<PAGE> 1
Filed Pursuant to Rule 424B2
Registration No. 333-24059
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 12, 1997)
$75,000,000
DELMARVA POWER & LIGHT COMPANY
MEDIUM TERM NOTES, SERIES C
DUE FROM 9 MONTHS TO 40 YEARS FROM DATE OF ISSUANCE
------------------------
Delmarva Power & Light Company (the "Company") may offer from time to time
up to $75,000,000 aggregate principal amount of unsecured Medium Term Notes,
Series C (the "New Notes").
The principal amount or amounts, the offering price or prices, the date or
dates of maturity, the interest rate or rates, the interest accrual date or
dates, the interest payment dates, any sinking fund or other redemption
provisions and other material terms of the new Notes will be established from
time to time and will be set forth in supplements hereto ("Pricing
Supplements").
The New Notes will be represented by global securities registered in the
name of a nominee of The Depository Trust Company, as depository. Interests in
the global securities will be shown on, and transfers thereof will be effected
only through, records maintained by The Depository Trust Company (with respect
to its participants' interests) and by its participants or persons that hold
through such participants (with respect to the interest of persons other than
such participants). Except under the circumstances described herein,
certificated securities will not be issued in exchange for global securities.
For further information relating to the New Notes, see "Description of the
New Notes" and "Book-Entry System" in the accompanying Prospectus, and the
applicable Pricing Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR 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 SUPPLEMENT, THE PROSPECTUS OR ANY
SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================================
PRICE TO AGENTS' DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSION(2) THE COMPANY(2)(3)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per New Note....................... 100% .125%-.750% 99.875%-99.250%
- ------------------------------------------------------------------------------------------------------------------------
Total.............................. $75,000,000 $93,750-$562,500 $74,906,250-$74,437,500
========================================================================================================================
</TABLE>
(1) Unless otherwise specified in the applicable Pricing Supplement, the New
Notes will be issued at 100% of their principal amount.
(2) The commission payable to an Agent (as hereinafter defined) for each New
Note sold through such Agent, as agent, shall range from .125% to .750% of
the principal amount of such New Note, depending upon maturity (except that
the Company and such Agent may agree to a higher commission for maturities
in excess of 30 years). The Company may also sell New Notes to an Agent, as
principal, for resale to investors or other purchasers. Unless otherwise
specified in the applicable Pricing Supplement, a New Note sold to an Agent
as principal will be purchased by such Agent at a price equal to 100% of the
principal amount thereof less a percentage equal to the commission
applicable to an agency sale of a New Note of identical maturity and may be
resold by such Agent. The Company may also sell New Notes directly to
investors. No commission will be payable on any sales made directly by the
Company. The Company has agreed to indemnify the Agents against certain
liabilities under the Securities Act of 1933 (the "Act").
(3) Assuming New Notes are issued at 100% of their principal amount and before
deducting expenses payable by the Company estimated at $55,000, including
reimbursement of certain expenses of the Agents.
------------------------
Offers to purchase the New Notes may be solicited from time to time by
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Morgan Stanley & Co. Incorporated (individually, an "Agent" and collectively,
the "Agents"), on behalf of the Company. The Agents have agreed to use best
efforts to solicit purchases of the New Notes. The Company may sell New Notes to
an Agent acting as principal for its own account for resale to one or more
investors and other purchasers at varying prices related to prevailing market
prices at the time of resale or otherwise to be determined by such Agent. The
Company also may sell the New Notes directly to investors for their own
accounts. The Company or an Agent may reject any offer in whole or in part. The
New Notes will not be listed on any securities exchange. There can be no
assurance that all of the New Notes offered hereby will be sold or that there
will be a secondary market for the New Notes. See "Plan of Distribution" herein.
------------------------
MERRILL LYNCH & CO. MORGAN STANLEY DEAN WITTER
------------------------
The date of this Prospectus Supplement is October 15, 1997.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE AGENTS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY
BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
PLAN OF DISTRIBUTION
The New Notes are being offered on a continuing basis by the Company
through the Agents, which have agreed to use best efforts to solicit offers to
purchase New Notes. The Company may appoint additional agents to solicit offers
to purchase the New Notes, provided that any such solicitation and sale shall be
on the same terms and conditions as those to which the Agents have agreed. The
Company will have the sole right to accept offers to purchase New Notes and may
reject any offer in whole or in part. Payment of the purchase price of the New
Notes will be required to be made in immediately available funds. The Company
will pay an Agent, in connection with the sale of New Notes through such Agent,
a commission ranging from .125% to .750% of the principal amount of New Notes to
be sold, depending upon the maturity of the New Notes (except that the Company
and such Agent may agree to a higher commission for maturities in excess of 30
years).
The Company may also sell New Notes to an Agent, as principal, for its own
account at a discount to be agreed upon at the time of sale. Such New Notes may
be resold to investors and other purchasers at prevailing market prices, or
prices related thereto at the time of such resale or otherwise, as determined by
the Agent. In addition, the Agents may offer the New Notes they have purchased
as principal to dealers at a discount which, unless otherwise specified in the
applicable Pricing Supplement, will not be in excess of the discount to be
received by such Agent from the Company. Unless otherwise specified in the
applicable Pricing Supplement, any New Notes sold to any Agent, as principal,
will be purchased by such Agent at a price equal to 100% of the principal amount
thereof less a percentage equal to the commission applicable to any agency sale
of New Notes of identical maturity, and may be resold by the Agent to investors
and other purchasers as described above. After the initial public offering of
New Notes to be resold to investors and other purchasers, the public offering
price (in the case of New Notes to be resold at a fixed public offering price),
concession and discount may be changed.
The Company also may sell New Notes directly to investors. No commission
will be payable in connection with any sales made directly by the Company.
An Agent may be deemed to be an "underwriter" within the meaning of the
Act. The Company and the Agents have agreed to indemnify each other against
certain liabilities, including liabilities under the Act, or to contribute to
payments made in respect thereof. The Company may also agree to reimburse the
Agents for certain expenses.
The Company does not intend to apply for the listing of the New Notes on a
national securities exchange. No assurance can be given as to the liquidity of
any trading market for the New Notes.
Concurrently with the offering of the New Notes through Agents, the Company
may issue other debt securities pursuant to the Indenture and the Mortgage (each
as defined in the accompanying prospectus).
In connection with the offering, the Agents may purchase and sell the Notes
in the open market. These transactions may include overallotment and stabilizing
transactions and purchases to cover short positions credited by the Agents in
connection with the offering. The Agents also may impose a penalty bid, whereby
selling concessions allowed to broker-dealers in respect of the securities sold
in the offering may be reclaimed by the Agents if such Notes are repurchased by
the Agents in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Notes, which may
be higher than the price that might otherwise prevail in the open market; and
these activities, if commenced, may be discontinued at any time.
S-2
<PAGE> 3
PROSPECTUS
$250,000,000
DELMARVA POWER & LIGHT COMPANY
COMMON STOCK
PREFERRED STOCK
MEDIUM TERM NOTES
FIRST MORTGAGE BONDS (SECURED MEDIUM-TERM NOTES)
------------------------
Delmarva Power & Light Company (the "Company") may offer from time to time
not more than $250,000,000 in the aggregate of the following securities, at
prices and on terms to be determined at or prior to the time of sale: (i) shares
of Common Stock, par value $2.25 per share (the "New Common Stock"), (ii) shares
of Preferred Stock, par value $100 per share and/or shares of Preferred
Stock -- $25 Par, par value $25 per share (collectively, the "New Preferred
Stock"), (iii) unsecured Medium Term Notes (the "New Notes"), and (iv) First
Mortgage Bonds, which may be designated "Secured Medium-Term Notes" (the "New
Bonds") (the New Notes and the New Bonds herein collectively are called the
"Debt Securities" and the New Common Stock, the New Preferred Stock and the Debt
Securities herein collectively are called the "Securities").
For each issue of New Common Stock for which this Prospectus will be
delivered, there will be an accompanying Prospectus Supplement that will set
forth the terms of the offering. For each issue of the Debt Securities and New
Preferred Stock for which this Prospectus will be delivered, there will be an
accompanying Prospectus Supplement, together with any accompanying Pricing
Supplement, that will set forth the specific terms of the Debt Securities or New
Preferred Stock of such issue, as the case may be.
Outstanding shares of Common Stock are listed on and the shares of New
Common Stock also will be listed on the New York Stock Exchange (Symbol: DEW)
and the Philadelphia Stock Exchange. Shares of the New Preferred Stock and the
Debt Securities may be listed on one or more securities exchanges at the
Company's discretion.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR 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.
------------------------
The Company may sell the Securities through underwriters, dealers or
agents, or directly to one or more purchasers. The applicable Prospectus
Supplement will set forth the names of underwriters, dealers or agents, if any,
and the price to the public of such Securities, any applicable commissions or
discounts and the net proceeds to the Company, or the means of determining the
same, from any such sale. See "Plan of Distribution" for possible
indemnification arrangements for underwriters, dealers, agents and purchasers.
------------------------
The date of this Prospectus is May 12, 1997
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "SEC" or the "Commission"). Such reports, proxy statements and
other information may be inspected and copied at the offices of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.; 14th
Floor, 500 West Madison Street, Chicago, Illinois; and 13th Floor, Seven World
Trade Center, New York, New York. Copies of this material also may be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a web
site (http://www.sec.gov) that contains reports, proxy materials and other
information concerning the Company. Certain securities of the Company are listed
on the New York and Philadelphia Stock Exchanges, and reports, proxy material
and other information concerning the Company also may be inspected at the
offices of both Exchanges.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated by reference in this
Prospectus and shall be deemed to be a part hereof:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996; and
2. The Company's Current Reports on Form 8-K filed on January 28, 1997
and January 31, 1997.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering hereunder shall be deemed to be
incorporated by reference in this Prospectus and to be made a part hereof from
their respective dates of filing; provided, however, that the documents
enumerated above or subsequently filed by the Company pursuant to Section 13 of
the Exchange Act prior to the filing with the Commission of the Company's most
recent Annual Report on Form 10-K shall not be deemed to be incorporated by
reference herein or to be a part hereof from and after the date of the filing of
such Annual Report on Form 10-K. The documents incorporated by reference herein
or in any documents incorporated or deemed to be incorporated by reference
herein are sometimes hereinafter called the "Incorporated Documents." Any
statement contained in an Incorporated Document shall be deemed to be modified
or superseded for all purposes to the extent that a statement contained in this
Prospectus or in any 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 this Prospectus has been delivered, on
the written or oral request of any such person, a copy of any or all of the
documents referred to above which have been or may be incorporated by reference
in this Prospectus, other than exhibits to such Incorporated Documents, except
exhibits that are specifically incorporated by reference into the information
that this Prospectus incorporates. 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, (302) 429-3011.
2
<PAGE> 5
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 predominately a public utility that provides electric and
natural gas service. The Company provides electric service to retail
(residential, commercial and industrial) and wholesale (resale) customers in
Delaware, ten primarily Eastern Shore counties in Maryland, and the Eastern
Shore of Virginia, in an area consisting of about 6,000 square miles with a
population of approximately 1.2 million. In 1996, 90% of the Company's operating
revenues was derived from the sale of electricity. The Company provides gas
service to retail and transportation customers in an area consisting of about
275 square miles in northern Delaware, including the City of Wilmington.
In addition, the Company and its wholly owned subsidiaries are engaged in
competitive activities. It is anticipated that the electric utility industry
soon will enter a period where a significant part of the electric utility
business will be restructured. As a result of federal legislation, electric
resale customers can choose their electric suppliers, resulting in a
highly-competitive electric resale market. Many states are considering, and a
number of states have introduced, electric retail wheeling, which results in
retail customers purchasing electricity from the suppliers of their choice at
market-based prices. In addition, federal legislation has been introduced and
other bills are being drafted which could lead to retail wheeling for the entire
nation in the near future.
The transition to a competitive market could result in "stranded costs" for
a utility. Stranded costs generally are considered to be costs that may not be
recoverable in a competitive market due to market-based pricing or customers
choosing different energy suppliers. Changes in the regulatory environment
potentially could require the Company to write down asset values, and such
write-downs could be material. However, given the uncertainty with respect to
the timing of regulatory changes, the resulting deregulated market prices for
capacity and energy, and the extent to which the Company's regulatory
commissions will allow for recovery of any previously incurred costs, it is not
possible to predict the level of unrecovered stranded costs, if any, which would
result.
To prepare itself for industry restructuring, the Company recently
reorganized itself into three business units: Energy Supply, Regulated Delivery
and Energy Services. The Energy Supply business unit produces, buys and sells
energy in a multi-regional marketplace. Energy Supply's mission is to provide
new and existing customers with a complete and competitive portfolio of merchant
energy products and services, while maximizing the value of the Company's
generation assets. Currently, most of Energy Supply's business is regulated, but
it is expected eventually to be competitive and have deregulated, market-based
prices. The Regulated Delivery business unit delivers energy over the Company's
transmission and distribution systems at prices which are expected to continue
to be regulated by the public utility commissions. Regulated Delivery's mission
is to provide high-value utility delivery to customers in the region. The Energy
Services business unit packages and sells energy and related premium products
and services to customers within the competitive regional marketplace. Energy
Services is starting new businesses which include heating, ventilation and air
conditioning services, telecommunications and other products and services which
complement the Company's core energy business.
The Company intends to grow its businesses by building long-term customer
relationships, offering new products and services that complement the Company's
core energy business and are targeted to individual customer needs, and by
serving more customers in a larger geographical area. To retain existing
customers and attract new customers, the Company plans to differentiate itself
from its competitors by providing exceptional service, maintaining quality and
competitive prices and expanding connections with customers through new
services. The Company believes that its growth strategy will maximize long-term
stockholder value. In the short term, implementation of this strategy may result
in moderate downward pressure on earnings due to costs for the start-up of new
businesses, building a regional distribution platform, expanding the Company's
marketing and sales organization and upgrading information technology systems.
3
<PAGE> 6
Since the Company's growth strategy will be affected by such matters as
regulatory and legislative actions, customer demand, inflation and competition,
future results may vary from the projections set forth in the foregoing
paragraphs.
On August 9, 1996, the Company announced plans to merge with Atlantic
Energy, Inc. ("Atlantic"), an investor-owned holding company which owns Atlantic
City Electric Company, an electric utility, and other competitive businesses.
Atlantic is located in southern New Jersey. The merger is expected to facilitate
success in the competitive marketplace and is part of the Company's integrated
strategy to build a regional delivery platform over which a portfolio of
products and services can be distributed. On January 30, 1997, the stockholders
of the Company and Atlantic approved the merger. Various federal and state
regulatory approvals are required for the merger to become effective. The
regulatory approval process is expected to be completed during early 1998.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Securities will be added to its general funds and used for financing the capital
requirements of the Company, financing acquisitions of other entities or
facilities, refunding or redeeming, in whole or in part, certain of the
Company's outstanding securities, and other general corporate purposes,
including the repayment of short-term borrowings incurred for any such purposes.
To the extent the proceeds are not immediately so used, they may be temporarily
invested in short-term interest-bearing obligations.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (SEC
Method)....................................... 3.33X 3.54X 3.49X 3.47X 3.03X
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends (SEC Method)........ 2.83X 2.92X 2.85X 2.88X 2.51X
</TABLE>
Under the SEC Method, earnings, including Allowance for Funds Used during
Construction, have been computed by adding income taxes and fixed charges to net
income. Fixed charges include gross interest expense, the estimated interest
component of rentals, and distributions on preferred securities of a subsidiary
trust. Excluding the one-time $17.5 million pre-tax charge in 1994 for the
Company's voluntary early retirement offer, the ratio of earnings to fixed
charges for 1994 would be 3.74X and the ratio of earnings to combined fixed
charges and preferred stock dividends would be 3.05X. Excluding the $18.5
million gain in 1992 from the Company's share of a lawsuit settlement, the ratio
of earnings to fixed charges for 1992 would be 2.78X and the ratio of earnings
to combined fixed charges and preferred stock dividends would be 2.30X.
DESCRIPTION OF THE COMMON STOCK
The statements under this heading do not purport to be complete and are
subject to the detailed provisions of the Company's Restated Certificate and
Articles of Incorporation, as amended (the "Charter"), the Company's Mortgage
and Deed of Trust dated October 1, 1943, as amended and supplemented (the
"Mortgage"), and the Company's Indenture (for Unsecured Subordinated Debt
Securities relating to Trust Securities) dated as of October 1, 1996 (the
"Subordinated Debt Indenture"), a copy of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
shares of the Company's Common Stock currently outstanding and the New Common
Stock herein collectively are called the "Common Stock."
4
<PAGE> 7
DIVIDEND RIGHTS
The holders of Common Stock shall be entitled to receive such dividends as
may be declared by the Board of Directors, except that the holders of shares of
the Preferred Shares (as hereinafter defined) have a right to receive cumulative
dividends at the rates set forth in the title of each series thereof before any
dividends are paid to the holders of Common Stock.
LIMITATIONS ON PAYMENT OF DIVIDENDS ON COMMON STOCK
The Charter, the Mortgage and the Subordinated Debt Indenture contain
restrictions on the payment of cash dividends on Common Stock, including
restrictions that would become applicable if Common Stock equity were less than
25% of total capitalization or if the Company were to elect to defer payment of
interest on the debentures issued under the Subordinated Debt Indenture.
Retained earnings available for dividends on Common Stock as of December 31,
1996, were approximately $258 million under the most restrictive of these
provisions. As long as the Amended and Restated Agreement and Plan of Merger,
dated as of December 26, 1996, between the Company, Atlantic, Conectiv, Inc.
("Conectiv") and DS Sub, Inc. (the "Merger Agreement") is in effect, the Company
is restricted from paying a Common Stock dividend in excess of $1.54 per share.
(See "Effect of Merger" below.)
VOTING RIGHTS
The holders of Common Stock have one vote for each share held. Except as
provided by law and as described under "Description of the New Preferred
Stock -- Voting Rights," the holders of the Preferred Shares are not entitled to
vote.
EFFECT OF MERGER
If the merger with Atlantic is consummated pursuant to the Merger
Agreement, each share of Common Stock of the Company will be converted into the
right to receive one fully paid and non-assessable share of Conectiv common
stock.
OTHER RIGHTS
The holders of Common Stock have no preemptive rights to purchase
additional shares of Common Stock or securities convertible into Common Stock.
The outstanding shares of Common Stock are, and the shares of New Common
Stock will be, validly issued, fully paid and non-assessable. Subject to the
preferential rights of creditors and the holders of Preferred Shares, the
holders of the Common Stock are entitled to share ratably in the distribution of
all remaining assets in the event of liquidation.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Board of Directors is divided into three classes, each class
consisting, as nearly as possible, of one-third of the total number of directors
constituting the entire Board.
DESCRIPTION OF THE NEW PREFERRED STOCK
The statements under this heading do not purport to be complete and are
subject to the detailed provisions of the Charter and the Subordinated Debt
Indenture, a copy of each of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
GENERAL
The Company is authorized to issue in separate series two classes of
preferred stock: 1,800,000 shares designated Preferred Stock, of the par value
of $100 per share (the "Preferred Stock") and 3,000,000 shares designated
Preferred Stock -- $25 Par, of the par value of $25 per share. The shares of the
Preferred Stock
5
<PAGE> 8
and the Preferred Stock -- $25 Par currently outstanding and the New Preferred
Stock herein collectively are called the "Preferred Shares." All of the
Preferred Shares are of equal rank and all shares of any particular series may
vary as to dividends, redemptions, liquidations, sinking funds and conversions
and other special rights. The Preferred Shares have no preemptive rights in the
capital stock of the Company. As of December 31, 1996, there were 817,898 shares
of the Preferred Stock outstanding and 316,500 shares of the Preferred
Stock -- $25 Par outstanding.
The Company also is authorized to issue 10,000,000 shares designated
Preferred Stock -- $1.00 Par, of the par value of $1.00 per share. The Preferred
Stock -- $1.00 Par, none of which is outstanding, ranks junior to the Preferred
Shares.
The following statements are a brief summary of certain terms of the
Preferred Shares, including the New Preferred Stock, and are qualified by
reference to the detailed provisions of Article Fourth of the Company's Charter.
Reference is made to the applicable Prospectus Supplement for the following
terms and other information with respect to the New Preferred Stock being
offered hereby and thereby: (1) the specific title and stated value, (2) the
number of shares, (3) any dividend, liquidation, redemption, sinking fund,
voting or other rights, (4) the terms for any conversion or exchange into other
securities, (5) whether such New Preferred Stock will be issued in global form
and (6) any other terms thereof.
DIVIDEND RIGHTS
The holders of each series of the New Preferred Stock shall be entitled,
pari passu with the holders of the Preferred Shares and in preference to the
holders of the Preferred Stock -- $1.00 Par and the Common Stock, to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, cumulative cash dividends, at the rate or rates specified
for each series in the Prospectus Supplement relating to such series of New
Preferred Stock. Dividends will be payable to holders of record of New Preferred
Stock as they appear on the books of the Company on such record dates as fixed
by the Board of Directors.
LIMITATION ON PAYMENT OF DIVIDENDS
The Subordinated Debt Indenture contains a restriction on the payment of
cash dividends on the Preferred Shares that would become applicable if the
Company were to elect to defer payment of interest on the debentures issued
under the Subordinated Debt Indenture.
VOTING RIGHTS
Except as otherwise provided by law or as described hereinafter, the right
to vote is vested exclusively in the holders of the Common Stock. Upon default
in the payments of dividends on the Preferred Shares in an amount equivalent to
one year's dividend on all shares of all series of the Preferred Shares entitled
to receive quarter-yearly dividends on the last days of March, June, September
and December, and until all dividends in default have been paid or declared and
set apart for payment, the holders of the Preferred Shares are entitled, as a
class, to elect a majority of the Board of Directors and the holders of the
Common Stock are entitled, as a class, to elect the remaining directors. The
holders of the Preferred Shares also are entitled to vote on the following
matters: (1) an increase in the total authorized number of Preferred Shares; (2)
a merger or consolidation which either adversely affects the rights or
preferences of the Preferred Shares or results in a corporation having a class
of stock (in addition to the Preferred Shares) ranking prior to or equal with
the Preferred Shares; (3) a disposition of substantially all of the Company's
assets; (4) the authorization of any new class of stock or securities
convertible into shares of stock ranking prior to or on a parity with the
Preferred Shares; (5) changes in the express terms of the Preferred Shares in a
manner prejudicial to the holders thereof; (6) the issuance of additional shares
of Preferred Shares unless the net earnings of the Company applicable to
dividends on the Preferred Shares and applicable to interest on the Company's
indebtedness (in each instance after deducting the provision for depreciation
and all taxes chargeable as operating expense) for any 12 consecutive months
within the 15 preceding months shall, respectively, have been at least two times
one year's dividend requirements on the Preferred Shares to be outstanding
6
<PAGE> 9
immediately after the proposed issuance and at least one and one-half times the
aggregate of such dividend requirements and one year's interest charges on the
indebtedness to be likewise outstanding (exclusive of interest charges on
indebtedness to be retired through the proposed issuance); and (7) the issuance
of Preferred Shares unless the Common Stock capital and the surplus of the
Company shall at least equal the involuntary liquidation value of the Preferred
Shares to be outstanding immediately thereafter. A majority vote of the
Preferred Shares, voting as a class, is required with respect to (1), (2) and
(3) above and a two-thirds vote is required with respect to (4), (5), (6) and
(7) above, except that as to (5) above, the vote requirement applies only to the
series adversely affected. In any vote by the holders of the Preferred Shares,
the voting power of each share of Preferred Stock -- $25 Par shall be one-fourth
of the voting power of each share of Preferred Stock.
The Virginia Stock Corporation Act requires the approval of the holders of
two-thirds of the Preferred Shares to effect (1) certain exchanges and
reclassifications and changes in the designation, rights, preferences or
limitations of the Preferred Shares and (2) mergers or share exchanges which
would affect the Preferred Shares in the manner described in (1) above.
Should the Company in the future issue shares of the Preferred
Stock -- $1.00 Par, the Board of Directors, in its discretion and on a
series-by-series basis, could grant general or limited voting rights, in
addition to those provided by law, to the holders of such shares.
LIQUIDATION RIGHTS
Upon voluntary or involuntary liquidation, the holders of each series of
the Preferred Shares will be entitled to receive, pari passu, after paying or
providing for the payment of all creditors of the Company, the amount per share
specified to be payable on the shares of such series, before any distribution of
assets can be made to the holders of the Preferred Stock -- $1.00 Par or the
holders of the Common Stock.
LIABILITY TO FURTHER CALLS OR ASSESSMENTS
The outstanding Preferred Shares are, and the New Preferred Stock will be
validly issued, fully paid and non-assessable.
RESTRICTIONS ON CERTAIN COMPANY ACTIONS
So long as any shares of the Preferred Shares shall remain outstanding,
(1) the Company shall not pay any dividends on, or make any other
distribution with respect to, its Common Stock which would result in the
Common Stock capital of the Company, together with its surplus, aggregating
less than the involuntary liquidation value of all of the outstanding
Preferred Shares; and
(2) the payment of dividends (other than in Common Stock) on and the
making of any other distributions of assets to holders of the Common Stock
by purchase of shares or otherwise is subject to the following limitations:
(a) So long as the ratio of the Common Stock capital (including
premiums) and surplus to the total consolidated capitalization and
surplus of the Company and its subsidiaries (adjusted for the proposed
dividend or distribution) is less than 20% at the end of a period of 12
consecutive months within the 14 months immediately preceding the month
in which the proposed dividend or distribution would be made (the "base
period"), such dividends and distributions during the 12 months' period
ending with and including the month in which the proposed dividend or
distribution would be made shall not exceed 50% of the consolidated net
income of the Company and its subsidiaries applicable to the Common
Stock during the base period;
(b) If such capitalization ratio should be equal to or more than
20% but less than 25%, such dividends or distributions during the 12
months' period ending with and including the month in which the proposed
dividend or distribution would be made shall not exceed 75% of the
consolidated
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net income of the Company and its subsidiaries applicable to the Common
Stock during the base period; and
(c) Except as permitted under (1) and (2) above, the Company shall
not pay any such dividends or make any such distributions which would
reduce such capitalization ratio to less than 25%.
DESCRIPTION OF THE NEW NOTES
Unless otherwise specified in the applicable Prospectus Supplement, the
following description of the New Notes will apply.
The New Notes will be issued under the Company's Indenture, dated as of
November 1, 1988 (such Indenture, as supplemented and amended, together with any
constituent instruments establishing the terms of particular Notes (as
hereinafter defined), is herein called the "Indenture"), between the Company and
The Chase Manhattan Bank, formerly known as Chemical Bank, successor to
Manufacturers Hanover Trust Company, as trustee (the "Note Trustee"). The
statements under this heading do not purport to be complete and are subject to
the detailed provisions of the Indenture, a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Capitalized terms are defined in the Indenture unless otherwise defined herein.
GENERAL
The Indenture provides that, in addition to the New Notes offered hereby,
additional debt securities (including both interest-bearing and original issue
discount securities) may be issued thereunder without limitation as to the
aggregate principal amount (Indenture, Section 301). The debt securities of all
series under the Indenture herein collectively are called the "Notes." The
Indenture does not limit the amount of other debt, secured or unsecured, that
may be issued by the Company.
The New Notes will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Company. Substantially all of the properties
of the Company are subject to the lien of the Mortgage securing the Company's
First Mortgage Bonds. (See "Description of the New Bonds" below.)
Each New Note will have a maturity ranging from nine months to forty years
commencing on its date of original issuance (the "Original Issue Date"). Unless
otherwise specified in the applicable Prospectus Supplement, each New Note will
bear interest from, and including, the Original Issue Date, or, if later, the
most recent date to which interest has been paid or duly provided for, to, but
excluding, the Interest Payment Date (as hereinafter defined), at the rate per
annum stated on the face thereof until the principal amount thereof is paid or
made available for payment. Interest will be computed on the basis of a 360-day
year consisting of twelve 30-day months.
Reference is made to the applicable Prospectus Supplement for the following
terms and other information with respect to the New Notes being offered hereby
and thereby: (1) the designation or designations and the principal amount or
amounts of such New Notes; (2) the purchase price or prices of such New Notes
(the "Issue Price"); (3) the Original Issue Date; (4) the date or dates on which
such New Notes will mature (the "Maturity Date"); (5) the rate or rates per
annum at which and the initial date or dates from which such New Notes will bear
interest (the "Interest Rate"); (6) the initial date or dates from which
interest will accrue; (7) the date or dates on which such interest will be
payable (each, an "Interest Payment Date"); (8) any sinking fund or other
redemption provisions; (9) whether such New Notes will be issued in global form
and, if so, the minimum denominations of interests therein; and (10) any other
specific terms of such New Notes.
FORM, EXCHANGE AND PAYMENT
The New Notes will be issued in fully registered form in denominations of
$1,000 and integral multiples thereof. The New Notes will be transferable and
exchangeable at the office of the Note Trustee in New York
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City, without charge, other than taxes or other governmental charges incident
thereto (Indenture, Section 305). Interest on each Interest Payment Date, except
at maturity or upon redemption, will be paid by check in New York Clearing House
funds mailed to the holder of record as of the close of business on the Record
Date with respect to such Interest Payment Date (unless otherwise specified in
the applicable Prospectus Supplement, the Record Date shall be the 15th day of
the calendar month, whether or not a Business Day (as hereinafter defined), next
preceding such Interest Payment Date); provided, however, that, unless otherwise
specified in the applicable Prospectus Supplement, if the Original Issue Date of
any New Note is after a Record Date and before the corresponding Interest
Payment Date, such New Note will bear interest from the Original Issue Date but
payment of interest shall commence on the second Interest Payment Date
succeeding the Original Issue Date. Payment of the principal of and premium and
interest, if any, on the New Notes at the Maturity Date or upon redemption will
be in immediately available funds upon presentation of the New Notes at the
office of the Note Trustee (Indenture, Section 307, and Form of New Note). If
the Maturity Date or any Interest Payment Date falls on a day that is not a
Business Day, the related payment of principal, premium, if any, or interest
will be made on the next succeeding Business Day as if made on the date such
payment was due, and no interest will accrue on the amount so payable for the
period after the scheduled payment date. "Business Day" means any day, other
than a Saturday or Sunday, that is not a day on which banking institutions in
New York City are generally authorized or obligated by law or executive order to
remain closed.
Notwithstanding the foregoing, if the Company elects to use the book-entry
system through the Depository (as defined in "Book-Entry System"), for so long
as the New Notes shall be held by the Depository or its nominee, owners of
interests in the New Notes will not be entitled to have any individual New Notes
registered in their names, and transfers of interests and payments of principal,
premium, if any, and interest will be made as described herein under "Book-Entry
System."
REDEMPTION
Any terms for the optional or mandatory redemption of New Notes will be set
forth in the applicable Prospectus Supplement. If redeemable, such New Notes
will be redeemed only upon notice, by mail, not less than 30 nor more than 60
days prior to the date fixed for redemption. Any notice of optional redemption
may state that such redemption shall be conditional upon the receipt by the Note
Trustee, on or prior to the date fixed for such redemption, of money sufficient
to pay the principal of and the premium and interest, if any, on the New Notes
to be redeemed and that if such money has not been so received, such notice will
be of no force or effect and the Company will not be required to redeem such New
Notes (Indenture, Section 404).
EVENTS OF DEFAULT
The following constitute Events of Default under the Indenture with respect
to each series of Notes outstanding thereunder:
(1) failure to pay any interest on any Note of such series or any
additional amount payable pursuant to the Indenture within 30 days after
the same becomes due and payable;
(2) failure to pay the principal of, or premium, if any, on, any Note
of such series within three Business Days after its maturity;
(3) failure to perform or breach of any 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 Notes
other than such series) for 90 days after written notice to the Company by
the Note Trustee or to the Company and the Note Trustee by the Holders of
at least 25% in principal amount of the Notes of such series outstanding
under the Indenture as provided in the Indenture;
(4) default under any bond, debenture, note or other evidence of
indebtedness of the Company for borrowed money (including Notes of other
series issued under the Indenture) or under any mortgage,
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indenture or other instrument securing or evidencing any indebtedness of
the Company for borrowed money, which default:
(a) shall constitute a failure to make any payment in excess of
$5,000,000 of the principal of, or interest on, such indebtedness, or
(b) shall have resulted in such indebtedness in an amount in excess of
$10,000,000 becoming or being declared due and payable prior to the date
it would otherwise have become due and payable, without such payment
having been made, such indebtedness having been discharged, or such
acceleration having been rescinded or annulled, within a period of 90
days after written notice to the Company by the Note Trustee or to the
Company and the Note Trustee by the Holders of at least 25% in principal
amount of the Notes of such series outstanding under the Indenture as
provided in the Indenture;
(5) certain events of bankruptcy, insolvency or reorganization; and
(6) any other Event of Default specified with respect to the Notes of
such series (Indenture, Section 801).
An Event of Default with respect to the New Notes will not necessarily
constitute an Event of Default with respect to the Notes of any other series
issued under the Indenture.
REMEDIES
If an Event of Default with respect to any series of the Notes occurs and
is continuing, then either the Note Trustee or the Holders of not less than 33%
in principal amount of the Notes of such series may declare the principal amount
of all of the Notes of such series to be due and payable immediately; provided,
however, that if any Event of Default occurs and is continuing with respect to
more than one series of Notes, the Note Trustee or the Holders of not less than
33% in aggregate principal amount of the Notes of all such series, considered as
one class, may make such declaration of acceleration and not the Holders of the
Notes of any one of such series.
At any time after the declaration of acceleration with respect to the Notes
of any series has been made and before a judgment or decree for payment of the
money due has been obtained, the Holders of a majority in principal amount of
the Notes of such series, by written notice to the Company and the Note Trustee,
may rescind and annul such declaration and its consequences, if:
(1) the Company has paid or deposited with the Note Trustee a sum
sufficient to pay:
(a) all overdue interest on all Notes of such series;
(b) the principal of and premium, if any, on any Notes of such
series that have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in such Notes;
(c) interest upon overdue interest at the rate or rates prescribed
therefor in such Notes, to the extent that payment of such interest is
lawful; and
(d) all amounts due to the Note Trustee under the Indenture;
and
(2) any other Event or Events of Default with respect to the Notes of
such series, other than the nonpayment of the principal of Notes of such
series which has become due solely by such declaration of acceleration,
have been cured or waived as provided in the Indenture (Indenture, Section
802).
If an Event of Default with respect to the Notes of any series occurs and
is continuing, the Holders of a majority in principal amount of the Notes of
such series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Note Trustee, or
exercising any trust or power conferred on the Note Trustee, with respect to the
Notes of such series; provided, however, that if an Event of Default occurs and
is continuing with respect to more than one series of Notes, the Holders of a
majority in aggregate principal amount of the Notes of all such series,
considered as one class, will have the
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right to make such direction, and not the Holders of the Notes of any one of
such series; and provided, further, that (1) any such direction will not be in
conflict with any rule of law or with the Indenture and could not involve the
Note Trustee in personal liability in circumstances where indemnity would not,
in the Note Trustee's sole discretion, be adequate and (2) the Note Trustee may
take any other action it deems proper which is not inconsistent with such
direction (Indenture, Section 812). The right of a Holder of any Note of such
series to institute a proceeding with respect to the Indenture is subject to
certain conditions precedent, but each Holder has an absolute right to receive
payment of principal and premium and interest, if any, when due and to institute
suit for the enforcement of any such payment (Indenture, Sections 807 and 808).
The Indenture provides that the Note Trustee, within 90 days after the
occurrence of any default thereunder with respect to the Notes of a series, is
required to give the Holders of the Notes of such series notice of any default,
unless cured or waived; provided, however, that, except in the case of a default
in the payment of principal of or premium or interest, if any, on any Notes of
such series, the Note Trustee may withhold such notice if the Note Trustee
determines that it is in the interest of such Holders to do so; and provided,
further, that in the case of an Event of Default of the character specified
above in clause (3) under "Events of Default," no such notice shall be given to
such Holders until at least 30 days after the occurrence thereof (Indenture,
Section 902).
The Company will be required to furnish annually to the Note Trustee a
statement as to the performance by the Company of certain of its obligations
under the Indenture and as to any default in such performance (Indenture,
Section 608).
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Company will not consolidate with or merge into any other corporation
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person unless (1) the corporation formed by such consolidation
or into which the Company is merged or the Person that acquires by conveyance or
transfer, or that leases, the property and assets of the Company substantially
as an entirety, is a Person organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia, and such
Person expressly assumes, by supplemental indenture, the due and punctual
payment of the principal of and premium and interest, if any, on all of the
Notes and the performance of all of the covenants of the Company under the
Indenture, (2) immediately after giving effect to such transactions, no Event of
Default, and no event that after notice or lapse of time would become an Event
of Default, will have occurred and be continuing, and (3) the Company shall have
delivered to the Note Trustee an Officers' Certificate and an Opinion of Counsel
confirming that such transaction is in compliance with the Indenture (Indenture,
Section 1101).
MODIFICATION OF INDENTURE
Without the consent of any Holders of Notes, the Company and the Note
Trustee may enter into one or more supplemental indentures for any of the
following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company in the
Indenture and the Notes; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Notes or Tranche thereof or to surrender
any right or power conferred upon the Company by the Indenture; or
(3) to add any additional Events of Default with respect to all or any
series of Notes; or
(4) to change or eliminate any provision of the Indenture; provided,
however, that if such change or elimination will materially and adversely
affect the interests of the Holders of the Notes of any series or Tranche
thereof, such change or elimination will become effective with respect to
such Notes only when they no longer remain outstanding; or
(5) to provide collateral security for the Notes; or
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(6) to establish the form or terms of Notes of any series or Tranche
thereof as contemplated by the Indenture; or
(7) to evidence and provide for acceptance of the appointment of a
separate or successor trustee under the Indenture with respect to the Notes
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 Note
Trustee; or
(8) to provide for the procedures required to permit the utilization
of a noncertificated system of registration for any Notes or Tranche
thereof; or
(9) to cure any ambiguity, defect or inconsistency or to make any
other provisions with respect to matters and questions arising under the
Indenture; provided, however, that such action or other provisions shall
not adversely affect the interests of the Holders of Notes of any series or
Tranche thereof in any material respect (Indenture, Section 201).
Other than as stated in the preceding paragraph, the consent of the Holders
of not less than a majority in principal amount of the Notes 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 pursuant to a supplemental indenture; provided, however, that if less
than all of the series of Notes are directly affected by a supplemental
indenture, then the consent only of the Holders of a majority in aggregate
principal amount of the Notes of all series so directly affected, considered as
one class, will be required; and provided, further, that if the Notes of any
series shall have been issued in more than one Tranche and if the proposed
supplemental indenture shall directly affect the rights of the Holders of Notes
of one or more, but less than all, of such Tranches, then the consent only of
the Holders of a majority in aggregate principal amount of the Notes of all
Tranches so directly affected, considered as one class, shall be required; and
provided, further, that no such supplemental indenture shall, without the
consent of the Holder of each Note of each series or Tranche directly affected
thereby, (1) change the stated maturity of, or any installment of principal of
or interest on, any Note, or reduce the principal thereof or the rate of
interest, or redemption premium thereon, or change the method of calculating the
rate of interest thereon, or otherwise change the terms or place of payment of
the principal thereof or interest or redemption premium thereon, (2) reduce the
percentage in principal amount of the Notes of such series or Tranche thereof
required to consent to any supplemental indenture or waiver under the Indenture
or to reduce the requirements for quorum and voting, (3) change any obligation
of the Company to maintain an office or agency at the place or places where the
principal of and premium and interest, if any, on the Notes of such series are
payable, or (4) modify certain of the provisions in the Indenture relating to
supplemental indentures, waivers of certain covenants and waivers of past
defaults (Indenture, Section 1202).
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 Notes or Tranche thereof, or that
modifies the rights of the Holders of Notes of such series or Tranche thereof
with respect to such covenants or other provisions, shall be deemed not to
affect the rights under the Indenture of the Holders of any Notes of any other
series or Tranche thereof (Indenture, Section 1202).
DEFEASANCE
The New Notes, or any portion of the principal amount thereof, will, prior
to the maturity thereof, be deemed to have been paid for purposes of the
Indenture (except as to certain rights such as rights of registrations of
transfer or exchange expressly provided for in 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 Note Trustee, in trust (1) money in an amount that will be sufficient, or
(2) Government Obligations (as hereinafter defined), that 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 monies that, together
with the money, if any, deposited with or held by the Note Trustee, will be
sufficient, or (3) a combination of (1) and (2) that will be sufficient to pay
when due the principal of and premium and interest, if any, due and to
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become due on the New Notes or such portion thereof on and prior to the maturity
thereof. 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,
depository 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 (Indenture, Section 701).
DESCRIPTION OF THE NEW BONDS
The New Bonds will be issued under the Mortgage, to which The Chase
Manhattan Bank, formerly known as Chemical Bank, is the successor trustee (the
"Bond Trustee"). The statements under this heading do not purport to be complete
and are subject to the detailed provisions of the Mortgage. The bonds of all
series under the Mortgage are herein collectively called the "Bonds".
GENERAL
The New Bonds will have maturities ranging from nine months to forty years.
Each New Bond will bear interest from, and including, the date specified in the
applicable Prospectus Supplement, or, if later, the most recent date to which
interest has been paid or duly provided for, at the rate per annum stated on the
face thereof until the principal amount thereof is paid or made available for
payment. Interest on the New Bonds will be computed on the basis of a 360-day
year consisting of twelve 30-day months.
Reference is made to the applicable Prospectus Supplement for the following
terms and other information with respect to the New Bonds being offered hereby
and thereby: (1) the designation or designations and the principal amount or
amounts of such New Bonds; (2) the offering price or prices of such New Bonds;
(3) the original issue date of such New Bonds; (4) the date or dates on which
such New Bonds will mature; (5) the rate or rates per annum at which and the
initial date or dates from which such New Bonds will bear interest; (6) the
initial date or dates from which interest will accrue; (7) the date or dates on
which such interest will be payable; (8) any sinking fund or other redemption
provisions; (9) whether such New Bonds will be issued in global form and, if so,
the minimum denominations of interests therein; and (10) any other specific
terms of such New Bonds.
FORM, EXCHANGE AND PAYMENT
The New Bonds will be issued in fully registered form in denominations of
$1,000 and integral multiples thereof. The New Bonds will be transferable and
exchangeable at the office of the Bond Trustee in New York City, without charge
other than taxes or other governmental charges incident thereto. Principal,
premium, if any, and interest will be payable at such office. Notwithstanding
the foregoing, if the Company elects to use the book-entry system through the
Depository (as defined in "Book-Entry System"), for so long as the New Bonds
shall be held by the Depository or its nominee, owners of interests in the New
Bonds will not be entitled to have any individual New Bonds registered in their
names, and transfers of interests and payments of principal, premium, if any,
and interest will be made as described herein under "Book-Entry System."
MAINTENANCE FUND
If the amount expended by the Company for certain property additions does
not at the end of each calendar year equal the minimum provision for property
retirements or depreciation (as defined in the Mortgage), computed cumulatively
at the end of each such year, the Company is required to deposit with the Bond
Trustee cash, to the extent of the difference less certain credits, on or before
the next succeeding April 30. The Company may not satisfy the maintenance
requirement by the deposit of cash with the Bond Trustee so long as property
additions remain available as a maintenance fund credit.
Minimum provision for property retirements or depreciation means the
greater of (1) an amount equal to 1/12 of 2 1/2% (2 1/4% prior to September 1,
1967) of the mathematical average of depreciable fixed property on the books of
the Company on the first and last days of any period, multiplied by the number
of full calendar months included in such period, or (2) the remainder of (a) 15%
of the gross operating revenues of the
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Company during such period arising from the operation of bondable property after
deducting the cost of electrical energy and gas purchased for resale in
connection with such operation, less (b) the charges of operating expenses for
current repairs and maintenance of bondable property.
For the calendar year 1996, the Company applied approximately $144 million
of property additions to satisfy the maintenance requirement.
SECURITY
The New Bonds will be secured equally with all other Bonds outstanding or
hereinafter issued under the Mortgage (except as any sinking fund may afford
additional security for a particular series) by the lien of the Mortgage which
constitutes a first lien on substantially all of the Company's properties
consisting principally of electric generating stations, electric transmission
and distribution lines and substations, gas transmission and distribution
facilities and general office and service buildings, and including its undivided
fractional interest in certain properties, but not including certain properties
to the extent specifically excepted from such lien, such as cash, securities,
judgments, contracts, accounts receivable, choses in action and goods, wares,
merchandise, equipment, materials or supplies held or acquired for sale or
consumption.
Such lien is subject to (1) the conditions and limitations in the
instruments through which the Company claims title to its properties, (2)
"excepted encumbrances" (as defined in the Mortgage), and (3) the prior lien of
the Bond Trustee for its compensation, expenses and liability, and subject
further to the qualification that where payments for rights-of-way on or under
private property for transmission and distribution lines and mains were minor in
amount, no examination of underlying titles as to rights-of-way have been made.
After-acquired property may also be subject to prior liens and to possible
rights of others which may attach prior to recordation of a supplemental
indenture conveying such property to the Bond Trustee after its acquisition.
ISSUANCE OF ADDITIONAL BONDS
Subject to certain conditions and restrictions, additional Bonds may be
issued under the Mortgage to the extent of: (1) 60% of the bondable value of
property additions; (2) the aggregate principal amount of refundable prior lien
Bonds theretofore or then retired; (3) the aggregate principal amount of any
Bonds theretofore issued and thereafter or then retired; or (4) the amount of
cash deposited with the Bond Trustee against the issuance of Bonds, which cash
may be withdrawn to the extent of 60% of the bondable value of property
additions or of the aggregate principal amount of retired Bonds. As of December
31, 1996, the Company's property additions available for the issuance of
additional Bonds and other purposes, excluding retired Bonds and other credits
available for the issuance of additional Bonds, were $828.8 million. Bonds may
be issued pursuant to (1) and (4) above (and in certain cases (2) and (3) above)
only if "net earnings" (as defined in the Mortgage) shall be at least two times
the annual interest requirement on the Bonds and prior lien bonds to be
outstanding.
RELEASE AND SUBSTITUTION OF PROPERTY
Generally, mortgaged property may be released upon the deposit, pledge with
or certification to the Bond Trustee of the consideration received therefor, but
at not less than the fair value thereof.
DIVIDEND RESTRICTIONS ON COMMON STOCK
The Mortgage prohibits the payment of cash dividends on Common Stock unless
thereafter there remains earned surplus of the Company accumulated on or after
October 15, 1943, in an amount equivalent to any deficiency in the property
retirement and depreciation requirement computed in accordance with the
Mortgage. There is no such deficiency at this time.
MODIFICATION OF MORTGAGE
The Mortgage may be modified with the consent of the Company and of the
holders of 75% in principal amount of the Bonds then outstanding which are
affected by such modification; provided, however, that no
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such modification shall change the terms of payment of the Bonds without the
consent of the bondholders affected, or reduce the percentage of consent
required for modification without the consent of all the bondholders.
DEFAULT
The Mortgage provides that the following events will constitute "completed
defaults" thereunder: (1) failure to pay principal; (2) failure for 60 days to
pay interest; (3) failure to pay principal, premium, or interest upon any
outstanding prior lien bonds beyond the period of grace specified; (4) certain
events in involuntary bankruptcy or insolvency proceedings which continue for a
period of 60 days after a court order or decree in such proceedings; (5) certain
events in voluntary bankruptcy or insolvency proceedings; (6) an assignment for
benefit of creditors; and (7) failure to perform any other provisions of the
Mortgage for 60 days after written notice shall have been given to the Company
by the Bond Trustee or to the Company and the Bond Trustee by the holders of at
least 25% in principal amount of the Bonds then outstanding. If a completed
default exists, the holders of not less than a majority in principal amount of
the Bonds then outstanding may in writing require the Bond Trustee to take such
action to enforce payment of the Bonds then outstanding and to foreclose the
Mortgage and sell the property. The Bond Trustee is not obligated to take the
aforesaid action unless the Bond Trustee has been reasonably indemnified. Under
the Mortgage, no periodic evidences are required to be furnished to the Bond
Trustee as to the absence of a completed default or as to compliance with the
terms of the Mortgage.
BOOK-ENTRY SYSTEM
The Debt Securities or the New Preferred Stock, at the option of the
Company, may be issued as either certificated securities or global securities.
If, as described in the applicable Prospectus Supplement, the Company shall
elect to use a book-entry system with respect to any issue of the Debt
Securities or the New Preferred Stock, upon issuance, all of such Debt
Securities or New Preferred Stock will be represented by one fully-registered
global security (the "Global Security"). The Global Security will be deposited
with, or on behalf of, The Depository Trust Company ("DTC") or such other
depository as may be subsequently designated (the "Depository") and registered
in the name of the Depository or a nominee thereof.
So long as the Depository, or its nominee, is the registered owner of a
Global Security, such Depository or such nominee, as the case may be, will be
considered the owner of such Global Security for all purposes under the
Indenture, the Mortgage or the Charter, as the case may be, including notices
and voting. Payments of principal of, and premium, if any, and interest on, or
payments of dividends on, the Global Security will be made to the Depository or
its nominee, as the case may be, as the registered owner of such Global
Security. Except as set forth below, the owners of beneficial interests in a
Global Security will not be entitled to have any individual Debt Securities or
New Preferred Stock registered in their names, will not receive or be entitled
to receive physical delivery of any such Debt Securities or New Preferred Stock
and will not be considered the owners of Debt Securities or New Preferred Stock
under the Indenture, the Mortgage or the Charter, as the case may be.
Accordingly, each person holding a beneficial interest in a Global Security must
rely on the procedures of the Depository and, if such person is not a Direct
Participant (as hereinafter defined), on procedures of the Direct Participant
through which such person holds its interest, to exercise any of the rights of
the registered owner of such Debt Security or New Preferred Stock.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof:
DTC will act as securities depository for the Global Securities. The Global
Securities will be issued as fully-registered securities registered in the name
of CEDE & Co. (DTC's partnership nominee).
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 Exchange 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
15
<PAGE> 18
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 through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of the Debt Securities or the New Preferred Stock under the DTC
system must be made by or through Direct Participants, which will receive a
credit for such purchases of Debt Securities or New Preferred Stock on DTC's
records. The ownership interest of each actual purchaser of each Debt Security
or share of New Preferred Stock ("Beneficial Owner") is in turn to be recorded
on the Direct and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchases, but Beneficial Owners
are expected to receive written confirmation providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interest in the Debt Securities or the New
Preferred Stock 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 Debt
Securities or the New Preferred Stock, except in the event that use of the
book-entry system for the Debt Securities or the New Preferred Stock is
discontinued.
To facilitate subsequent transfers, all Debt Securities or New Preferred
Stock deposited by Participants with DTC are registered in the name of DTC's
partnership nominee, CEDE & Co. The deposit of Debt Securities or New Preferred
Stock with DTC and their registration in the name of CEDE & Co. effect no change
in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Debt Securities or the New Preferred Stock; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Debt Securities or
New Preferred Stock 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 Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
If the Debt Securities or the New Preferred Stock are redeemable prior to
the maturity date, redemption notices shall be sent to CEDE & Co. If less than
all of the Debt Securities or the New Preferred Stock are being redeemed, DTC's
practice is to determine by lot the amount of the interest of each Direct
Participant in such issue to be redeemed.
Neither DTC nor CEDE & Co. will consent or vote with respect to the Debt
Securities or the New Preferred Stock. Under its usual procedures, DTC mails an
Omnibus Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns CEDE & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Debt Securities or the New Preferred Stock
are credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Principal and interest payments on the Debt Securities and dividend
payments on the New Preferred Stock will be made to DTC. DTC's practice is to
credit Direct Participants' accounts on the date on which interest is payable in
accordance with their respective holdings shown on DTC's records, unless DTC has
reason to believe that it will not receive payment 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 accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC, the Note Trustee,
the Bond Trustee, or the Company,
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<PAGE> 19
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and interest or dividends, as the case may
be, to DTC is the responsibility of the Company and the Note Trustee or the Bond
Trustee, as the case may be. Disbursement of such payments to Direct
Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
DTC may discontinue providing services as securities depository with
respect to the Debt Securities or the New Preferred Stock at any time by giving
reasonable notice to the Company, the Note Trustee, and the Bond Trustee. The
Company may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depository). Under such circumstances, in
the event that a successor securities depository is not obtained, Debt
Securities or shares of New Preferred Stock in certificated form will be printed
and delivered.
* * * * *
Neither the Company nor the Note Trustee nor the Bond Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interest in the Debt Securities or the
New Preferred Stock or for maintaining, supervising, or reviewing any records
relating to such beneficial interests.
VALIDITY OF THE SECURITIES
The validity of the Securities will be passed upon for the Company by Dale
G. Stoodley, General Counsel for the Company, and for any underwriters or agents
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,
as to matters of Maryland, New Jersey, and Pennsylvania law upon the opinions of
counsel admitted in such jurisdictions, and as to matters of New York law upon
the opinion of Reid & Priest LLP. All matters pertaining to titles, the lien and
enforceability of the Mortgage and franchises will be passed upon only by Mr.
Stoodley, relying as to Virginia law upon the opinion of Mr. Clark, and as to
matters of Maryland, New Jersey, and Pennsylvania law upon the opinions of
counsel admitted in such jurisdictions. From time to time, Reid & Priest LLP has
represented the Company with respect to matters unrelated to the Securities.
As of December 31, 1996, Mr. Stoodley held, in the form of stock and share
equivalents in the Company's employee benefit plans, approximately 2,774 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 $139,039. As of December 31, 1996, Mr. Clark held, in the
form of stock and share equivalents, approximately 1,403 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 later date. On such date, Mr. Clark's
shares, including the performance shares, had a fair market value of
approximately $67,910.
EXPERTS
The consolidated balance sheets of the Company and its subsidiaries as of
December 31, 1996 and 1995 and the consolidated statements of income, statements
of changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996, have been incorporated by reference herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on 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
Common Stock," "Description of the New Preferred Stock," "Description of the New
Notes" and "Description of the New Bonds" and in the Incorporated Documents and
such statements are included herein and therein upon his authority as an expert.
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<PAGE> 20
PLAN OF DISTRIBUTION
The Company may sell the Securities in any of three ways: (1) through
underwriters or dealers; (2) directly to a limited number of purchasers or to a
single purchaser; or (3) through agents. The applicable Prospectus Supplement
will set forth the terms of the offering of the Securities offered thereby, the
purchase price of such Securities and the proceeds to the Company from such
sale, any underwriting discounts and other items constituting underwriters'
compensation, any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers. Any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
If underwriters are used in the sale, the Securities will be acquired by
the underwriters for their own account and may be sold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of the sale. The
Securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters as may be designated by the
Company, or directly by one or more of such firms. The underwriter or
underwriters with respect to a particular underwritten offering of Securities
will be named in the Prospectus Supplement relating to such offering and, if an
underwriting syndicate is used, the managing underwriter or underwriters will be
set forth on the cover page of such Prospectus Supplement. Unless otherwise set
forth in the applicable Prospectus Supplement, the obligations of the
underwriters to purchase the Securities offered thereby will be subject to
certain conditions precedent, and the underwriters will be obligated to purchase
all such Securities if any are purchased.
Securities may be sold directly by the Company or through agents designated
by the Company from time to time. The applicable Prospectus Supplement will set
forth the name of any agent involved in the offer or sale of the Securities in
respect of which such Prospectus Supplement is delivered as well as any
commissions payable by the Company to such agent. Unless otherwise indicated in
the applicable Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers by certain specified
institutions to purchase Securities from the Company at the public offering
price set forth in such Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
Such contracts will be subject to any conditions set forth in such Prospectus
Supplement and the commission payable for solicitation of such contracts will be
set forth therein.
Agents and underwriters may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
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======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE AGENTS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Plan of Distribution................. S-2
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 2
The Company.......................... 3
Use of Proceeds...................... 4
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends.......................... 4
Description of Common Stock.......... 4
Description of the New Preferred
Stock.............................. 5
Description of the New Notes......... 8
Description of the New Bonds......... 13
Book-Entry System.................... 15
Validity of the Securities........... 17
Experts.............................. 17
Plan of Distribution................. 18
</TABLE>
======================================================
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$75,000,000
[DELMARVA POWER LOGO]
MEDIUM TERM NOTES, SERIES C
----------------------------------
PROSPECTUS SUPPLEMENT
----------------------------------
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
OCTOBER 15, 1997
======================================================
