AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1996
REGISTRATION NOS. 333-07281 333-07281-01
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
DELMARVA POWER & LIGHT COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE AND VIRGINIA 51-0084283
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
DELMARVA POWER FINANCING I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------
DELAWARE TO BE APPLIED FOR
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
800 KING STREET
P.O. BOX 231
WILMINGTON, DELAWARE 19899
(302) 429-3011
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BARBARA S. GRAHAM
SENIOR VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER
800 KING STREET
P.O. BOX 231
WILMINGTON, DELAWARE 19899
(302) 429-3448
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
--------------
IT IS RESPECTFULLY REQUESTED THAT THE COMMISSION SEND COPIES OF ALL NOTICES,
ORDERS AND COMMUNICATIONS TO:
ROBERT G. SCHUUR, ESQ.
REID & PRIEST LLP
40 WEST 57TH STREET
NEW YORK, NEW YORK 10019
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion, Issued , 1996 )
2,800,000 Preferred Securities
Delmarva Power Financing I
% 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 % 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 of Delmarva Financing. Delmarva Financing exists for the sole
purpose of issuing the Preferred Securities and the Common Securities and
investing the proceeds thereof in % Junior Subordinated Debentures, Series I,
Due , 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 7, 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 FEDERAL INCOME TAX CONSEQUENCES.
----------
APPLICATION WILL BE 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.
----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND DELMARVA
PUBLIC(1) COMMISSIONS(2) FINANCING(3)(4)
----------- -------------- ---------------
<S> <C> <C> <C>
Per Preferred Security.............. $25.00 (3) $25.00
Total............................... $70,000,000 (3) $70,000,000
</TABLE>
- -----
(1) Plus accrued distributions, if any, from , 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. 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, $ per Preferred
Security (or $ in the aggregate); provided that such compensation will
be $ 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 , 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
, 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
, 1996, at the per annum rate of % 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, however, that any
such Extension Period may not extend beyond the maturity of the Subordinated
Debentures. 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.
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, interest on the Subordinated Debentures will
continue to accrue. 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 % (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 Subordinated Debentures--Option to Extend Interest Payment
Period" 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
subordinate and junior in right of payment to Senior Indebtedness (as defined
herein) 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 obligations of
the Company with respect to the Preferred Securities under the Indenture, the
Trust Agreement (each as defined herein) and the Expense Agreement, constitute
a full and unconditional guarantee of the Preferred Securities by the Company.
The Preferred Securities are subject to mandatory redemption upon repayment
of the Subordinated Debentures at maturity or upon their earlier redemption.
See "Description of the Preferred Securities--Redemption Procedures." The
Company will have the option at any time
<PAGE>
(cover continued)
on or after , 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 herein), (i) to redeem the
Subordinated Debentures, in whole but not in part, which will result in the
redemption of all 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 Preferred
Securities and the Common Securities. 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 New York
Stock Exchange or on such other exchange as the Preferred Securities then are
listed. See "Description of the Preferred Securities--Special Event Redemption
or Distribution" and "Description of the Subordinated Debentures." 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"). Each class of the Trust
Securities will be redeemed in proportion to the percentage they represent of
all the Trust Securities. See "Description of the Subordinated Debentures--
Optional Redemption."
The Subordinated Debentures are 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 March 31, 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" and "Description
of the Preferred Securities."
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 Preferred Security or
(ii) a liquidation amount of $25 per Preferred 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 global certificates
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 certificates.
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION....................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 2
SUMMARY INFORMATION......................................................... 3
CERTAIN CONSOLIDATED FINANCIAL INFORMATION OF DELMARVA POWER & LIGHT
COMPANY.................................................................. 5
RISK FACTORS................................................................ 7
THE COMPANY................................................................. 11
DELMARVA FINANCING.......................................................... 11
USE OF PROCEEDS............................................................. 12
DESCRIPTION OF THE PREFERRED SECURITIES..................................... 12
DESCRIPTION OF THE GUARANTEE................................................ 21
DESCRIPTION OF THE SUBORDINATED DEBENTURES.................................. 23
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES....................... 31
VALIDITY OF THE SECURITIES.................................................. 34
EXPERTS..................................................................... 34
UNDERWRITING................................................................ 35
</TABLE>
<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 New York and Philadelphia Stock Exchanges, 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. 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.
See "Description of the Subordinated Debentures -- Additional Interest" and
"Description of the Guarantee -- Events of Default."
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 quarter ended
March 31, 1996;
3. The Company's Current Reports on Form 8-K dated February 22, 1996 and
May 26, 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.
-2-
<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 are undivided preferred beneficial interests in the
assets of Delmarva Financing and will have a preference, under certain
circumstances, with respect to cash Distributions and amounts payable on
liquidation, redemption or otherwise over the trust interests represented by the
Common Securities issued by Delmarva Financing. The sole assets of Delmarva
Financing will be the Subordinated Debentures.
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 _____________, 1996, at the per annum rate of ____% of the
liquidation amount thereof 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. The
Subordinated Debentures are unsecured subordinated debt securities issued under
an Indenture, dated as of ______________, 1996, between the Company and
Wilmington Trust Company, as Trustee (the "Indenture"). Delmarva Financing will
use interest payments on the Subordinated Debentures to make Distributions on
the Preferred Securities. The Subordinated Debentures will be subordinate to
all Senior Indebtedness of the Company but will be senior to all capital stock
of the Company.
Opinion 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, interest on the Subordinated Debentures will
continue to accrue. 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 ____% (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. 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
Distribution that would occur but for such election or (ii) the date the Company
is required to give notice to the New York Stock Exchange ("NYSE") or other
applicable self-regulatory organization of such record date and will cause
Delmarva Financing to send notice of such election to the Holders of Preferred
Securities.
Redemption
The Subordinated Debentures are redeemable, in whole or in part, on or after
________________, or at any time, in whole but not in part, upon the occurrence
of a Special Event and in certain other circumstances, at the option of the
Company. Upon redemption of the Subordinated Debentures, the Preferred
Securities and the Common Securities will be redeemed on a pro rata basis to the
same extent as the Subordinated Debentures are redeemed. See "Description of
the Subordinated Debentures -- Optional Redemption" and "Description of the
Preferred Securities -- Redemption Procedures."
No sinking fund will be established for the benefit of the Preferred
Securities.
Special Event Redemption or Termination
Upon the occurrence and during the continuation of a Special Event, the
Company may elect (i) to redeem the Subordinated Debentures at any time, in
whole but not in part, in which event all of the Trust Securities will be
redeemed or (ii) to cause the termination of Delmarva Financing, subject, in the
case of a Tax Event, to receipt of a No Recognition Opinion. In the event of a
termination, after the satisfaction of all amounts due to creditors of Delmarva
Financing, if any, the Subordinated Debentures will be distributed to the
Holders of the Preferred Securities and the Common 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
-3-
<PAGE>
on The New York Stock Exchange 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 on the Preferred Securities and payments on the
liquidation of Delmarva Financing and the redemption of Preferred Securities are
guaranteed by the Company if and to the extent that Delmarva Financing has funds
available therefor. See "Description of the Preferred Securities -- Guarantee."
Listing
Application will be 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 redeem or otherwise retire other
outstanding securities of the Company, including shares of preferred stock
tendered in connection with the Company's Offer to Purchase commenced
August 22, 1996, to the extent that it shall be economic to do so, and for
other general corporate purposes. To the extent the proceeds are not
immediately so used, they may be invested temporarily in short-term interest-
bearing obligations.
-4-
<PAGE>
CERTAIN CONSOLIDATED FINANCIAL INFORMATION OF DELMARVA POWER & LIGHT COMPANY
(Thousands, except per share amounts, ratios and percentages)
<TABLE>
<CAPTION>
Twelve
Months
Ended
March 31, Year Ended December 31, (1)
------------- -----------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------------- ------------ ------------ ----------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Income Summary:
Operating Revenues........................ $1,030,133 $995,103 $991,021 $970,607 $864,044 $855,821
Net Income................................ 117,224 117,488 108,310(2) 111,076 98,526(3) 93,236
Earnings Applicable to Common
Stock................................... 107,360 107,546 98,940(2) 101,074 90,177(3) 85,259
Earnings per share of Common
Stock................................... $1.78 $1.79 $1.67(2) $1.76 $1.69(3) $1.69(4)
Ratio of Earnings to Fixed
Charges (5)............................. 3.46 3.54 3.49 3.47 3.03 2.58
Ratio of Earnings to Fixed
Charges and Preferred Dividends
(5)...................................... 2.88 2.92 2.85 2.88 2.51 2.24
</TABLE>
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------------------------
Unaudited
Actual As Adjusted (6)
------------------------ ------------------------
Outstanding Ratio Outstanding Ratio
-------------- --------- --------------- --------
<S> <C> <C> <C> <C>
Capitalization Summary:
Common Stockholders' Equity................................................. $931,844 45.7% $931,844 45.7%
Preferred Stock -
Not Subject to Mandatory Redemption...................................... 168,085 8.2% 98,085 4.8%
Company Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trust (7)................................................. -- 0.0% 70,000 3.4%
Long-Term Debt (8).......................................................... 940,085 46.1% 940,085 46.1%
-------------- --------- --------------- --------
Total Capitalization........................................................... $2,040,014 100.0% $2,040,014 100.0%
============== ========= =============== ========
- -----------------------------------------------------------------
</TABLE>
(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.
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(7) As described in this Prospectus, all of the assets of Delmarva Financing
will be approximately $72 million of ___% Subordinated Debentures of the
Company.
(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.
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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 issued by the Company for the
benefit of the Holders of the Preferred Securities 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. The obligations of the Company under the Subordinated Debentures are
subordinate and junior in right of payment to Senior Indebtedness of the
Company. As of March 31, 1996, Senior Indebtedness of the Company aggregated
approximately $1.0 billion. There are no terms of the Preferred Securities, the
Subordinated Debentures or the Guarantee that limit the Company's ability to
incur additional indebtedness, including indebtedness that would rank senior to
the Subordinated Debentures and the Guarantee. See "Description of the
Guarantee -- Status of the Guarantee" and "Description of the Subordinated
Debentures -- Subordination."
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, however, that no Extension Period may extend beyond the maturity of
the Subordinated Debentures. 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, as defined herein)
or make any guarantee payment with respect to such indebtedness. During an
Extension Period, interest on the Subordinated Debentures will continue to
accrue. 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 ____% (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 Considerations --
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
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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; Potential Adverse Effect on Market
Price
Upon the occurrence and continuation of a Special Event, the Company has
the right to (i) redeem the Subordinated Debentures, in whole but not in part,
and therefore cause a mandatory redemption of all the Preferred 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 in a Like Amount to be
distributed to the Holders of Trust Securities within 90 days following the
occurrence of such Special Event. There can be no assurance as to the market
prices for the Subordinated Debentures which may be distributed in exchange for
Preferred Securities if a termination and liquidation of Delmarva Financing were
to occur. Accordingly, such Subordinated Debentures could, if distributed,
trade at a discount to the price of the Preferred Securities exchanged. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution" and "Certain United States Federal Income Tax Consequences."
Possible Tax Law Changes
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 would, among other things, generally 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." Accordingly, there can
be no assurance that a Special Event will not occur.
There can be no assurance as to the market prices for Preferred Securities
or Subordinated Debentures that may be distributed in exchange for Preferred
Securities if a dissolution or liquidation of Delmarva Financing were to occur.
Accordingly, the Preferred Securities that an investor may purchase, whether
pursuant to the offer made hereby or in the secondary market, or 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 -- General."
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Rights Under the Guarantee; Limitation as to Funds Available to Delmarva
Financing
The Guarantee will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). Wilmington Trust Company
will act as indenture trustee under the Guarantee for the purposes 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.
Wilmington Trust Company also will act as trustee for the Subordinated
Debentures (the "Debenture Trustee") and as Property Trustee under the Trust
Agreement.
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 funds available therefor, (ii)
the Redemption Price with respect to Preferred Securities called for redemption
by Delmarva Financing, to the extent Delmarva Financing has 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. The Holders of not
less than a majority in aggregate 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 or to direct the exercise of
any trust 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. 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. 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.
Notwithstanding the foregoing, a Holder of Preferred Securities may directly
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.
See "Description of the Guarantee -- Status of the Guarantee" and "Description
of the Subordinated Debentures -- Subordination" herein. The Trust Agreement
pursuant to which Delmarva Financing has been formed provides that each Holder
of Preferred Securities by acceptance thereof agrees to the provisions of the
Guarantee and the Indenture.
The Preferred Securities are subject to mandatory redemption upon repayment
of the Subordinated Debentures at maturity or upon their earlier redemption.
See "Description of the Preferred Securities -- Redemption Procedures." The
Company will have the option at any time on or after _______________ upon not
less than 30 days' notice, to redeem the Subordinated Debentures, in whole or in
part.
Limited Voting Rights
Holders of Preferred Securities generally will have limited voting rights
relating only to the modification of the Preferred Securities and the
dissolution, winding-up or termination of Delmarva Financing. 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 herein) 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" and "-- Co-Trustees and Separate Property Trustees."
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Trading Characteristics of Preferred Securities
The Preferred Securities constitute a new issue of securities with no
established trading market. Accordingly, no assurance can be given as to the
liquidity of, or the development and maintenance of trading markets for, the
Preferred Securities. 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."
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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 436,000 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 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"), of
such trust (the "Original Trust Agreement") and (ii) the filing of a 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.
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 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 that upon the occurrence and continuance of a default under
the Indenture, the rights of the Holders of the Common Securities to payment in
respect of Distributions and payments upon liquidation, redemption and otherwise
will be subordinated to the rights of the Holders of the Preferred Securities.
The Company will acquire Common Securities having an aggregate liquidation
amount equal to 3% of the total capital of Delmarva Financing. 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.
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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 redeem or otherwise retire other
outstanding securities of the Company, including shares of preferred stock
tendered in connection with the Company's Offer to Purchase commenced
August 22, 1996, to the extent that it shall be economic to do so, and for
other general corporate purposes. 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
Delmarva Financing was authorized and created by the Original Trust Agreement.
The Preferred Securities and the Common Securities will be created pursuant to
the terms of the Trust Agreement. The Preferred Securities will represent
undivided beneficial interests in the assets of Delmarva Financing and entitle
the Holders thereof to a preference over the Common Securities in certain
circumstances with respect to Distributions and amounts payable on redemption or
liquidation, as well as other benefits as described in the Trust Agreement. The
following summaries of certain provisions of 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
All of the Common Securities 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 based on the liquidation amount of the Trust
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 a rate
per annum of ____% of the stated liquidation amount thereof. 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 of ____% (to the
extent permitted by applicable law, compounded quarterly).
Distributions on the Preferred Securities will be cumulative, will accrue from
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
______________, except as otherwise described below. Such Distributions will
originally accrue from, and include, the date of initial issuance and will
accrue to, and include, the first distribution payment date (as defined below),
and thereafter will accrue from, and exclude, the last distribution payment date
through which Distributions have been paid. 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 (and without any interest or other payment in
respect of any such delay) 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
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remain closed and (iii) a day on which the Corporate Trust Office of the
Property Trustee or the Debenture Trustee is closed for business.
The Company has the right under the Indenture pursuant to which it will issue
the Subordinated Debentures to extend the interest payment period at any time or
from time to time on the Subordinated Debentures to a period not exceeding 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 above,
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 the foregoing. 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 may not exceed 20
consecutive quarters and that such Extension Period may not 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 Extension Period and the payment of all amounts then due,
the Company may select a new Extension Period, subject to the foregoing
requirements. See "Description of the Subordinated Debentures -- Interest" and
"-- Option to Extend Interest Payment Period."
It is anticipated that the income of Delmarva Financing available for
Distributions to the Holders of the Preferred Securities will be limited to
payments received on the Subordinated Debentures. See "Description of the
Subordinated Debentures." If the Company does not make interest payments on the
Subordinated Debentures, the Property Trustee will not have funds available to
pay Distributions on the Preferred Securities and the Common Securities. The
payment of Distributions (if and to the extent Delmarva Financing has sufficient
funds available for the payment of such Distributions) is guaranteed by the
Company as set forth herein under "Descriptions of the Guarantee."
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, which as long as the Preferred Securities remain 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."
The Subordinated Debentures will mature on _______________, and are redeemable
at the option of the Company (i) in whole or in part, on or after
_______________, or (ii) at any time, in whole but not in part, upon the
occurrence of a Tax Event or an Investment Company Event (each, as defined
below, a "Special Event"), subject to the conditions described under
"Description of the Subordinated Debentures -- Optional Redemption."
Special Event Redemption or Distribution
If a Special Event shall occur and be continuing with respect to the Preferred
Securities, the Company has the right to (i) redeem the Subordinated Debentures
in whole, but not in part, and therefore cause a mandatory redemption of all the
Preferred Securities at the Redemption Price within 90 days following the
occurrence of such
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Special Event, or (ii) cause the termination of Delmarva Financing and in
connection therewith, after satisfaction of all amounts due to Delmarva
Financing creditors, if any, cause Subordinated Debentures in a Like Amount to
be distributed to the Holders of the Trust Securities within 90 days following
the occurrence of such Special Event; provided, however, 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 below) will be payable on the Subordinated
Debentures.
"Like Amount" means (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.
"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, deductible by
the Company, in whole or in part, 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.
"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.
On March 19, 1996, the Revenue Bill was released. The Revenue Bill would,
among other things, generally 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, which in turn
could give rise to a Tax Event. Accordingly, there can be no assurance that a
Special Event will not occur.
On the date fixed for the distribution of Subordinated Debentures upon
termination of Delmarva Financing (i) the Preferred Securities and the Common
Securities no longer will be deemed to be outstanding and (ii) all rights
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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).
There can be no assurance as to the market price for the Subordinated
Debentures which may be distributed in exchange for Preferred Securities upon
the termination of Delmarva Financing. Accordingly, such Subordinated
Debentures might trade at a discount to the price of the Preferred Securities
exchanged. 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
The Company may not redeem fewer than all the Subordinated Debentures (with
the result that Delmarva Financing may not redeem fewer than all the outstanding
Preferred Securities) unless all accrued and unpaid interest has been paid on
all Subordinated Debentures for all quarterly interest periods terminating on or
prior to the date of redemption or if a partial redemption of the Preferred
Securities would result in the delisting of the Preferred Securities by any
national securities exchange on which the Preferred Securities then are listed.
Preferred Securities redeemed on each Redemption Date 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, Delmarva Financing
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)).
Subject to applicable law (including, without limitation, United States
federal securities law), the Company may at any time and from time to time
purchase outstanding Preferred Securities by tender, in the open market or by
private agreement.
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 security 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(f)).
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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, however, that if on any Distribution payment date or
Redemption Date an Event of Default under the Indenture (as described below, see
"Events of Default; Notice") under the Trust Agreement 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 under the Trust Agreement resulting from an
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 under the
Trust Agreement 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 under such Trust Agreement 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 an Event of Default has occurred and is
continuing under the Indenture, the Preferred Securities shall have a preference
over the Common Securities. (Sections 9.04(a), (d) 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 an Event of Default under the Indenture (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
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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.
Within five Business Days after the occurrence of any Event of Default, the
Property Trustee shall transmit to the Holders of Trust Securities 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)).
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.
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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.
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
"Description of the Preferred Securities -- 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
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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, however, 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. 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. (Section 6.01(b)). 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.
No vote or consent of the Holders of Preferred Securities will be required for
Delmarva Financing to redeem and cancel Preferred Securities in accordance with
the Trust Agreement.
Notwithstanding that Holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned by the Company, the Property Trustee or any affiliate
of the Company or the Property Trustee, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
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, however, 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 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 or (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)).
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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).
Form, Exchange, and Transfer
Preferred Securities will be issuable only in fully registered form, each
having a liquidation amount of $25 and any integral multiple thereof.
At the option of the Holder, subject to the terms of the Trust Agreement,
Preferred Securities will be exchangeable for other Preferred Securities, of any
authorized denomination and of like tenor and aggregate liquidation amount.
Subject to the terms of the Trust Agreement, 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. The Administrative Trustees
may designate the Company as Transfer Agent and as Registrar. Initially,
Wilmington Trust Company will act as Registrar and Transfer Agent for the
Preferred Securities.
No service charge will be made for any registration of transfer or exchange of
Preferred Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
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 5.04).
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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 under the Guarantee and the
Debenture Trustee under the Indenture.
Miscellaneous
Application will be 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. See "Events of Default; Notice." The Administrative Trustees will
administer the day-to-day operations of Delmarva Financing. See "Voting
Rights."
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
Set forth below is a summary of information concerning the Guarantee that will
be executed and delivered by the Company for the benefit of the Holders from
time to time of Preferred Securities. The Guarantee will be qualified as an
indenture under the Trust Indenture Act. Wilmington Trust Company will act as
Guarantee Trustee under the Guarantee for the purposes of compliance with the
Trust Indenture Act. The terms of the Guarantee will be those set forth in such
Guarantee and those made part of such Guarantee by the Trust Indenture Act. The
summary 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,
which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, and the Trust Indenture Act. The Guarantee Trustee
will hold the Guarantee for the benefit of the Holders of the Preferred
Securities.
General
The Company will agree fully and unconditionally to the extent set forth
herein, to pay the Guarantee Payments (as defined herein) 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, 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, 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
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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 all liabilities 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
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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 (i) subordinate and junior in right of payment to all liabilities of the
Company (except liabilities that may be made pari passu by their terms), (ii)
pari passu with the most senior preferred or preference stock now or hereafter
issued by the Company and with any guarantee now or hereafter entered into by
the Company in respect of any preferred or preference stock of any affiliate of
the Company and (iii) senior to the Company's Common Stock. The Trust Agreement
provides that each Holder of Preferred Securities by acceptance thereof agrees
to the subordination provisions and other terms of the Guarantee. (Section
6.01).
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
Set forth below is a description of the specific terms of the Subordinated
Debentures which Delmarva Financing will hold as trust assets. The following
description does not purport to be complete and is qualified in its entirety by
reference to the Indenture between the Company and the Debenture Trustee with
respect to the Subordinated Debentures, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Whenever
particular provisions or defined terms in the Indenture are referred to herein,
such provisions or defined terms are incorporated by reference herein. Section
references used herein are references to provisions of the Indenture unless
otherwise noted.
The Indenture provides for the issuance of 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.
General
The Subordinated Debentures will be limited in aggregate principal amount to
the sum of the aggregate liquidation amount of the Preferred Securities and the
consideration paid by the Company for the Common Securities and will have terms
similar to the terms of the Preferred 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 (as defined herein), if any, on
___________________. 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.
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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 ________________, the Company will have the right, 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
right 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 Preferred Securities and Common 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 of ____% per
annum. Such interest is payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year (each, an "Interest Payment Date"),
commencing ______________, 1996, to the person in whose name each Subordinated
Debenture is registered, by the close of business on the Business Day 15 days
preceding such Interest Payment Date. It is anticipated that Delmarva Financing
will be the sole Holder of the Subordinated Debentures.
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 (and without any
interest or other payment in respect of any such delay), 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
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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
herein), 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. 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).
It is possible that for United States federal income tax purposes any deposit
contemplated in the preceding paragraph could be treated as a taxable exchange
of the Subordinated Debentures outstanding for an issue of obligations of
Delmarva Financing or a direct interest in the cash and securities held by
Delmarva Financing. In that case, Holders of the Subordinated Debentures
outstanding would recognize a gain or loss for federal income tax purposes, as
if their share of Delmarva Financing obligations or the cash or securities
deposited, as the case may be, had actually been received by them in exchange
for their Subordinated Debentures. In addition, such Holders thereafter would
be required to include in income a share of the income, gain or loss of Delmarva
Financing. The amount so required to be included in income could be different
from the amount that would be includable in the absence of such deposit.
Prospective investors are urged to consult their own tax advisors as to the
specific consequences to them of any such deposit.
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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, however, that the Company's
obligations under the Guarantee shall not be deemed to be Senior Indebtedness.
(Section 101).
The Indenture does not limit the aggregate amount of Senior Indebtedness that
may be issued. As of March 31, 1996, the Company had approximately $1.0 billion
principal amount of indebtedness for borrowed money constituting Senior
Indebtedness.
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 an Officer's Certificate
and an Opinion of Counsel as provided in 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
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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 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
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(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, however, 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 (a "Direct Action") after the respective due dates specified in the
Subordinated Debentures. In connection with such Direct Action, 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 Direct
Action.
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
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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, however, 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
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<PAGE>
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).
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<PAGE>
Notices
Notices to Holders of Debt Securities will be given by mail to the addresses
of such Holders as they may appear in the security register therefor.
Title
The Company, the Debenture Trustee, and any agent of the Company or the
Debenture Trustee, may treat the person in whose name Debt Securities are
registered as the absolute owner thereof (whether or not such Debt Securities
may be overdue) for the purpose of making payments and for all other purposes
irrespective of notice to the contrary.
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 herein) 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 (the "Code"), 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.
-31-
<PAGE>
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 would, among other
things, generally 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
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<PAGE>
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
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<PAGE>
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, 40 West 57th Street, New York, New York. 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 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.
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<PAGE>
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 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:
<TABLE>
<CAPTION>
Number of
Underwriters Preferred Securities
------------ --------------------
<S> <C>
Morgan Stanley & Co. Incorporated...................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................
------------
Total............................................ ============
</TABLE>
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 $ per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ 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, $ per Preferred Security (or $ in the aggregate); provided that
such compensation will be $ per Preferred Security sold to certain
institutions.
Prior to this offering, there has been no public market for the Preferred
Securities. Application will be made to list the Preferred Securities on the
NYSE. Listing is contingent upon meeting the requirements of the New York Stock
Exchange, 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 Securities Act of 1933, as amended.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to
Registration Statement No. 333-07281 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilmington, State of
Delaware, on August 22, 1996.
DELMARVA POWER & LIGHT COMPANY
(Registrant)
By /s/ B.S. Graham
-------------------------------------
(B.S. Graham, Senior Vice President,
Treasurer and Chief Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
H.E. Cosgrove Chairman of the Board,
President, Chief Executive
Officer and Director
(Principal Executive Officer)
By: /s/ B.S. Graham August 22, 1996
-------------------------
(B.S. Graham,
Attorney in Fact)
/s/ B.S. Graham Senior Vice President, August 22, 1996
- ---------------------------- Treasurer and Chief
(B.S. Graham) Financial Officer
(Principal Financial Officer)
James P. Lavin Comptroller and Chief
Accounting Officer
(Principal Accounting Officer)
By: /s/ B.S. Graham August 22, 1996
-------------------------
(B.S. Graham,
Attorney in Fact)
II-1
<PAGE>
Directors
- ---------
Michael G. Abercrombie, R. Franklin Balotti, Robert D. Burris,
Audrey K. Doberstein, Michael B. Emery, James H. Gilliam, Jr.,
James C. Johnson, III
By: /s/ B.S. Graham August 22, 1996
-------------------------
(B.S. Graham,
Attorney in Fact)
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
to Registration Statement No. 333-07281-01 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilmington, State of
Delaware, on August 22, 1996.
Delmarva Power Financing I
By: /s/ B.S. Graham
-------------------------------------
(B.S. Graham, Administrative Trustee)
II-3
