<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1998
REGISTRATION NO. 333-65765
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
AND POST-EFFECTIVE AMENDMENT NO. 2
UNDER
THE SECURITIES ACT OF 1933
------------------
THE DETROIT EDISON COMPANY
(EXACT NAME OF ISSUER AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
MICHIGAN 2000 2ND AVENUE 38-0478650
(STATE OF INCORPORATION) DETROIT, MICHIGAN 48226-1279 (I.R.S. EMPLOYER IDENTIFICATION NO.)
(313) 235-8000
</TABLE>
(ADDRESS AND TELEPHONE NUMBER
OF PRINCIPAL EXECUTIVE OFFICES)
------------------
SUSAN M. BEALE
VICE PRESIDENT AND CORPORATE SECRETARY
THE DETROIT EDISON COMPANY
2000 2ND AVENUE
DETROIT, MICHIGAN 48226-1279
(313) 235-8000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME
TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED
PURSUANT TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING
BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX
AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER IF THE EARLIER EFFECTIVE REGISTRATION STATEMENT IS
FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [X]
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED OCTOBER 23, 1998.
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED OCTOBER , 1998.
[DETROIT EDISON LOGO] $100,000,000
THE DETROIT EDISON COMPANY
% Quarterly Income Debt Securities (QUIDS(SM))
(Junior Subordinated Deferrable Interest Debentures, Due 2028)
----------------------
This is an offering of % Quarterly Income Debt Securities ("QUIDS") to
be issued by Detroit Edison. The QUIDS will be general unsecured subordinated
obligations of Detroit Edison, subordinated in right of payment to approximately
$3.7 billion of Detroit Edison's outstanding debt at June 30, 1998. The QUIDS
will mature on , 2028. Detroit Edison will pay interest on the QUIDS on
March 31, June 30, September 30 and December 31 of each year. The first such
payment will be .
Detroit Edison has the option to redeem the QUIDS (1) at any time on or
after , 2003, in whole or in part, or (2) at any time within 90 days
after the occurrence of certain tax events, in whole but not in part. If Detroit
Edison redeems the QUIDS, it will pay to holders of the QUIDS 100% of the
principal amount being redeemed, plus any interest accrued on the QUIDS to the
date the QUIDS are redeemed. Detroit Edison will issue the QUIDS only in
book-entry form in denominations of $25 and integral multiples of $25.
Detroit Edison intends to list the QUIDS on the New York Stock Exchange and
expects trading in the QUIDS on the New York Stock Exchange to begin within
thirty days after the original issue date. The QUIDS are expected to trade
"flat." This means that purchasers will not pay and sellers will not receive any
accrued and unpaid interest on the QUIDS that is not included in the trading
price.
See "Risk Factors" beginning on page S-2 to read about certain factors you
should consider before buying the QUIDS.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
PER
QUIDS TOTAL
----- -----
<S> <C> <C>
Initial public offering price............................... 100% $100,000,000
Underwriting discount....................................... $ $
Proceeds, before expenses, to Detroit Edison................ $ $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the QUIDS will accrue from , 1998 and
must be paid by the purchaser if the QUIDS are delivered after , 1998.
----------------------
The Underwriters are severally underwriting the QUIDS being offered. They
expect to deliver the QUIDS in book-entry form only through the facilities of
The Depository Trust Company in New York, New York on , 1998.
QUIDS(SM) is a service mark of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO. SALOMON SMITH BARNEY
MCDONALD & COMPANY
SECURITIES, INC.
RONEY CAPITAL MARKETS
A DIVISION OF FIRST CHICAGO CAPITAL MARKETS, INC.
SG COWEN
----------------------
Prospectus Supplement dated October , 1998
<PAGE> 3
THE COMPANY
The Detroit Edison Company ("Detroit Edison" or the "Company") has been
incorporated in Michigan since 1967. The Company is a regulated public utility
that generates, purchases, transmits, distributes and sells electric energy in a
7,600 square mile area in Southeastern Michigan. The Company's service area
includes about 13% of Michigan's total land area and about half of its
population (approximately five million people). The Company's residential
customers reside in urban and rural areas, including an extensive shoreline
along the Great Lakes and connecting waters.
Detroit Edison's executive offices are located at 2000 2nd Avenue,
Detroit, Michigan 48226-1279. The telephone number is 313-235-8000.
RISK FACTORS
An investment in the QUIDS involves a number of risks, some of which
relate to the QUIDS and others of which relate to Detroit Edison. You should
carefully consider the following information about these risks, together with
the other information in this prospectus supplement and the accompanying
prospectus, before buying any QUIDS.
THE COMPANY MAY DEFER INTEREST PAYMENTS ON THE QUIDS FOR SUBSTANTIAL PERIODS,
BUT THE HOLDERS WOULD CONTINUE TO RECOGNIZE VALUE FOR TAX PURPOSES.
If no Indenture Event of Default has occurred and is continuing, which
means that the Company has performed all of its obligations with respect to the
QUIDS, including timely payment of principal and interest, the Company has the
right to extend the interest payment period on the QUIDS. The Company must give
prior notice of any extension by public announcement in accordance with the
rules of the New York Stock Exchange (the "NYSE"). The aggregate interest
payment period, as extended, must:
(1) end on an interest payment date, and
(2) not exceed 20 consecutive quarterly interest payment periods or extend
beyond the maturity of the QUIDS or any date on which any QUIDS are
fixed for redemption (each such extended period, a "Deferral Period").
No interest will be due and payable during a Deferral Period. However,
on the interest payment date occurring at the end of each Deferral
Period the Company will pay to the holders of record on the record
date for such interest payment date (regardless of who the holders of
record may have been on other dates during the Deferral Period) all
accrued and unpaid interest on the QUIDS, together with interest
thereon compounded quarterly at the rate of interest on the QUIDS.
If the Company exercises its right to extend the interest payment period,
the Company may not declare or pay dividends on, or redeem, purchase or acquire,
any shares of its preferred stock, preference stock, common stock or any other
equity securities of the Company ("Capital Stock") until deferred interest on
the QUIDS is paid in full, other than redemptions of any series of Capital Stock
of the Company pursuant to the terms of any sinking fund provisions with respect
thereto. In addition, during any Deferral Period, the Company may make any
advance or loan to, or purchase any securities of, or make any other investment
in, any affiliate of the Company, including DTE Energy, for the purpose of, or
to enable the payment of, directly or indirectly, dividends on any equity
securities of DTE Energy. See "The Company".
Upon the termination of any Deferral Period and the payment of all
interest then due, the Company may commence a new Deferral Period. Consequently,
there could be multiple Deferral Periods of varying lengths throughout the term
of the QUIDS. See
S-2
<PAGE> 4
"Description of the QUIDS -- Payment
Deferral".
During any Deferral Period, holders of QUIDS will be required to treat
such QUIDS as reissued with original issue discount ("OID") at the beginning of
such Deferral Period and, under the OID rules, holders of the QUIDS would be
required to accrue income on the QUIDS for United States Federal income tax
purposes. As a result, a holder ordinarily would include such amounts in gross
income before it actually receives any cash attributable to that income. See
"United States Federal Income Tax Consequences -- United States Holders".
The Company has no current intention of exercising its right to extend an
interest payment period.
THE COMPANY'S DEFERRAL RIGHT AND THE TAX TREATMENT OF THE QUIDS COULD ADVERSELY
AFFECT MARKET PRICES FOR THE QUIDS
If the Company determines to extend an interest payment period, or if the
Company thereafter extends a Deferral Period, the market price of the QUIDS is
likely to be adversely affected. In addition, as a result of such rights, the
market price of the QUIDS may be more volatile than other debt instruments that
do not have such rights. A holder that disposes of its QUIDS during a Deferral
Period, therefore, may not receive the same return on its investment as a holder
that continues to hold its QUIDS.
A holder that disposes of its QUIDS prior to the record date for payment
of interest at the end of a Deferral Period will not receive cash from the
Company related to such interest because such interest will be paid to the
holder of record on such record date, regardless of who the holders of record
may have been on other dates during the Deferral Period. The extent to which
such a holder will receive a return on the QUIDS for the period it held such
QUIDS will depend on the market for the QUIDS at the time of such disposition.
See "United States Federal Income Tax Consequences -- United States Holders".
THE COMPANY'S OBLIGATIONS WILL BE
DEEPLY SUBORDINATED
The QUIDS are unsecured obligations of the Company. They will be
subordinate to all existing and future Senior Indebtedness (as hereinafter
defined) of the Company, but senior to all Capital Stock of the Company. On June
30, 1998, approximately $3.7 billion of such Senior Indebtedness was
outstanding. There are no terms in the QUIDS that limit the Company's ability to
incur additional indebtedness, including indebtedness that would rank equal to
or senior to the QUIDS. The Company currently has three other series of
quarterly income debt securities outstanding in the aggregate principal amount
of approximately $335 million which are of equal rank to the QUIDS. After giving
effect to the issuance of the QUIDS offered hereby and the planned redemption of
the 8.5% quarterly income debt securities, the Company will have approximately
$385 million in such securities outstanding, including the QUIDS offered hereby.
With respect to the QUIDS, the Indenture (as hereinafter defined) does not
contain any cross-defaults to any other indebtedness of the Company, and
therefore, a default with respect to, or the acceleration of, any such
indebtedness will not constitute an "Event of Default" with respect to the
QUIDS. As the QUIDS will be issued by the Company, the QUIDS effectively will be
subordinate to all obligations of the Company's subsidiaries. See "Description
of the QUIDS -- Subordination" and "-- Subrogation".
LACK OF PRIOR MARKET FOR THE QUIDS AND TRADING CHARACTERISTICS OF THE QUIDS
Prior to this Offering, there has been no market for the QUIDS. The
Company expects that the QUIDS will be approved for listing on the NYSE. Trading
of the QUIDS on the NYSE is expected to begin within thirty-days after the
original issue date. However, a listing does not guarantee that a trading market
for the QUIDS will develop or, if a trading market for the QUIDS does develop,
the depth of that market. The QUIDS are expected to trade "flat". This means
that purchasers will not pay and sellers will not receive any accrued and unpaid
interest on the QUIDS that is not included in the trading price.
S-3
<PAGE> 5
TAX EVENT REDEMPTION
If a Tax Event (as defined in "Description of the QUIDS -- Tax Event
Redemption") occurs, the Company has the right, within 90 days following the
occurrence of such Tax Event, to redeem the QUIDS, in whole but not in part, at
a redemption price equal to the aggregate principal amount of the QUIDS plus
accrued and unpaid interest.
UTILITY INDUSTRY AND ENVIRONMENTAL REGULATION MAY ADVERSELY AFFECT THE COMPANY'S
OPERATING RESULTS
The electric utility industry is facing serious issues as legislators and
regulators consider various proposals designed to reduce rates and promote
economic growth through competition and deregulation of generation assets.
Deregulation, cogeneration, independent power production, open access to
transmission lines, competitive bulk power supply markets, municipalization,
retail customer choice or open access and the unbundling of utility products and
services are issues under consideration.
The Company is participating at both the federal and state (Michigan)
levels in legislative and administrative proceedings attempting to make the
electric energy market competitive. These proceedings, which include matters
under appeal, are dealing with the effects of competition on both public
utilities and consumers. Issues under consideration include: (1) the recovery of
stranded costs (possibly including securitization) by public utilities now
recovering capital costs under traditional ratemaking principles, (2) retail
wheeling and open transmission access, and (3) revisions to (and the possible
repeal of all or portions of) various federal and state energy-related statutes,
as well as new implementing legislation. The Company is not able to predict the
outcome or timing of these proceedings.
The Company is subject to extensive environmental regulation. Additional
costs may result as the effects of various chemicals on the environment
(including nuclear waste) are studied and governmental regulations are developed
and implemented. In addition, the impact of proposed Environmental Protection
Agency ozone transport regulations and final new air quality standards relating
to particulate air pollution are unknown. The costs of future nuclear
decommissioning activities are the subject of increased regulatory attention.
Ownership of Fermi 2, a nuclear generating unit comprising 24% of the
Company's total assets and 11% of the Company's summer net rated capability,
subjects the Company to additional significant risks. Nuclear plants are highly
regulated by a number of governmental agencies concerned with public health and
safety and environmental protection. Consequently, Fermi 2 is subject to greater
scrutiny than a conventional fossil fueled plant.
LIEN ON THE COMPANY'S ASSETS
Substantially all of the Company's properties are subject to the lien of a
Mortgage and Deed of Trust, under which approximately $3.0 billion of General
and Refunding Mortgage Bonds were outstanding as of June 30, 1998.
S-4
<PAGE> 6
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,(A) YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Summary:
Operating Revenues............ $1,893 $1,742 $3,657 $3,642 $3,636 $3,519 $3,555
Operating Income.............. 485 429 1,003 841 1,015 986 1,147
Net Income.................... 193 160 417 328 434 420 522
</TABLE>
- ---------------
(a) The Company's financial results for these interim periods are not
necessarily indicative of results that may be expected for any other interim
period or for the fiscal year.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges* were as follows for the
respective periods indicated:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
- ------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
3.23 3.24 2.71 3.21 3.13 3.25
</TABLE>
- ---------------
* For the purposes of computing this ratio, earnings represent net income
(including allowance for both borrowed & other funds used during construction,
"AFUDC", accretion income and deferred Fermi 2 depreciation, amortization and
return) before deducting income taxes and fixed charges. Fixed charges
represent total interest charges, interest factor of rents and amortization of
debt discount, premium and expense.
USE OF PROCEEDS
The Company will utilize the proceeds from the sale of the QUIDS offered
hereby to redeem approximately $50 million aggregate principal amount of its
8.5% Series of QUIDS due 2025 and all outstanding shares of its 7.74% Series
Cumulative Preferred Stock.
S-5
<PAGE> 7
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1998 and as adjusted to give effect
to the issuance of the QUIDS offered hereby and the planned redemption of 8.5%
QUIDS and 7.74% Series Cumulative Preferred Stock.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------------
ACTUAL AS ADJUSTED
--------------- ---------------
(MILLIONS)
<S> <C> <C> <C> <C>
Long-Term Debt........................................... $3,177 45.3% $3,177 45.3%
Quarterly Income Debt Securities......................... 335 4.8 385 5.5
------ ----- ------ -----
Cumulative Preferred Stock Redeemable Solely at the
Option of the Company.................................. 48 0.7 -- --
Common Shareholder's Equity.............................. 3,453 49.2 3,451 49.2
------ ----- ------ -----
$7,013 100.0% $7,013 100.0%
====== ===== ====== =====
</TABLE>
CERTAIN DEVELOPMENTS
ENVIRONMENTAL
As discussed in Part II, Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations in Detroit Edison's 1997 Annual
Report on Form 10-K, the Environmental Protection Agency ("EPA") issued ozone
transport regulations and final new air quality standards relating to ozone and
particulate air pollution. In September 1998, the EPA issued a State
Implementation Plan ("SIP") call, giving states a year to develop new
regulations to limit nitrogen oxide emissions because of their contribution to
ozone formation. The EPA draft proposal suggests most emission reductions should
come from utilities. If Michigan follows EPA's recommendations, it is estimated
that it will cost Detroit Edison more than $400 million to comply. Until the
state issues its regulations, it is impossible to predict the full impact of the
SIP call. Additional environmental costs would be expected to be recovered under
traditional ratemaking principles. However, Detroit Edison is unable to predict
what effect, if any, deregulation of the electric utility industry would have on
the recoverability of such environmental costs.
REGULATORY
As discussed in Notes 1 and 3 of the Notes to Consolidated Financial
Statements appearing in Detroit Edison's 1997 Annual Report on Form 10-K, the
Michigan Public Service Commission (MPSC) has established a capacity factor
performance standard which provides for the disallowance of net incremental
replacement power cost if Fermi 2 does not perform to certain operating
criteria. A disallowance will be imposed for the amount by which the Fermi 2
three-year rolling average capacity factor is less than the greater of either
the average of the top 50% of U.S. boiling water reactors or 50%. An estimate of
the incremental cost of replacement power is required in computing the reserve
for amounts due customers under this performance standard. At December 31, 1997
and 1996, Detroit Edison had accruals of $74 million and $72.9 million,
respectively, for the disallowances that are expected to be imposed by the MPSC.
Due primarily to an increase in the estimate of the incremental cost of
replacement power at September 30, 1998, Detroit Edison recorded an increase in
the Fermi 2 capacity factor performance standard accrual of $34 million ($22
million after-tax) or $0.15 per common share.
As discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations in its 1997 Annual Report on Form 10-K,
Detroit Edison has been involved in legal proceedings contesting the statutory
authority of the MPSC to order an experimental retail wheeling program. On
October 12, 1998 the Michigan Supreme Court granted Detroit Edison and other
parties to the proceeding leave to appeal from a January 1998 Order of the
Michigan Court of Appeals finding that the MPSC did have statutory authority to
authorize experimental retail wheeling.
S-6
<PAGE> 8
As discussed in Note 3 of Detroit Edison's 1997 Annual Report, in December
1997, litigation was commenced in the Ingham County Circuit Court of Michigan
contending that Detroit Edison and the MPSC breached a December 1988 MPSC Order
by offsetting the stipulated revenue reduction with the amortization of 1997
storm costs. Following the denial of Detroit Edison's motion for summary
disposition, both the MPSC and Detroit Edison filed emergency appeals with the
Michigan Court of Appeals. While the Company's appeal was denied, on October 8,
1998, the Michigan Court of Appeals granted the MPSC's claim of appeal.
YEAR 2000
As discussed in Part II, Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations in Detroit Edison's 1997 Annual
Report on Form 10-K, DTE Energy and Detroit Edison have been involved in an
enterprise-wide program to address Year 2000 issues. A program office was
established in mid-1997 to implement a rigorous plan to address the impact of
Year 2000 to hardware and software systems, embedded systems (which include
microprocessors used in the production and control of electric power), and
critical service providers. The emphasis has been on mission critical systems
that support core business activities or processes. Core business activities and
processes include safety, environment and regulatory (Federal Energy Regulatory
Commission and Nuclear Regulatory Commission) compliance; product production and
delivery; revenue collection, employee and supplier payment; and financial asset
management.
The plan for addressing Year 2000 is divided into several phases including
raising general awareness of Year 2000 throughout the enterprise; maintaining an
inventory of systems and devices; performing an assessment of inventoried
systems and devices; performing compliance testing of suspect systems and
devices; remediation of non-compliant systems and devices through replace,
repair, retire, or identify an acceptable work around; testing and remediation
of systems and devices in an integrated environment; and preparing business
continuity plans.
The inventory and assessment of known systems and devices has been
completed. Compliance testing and remediation for mission critical and other
systems and devices are in process. Completion of remediation and integration
testing/remediation of mission critical systems is expected by the end of
calendar year 1999.
To support the program phases, the program office has been working with
major utility industry associations and organizations, customers and vendors to
gather and share information on Year 2000 issues. The program office has
contacted vendors critical to operations to determine their progress on Year
2000.
Based upon information to date, Detroit Edison anticipates that abnormal
operating conditions may be experienced within the Detroit Edison production,
transmission, and distribution systems as a result of Year 2000 conditions.
These conditions could result in temporary interruption of service to customers.
Abnormal operating conditions may also be experienced by its affiliates of a
magnitude not determined at this time. To address these issues, a business
continuity program is being developed to be operational in the fourth quarter of
1999. The business continuity program is expected to provide short and long-
term solutions to Year 2000 related issues.
Detroit Edison believes that with all Year 2000 modifications and business
continuity plans in place, the Year 2000 will not have a material effect on its
financial position, liquidity and results of operations. However, despite all
efforts, there can be no assurances that Year 2000 issues can be totally
eliminated. In addition, no assurances can be given that the systems of vendors,
interconnected utilities, and customers will not result in Year 2000 problems.
Detroit Edison currently estimates that Year 2000 costs will aggregate
between $50 and $75 million, with $13 million expended between January 1, 1998
and September 30, 1998. Operating cash flow is expected to be sufficient to pay
Year 2000 modification costs with no material impact on operating results or
cash flows.
S-7
<PAGE> 9
FORWARD-LOOKING STATEMENTS
Certain information presented or incorporated by reference in this
prospectus supplement and accompanying prospectus is based upon the expectations
of Detroit Edison and, as such, is forward-looking. The Private Securities
Litigation Reform Act of 1995 encourages reporting companies to provide analyses
and estimates of future prospects and also permits reporting companies to point
out that actual results may differ from those anticipated.
Actual results for Detroit Edison may differ from those expected due to a
number of variables including, but not limited to, actual sales, the effects of
competition, the implementation of utility restructuring in Michigan (which
involves pending regulatory proceedings, pending and proposed statutory changes
and the recovery of stranded costs), environmental; (including proposed
regulations to limit nitrogen oxide emissions) and nuclear requirements, the
impact of FERC proceedings and regulations and the timely completion of Year
2000 modifications. While Detroit Edison believes that estimates given
accurately measure the expected outcome, actual results could vary materially
due to the variables mentioned as well as others.
DESCRIPTION OF THE QUIDS
GENERAL
The QUIDS will be a series of notes to be issued under the Note Indenture,
dated as of June 30, 1993, as supplemented, and as further supplemented by a
Seventh Supplemental Indenture dated as of , 1998 creating the QUIDS
(as supplemented, the "Indenture"), between the Company and Bankers Trust
Company, as trustee (the "Trustee"). The following statements with respect to
the QUIDS are summaries and are subject to the detailed provisions of the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the
Indenture, a copy of the form of which has been filed as an exhibit to the
Registration Statement. The following summaries of certain provisions of the
Indenture do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all the provisions of the QUIDS and the
Indenture, including the definitions therein of certain terms capitalized and
not otherwise defined in this prospectus supplement. Wherever references are
made to particular provisions of the Indenture or terms defined therein, such
provisions or definitions are incorporated by reference as part of the
statements made and such statements are qualified in their entirety by such
references.
$410 million aggregate principal amount of the debt securities of the
Company previously issued under the Indenture are secured as to payment of
principal, interest and premium, if any, by the Company's General and Refunding
Mortgage Bonds pledged to the Trustee for the benefit of the holders of such
securities. The QUIDS offered hereby, as well as approximately $50 million, $185
million and $100 million aggregate principal amount of 8.5% QUIDS, 7.625% QUIDS
and 7.54% QUIDS, respectively, previously issued, will not, and do not, have the
benefit of any Mortgage Bonds or any other security.
The QUIDS
(1) will constitute an additional series of unsecured, subordinated debt
securities,
(2) will be subordinated to senior indebtedness of the Company, as described
herein,
(3) will be limited in aggregate principal amount to $100,000,000 and
(4) will mature on (the "Stated Maturity").
The annual interest requirement on the QUIDS will be $ .
The QUIDS will be issued only in book-entry form through the facilities of
DTC and will be in denominations of $25. Transfers or exchanges of beneficial
interests in the QUIDS may be effected only through records
S-8
<PAGE> 10
maintained by DTC or its nominee. Settlement
and secondary trading in the QUIDS will be in same-day funds. Payments of
principal and interest on the QUIDS will be made to DTC in immediately available
funds, as described in the prospectus. For a description of DTC and the specific
terms of the depository arrangements, see "DTC Book-Entry-Only System" in the
accompanying prospectus.
QUARTERLY PAYMENTS
Interest on the QUIDS will accrue from the date of original issuance at a
rate of % per annum and will be payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year (each an "Interest Payment
Date"), commencing , 1998 to the persons in whose names the QUIDS
are registered on the relevant record dates. The record date will be one
Business Day (as hereinafter defined) prior to the relevant Interest Payment
Dates (each a "Record Date"). The amount of interest payable on , 1998
to holders of QUIDS will be $ per $25 principal amount of QUIDS.
The amount of interest payable for any period will be computed on the
basis of twelve 30-day months and a 360-day year and, for any period shorter
than a full quarterly interest period, will be computed on the basis of the
actual number of days elapsed in such period. In the event that any date on
which interest is payable on the QUIDS is not a Business Day, then payment of
the amount payable on such date will be made on (1) the next succeeding day
which is a Business Day (and without interest or other payment in respect of any
such delay) with the same force and effect as if made on such date or (2) the
preceding Business Day if the succeeding Business Day would fall within a new
calendar year (and without reduction in amount due to such early payment) with
the same force and effect as if made on such date, subject, in each case, to
certain rights of deferral described below.
A "Business Day" shall mean any day other than a day on which banking
institutions in the State of New York or the State of Michigan are authorized or
obligated pursuant to law or executive order to close.
PAYMENT DEFERRAL
The Company shall have the right at any time, on one or more occasions, so
long as an Event of Default (as hereinafter defined) has not occurred and is not
continuing under the Indenture with respect to the QUIDS, to extend any interest
payment period on the QUIDS. However, the aggregate interest payment period, as
extended, must end on an interest payment date and must not exceed 20
consecutive quarterly interest payment periods or extend beyond the maturity of
the QUIDS or any date on which any QUIDS are fixed for redemption. As a
consequence, the quarterly interest payments on the QUIDS would be deferred (but
would continue to accrue with interest thereon at the rate of interest on the
QUIDS) during any such Deferral Period. At the end of each Deferral Period, the
Company shall pay all interest then accrued and unpaid (compounded quarterly).
If the Company exercises this right, Company shall not declare or pay any
dividend on, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its Capital Stock or make any guarantee payments with respect
to the foregoing during such Deferral Period, other than redemptions of any
series of Capital Stock of the Company pursuant to the terms of any sinking fund
provisions with respect thereto. In addition, during any Deferral Period, the
Company may not make any advance or loan to, or purchase any securities of, or
make any other investment in, any affiliate of the Company, including DTE
Energy, for the purpose of, or to enable the payment of, directly or indirectly,
dividends on any equity securities of DTE Energy.
During any Deferral Period, the Company may continue to extend the
interest payment period by extending the Deferral Period; provided that the
aggregate Deferral Period, as extended, must end on an Interest Payment Date and
must not exceed 20 consecutive quarterly interest payment periods or extend
beyond the maturity of the QUIDS or any date on which the QUIDS are fixed for
redemption. The Company shall give the
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holders of QUIDS notice of its election to defer payments or to extend the
Deferral Period ten Business Days prior to the earlier of
(1) the next scheduled quarterly payment date and
(2) the date the Company is required to give notice of the record date of such
related interest payment to the NYSE or other applicable self-regulatory
organization or to the holders of the QUIDS, but in any event not less
than two Business Days prior to such record date.
The Company has no current intention of exercising its right to extend an
interest payment period.
Upon the termination of any Deferral Period and the payment of all
interest then due, the Company may commence a new Deferral Period. Consequently,
there could be multiple Deferral Periods of varying lengths throughout the term
of the QUIDS.
OPTIONAL REDEMPTION
The QUIDS will be redeemable at the option of the Company, in whole or in
part, at any time on or after , 2003 and prior to maturity, upon not
less than 30 nor more than 60 days' notice, at a redemption price equal to 100%
of the principal amount redeemed plus accrued and unpaid interest to the date
fixed for redemption.
TAX EVENT REDEMPTION
If a Tax Event (a "Tax Event") has occurred and is continuing, the Company
has the right, within 90 days following the occurrence of such Tax Event, to
redeem the QUIDS, in whole but not in part, at a redemption price equal to the
aggregate principal amount of the QUIDS plus accrued and unpaid interest to the
date of redemption (the "Redemption Price").
"Tax Event" means that the Company shall have received an opinion of
counsel (which may be counsel to the Company or an affiliate but not an employee
thereof) 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 pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such pronouncement or decision is announced on or after the date of
original issuance of the QUIDS, there is more than an insubstantial risk that
interest payable by the Company on the QUIDS is not, or will not be, deductible
by the Company for United States Federal income tax purposes.
EVENTS OF DEFAULT
Any one of the following events will constitute an Event of Default under
the Indenture with respect to the QUIDS offered hereby:
(1) failure to pay any interest on the QUIDS when due, continued for 30 days;
(2) failure to pay principal on the QUIDS when due;
(3) failure to perform any other covenant or warranty of the Company in the
Indenture (other than a covenant or warranty included in the Indenture
solely for the benefit of a series of securities other than the QUIDS),
continued for 60 days after written notice as provided in the Indenture;
and
(4) certain events of bankruptcy, insolvency or reorganization involving the
Company. With respect to the QUIDS offered hereby, the Indenture does not
contain any cross-default to any other indebtedness of the Company, and
therefore, default with respect to, or an acceleration of, any such
indebtedness will not constitute an Event of Default with respect to the
QUIDS.
If an Event of Default with respect to the QUIDS occurs and is continuing,
either the Trustee or the holders of at least 25% in aggregate principal amount
of the outstanding QUIDS by notice as provided in the Indenture
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may declare the principal amount of the QUIDS to be due and payable immediately.
At any time after a declaration of acceleration has been made, but before a
judgment or decree for payment of money has been obtained by the Trustee, and
subject to applicable law and certain other provisions of the Indenture, the
holders of a majority in aggregate principal amount of the QUIDS may, under
certain circumstances, rescind and annul such acceleration.
The Indenture provides that within 90 days after the occurrence of any
Event of Default thereunder with respect to the QUIDS, the Trustee shall
transmit, in the manner set forth in the Indenture, notice of such Event of
Default to the holders of the QUIDS unless such Event of Default has been cured
or waived; provided, however, that except in the case of a default in the
payment of the principal of or interest on any QUIDS of such series, the Trustee
may withhold such notice if and so long as the board of directors, the executive
committee or a trust committee of directors or responsible officers of the
Trustee has in good faith determined that the withholding of such notice is in
the interest of the holders of QUIDS.
If an Event of Default occurs and is continuing with respect to the QUIDS,
the Trustee may in its discretion proceed to protect and enforce its rights and
the rights of the holders of QUIDS by all appropriate judicial proceedings.
The Indenture includes a covenant that the Company will file annually with
the Trustee a certificate as to the Company's compliance with all conditions and
covenants of the Indenture.
The Indenture provides that, subject to the duty of the Trustee during any
default to act with the required standard of care, the 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 QUIDS, unless such holders shall
have offered to the Trustee reasonable indemnity. Subject to such provisions for
the indemnification of the Trustee, and subject to applicable law and certain
other provisions of the Indenture, the holders of a majority in aggregate
principal amount of the outstanding QUIDS will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the QUIDS.
SUBORDINATION
The payment of the principal of and interest on the QUIDS will be
expressly subordinated, to the extent and in the manner set forth in the
Indenture, in right of payment to the prior payment in full of all existing and
future Senior Indebtedness of the Company.
Upon (1) any acceleration of the principal amount due on the QUIDS or (2)
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding-up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all principal and premium, if any, and interest due upon all
Senior Indebtedness shall first be paid in full, or payment thereof provided for
in money or money's worth in accordance with its terms, before any payment is
made on account of the principal of or interest on the indebtedness evidenced by
the QUIDS, and upon any such dissolution or winding-up or liquidation or
reorganization any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the holders of
the QUIDS would be entitled, except for the provisions of the Indenture, shall
(subject to the power of a court of competent jurisdiction to make other
equitable provision reflecting the rights conferred by the provisions of the
Indenture upon the Senior Indebtedness and the holders thereof with respect to
the QUIDS and the holders thereof by a lawful plan of reorganization under
applicable bankruptcy law), be paid by the Company or any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, or by the holders of the QUIDS if received by them, directly to
the holders of Senior Indebtedness (pro rata to each such holder on the basis of
the respective amounts
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of Senior Indebtedness held by such holder) or their representatives, to the
extent necessary to pay all Senior Indebtedness (including interest thereon) in
full, in money or money's worth, after giving effect to any concurrent payments
or distribution to or for the holders of Senior Indebtedness, before any payment
or distribution is made to the holders of the indebtedness evidenced by the
QUIDS. The consolidation of the Company with or the merger of the Company into
another person or the liquidation or dissolution of the Company following the
conveyance or transfer of its property as an entirety, or substantially as an
entirety, to another person upon the terms and conditions provided in the
Indenture shall not be deemed a dissolution, winding-up, liquidation or
reorganization for these purposes.
If any payment or distribution of assets of the Company of any kind or
character not permitted by the foregoing provisions, whether in cash, property
or securities, shall be received by the holders of QUIDS before all Senior
Indebtedness is paid in full, or provision made for such payment, in accordance
with its terms, such payment or distribution shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of such Senior
Indebtedness or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any of
such Senior Indebtedness may have been issued, as their respective interests may
appear, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all such Senior Indebtedness in full in
accordance with its terms, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
No payment on account of principal of or interest on the QUIDS shall be
made unless full payment of amounts then due for principal, premium, if any,
sinking funds and interest on any Senior Indebtedness has been made or duly
provided for in money or money's worth in accordance with the terms of such
Senior Indebtedness. No payment on account of principal or interest on the QUIDS
shall be made if, at the time of such payment or immediately after giving effect
thereto, (1) there shall exist a default in the payment of principal, premium,
if any, sinking fund or interest with respect to any Senior Indebtedness, or (2)
there shall have occurred an event of default (other than a default in the
payment of principal, premium, if any, sinking funds or interest) with respect
to any Senior Indebtedness, as defined therein or in the instrument under which
the same is outstanding, permitting the holders thereof to accelerate the
maturity thereof, and such event of default shall not have been cured or waived
or shall not have ceased to exist.
SUBROGATION
From and after the payment in full of all Senior Indebtedness, the holders
of the QUIDS (together with the holders of any other indebtedness of the Company
which is subordinate in right of payment to the payment in full of all Senior
Indebtedness, which is not subordinate in right of payment to the QUIDS and
which by its terms grants such right of subrogation to the holder thereof) shall
be subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets or securities of the Company applicable to
the Senior Indebtedness until the QUIDS shall be paid in full, and, for the
purposes of such subrogation, no such payments or distributions to the holders
of Senior Indebtedness of assets or securities, which otherwise would have been
payable or distributable to holders of the QUIDS, shall, as between the Company,
its creditors other than the holders of Senior Indebtedness, and the holders of
the QUIDS, be deemed to be a payment by the Company to or on account of the
Senior Indebtedness, it being understood that these provisions of the Indenture
are and are intended solely for the purpose of defining the relative rights of
the holders of the QUIDS, on the one hand, and the holders of the Senior
Indebtedness, on the other hand, and nothing contained in the Indenture is
intended to or shall impair as between the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the QUIDS, the obligation of
the Company, which is unconditional and absolute, to pay to the holders of the
QUIDS
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the principal of and interest on the QUIDS as and when the same shall become due
and payable in accordance with their terms, or to affect the relative rights of
the holders of the QUIDS and creditors of the Company other than the holders of
the Senior Indebtedness, nor shall anything therein prevent the holder of any
QUIDS from exercising all remedies otherwise permitted by applicable law upon
default under such QUIDS subject to the rights of the holders of Senior
Indebtedness to receive cash, property or securities of the Company otherwise
payable or deliverable to the holders of the QUIDS or to a representative of
such holders, on their behalf.
With respect to the QUIDS offered hereby, the term "Senior Indebtedness"
is defined in the Indenture as
(1) any Payment Obligation (as defined) of the Company in respect of any
Indebtedness, directly or indirectly, created, incurred or assumed for
borrowed money or in connection with the acquisition of any business,
property or asset (including securities), other than any account payable
or other indebtedness created, incurred or assumed in the ordinary course
of business in connection with the obtaining of materials or services;
(2) any Payment Obligation of the Company in respect of any lease that would
be required to be classified and accounted for as a capital lease;
(3) any Payment Obligation of the Company in respect of any interest rate
exchange agreement, currency exchange agreement or similar agreement that
provides for payment (whether or not contingent) over a period or term
(including any renewals or extensions) longer than one year from the
execution thereof;
(4) any Payment Obligation of the Company in respect of any agreement relating
to an acquisition (including a sale and buyback) or the lease (including a
sale and leaseback) of real or personal property and that provides for
payment (whether or not contingent) over a period or term (including any
renewals or extensions) longer than one year from the execution thereof;
(5) any Payment Obligation of any Subsidiary (as defined in the Indenture) or
of others of the kind described in the preceding clauses (1) through (4)
assumed or guaranteed by the Company or for which the Company is otherwise
responsible or liable; and
(6) any amendment renewal, extension or refunding of any of the foregoing
Payment Obligations.
The term "Payment Obligation", when used with respect to Senior
Indebtedness, means an obligation stated in an agreement, instrument or lease to
pay money (whether for principal, premium, interest, sinking fund, periodic
rent, stipulated value, termination value, liquidated damages or otherwise), but
excludes an obligation to pay money in respect of fees of, or as payment or
reimbursement for expenses incurred by or on behalf of, or as indemnity for
losses, damages, taxes or other indemnity claims of any kind owed to, any holder
of Senior Indebtedness or other party to such agreement, instrument or lease.
The Indenture does not restrict the amount of Senior Indebtedness that the
Company may incur.
CONCERNING THE TRUSTEE
Bankers Trust Company is the Trustee under the Indenture with respect to
both collateralized and uncollateralized notes, including the QUIDS. Bankers
Trust Company also serves as Trustee for the Company's Mortgage and Deed of
Trust with respect to General and Refunding Mortgage Bonds.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States Federal income
tax consequences of the ownership of QUIDS as of the date hereof and sets forth
in full the opinion of Brown & Wood LLP, special tax counsel to the Company,
insofar as it relates to matters of law or legal conclusions. Except where
noted, it deals only with original purchasers that hold the QUIDS 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 QUIDS as a part of a hedging or conversion transaction or a
straddle, United States Holders (as defined below) whose "functional currency"
is not the U.S. dollar, or Non-United States Holders (as defined below) who own
(actually or constructively) ten percent or more of the combined voting power of
all classes of voting stock of the Company, who are present in the United States
or who have any other special status with respect to the United States.
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 so as to result in Federal income tax consequences
different from those discussed below.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF QUIDS SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN
LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER
THE LAWS OF ANY OTHER TAXING JURISDICTION.
UNITED STATES HOLDERS
As used herein, a "United States Holder" of QUIDS 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, any state
thereof or the District of Columbia, an estate the income of which is subject to
United States Federal income taxation regardless of its source or a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. A "Non-United
States Holder" is a holder that is not a United States Holder.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under applicable Treasury regulations (the "Regulations"), if the terms
and conditions of a debt instrument make the likelihood that stated interest
will not be timely paid a "remote" contingency, such contingency will be ignored
in determining whether the debt instrument is issued with OID. The Company
believes that the likelihood of its exercising its option to defer payments of
interest on the QUIDS is remote, since exercising that option would prevent it
from declaring dividends on any class of its stock. Based on the foregoing, the
Company intends to take the position that the QUIDS were not issued with OID
and, accordingly, a United States Holder should include in gross income only
such United States Holder's pro rata share of stated interest on the QUIDS in
accordance with such United States Holder's method of tax accounting.
The Regulations have not yet been addressed in any rulings or other
published interpretations by the Internal Revenue Service (the "IRS").
Accordingly, it is possible the IRS could take the position that the likelihood
of deferral was not a remote contingency within the meaning of the Regulations.
Under the Regulations, if the Company were to exercise its option to defer
payments of interest after treating the QUIDS as issued without OID, the QUIDS
would be treated as reissued with OID at that time, and all stated interest (and
de minimis OID, if any) on the QUIDS would thereafter be treated as OID as long
as the QUIDS remained outstanding. In such event, all of a United States
Holder's income with respect to the QUIDS would be accounted for as OID on an
economic accrual basis regardless of such United States Holder's method of tax
accounting, and actual distributions of stated interest would not be
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includable in gross income. Consequently, a
United States Holder would be required to include OID in gross income even
though the Company would not make any actual cash payments during a Deferral
Period.
A United States Holder that disposed of QUIDS prior to the record date for
the payment of interest following a Deferral Period would include OID in gross
income but would not receive any cash related thereto from the Company. Any
amount of OID included in a United States Holder's gross income (whether or not
during a Deferral Period) would increase such United States Holder's tax basis
in its QUIDS, and the amount of interest not includable in gross income would
reduce such United States Holder's tax basis in its QUIDS.
SALE, EXCHANGE AND RETIREMENT OF THE QUIDS
Upon the sale, exchange or retirement of QUIDS, a United States Holder
will recognize gain or loss equal to the difference between the amount realized
upon the sale, exchange or retirement and the adjusted tax basis of the QUIDS. A
United States Holder's adjusted tax basis in QUIDS will, in general, be the
United States Holder's initial basis therefor, increased by any OID previously
included in income by the United States Holder and reduced by any cash payments
on the QUIDS. 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 retirement,
the QUIDS 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.
NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(1) no withholding of United States Federal income tax will be required with
respect to the payment by the Company or any paying agent of principal or
interest (which for purposes of this discussion includes OID) on QUIDS
owned by a Non-United States Holder, provided
(A) the beneficial owner is not a controlled foreign corporation that is
related to the Company through stock ownership,
(B) the beneficial owner is not a bank whose receipt of interest on the
QUIDS is described in section 881(c)(3)(A) of the Code and
(C) either
(a) the beneficial owner certifies to the Company or its agent,
under the penalties of perjury, that it is not a U.S. person,
citizen or resident and provides its name and address, or
(b) a financial institution holding the QUIDS on behalf of the
beneficial owner certifies, under penalties of perjury, that
such statement has been received by it and furnishes the Company
or its agent with a copy thereof;
(2) no withholding of United States Federal income tax will be required with
respect to any gain or income realized by a Non-United States Holder upon
the sale, exchange or retirement of QUIDS; and
(3) QUIDS beneficially owned by an individual who at the time of death is a
Non-United States Holder will not be subject to United States Federal
estate tax as a result of such individual's death, provided that the
interest payments with respect to such QUIDS would not have been, if
received at the time of such individual's death, effectively connected
with the conduct of a trade or business by such individual in the United
States.
BACKUP WITHHOLDING AND
INFORMATION REPORTING
In general, information reporting requirements will apply to certain
payments of
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principal and interest paid and OID accrued, if any, on the QUIDS and to the
proceeds of sale of the QUIDS made to United States Holders other than certain
exempt recipients (such as corporations). United States Holders other than
exempt recipients generally will receive information returns on IRS Form
1099-OID stating the amount of OID, if any, accrued on the QUIDS each year. A 31
percent backup withholding tax will apply to payments described in the preceding
sentence if the United States Holder fails to provide a taxpayer identification
number or certification of foreign or other exempt status or fails to report in
full dividend and interest income.
No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-United States
Holders if a statement described in (1)(C) under "Non-United States Holders" has
been received and the payor does not have actual knowledge that the beneficial
owner is a United States person.
Payments of the proceeds from the sale by a Non-United States Holder of
QUIDS made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is, for
federal income tax purposes, a United States person, a controlled foreign
corporation or a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States,
such payments will not be subject to backup withholding but may be subject to
information reporting. Such payment of the proceeds of the sale of QUIDS to or
through the United States office of a broker is subject to information reporting
and backup withholding unless the Non-United States Holder or the beneficial
owner certifies as to its non-United States status or otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
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UNDERWRITING
The Company and the underwriters named below (the "Underwriters") have
entered into an underwriting agreement and a pricing agreement with respect to
the QUIDS. Subject to certain conditions, each Underwriter has severally agreed
to purchase the aggregate principal amount of QUIDS indicated in the following
table.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITERS OF QUIDS
------------ ------------
<S> <C>
Goldman, Sachs & Co.......................................
Salomon Smith Barney Inc. ................................
McDonald & Company Securities, Inc. ......................
Roney Capital Markets,
A Division of First Chicago Capital Markets, Inc. ......
SG Cowen Securities Corporation...........................
------------
Total..................................................... $100,000,000
------------
</TABLE>
QUIDS sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus
supplement. The Underwriters may sell QUIDS to securities dealers at a discount
from the initial public offering price of up to % of the principal amount of
the QUIDS. Securities dealers may resell any QUIDS purchased from the
Underwriters to certain other brokers or dealers at a discount from the initial
public offering price of up to % of the principal amount of the QUIDS. If all
the QUIDS are not sold at the initial public offering price, the Underwriters
may change the offering price and the other selling terms.
Prior to the Offering, there has been no public market for the QUIDS. The
QUIDS will be listed on the NYSE, and we expect trading in the QUIDS on the NYSE
to begin within thirty days after the original issue date. In order to meet one
of the requirements for listing the QUIDS, the Underwriters will undertake to
sell lots of 100 or more to a minimum of 400 beneficial holders.
The QUIDS are a new issue of securities with no established trading
market. The Underwriters have advised the Company that the Underwriters intend
to make a market in the QUIDS but are not obligated to do so and may discontinue
market making at any time without notice. Neither the Company nor the
Underwriters can assure you that the trading market for the QUIDS will be
liquid.
In connection with the Offering, the Underwriters may purchase and sell
QUIDS in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the Underwriters of a greater total
principal amount of QUIDS than they are required to purchase in the Offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the QUIDS
while the Offering is in progress.
The Underwriters also may impose a penalty bid. This may occur when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount because the Underwriters have repurchased QUIDS sold by or for the
account of that Underwriter in stabilizing or short covering transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the QUIDS. As a result, the price of the QUIDS may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the Underwriters at any
time. These transactions may be effected on the NYSE, in the over-the-counter
market or otherwise.
The Company has agreed to indemnify the several Underwriters against
certain
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liabilities, including liabilities under the
Securities Act of 1933.
The Company expects to have an estimated $185,000 of expenses in
connection with this Offering.
LEGAL OPINIONS
The validity of the QUIDS will be passed upon for the Company by
Christopher C. Nern, Esq., Vice President and General Counsel of the Company,
and for the Underwriters by Brown & Wood LLP. Brown & Wood LLP, special tax
counsel to the Company, has passed upon certain United States federal income tax
considerations with respect to the QUIDS.
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<PAGE> 20
The information contained in this prospectus is not complete and may be amended.
These securities may not be sold until the related registration statement filed
with the Securities and Exchange Commission or any applicable state securities
commission becomes effective. This prospectus is not an offer to sell nor is it
seeking an offer to buy these securities in any state where the offer or sale is
not permitted.
Subject to Completion. Dated October 23, 1998.
Prospectus
[DETROIT EDISON LOGO]
$364,877,700
THE DETROIT EDISON COMPANY
Debt Securities
----------------------
The Detroit Edison Company intends from time to time to issue up to
$364,877,700 of its Debt Securities in one or more series of
(1) senior Debt Securities which may be (A) General and Refunding Mortgage
Bonds, (B) other senior Debt Securities, including Remarketed Notes,
secured by Mortgage Bonds, or
(2) unsecured Debt Securities, which may be senior or subordinated.
We will provide the specific terms of these securities in supplements to
this prospectus. You should read this prospectus and the supplement carefully
before you invest.
This prospectus, appropriately supplemented, may also be delivered in
connection with any remarketing of Remarketed Notes.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
We may offer the securities directly or through underwriters, agents or
dealers. The supplement will provide the term of that plan of distribution.
"Plan of Distribution" below also provides more information on this topic.
----------------------
The date of this prospectus is October , 1998.
<PAGE> 21
THE COMPANY
GENERAL
The Detroit Edison Company ("Detroit Edison" or the "Company"),
incorporated in Michigan since 1967, is a regulated public utility that
generates, purchases, transmits, distributes and sells electric energy in a
7,600 square mile area in southeastern Michigan. The Company's service area
includes about 13% of Michigan's total land area and about half of its
population (approximately five million people). The Company's residential
customers reside in urban and rural areas, including an extensive shoreline
along the Great Lakes and connecting waters.
WHERE YOU CAN FIND MORE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 ("1934 Act") and in accordance therewith files annual,
quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). You may read and copy any document
we file at the SEC's Public Reference Rooms at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 500 West Madison Street, Chicago, Illinois 60611 and 7
World Trade Center, New York, New York 10048. The public may obtain information
on the operation of the Public Reference Rooms by calling the SEC at
1-800-SEC-0330. Such material can also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005. In addition, the
SEC maintains an Internet site that contains reports, proxy and other
information statements and other information regarding registrants such as the
Company, that file electronically with the SEC. The address of such Internet
site is http://www.sec.gov. The address of the Company's principal executive
offices and its telephone number are 2000 Second Avenue, Detroit, Michigan 48226
and (313) 235-8000.
The Company has filed with the SEC a Registration Statement under the
Securities Act of 1933 with respect to the securities offered hereby. This
prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions of which have
been omitted pursuant to the rules and regulations of the SEC. The information
so omitted may be obtained from the SEC's principal office in Washington, D.C.
upon payment of the fees prescribed by the SEC.
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means we can disclose information to you by referring you to
those documents. Information incorporated by reference is part of this
prospectus. Later information filed with the SEC updates and supersedes this
prospectus.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until this Offering is completed, or subsequent
to the date of the initial Registration Statement and prior to effectiveness of
the Registration Statement:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1997.
2. DTE Energy Company's definitive proxy statement, dated March 17, 1998, in
connection with its April 27, 1998 Annual Meeting of Common Stock
Shareholders.
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended March
31 and June 30, 1998.
4. The Company's Current Report on Form 8-K dated October 14, 1998.
We will provide to each person, including any beneficial owner, to whom a
copy of this prospectus is delivered, a copy of any or all of the information
that has been incorporated by reference in this prospectus but not delivered
with this prospectus. We will deliver this information upon written or oral
request and provide this information at no cost to the requester. You should
direct your requests to
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Susan M. Beale, Vice President and Corporate Secretary, The Detroit Edison
Company, 2000 Second Avenue, Detroit, Michigan 48226; (313) 235-8000. You may
also review the documents we have filed with the SEC at our web site at
www.detroitedison.com.
USE OF PROCEEDS
The Company is offering hereby a maximum of $364,877,700 aggregate
principal amount of its Debt Securities. Net proceeds from the sale of the Debt
Securities will be used to refund or replace funds utilized by the Company for
the purpose of meeting debt and preferred stock refundings (including optional
redemptions).
REGULATORY MATTERS
Federal and state legislators and regulators are working to introduce
competition and customer choice into the generation segment of the electric
public utility industry, believing that competition will lead to reduced
electric rates and stimulate economic growth. The Company has been voluntarily
participating in these efforts. Traditional utility services are being
unbundled, with many of such services becoming non-regulated, and a demand is
being created for new energy-related services.
There are ongoing Michigan legislative, judicial and administrative
proceedings considering the deregulation of the generation segment of the
Michigan electric public utility industry, among other things. The Company is
not able to predict the outcome or timing of these proceedings.
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RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges* were as follows for the
respective periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
SIX MONTHS ENDED --------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
- ---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
3.23 3.24 2.71 3.21 3.13 3.25
</TABLE>
- -------------------------
* For the purpose of computing this ratio, earnings represent net income
(including allowance for both borrowed and other funds used during
construction, "AFUDC", accretion income and deferred Fermi 2 depreciation,
amortization and return) before deducting income taxes and fixed charges.
Fixed charges represent total interest charges, interest factor of rents and
amortization of debt discount, premium and expense. See Note 1 of Notes to
Consolidated Financial Statements appearing in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 for a description of accretion
income and deferred Fermi 2 depreciation, amortization and return.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities, other than General and Refunding Mortgage Bonds, are
to be issued under an indenture dated as of June 30, 1993, as supplemented, and
Supplemental Indentures creating each applicable series of Debt Securities
between the Company and Bankers Trust Company, as trustee (the "Trustee")
(together, the "Indenture").
The General and Refunding Mortgage Bonds (the "Mortgage Bonds") are to be
issued under and secured by, the Mortgage and Deed of Trust dated as of October
1, 1924 between the Company and Bankers Trust Company, as trustee (the "Mortgage
Trustee"), as amended and supplemented by various supplemental indentures (the
"Mortgage") and as to be further amended and supplemented by one or more
supplemental indentures creating the Mortgage Bonds. Each series of secured
Remarketed Notes and any other Secured Debt Securities will be secured as to
payment of principal, interest and premium, if any, by Mortgage Bonds.
The Debt Securities to be offered by this prospectus are limited to
$364,877,700 aggregate initial offering price. However, the Indenture does not
limit the amount of securities which can be issued thereunder and provides that
additional securities of any series may be issued thereunder up to the aggregate
principal amount which may be authorized from time to time by the Company. See
"Provisions Applicable to General and Refunding Mortgage Bonds -- Issuance of
Additional Bonds" herein for information regarding limitations on the amount of
Mortgage Bonds issuable under the Mortgage.
Unless otherwise indicated herein or in the applicable prospectus
supplement, the Debt Securities will be issued in denominations of $1,000 and
integral multiples thereof.
Copies of the Indenture and the Mortgage are filed as exhibits to the
Registration Statement of which this prospectus is a part. The summaries herein
are summaries of certain provisions of the Indenture and the Mortgage and do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all provisions of the Indenture and the Mortgage, including the
definition therein of certain terms. The following summaries set forth certain
general terms and provisions of the Debt Securities to which any prospectus
supplement may relate. The particular terms of the Debt Securities offered by
any prospectus supplement and the extent, if any, to which such general
provisions may apply to the Debt Securities so offered, will be described in the
prospectus supplement relating to such Debt Securities.
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Unless otherwise specified herein or in the applicable prospectus
supplement, Debt Securities will be issued in fully registered book-entry form
and will be registered in the name of The Depository Trust Company, as
depositary ("DTC"), or its nominee. Interests in the Debt Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants.
PROVISIONS APPLICABLE TO ALL DEBT SECURITIES
GENERAL
Reference is made to the prospectus supplement that accompanies this
prospectus for the following terms, to the extent permitted by the Indenture or
the Mortgage, as the case may be, and other information with respect to the Debt
Securities being offered thereby:
(1) the designation, aggregate principal amount and authorized denominations of
such Debt Securities;
(2) the percentage of their principal amount at which such Debt Securities will
be issued;
(3) the date (or the manner of determining or extending the date or dates) on
which the principal of such Debt Securities will be payable;
(4) the terms for conversion or exchange, if any, of the Debt Securities;
(5) the classification as Senior Debt Securities, including as Remarketed Notes
or Mortgage Bonds, or as Subordinated Debt Securities;
(6) whether such Debt Securities will be issued in fully registered form or in
bearer form or any combination thereof;
(7) whether such Debt Securities will be issued in the form of one or more
global securities and whether such global securities are to be issuable in
a temporary global form or permanent global form;
(8) if other than U.S. dollars, the currency or currencies or currency unit or
units for which Debt Securities may be denominated and purchased and the
currency or currencies or currency units in which principal, premium (if
any) and any interest may be payable;
(9) if the currency for which Debt Securities may be purchased or in which
principal, premium (if any) and any interest may be payable is at the
election of the Company or the purchaser, the manner in which such an
election may be made and the terms of such election;
(10) the rate or rates per annum at which such Debt Securities will bear
interest, if any, or the method of determination of such rate or rates;
(11) the dates on which such interest, if any, will be payable, or the method of
determining such dates;
(12) the option of the Company, if any, to defer interest payments, and the
terms and conditions of such interest deferral provisions;
(13) any mandatory or optional sinking fund, redemption or other similar terms;
(14) if the Debt Securities are Secured Securities, a ranking of such series
with other securities of the Company;
(15) any index or other method used to determine the amount of payments of
principal, premium (if any) and interest, if any, on such Debt Securities;
(16) if a trustee other than Bankers Trust Company of New York is named for such
Debt Securities, the name of such trustee; and
(17) any other specific terms of the Debt Securities.
All Debt Securities of any one series need not be issued at the same time
and all the Debt Securities of any one series need not bear interest at the same
rate or mature on the same date.
If any of the Debt Securities are sold for foreign currencies or foreign
currency units or if the principal of, premium, if any, or interest, if any, on
any series of Debt Securities is payable in foreign currencies or foreign
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currency units, the restrictions, elections, tax consequences, specific terms
and other information with respect to such issue of Debt Securities and such
currencies or currency units will be set forth in an applicable prospectus
supplement relating thereto.
PROVISIONS APPLICABLE TO GENERAL AND REFUNDING MORTGAGE BONDS
GENERAL
The Mortgage Bonds, which may be issued hereunder or one of which may
secure the Company's obligations with respect to a series of Secured Debt
Securities, are to be issued under and secured by the Mortgage. A copy of the
Mortgage is filed as an exhibit to the Registration Statement of which this
prospectus is a part, and reference is hereby made to the Mortgage for full and
complete statements of the provisions thereof, including the definitions of
certain terms used, and for other information with respect to the Mortgage
Bonds.
The following statements concerning the Mortgage Bonds and the Mortgage
are brief summaries of certain provisions contained in the Mortgage. They do not
purport to be complete and are qualified in their entirety by reference to the
Mortgage as noted below.
SINKING FUND PROVISIONS AND COLLATERAL
The Mortgage contains no sinking fund or other similar restrictive
requirements.
The bonds of Series KKP No. 10-15, 1989 Series BP, 1989 Series BP No. 2,
1991 Series AP, 1991 Series BP, 1991 Series CP, 1991 Series DP, 1991 Series EP,
1991 Series FP, 1992 Series AP, 1992 Series BP, 1992 Series CP, 1993 Series AP,
1993 Series FP, 1993 Series IP, 1994 Series AP, 1994 Series BP, 1995 Series AP
and 1995 Series BP were issued as security for revenue bonds. The bonds of 1993
Series H, 1993 Series K and 1994 Series C were issued as security for the
Company's Remarketed Secured Notes 1993 Series A Due 2028, 1993 Series B due
2033, and 1994 Series C due 2034, respectively. Such bonds contain provisions
which correspond to the revenue bonds or notes they collateralize in respect of
principal amounts, interest rates, maturity dates and redemption. All payments
of interest on, and reductions of the principal amounts of, such revenue bonds
or notes will be credited as payments to, or will give rise to reductions of
principal amounts of, the corresponding bonds issued under the Mortgage.
FORM AND DENOMINATIONS OF MORTGAGE BONDS; BOOK-ENTRY BONDS
The Mortgage Bonds may be issued in whole or in part in the form of one or
more Global Securities that shall be deposited with, or on behalf of, DTC or
such other Depositary as may be specified, and registered in the name of a
nominee of the Depositary ("Book-Entry Bonds"). See "DTC Book-Entry Only
System." Otherwise, the Mortgage Bonds will be issued only in fully registered
form in denominations of $1,000 or any authorized multiple thereof. Mortgage
Bonds of any denomination will be exchangeable without charge (except for stamp
taxes and other governmental charges) for Mortgage Bonds of the same Series of
other denominations.
PRIORITY AND SECURITY
The Mortgage Bonds will rank equally as to security with all mortgage
bonds of all other Series outstanding under the Mortgage except insofar as any
sinking, improvement or analogous fund may be deemed to afford additional
security for the bonds of any Series and except that, as provided in Section 3
of Article VI of the Mortgage, the Mortgage Trustee may, when in possession
during a default, apply any residue of collections to payment of principal of
such bonds as are then due if all of the bonds have not become due.
The Company has good and marketable title to all properties standing of
record in its name (which include all of those properties, except pollution
control facilities standing in the names of certain municipalities which are
being sold to the Company pursuant to installment sales contracts and the
undivided ownership interest of the Michigan Public Power Agency in a portion of
the Belle River Power Plant, on which its principal plants,
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generating stations and substations are erected and on which its general office
and service buildings are constructed and all other important parcels of real
estate and improvements thereon), subject to the lien of the Mortgage and
subject to minor exceptions, defects, irregularities and deficiencies which, in
the opinion of the Company, do not materially impair the use of such property,
and has adequate rights to maintain and operate such of its transmission and
distribution facilities as are located on public or other property. The Mortgage
is a first lien (subject only to excepted encumbrances as described in the
Mortgage) on substantially all of the Company's properties and franchises and
will (subject to the necessity for particular filings and recordings in the case
of certain personal property) constitute a first lien on any such properties
hereafter acquired by the Company, except that (1) after-acquired property will
be subject to prior liens and encumbrances, if any, existing when acquired by
the Company, (2) the Mortgage will not become a lien upon after-acquired real
property in a new county until it has been duly filed and recorded, and (3) the
Mortgage may not be effective as to property acquired subsequent to the filing
of a bankruptcy proceeding with respect to the Company.
ISSUANCE OF ADDITIONAL BONDS
Additional bonds may be issued under the Mortgage (Article III) on the
basis of retirements of equal amounts of bonds or prior lien bonds; deposit of
cash with the Mortgage Trustee; and 60% of property additions; provided that (in
the case of the issue of bonds upon the basis of property additions or the
deposit of cash) the earnings of the Company (after all taxes) available for
interest and reserves, including depreciation, for any consecutive twelve-month
period within the immediately preceding fifteen months shall have been at least
one and three-quarters times the annual interest charges on all bonds then
outstanding under the Mortgage, all bonds then applied for, and all prior lien
bonds if there are any outstanding. Cash deposited with the Mortgage Trustee as
the basis for the issuance of additional bonds may be withdrawn by the Company
up to an amount equal to the aggregate principal amount of bonds to the
authentication and delivery of which the Company shall have become entitled on
the basis of property additions, or equal to the aggregate principal amount of
bonds theretofore authenticated and delivered under the Mortgage which are
delivered to the Mortgage Trustee for cancellation (Article III, Section 7).
At June 30, 1998, $1.6 billion of Mortgage Bonds could have been issued on
the basis of bond retirements.
RELEASE PROVISIONS
The Company may, in the ordinary course of business, use and consume
materials and equipment and may alter, repair, replace, change location or
position of and add to plants, buildings, machinery and other fixtures without
notice to the bondholders. Leases and contracts may be entered into, terminated
or altered, and materials, equipment and supplies may be sold, exchanged or
otherwise disposed of, free from the lien of the Mortgage, all in the ordinary
course of business (Article X, Sections 1 and 2); the Company may also surrender
or modify its franchises or sell or exchange any other part of its property upon
compliance with the Mortgage requirements (Article X, Sections 3 and 4; Article
XA, Section 2); and the Mortgage Trustee is required to report annually to the
bondholders with respect to any release, or release and substitution of property
(Article XII, Section 7).
MODIFICATION
The Mortgage and the rights and obligations of the Company and of the
bondholders may be modified with the consent of the Company and of the holders
of 85% of the principal amount of bonds outstanding; provided that no such
modification may permit any change in the terms of payment of principal or
interest of any bond without the consent of the holder thereof, nor permit the
creation of any lien ranking prior to or on a parity with the lien of the
Mortgage with respect to any property mortgaged thereunder, nor reduce the
percentage of bondholders necessary to consent to such modification
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(Article XV). The Mortgage also provides that the Company and the Mortgage
Trustee may enter into supplemental indentures for various purposes, adding to
or not detracting from the undertakings of the Company, and that any
supplemental indenture shall, insofar as may be required by the provisions of
the Trust Indenture Act of 1939 as then in effect, comply with the provisions of
that Act (Article XVI).
EVENTS OF DEFAULT AND REMEDIES
The following events of default are applicable to the Mortgage Bonds:
failure to pay interest when due on the Mortgage Bonds, continued for 90 days;
failure to pay principal of the Mortgage Bonds when due; failure to pay interest
on outstanding underlying or prior lien Mortgage Bonds when due, continued for
90 days; failure to pay principal on such bonds when due; failure to perform or
observe covenants, agreements or conditions contained in the Mortgage, continued
for 90 days after notice of default; and insolvency or adjudication of
bankruptcy or appointment of a receiver not revoked within 90 days (Article VI,
Section 2).
The Company is required to furnish to the Mortgage Trustee an opinion of
counsel as to recordation of each supplemental indenture and an annual opinion
as to recording, filing, re-recording and re-filing of the Mortgage and
supplements thereto (Article XA, Section 3). The Company is also required to
furnish to the Mortgage Trustee an annual certificate of its officers as to
compliance with certain provisions of the Mortgage (Article V, Section 19).
The holders of a majority in principal amount of the Mortgage Bonds have
the right to direct the method and place of conducting all proceedings for the
sale of the trust estate, foreclosure or appointment of a receiver or other
proceedings under the Mortgage (Article VI, Section 15); holders of not less
than a majority in principal amount, upon providing reasonable security and
indemnity to the Mortgage Trustee, can require the Mortgage Trustee to take
action toward the execution or enforcement of the trusts created by the Mortgage
(Article VI, Section 16; Article XII, Section 1(b)(8)).
PROVISIONS APPLICABLE TO ALL DEBT SECURITIES OTHER THAN MORTGAGE BONDS
The Debt Securities may be sold at a substantial discount below their
stated principal amount, bearing no interest or interest at a rate which at the
time of issuance is below market rates. See "United States Federal Income Tax
Considerations" herein. Federal income tax consequences and special
considerations applicable to any such series may also be described in the
prospectus supplement relating thereto.
The Debt Securities may be issued in one or more series with the same or
various maturities. (Section 301) Debt Securities may be issued solely in fully
registered form without coupons ("Registered Securities"), solely in bearer form
with or without coupons ("Bearer Securities"), or both as Registered Securities
and Bearer Securities. (Section 301) Registered Securities may be exchangeable
for other Debt Securities of the same series, registered in the same name, for a
like aggregate principal amount in authorized denominations and will be
transferable at any time or from time to time at the aforementioned office. No
service charge will be made to the holder for any such exchange or transfer
except for any tax or governmental charge incidental thereto. If Debt Securities
of any series are issued as Bearer Securities, the prospectus supplement will
contain any restrictions applicable to the offer, sale or delivery of Bearer
Securities and the terms upon which Bearer Securities of the series may be
exchanged for Registered Securities of the series and, if permitted by
applicable laws and regulations, the terms upon which Registered Securities of
the series may be exchanged for Bearer Securities of the series, whether such
Debt Securities are to be issuable in permanent global form with or without
coupons and, if so, whether beneficial owners of interests in any such permanent
global security may exchange such interests for Debt Securities of such series
and the circumstances under which any such exchanges may occur.
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Unless otherwise specified in the applicable prospectus supplement,
principal and interest, if any, on the Debt Securities offered thereby are to be
payable at the office or agency of the Company maintained for such purposes in
the city where the principal corporate trust office of the Trustee is located,
and will initially be the principal corporate trust office of the Trustee,
provided that payment of interest, if any, may be made (subject to collection)
at the option of the Company by check mailed to the persons in whose names the
Debt Securities are registered at the close of business on the day specified in
the prospectus supplement accompanying this prospectus.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Debt Securities will be exchangeable for other Debt Securities of the same
series and of like tenor, of any authorized denominations and of a like
aggregate principal amount and Stated Maturity (as defined in the Indenture).
Debt Securities may be presented for registration of transfer (with the form of
transfer endorsed thereon duly executed), at the office of the Trustee or at the
office of any transfer agent designated by the Company for such purpose, without
service charge and upon payment of any taxes and other governmental charges as
described in the Indenture. Such transfer or exchange will be effected upon the
books of the Trustee or such transfer agent, as the case may be, being satisfied
with the documents of title and identity of the person making the request.
(Section 305)
In the event of any redemption of Debt Securities, the Company shall not
be required to: (i) issue, register the transfer of or exchange such Debt
Securities during a period beginning at the opening of business 15 days before
any selection of such Debt Securities to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption; or (ii)
register the transfer of or exchange any such Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any such Debt Security
being redeemed in part. (Section 305)
SATISFACTION AND DISCHARGE
The Company shall be deemed to have paid and discharged the indebtedness
on all the Debt Securities of a series and the Trustee shall execute instruments
acknowledging the satisfaction and discharge of such indebtedness and, if
applicable, shall pay, or assign or transfer and deliver to the Company the
related Mortgage Bond which has been held as security for the Debt Securities of
such series if (1) (i) the Company has deposited or caused to be deposited with
the Trustee an amount sufficient to pay and discharge the entire indebtedness on
all outstanding Debt Securities of such series for principal (and premium, if
any) and interest to the Stated Maturity or any Redemption Date, as the case may
be; or (ii) the Company has deposited or caused to be deposited with the Trustee
such amount of direct noncallable obligations of, or noncallable obligations the
payment of principal of and interest on which is fully guaranteed by, the United
States of America maturing as to principal and interest in such amounts and at
such times as will, without consideration of any reinvestment thereof, be
sufficient to pay and discharge the entire indebtedness on all outstanding Debt
Securities of such series for principal (and premium, if any) and interest to
the Stated Maturity or any Redemption Date, as the case may be; and (2) the
Company has paid or caused to be paid all other sums payable with respect to the
Debt Securities of such series. (Section 503)
EVENTS OF DEFAULT
Any one of the following events will constitute an Event of Default under
the Indenture with respect to the Debt Securities of any series: (a) failure to
pay any interest on any Debt Security of such series when due, continued for 30
days; (b) failure to pay principal of (or premium, if any) on the Debt
Securities of such series when due; (c) failure to perform any other covenant or
warranty of the Company in the Indenture (other than a covenant or warranty
included in the Indenture solely for the benefit of a series of securities other
than the Debt Securities), continued for 60 days after written notice as
provided in the Indenture; and
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(d) certain events of bankruptcy, insolvency or reorganization involving the
Company. (Section 601)
If an Event of Default with respect to the Debt Securities of any series
occurs and is continuing, either the Trustee or the holders of at least 25% in
aggregate principal amount of the outstanding Debt Securities of such series by
notice as provided in the Indenture may declare the principal amount of such
Debt Securities to be due and payable immediately. At any time after a
declaration of acceleration has been made, but before a judgment or decree for
payment of money has been obtained by the Trustee, and subject to applicable law
and certain other provisions of the Indenture, the holders of a majority in
aggregate principal amount of the Debt Securities of such series may, under
certain circumstances, rescind and annul such acceleration. (Section 602)
The Indenture provides that within 90 days after the occurrence of any
Event of Default thereunder with respect to the Debt Securities of any series,
the Trustee shall transmit, in the manner set forth in the Indenture, notice of
such Event of Default to the holders of the Debt Securities of such series
unless such Event of Default has been cured or waived; provided, however, that
except in the case of a default in the payment of the principal of (or premium,
if any) or interest on any Debt Security of such series, the Trustee may
withhold such notice if and so long as the board of directors, the executive
committee or a trust committee of directors or Responsible Officers of the
Trustee has in good faith determined that the withholding of such notice is in
the interest of the holders of Debt Securities of such series. (Section 701)
If an Event of Default occurs and is continuing with respect to the Debt
Securities of any series, the Trustee may in its discretion proceed to protect
and enforce its rights and the rights of the holders of Debt Securities of such
series by all appropriate judicial proceedings. (Section 603)
The Indenture provides that, subject to the duty of the Trustee during any
default to act with the required standard of care, the 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 Debt Securities, unless such
holders shall have offered to the Trustee reasonable indemnity. (Section 702)
Subject to such provisions for the indemnification of the Trustee, and subject
to applicable law and certain other provisions of the Indenture, the holders of
a majority in aggregate principal amount of the outstanding Debt Securities of a
series will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee, with respect to the Debt Securities of such
series. (Section 612)
MODIFICATION AND WAIVER
Modification and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the Debt Securities of each series affected
thereby; provided, however, that no such modification or amendment may, without
the consent of the holder of each Debt Security effected thereby,
(1) change the Stated Maturity of the principal of, or any installment of
principal of or interest on, any Debt Securities,
(2) reduce the principal amount of, or premium or interest on, any Debt
Securities,
(3) change the coin or currency in which any Debt Securities or any premium or
any interest thereon is payable,
(4) impair the right to institute suit for the enforcement of any payment on
or after the Stated Maturity of any Debt Securities (or, in the case of
redemption, on or after the Redemption Date),
(5) reduce the percentage and principal amount of the outstanding Debt
Securities, the consent of whose holders is required in order to take
certain actions,
(6) change any obligation of the Company to maintain an office or agency in
the
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places and for the purposes required by the Indenture, or
(7) modify any of the above provisions.(Section 1002)
The holders of at least 66 2/3% in aggregate principal amount of Debt
Securities of any series may, on behalf of the holders of all Debt Securities of
such series, waive compliance by the Company with certain restrictive provisions
of the Indenture. (Section 1109) The holders of not less than a majority in
aggregate principal amount of Debt Securities of any series may, on behalf of
all holders of Debt Securities of such series, waive any past default and its
consequences under the Indenture with respect to the Debt Securities of such
series, except a default (a) in the payment of principal of (or premium, if any)
or any interest on any Debt Security of such series, or (b) in respect of a
covenant or provision of the Indenture that cannot be modified or amended
without the consent of the holder of each Debt Security of such series. (Section
613)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may, without the consent of the holders of the Debt
Securities, consolidate or merge with or into, or convey, transfer or lease its
properties and assets substantially as an entirety to, any Person that is a
corporation, partnership or trust organized and validly existing under the laws
of any domestic jurisdiction, or may permit any such Person to consolidate with
or merge into the Company or convey, transfer or lease its properties and assets
substantially as an entirety to the Company, provided that any successor Person
assumes the Company's obligations on the Debt Securities and under the
Indenture, that 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 that certain other
conditions are met. (Section 901)
CONCERNING THE TRUSTEE
Bankers Trust Company is the Trustee under the Indenture. Bankers Trust
Company also serves as Mortgage Trustee under the Mortgage.
PROVISIONS APPLICABLE TO REMARKETED NOTES
The following sets forth the general terms of Debt Securities subject to
remarketing as described below ("Remarketed Notes").
SECURITY
Unless otherwise set forth in the applicable prospectus supplement, each
series of Remarketed Notes will be secured as to payment of principal, interest
and premium, if any, by Mortgage Bonds, pledged to the Trustee for the benefit
of the holders of the Remarketed Notes. See "-- Security; Pledge of Mortgage
Bond" and "Provisions Applicable to General and Refunding Mortgage Bonds."
INTEREST
GENERAL. The Remarketed Notes will initially bear interest at the rate per
annum set forth on the cover page of the applicable prospectus supplement (the
"Initial Interest Rate") for the period (the "Initial Interest Rate Period")
ending on the Business Day immediately preceding the date set forth thereon (the
"Initial Interest Rate Adjustment Date"). On and after the Initial Interest Rate
Adjustment Date, each Remarketed Note at the option of the Company will bear
interest for designated periods (each, an "Interest Rate Period") in the
Commercial Paper Term Mode (as defined below), the Long Term Rate Mode (as
defined below) or the SPURS Mode (as defined below and, together with the
Commercial Paper Term Mode and the Long Term Rate Mode, the "Interest Rate
Modes"). Each Remarketed Note may bear interest in the same or a different
Interest Rate Mode as other Remarketed Notes.
The interest rate for the Remarketed Notes will be established
periodically as described herein by a remarketing agent selected by the Company
(each, a "Remarketing Agent"). The Company also may appoint one or more standby
remarketing agents for any Remarketing Agent (each, a "Standby Remarketing
Agent") on the
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terms described herein and the applicable prospectus supplement.
Unless otherwise specified in the applicable prospectus supplement,
interest will be payable on any Remarketed Note at maturity and (a) in the
Initial Interest Rate Period, on the date or dates set forth in the applicable
prospectus supplement; (b) for any Interest Rate Period in the Commercial Paper
Term Mode, on the Interest Rate Adjustment Date commencing the next succeeding
Interest Rate Period for such Remarketed Note and on such other dates (if any)
as will be established upon conversion of such Remarketed Note to the Commercial
Paper Term Mode or upon remarketing of the Remarketed Note in a new Interest
Rate Period in the Commercial Paper Term Mode; and (iii) in the Long Term Rate
Mode or the SPURS Mode, no less frequently than semiannually on such dates as
will be established upon conversion of such Remarketed Note to the Long Term
Rate Mode or the SPURS Mode (or upon remarketing of the Remarketed Note in a new
Interest Rate Period in the Long Term Rate Mode or the SPURS Mode, as the case
may be) and set forth in the applicable Remarketed Note in the case of a fixed
interest rate, or as described below under "Floating Interest Rates" in the case
of a floating interest rate, and on the Interest Rate Adjustment Date commencing
the next succeeding Interest Rate Period (each such date, an "Interest Payment
Date").
Interest will be payable to the holder thereof as of the related Record
Date (the "Record Date"), which, for any Remarketed Note (x) in the Initial
Interest Rate Period, is the date or dates set forth in the applicable
prospectus supplement, (y) in the Commercial Paper Term Mode, is the Business
Day (as defined below) prior to the related Interest Payment Date; and (z)
bearing interest in the Long Term Rate Mode or the SPURS Mode, is 15 days prior
to the related Interest Payment Date. If any Interest Payment Date would
otherwise be a day that is not a Business Day, such Interest Payment Date will
be postponed to the next succeeding Business Day, and no interest will accrue on
such payment for the period from and after such Interest Payment Date to the
date of such payment on the next succeeding Business Day.
Interest on the Remarketed Notes bearing interest at the Initial Interest
Rate will be computed on the basis set forth in the applicable prospectus
supplement. Interest on Remarketed Notes bearing interest in the Commercial
Paper Term Mode or at a floating interest rate during an Interest Rate Period in
the Long Term Rate Mode or the SPURS Mode will be computed on the basis of
actual days elapsed over 360; provided that, if an applicable Interest Rate
Basis (as defined below) is the CMT Rate or Treasury Rate (each as defined
below), interest will be computed on the basis of actual days elapsed over the
actual number of days in the year. Interest on Remarketed Notes bearing interest
at a fixed rate in the Long Term Rate Mode or the SPURS Mode will be computed on
the basis of a year of 360 days consisting of twelve 30-day months.
As used herein, "Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions located in
the State of Michigan or in the state in which the principal corporate trust
office of the Trustee is located are authorized or obligated by or pursuant to
law or executive order to close; provided, however, that with respect to
Remarketed Notes in the Long Term Rate Mode or the SPURS Mode as to which LIBOR
(as defined below) is an applicable Interest Rate Basis, such day is also a
London Business Day (as hereinafter defined). "London Business Day" means (i) if
the Index Currency (as hereinafter defined) is other than European Currency
Units ("ECU"), any day on which dealings in such Index Currency are transacted
in the London interbank market or (ii) if the Index Currency is ECU, any day
that does not appear as an ECU non-settlement day on the display designated as
"ISDE" on the Reuter Monitor Money Rates Service (or a day so designated by the
ECU Banking Association) or, if ECU non-settlement days do not appear on the
page (and are not so designated), is not a day on which payments in ECU cannot
be settled in the international interbank market.
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DETERMINATION OF INTEREST RATES. The interest rate and, in the case of a
floating interest rate, the Spread (as defined below), if any, and the Spread
Multiplier (as defined below), if any, for any Remarketed Note will be
established by the applicable Remarketing Agent in a remarketing (as described
below) or otherwise not later than the first day of each succeeding Interest
Rate Period for such Remarketed Note, which must be a Business Day (each, an
"Interest Rate Adjustment Date"), and will be the minimum rate of interest and,
in the case of a floating interest rate, Spread (if any) and Spread Multiplier
(if any) necessary in the judgment of such Remarketing Agent to produce a par
bid in the secondary market for such Remarketed Note on the date the interest
rate is established. Such rate will be effective for the next succeeding
Interest Rate Period for such Remarketed Note commencing on such Interest Rate
Adjustment Date.
In the event that (i) the applicable Remarketing Agent has been removed or
has resigned and no successor has been appointed, or (ii) such Remarketing Agent
has failed to announce the appropriate interest rate, Spread, if any, or Spread
Multiplier, if any, as the case may be, on the Interest Rate Adjustment Date for
any Remarketed Note for whatever reason, or (iii) the appropriate interest rate,
Spread, if any, or Spread Multiplier, if any, as the case may be, or Interest
Rate Period cannot be determined for any Remarketed Note for whatever reason,
then the next succeeding Interest Rate Period for such Remarketed Note will be
automatically converted to a Weekly Rate Period (a Commercial Paper Term Period
described below), and the rate of interest thereon will be equal to the rate per
annum announced by Citibank, N.A., or such other nationally recognized bank
located in the United States as the Company may select, as its prime lending
rate (such rate of interest being referred to herein as the "Special Interest
Rate").
The interest rate on the Remarketed Notes will not exceed the "Maximum
Rate," which is defined to mean that rate of interest equal to 15% per annum or
such higher rate as may be established from time to time by the Board of
Directors of the Company.
The Trustee will, upon request of any Beneficial Owner of a Remarketed
Note, advise such Beneficial Owner or the applicable Remarketing Agent of the
interest rate and, in the case of a floating interest rate, the Interest Rate
Basis or Bases, Spread (if any) and Spread Multiplier (if any), and in each case
the other terms applicable to such Beneficial Owner's Remarketed Notes for the
next Interest Rate Period. Neither the Trustee nor the Company will otherwise be
required to advise Beneficial Owners of the applicable interest rate.
The interest rate and other terms announced by the Remarketing Agent,
absent manifest error, will be binding and conclusive upon the Beneficial
Owners, the Company and the Trustee.
INTEREST RATE MODES
The times specified below are subject to extension pursuant to standby
remarketing arrangements, if any, as provided herein and in the applicable
prospectus supplement. See "Remarketing -- Interest Rate Adjustment Date;
Determination of Interest Rate" below.
COMMERCIAL PAPER TERM MODE. As used herein, "Commercial Paper Term Mode"
means, with respect to any Remarketed Note, the Interest Rate Mode in which the
interest rate on such Remarketed Note is reset on a periodic basis which shall
not be less than one calendar day nor more than 364 consecutive calendar days
and interest is paid as provided for such Interest Rate Mode above under
"Interest -- General." The Interest Rate Period for any Remarketed Note in the
Commercial Paper Term Mode will be a period of not less than one nor more than
364 consecutive calendar days (a "Commercial Paper Term Period"), as determined
by the Company (as described below under "Conversion") or, if not so determined,
by the Remarketing Agent for such Remarketed Note (in its best judgment in order
to obtain the lowest interest cost for such Remarketed Note). Each Commercial
Paper Term Period will commence on the Interest Rate Adjustment Date therefor
and end on the day preceding the date specified by such Remarketing Agent as the
first day of the
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next Interest Rate Period for such Remarketed Note. A "Weekly Rate Period" is a
Commercial Paper Term Period and will be a period of seven days commencing on
any Interest Rate Adjustment Date and ending on the day preceding the first day
of the next Interest Rate Period for such Remarketed Note. The interest rate for
any Commercial Paper Term Period relating to a Remarketed Note will be
determined not later than 11:50 a.m., New York City time, on the Interest Rate
Adjustment Date for such Remarketed Note, which is the first day of each
Interest Rate Period for such Remarketed Note.
LONG TERM RATE MODE. As used herein, "Long Term Rate Mode" means, with
respect to any Remarketed Note, the Interest Rate Mode in which the interest
rate on such Remarketed Note is reset in a Long Term Rate Period and interest is
paid as provided for such Interest Rate Mode above under "Interest -- General"
or below under "Floating Interest Rates." The Interest Rate Period for any
Remarketed Note in the Long Term Rate Mode will be established by the Company
(as described below under "Conversion") as a period of more than 364 days and
not exceeding the remaining term to the Stated Maturity Date (as defined below)
of such Remarketed Note (a "Long Term Rate Period"); provided, however, that
such Interest Rate Period must end on the day prior to an Interest Payment Date
for such Remarketed Note; and provided further that, if so provided in a
Remarketed Note in the Long Term Rate Mode and specified at the time of
remarketing into a Long Term Rate Period, the Company may shorten the Interest
Rate Period in the manner described in the next succeeding paragraph and provide
for payment of a premium, if any, in respect thereof for any such Remarketed
Note upon written notice to the Remarketing Agent and the Trustee not less than
thirty (30) days prior to the date upon which such shortened Interest Rate
Period shall expire. Promptly upon the receipt of such notice, and, in any case,
not later than the close of business on such date, the Trustee will transmit
such information to DTC in accordance with DTC's procedures as in effect from
time to time. In such case, the next Interest Rate Adjustment Date shall be the
Business Day immediately following the expiration of such Interest Rate Period.
The interest rate, or Spread (if any) and Spread Multiplier (if any) for any
Remarketed Note in the Long Term Rate Mode will be determined not later than
11:50 a.m., New York City time, on the Interest Rate Adjustment Date for such
Remarketed Note, which is the first day of each Interest Rate Period for such
Remarketed Note.
If any Remarketed Note is subject to early remarketing as provided above,
the Interest Rate Period may be shortened by the Company to end on any date on
or after the Initial Early Remarketing Date, if any, specified in the Remarketed
Note, upon prior written notice as provided above. On or after the Initial Early
Remarketing Date, if any, on the Interest Rate Adjustment Date relating to such
shortened Interest Rate Period for such Remarketed Note, the Company will pay a
premium to the tendering Beneficial Owner of the Remarketed Note, together with
accrued interest, if any, thereon at the applicable rate payable to such
Interest Rate Adjustment Date. Unless otherwise specified in the Remarketed
Note, the premium will be an amount equal to the Initial Early Remarketing
Premium specified therein (as adjusted by the Annual Early Remarketing Premium
Percentage Reduction specified therein, if applicable), multiplied by the
principal amount of the Remarketed Note subject to early remarketing. The
Initial Early Remarketing Premium, if any, will decline at each anniversary of
the Initial Early Remarketing Date by an amount equal to the applicable Annual
Early Remarketing Premium Percentage Reduction, if any, specified in the
Remarketed Note until the premium is equal to 0.
SPURS MODE. As used herein, "SPURS Mode" means, with respect to any
Remarketed Note, the Interest Rate Mode in which the Remarketed Notes shall bear
interest and be subject to remarketing as "Structured Putable Remarketable
Securities" ("SPURS") by a remarketing agent selected by the Company (the "SPURS
Agent") as described under "SPURS Mode" below. So long as any Remarketed Notes
are in the
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SPURS Mode, the provisions set forth herein
applicable to the remarketing of Remarketed Notes generally shall apply to such
Remarketed Notes only to the extent expressly provided under "SPURS Mode" below.
The Interest Rate Period for any Remarketed Note in the SPURS Mode will be
established by the Company (as described below under "Conversion") as a period
of more than 364 days and not exceeding the remaining term to the Stated
Maturity Date of such Remarketed Note (a "SPURS Rate Period"); provided,
however, that such Interest Rate Period must end on the day prior to an Interest
Payment Date for such Remarketed Note. The SPURS Rate Period shall consist of
the period to and excluding the SPURS Remarketing Date (as defined below) and
the period from and including the SPURS Remarketing Date to but excluding the
next succeeding Interest Rate Adjustment Date, as described below under "SPURS
Mode" and subject to the conditions therein and otherwise herein described. The
interest rate and, in the case of a floating interest rate, the Spread, if any,
and the Spread Multiplier, if any, to the SPURS Remarketing Date for any
Remarketed Note in the SPURS Mode will be determined not later than 11:50 a.m.,
New York City time, on the Interest Rate Adjustment Date for such Remarketed
Note, which for the SPURS Mode is the first day of each Interest Rate Period for
such Remarketed Note.
CONVERSION
The Company may change the Interest Rate Mode or Interest Rate Period at
its option in the manner described below.
CONVERSION BETWEEN COMMERCIAL PAPER TERM PERIODS. Each Remarketed Note in
a Commercial Paper Term Period may be remarketed into the same Interest Rate
Period or converted at the option of the Company to a different Commercial Paper
Term Period on any Interest Rate Adjustment Date upon receipt by the Remarketing
Agent and the Trustee of a notice, which will be in or promptly confirmed in
writing (which includes facsimile or appropriate electronic media), from the
Company (a "Conversion Notice") prior to 9:30 a.m., New York City time, or the
remarketing of such Remarketed Note, whichever later occurs, on such Interest
Rate Adjustment Date.
CONVERSION FROM THE COMMERCIAL PAPER TERM MODE TO THE LONG TERM RATE MODE
OR THE SPURS MODE. Each Remarketed Note in the Commercial Paper Term Mode may be
converted at the option of the Company to the Long Term Rate Mode or the SPURS
Mode on any Interest Rate Adjustment Date upon receipt not less than ten days
prior to such Interest Rate Adjustment Date by the Remarketing Agent and the
Trustee of a Conversion Notice from the Company.
CONVERSION BETWEEN LONG TERM RATE PERIODS OR FROM THE LONG TERM RATE MODE
OR THE SPURS MODE TO THE COMMERCIAL PAPER TERM MODE OR THE SPURS MODE. Each
Remarketed Note in a Long Term Rate Period may be remarketed in the same
Interest Rate Period or converted at the option of the Company to a different
Long Term Rate Period or from the Long Term Rate Mode to the Commercial Paper
Term Mode or the SPURS Mode, or from the SPURS Mode to a different SPURS Mode or
to the Long Term Rate Mode or the Commercial Paper Term Mode, on any Interest
Rate Adjustment Date for such Remarketed Note upon receipt by the Trustee and
the Remarketing Agent for such Remarketed Note of a Conversion Notice from the
Company not less than ten days prior to such Interest Rate Adjustment Date.
CONVERSION NOTICE. Each Conversion Notice must state each Remarketed Note
to which it relates and the new Interest Rate Mode (if applicable), the new
Interest Rate Period, the date of the applicable conversion (the "Conversion
Date") and, with respect to any Long Term Rate Period, any optional redemption
or repayment terms for each such Remarketed Note. If the Company revokes a
Conversion Notice or the Trustee and the Remarketing Agent fail to receive a
Conversion Notice from the Company by the specified date in advance of the
Interest Rate Adjustment Date for a Remarketed Note, the Remarketed Note shall
be converted automatically to the Weekly Rate Period.
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REVOCATION OR CHANGE OF CONVERSION NOTICE OR FLOATING INTEREST RATE
NOTICE. The Company may, upon written notice received by the Trustee and the
applicable Remarketing Agent, revoke any Conversion Notice or Floating Interest
Rate Notice (as defined herein) or change the Interest Rate Mode to which such
Conversion Notice relates or change any Floating Interest Rate Notice up to 9:30
a.m., New York City time, on the Conversion Date, subject to the limitation set
forth in the next paragraph.
LIMITATION ON CONVERSION, CHANGE OF CONVERSION NOTICE OR FLOATING INTEREST
RATE NOTICE AND REVOCATION. Notwithstanding the foregoing, the Company may not,
without the consent of the applicable Remarketing Agent, convert any Remarketed
Note or revoke or change any Conversion Notice or Floating Interest Rate Notice
at or after the time at which such Remarketing Agent has determined the interest
rate, or Spread (if any) and Spread Multiplier (if any), for any Remarketed Note
being remarketed (i.e., the time at which such Remarketed Note has been
successfully remarketed, subject to settlement on the related Interest Rate
Adjustment Date). The Remarketing Agent may advise the Company of indicative
rates from time to time, or at any time upon the request of the Company, prior
to making such determination of the interest rate, Spread or Spread Multiplier,
as the case may be.
TENDER OF REMARKETED NOTES
Each Remarketed Note will be automatically tendered for purchase, or
deemed tendered for purchase, on each Interest Rate Adjustment Date relating
thereto. Remarketed Notes will be purchased on the Interest Rate Adjustment Date
relating thereto as described below.
REMARKETING
When any Remarketed Note is tendered for remarketing, the Remarketing
Agent therefor will use its reasonable efforts to remarket such Remarketed Note
on behalf of the Beneficial Owner thereof at a price equal to 100% of the
principal amount thereof. The Remarketing Agent may purchase tendered Remarketed
Notes for its own account in a remarketing, but will not be obligated to do so.
The Company may offer to purchase Remarketed Notes in a remarketing, provided
that the interest rate established with respect to Remarketed Notes in such
remarketing is not different from the interest rate that would have been
established if the Company had not purchased such Remarketed Notes. Any
Remarketed Notes for which the Company shall have given a notice of redemption
to the Trustee and the Remarketing Agent will not be considered in a
remarketing.
INTEREST RATE ADJUSTMENT DATE; DETERMINATION OF INTEREST RATE. By 11:00
a.m., New York City time, on the Interest Rate Adjustment Date for any
Remarketed Note, the applicable Remarketing Agent will determine the interest
rate for such Remarketed Note being remarketed to the nearest one hundred-
thousandth (0.00001) of one percent per annum for the next Interest Rate Period
in the case of a fixed interest rate, and the Spread (if any) and Spread
Multiplier (if any) in the case of a floating interest rate; provided, that
between 11:00 a.m., New York City time, and 11:50 a.m., New York City time, the
Remarketing Agent and the Standby Remarketing Agent(s), if any, will use their
reasonable efforts to determine the interest rate for any Remarketed Notes not
successfully remarketed as of the applicable deadline specified in this
paragraph. In determining the applicable interest rate for such Remarketed Note
and other terms, such Remarketing Agent will, after taking into account market
conditions as reflected in the prevailing yields on fixed and variable rate
taxable debt securities, (i) consider the principal amount of all Remarketed
Notes tendered or to be tendered on such date and the principal amount of such
Remarketed Notes prospective purchasers are or may be willing to purchase and
(ii) contact, by telephone or otherwise, prospective purchasers and ascertain
the interest rates or the Spread or Spread Multiplier therefor at which they
would be willing to hold or purchase such Remarketed Notes.
NOTIFICATION OF RESULTS; SETTLEMENT. By 12:30 p.m., New York City time, on
the Interest Rate Adjustment Date for any Remarketed Notes, the applicable
Remarketing Agent will
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notify the Company and the Trustee in writing (which may include facsimile or
other electronic transmission), of (i) the interest rate or, in the case of a
floating interest rate, the initial interest rate, the Spread and Spread
Multiplier and the Initial Interest Reset Date (as defined herein), applicable
to such Remarketed Notes for the next Interest Rate Period, (ii) the Interest
Rate Adjustment Date, (iii) the Interest Payment Dates, for any Remarketed Notes
in the Commercial Paper Term Mode (if other than the Interest Rate Adjustment
Date), the Long Term Rate Mode or the SPURS Mode, (iv) the optional redemption
terms, if any, and early remarketing terms, if any, in the case of a remarketing
into a Long Term Rate Period, (v) the aggregate principal amount of tendered
Remarketed Notes on such date and (vi) the aggregate principal amount of such
tendered Remarketed Notes which such Remarketing Agent was able to remarket, at
a price equal to 100% of the principal amount thereof plus accrued interest, if
any. Immediately after receiving such notice and, in any case, not later than
1:30 p.m., New York City time, the Trustee will transmit such information and
any other settlement information required by DTC to DTC in accordance with DTC's
procedures as in effect from time to time.
By telephone at approximately 1:00 p.m., New York City time, on such
Interest Rate Adjustment Date, the applicable Remarketing Agent will advise each
purchaser of Remarketed Notes (or the DTC participant of each such purchaser who
it is expected in turn will advise such purchaser) of the principal amount of
such Remarketed Notes that such purchaser is to purchase.
Each purchaser of Remarketed Notes in a remarketing will be required to
give instructions to its DTC participant to pay the purchase price therefor in
same day funds to the applicable Remarketing Agent against delivery of the
principal amount of such Remarketed Notes by book-entry through DTC by 3:00
p.m., New York City time, on the Interest Rate Adjustment Date.
All tendered Remarketed Notes will be automatically delivered to the
account of the Trustee (or such other account meeting the requirements of DTC's
procedures as in effect from time to time), by book-entry through DTC against
payment of the purchase price or redemption price therefor, on the Interest Rate
Adjustment Date relating thereto.
The applicable Remarketing Agent will make, or cause the Trustee to make,
payment to the DTC participant of each tendering Beneficial Owner of Remarketed
Notes subject to a remarketing, by book-entry through DTC by the close of
business on the Interest Rate Adjustment Date against delivery through DTC of
such Beneficial Owner's tendered Remarketed Notes, of the purchase price for
tendered Remarketed Notes that have been sold in the remarketing. If any such
Remarketed Notes were purchased pursuant to a Special Mandatory Purchase,
subject to receipt of funds from the Company or the Liquidity Provider (as
defined below), if any, as the case may be, the Trustee will make such payment
of the purchase price of such Remarketed Notes plus accrued interest, if any, to
such date.
The transactions described above for a remarketing of any Remarketed Notes
will be executed on the Interest Rate Adjustment Date for such Remarketed Notes
through DTC in accordance with the procedures of DTC, and the accounts of the
respective DTC participants will be debited and credited and such Remarketed
Notes delivered by book-entry as necessary to effect the purchases and sales
thereof, in each case as determined in the related remarketing.
Except as otherwise set forth below under "Purchase and Redemption of
Remarketed Notes," any Remarketed Notes tendered in a remarketing will be
purchased solely out of the proceeds received from purchasers of such Remarketed
Notes in such remarketing, and none of the Trustee, the applicable Remarketing
Agent, any Standby Remarketing Agent or the Company will be obligated to provide
funds to make payment upon any Beneficial Owner's tender in a remarketing.
Although tendered Remarketed Notes will be subject to purchase by a
Remarketing Agent in a remarketing, such Remarketing Agent and any Standby
Remarketing Agent
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will not be obligated to purchase any such
Remarketed Notes.
The remarketing procedures set forth above will apply to all Remarketed
Notes except to the extent otherwise indicated in the applicable prospectus
supplement for such Remarketed Notes. The settlement and remarketing procedures
described above, including provisions for payment by purchasers of tendered
Remarketed Notes or for payment to selling Beneficial Owners of tendered
Remarketed Notes, may be modified to the extent required by DTC. In addition,
each Remarketing Agent may, without the consent of holders, modify the
settlement and remarketing procedures set forth above in order to facilitate the
settlement and remarketing process.
As long as DTC's nominee holds the certificates representing the
Remarketed Notes in the book-entry system of DTC, no certificates for such
Remarketed Notes will be delivered by any selling Beneficial Owner to reflect
any transfer of Remarketed Notes effected in any remarketing.
FAILED REMARKETING. Unless otherwise provided in the applicable prospectus
supplement, Remarketed Notes not successfully remarketed will be subject to
Special Mandatory Purchase by the Company (a "Special Mandatory Purchase"). The
obligation of the Company to effect a Special Mandatory Purchase of the
Remarketed Notes (the "Special Mandatory Purchase Right") can be satisfied
either directly by the Company or through a Liquidity Provider. By 12:00 o'clock
noon, New York City time, on any Interest Rate Adjustment Date, the applicable
Remarketing Agent will notify the Liquidity Provider, if any, the Trustee and
the Company by telephone or facsimile, confirmed in writing, of the principal
amount of Remarketed Notes that such Remarketing Agent and the applicable
Standby Remarketing Agent, if any, were unable to remarket on such date. In the
event that the Company has entered into a Standby Note Purchase Agreement which
is in effect on such date, such notice will constitute a demand for the benefit
of the Company to the Liquidity Provider to purchase such unremarketed
Remarketed Notes at a price equal to the outstanding principal amount thereof
pursuant to the terms of such Standby Note Purchase Agreement. If a Standby Note
Purchase Agreement is not in effect on such date, or if the Liquidity Provider
fails to advance funds under the Standby Note Purchase Agreement, the Company
has agreed in the Indenture to purchase such unremarketed Remarketed Notes. In
each case the Company will pay all accrued and unpaid interest, if any, on
unremarketed Remarketed Notes to such Interest Rate Adjustment Date. Payment of
the principal amount of unremarketed Remarketed Notes by the Company or the
Liquidity Provider (if any), as the case may be, and payment of accrued and
unpaid interest, if any, by the Company, will be made by deposit of same-day
funds with the Trustee (or such other account meeting the requirements of DTC's
procedures as in effect from time to time) irrevocably in trust for the benefit
of the Beneficial Owners of Remarketed Notes subject to Special Mandatory
Purchase by 3:00 p.m., New York City time, on such Interest Rate Adjustment
Date.
THE REMARKETING AGENT. The Company and the Remarketing Agent for
Remarketed Notes will enter into a Remarketing Agreement, a form of which has
been filed as an exhibit to the Registration Statement of which this prospectus
is a part. The summaries below are summaries of certain provisions of the form
of Remarketing Agreement and do not purport to be complete and are subject to,
and qualified in their entirety by, the provisions of the Remarketing Agreement.
For its services in determining the interest rate and remarketing
Remarketed Notes, the Remarketing Agent will receive from the Company a fee to
be determined at the time of execution of the Remarketing Agreement. The
Remarketing Agent may pay to selected broker-dealers, including any Standby
Remarketing Agent, a portion of any fees it receives from the Company for its
services as Remarketing Agent reflecting Remarketed Notes sold through such
broker-dealers to purchasers in remarketings.
The Company will agree to indemnify the Remarketing Agent and the Standby
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Remarketing Agent against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Act"), arising out of or in connection
with its duties under the Remarketing Agreement.
The Remarketing Agreement will provide that the Company may in its
absolute discretion replace the Remarketing Agent by giving 30 days prior notice
to the Remarketing Agent and the Trustee, such replacement to be effective upon
the Company's appointment of a successor to perform the services of the
Remarketing Agent under the Remarketing Agreement. The Remarketing Agreement
will also provide that the Company reserves the right to appoint or replace any
Standby Remarketing Agent at any time.
The Remarketing Agreement will also provide that the Remarketing Agent or
any Standby Remarketing Agent may resign at any time as Remarketing Agent, such
resignation to be effective 30 days after the delivery to the Company and the
Trustee of notice of such resignation. In such case, it shall be the sole
obligation of the Company to appoint a successor Remarketing Agent.
PURCHASE AND REDEMPTION OF
REMARKETED NOTES
SPECIAL MANDATORY PURCHASE. Unless otherwise provided in the applicable
prospectus supplement, if by 12:00 o'clock noon, New York City time, on any
Interest Rate Adjustment Date for any Remarketed Notes, the applicable
Remarketing Agent and the applicable Standby Remarketing Agent(s) have not
remarketed all such Remarketed Notes, the Remarketed Notes that have not been
remarketed are subject to Special Mandatory Purchase. Either the Company or,
subject to the terms and conditions of a Standby Note Purchase Agreement, if
any, which may be in effect on such date, the Liquidity Provider (if any), will
deposit same-day funds in the account of the Trustee (or such other account
meeting the requirements of DTC's procedures as in effect from time to time)
irrevocably in trust for the benefit of the Beneficial Owners of Remarketed
Notes subject to Special Mandatory Purchase by 3:00 p.m., New York City time, on
such Interest Rate Adjustment Date. Such funds will be in an amount sufficient
to pay the aggregate purchase price of such unremarketed Remarketed Notes, equal
to 100% of the principal amount thereof. In the event a Standby Note Purchase
Agreement is in effect but the Liquidity Provider shall fail to advance funds
for whatever reason thereunder, the Company hereby agrees to purchase such
unremarketed Remarketed Notes on such Interest Rate Adjustment Date. The Company
has agreed in the Indenture to pay the accrued interest, if any, on such
Remarketed Notes by depositing sufficient same-day funds therefor with the
Trustee (or such other account meeting the requirements of DTC's procedures as
in effect from time to time) by 3:00 p.m., New York City time, on such Interest
Rate Adjustment Date.
Failure by the Company to purchase Remarketed Notes pursuant to a Special
Mandatory Purchase in the manner provided in the Remarketed Notes will
constitute an Event of Default under the Indenture in which event the date of
such failure shall constitute a date of Maturity for such Remarketed Notes and
the principal thereof may be declared due and payable in the manner and with the
effect provided in the Indenture. Following such failure to pay pursuant to a
Special Mandatory Purchase, such Remarketed Notes will bear interest at the
Special Interest Rate as provided above under "Interest -- Determination of
Interest Rates."
If the Company enters into a Standby Note Purchase Agreement with a
Liquidity Provider, Remarketed Notes purchased by the Liquidity Provider
("Purchased Notes") will bear interest at the rates and be payable on the dates
as may be agreed upon by the Company and the Liquidity Provider. Upon purchase
of any Remarketed Note by the Liquidity Provider, all interest accruing thereon
from the last date for which interest was paid will accrue for the benefit of
and be payable to the Liquidity Provider. Unless an event of default under the
Standby Note Purchase Agreement occurs, the applicable Remarketing Agent will
continue its remarketing efforts with respect to Purchased Notes until the
earlier to occur of a successful remarketing of such Purchased Notes or the
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<PAGE> 39
expiration of the Standby Note Purchase Agreement. In the event the Liquidity
Provider holds Purchased Notes on the date the Standby Note Purchase Agreement
expires, the Company will be required to purchase such Remarketed Notes on such
date at a purchase price equal to the principal amount thereof plus accrued
interest thereon to the purchase date. Such Remarketed Notes will remain
outstanding and enjoy the benefits of the Indenture until such time as the
Company delivers the Remarketed Notes to the Trustee for cancellation.
OPTIONAL REDEMPTION ON ANY INTEREST RATE ADJUSTMENT DATE. Each Remarketed
Note will be subject to redemption at the option of the Company in whole or in
part on any Interest Rate Adjustment Date relating thereto without notice to the
holders thereof at a redemption price equal to the aggregate principal amount of
such Remarketed Notes to be redeemed plus accrued interest thereon to the
redemption date.
REDEMPTION WHILE REMARKETED NOTES ARE IN THE LONG TERM RATE MODE. Any
Remarketed Notes in the Long Term Rate Mode are subject to redemption at the
option of the Company at the times and upon the terms specified at the time of
conversion to or within such Long Term Rate Mode.
ALLOCATION. Except in the case of a Special Mandatory Purchase, if the
Remarketed Notes are to be redeemed in part, DTC, after receiving notice of
redemption specifying the aggregate principal amount of Remarketed Notes to be
so redeemed, will determine by lot (or otherwise in accordance with the
procedures of DTC) the principal amount of such Remarketed Notes to be redeemed
from the account of each DTC participant. After making its determination as
described above, DTC will give notice of such determination to each DTC
participant from whose account such Remarketed Notes are to be redeemed. Each
such DTC participant, upon receipt of such notice, will in turn determine the
principal amount of Remarketed Notes to be redeemed from the accounts of the
Beneficial Owners of such Remarketed Notes for which it serves as DTC
participant, and give notice of such determination to the Remarketing Agent.
SPURS MODE
Except as otherwise specified in the applicable prospectus supplement, if
so designated by the Company prior to commencement of an Interest Rate Period in
accordance with the procedures described above under "Conversion," during such
period the Remarketed Notes shall bear interest and be subject to remarketing by
the SPURS Agent designated by the Company as described below.
GENERAL
Each Remarketed Note in the SPURS Mode will bear interest at the annual
interest rate established by the SPURS Agent from, and including the Interest
Rate Adjustment Date commencing the Interest Rate Period for the SPURS Mode to,
but excluding, the date (the "SPURS Remarketing Date") designated at such time
by the SPURS Agent after consultation with the Company. Such interest rate will
be the minimum rate of interest and, in the case of a floating interest rate,
Spread (if any) and Spread Multiplier (if any) necessary in the judgment of such
SPURS Agent to produce a par bid in the secondary market for such Remarketed
Note on the date the interest rate is established. The designated SPURS
Remarketing Date shall be an Interest Payment Date within such Interest Rate
Period. If the SPURS Agent elects to remarket the Remarketed Notes, except in
the limited circumstances described herein, (i) the Remarketed Notes will be
subject to mandatory tender to the SPURS Agent at 100% of the principal amount
thereof for remarketing on the SPURS Remarketing Date, on the terms and subject
to the conditions described herein, and (ii) from, and including, the SPURS
Remarketing Date to, but excluding, the next succeeding Interest Rate Adjustment
Date, the Remarketed Notes will bear interest at the rate determined by the
SPURS Agent in accordance with the procedures set forth below (the "SPURS
Interest Rate"). See "-- Tender; Remarketing" below.
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<PAGE> 40
Under the circumstances described below, the Remarketed Notes are subject
to remarketing in a new Interest Rate Mode or repurchase by the Company on the
SPURS Remarketing Date. See "Conversion or Redemption Following Election by the
SPURS Agent to Remarket" below. If the SPURS Agent does not elect to purchase
the Remarketed Notes for remarketing on the SPURS Remarketing Date or if the
SPURS Agent gives notice of its election to remarket the Remarketed Notes but
for any reason does not purchase all tendered Notes on the SPURS Remarketing
Date, then as of such date the Remarketed Notes will cease to be in the SPURS
Mode, the SPURS Remarketing Date will constitute an Interest Rate Adjustment
Date, and the Notes may be subject to remarketing on such date by a Remarketing
Agent appointed by the Company in the Commercial Paper Term Mode or the Long
Term Rate Mode or a new SPURS Mode established by the Company in accordance with
the procedures described above under "Conversion;" provided that, in such case,
the notice period required for conversion shall be the lesser of ten (10) days
and the period commencing the date that the SPURS Agent notifies the Company
that it will not purchase the Remarketed Notes for remarketing on the SPURS
Remarketing Date or fails to so purchase, as the case may be.
TENDER; REMARKETING
The following description sets forth the terms and conditions of the
remarketing of the Remarketed Notes, in the event that the SPURS Agent elects to
purchase the Remarketed Notes and remarkets the Remarketed Notes on the SPURS
Remarketing Date.
MANDATORY TENDER. Provided that the SPURS Agent gives notice to the
Company and the Trustee on a Business Day not later than ten (10) days prior to
the SPURS Remarketing Date of its intention to purchase the Remarketed Notes for
remarketing (the "Notification Date"), each Remarketed Note will be
automatically tendered, or deemed tendered, to the SPURS Agent for remarketing
at the SPURS Interest Rate on the SPURS Remarketing Date, except in the
circumstances described under "General" above. The purchase price for the
tendered Remarketed Notes to be paid by the SPURS Agent will equal 100% of the
principal amount thereof. See "Notification of Results; Settlement" below. When
the Remarketed Notes are tendered for remarketing, the SPURS Agent may remarket
the Remarketed Notes for its own account at varying prices to be determined by
the SPURS Agent at the time of each sale. From, and including, the SPURS
Remarketing Date to, but excluding, the next succeeding Interest Rate Adjustment
Date, the Remarketed Notes will bear interest at the SPURS Interest Rate. If the
SPURS Agent elects to remarket the Remarketed Notes, the obligation of the SPURS
Agent to purchase the Remarketed Notes on the SPURS Remarketing Date is subject,
among other things, to the conditions that, since the Notification Date, no
material adverse change in the condition of the Company and its subsidiaries,
considered as one enterprise, shall have occurred and that no Event of Default
(as defined in the Indenture), or any event which, with the giving of notice or
passage of time, or both, would constitute an Event of Default, with respect to
the Remarketed Notes shall have occurred and be continuing.
The SPURS Interest Rate shall be determined by the SPURS Agent by 3:30
p.m., New York City time, on the third Business Day immediately preceding the
SPURS Remarketing Date (the "Determination Date") to the nearest one
hundred-thousandth (0.00001) of one percent per annum and will be equal to the
Base Rate established by the SPURS Agent, after consultation with the Company,
at or prior to the commencement of the SPURS Mode (the "Base Rate"), plus the
Applicable Spread (as defined below) which will be based on the Dollar Price (as
defined below) of the Remarketed Notes. The SPURS Interest Rate announced by the
SPURS Agent, absent manifest error, shall be binding and conclusive upon the
Beneficial Owners and holders of the Remarketed Notes, the Company and the
Trustee.
The "Applicable Spread" will be the lowest bid indication, expressed as a
spread (in the form of a percentage or in basis
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<PAGE> 41
points) above the Base Rate, obtained by the
SPURS Agent on the Determination Date from the bids quoted by up to five
Reference Corporate Dealers (as defined below) for the full aggregate principal
amount of the Remarketed Notes at the Dollar Price, but assuming (i) an issue
date equal to the SPURS Remarketing Date, with settlement on such date without
accrued interest, (ii) a maturity date equal to the next succeeding Interest
Rate Adjustment Date of the Remarketed Notes, and (iii) a stated annual interest
rate, payable semiannually on each Interest Payment Date, equal to the Base Rate
plus the spread bid by the applicable Reference Corporate Dealer. If fewer than
five Reference Corporate Dealers bid as described above, then the Applicable
Spread shall be the lowest of such bid indications obtained as described above.
"Dollar Price" means, with respect to the Remarketed Notes, the present
value determined by the SPURS Agent, as of the SPURS Remarketing Date, of the
Remaining Scheduled Payments (as defined below) discounted to the SPURS
Remarketing Date, on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months), at the Treasury Rate (as defined below).
"Reference Corporate Dealers" means such Reference Corporate Dealers as
shall be appointed by the SPURS Agent after consultation with the Company.
"Treasury Rate" means, with respect to the SPURS Remarketing Date, the
rate per annum equal to the semiannual equivalent yield to maturity or
interpolated (on a day count basis) yield to maturity of the Comparable Treasury
Issues (as defined below), assuming a price for the Comparable Treasury Issues
(expressed as a percentage of its principal amount), equal to the Comparable
Treasury Price (as defined below) for such SPURS Remarketing Date.
"Comparable Treasury Issues" means the United States Treasury security or
securities selected by the SPURS Agent as having an actual or interpolated
maturity or maturities comparable or applicable to the remaining term to the
next succeeding Interest Rate Adjustment Date of the Remarketed Notes being
purchased.
"Comparable Treasury Price" means, with respect to the SPURS Remarketing
Date, (a) the offer prices for the Comparable Treasury Issues (expressed in each
case as a percentage of its principal amount) on the Determination Date, as set
forth on "Telerate Page 500" (or such other page as may replace Telerate Page
500) or (b) if such page (or any successor page) is not displayed or does not
contain such offer prices on such Determination Date, (i) the average of five
Reference Treasury Dealer Quotations (as defined below) for such SPURS
Remarketing Date, after excluding the highest and lowest of such Reference
Treasury Dealer Quotations, or (ii) if the SPURS Agent obtains fewer than four
such Reference Treasury Dealer Quotations, the average of all such Reference
Treasury Dealer Quotations. "Telerate Page 500" means the display designated as
"Telerate Page 500" on Bridge Telerate, Inc. (or such other page as may replace
Telerate Page 500 on such service) or such other service displaying the offer
prices specified in (a) above as may replace Bridge Telerate, Inc..
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer (as defined below) and the SPURS Remarketing Date, the
offer prices for the Comparable Treasury Issues (expressed in each case as a
percentage of its principal amount) quoted to the SPURS Agent by such Reference
Treasury Dealer by 3:30 p.m., New York City time, on the Determination Date.
"Reference Treasury Dealer" means such Reference Treasury Dealer as shall
be appointed by the SPURS Agent after consultation with the Company.
"Remaining Scheduled Payments" means, with respect to the Remarketed
Notes, the remaining scheduled payments of the principal thereof and interest
thereon, calculated at the Base Rate only, that would be due after the SPURS
Remarketing Date to and including the next succeeding Interest Rate Adjustment
Date, as determined by the SPURS Agent.
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<PAGE> 42
NOTIFICATION OF RESULTS; SETTLEMENT. Provided the SPURS Agent has
previously notified the Company and the Trustee on the Notification Date of its
intention to purchase all tendered Remarketed Notes on the SPURS Remarketing
Date, the SPURS Agent will notify the Company, the Trustee and DTC by telephone,
confirmed in writing, by 4:00 p.m., New York City time, on the Determination
Date, of the SPURS Interest Rate.
All of the tendered Remarketed Notes will be automatically delivered to
the account of the Trustee, by book-entry through DTC pending payment of the
purchase price therefor, on the SPURS Remarketing Date.
In the event that the SPURS Agent purchases the tendered Remarketed Notes
on the SPURS Remarketing Date, the SPURS Agent will make or cause the Trustee to
make payment to the DTC participant of each tendering Beneficial Owner of
Remarketed Notes, by book-entry through DTC by the close of business on the
SPURS Remarketing Date against delivery through DTC of such Beneficial Owner's
tendered Remarketed Notes, of 100% of the principal amount of the tendered
Remarketed Notes that have been purchased for remarketing by the SPURS Agent. If
the SPURS Agent does not purchase all of the Remarketed Notes on the SPURS
Remarketing Date, the Company may attempt to convert the Remarketed Notes to a
new Interest Rate Mode; the interest rate will be determined as provided above
in "Interest -- Determination of Interest Rates;" and settlement will be
effected as described above under "Remarketing -- Notification of Results;
Settlement" or "-- Failed Remarketing," as the case may be. In any case, the
Company will make or cause the Trustee to make payment of interest to each
Beneficial Owner of Remarketed Notes due on the SPURS Remarketing Date by
book-entry through DTC by the close of business on the SPURS Remarketing Date.
The transactions described above will be executed on the SPURS Remarketing
Date through DTC in accordance with the procedures of DTC, and the accounts of
the respective DTC participants will be debited and credited and the Remarketed
Notes delivered by book-entry as necessary to effect the purchases and sales
thereof.
Transactions involving the sale and purchase of Remarketed Notes
remarketed by the SPURS Agent on and after the SPURS Remarketing Date will
settle in immediately available funds through DTC's Same-Day Funds Settlement
System.
The tender and settlement procedures described above, including provisions
for payment by purchasers of Remarketed Notes in the remarketing or for payment
to selling Beneficial Owners of tendered Remarketed Notes, may be modified to
the extent required by DTC or to the extent required to facilitate the tender
and remarketing of Remarketed Notes in certificated form, if the book-entry
system is no longer available for the Remarketed Notes at the time of the
remarketing. In addition, the SPURS Agent may, in accordance with the terms of
the Indenture, modify the tender and settlement procedures set forth above in
order to facilitate the tender and settlement process.
As long as DTC's nominee holds the certificates representing any
Remarketed Notes in the book-entry system of DTC, no certificates for such
Remarketed Notes will be delivered by any selling Beneficial Owner to reflect
any transfer of such Remarketed Notes effected in the remarketing. In addition,
under the terms of the Remarketed Notes and the SPURS Remarketing Agreement
(described below), the Company will agree that, notwithstanding any provision to
the contrary set forth in the Indenture, (i) it will use its best efforts to
maintain the Remarketed Notes in book-entry form with DTC or any successor
thereto and to appoint a successor depositary to the extent necessary to
maintain the Remarketed Notes in book-entry form, and (ii) it will waive any
discretionary right it otherwise has under the Indenture to cause the Remarketed
Notes to be issued in certificated form.
THE SPURS AGENT. If the Remarketed Notes are to be remarketed in the SPURS
Mode, the Company and the SPURS Agent will enter into a SPURS Remarketing
Agreement (a "SPURS Remarketing Agreement"),
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<PAGE> 43
the general terms and provisions of which are summarized below.
Except as otherwise provided at the time of remarketing in the SPURS Mode,
the SPURS Agent will not receive any fees or reimbursement of expenses from the
Company in connection with the remarketing in the SPURS Mode.
The Company will agree to indemnify the SPURS Agent against certain
liabilities, including liabilities under the Securities Act, arising out of or
in connection with its duties under the SPURS Remarketing Agreement.
In the event that the SPURS Agent elects to remarket the Remarketed Notes
as described herein, the obligation of the SPURS Agent to purchase Remarketed
Notes from tendering Beneficial Owners of Remarketed Notes will be subject to
several conditions precedent set forth in the SPURS Remarketing Agreement,
including the conditions that, since the Notification Date, no material adverse
change in the condition of the Company and its subsidiaries, considered as one
enterprise, shall have occurred and that no Event of Default (as defined in the
Indenture), or any event which, with the giving of notice or passage of time, or
both, would constitute an Event of Default, with respect to the Remarketed Notes
shall have occurred and be continuing. In addition, the SPURS Remarketing
Agreement will provide for the termination thereof, or redetermination of the
SPURS Interest Rate, by the SPURS Agent on or before the SPURS Remarketing Date,
upon the occurrence of certain events as set forth in the SPURS Remarketing
Agreement.
No holder or Beneficial Owner of any Remarketed Notes shall have any
rights or claims under the SPURS Remarketing Agreement or against the SPURS
Agent as a result of the SPURS Agent not purchasing such Remarketed Notes.
The SPURS Remarketing Agreement will also provide that the SPURS Agent may
resign at any time as SPURS Agent, such resignation to be effective 10 days
after the delivery to the Company and the Trustee of notice of such resignation.
In such case, it shall be the sole obligation of the Company to appoint a
successor SPURS Agent.
The SPURS Agent, in its individual or any other capacity, may buy, sell,
hold and deal in any of the Remarketed Notes. The SPURS Agent may exercise any
vote or join in any action which any Beneficial Owner of Remarketed Notes may be
entitled to exercise or take with like effect as if it did not act in any
capacity under the SPURS Remarketing Agreement. The SPURS Agent, in its
individual capacity, either as principal or agent, may also engage in or have an
interest in any financial or other transaction with the Company as freely as if
did not act in any capacity under the SPURS Remarketing Agreement.
CONVERSION OR REDEMPTION FOLLOWING ELECTION BY THE SPURS AGENT TO REMARKET
If the SPURS Agent elects to remarket the Remarketed Notes on the SPURS
Remarketing Date, the Remarketed Notes will be subject to mandatory tender to
the SPURS Agent for remarketing on such date, in each case subject to the
conditions described above under "Tender; Remarketing" and to the Company's
right to either convert the Remarketed Notes to a new Interest Rate Mode on the
SPURS Remarketing Date or to redeem the Remarketed Notes from the SPURS Agent,
in each case as described in the next sentence. The Company will notify the
SPURS Agent and the Trustee, not later than the Business Day immediately
preceding the Determination Date, if the Company irrevocably elects to exercise
its right to either convert the Remarketed Notes to a new Interest Rate Mode, or
to redeem the Remarketed Notes, in whole but not in part, from the SPURS Agent
at the Optional Redemption Price, in each case on the SPURS Remarketing Date.
In the event that the Company irrevocably elects to convert the Remarketed
Notes to a new Interest Rate Mode, then as of the SPURS Remarketing Date the
Remarketed Notes will cease to be in the SPURS Mode, the SPURS Remarketing Date
will constitute an Interest Rate Adjustment Date, and the Remarketed Notes will
be subject to
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<PAGE> 44
remarketing on such date by a Remarketing Agent appointed by the Company in the
Commercial Paper Term Mode or the Long Term Rate Mode or a new SPURS Mode
established by the Company in accordance with the procedures described above
under "Conversion", provided that, in such case, the notice period required for
conversion shall be the period commencing the Business Day immediately preceding
the Determination Date. In such case, the Company shall pay to the SPURS Agent
the excess of the Dollar Price of the Remarketed Notes over 100% of the
principal amount of the Remarketed Notes in same-day funds by wire transfer to
an account designated by the SPURS Agent on the SPURS Remarketing Date.
In the event that the Company irrevocably elects to redeem the Remarketed
Notes, the "Optional Redemption Price" shall be the greater of (i) 100% of the
principal amount of the Remarketed Notes and (ii) the Dollar Price, plus in
either case accrued and unpaid interest from the SPURS Remarketing Date on the
principal amount being redeemed to the date of redemption. If the Company elects
to redeem the Remarketed Notes, it shall pay the redemption price therefor in
same-day funds by wire transfer to an account designated by the SPURS Agent on
the SPURS Remarketing Date.
FLOATING INTEREST RATES
While any Remarketed Note bears interest in the Long Term Rate Mode or the
SPURS Mode (with respect to the period from, and including, the Interest Rate
Adjustment Date commencing such period to, but excluding, the SPURS Remarketing
Date), the Company may elect a floating interest rate by providing notice, which
will be in or promptly confirmed in writing (which includes facsimile or
appropriate electronic media), received by the Trustee and the Remarketing Agent
for such Remarketed Note (the "Floating Interest Rate Notice") not less than ten
(10) days prior to the Interest Rate Adjustment Date for such Long Term Rate or
SPURS Rate Period. The Floating Interest Rate Notice must identify by CUSIP
number or otherwise the portion of the Remarketed Note to which it relates and
state the Interest Rate Period (or portion thereof, in the case of the SPURS
Mode) therefor to which it relates. Each Floating Interest Rate Notice must also
state the Interest Rate Basis or Bases, the Initial Interest Reset Date, the
Interest Reset Period and Dates, the Interest Payment Period and Dates, the
Index Maturity (as defined below) and the Floating Rate Maximum Interest Rate
(as defined below) and/or Floating Rate Minimum Interest Rate (as defined
below), if any. If one or more of the applicable Interest Rate Bases is LIBOR or
the CMT Rate, the Floating Interest Rate Notice will also specify the Index
Currency and Designated LIBOR Page or the Designated CMT Maturity Index and
Designated CMT Telerate Page, respectively, as such terms are defined below.
If any Remarketed Note bears interest at a floating rate in a Long Term
Rate or SPURS Rate Period, such Note will bear interest at the rate determined
by reference to the applicable Interest Rate Basis or Bases (a) plus or minus
the Spread, if any, and/or (b) multiplied by the Spread Multiplier, if any,
specified by the Remarketing Agent, in the case of a Long Term Rate Period, or
the SPURS Agent, in the case of a SPURS Rate Period. Commencing on the Interest
Rate Adjustment Date for such Interest Rate Period, the rate at which interest
on such Remarketed Note will be payable will be reset as of each Interest Reset
Date during such Interest Rate Period specified in the applicable Floating
Interest Rate Notice.
The "Spread" is the number of basis points to be added to or subtracted
from the related Interest Rate Basis or Bases applicable to an Interest Rate
Period for such Remarketed Note. The "Spread Multiplier" is the percentage of
the related Interest Rate Basis or Bases applicable to such Interest Rate Period
by which such Interest Rate Basis or Bases will be multiplied to determine the
applicable interest rate from time to time for such Long Term Rate Period or
SPURS Rate Period, as the case may be. The "Index Maturity" is the period to
maturity of the instrument or obligation with respect to which the related
Interest Rate Basis or Bases will be calculated.
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<PAGE> 45
The applicable floating interest rate on any Remarketed Note during any
Interest Rate Period will be determined by reference to the applicable Interest
Rate Basis or Interest Rate Bases, which may include (i) the CD Rate, (ii) the
CMT Rate, (iii) the Federal Funds Rate, (iv) LIBOR, (v) the Prime Rate, (vi) the
Treasury Rate, or (vii) such other Interest Rate Basis or interest rate formula
as may be specified in the applicable Floating Interest Rate Notice (each, an
"Interest Rate Basis").
Unless otherwise specified in the applicable Floating Interest Rate
Notice, the interest rate with respect to each Interest Rate Basis will be
determined in accordance with the applicable provisions below. Except as set
forth above or in the applicable Floating Interest Rate Notice, the interest
rate in effect on each day will be (i) if such day is an Interest Reset Date,
the interest rate determined as of the Interest Determination Date (as
hereinafter defined) immediately preceding such Interest Reset Date or (ii) if
such day is not an Interest Reset Date, the interest rate determined as of the
Interest Determination Date immediately preceding the most recent Interest Reset
Date. If any Interest Reset Date would otherwise be a day that is not a Business
Day, such Interest Reset Date will be postponed to the next succeeding Business
Day, unless LIBOR is an applicable Interest Rate Basis and such Business Day
falls in the next succeeding calendar month, in which case such Interest Reset
Date will be the immediately preceding Business Day. In addition, if the
Treasury Rate is an applicable Interest Rate Basis and the Interest
Determination Date would otherwise fall on an Interest Reset Date, then such
Interest Reset Date will be postponed to the next succeeding Business Day.
The applicable Floating Interest Rate Notice will specify whether the rate
of interest will be reset daily, weekly, monthly, quarterly, semiannually or
annually or on such other specified basis (each, an "Interest Reset Period") and
the dates on which such rate of interest will be reset (each, an "Interest Reset
Date"). Unless otherwise specified in the applicable Floating Interest Rate
Notice, the Interest Reset Dates will be, in the case of a floating interest
rate which resets: (i) daily, each Business Day; (ii) weekly, the Wednesday of
each week (unless the Treasury Rate is an applicable Interest Rate Basis, in
which case the Tuesday of each week except as described below); (iii) monthly,
the third Wednesday of each month; (iv) quarterly, the third Wednesday of March,
June, September and December of each year, (v) semiannually, the third Wednesday
of the two months specified in the applicable Floating Interest Rate Notice; and
(vi) annually, the third Wednesday of the month specified in the applicable
Floating Interest Rate Notice.
The interest rate applicable to each Interest Reset Period commencing on
the related Interest Reset Date will be the rate determined as of the applicable
Interest Determination Date. The "Interest Determination Date" with respect to
the CD Rate, the CMT Rate, the Federal Funds Rate and the Prime Rate will be the
second Business Day immediately preceding the applicable Interest Reset Date;
and the "Interest Determination Date" with respect to LIBOR will be the second
London Business Day immediately preceding the applicable Interest Reset Date,
unless the Index Currency is British pounds sterling, in which case the
"Interest Determination Date" will be the applicable Interest Reset Date. The
"Interest Determination Date" with respect to the Treasury Rate will be the day
in the week in which the applicable Interest Reset Date falls on which day
Treasury Bills (as defined below) are normally auctioned (Treasury Bills are
normally sold at an auction held on Monday of each week, unless that day is a
legal holiday, in which case the auction is normally held on the following
Tuesday, except that such auction may be held on the preceding Friday);
provided, however, that if an auction is held on the Friday of the week
preceding the applicable Interest Reset Date, the "Interest Determination Date"
will be such preceding Friday. If the interest rate of any Remarketed Note is a
floating interest rate determined with reference to two or more Interest Rate
Bases specified in the applicable Floating Interest Rate Notice, the "Interest
Determination Date" pertaining to the Remarketed Note will be the most recent
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<PAGE> 46
Business Day which is at least two Business Days prior to the applicable
Interest Reset Date on which each Interest Rate Basis is determinable. Each
Interest Rate Basis will be determined as of such date, and the applicable
interest rate will take effect on the related Interest Reset Date.
Either or both of the following may also apply to the floating interest
rate on any Remarketed Note for an Interest Rate Period: (i) a floating rate
maximum interest rate, or ceiling, that may accrue during any Interest Reset
Period (the "Floating Rate Maximum Interest Rate") and (ii) a floating rate
minimum interest rate, or floor, that may accrue during any Interest Reset
Period (the "Floating Rate Minimum Interest Rate"). In addition to any Floating
Rate Maximum Interest Rate that may apply, the interest rate on any Remarketed
Note will in no event be higher than the Maximum Rate or the maximum rate
permitted by New York law, as the same may be modified by United States laws of
general application.
Except as provided below or in the applicable Floating Interest Rate
Notice, interest will be payable, in the case of floating interest rates which
reset: (i) daily, weekly or monthly, on the third Wednesday of each month or on
the third Wednesday of March, June, September and December of each year, as
specified in the applicable Floating Interest Rate Notice; (ii) quarterly, on
the third Wednesday of March, June, September and December of each year; (iii)
semiannually, on the third Wednesday of the two months of each year specified in
the applicable Floating Interest Rate Notice; and (iv) annually, on the third
Wednesday of the month of each year specified in the applicable Floating
Interest Rate Notice and, in each case, on the Business Day immediately
following the applicable Long Term Rate Period or SPURS Rate Period, as the case
may be. If any Interest Payment Date for the payment of interest at a floating
rate (other than following the end of the applicable Long Term Rate Period or
SPURS Rate Period, as the case may be) would otherwise be a day that is not a
Business Day, such Interest Payment Date will be postponed to the next
succeeding Business Day, except that if LIBOR is an applicable Interest Rate
Basis and such Business Day falls in the next succeeding calendar month, such
Interest Payment Date will be the immediately preceding Business Day.
All percentages resulting from any calculation of floating interest rates
will be rounded to the nearest one hundred-thousandth of a percentage point,
with five one-millionths of a percentage point rounded upwards (e.g., 9.876545%
(or .09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used
in or resulting from such calculation will be rounded, in the case of United
States dollars, to the nearest cent or, in the case of a foreign currency or
composite currency, to the nearest unit (with one-half cent or unit being
rounded upwards).
Accrued floating rate interest will be calculated by multiplying the
principal amount of the applicable Remarketed Note by an accrued interest
factor. Such accrued interest factor will be computed by adding the interest
factor calculated for each day in the applicable Interest Reset Period. Unless
otherwise specified in the applicable Floating Interest Rate Notice, the
interest factor for each such day will be computed by dividing the interest rate
applicable to such day by 360, if an applicable Interest Rate Basis is the CD
Rate, the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number
of days in the year if an applicable Interest Rate Basis is the CMT Rate or the
Treasury Rate. Unless otherwise specified in the applicable Floating Interest
Rate Notice, if the floating interest rate is calculated with reference to two
or more Interest Rate Bases, the interest factor will be calculated in each
period in the same manner as if only one of the applicable Interest Rate Bases
applied as specified in the applicable Floating Interest Rate Notice.
Unless otherwise specified in the applicable Floating Interest Rate
Notice, Bankers Trust Company will be the "Calculation Agent." For any
Remarketed Note bearing interest at a floating rate, the applicable Remarketing
Agent will determine the interest rate in effect from the Interest Rate
Adjustment Date for such Remarketed Note to the Initial Interest Reset Date. The
Calculation Agent will determine the interest rate in effect
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for each Interest Reset Period thereafter. Upon request of the Beneficial Owner
of a Remarketed Note, after any Interest Rate Adjustment Date, the Calculation
Agent or the Remarketing Agent will disclose the interest rate and, in the case
of a floating interest rate, Interest Rate Basis or Bases, Spread (if any) and
Spread Multiplier (if any), and in each case the other terms applicable to such
Remarketed Note then in effect and, if determined, the interest rate that will
become effective as a result of a determination made for the next succeeding
Interest Reset Date with respect to such Remarketed Note. Except as described
herein with respect to a Remarketed Note earning interest at floating rates, no
notice of the applicable interest rate, Spread (if any) or Spread Multiplier (if
any) will be sent to the Beneficial Owner of any Remarketed Note.
Unless otherwise specified in the applicable Floating Interest Rate
Notice, the "Calculation Date," if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth calendar day after such
Interest Determination Date or, if such day is not a Business Day, the next
succeeding Business Day or (ii) the Business Day immediately preceding the
applicable Interest Payment Date or Maturity, as the case may be.
CD Rate. If an Interest Rate Basis for any Remarketed Note is specified in
the applicable Floating Interest Rate Notice as the "CD Rate," the CD Rate
means, with respect to any Interest Determination Date relating to a Remarketed
Note for which the interest rate is determined with reference to the CD Rate (a
"CD Rate Interest Determination Date"), the rate on such date for negotiable
United States dollar certificates of deposit having the Index Maturity specified
in the applicable Floating Interest Rate Notice as published by H.15(519) (as
hereinafter defined) under the heading "CDs (Secondary Market)," or, if not
published by 3:00 p.m., New York City time, on the related Calculation Date, the
rate on such CD Rate Interest Determination Date for negotiable United States
dollar certificates of deposit of the Index Maturity specified in the applicable
Floating Interest Rate Notice as published in H.15 Daily Update (as hereinafter
defined), or such other recognized electronic source used for the purpose of
displaying such rate under the caption "CDs (Secondary Market)". If such rate is
not yet published in H.15(519), H.15 Daily Update or another recognized
electronic source by 3:00 p.m., New York City time, on the related Calculation
Date, then the CD Rate on such CD Rate Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 a.m., New York City time, on such CD
Rate Interest Determination Date, of three leading nonbank dealers in negotiable
United States dollar certificates of deposit in The City of New York (which may
include the Remarketing Agent or its affiliates) selected by the Calculation
Agent, after consultation with the Company, for negotiable United States dollars
certificates of deposit of major United States money center banks for negotiable
certificates of deposit with a remaining maturity closest to the Index Maturity
specified in the applicable Floating Interest Rate Notice in an amount that is
representative for a single transaction in that market at that time; provided,
however, that if the dealers so selected by the Calculation Agent are not
quoting as mentioned in this sentence, the CD Rate determined as of such CD Rate
Interest Determination Date will be the CD Rate in effect on such CD Rate
Interest Determination Date.
"H.15(519)" means the weekly statistical release designated as such, or
any successor publication, published by the Board of Governors of the Federal
Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available through
the world-wide-web site of the Board of Governors of the Federal Reserve System
at http://www.bog.frb.fed.us/releases/h15/update, or any successor site or
publication.
CMT Rate. If an Interest Rate Basis for any Remarketed Note is specified
in the applicable Floating Interest Rate Notice as the "CMT Rate," the CMT Rate
means, with respect to any Interest Determination Date relating to a Remarketed
Note for which the interest rate is determined with reference to the CMT Rate (a
"CMT Rate Interest Determination Date"), the rate displayed on the
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Designated CMT Telerate Page (as defined below) under the caption "...Treasury
Constant Maturities...Federal Reserve Board Release H.15...Mondays Approximately
3:45 P.M.," under the column for the Designated CMT Maturity Index (as defined
below) for (i) if the Designated CMT Telerate Page is 7051, the rate on such CMT
Rate Interest Determination Date and (ii) if the Designated CMT Telerate Page is
7052, the weekly or monthly average, as specified in the Floating Interest Rate
Notice, for the week or the month, as applicable, ended immediately preceding
the week or the month, as applicable, in which the related CMT Rate Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page or is not displayed by 3:00 p.m., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index as published in H.15(519). If such rate is no longer published or
is not published by 3:00 p.m., New York City time, on the related Calculation
Date, then the CMT Rate on such CMT Rate Interest Determination Date will be
such treasury constant maturity rate for the Designated CMT Maturity Index (or
other United States Treasury rate for the Designated CMT Maturity Index) for the
CMT Rate Interest Determination Date with respect to such Interest Reset Date as
may then be published by either the Board of Governors of the Federal Reserve
System or the United States Department of the Treasury that the Calculation
Agent determines to be comparable to the rate formerly displayed on the
Designated CMT Telerate Page and published in H.15(519). If such information is
not provided by 3:00 p.m., New York City time, on the related Calculation Date,
then the CMT Rate on the CMT Rate Interest Determination Date will be calculated
by the Calculation Agent and will be a yield to maturity, based on the
arithmetic mean of the secondary market closing offer side prices as of
approximately 3:30 p.m., New York City time, on such CMT Rate Interest
Determination Date reported, according to their written records, by three
leading primary United States government securities dealers (each, a "Reference
Dealer") in The City of New York (which may include the Remarketing Agent or its
affiliates) selected by the Calculation Agent after consultation with the
Company (from five such Reference Dealers selected by the Calculation Agent,
after consultation with the Company, and eliminating the highest quotation (or,
in the event of equality, one of the highest) and the lowest quotation (or, in
the event of equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the United States ("Treasury Notes") with
an original maturity of approximately the Designated CMT Maturity Index and a
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent is unable to obtain three such Treasury
Note quotations, the CMT Rate on such CMT Rate Interest Determination Date will
be calculated by the Calculation Agent and will be a yield to maturity based on
the arithmetic mean of the secondary market offer side prices as of
approximately 3:30 p.m., New York City time, on such CMT Rate Interest
Determination Date of three Reference Dealers in The City of New York (from five
such Reference Dealers selected by the Calculation Agent, after consultation
with the Company, and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for Treasury Notes with an original maturity of
the number of years that is the next highest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index and in an amount of at least U.S.$100 million. If three or four (and not
five) of such Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided,
however, that if fewer than three Reference Dealers so selected by the
Calculation Agent, after consultation with the Company, are quoting as mentioned
herein, the CMT Rate determined as of such CMT Rate Interest Determination Date
will be the CMT Rate in effect on such CMT Rate Interest Determination Date. If
two Treasury Notes with an original maturity as described in the second
preceding sentence have remaining
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terms to maturity equally close to the Designated CMT Maturity Index, the
Calculation Agent, after consultation with the Company, will obtain from five
Reference Dealers quotations for the Treasury Note with the shorter remaining
term to maturity.
"Designated CMT Telerate Page" means the display on Bridge Telerate, Inc.
(or any successor service) on the page specified in the applicable Floating
Interest Rate Notice (or any other page as may replace such page on such service
for the purpose of displaying Treasury Constant Maturities as reported in
H.15(519)) for the purpose of displaying Treasury Constant Maturities as
reported in H.15(519). If no such page is specified in the applicable Floating
Interest Rate Notice, the Designated CMT Telerate Page shall be 7052 for the
most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the United States Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Floating Interest Rate Notice with respect to which
the CMT Rate will be calculated. If no such maturity is specified in the
applicable Floating Interest Rate Notice, the Designated CMT Maturity Index
shall be 2 years.
Federal Funds Rate. If an Interest Rate Basis for any Remarketed Note is
specified in the applicable Floating Interest Rate Notice, as the "Federal Funds
Rate", the Federal Funds Rate means, with respect to any Interest Determination
Date relating to a Remarketed Note for which the interest rate is determined
with reference to the Federal Funds Rate (a "Federal Funds Rate Interest
Determination Date"), the rate on such date for United States dollar federal
funds as published in H.15(519) under the heading "Federal Funds (Effective)" as
such rate is displayed on Bridge Telerate, Inc. (or any successor service) on
page 120 ("Telerate Page 120") or, if such rate does not appear on Telerate Page
120 or is not published by 3:00 p.m., New York City time, on the Calculation
Date, the rate on such Federal Funds Rate Interest Determination Date as
published in H.15 Daily Update, or such other recognized electronic source used
for the purpose of displaying such rate, under the heading "Federal Funds
(Effective)." If such rate does not appear on Telerate Page 120 or is not yet
published in H.15(519), H.15 Daily Update or another recognized electronic
source by 3:00 p.m., New York City time, on the related Calculation Date, then
the Federal Funds Rate on such Federal Funds Rate Interest Determination Date
will be calculated by the Calculation Agent and will be the arithmetic mean of
the rates for the last transaction in overnight United States dollar federal
funds arranged by three leading brokers of federal funds transactions in The
City of New York (which may include the Remarketing Agent or its affiliates)
selected by the Calculation Agent after consultation with the Company, prior to
9:00 a.m., New York City time, on such Federal Funds Rate Interest Determination
Date; provided, however, that if the brokers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the Federal Funds Rate
determined as of such Federal Funds Rate Interest Determination Date will be the
Federal Funds Rate in effect on such Federal Funds Rate Interest Determination
Date.
LIBOR. If an Interest Rate Basis for any Remarketed Note is specified in
the applicable Floating Interest Rate Notice as "LIBOR," LIBOR means the rate
determined by the Calculation Agent as of the applicable Interest Determination
Date (a "LIBOR Interest Determination Date") in accordance with the following
provisions:
(i) if (a) "LIBOR Reuters" is specified in the applicable Floating Interest
Rate Notice, the arithmetic mean of the offered rates (unless the Designated
LIBOR Page (as defined below) by its terms provides only for a single rate, in
which case such single rate will be used) for deposits in the Index Currency
having the Index Maturity specified in the applicable Floating Interest Rate
Notice, commencing on the applicable Interest Reset Date, that appear (or, if
only a single rate is required as aforesaid, appears) on the Designated LIBOR
Page (as defined below) as of 11:00 a.m., London time, on such LIBOR Interest
Determination Date, or (b) "LIBOR Telerate" is specified in the applicable
Floating Interest Rate
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Notice, or if neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in
the applicable Floating Interest Rate Notice as the method for calculating
LIBOR, the rate for deposits in the Index Currency having the Index Maturity
specified in the applicable Floating Interest Rate Notice, commencing on such
Interest Reset Date, that appears on the Designated LIBOR Page as of 11:00
a.m., London time, on such LIBOR Interest Determination Date. If fewer than
two such offered rates appear, or if no such rate appears, as applicable,
LIBOR on such LIBOR Interest Determination Date will be determined in
accordance with the provisions described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer than
two offered rates appear, or no rate appears, as the case may be, on the
Designated LIBOR Page as specified in clause (i) above, the Calculation Agent
will request the principal London offices of each of four major reference
banks in the London interbank market, as selected by the Calculation Agent,
after consultation with the Company, to provide the Calculation Agent with its
offered quotation for deposits in the Index Currency for the period of the
Index Maturity specified in the applicable Floating Interest Rate Notice,
commencing on the applicable Interest Reset Date, to prime banks in the London
interbank market at approximately 11:00 a.m., London time, on such LIBOR
Interest Determination Date and in a principal amount that is representative
for a single transaction in such Index Currency in such market at such time.
If at least two such quotations are so provided, then LIBOR on such LIBOR
Interest Determination Date will be the arithmetic mean of such quotations. If
fewer than two such quotations are so provided, then LIBOR on such LIBOR
Interest Determination Date will be the arithmetic mean of the rates quoted at
approximately 11:00 a.m., in the applicable Principal Financial Center, on
such LIBOR Interest Determination Date by three major banks in such Principal
Financial Center selected by the Calculation Agent, after consultation with
the Company, for loans in the Index Currency to leading European banks, having
the Index Maturity specified in the applicable Floating Interest Rate Notice
and in a principal amount that is representative for a single transaction in
such Index Currency in such market at such time; provided, however, that if
the banks so selected by the Calculation Agent are not quoting as mentioned in
this sentence, LIBOR determined as of such LIBOR Interest Determination Date
will be LIBOR in effect on such LIBOR Interest Determination Date.
"Index Currency" means the currency or composite currency specified in the
applicable Floating Interest Rate Notice as to which LIBOR will be calculated.
If no such currency or composite currency is specified in the applicable
Floating Interest Rate Notice, the Index Currency will be United States dollars.
"Principal Financial Center" means the capital city of the country issuing
the Index Currency, except that with respect to United States dollars,
Australian dollars, Deutsche marks, Dutch guilders, Italian lire, Swiss francs
and ECUs, the Principal Financial Center will be The City of New York, Sydney,
Frankfurt, Amsterdam, Milan, Zurich and Luxembourg, respectively.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Floating Interest Rate Notice, the display on the Reuter Monitor
Money Rates Service (or any successor service) on the page specified in such
Floating Interest Rate Notice (or any other page as may replace such page on
such service) for the purpose of displaying the London interbank rates of major
banks for the Index Currency, or (b) if "LIBOR Telerate" is specified in the
applicable Floating Interest Rate Notice or neither "LIBOR Reuters" nor "LIBOR
Telerate" is specified in the applicable Floating Interest Rate Notice as the
method for calculating LIBOR, the display on Bridge Telerate, Inc. (or any
successor service) on the page specified in such Floating Interest Rate Notice
(or any other page as may replace such page on such service) for the purpose of
displaying the London interbank rates of major banks for the Index Currency.
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Prime Rate. If an Interest Rate Basis for any Remarketed Note is specified
in the applicable Floating Interest Rate Notice as the "Prime Rate," Prime Rate
means, with respect to any Interest Determination Date relating to a Remarketed
Note for which the interest rate is determined with reference to the Prime Rate
(a "Prime Rate Interest Determination Date"), the rate on such date as such rate
is published in H.15(519) under the heading "Bank Prime Loan" or, if not
published prior to 3:00 p.m., New York City time, on the related Calculation
Date, the rate on such Prime Rate Interest Determination Date as published in
H.15 Daily Update, or such other recognized electronic source used for the
purpose of displaying such rate, under the caption "Bank Prime Loan." If such
rate is not yet published in H.15(519), H.15 Daily Update or another recognized
electronic source by 3:00 P.M., New York City time, on the related Calculation
Date, then the Prime Rate will be the arithmetic mean of the rates of interest
publicly announced by each bank that appears on the Reuters Screen U.S. PRIME 1
Page (as defined below) as such bank's prime rate or base lending rate as in
effect for such Prime Rate Interest Determination Date. If fewer than four such
rates appear on the Reuters Screen U.S. PRIME 1 Page for such Prime Rate
Interest Determination Date, the Prime Rate will be the arithmetic mean of the
prime rates quoted on the basis of the actual number of days in the year divided
by a 360-day year as of the close of business on such Prime Rate Interest
Determination Date by four major money center banks (which may include The Bank
of New York) in The City of New York selected by the Calculation Agent, after
consultation with the Company. If fewer than four such quotations are so
provided, the Prime Rate will be the arithmetic mean of four prime rates quoted
on the basis of the actual number of days in the year divided by a 360-day year
as of the close of business on such Prime Rate Interest Determination Date as
furnished in The City of New York by the major money center banks, if any, that
have provided such quotations and by as many substitute banks or trust companies
(which may include The Bank of New York) as necessary in order to obtain four
such prime rate quotations, provided such substitute banks or trust companies
are organized and doing business under the laws of the United States, or any
State thereof, have total equity capital of at least U.S.$500 million and are
each subject to supervision or examination by Federal or State authority,
selected by the Calculation Agent, after consultation with the Company, to
provide such rate or rates; provided, however, that if the banks or trust
companies so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the Prime Rate determined as of such Prime Rate Interest
Determination Date will be the Prime Rate in effect on such Prime Rate Interest
Determination Date.
"Reuters Screen U.S. PRIME 1 Page" means the display on the Reuter Monitor
Money Rates Service (or any successor service) on the "USPRIME1" page (or such
other page as may replace the USPRIME1 page on such service) for the purpose of
displaying prime rates or base lending rates of major United States banks.
Treasury Rate. If an Interest Rate Basis for any Remarketed Note is
specified in the applicable Floating Interest Rate Notice as the "Treasury
Rate," Treasury Rate means, with respect to any Interest Determination Date
relating to a Remarketed Note for which the interest rate is determined with
reference to the Treasury Rate (a "Treasury Rate Interest Determination Date"),
as the rate from the auction held on such Treasury Rate Interest Determination
Date (the "Auction") of direct obligations of the United States ("Treasury
Bills") having the Index Maturity specified in the applicable Floating Interest
Rate Notice under the caption "AVGE INVEST YIELD" on the display on Bridge
Telerate, Inc. (or any successor service) on page 56 or page 57 or, if not
published by 3:00 p.m., New York City time, on the related Calculation Date, the
auction average rate of such Treasury Bills (expressed as a bond equivalent on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) as otherwise announced by the United States Department of the Treasury.
In the event that the results of the Auction of Treasury Bills having the Index
Maturity specified in the applicable Floating Interest Rate Notice are not
reported as provided above by 3:00 p.m., New York City time, on such Calculation
Date, or if no
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such Auction is held, then the Treasury Rate
will be the rate (expressed as a bond equivalent on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis) on such Treasury Rate
Interest Determination Date of Treasury Bills having the Index Maturity
specified in the applicable Floating Interest Rate Notice as published in
H.15(519) under the caption "U.S. Government Securities/Treasury Bills/Secondary
Market" or, if not yet published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Treasury Rate Interest Determination
Date of such Treasury Bills as published in H.15 Daily Update, or such other
recognized electronic source used for the purpose of displaying such rate, under
the caption "U.S. Government Securities/Treasury Bills/Secondary Market." If
such rate is not yet published in H.15(519), H.15 Daily Update or another
recognized electronic source, then the Treasury Rate will be calculated by the
Calculation Agent and will be a yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) of the arithmetic mean of the secondary market bid rates, as
of approximately 3:30 p.m., New York City time, on such Treasury Rate Interest
Determination Date, of three leading primary United States government securities
dealers (which may include the Remarketing Agent or its affiliates) selected by
the Calculation Agent, after consultation with the Company, for the issue of
Treasury Bills with a remaining maturity closest to the Index Maturity specified
in the applicable Floating Interest Rate Notice; provided, however, that if the
dealers so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the Treasury Rate determined as of such Treasury Rate Interest
Determination Date will be the Treasury Rate in effect on such Treasury Rate
Interest Determination Date.
SECURITY; PLEDGE OF MORTGAGE BONDS
Unless otherwise set forth in the applicable prospectus supplement, each
series of Remarketed Notes will be secured as to payment of principal, interest
and premium, if any, as set forth below.
GENERAL. In order to secure the obligation of the Company to pay the
principal of (and premium, if any) and interest on the Remarketed Notes of each
series, the Company will issue and deliver to and pledge with the Trustee its
Mortgage Bond. (Section 401) The aggregate principal amount of the Remarketed
Notes outstanding and maximum aggregate amount of premium thereon, if any, will
not exceed the aggregate principal amount of the related Mortgage Bonds pledged
with and held by the Trustee. The Mortgage Bonds will bear interest at times and
in amounts sufficient to provide for the payment of interest on the related
Remarketed Notes and also will be redeemed at times and in amounts that
correspond to the required payments of principal of and any premium on the
related Remarketed Notes. Payments on the Remarketed Notes will satisfy payment
obligations on the underlying Mortgage Bonds. The Mortgage Bonds will be secured
by a first mortgage lien on certain property owned by the Company and will rank
on a parity with all other general and refunding mortgage bonds of the Company.
As of September 30, 1998, the Company had outstanding approximately $3.0 billion
aggregate principal amount of General and Refunding Mortgage Bonds. See
"Provisions Applicable to General and Refunding Mortgage Bonds."
SATISFACTION OF PAYMENT OBLIGATION ON MORTGAGE BOND. The interest rate on
the Mortgage Bond will be equal to the aggregate interest due on the related
Remarketed Notes. The Indenture provides that the obligation of the Company to
make any payment of the principal of (and premium, if any) or interest on the
Mortgage Bond will be deemed to have been satisfied and discharged to the extent
that at the time any such payment shall be due, the then due principal of (and
premium, if any) or interest on the related Remarketed Notes, shall have been
paid, deemed to have been paid or otherwise satisfied and discharged. In
addition, such obligation to make any payment of the principal of (and premium,
if any) or interest on the Mortgage Bond at any time shall be deemed to have
been satisfied and discharged to the extent that the amount of
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the Company's obligation to make any
payment of the principal of (and premium, if any) or interest on the Mortgage
Bond exceeds the obligation of the Company at that time to make any payment of
the principal of (and premium, if any) or interest on the related Remarketed
Notes.
REDEMPTION OF MORTGAGE BOND. The Company covenants and agrees in the
Indenture that upon the required payment of principal or premium, if any,
becoming due and payable with respect to any Remarketed Notes, it will redeem
the related Mortgage Bond in an aggregate principal amount equal to the amount
becoming due and payable on such Remarketed Notes, plus accrued interest;
provided, however, that the Company's obligation to redeem such Mortgage Bond
will be fully or partially deemed to have been satisfied and discharged to the
extent that at the time any such payment shall be due, the then due aggregate
principal amount of the Remarketed Notes, plus the aggregate amount of any
premium on, or accrued interest to the redemption date for, such Remarketed
Notes shall have been fully or partially paid, deemed to have been paid or
otherwise satisfied and discharged. Except for such redemption, the Company
covenants that it will not redeem the Mortgage Bond or take any action that will
result in the Mortgage Trustee or the Company incurring an obligation to redeem
the Mortgage Bond. (Section 404)
SURRENDER AND EXCHANGE OF MORTGAGE BONDS. The Trustee will surrender to
the Mortgage Trustee for cancellation the Mortgage Bonds in an aggregate
principal amount equal to the aggregate principal amount of any other Mortgage
Bond delivered to and pledged with the Trustee pursuant to the Indenture in
exchange therefor; provided that the Mortgage Bonds so delivered to and pledged
with the Trustee contain no provisions that would impair the benefit of the lien
of the Mortgage in favor of the holders of the related Remarketed Notes.
(Section 406(c))
EVENTS OF DEFAULT
In addition to the Events of Default set forth above under "Provisions
Applicable to All Debt Securities Other than Mortgage Bonds -- Events of
Default", any one of the following events will constitute an Event of Default
under the Indenture with respect to the Remarketed Notes of any series: (a)
failure by the Company to comply with the provisions of the Indenture relating
to the pledge of the Mortgage Bonds in respect of such series or to the
provisions of such Mortgage Bonds; (b) failure by the Company to purchase
Remarketed Notes of such series held by the Liquidity Provider pursuant to the
Standby Note Purchase Agreement, if any, continued for 60 days after written
notice as provided in the Indenture; and (c) the occurrence of a "default" as
such term is defined in the Mortgage. (Section 601)
The Indenture provides that within 90 days after the occurrence of any
Event of Default thereunder with respect to the Remarketed Notes of any series,
the Trustee shall transmit, in the manner set forth in the Indenture, notice of
such Event of Default to the holders of the Remarketed Notes of such series
unless such Event of Default has been cured or waived; provided however, that
except in the case of a default in the payment of the principal of (or premium,
if any) or interest on any such Remarketed Note of such series or a failure by
the Company to comply with the provisions of the Indenture relating to the
Mortgage Bonds or to the provisions of such Mortgage Bonds, the Trustee may
withhold such notice if and so long as the board of directors, the executive
committee or a trust committee of directors or Responsible Officers of the
Trustee has in good faith determined that the withholding of such notice is in
the interest of the holders of Remarketed Notes of such series; and provided,
further, that in the case of any default referred to in clause (a) of the
preceding paragraph with respect to the Remarketed Notes of such series, no such
notice to holders shall be given until at least 60 days after the occurrence
thereof. (Section 701)
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If an Event of Default occurs and is continuing with respect to the
Remarketed Notes of any series, the Trustee may in its discretion proceed to
protect and enforce its rights and the rights of the holders of Remarketed Notes
of such series by all appropriate judicial proceedings, including the rights of
the Trustee as the holder of the related Mortgage Bonds; provided, however, that
the Trustee shall not have the power to sell the related Mortgage Bonds.
(Section 603)
MODIFICATION AND WAIVER
In addition to the provisions set forth above under "Provisions Applicable
to All Debt Securities Other than Mortgage Bonds -- Modification and Waiver," no
modification or amendment to the Indenture may, without the consent of each
holder of Remarketed Notes of the Series affected thereby, modify or change the
provisions of the Indenture relating to the pledge of the Mortgage Bond relating
to any Remarketed Note or modify or change the provisions of the Mortgage or the
related Mortgage Bond in a manner that is adverse to holders of any Remarketed
Notes of such Series. (Section 1002)
THE STANDBY NOTE PURCHASE AGREEMENT
In order to fulfill its obligations under the Special Mandatory Purchase
Right, the Company may from time to time, at its option, enter into a Standby
Note Purchase Agreement (the "Standby Note Purchase Agreement") with one or more
banks or other credit providers (referred to individually and collectively
herein as the "Liquidity Provider"), each of which, unless otherwise provided in
the applicable Prospectus Supplement, has (i) obligations such as those under
the Standby Note Purchase Agreement that are exempt from registration under the
Securities Act, (ii) long term senior debt ratings by Standard & Poor's Ratings
Services and Moody's Investors Service, Inc. at least equal to those of the
Company as of the date of the Standby Note Purchase Agreement and (iii) minimum
combined capital and surplus of at least $50,000,000.
The Company will retain the right to replace or add Liquidity Providers at
any time. Purchasers of the Remarketed Notes should not rely upon the presence
of Liquidity Providers in making an investment decision regarding the Remarketed
Notes.
Beneficial Owners of the Remarketed Notes will receive amounts advanced by
the Liquidity Provider to the Remarketing Agent pursuant to any Standby Note
Purchase Agreement in payment of the purchase price for Remarketed Notes subject
to a Special Mandatory Purchase. See "-- Purchase and Redemption of Remarketed
Notes -- Special Mandatory Purchase." Pursuant to the Standby Note Purchase
Agreement, if any, the Liquidity Provider will be obligated, upon receipt of an
appropriate demand for payment from the Remarketing Agent and so long as the
Company is in compliance with the terms and conditions thereof, to purchase
unremarketed Remarketed Notes in any Special Mandatory Purchase at a price equal
to 100% of the outstanding principal amount thereof. Any such purchase will be
effected upon the Liquidity Provider's receipt of notification of a failed
remarketing not later than 12:00 o'clock noon, New York City time, on the date
of the Special Mandatory Purchase by the deposit of same-day funds by the
Liquidity Provider with the Remarketing Agent not later than 3:00 p.m., New York
City time on such date. See "-- Purchase and Redemption of Remarketed Notes."
Notwithstanding the existence of the Standby Note Purchase Agreement, if any,
the Company will be responsible for paying the accrued interest, if any, on any
unremarketed Remarketed Notes by depositing sufficient same-day funds therefor
with the Remarketing Agent not later than 3:00 p.m., New York City time, on the
applicable date of Special Mandatory Purchase.
The Liquidity Provider's obligation to advance funds will be subject to
conditions specified in the Standby Note Purchase Agreement. Unless otherwise
indicated in the applicable prospectus supplement, such conditions include:
receipt by the Liquidity Provider of various documents, certificates and
opinions from the Company; the continued accuracy of representations and
warranties (other than with respect to material adverse
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change and litigation) made by the Company in the Standby Note Purchase
Agreement; that no event has occurred and is continuing which would constitute
an Event of Default under the Standby Note Purchase Agreement (such events
include failure by the Company to pay amounts owing under the Standby Note
Purchase Agreement, inaccuracy of representations and warranties when made,
failure to perform covenants under the Standby Note Purchase Agreement, failure
to pay any debt owing by the Company in excess of $10,000,000, certain events of
bankruptcy or insolvency of the Company, an Event of Default under the Indenture
or failure to maintain the security interest thereunder and the
non-enforceability of certain related documents); and receipt by the Liquidity
Provider of a properly completed notice of a failed remarketing and a borrowing
request from the Remarketing Agent.
The Company may indemnify a Liquidity Provider against certain liabilities
arising out of or in connection with its duties under the Standby Note Purchase
Agreement. A form of the Standby Note Purchase Agreement has been filed as an
exhibit to the Registration Statement of which this prospectus forms a part. The
summaries of certain provisions of any Standby Note Purchase Agreement do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all provisions of such Standby Note Purchase Agreement.
PROVISIONS APPLICABLE TO SUBORDINATED DEBT SECURITIES
GENERAL
Subordinated Debt Securities will be issued under the Indenture and will
rank equally ("pari passu") with certain other subordinated debt of the Company
that may be outstanding from time to time and will rank junior to all Senior
Indebtedness of the Company (including any Senior Debt Securities) that may be
outstanding from time to time.
SUBORDINATION
The payment of the principal of (and premium, if any) and interest on the
Subordinated Debt Securities is expressly subordinated, to the extent and in the
manner set forth in the Indenture, in right of payment to the prior payment in
full of all Senior Indebtedness of the Company. (Section 401 of the Supplemental
Indenture Creating Subordinated Debt Securities).
Upon (i) any acceleration of the principal amount due on the Subordinated
Debt Securities or (ii) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, to creditors
upon any dissolution or winding-up or total or partial liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all principal and
premium, if any, and interest due upon all Senior Indebtedness shall first be
paid in full, or payment thereof provided for in money or money's worth in
accordance with its terms, before any payment is made on account of the
principal of, premium, if any, or interest on the indebtedness evidenced by the
Subordinated Debt Securities, and upon any such dissolution or winding-up or
liquidation or reorganization any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Holders of the Subordinated Debt Securities would be entitled, except
for the provisions of the Indenture, shall (subject to the power of a court of
competent jurisdiction to make other equitable provision reflecting the rights
conferred by the provisions of the Subordinated Debt Securities upon the Senior
Indebtedness and the holders thereof with respect to the Subordinated Debt
Securities and the Holders thereof by a lawful plan of reorganization under
applicable bankruptcy law), be paid by the Company or any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, or by the Holders of the Subordinated Debt Securities if received
by them, directly to the holders of Senior Indebtedness (pro rata to each such
holder on the basis of the respective amounts of Senior Indebtedness held by
such holder) or their representatives, to the extent necessary to pay all Senior
Indebtedness (including interest thereon) in full, in money or money's worth,
after giving effect to
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any concurrent payments or distribution to or for the holders of Senior
Indebtedness, before any payment or distribution is made to the Holders of the
indebtedness evidenced by the Subordinated Debt Securities. The consolidation of
the Company with or the merger of the Company into another Person or the
liquidation or dissolution of the Company following the conveyance or transfer
of its property as an entirety, or substantially as an entirety, to another
Person upon the terms and conditions provided in the Indenture shall not be
deemed a dissolution, winding-up, liquidation or reorganization for these
purposes.
In the event that any payment or distribution of assets of the Company of
any kind or character not permitted by the foregoing provisions, whether in
cash, property or securities, shall be received by the Holders of Subordinated
Debt Securities before all Senior Indebtedness is paid in full, or provision
made for such payment, in accordance with its terms, such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
or delivered to, the holders of such Senior Indebtedness or their representative
or representatives, or to the trustee or trustees under any indenture pursuant
to which any instruments evidencing any of such Senior Indebtedness may have
been issued, as their respective interests may appear, for application to the
payment of all Senior Indebtedness remaining unpaid to the extent necessary to
pay all such Senior Indebtedness in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to the holders of such
Senior Indebtedness.
No payment on account of principal of, premium, if any, sinking funds or
interest on the Subordinated Debt Securities shall be made unless full payment
of amounts then due for principal, premium, if any, sinking funds and interest
on any Senior Indebtedness has been made or duly provided for in money or
money's worth in accordance with the terms of such Senior Indebtedness. No
payment on account of principal, premium, if any, sinking funds or interest on
the Subordinated Debt Securities shall be made if, at the time of such payment
or immediately after giving effect thereto, (i) there shall exist a default in
the payment of principal, premium, if any, sinking fund or interest with respect
to any Senior Indebtedness, or (ii) there shall have occurred an event or
default (other than a default in the payment of principal, premium, if any,
sinking funds or interest) with respect to any Senior Indebtedness, as defined
therein or in the instrument under which the same is outstanding, permitting the
holders thereof to accelerate the maturity thereof, and such event of default
shall not have been cured or waived or shall not have ceased to exist.
SUBROGATION
From and after the payment in full of all Senior Indebtedness, the Holders
of the Subordinated Debt Securities (together with the holders of any other
indebtedness of the Company which is subordinate in right of payment to the
payment in full of all Senior Indebtedness, which is not subordinate in right of
payment to the Subordinated Debt Securities and which by its terms grants such
right of subrogation to the holder thereof) shall be subrogated to the rights of
the holders of Senior Indebtedness to receive payments or distributions of
assets or securities of the Company applicable to the Senior Indebtedness until
the Subordinated Debt Securities shall be paid in full, and, for the purposes of
such subrogation, no such payments or distributions to the holders of Senior
Indebtedness of assets or securities, which otherwise would have been payable or
distributable to Holders of the Subordinated Debt Securities, shall, as between
the Company, its creditors other than the holders of Senior Indebtedness, and
the Holders of the Subordinated Debt Securities, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness, it being understood
that these provisions of the Indenture are and are intended solely for the
purpose of defining the relative rights of the Holders of the Subordinated Debt
Securities, on the one hand, and the holders of the Senior Indebtedness, on the
other hand, and nothing contained in the Indenture is intended to or shall
impair as between the Company, its creditors other than the holders of Senior
Indebtedness, and the holders of the Subordinated
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Debt Securities, the obligation of the Company, which is unconditional and
absolute, to pay to the Holders of the Subordinated Debt Securities the
principal of and interest on the Subordinated Debt Securities as and when the
same shall become due and payable in accordance with their terms, or to affect
the relative rights of the Holders of the Subordinated Securities and creditors
of the Company other than the holders of the Senior Indebtedness, nor shall
anything therein prevent the Holder of any Subordinated Debt Security from
exercising all remedies otherwise permitted by applicable law upon default under
such Subordinated Debt Security subject to the rights of the holders of Senior
Indebtedness to receive cash, property or securities of the Company otherwise
payable or deliverable to the Holders of the Subordinated Debt Securities or to
a representative of such Holders, on their behalf.
Except as provided in the applicable prospectus supplement and
supplemental indenture, the term "Senior Indebtedness" is defined in the
Indenture as indebtedness incurred by the Company for money borrowed whether
outstanding on the date hereof or incurred in the future, all deferrals,
renewals or extensions of any such indebtedness and all evidences of
indebtedness issued in exchange for any such indebtedness and guarantees by the
Company of the foregoing items of indebtedness for money borrowed by persons
other than the Company and all obligations as lessee under any and all leases of
property, equipment and other assets required to be capitalized on the balance
sheet of the lessee under generally accepted accounting principles, unless, in
any such case, such indebtedness, guarantee or obligation provides by its terms
that it shall not constitute Senior Indebtedness.
If Subordinated Debt Securities are issued under the Indenture, the
aggregate principal amount of Senior Indebtedness outstanding as of a recent
date will be set forth in the Prospectus Supplement. The Indenture does not
restrict the amount of Senior Indebtedness that the Company may incur.
DTC BOOK-ENTRY-ONLY SYSTEM
Upon issuance, the Debt Securities will be represented by a global
security or securities (the "Global Security"). The Global Security representing
the Debt Securities will be deposited with, or on behalf of, DTC. Upon the
issuance of such Global Security, DTC or its nominee will credit the accounts of
persons held with it with the respective principal or face amounts of the Debt
Securities represented by such Global Security. Ownership of beneficial
interests in such Global Security will be limited to persons that have accounts
with DTC ("participants") or persons that may hold interests through
participants. Ownership of beneficial interests by participants in such Global
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC. Ownership of beneficial interests in
such Global Security by persons that hold through participants will be shown on,
and the transfer of that ownership interest within such participant will be
effected only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to acquire or transfer beneficial interests in such Global
Security.
Payment of principal of and interest on the Debt Securities will be made
to DTC or its nominee, as the case may be, as the sole registered owner and
holder of the Global Security for all purposes under the Indenture. Neither the
Company, the Trustee nor, in the case of any series of Remarketed Notes, the
Remarketing Agent nor any agent of the Company or the Trustee will have any
responsibility or liability for any aspect of DTC's records relating to or
payments made on account of beneficial ownership interests in such Global
Security or for maintaining, supervising or reviewing any of DTC's records
relating to such beneficial ownership interests.
The Company has been advised by DTC that upon receipt of any payment of
principal of or interest on any Global Security, DTC will immediately credit, on
its book-entry
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registration and transfer system, the accounts of participants with payments in
amounts proportionate to their respective beneficial interests in the principal
or face amount of such Global Security as shown on the records of DTC. Payments
by participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices as is now the case with securities held for customer
accounts registered in "street name" and will be the sole responsibility of such
participants.
The Global Security may not be transferred except as a whole by DTC to a
nominee of DTC. The Global Security representing the Debt Securities is
exchangeable for certificated Debt Securities only if (x) DTC notifies the
Company that it is unwilling or unable to continue as DTC for such Global
Security or if at any time DTC ceases to be a clearing agency registered under
the 1934 Act and the Company fails within 90 days thereafter to appoint a
successor, (y) the Company in its sole discretion determines that such Global
Security shall be exchangeable or (z) there shall have occurred and be
continuing an Event of Default (as defined in the Indenture) or an event which
with the giving of notice or lapse of time or both, would constitute an Event of
Default with respect to the Debt Securities represented by such Global Security.
In such event, the Company will issue Debt Securities in certificated form in
exchange for such Global Security. In any such instance, an owner of a
beneficial interest in the Global Security will be entitled to physical delivery
in certificated form of Debt Securities equal in principal amount to such
beneficial interest and to have such Debt Securities registered in its name.
Debt Securities so issued in certificated form will be issued in denominations
of $1,000 or any larger amount that is an integral multiple thereof, and will be
issued in registered form only, without coupons. Subject to the foregoing,
neither Global Security is exchangeable, except for a Global Security of Debt
Securities of like denomination to be registered in the name of DTC or its
nominee.
So long as DTC, or its nominee, is the registered owner of a Global
Security, or such nominee, as the case may be, will be considered the sole owner
or holder of the Debt Securities represented by such Global Security for the
purposes of receiving payment on such Debt Securities, receiving notices and for
all other purposes under the Indenture and such Debt Securities. Beneficial
interests in any series of Debt Securities will be evidenced only by, and
transfer thereof will be effected only through, records maintained by DTC and
its participants. Except as provided herein, owners of beneficial interests in
any Global Security will not be entitled to and will not be considered the
holders thereof for any purposes under the Indenture. Accordingly, each person
owning a beneficial interest in such Global Security must rely on the procedures
of DTC, and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights
of a Holder under the Indenture. DTC will not consent or vote with respect to
the Global Security representing a series of Debt Securities. Under its usual
procedures, DTC mails an Omnibus Proxy to the Company as soon as possible after
the applicable record date. The Omnibus Proxy assigns Cede & Co.'s (DTC's
partnership nominee) consenting or voting rights to those participants to whose
accounts the Debt Securities of a series are credited on the applicable record
date (identified in a listing attached to the Omnibus Proxy).
DTC has advised the Company that DTC is a limited-purpose trust company
organized under 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 under the 1934 Act. DTC was created to
hold the securities of its participants and to facilitate the clearance and
settlement of securities transactions among its participants through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. DTC's
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participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations some of whom (and/or their
representatives) own DTC. Access to DTC's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly. The rules applicable to DTC and its participants are on file with
the SEC.
SAME-DAY SETTLEMENT AND PAYMENT
Unless otherwise indicated in the applicable prospectus supplement,
settlement for the Debt Securities will be made by a purchaser in immediately
available funds. While the Debt Securities are in the book-entry-only system
described above, all payments of principal and interest will be made by the
Trustee or, in the case of any series of Remarketed Notes, the Remarketing Agent
on behalf of the Company to DTC in immediately available funds.
The Debt Securities will trade in DTC's Same-Day Fund Settlement System
until maturity or until such debt securities are issued in definitive form, and
secondary market trading activity in the Debt Securities will therefore be
required by DTC to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
the trading activity in the Debt Securities.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary, which is based upon the advice of Brown & Wood LLP,
special tax counsel to the Company, whose opinion is set forth herein, of the
material United States Federal income tax consequences of the purchase,
ownership and disposition of the Debt Securities is based upon laws,
regulations, rulings and decisions now in effect (or, in the case of certain
regulations, in proposed form), all of which are subject to change (including
changes in effective dates) or possible differing interpretations. It deals only
with Debt Securities held as capital assets and does not purport to deal with
persons in special tax situations, such as financial institutions, insurance
companies, regulated investment companies, dealers in securities or currencies,
non-U.S. Holders, persons holding Debt Securities as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers (except where otherwise specifically
noted). Persons considering the purchase of the Debt Securities should consult
their own tax advisors concerning the application of United States Federal
income tax laws to their particular situations as well as any consequences of
the purchase, ownership and disposition of the Debt Securities arising under the
laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Debt
Security that is for United States Federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia, (iii) an estate the income of which is
subject to United States Federal income taxation regardless of its source, (iv)
a trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust, or
(v) any other person whose income or gain in respect of a Debt Security is
effectively connected with the conduct of a United States trade or business. As
used herein, the term "non-U.S. Holder" means a holder of a Debt Security that
is not a U.S. Holder.
U.S. HOLDERS
Payments of Interest. Payment of interest on a Debt Security generally
will be taxable to a U.S. Holder as ordinary interest income at the time such
payments are accrued or are
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received (in accordance with the U.S. Holder's regular method of tax
accounting).
Original Issue Discount. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of Debt Securities issued with original
issue discount ("Discount Debt Securities"). The following summary is based upon
final Treasury regulations (the "OID Regulations") released by the Internal
Revenue Service ("IRS") on January 27, 1994, as amended on June 11, 1996, under
the original issue discount provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Debt Security over
its issue price, if such excess equals or exceeds a de minimis amount (generally
1/4 of 1% of the Debt Security's stated redemption price at maturity multiplied
by the number of complete years to its maturity from its issue date or, in the
case of a Debt Security providing for the payment of any amount other than a
qualified stated interest (as defined below) prior to maturity, multiplied by
the weighted average maturity of such Debt Security). The issue price of each
Debt Security in an issue of Debt Securities equals the first price at which a
substantial amount of such Debt Securities has been sold (ignoring sales to bond
houses, brokers, or similar persons or organizations acting in the capacity of
underwriters, placement agents, or wholesalers). The stated redemption price at
maturity of a Debt Security is the sum of all payments provided by the Debt
Security other than "qualified stated interest" payments. The term "qualified
stated interest" generally means stated interest that is unconditionally payable
in cash or property (other than debt instruments of the Company) at least
annually at a single fixed rate. In addition, under the OID Regulations, if a
Debt Security bears interest for one or more accrual periods at a rate below the
rate applicable for the remaining term of such Debt Security (e.g., Debt
Securities with teaser rates or interest holidays), and if the greater of either
the resulting foregone interest on such Debt Security or any "true" discount on
such Debt Security (i.e., the excess of the Debt Security's stated principal
amount over its issue price) equals or exceeds a specified de minimis amount,
then the stated interest on the Debt Security would be treated as original issue
discount rather than qualified stated interest.
Payments of qualified stated interest on a Debt Security are taxable to a
U.S. Holder as ordinary interest income at the time such payments are accrued or
are received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of a Discount Debt Security must include original
issue discount in income as ordinary interest for United States Federal income
tax purposes as it accrues under a constant yield method in advance of receipt
of the cash payments attributable to such income, regardless of such U.S.
Holder's regular method of tax accounting. In general, the amount of original
issue discount included in income by the initial U.S. Holder of a Discount Debt
Security is the sum of the daily portions of original issue discount with
respect to such Discount Debt Security for each day during the taxable year (or
portion of the taxable year) on which such U.S. Holder held such Discount Debt
Security. The "daily portion" of original issue discount on any Discount Debt
Security is determined by allocating to each day in any accrual period a ratable
portion of the original issue discount allocable to that accrual period. An
"accrual period" may be of any length and the accrual periods may vary in length
over the term of the Discount Debt Security, provided that each accrual period
is no longer than one year and each scheduled payment of principal or interest
occurs either on the final day of an accrual period or on the first day of an
accrual period. The amount of original issue discount allocable to each accrual
period is generally equal to the difference between (i) the product of the
Discount Debt Security's adjusted issue price at the beginning of such accrual
period and its yield to maturity (determined on the basis of compounding at the
close of each accrual period and appropriately adjusted to take into account the
length of the particular accrual period) and (ii) the amount of any qualified
stated interest payments allocable to such accrual period. The "adjusted issue
price" of
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a Discount Debt Security at the beginning of any accrual period is the sum of
the issue price of the Discount Debt Security plus the amount of original issue
discount allocable to all prior accrual periods minus the amount of any prior
payments on the Discount Debt Security that were not qualified stated interest
payments. Under these rules, U.S. Holders generally will have to include in
income increasingly greater amounts of original issue discount in successive
accrual periods.
A U.S. Holder who purchases a Discount Debt Security for an amount that is
greater than its adjusted issue price as of the purchase date and less than or
equal to the sum of all amounts payable on the Discount Debt Security after the
purchase date other than payments of qualified stated interest, will be
considered to have purchased the Discount Debt Security at an "acquisition
premium." Under the acquisition premium rules, the amount of original issue
discount which such U.S. Holder must include in its gross income with respect to
such Discount Debt Security for any taxable year (or portion thereof in which
the U.S. Holder holds the Discount Debt Security) will be reduced (but not below
zero) by the portion of the acquisition premium properly allocable to the
period.
Under the OID Regulations, Floating Rate Debt Securities and Indexed Debt
Securities ("Variable Debt Securities") are subject to special rules whereby a
Variable Debt Security will qualify as a "variable rate debt instrument" if (a)
its issue price does not exceed the total noncontingent principal payments due
under the Variable Debt Security by more than a specified de minimus amount and
(b) it provides for stated interest, paid or compounded at least annually, at
current values of (i) one or more qualified floating rates, (ii) a single fixed
rate and one or more qualified floating rates, (iii) a single objective rate, or
(iv) a single fixed rate and a single objective rate that is a qualified inverse
floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Debt Security is denominated. Although a multiple of a qualified
floating rate will generally not itself constitute a qualified floating rate, a
variable rate equal to the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35 will constitute a
qualified floating rate. A variable rate equal to the product of a qualified
floating rate and a fixed multiple that is greater than 0.65 but not more than
1.35, increased or decreased by a fixed rate, will also constitute a qualified
floating rate. In addition, under the OID Regulations, two or more qualified
floating rates that can reasonably be expected to have approximately the same
values throughout the term of the Variable Debt Security (e.g., two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Variable Debt Security's issue date) will be treated as a
single qualified floating rate. Notwithstanding the foregoing, a variable rate
that would otherwise constitute a qualified floating rate but which is subject
to one or more restrictions such as a maximum numerical limitation (i.e., a cap)
or a minimum numerical limitation (i.e., a floor) may, under certain
circumstances, fail to be treated as a qualified floating rate under the OID
Regulations unless such cap or floor is fixed throughout the term of the Debt
Security. An "objective rate" is a rate that is not itself a qualified floating
rate but which is determined using a single fixed formula and that is based on
objective financial or economic information. A rate will not qualify as an
objective rate if it is based on information that is within the control of the
Company (or a related party) or that is unique to the circumstances of the
Company (or a related party), such as dividends, profits, or the value of the
Company's stock (although a rate does not fail to be an objective rate merely
because it is based on the credit quality of the Company). A "qualified inverse
floating rate" is any objective rate where such rate is equal to a fixed rate
minus a qualified floating rate, as long as variations in the rate can
reasonably be expected to inversely reflect contemporaneous variations in the
qualified floating rate. The OID Regulations also provide that if a Variable
Debt Security provides for stated interest at a fixed rate for an initial period
of
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one year or less followed by a variable rate that is either a qualified floating
or an objective rate and if the variable rate on the Variable Debt Security's
issue date is intended to approximate the fixed rate (e.g., the value of the
variable rate on the issue date does not differ from the value of the fixed rate
by more than 25 basis points), then the fixed rate and the variable rate
together will constitute either a single qualified floating rate or objective
rate, as the case may be.
If a Variable Debt Security that provides for stated interest at either a
single qualified floating rate or a single objective rate throughout the term
thereof qualifies as a "variable rate debt instrument" under the OID Regulations
and if the interest on such Debt Security is unconditionally payable in cash or
property (other than debt instruments of the Company) at least annually, then
all stated interest on the Debt Security will constitute qualified stated
interest and will be taxed accordingly. Thus a Variable Debt Security that
provides for stated interest at either a single qualified floating rate or a
single objective rate throughout the term thereof and that qualifies as a
"variable rate debt instrument" under the OID Regulations will generally not be
treated as having been issued with original issue discount unless the Variable
Debt Security is issued at a "true" discount (i.e., at a price below the Debt
Security's stated principal amount) in excess of a specified de minimus amount.
The amount of qualified stated interest and the amount of original issue
discount, if any, that accrues during an accrual period on such a Variable Debt
Security is determined under the rules applicable to fixed rate debt instruments
by assuming that the variable rate is a fixed rate equal to (i) in the case of a
qualified floating rate or qualified inverse floating rate, the value, as of the
issue date, of the qualified floating rate or qualified inverse floating rate,
or (ii) in the case of an objective rate (other than a qualified inverse
floating rate), a fixed rate that reflects the yield that is reasonably expected
for the Variable Debt Security. The qualified stated interest allocable to an
accrual period is increased (or decreased) if the interest actually paid during
an accrual period exceeds (or is less than) the interest assumed to be paid
during the accrual period pursuant to the foregoing rules.
In general, any other Variable Debt Security that qualifies as a "variable
rate debt instrument" will be converted into an "equivalent" fixed rate debt
instrument for purposes of determining the amount and accrual of original issue
discount and qualified stated interest on the Variable Debt Security. The OID
Regulations generally require that such a Variable Debt Security be converted
into an "equivalent" fixed rate debt instrument by substituting any qualified
floating rate or qualified inverse floating rate provided for under the terms of
the Variable Debt Security with a fixed rate equal to the value of the qualified
floating rate or qualified inverse floating rate, as the case may be, as of the
Variable Debt Security's issue date. Any objective rate (other than a qualified
inverse floating rate) provided for under the terms of the Variable Debt
Security is converted into a fixed rate that reflects the yield that is
reasonably expected for the Variable Debt Security. In the case of a Variable
Debt Security that qualifies as a "variable rate debt instrument" and provides
for stated interest at a fixed rate in addition to either one or more qualified
floating rates or a qualified inverse floating rate, the fixed rate is initially
converted into a qualified floating rate (or a qualified inverse floating rate,
if the Variable Debt Security provides for a qualified inverse floating rate).
Under such circumstances, the qualified floating rate or qualified inverse
floating rate that replaces the fixed rate must be such that the fair market
value of the Variable Debt Security as of the Variable Debt Security's issue
date is approximately the same as the fair market value of an otherwise
identical debt instrument that provides for either the qualified floating rate
or qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Debt Security is then converted into an
"equivalent" fixed rate debt instrument in the manner described above.
Once the Variable Debt Security is converted into an fixed rate debt
instrument pursuant to the foregoing rules, the amount of
43
<PAGE> 63
original issue discount and qualified stated interest, if any, are determined
for the "equivalent" fixed rate debt instrument by applying the general original
issue discount rules to the "equivalent" fixed rate debt instrument and a U.S.
Holder of the Variable Debt Security will account for such original issue
discount and qualified stated interest as if the U.S. Holder held the
"equivalent" fixed rate debt instrument. In each accrual period appropriate
adjustments will be made to the amount of qualified stated interest or original
issue discount assumed to have been accrued or paid with respect to the
"equivalent" fixed rate debt instrument in the event that such amounts differ
from the actual amount of interest accrued or paid on the Variable Debt Security
during the accrual period.
If a Variable Debt Security does not qualify as a "variable rate debt
instrument" under the OID Regulations, then the Variable Debt Security would be
treated as a contingent payment debt obligation. U.S. Holders should be aware
that on June 11, 1996, the Treasury Department issued final regulations (the
"CPDI Regulations") concerning the proper United States Federal income tax
treatment of contingent payment debt instruments. In general the CPDI
Regulations would cause the timing and character of income, gain or loss
reported on a contingent payment debt instrument under general principles of
current United States Federal income tax law. Specifically, the CPDI Regulations
generally require a U.S. Holder of such an instrument to include future
contingent and noncontingent interest payments in income as such interest
accrues based upon a projected payment schedule. Moreover, in general, under the
CPDI Regulations, any gain recognized by a U.S. Holder on the sale, exchange, or
retirement of a contingent payment debt instrument will be treated as ordinary
income and all or a portion of any loss realized could be treated as ordinary
loss as opposed to capital loss (depending upon the circumstances). The CPDI
Regulations apply to debt instruments issued on or after August 13, 1996. The
proper United States Federal income tax treatment of Variable Debt Securities
that are treated as contingent payment debt obligations will be more fully
described in the applicable prospectus supplement. Furthermore, any other
special United States Federal income tax considerations, not otherwise discussed
herein, which are applicable to any particular issue of Debt Securities will be
discussed in the applicable prospectus supplement.
Certain of the Debt Securities (i) may be redeemable at the option of the
Company prior to their stated maturity (a "call option") and/or (ii) may be
repayable at the option of the holder prior to their stated maturity (a "put
option"). Debt Securities containing such features may be subject to rules that
differ from the general rules discussed above. Investors intending to purchase
Debt Securities with such features should consult their own tax advisors, since
the original issue discount consequences will depend, in part, on the particular
terms and features of the purchased Debt Securities.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
Remarketed Notes. The proper United States Federal income tax treatment of
Remarketed Notes is uncertain. Because the Remarketed Notes are subject to
mandatory tender to the Remarketing Agent at par on each Interest Rate
Adjustment Date, the Remarketed Notes may be treated as maturing on the Initial
Interest Rate Adjustment Date and each Interest Rate Adjustment Date thereafter
for United States Federal income tax purposes. Under the foregoing treatment,
interest on the Remarketed Notes would generally be taxable as ordinary income
for United States Federal income tax purposes when received or accrued by a U.S.
Holder in accordance with such holder's regular method of tax accounting because
such interest would constitute qualified stated interest. However, it is
possible that the Remarketed
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<PAGE> 64
Notes may be treated for United States Federal income tax purposes as maturing
only on the Stated Maturity Date therefor. Under such analysis, in general, the
proper treatment of Remarketed Notes will depend upon whether the Remarketed
Notes qualify as "variable rate debt instruments" or, alternatively, are treated
as contingent payment debt instruments.
If the Remarketed Notes are treated as maturing on the Stated Maturity
Date, each Commercial Paper Term Mode and the Long Term Rate Mode should
individually constitute separate qualified floating rates under the OID
Regulations since the interest rate for Remarketed Notes in either a Commercial
Paper Term Mode or the Long Term Rate Mode will be periodically reset to a
market rate pursuant to a remarketing and such remarketing can reasonably be
expected to measure contemporaneous variations in the cost of newly borrowed
funds in the currency in which the Remarketed Notes are denominated.
However, if the Remarketed Notes are in the SPURS Mode and the SPURS Agent
elects to remarket the Remarketed Notes at the SPURS Interest Rate, which will
not be set at a market rate of interest, the interest rate will likely not
qualify as a "qualified floating rate." As a result, the Remarketed Notes, upon
original issuance, may not be treated as a "variable rate debt instrument" and
the Remarketed Notes may be treated as governed by the CPDI Regulations
notwithstanding the fact that the SPURS Agent may never elect to remarket the
Remarketed Notes at the SPURS Interest Rate.
If the CPDI Regulations applied, the Company would be required to
construct a projected payment schedule for the Remarketed Notes, based upon the
Company's current borrowing costs for comparable debt instruments of the
Company, from which an estimated yield on the Remarketed Notes would be
calculated. A U.S. Holder would be required to include in income original issue
discount in an amount equal to the product of the adjusted issue price of the
Remarketed Notes at the beginning of each interest accrual period and the
estimated yield of the Remarketed Notes. In general, for these purposes, the
Remarketed Notes' adjusted issue price would equal the Remarketed Notes' issue
price increased by the interest previously accrued on the Remarketed Notes, and
reduced by all payments made on the Remarketed Notes. As a result of the
application of the Contingent Payment Regulations, it is possible that a U.S.
Holder would be required to include interest in income in excess of actual cash
payments received for certain taxable years.
In addition, the character of any gain or loss, upon the sale or exchange
of a Remarketed Note (including a sale pursuant to the mandatory tender on each
Interest Rate Adjustment Date and the SPURS Remarketing Date) by a U.S. Holder,
will likely differ if the Remarketed Notes were treated as contingent payment
obligations. Any such taxable gain generally would be treated as ordinary
income. Any such taxable loss generally would be ordinary to the extent of
previously accrued original issue discount, and any excess would generally be
treated as capital loss.
Short-Term Debt Instruments. Debt Securities that have a fixed maturity of
one year or less ("Short-Term Debt Securities") will be treated as having been
issued with original issue discount. In general, an individual or other cash
method U.S. Holder is not required to accrue such original issue discount unless
the U.S. Holder elects to do so. If such an election is not made, any gain
recognized by the U.S. Holder on the sale, exchange or maturity of the
Short-Term Debt Security will be ordinary income to the extent of the original
issue discount accrued on a straight-line basis or upon election under the
constant yield method (based on daily compounding), through the date of sale or
maturity, and a portion of the deductions otherwise allowable to the U.S. Holder
for interest on borrowings allocable to the Short-Term Debt Security will be
deferred until a corresponding amount of income is realized. U.S. Holders who
report income for United States Federal income tax purposes under the accrual
method, and certain other holders including banks and dealers in securities, are
required to accrue original issue discount on a Short-Term Debt
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<PAGE> 65
Security on a straight-line basis unless an election is made to accrue the
original issue discount under a constant yield method (based on daily
compounding).
Market Discount. If a U.S. Holder purchases a Debt Security, other than a
Discount Debt Security, for an amount that is less than its issue price (or, in
the case of a subsequent purchaser, it stated redemption price at maturity) or,
in the case of a Discount Debt Security, for an amount that is less than its
adjusted issue price as of the purchase date, the amount of the difference will
be treated as "market discount," unless such difference is less than a specified
de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of a Discount Debt Security, any
payment that does not constitute qualified stated interest) on, or any gain
realized on the sale, exchange, requirement or other disposition of, a Debt
Security as ordinary income to the extent of the lesser of (i) the amount of
such payment or realized gain or (ii) the market discount which has not
previously been included in income and is treated as having accrued on such Debt
Security at the time of such payment or disposition. Market discount will be
considered to accrue ratably during the period from the date of acquisition to
the maturity date of the Debt Security, unless the U.S. Holder elects to accrue
market discount on the basis of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion
of the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Debt Security with market discount until the maturity of the
Debt Security or its earlier disposition in a taxable transaction, because a
current deduction is only allowed to the extent the interest expense exceeds an
allocable portion of market discount. A U.S. Holder may elect to include market
discount in income currently as it accrues (on either a ratable or semiannual
compounding basis), in which case the rules described above regarding the
treatment as ordinary income of gain upon the disposition of the Debt Security
and upon the receipt of certain cash payments and regarding the deferral of
interest deductions will not apply. Generally, such currently included market
discount is treated as ordinary interest for United States Federal income tax
purposes.
Premium. If a U.S. Holder purchases a Debt Security for an amount that is
greater than its stated redemption price at maturity, such U.S. Holder will be
considered to have purchased the Debt Security with "amortizable bond premium"
equal in amount to such excess. A U.S. Holder may elect to amortize such premium
using a constant yield method over the remaining term of the Debt Security and
may offset interest otherwise required to be included in respect of the Debt
Security during any taxable year by the amortized amount of such excess for the
taxable year. However, if the Debt Security may be optionally redeemed after the
U.S. Holder acquires it at a price in excess of its stated redemption price at
maturity, special rules would apply which could result in a deferral of the
amortization of some bond premium until later in the term of the Debt Security.
Disposition of Debt Securities. Except as discussed above, upon the sale,
exchange or retirement of a Debt Security, a U.S. Holder generally will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and such U.S. Holder's adjusted tax
basis in the Debt Security. A U.S. Holder's adjusted tax basis in a Debt
Security generally will equal such U.S. Holder's initial investment in the Debt
Security increased by any original issue discount included in income (and
accrued market discount, if any, if the U.S. Holder has included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium taken
with respect to such Debt Security. Such gain or loss generally will be
long-term capital gain or loss if the Debt Security were held for more than one
year. The deductibility of capital losses is subject to limitations.
Foreign Currency Debt Securities. Any special United States Federal income
tax
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<PAGE> 66
considerations applicable to Debt Securities that provide for the payment of
principal, premium (if any) or interest in a currency other than U.S. dollars
will be discussed in the applicable prospectus supplement.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income
taxes on payments of principal, premium (if any) or interest (including original
issue discount, if any) on a Debt Security, unless such non-U.S. Holder is a
direct or indirect 10% or greater shareholder of the Company, a controlled
foreign corporation related to the Company or a bank receiving interest
described in Section 881(c)(3)(A) of the Code. To qualify for the exemption from
taxation, the last United States payor in the chain of payment prior to payment
to a non-U.S. Holder (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the beneficial owner
of the Debt Security under penalties of perjury, (ii) certified that such owner
is not a U.S. Holder and (iii) provides the name and address of the beneficial
owner. The statement may be made on an IRS Form W-8 or a substantially similar
form, and the beneficial owner must inform the Withholding Agent of any change
in the information on the statement within 30 days of such change. If a Debt
Security is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide a signed
statement to the Withholding Agent. However, in such case, the signed statement
must be accompanied by a copy of the IRS Form W-8 or the substitute form
provided by the beneficial owner to the organization or institution. The
Treasury Department is considering implementation of further certification
requirements aimed at determining whether the Company of a debt obligation is
related to holders thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes
on any amount which constitutes capital gain upon retirement or disposition of a
Debt Security, provided the gain is not effectively connected with the conduct
of a trade or business in the United States by the non-U.S. Holder. Certain
other exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The Debt Securities will not be includible in the estate of a non-U.S.
Holder unless the individual is a direct or indirect 10% or greater shareholder
of the Company or, at the time of such individual's death, payments in respect
of the Debt Securities would have been effectively connected with the conduct by
such individual of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31%
may apply to payments made in respect of the Debt Securities to registered
owners who are not "exempt recipients" and who fail to provide certain
identifying information (such as the registered owner's taxpayer identification
number) in the required manner. Generally, individuals are not exempt
recipients, whereas corporations and certain other entities generally are exempt
recipients. Payments made in respect of the Debt Securities to a U.S. Holder
must be reported to the IRS, unless the U.S. Holder is an exempt recipient or
establishes an exemption. Compliance with the identification procedures
described in the preceding section would establish an exemption from backup
withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a Debt Security to (or through) a broker,
the broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient or
(ii) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Holder, certifies that such seller is
a non-U.S. Holder (and certain other conditions are met). Such a sale must also
be reported by the broker to the IRS, unless either (i) the broker determines
that the seller is an exempt recipient or (ii) the seller certifies its non-U.S.
status (and certain other conditions are met). Certification of the registered
owner's
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<PAGE> 67
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amount withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities (i) through underwriters or
dealers, (ii) directly to a limited number of institutional purchasers or to a
single purchaser, (iii) through agents or (iv) through any combination of the
above. An accompanying prospectus supplement will set forth the terms of the
offering of the Debt Securities offered thereby, including the name or names of
any underwriters, the purchase price of the Debt Securities and the net 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.
If underwriters are used in the sale of Debt Securities, such Debt
Securities will be acquired by the underwriters for their own account and may be
resold 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 sale. Unless otherwise set forth in the prospectus supplement,
the several obligations of the underwriters to purchase any Debt Securities
offered thereby will be subject to certain conditions precedent and the
underwriters will be obligated to take and pay for all of such Debt Securities
if any are taken.
The Debt Securities may be sold directly by the Company or through
underwriters or agents designated by the Company from time to time. Any agent
involved in the offer or sale of the Debt Securities will be named, and any
commissions payable by the Company to such agents will be set forth, in an
accompanying prospectus supplement. Unless otherwise indicated in such
prospectus supplement, any such agent will be acting on a reasonable efforts
basis for the period of its appointment.
Until the distribution of the Debt Securities is completed, rules of the
SEC may limit the ability of underwriters and certain selling group members to
bid for and purchase the Debt Securities. As an exception to these rules,
underwriters are permitted to engage in certain transactions that stabilize the
price of the Debt Securities. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Debt Securities.
If any underwriters create a short position in the Debt Securities in
connection with an offering, i.e., if they sell more Debt Securities than are
set forth on the cover page of the applicable prospectus supplement, the
underwriters may reduce that short position by purchasing Debt Securities in the
open market.
Underwriters may also impose a penalty bid on certain selling group
members. This means that if the underwriters purchase Debt Securities in the
open market to reduce the underwriters' short position or to stabilize the price
of the Debt Securities, they may reclaim the amount of the selling concession
from the selling group members who sold those Debt Securities as part of the
offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Debt Securities to the extent that
it discourages resales of the Debt Securities.
Neither the Company nor any underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Debt Securities. In
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addition, neither the Company nor any underwriters make any representation that
the underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
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 Act.
The place and time of delivery for the Debt Securities in respect of which
this prospectus is delivered are set forth in the accompanying Prospectus
Supplement.
LEGAL OPINIONS
The validity of the Debt Securities offered hereby will be passed upon for
the Company by Christopher C. Nern, Esq., Vice President and General Counsel of
the Company, and for any underwriters, dealers or agents by counsel named in the
applicable prospectus supplement. Brown & Wood LLP, special tax counsel to the
Company, has passed upon the material United States federal income tax
considerations with respect to the Debt Securities.
EXPERTS
The consolidated financial statements and related financial statement
schedule of the Company and its subsidiaries, incorporated in this prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the three
month periods ended March 31, 1998 and 1997 and three and six month periods
ended June 30, 1998 and 1997 included in the Quarterly Reports on Form 10-Q
which are incorporated herein by reference, Deloitte & Touche LLP have applied
limited procedures in accordance with professional standards for a review of
such information. However, as stated in their reports included in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June
30, 1998 and incorporated by reference herein, they did not audit and they do
not express an opinion on such interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Securities
Act of 1933, as amended, (the "Act") for their reports on the unaudited interim
financial information because those reports are not "reports" or a "part" of the
Registration Statement prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.
The statements made in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 and Quarterly Reports on Form 10-Q for the quarters
ended March 31 and June 30, 1998 (which are incorporated in this prospectus by
reference), as to matters of law with respect to regulation and environmental
matters and the statements made herein under the caption "Description of Debt
Securities", have been reviewed by Christopher C. Nern, Esq., Vice President and
General Counsel of the Company, and have been made in reliance upon his opinion
and upon his authority as an expert.
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- ----------------------------------------------------------
- ----------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the securities offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement
The Company.............................. S-2
Risk Factors............................. S-2
Selected Historical Consolidated
Financial
Data................................... S-5
Ratio of Earnings to Fixed Charges....... S-5
Use of Proceeds.......................... S-5
Capitalization........................... S-6
Certain Developments..................... S-6
Forward-Looking Statements............... S-8
Description of the QUIDS................. S-8
United States Federal Income Tax
Consequences........................... S-14
Underwriting............................. S-17
Legal Opinions........................... S-18
Prospectus
Where You Can Find More Information...... 2
Incorporation of Certain Documents by
Reference.............................. 2
The Company.............................. 2
Use of Proceeds.......................... 3
Regulatory Matters....................... 3
Ratio of Earnings to Fixed Charges....... 4
Description of Debt Securities........... 4
DTC Book-Entry-Only System............... 38
United States Federal Income Tax
Considerations......................... 40
Plan of Distribution..................... 48
Legal Opinions........................... 49
Experts.................................. 49
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
$100,000,000
THE DETROIT EDISON COMPANY
% Quarterly Income Debt
Securities (QUIDSSM)
(Junior Subordinated
Deferrable Interest
Debentures, Due 2028)
----------------------
DETROIT EDISON LOGO
----------------------
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
MCDONALD & COMPANY
SECURITIES, INC.
RONEY CAPITAL MARKETS
A DIVISION OF FIRST CHICAGO CAPITAL MARKETS, INC.
SG COWEN
Representatives of the Underwriters
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 70
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses, other than underwriting discounts and commissions, in
connection with the issuance and distribution of the Debt Securities are as
follows:
<TABLE>
<S> <C>
Registration Fees........................................... $ 88,600
Printing.................................................... 100,000
Blue Sky Fees and Expenses.................................. 1,000
Accountants' Fees and Expenses.............................. 75,000
Legal Fees and Expenses..................................... 50,000
Trustees' Fees and Expenses................................. 15,000
Rating Agency Fees.......................................... 150,000
Miscellaneous Expenses...................................... 70,400
--------
Total.................................................. $550,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Indemnification. Pursuant to Article VI of the Company's Restated
Articles of Incorporation, directors of the Company will not be personally
liable to the Company or its shareholders in the performance of their duties to
the full extent permitted by law.
Article VII of the Company's Restated Articles of Incorporation provides
that each person who is or was or had agreed to become a director or officer of
the Company, or each such person who is or was serving or who had agreed to
serve at the request of the Board of Directors as an employee or agent of the
Company or as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including the heirs,
executors, administrators or estate of such person), shall be indemnified by the
Company to the full extent permitted by the Michigan Business Corporation Act or
any other applicable laws as presently or hereafter in effect. In addition,
pursuant to the authority granted by Article VII of the Restated Articles of
Incorporation the Company has entered into indemnification agreements with its
officers and directors which provide for indemnification to the maximum extent
permitted by law. These agreements set forth certain procedures for the
advancement by the Company of certain expenses to indemnitees.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Company pursuant to the above provisions or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted against
the Company by such director, officer or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Reference is made to Section 8 of the form of Underwriting Agreement filed
as Exhibit 1-35 hereto for a description of the indemnification arrangements the
Company is prepared to make in connection with the
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<PAGE> 71
proposed offering of Subordinated Debt
Securities registered hereby.
Reference is made to Section 6 of the form of Distribution Agreement filed
as Exhibit 1-36 hereto for a description of the indemnification arrangements the
Company is prepared to make in connection with the proposed offering of the
Remarketed Notes registered hereby.
Reference is made to Section 6 of the form of Distribution Agreement filed
as Exhibit 1-37 hereto for a description of the indemnification arrangements the
Company is prepared to make in connection with the proposed offering of the
General and Refunding Mortgage Bonds designated as secured Medium-Term Notes
registered hereby.
Reference is made to Article VII of the form of Underwriting Agreement
filed as Exhibit 1-38 hereto for a description of the indemnification
arrangements the Company is prepared to make in connection with the proposed
offering of General and Refunding Mortgage Bonds registered hereby.
Reference is made to Section 10 of the forms of Remarketing Agreements
filed as Exhibits 99-28 and 99-29 hereto for a description of the
indemnification arrangements the Company is prepared to make in connection with
the remarketing of the Notes registered hereby.
Reference is made to Section 9.04 of the form of Standby Note Purchase
Agreement filed as Exhibit 99-30 hereto for a description of the indemnification
arrangements the Company is prepared to make in connection with the engagement
of a liquidity provider thereunder.
(b) Insurance. The Company (with respect to indemnification liability) and
its directors and officers (in their capacities as such) are insured against
liability for wrongful acts (to the extent defined) under three insurance
policies providing aggregate coverage in the amount of $85 million.
ITEM 16. EXHIBITS.
(A) EXHIBITS FILED HEREWITH:
The following exhibits were filed on October 16, 1998 with the Registrant's
Registration Statement on Form S-3:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
1-35 -- Form of Underwriting Agreement (Subordinated Debt
Securities).
1-36 -- Form of Distribution Agreement (Remarketed Secured Notes).
1-37 -- Form of Distribution Agreement (General and Refunding
Mortgage Bonds designated as Secured Medium-Term Notes).
1-38 -- Form of Underwriting Agreement (General and Refunding
Mortgage Bonds).
3-9 -- Bylaws of the Detroit Edison Company, as amended through May
1, 1998.
3-10 -- Bylaws of DTE Energy Company, as amended through May 1,
1998.
4-198 -- Form of Supplemental Indenture (Mortgage) for General and
Refunding Mortgage Bonds Collateralizing Remarketed Secured
Notes (including Form of Mortgage Bonds on pages 9 through
13).
4-199 -- Form of Supplemental Indenture (Mortgage) for General and
Refunding Mortgage Bonds (including Form of Mortgage Bonds
on pages 9 through 13).
4-200 -- Form of Supplemental Indenture (Mortgage) for General and
Refunding Mortgage Bonds, a Series of Secured Medium-Term
Notes (including Form of Mortgage Bonds on pages 9 through
16).
</TABLE>
II-2
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
4-201 -- Form of Supplemental Indenture (Notes) for Remarketed
Secured Notes (including forms of Notes as Exhibits A and B
on pages 35 through 77).
4-202 -- Form of Supplemental Indenture (Notes) for Subordinated Debt
Securities (including Form of Notes as Exhibit A on pages
A-1 through A-9).
5-48 -- Opinion and Consent of Christopher C. Nern, Esq., Vice
President and General Counsel of the Company.
8-2 -- Tax opinion and consent of Brown & Wood LLP.
12-14 -- Computation of Ratio of Earnings to Fixed Charges.
15-9 -- Awareness letter of Deloitte & Touche LLP regarding their
reports dated April 27, 1998 and July 27, 1998.
23-5 -- Consent of Deloitte & Touche LLP.
25-8 -- Statement of Eligibility of Trustee (mortgage).
25-9 -- Statement of Eligibility of Trustee (note indenture).
99-28 -- Form of Remarketing Agreement (Remarketed Notes).
99-29 -- Form of Remarketing Agreement (Remarketed Notes -- Spurs
Mode).
99-30 -- Form of Standby Note Purchase Agreement (Remarketed Notes).
99-31 -- Sixth Amendment to 1988 Amended and Restated Nuclear Fuel
Heat Purchase Contract.
99-32 -- Sixth Amendment, dated as of August 27, 1998 to 364-Day
Credit Agreement dated as of September 1, 1990, as amended,
among the Company, Renaissance Energy Company, the banks
party thereto and Barclays Bank PLC, New York Branch, as
agent.
</TABLE>
(B) EXHIBITS INCORPORATED HEREIN BY REFERENCE.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C> <C>
3(a) -- Amended and Restated Articles of Incorporation of DTE Energy
Company, dated December 13, 1995. (Exhibit 3-5 to Form 10-Q
for quarter ended September 30, 1997).
3(b) -- Certificate of Designation of Series A Junior Participating
Preferred Stock of DTE Energy Company. (Exhibit 3-6 to Form
10-Q for quarter ended September 30, 1997).
3(c) -- Restated Articles of Incorporation of Detroit Edison, as
filed December 10, 1991 with the State of Michigan,
Department of Commerce -- Corporation and Securities Bureau
(Exhibit 4-117 to Form 10-Q for quarter ended March 31,
1993).
3(d) -- Certificate containing resolution of the Detroit Edison
Board of Directors establishing the Cumulative Preferred
Stock, 7.74% Series, as filed April 21, 1993 with the State
of Michigan, Department of Commerce -- Corporation and
Securities Bureau (Exhibit 4-140 to Form 10-Q for quarter
ended March 31, 1993).
3(e) -- Rights Agreement, dated as of September 23, 1997, by and
between DTE Energy Company and The Detroit Edison Company,
as Rights Agent (Exhibit 4-1 to DTE Energy Company Current
Report on Form 8-K, dated September 22, 1997).
3(f) -- Agreement and Plan of Exchange (Exhibit 1(2) to DTE Energy
Form 8-B filed January 2, 1996, File No. 1-11607).
</TABLE>
II-3
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C> <C>
4(a) -- Mortgage and Deed of Trust, dated as of October 1, 1924,
between Detroit Edison (File No. 1-2198) and Bankers Trust
Company as Trustee (Exhibit B-1 to Registration No. 2-1630)
and indentures supplemental thereto, dated as of dates
indicated below, and filed as exhibits to the filings as set
forth below:
</TABLE>
<TABLE>
<S> <C>
September 1, 1947 Exhibit B-20 to Registration No. 2-7136
October 1, 1968 Exhibit 2-B-33 to Registration No. 2-30096
November 15, 1971 Exhibit 2-B-38 to Registration No. 2-42160
January 15, 1973 Exhibit 2-B-39 to Registration No. 2-46595
June 1, 1978 Exhibit 2-B-51 to Registration No. 2-61643
June 30, 1982 Exhibit 4-30 to Registration No. 2-78941
August 15, 1982 Exhibit 4-32 to Registration No. 2-79674
October 15, 1985 Exhibit 4-170 to Form 10-K for year ended December 31,
1994
July 15, 1989 Exhibit 4-171 to Form 10-K for year ended December 31,
1994
December 1, 1989 Exhibit 4-172 to Form 10-K for year ended December 31,
1994
February 15, 1990 Exhibit 4-173 to Form 10-K for year ended December 31,
1994
April 1, 1991 Exhibit 4-15 to Form 10-K for year ended December 31,
1996
May 1, 1991 Exhibit 4-178 to Form 10-K for year ended December 31,
1996
May 15, 1991 Exhibit 4-179 to Form 10-K for year ended December 31,
1996
September 1, 1991 Exhibit 4-180 to Form 10-K for year ended December 31,
1996
November 1, 1991 Exhibit 4-181 to Form 10-K for year ended December 31,
1996
January 15, 1992 Exhibit 4-182 to Form 10-K for year ended December 31,
1996
February 29, 1992 Exhibit 4-121 to Form 10-Q for quarter ended March 31,
1992
April 15, 1992 Exhibit 4-122 to Form 10-Q for quarter ended June 30,
1992
July 15, 1992 Exhibit 4-123 to Form 10-Q for quarter ended September
30, 1992
July 31, 1992 Exhibit 4-124 to Form 10-Q for quarter ended September
30, 1992
November 30, 1992 Exhibit 4-130 to Registration No. 33-56496
January 1, 1993 Exhibit 4-131 to Registration No. 33-56496
March 1, 1993 Exhibit 4-141 to Form 10-Q for quarter ended March 31,
1993
</TABLE>
II-4
<PAGE> 74
<TABLE>
<S> <C>
March 15, 1993 Exhibit 4-142 to Form 10-Q for quarter ended March 31,
1993
April 1, 1993 Exhibit 4-143 to Form 10-Q for quarter ended March 31,
1993
April 26, 1993 Exhibit 4-144 to Form 10-Q for quarter ended March 31,
1993
May 31, 1993 Exhibit 4-148 to Registration No. 33-64296
June 30, 1993 Exhibit 4-149 to Form 10-Q for quarter ended June 30,
1993 (1993 Series AP)
June 30, 1993 Exhibit 4-150 to Form 10-Q for quarter ended June 30,
1993 (1993 Series H)
September 15, 1993 Exhibit 4-158 to Form 10-Q for quarter ended September
30, 1993
March 1, 1994 Exhibit 4-163 to Registration No. 33-53207
June 15, 1994 Exhibit 4-166 to Form 10-Q for quarter ended June 30,
1994
August 15, 1994 Exhibit 4-168 to Form 10-Q for quarter ended September
30, 1994
December 1, 1994 Exhibit 4-169 to Form 10-K for year ended December 31,
1994
August 1, 1995 Exhibit 4-174 to Form 10-Q for quarter ended September
30, 1995
</TABLE>
<TABLE>
<S> <C>
4(b) -- Collateral Trust Indenture (notes), dated as of June 30,
1993 (Exhibit 4-152 to Registration No. 33-50325).
4(c) -- First Supplemental Note Indenture, dated as of June 30, 1993
(Exhibit 4-153 to Registration No. 33-50325).
4(d) -- Second Supplemental Note Indenture, dated as of September
15, 1993 (Exhibit 4-159 to Form 10-Q for quarter ended
September 30, 1993).
4(e) -- First Amendment, dated as of August 15, 1996, to Second
Supplemental Note Indenture (Exhibit 4-17 to Form 10-Q for
quarter ended September 30, 1996).
4(f) -- Third Supplemental Note Indenture, dated as of August 15,
1994 (Exhibit 4-169 to Form 10-Q for quarter ended September
30, 1994).
4(g) -- First Amendment, dated as of December 12, 1995, to Third
Supplemental Note Indenture, dated as of August 15, 1994
(Exhibit 4-12 to Registration No. 333-00023).
4(h) -- Fourth Supplemental Note Indenture, dated as of August 15,
1995 (Exhibit 4-175 to Detroit Edison Form 10-Q for quarter
ended September 30, 1995).
4(i) -- Fifth Supplemental Note Indenture, dated as of February 1,
1996 (Exhibit 4-14 to Form 10-K for year ended December 31,
1996).
4(j) -- Sixth Supplemental Note Indenture, dated as of May 1, 1998
(Exhibit 4-193 to Detroit Edison Form 10-Q for the quarter
ended June 30, 1998.
4(k) -- Standby Note Purchase Credit Facility, dated as of August
17, 1994, among The Detroit Edison Company, Barclays Bank
PLC, as Bank and Administrative Agent, Bank of America, The
Bank of New York, The Fuji Bank Limited, The Long-Term
Credit Bank of Japan, LTD, Union Bank and Citicorp
Securities, Inc. and First Chicago Capital Markets, Inc. as
Remarketing Agents (Exhibit 99-18 to Form 10-Q for quarter
ended September 30, 1994).
</TABLE>
II-5
<PAGE> 75
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's Annual Report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the Securities Act of 1933 shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(6) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
II-6
<PAGE> 76
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-7
<PAGE> 77
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 NO. 1 TO
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF DETROIT, STATE OF MICHIGAN, ON THE 22ND DAY OF
OCTOBER, 1998.
THE DETROIT EDISON COMPANY
(Registrant)
By: /s/ ANTHONY F. EARLEY, JR.
-----------------------------------
(Anthony F. Earley, Jr., Chairman
of the Board, President and Chief
Executive 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICERS:
/s/ ANTHONY F. EARLEY, JR. Chairman of the Board, October 22, 1998
- --------------------------------------------- President, Chief Executive Officer
Anthony F. Earley, Jr. and Director
/s/ GERARD M. ANDERSON President, DTE Energy Resources October 22, 1998
- --------------------------------------------- Group
(Gerard M. Anderson)
/s/ ROBERT J. BUCKLER President, DTE Distribution Group October 22, 1998
- ---------------------------------------------
(Robert J. Buckler)
PRINCIPAL FINANCIAL OFFICER:
/s/ LARRY G. GARBERDING Executive Vice President, October 22, 1998
- --------------------------------------------- Chief Financial Officer and
(Larry G. Garberding) Director
PRINCIPAL ACCOUNTING OFFICER:
/s/ DAVID E. MEADOR Vice President and October 22, 1998
- --------------------------------------------- Controller
(David E. Meador)
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ TERENCE E. ADDERLEY Director October 22, 1998
- ---------------------------------------------
(Terence E. Adderley)
/s/ LILLIAN BAUDER Director October 22, 1998
- ---------------------------------------------
(Lillian Bauder)
Director
- ---------------------------------------------
(David Bing)
/s/ WILLIAM C. BROOKS Director October 22, 1998
- ---------------------------------------------
(William C. Brooks)
/s/ ALLAN D. GILMOUR Director October 22, 1998
- ---------------------------------------------
(Allan D. Gilmour)
/s/ THEODORE S. LEIPPRANDT Director October 22, 1998
- ---------------------------------------------
(Theodore S. Leipprandt)
/s/ JOHN E. LOBBIA Director October 22, 1998
- ---------------------------------------------
(John E. Lobbia)
/s/ EUGENE A. MILLER Director October 22, 1998
- ---------------------------------------------
(Eugene A. Miller)
/s/ DEAN E. RICHARDSON Director October 22, 1998
- ---------------------------------------------
(Dean E. Richardson)
/s/ ALAN E. SCHWARTZ Director October 22, 1998
- ---------------------------------------------
(Alan E. Schwartz)
/s/ WILLIAM WEGNER Director October 22, 1998
- ---------------------------------------------
(William Wegner)
</TABLE>
