<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No.: 333-65765
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 27, 1998)
$220,000,000
THE DETROIT EDISON COMPANY
GENERAL AND REFUNDING MORTGAGE BONDS, 2000 SERIES A
7.50% DUE 2005
------------------
The Bonds will bear interest at the rate of 7.50% per year. Interest on the
Bonds is payable in arrears on February 1 and August 1 of each year, beginning
August 1, 2000. The Bonds will mature on February 1, 2005. The Detroit Edison
Company may redeem the Bonds, in whole or in part at any time, at a redemption
price equal to the greater of (i) the principal amount or (ii) the sum of the
present values of the remaining scheduled payments of principal and interest on
the Bonds, discounted to the date of redemption on a semiannual basis (assuming
a 360-day year consisting of twelve 30-day months) at the Treasury Yield as
defined below plus 0.15%, plus in each case accrued interest to the date of
redemption.
The Bonds will constitute senior secured obligations of Detroit Edison. See
"Description of the Bonds" in this prospectus supplement and "Description of
Debt Securities-Provisions Applicable to General and Refunding Mortgage Bonds"
in the attached prospectus.
------------------
INVESTING IN THE BONDS INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE S-3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the attached prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
------------------
<TABLE>
<CAPTION>
PER BOND TOTAL
-------- -----
<S> <C> <C>
Public Offering Price....................................... 99.841% $219,650,200
Underwriting Discount....................................... 0.600% $ 1,320,000
Proceeds to The Detroit Edison Company (before expenses).... 99.241% $218,330,200
</TABLE>
Interest on the Bonds will accrue from February 3, 2000 to the date of
delivery.
------------------
The underwriters are offering the Bonds subject to various conditions. The
underwriters expect to deliver the Bonds to purchasers on or about February 3,
2000.
------------------
SALOMON SMITH BARNEY
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
WARBURG DILLON READ LLC
January 27, 2000
<PAGE> 2
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the attached prospectus contain information
about our company and about the Bonds. They also refer to information contained
in other documents that we file with the Securities and Exchange Commission.
References to this prospectus supplement or the prospectus also mean the
information contained in such other documents, including our Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and our Quarterly Reports
on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1999.
If this prospectus supplement is inconsistent with the prospectus or the
documents that are incorporated by reference in the prospectus, rely on this
prospectus supplement.
When we refer to "Detroit Edison," "the Company," "we," "us," or "our" in
this prospectus supplement, we mean The Detroit Edison Company and its
subsidiaries, on a consolidated basis, unless the context requires otherwise.
You should rely only on the information in this prospectus supplement or
the prospectus or in documents that are incorporated by reference in the
prospectus. Neither we nor the underwriter have authorized anyone to provide any
different or additional information. We are not making an offer of the Bonds in
any jurisdiction where the offer is not permitted. You should not assume that
information in these documents is correct or complete after the date of this
prospectus supplement.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
About this Prospectus Supplement............................ S-2
The Company................................................. S-3
Risk Factors................................................ S-3
Selected Historical Consolidated Financial Data............. S-4
1999 Year End Results....................................... S-4
Ratio of Earnings to Fixed Charges.......................... S-4
Capitalization.............................................. S-4
Description of the Bonds.................................... S-5
Underwriting................................................ S-7
Legal Opinions.............................................. S-8
PROSPECTUS
The Company................................................. 2
Use of Proceeds............................................. 3
Regulatory Matters.......................................... 3
Ratio of Earnings to Fixed Charges.......................... 4
Description of Debt Securities.............................. 4
United States Federal Income Tax Considerations............. 40
Plan of Distribution........................................ 48
Legal Opinions.............................................. 49
Experts..................................................... 49
</TABLE>
S-2
<PAGE> 3
THE COMPANY
The Detroit Edison 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.
On October 4, 1999, DTE Energy Company, the parent holding company of
Detroit Edison, entered into a definitive merger agreement with MCN Energy Group
Inc. The merger, which is subject to a number of regulatory approvals and
closing conditions, is expected to be completed in the first half of 2000. DTE
Energy will acquire all outstanding common stock of MCN for a combination of
cash and stock. The transaction was preliminarily valued at $4.6 billion, which
includes the assumption of approximately $2 billion of MCN's debt.
Detroit Edison's executive offices are located at 2000 2nd Avenue, Detroit,
Michigan 48226-1279. The telephone number is 313-235-8000.
RISK FACTORS
You should carefully consider the following risks, together with the other
information included or incorporated by reference in this prospectus supplement
and the attached prospectus, before buying any Bonds.
FUTURE LEGISLATION AND REGULATORY CHANGES MAY ADVERSELY AFFECT THE COMPANY'S
OPERATING RESULTS
Various bills have been introduced in the Michigan legislature addressing
competition in the electric markets. Detroit Edison is proceeding with the
implementation of customer choice as provided in various orders of the Michigan
Public Service Commission ("MPSC"). While Detroit Edison is unable to predict
the impact, if any, of the outcome of these legislative proceedings, applicable
MPSC orders provide for the recovery of stranded costs.
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. The costs of future nuclear decommissioning activities are the
subject of increased regulatory attention.
Ownership of Fermi 2, a nuclear generating unit, 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.
S-3
<PAGE> 4
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999* 1998 1997 1996 1995
------ ------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Income Summary:
Operating Revenues.................................. $4,047 $3,902 $3,657 $3,642 $3,636
Operating Income.................................... 935 970 1,003 841 1,015
Net Income.......................................... 434 418 417 328 434
</TABLE>
- ---------------
* Unaudited.
1999 YEAR END RESULTS
Detroit Edison's operating revenues were higher due to strong demand
resulting from hot summer weather, higher sales to commercial customers,
replacement sales to the Ford Rouge plant and a robust economy. Operating income
was lower due to higher operating costs for distribution and generation
maintenance resulting from increased demand for electricity, accelerated
depreciation and amortization of Fermi 2 and higher expenses for Y2K
remediation.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges** was as follows for the
respective periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
3.01 3.18 3.24 2.71 3.21
</TABLE>
- ---------------
** For purposes of computing this ratio, earnings represent net income 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.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at December 31, 1999 and as adjusted to give effect to the issuance of
the Bonds offered hereby.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
ACTUAL* AS ADJUSTED
--------------- ---------------
(MILLIONS)
<S> <C> <C> <C> <C>
Long-Term Debt.............................................. $2,899 41.9% $3,119 43.7%
Quarterly Income Debt Securities............................ 385 5.6 385 5.4
Common Shareholder's Equity................................. 3,628 52.5 3,628 50.9
------ ----- ------ -----
$6,912 100.0% $7,132 100.0%
====== ===== ====== =====
</TABLE>
- ---------------
* Unaudited.
S-4
<PAGE> 5
DESCRIPTION OF THE BONDS
The General and Refunding Mortgage Bonds, 2000 Series A, 7.50% due February
1, 2005 (the "Bonds") are to be issued as a series of the Company's General and
Refunding Mortgage Bonds ("Mortgage Bonds") 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, as amended and supplemented by various supplemental
indentures and as to be further amended and supplemented by a supplemental
indenture to be dated as of January 1, 2000 creating the Bonds. Copies of the
Mortgage and Deed of Trust and such supplements, hereinafter collectively
referred to as the "Mortgage", are exhibits to the registration statement of
which this prospectus supplement and the attached prospectus are 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 Bonds.
The Mortgage and the general terms and provisions of the Mortgage Bonds are
more fully described in the attached prospectus. The following statements
concerning the Bonds supplement, and to the extent inconsistent therewith
replace, the description of the Mortgage Bonds set forth in the attached
prospectus. They do not purport to be complete and are qualified in their
entirety by reference to the Mortgage.
The Bonds will be senior secured obligations of the Company and will be
limited to $220,000,000 aggregate principal amount. The 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 Mortgage Bonds of any series, and
except that, as provided in Section 3 of Article VI of the Mortgage, the Trustee
may, when in possession during a default, apply any residue of collections to
payment of principal of such Mortgage Bonds as are then due if all of the
Mortgage Bonds have not become due. See "Description of Debt
Securities--Provisions Applicable to General and Refunding Mortgage Bonds" in
the attached prospectus.
The Bonds will be issued only in fully-registered form in denominations of
$1,000 or any integral multiple thereof. The Bonds will be issued in book-entry
form through the facilities of The Depository Trust Company ("DTC"). Transfers
or exchanges of beneficial interests in the Bonds may be effected only through
records maintained by DTC or its nominee. Settlement and secondary trading in
the Bonds will be in same-day funds. Payments of principal and interest or
premium, if any, on the Bonds will be made to DTC in immediately available funds
as described in the attached prospectus. See "Description of Debt
Securities--DTC Book-Entry Only System" and "--Same-Day Settlement and Payment"
in the attached prospectus.
PAYMENT OF PRINCIPAL AND INTEREST
The Bonds will mature on February 1, 2005 (the "Stated Maturity"). The
Bonds are redeemable at the option of the Company as described below under
"Optional Redemption." The Bonds will not have the benefit of any sinking fund.
Interest on the Bonds will be payable semi-annually in arrears on February
1 and August 1 of each year (each an "Interest Payment Date"), commencing August
1, 2000. The Bonds will bear interest at the rate of 7.50% per year from the
date of original issuance or from the most recent date to which interest has
been paid or duly made available for payment to, but excluding, the applicable
Interest Payment Date, date of redemption or Stated Maturity, as the case may
be. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Interest is payable to the persons in whose names the Bonds are
registered at the close of business on the fifteenth calendar day, whether or
not a Business Day (as defined below), prior to the Interest Payment Date.
If any Interest Payment Date, date of redemption or the Stated Maturity for
the Bonds would otherwise be a day that is not a Business Day, payment of
principal and/or interest or premium, if any, with respect to the Bonds will be
paid on the next succeeding Business Day with the same force and effect as if
made on such date and no interest on such payment will accrue from and after
such date.
S-5
<PAGE> 6
"Business Day" means 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.
OPTIONAL REDEMPTION
The Company may redeem the Bonds, in whole or in part at any time, at a
redemption price equal to the greater of (1) the principal amount of the Bonds
to be redeemed or (2) the sum of the present values of the remaining scheduled
payments of principal and interest on the Bonds to be redeemed, discounted to
the redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Yield plus 0.15%, plus in each case
accrued interest to the redemption date.
"Treasury Yield" means with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
the redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Bonds that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
Bonds.
"Independent Investment Banker" means Salomon Smith Barney Inc., or, if
such firm is unwilling or unable to select the Comparable Treasury Issue, an
independent investment banking institution of national standing selected by the
Company and appointed by the Trustee.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if that release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations for
such redemption date, or (B) if the Company obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such redemption date.
"Reference Treasury Dealer" means each of Salomon Smith Barney Inc., Chase
Securities Inc., Goldman, Sachs & Co. and Warburg Dillon Read LLC and their
respective successors, provided however, that if any of the foregoing shall
cease to be a primary U.S. Government Securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall substitute for it another Primary
Treasury Dealer.
If the Company elects to redeem less than all of the Bonds, the Trustee
will select, in such manner as it deems fair and appropriate, the particular
Bonds or portions of them to be redeemed. Notice of redemption shall be given by
mail not less than 30 nor more than 60 days prior to the date fixed for
redemption to the holders of Bonds to be redeemed (which, as long as the Bonds
are held in the book-entry only system, will be DTC, its nominee or a successor
depositary). On and after the date fixed for redemption (unless the Company
defaults in the payment of the redemption price and interest accrued thereon to
such date), interest on the Bonds or the portions of them so called for
redemption shall cease to accrue.
S-6
<PAGE> 7
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
and pricing agreement dated January 27, 2000, each underwriter named below has
severally agreed to purchase, and Detroit Edison has agreed to sell to such
underwriter, the principal amount of Bonds set forth opposite the name of such
underwriter.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF BONDS
---- ----------------
<S> <C>
Salomon Smith Barney Inc. .................................. $132,000,000
Chase Securities Inc. ...................................... 44,000,000
Goldman, Sachs & Co. ....................................... 22,000,000
Warburg Dillon Read LLC..................................... 22,000,000
------------
Total.................................................. $220,000,000
============
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the Bonds included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the Bonds if they purchase any of
the Bonds.
The underwriters propose to offer some of the Bonds directly to the public
at the public offering price set forth on the cover page of this prospectus
supplement and some of the Bonds to certain dealers at the public offering price
less a concession not in excess of .350% of the principal amount of the Bonds.
The underwriters may allow, and such dealers may reallow, a concession not in
excess of .250% of the principal amount of the Bonds on sales to certain other
dealers. After the initial offering of the Bonds to the public, the public
offering price and such concessions may be changed by the underwriters.
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by Detroit Edison in connection with this offering
(expressed as a percentage of the principal amount of the Bonds).
<TABLE>
<CAPTION>
PAID BY
DETROIT EDISON
--------------
<S> <C>
Per Bond.................................................... 0.600%
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of Bonds in excess of the principal amount of Bonds to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the Bonds in the open
market after the distribution has been completed in order to cover syndicate
short positions. Stabilizing transactions consist of certain bids on purchases
of Bonds made for the purposes of preventing or retarding a decline in the
market price of the Bonds while the offering is in progress. Penalty bids permit
the underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases the Bonds originally sold by that syndicate
member. These activities may cause the price of the Bonds to be higher than the
price that otherwise would exist in the open market in the absence of such
transactions. These transactions may be effected in the over-the-counter market
or otherwise and, if commenced, may be discontinued at any time.
Detroit Edison estimates that its total expenses of this offering will be
$1.7 million.
From time to time in the ordinary course of their respective businesses,
the underwriters and their respective affiliates have engaged in, and may in the
future engage in commercial and/or investment banking transactions with Detroit
Edison and its affiliates.
S-7
<PAGE> 8
Detroit Edison has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments the underwriters may be required to make in respect of
any of those liabilities.
It is expected that delivery of the Bonds will be made against payment
therefor on or about February 3, 2000, which is the fifth Business Day following
the date of this prospectus supplement (such settlement cycle being herein
referred to as "T+5"). Purchasers of Bonds should note that the ability to
settle secondary market trades of the Bonds effected on the date of pricing and
the succeeding Business Days may be affected by the T+5 settlement.
LEGAL OPINIONS
The validity of the Bonds will be passed upon for the Company by
Christopher C. Nern, Esq., Vice President and General Counsel of the Company.
Certain legal matters will be passed upon for the underwriters by Brown & Wood
LLP. Brown & Wood LLP will rely upon the opinion of Mr. Nern as to matters of
Michigan law.
S-8
<PAGE> 9
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 27, 1998.
<PAGE> 10
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
2
<PAGE> 11
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.
3
<PAGE> 12
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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<PAGE> 24
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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<PAGE> 25
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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<PAGE> 26
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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<PAGE> 27
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> 28
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> 29
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> 30
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> 31
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> 32
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> 33
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> 34
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> 35
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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<PAGE> 36
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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<PAGE> 37
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
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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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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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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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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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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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$220,000,000
THE DETROIT EDISON COMPANY
GENERAL AND REFUNDING MORTGAGE BONDS, 2000 SERIES A
7.50% DUE 2005
THE DETROIT EDISON COMPANY LOGO
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PROSPECTUS SUPPLEMENT
JANUARY 27, 2000
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SALOMON SMITH BARNEY
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
WARBURG DILLON READ LLC
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