstanding Preferred Securities
would have the right to directly institute proceedings for enforcement of
such rights.
MODIFICATION AND WAIVER
Without the consent of any Holder of Debt Securities, the Company and
the Debenture Trustee may enter into one or more supplemental indentures
for any of the following purposes: (i) to evidence the assumption by any
permitted successor to the Company of the covenants of the Company in the
Indenture and in the Debt Securities; or (ii) to add one or more covenants
of the Company or other provisions for the benefit of the Holders of
outstanding Debt Securities or to surrender any right or power conferred
upon the Company by the Indenture; or (iii) to add any additional Events of
Default with respect to outstanding Debt Securities; or (iv) to change or
eliminate any provision of the Indenture or to add any new provision to the
Indenture, provided that if such change, elimination or addition will
affect adversely the interests of the Holders of Debt Securities of any
series in any material respect, such change, elimination or addition will
become effective with respect to such series only (a) when the consent of
the Holders of Debt Securities of such series has been obtained in
accordance with the Indenture, or (b) when no Debt Securities of such
series remain outstanding under the Indenture; or (v) to provide collateral
security for all but not part of the Debt Securities; (vi) to establish the
form or terms of Debt Securities of any other series as permitted by the
Indenture; or (vii) to provide for the authentication and delivery of
bearer securities and coupons appertaining thereto representing interest,
if any, thereon and for the procedures for the registration, exchange and
replacement thereof and for the giving of notice to, and the solicitation
of the vote or consent of, the Holders thereof, and for any and all other
matters incidental thereto; or (viii) to evidence and provide for the
acceptance of appointment of a successor Debenture Trustee under the
Indenture with respect to the Debt Securities of one or more series and to
add to or change any of the provisions of the Indenture as shall be
necessary to provide for or to facilitate the administration of the trusts
under the Indenture by more than one trustee; or (ix) to provide for the
procedures required to permit the utilization of a noncertificated system
of registration for the Debt Securities of all or any series; or (x) to
change any place where (a) the principal of and premium, if any, and
interest, if any, on all or any series of Debt Securities shall be payable,
(b) all or any series of Debt Securities may be surrendered for
registration of transfer or exchange and (c) notices and demands to or upon
the Company in respect of Debt Securities and the Indenture may be served;
or (xi) to cure any ambiguity or inconsistency or to add or change any
other provisions with respect to matters and questions arising under the
Indenture, provided such changes or additions shall not adversely affect
the interests of the Holders of Debt Securities of any series in any
material respect. (Section 1201).
The Holders of at least a majority of the aggregate principal amount
of the outstanding Debt Securities of all series may waive compliance by
the Company with certain restrictive provisions of the Indenture. (Section
607). The Holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series may waive any past default under
the Indenture with respect to such series, except a default in the payment
of principal, premium, or interest and certain covenants and provisions of
the Indenture that cannot be modified or be amended without the consent of
the Holder of each outstanding Debt Security of such series affected.
(Section 813).
Without limiting the generality of the foregoing, if the Trust
Indenture Act is amended after the date of the Indenture in such a way as
to require changes to the Indenture or the incorporation therein of
additional provisions or so as to permit changes to, or the elimination of,
provisions which, at the date of the Indenture or at any time thereafter,
were required by the Trust Indenture Act to be contained in the Indenture,
the Indenture will be deemed to have been amended so as to conform to such
amendment of the Trust Indenture Act or to effect such changes, additions
or elimination, and the Company and the Debenture Trustee may, without the
consent of any Holders, enter into one or more supplemental indentures to
evidence or effect such amendment. (Section 1201).
Except as provided above, the consent of the Holders of not less than
a majority of the aggregate principal amount of the outstanding Debt
Securities of all series, considered as one class, is required for the
purpose of adding any provisions to, or changing in any manner, or
eliminating any of the provisions of, the Indenture or modifying in any
manner the rights of the Holders of such Debt Securities under the
Indenture pursuant to one or more supplemental indentures; provided that if
less than all of the series of outstanding Debt Securities are affected
directly by a proposed supplemental indenture, then the consent only of the
Holders of a majority of the aggregate principal amount of outstanding Debt
Securities of all series so directly affected, considered as one class,
will be required; and provided further, that no such amendment or
modification may (i) change the stated maturity of the principal of, or any
installment of principal of or interest on, any Debt Security, or reduce
the principal amount thereof or the rate of interest thereon (or the amount
of any installment of interest thereon) or change the method of calculating
such rate or reduce any premium payable upon the redemption thereof, or
change the coin or currency (or other property) in which any Debt Security
or any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
stated maturity of any Debt Security (or, in the case of redemption, on or
after the Redemption Date) without, in any such case, the consent of the
Holder of such Debt Security, (ii) reduce the percentage in principal
amount of the outstanding Debt Security of any series, (or, if applicable,
in liquidation amount of Preferred Securities) the consent of the Holders
of which is required for any such supplemental indenture, or the consent of
the Holders of which is required for any waiver of compliance with any
provision of the Indenture or any default thereunder and its consequences,
or reduce the requirements for quorum or voting, without, in any such case,
the consent of the Holder of each outstanding Debt Security of such series,
or (iii) modify certain of the provisions of the Indenture relating to
supplemental indentures, waivers of certain covenants and waivers of past
defaults with respect to the Debt Security of any series, without the
consent of the Holder of each outstanding Debt Security affected thereby.
A supplemental indenture that changes or eliminates any covenant or other
provision of the Indenture which has expressly been included solely for the
benefit of one or more particular series of Debt Securities, or modifies
the rights of the Holders of Debt Securities of such series with respect to
such covenant or other provision, will be deemed not to affect the rights
under the Indenture of the Holders of the Debt Securities of any other
series. (Section 1202).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the outstanding Debt Securities have given
any request, demand, authorization, direction, notice, consent or waiver
under the Indenture, or whether a quorum is present at the meeting of the
Holders of Debt Securities, Debt Securities owned by the Company or any
other obligor upon the Debt Securities or any affiliate of the Company or
of such other obligor (unless the Company, such affiliate or such obligor
owns all Debt Securities outstanding under the Indenture, determined
without regard to this provision) shall be disregarded and deemed not to be
outstanding. (Section 101).
If the Company shall solicit from Holders any request, demand,
authorization, direction, notice, consent, election, waiver or other act,
the Company may, at its option, fix in advance a record date for the
determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other such act, but
the Company shall have no obligation to do so. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only
the Holders of record at the close of business on such record date shall be
deemed to be Holders for the purposes of determining whether Holders of the
requisite proportion of the outstanding Debt Securities have authorized or
agreed or consented to such request, demand, authorization, direction,
notice, consent, waiver or other Act, and for that purpose the outstanding
Debt Securities shall be computed as of the record date. Any request,
demand, authorization, direction, notice, consent, election, waiver or
other Act of a Holder shall bind every future Holder of the same Debt
Security and the Holder of every Debt Security issued upon the registration
of transfer thereof or in exchange therefor or in lieu thereof in respect
of anything done, omitted or suffered to be done by the Debenture Trustee
or the Company in reliance thereon, whether or not notation of such action
is made upon such Debt Security. (Section 104).
RESIGNATION OF DEBENTURE TRUSTEE
The Debenture Trustee may resign at any time by giving written notice
thereof to the Company or may be removed at any time by the Holders of a
majority of the principal amount of all series of outstanding Debt
Securities of all series. No resignation or removal of the Debenture
Trustee and no appointment of a successor trustee will become effective
until the acceptance of appointment by a successor trustee in accordance
with the requirements of the Indenture. So long as no Event of Default or
event which, after notice or lapse of time, or both, would become an Event
of Default has occurred and is continuing and except with respect to a
Debenture Trustee appointed by the Holders, if the Company has delivered to
the Debenture Trustee a resolution of its board of directors appointing a
successor trustee and such successor has accepted such appointment in
accordance with the terms of the Indenture, the Debenture Trustee will be
deemed to have resigned and the successor will be deemed to have been
appointed as trustee in accordance with the Indenture. (Section 910).
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and
construed in accordance with, the laws of the State of New York.
CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee under the Indenture is Wilmington Trust Company.
In addition, Wilmington Trust Company acts as Property Trustee under the
Trust Agreement and as Guarantee Trustee under the Guarantee. See
"Description of the Preferred Securities -- Concerning the Property
Trustee."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income
tax consequences relevant to the purchase, ownership and disposition of
Preferred Securities as of the date hereof and represents the opinion of
Reid & Priest LLP, New York, New York, special tax counsel to the Company,
insofar as it relates to matters of law or legal conclusions. Except where
noted, it deals only with Preferred Securities held as capital assets and
does not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, life insurance companies,
persons holding Preferred Securities as a part of a hedging or conversion
transaction or a straddle, United States Holders (as defined under "--
United States Holders") whose "functional currency" is not the U.S. dollar,
or persons who are not United States Holders. In addition, this discussion
does not address the tax consequences to persons who purchase Preferred
Securities other than pursuant to their initial issuance and distribution.
Furthermore, the discussion below is based upon the provisions of the
Internal Revenue Code of 1986, as amended, and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities
may be repealed, revoked or modified at any time so as to result in United
States federal income tax consequences different from those discussed
below. These authorities are subject to various interpretations and it is
therefore possible that the United States federal income tax treatment of
the Preferred Securities may differ from the treatment described below.
PROSPECTIVE PURCHASERS OF PREFERRED SECURITIES, INCLUDING PERSONS WHO
ARE NOT UNITED STATES HOLDERS AND PERSONS WHO PURCHASE PREFERRED SECURITIES
IN THE SECONDARY MARKET, ARE ADVISED TO CONSULT WITH THEIR TAX ADVISORS AS
TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF PREFERRED SECURITIES IN LIGHT OF THEIR
PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR
OTHER TAX LAWS.
UNITED STATES HOLDERS
As used herein, a "United States Holder" means a Holder that is a
citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States
or any political subdivision thereof, or an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source.
CLASSIFICATION OF DELMARVA FINANCING
Reid & Priest LLP, special tax counsel to the Company and Delmarva
Financing, is of the opinion that, under current law and assuming full
compliance with the terms of the Indenture and the instruments establishing
Delmarva Financing (and certain other documents), Delmarva Financing will
be classified as a "grantor trust" for United States federal income tax
purposes and will not be classified as an association taxable as a
corporation. Each Holder will be treated as owning an undivided beneficial
interest in the Subordinated Debentures. Accordingly, each Holder will be
required to include in its gross income interest (in the form of OID)
accrued with respect to its allocable share of Subordinated Debentures as
described below. No amount included in income with respect to the
Preferred Securities will be eligible for the dividends received deduction.
Investors should be aware that the opinion of Reid & Priest LLP does not
address any other issue and is not binding on the Internal Revenue Service
or the courts.
CLASSIFICATION OF THE SUBORDINATED DEBENTURES
Based on the advice of its counsel, the Company believes and intends
to take the position that the Subordinated Debentures will constitute
indebtedness for United States federal income tax purposes. No assurance
can be given that such position will not be challenged by the Internal
Revenue Service or, if challenged, that such a challenge will not be
successful. By purchasing and accepting Preferred Securities, each Holder
covenants to treat the Subordinated Debentures as indebtedness and the
Preferred Securities as evidence of an indirect beneficial ownership in the
Subordinated Debentures. The remainder of this discussion assumes that the
Subordinated Debentures will be classified as indebtedness of the Company
for United States federal income tax purposes.
POSSIBLE TAX LAW CHANGES
On March 19, 1996, the Revenue Bill, the revenue portion of President
Clinton's budget proposal, was released. The Revenue Bill, among other
things, generally would treat as equity an instrument, issued by a
corporation, that has a maximum term of more than 20 years and that is not
shown as indebtedness on the separate balance sheet of the issuer or, where
the instrument is issued to a related party (other than a corporation),
where the holder or some other related party issues a related instrument
that is not shown as indebtedness on the issuer's consolidated balance
sheet. The above-described provision was proposed to be effective
generally for instruments issued on or after December 7, 1995. If the
provision were to apply to the Subordinated Debentures, the Company would
be unable to deduct interest on the Subordinated Debentures. However, on
March 29, 1996, the Chairmen of the Senate Finance and House Ways and Means
Committees issued a joint statement to the effect that it was their
intention that the effective date of the President's legislative proposals,
if adopted, will be no earlier than the date of appropriate Congressional
action. There can be no assurance, however, that current or future
legislative proposals or final legislation will not affect the ability of
the Company to deduct interest on the Subordinated Debentures. If
legislation were enacted limiting, in whole or in part, the deductibility
by the Company of interest on the Subordinated Debentures for United States
federal income tax purposes, such enactment could give rise to a Tax Event
which would permit the Company to cause a redemption of the Preferred
Securities or a distribution of the Subordinated Debentures in liquidation
of Delmarva Financing, as described more fully under "Description of the
Preferred Securities -- Special Event Redemption or Distribution."
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE
DISCOUNT
Under the terms of the Subordinated Debentures, the Company has the
option to defer payments of interest for up to 20 consecutive quarterly
distribution payment periods and to pay as a lump sum at the end of such
period all of the interest that has accrued during such period. During any
such Extension Period, Distributions on the Preferred Securities also will
be deferred. Because of this option to extend the interest payment
periods, the Subordinated Debentures will be treated as having been issued
with OID for United States federal income tax purposes. As a result,
United States Holders will be required to accrue interest income (in the
form of OID) on an economic accrual basis even if they use the cash method
of tax accounting. In the event of an Extension Period, a United States
Holder will be required to continue to include OID in income
notwithstanding that Delmarva Financing will not make any Distribution on
the Preferred Securities during such Extension Period. As a result, any
Holder who disposes of Preferred Securities prior to the record date for
the payment of Distributions following such Extension Period will include
interest in gross income but will not receive any Distributions related
thereto from Delmarva Financing. The tax basis of a Preferred Security
will be increased by the amount of any OID that is included in income, and
will be decreased when and if Distributions are subsequently received from
Delmarva Financing by such Holders.
In addition, the amount of OID will be increased or decreased if the
issue price of the Subordinated Debentures (offering price of the Preferred
Securities at the time of the issuance) is less than or greater than their
stated principal amount. It is anticipated that the issue price of the
Subordinated Debentures will equal or exceed their stated principal amount.
In the event that the issue price of the Subordinated Debentures is less
than their stated principal amount, however, the Treasury Regulations may
be read to require a recalculation of the amount of OID for each period
that the Company does not exercise its right to extend the interest payment
period. This recalculation could result in minor adjustments to the amount
of OID taxable to the Holders for such period.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF
DELMARVA FINANCING
Under certain circumstances, as described under the caption
"Description of the Preferred Securities -- Special Event Redemption or
Distribution," Subordinated Debentures may be distributed to Holders of
Preferred Securities in exchange for the Preferred Securities and in
liquidation of Delmarva Financing. Under current law, for United States
federal income tax purposes, if Delmarva Financing is treated as a grantor
trust at the time of distribution, such a distribution would be treated as
a non-taxable event to each United States Holder, and each United States
Holder would receive an aggregate tax basis in the Subordinated Debentures
equal to such Holder's aggregate tax basis in its Preferred Securities. A
United States Holder's holding period for the Subordinated Debentures
received in liquidation of Delmarva Financing would include the period
during which such Holder held the Preferred Securities.
Under certain circumstances, as described under the caption
"Description of the Preferred Securities -- Redemption of Preferred
Securities," the Subordinated Debentures may be redeemed for cash and the
proceeds of such redemption distributed to Holders of Preferred Securities
in redemption of the Preferred Securities. Under current law, such a
redemption would, for United States federal income tax purposes, constitute
a taxable disposition of the Preferred Securities, and a Holder would
recognize gain or loss as if such Holder had sold such redeemed Preferred
Securities. See "-- Sale, Exchange and Redemption of the Preferred
Securities."
SALE, EXCHANGE AND REDEMPTION OF THE PREFERRED SECURITIES
Upon the sale, exchange or redemption of Preferred Securities, a
United States Holder will recognize gain or loss equal to the difference
between the amount realized upon the sale, exchange or redemption and such
Holder's adjusted tax basis in the Preferred Securities. A United States
Holder's adjusted tax basis will, in general, be the issue price of the
Preferred Securities, increased by the OID previously included in income by
the United States Holder and reduced by any Distributions on the Preferred
Securities. Such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if at the time of sale, exchange or
redemption, the Preferred Securities have been held for more than one year.
Under current law, net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income. The
deductibility of capital losses is subject to limitations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Subject to the qualification discussed below, income on the Preferred
Securities will be reported to holders on Form 1099, which should be mailed
to such Holders by January 31, following each calendar year.
Delmarva Financing will be obligated to report annually to Cede & Co.,
as holder of record of the Preferred Securities, the OID related to the
Subordinated Debentures that accrued during the year. Delmarva Financing
currently intends to report such information on Form 1099 prior to January
31, following each calendar year. The Underwriters have indicated to
Delmarva Financing that, to the extent that they hold Preferred Securities
as nominees for beneficial holders, they currently expect to report the OID
that accrued during the calendar year on such Preferred Securities to such
beneficial holders on Forms 1099 by January 31, following each calendar
year. Under current law, holders of Preferred Securities who hold as
nominees for beneficial holders will not have any obligation to report
information regarding the beneficial holders to Delmarva Financing.
Delmarva Financing, moreover, will not have any obligation to report to
beneficial holders who are not also record holders. Thus, beneficial
holders of Preferred Securities who hold their Preferred Securities through
the Underwriters will receive Forms 1099 reflecting the income on their
Preferred Securities from such nominee holders rather than from Delmarva
Financing.
Payments made in respect of, and proceeds from the sale of, Preferred
Securities (or Subordinated Debentures distributed to holders of Preferred
Securities) may be subject to "backup" withholding tax of 31% unless the
holder complies with certain identification requirements or fails to report
in full dividend and interest income. Any withheld amounts will be allowed
as a refund or a credit against the holder's United States federal income
tax liability, provided the required information is provided to the
Internal Revenue Service.
These information reporting and backup withholding tax rules are
subject to temporary Treasury Regulations. Accordingly, the application of
such rules to the Preferred Securities could be changed.
VALIDITY OF THE SECURITIES
Certain matters of Delaware law relating to the validity of the
Preferred Securities, the enforceability of the Trust Agreement and the
formation of Delmarva Financing are being passed upon by Richards, Layton &
Finger, Special Delaware counsel for the Company and Delmarva Financing.
The validity of the Guarantee and the Subordinated Debentures will be
passed upon for the Company by Dale G. Stoodley, General Counsel for the
Company, and for the Underwriters by Reid & Priest LLP. Reid & Priest LLP
may rely as to matters of all laws, other than New York and federal laws,
upon the opinion of Mr. Stoodley. Mr. Stoodley may rely as to matters of
Virginia law upon the opinion of Peter F. Clark, Assistant General Counsel
for the Company, and as to matters of New York law upon the opinion of Reid
& Priest LLP. From time to time, Reid & Priest LLP has represented the
Company with respect to matters unrelated to the Preferred Securities.
R. Franklin Balotti, a director for the Company, is a member of the
law firm of Richards, Layton & Finger, the Special Delaware counsel.
However, Mr. Balotti is not directly involved with the transactions
described herein, other than in his role as a director for the Company.
As of June 20, 1996, Mr. Stoodley held, in the form of stock and share
equivalents in the Company's employee benefit plans, approximately 2,830
shares of the Company's Common Stock and had been granted 4,050 performance
shares as to which full rights will not vest, if at all, until a future
date. On such date, Mr. Stoodley's shares, including the performance
shares, had a fair market value of approximately $139,320.00. As of June
20, 1996, Mr. Clark held, in the form of stock and share equivalents in the
Company's employee benefit plans, approximately 1,293 shares of the
Company's Common Stock and had been granted 1,930 performance shares as to
which full rights will not vest, if at all, until a future date. On such
date, Mr. Clark's shares, including the performance shares, had a fair
market value of approximately $65,265.75.
EXPERTS
The consolidated financial statements incorporated by reference in
this Prospectus from the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as indicated in their report with respect thereto,
and are incorporated by reference herein in reliance upon such report given
upon the authority of that firm as experts in accounting and auditing.
Dale G. Stoodley, General Counsel for the Company, has reviewed the
statements as to matters of law and legal conclusions under "Description of
the Preferred Securities," "Description of the Guarantee" and "Description
of the Subordinated Debentures" and in the Incorporated Documents and such
statements are included herein and therein upon his authority as an expert.
Statements as to United States federal income taxation under "Certain
United States Federal Income Tax Consequences" herein have been passed upon
for the Company and Delmarva Financing by Reid & Priest LLP, special tax
counsel to the Company.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement dated the date hereof, each of the Underwriters
named below for whom Morgan Stanley & Co. Incorporated and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Smith Barney Inc., Dean Witter
Reynolds Inc., PaineWebber Incorporated and Prudential Securities
Incorporated are acting as representatives (the "Representatives") has
severally agreed to purchase, and Delmarva Financing has agreed to sell
to each of the Underwriters, severally, the respective number of
Preferred Securities set opposite its name below:
NUMBER OF
PREFERRED
UNDERWRITERS SECURITIES
------------ ----------
Morgan Stanley & Co. Incorporated . . . 467,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . 466,600
Smith Barney Inc. . . . . . . . . . . . 466,600
Dean Witter Reynolds Inc. . . . . . . . 466,600
PaineWebber Incorporated . . . . . . . 466,600
Prudential Securities Incorporated. . . 466,600
---------
Total . . . . . . . . . . . . . . . 2,800,000
=========
The Underwriting Agreement provides that the several obligations of
the Underwriters to pay for and accept delivery of the Preferred Securities
are subject to the approval of certain legal matters by their counsel and
to certain other conditions. In the Underwriting Agreement, the several
Underwriters have agreed, subject to the terms and conditions set forth
therein, to purchase all the Preferred Securities offered hereby if any of
the Preferred Securities are purchased. In the event of default by an
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters
may be increased or Underwriting Agreement may be terminated.
The Underwriters initially propose to offer all or part of the
Preferred Securities directly to the public at the price to public set
forth on the cover page of this Prospectus, and all or part to certain
dealers at a price that represents a concession not in excess of $.50 per
Preferred Security. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $.30 per Preferred Security to
certain other dealers. After the initial offering of the Preferred
Securities, the offering price and other selling terms may from time to
time be varied by the Representatives.
Because the proceeds of the sale of the Preferred Securities will
ultimately be used to purchase the Subordinated Debentures, the
Underwriting Agreement provides that the Company will pay to the
Underwriters as compensation for their services, $.7875 per Preferred
Security (or $2,205,000 in the aggregate); provided that such
compensation will be $.50 per Preferred Security sold to certain
institutions.
Prior to this offering, there has been no public market for the
Preferred Securities. Application has been made to list the Preferred
Securities on the NYSE. Listing is contingent upon meeting the
requirements of the NYSE, including those relating to distribution. In
order to meet one such requirement, the Underwriters have undertaken to
sell lots of 100 or more Preferred Securities to a minimum of 400
beneficial holders. Trading of the Preferred Securities on the NYSE is
expected to commence within a 30-day period after the date of this
Prospectus. The Underwriters have advised Delmarva Financing that they
intend to make a market in the Preferred Securities prior to the
commencement of trading on the NYSE. The Underwriters will have no
obligation to make a market in the Preferred Securities, however, and may
cease market making activities, if commenced, at any time.
Delmarva Financing and the Company have agreed to indemnify the
Underwriters against or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities
under the 1933 Act.
