<PAGE>
PURSUANT TO RULE NO. 424(b)(5)
REGISTRATION NO. 33-61379
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 14, 1995)
POTOMAC ELECTRIC POWER COMPANY
MEDIUM-TERM NOTES, SERIES A
DUE FROM 9 MONTHS TO 30 YEARS FROM DATE OF ISSUE
Potomac Electric Power Company (the "Company") may offer from time to time
up to $175,000,000 aggregate principal amount of Medium-Term Notes, Series A
(the "Notes") on terms to be determined at the time or times of sales. The
amount of Notes to be offered hereby will be reduced by the amount of any
First Mortgage Bonds sold after the date hereof pursuant to the Registration
Statement of which the accompanying Prospectus is a part.
The Notes will bear interest at fixed or variable rates ("Fixed Rate Notes"
and "Floating Rate Notes," respectively). The interest rates on Fixed Rate
Notes, the method of determining the interest rates on Floating Rate Notes and
other variable terms of the Notes as described herein will be established by
the Company from time to time and will be set forth in supplements hereto
("Pricing Supplements"). Interest rates, the methods of determining interest
rates and certain other variable terms are subject to change by the Company,
but no such change will affect any Note theretofore issued or as to which an
offer to purchase has been accepted by the Company. If so specified in the
applicable Pricing Supplement, the Notes will be redeemable prior to maturity
at the option of the Company upon the terms and conditions specified in such
Pricing Supplement. The Notes will have maturities from 9 months to 30 years
from the date of issue. The Notes will be issued in denominations of $1,000 or
any amount in excess thereof which is an integral multiple of $1,000. See
"Description of the Notes" in the accompanying Prospectus.
Interest on each Fixed Rate Note will accrue from its date of issue and will
be payable semiannually on each February 1 and August 1 and at maturity. The
interest rate on Floating Rate Notes will be determined by reference to the
"CD Rate," the "Commercial Paper Rate," "LIBOR," the "Treasury Rate" or other
interest rate formula as specified in the applicable Pricing Supplement, and
may be adjusted by a "Spread" or "Spread Multiplier," as defined in the
accompanying Prospectus. Interest on each Floating Rate Note will accrue from
its date of issue and will be payable as set forth in the applicable Pricing
Supplement and at maturity.
The Notes will be issued in fully registered certificated or book-entry
form. Beneficial interests in Notes in book-entry form will be shown on, and
transfers thereof will be effected only through, records maintained by The
Depository Trust Company, as Depositary, and its participants. Owners of
beneficial interests in Notes issued in book-entry form will be entitled to
physical delivery of Notes in certificated form equal in principal amount to
their respective beneficial interests only under the limited circumstances
described in the accompanying Prospectus. See "Description of the Notes--Book-
Entry Notes" in the accompanying Prospectus.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note........... 100% .125%-.750% 99.875%-99.250%
- -------------------------------------------------------------------------------
Total.............. $175,000,000 $218,750-$1,312,500 $174,781,250-$173,687,500
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Unless otherwise specified in the applicable Pricing Supplement, Notes
will be sold at 100% of their principal amount.
(2) The Company will pay Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Goldman, Sachs & Co., respectively (the "Agents"),
a commission of from .125% to .750% of the principal amount of each Note
sold through such Agent, depending upon the maturity of the Note sold, and
may sell Notes to either Agent, as principal, at a discount for resale to
investors and other purchasers at prevailing market prices at the time or
times of resale as determined by such Agent. The Company has agreed to
indemnify the Agents against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act").
(3) Before deducting expenses payable by the Company estimated at $281,000.
---------------
Offers to purchase the Notes will be solicited on behalf of the Company from
time to time by the Agents, who have agreed to use their best efforts to
solicit offers to purchase the Notes. The Agents may also purchase Notes as
principal at a discount for resale to investors and other purchasers. There
can be no assurance that any of the Notes offered by this Prospectus
Supplement will be sold or that there will be a secondary market therefor. The
Company or the Agents may reject, in whole or in part, any offer for a
purchase of Notes. No termination date for the offering of the Notes has been
established. See "Plan of Distribution" in this Prospectus Supplement.
---------------
MERRILL LYNCH & CO. GOLDMAN, SACHS & CO.
---------------
The date of this Prospectus Supplement is December 10, 1996
<PAGE>
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis for sale by the Company
through the Agents, who have agreed to use their best efforts to solicit
offers to purchase the Notes. The Company will pay an Agent a commission of
from .125% to .750% of the principal amount of each Note sold through such
Agent, depending upon the maturity of the Note. The Company may also sell the
Notes to an Agent, as principal, at a discount from the principal amount
thereof as specified in the applicable Pricing Supplement, and such Agent may
later resell such Notes to investors at varying prices related to prevailing
market prices at the time or times of resale, as determined by such Agent.
The Agent may sell Notes it has purchased from the Company as principal to
other dealers for resale to investors and other purchasers, and may allow any
portion of the discount received in connection with such purchase from the
Company to such dealers. After the initial public offering of Notes, the
public offering price (in the case of Notes to be resold at a fixed public
offering price), the concession and the discount may be changed.
The Company reserves the right to withdraw, cancel, suspend or modify the
offering of the Notes at any time without notice and may reject any offer for
the purchase of Notes from the Company in whole or in part. Each Agent will
have the right, exercisable in its reasonable discretion, to reject any
proposed purchase of Notes in whole or in part.
The Notes are a new issue of securities with no established trading market.
The Agents have informed the Company that they intend to make a market in the
Notes, but are under no obligation to do so, and either Agent or both Agents
may cease making a market in the Notes at any time. Therefore, no assurance
can be given that a trading market for the Notes will exist in the future. The
Notes will not be listed for trading on any securities exchange.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act. The Company has agreed to indemnify the Agents against certain
liabilities, including liabilities under the Securities Act.
DESCRIPTION OF THE NOTES
The description of the Notes in the accompanying Prospectus is modified as
follows:
As of the date of this Prospectus Supplement, $325,000,000 aggregate
principal amount of Indenture Securities (as defined in the accompanying
Prospectus) are issued and outstanding (not including the Notes offered
hereby). Also, an aggregate of $1,341,800,000 of secured debt is outstanding.
PROPOSED MERGER
In September 1995, the Company announced a proposed merger (the "Merger")
with Baltimore Gas and Electric Company. The Merger Agreement was approved by
the Board of Directors of each company on September 22, 1995 and by the
shareholders of each company on March 29, 1996. The Merger requires the
approval of certain regulatory agencies, including the Federal Energy
Regulatory Commission and the Public Service Commissions of Maryland and the
District of Columbia. The approval process is expected to take until the end
of the first quarter of 1997 to complete.
LEGAL OPINIONS
Legal matters in connection with the Notes to be offered hereby will be
passed upon for the Company by Covington & Burling, 1201 Pennsylvania Avenue,
N.W., Washington, D.C., and William T. Torgerson, Esq., or an Associate
General Counsel of the Company, 1900 Pennsylvania Avenue, N.W., Washington,
D.C. Mr. Torgerson is regularly employed by the Company as Senior Vice
President and General Counsel. The validity of the Notes will be passed upon
for the Agents by Brown & Wood LLP.
EXPERTS
The consolidated financial statements incorporated in the accompanying
Prospectus by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
S-2
<PAGE>
SELECTED FINANCIAL INFORMATION
The following is a selection of certain consolidated financial information
of the Company which was derived from, and is qualified in its entirety by,
the audited consolidated financial statements contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, and the
unaudited consolidated financial information contained in its Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996, which are available as
described in the accompanying Prospectus under "Incorporation of Certain
Documents by Reference." The interim financial data are unaudited; however, in
the opinion of the management of the Company, such data reflect all
adjustments, consisting of normal recurring accruals, necessary for a fair
statement of the results of operations for the interim periods presented.
<TABLE>
<CAPTION>
12 MONTHS ENDED
-----------------------------------------------
SEPT. 30, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993
----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Income Statement Data:
Total Revenue................ $ 1,998,848 $ 1,876,102 $1,823,074 $1,725,205
Operating Revenue............ 1,838,367 1,822,432 1,790,600 1,702,442
Net Income................... 234,928 94,391 227,162 241,579
Earnings for Common Stock.... 218,304 77,540 210,725 225,324
Earnings Per Share of Common
Stock....................... 1.84 .65 1.79 1.95
Balance Sheet Data at end of
period:
Property and Plant, net...... $ 4,410,320 $ 4,400,311 $ 4,334,399 $ 4,167,551
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------
AS ADJUSTED(1)
----------------
ACTUAL AMOUNT RATIO
---------- ---------- -----
(THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Capital Structure (excluding nonutility subsidiary
debt and current maturities):
Long-Term Debt.................................. $1,668,973 $1,843,973 45.7%
Preferred Stock................................. 267,799 267,799 6.6
Common Equity................................... 1,925,845 1,925,845 47.7
---------- ---------- -----
Total Capitalization.......................... $3,862,617 $4,037,617 100.0%
========== ==========
Parent Company Long-Term Debt and Preferred Stock
Redemption Due in One Year and Short-Term Debt... $ 405,440 $ 232,000
========== ==========
</TABLE>
- --------
(1) Adjusted to reflect the sale of the $175,000,000 principal amount of
Medium-Term Notes offered hereby and the cumulative effect of this
transaction on short-term debt.
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
12 MONTHS ENDED
------------------------------------------------------
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993 1992 1991
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Parent company only...... 3.07 3.05 3.23 3.20 2.73 2.86
Fully consolidated....... 2.21 1.52 2.37 2.31 2.19 2.23
</TABLE>
For purposes of computing the ratio of earnings to fixed charges for rate-
regulated public utilities, earnings represent net income before cumulative
effect of accounting changes plus income taxes and fixed charges. Fixed
charges represent interest charges on debt (exclusive of credits arising from
the allowance for funds used during construction) and the portion of rentals
deemed representative of the interest factor.
S-3
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
MEDIUM-TERM NOTES
----------------
Potomac Electric Power Company (the "Company") may offer from time to time
up to $350,000,000 aggregate principal amount of its Medium-Term Notes (the
"Notes") having maturities ranging from nine months to thirty years from the
date of issuance. Each Note will bear interest at a rate or pursuant to an
interest rate formula determined by the Company at or prior to the sale
thereof. The aggregate principal amount, the interest rate or formula for
determining such rate, interest payment dates for floating rate Notes,
purchase price, date of maturity, redemption terms, if any, and certain other
variable terms with respect to the Notes will be set forth in the accompanying
Prospectus Supplement (the "Prospectus Supplement") or Pricing Supplement
thereto (the "Pricing Supplement") to be filed with respect to the issuance
and sale of Notes. The terms upon which each issuance and sale of Notes are
offered, together with the names of the agents and the agents' commissions or
discounts, if applicable, will also be set forth in the Prospectus Supplement
or Pricing Supplement. See "Plan of Distribution" regarding possible
indemnification arrangements for agents. The amount of Medium-Term Notes to be
offered hereby will be reduced by the amount of any First Mortgage Bonds sold
pursuant to the Registration Statements of which this Prospectus is a part.
See "Description of the Notes."
The Notes may be offered on a continuous basis by the Company through
agents. The Notes may also be sold by the Company to any agent at negotiated
discounts for its own account or for resale to one or more investors. The
Notes will not be listed on any securities exchange. The Company or the agents
may reject, in whole or in part, any offer to purchase the Notes. See "Plan of
Distribution."
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is August 14, 1995
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
IS NOT AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. EXCEPT AS OTHERWISE INDICATED HEREIN, THIS PROSPECTUS SPEAKS AS
OF ITS DATE AND DOES NOT PURPORT TO REFLECT ANY CHANGES IN THE AFFAIRS OF THE
COMPANY THEREAFTER.
----------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files periodic and current reports and other information with the Securities
and Exchange Commission (the "Commission"). Information concerning directors
and officers, their remuneration and any material interest of such persons in
transactions with the Company, as of particular dates, is disclosed in such
reports and in proxy statements distributed to shareholders of the Company and
filed with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C.; 500 West Madison
Street, Suite 1400, Chicago, Illinois; and 7 World Trade Center, New York, New
York. Copies of such material can also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, reports, proxy statements and other information
concerning the Company can be inspected at the offices of the New York Stock
Exchange, Inc., where certain securities of the Company are listed.
The Company has filed with the Commission registration statements on Form S-
3 relating to the Notes (herein, together with all amendments and exhibits,
referred to as the "Registration Statements") under the Securities Act of
1933, as amended (the "1933 Act"). This Prospectus does not contain all of the
information set forth in the Registration Statements, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
For further information, reference is hereby made to the Registration
Statements.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
under the 1934 Act are incorporated by reference in this Prospectus:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1994.
(b) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995.
(c) The Company's Current Reports on Form 8-K dated January 27, 1995 and
dated May 19, 1995.
All documents subsequently filed by the Company with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained in an
incorporated document shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other incorporated document subsequently filed or in an accompanying
Prospectus Supplement modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
THE COMPANY HEREBY UNDERTAKES TO FURNISH, WITHOUT CHARGE, TO EACH PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN
DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR
ALL OF THE DOCUMENTS REFERRED TO ABOVE WHICH HAVE BEEN OR MAY BE INCORPORATED
BY REFERENCE IN THIS PROSPECTUS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS.
REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO ELLEN SHERIFF ROGERS,
ASSOCIATE GENERAL COUNSEL, ASSISTANT SECRETARY AND ASSISTANT TREASURER,
POTOMAC ELECTRIC POWER COMPANY, 1900 PENNSYLVANIA AVENUE, N.W., WASHINGTON,
D.C. 20068 (202-872-3526).
2
<PAGE>
THE COMPANY
Potomac Electric Power Company, a District of Columbia and Virginia
corporation (the "Company"), is engaged in the generation, transmission,
distribution and sale of electric energy in the Washington, D.C. metropolitan
area, including the District of Columbia and major portions of Montgomery and
Prince George's Counties in Maryland. It also supplies, at wholesale, electric
energy to the Southern Maryland Electric Cooperative, Inc., which distributes
electricity in Calvert, Charles, Prince George's and St. Mary's Counties in
southern Maryland. The Company's wholly owned nonutility subsidiary, Potomac
Capital Investment Corporation ("PCI"), was organized in late 1983 with the
objective of supplementing utility earnings and building long-term value. The
principal assets of PCI are portfolios of securities and equipment leases, and
to a lesser extent real estate and other investments. In May 1995, PCI
announced adoption of a plan to end its investment in the aircraft equipment
leasing business. The mailing address of the Company's executive offices is
1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068, and its telephone
number is 202-872-2000.
USE OF PROCEEDS
The Company may offer from time to time pursuant to this Prospectus up to an
aggregate principal amount of $350,000,000 of its Medium-Term Notes.
The proceeds from the sale of the Notes will be used to refund short-term
debt incurred primarily to finance, on a temporary basis, the Company's
utility construction program and operations, and to refund the Company's
senior securities, including the retirement of long-term debt and the
satisfaction of contractual sinking fund requirements.
3
<PAGE>
SELECTED FINANCIAL INFORMATION
The following is a selection of certain consolidated financial information
of the Company which was derived from, and is qualified in its entirety by,
the audited consolidated financial statements contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and the
unaudited consolidated financial information contained in its Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995, which are available as
described herein under "Incorporation of Certain Documents by Reference." The
interim financial data are unaudited; however, in the opinion of the
management of the Company, such data reflect all adjustments, consisting of
normal recurring accruals, necessary for a fair statement of the results of
operations for the interim periods presented.
<TABLE>
<CAPTION>
12 MONTHS ENDED
-----------------------------------------------
JUNE 30, DEC. 31, DEC. 31, DEC. 31,
1995 1994 1993 1992(1)
----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Income Statement Data:
Total Revenue................ $ 1,772,847 $1,823,074 $1,725,205 $1,601,558
Operating Revenue............ 1,761,147 1,790,600 1,702,442 1,562,167
Net Income................... 87,646 227,162 241,579 216,782
Earnings for Common Stock.... 70,949 210,725 225,324 202,390
Earnings Per Share of Common
Stock....................... .60 1.79 1.95 1.80
Balance Sheet Data at end of
period:
Property and Plant, net...... $ 4,343,543 $ 4,298,260 $ 4,131,142 $3,931,257
</TABLE>
- --------
(1) In 1992, Net Income and Earnings for Common Stock include $16,022,000, and
Earnings Per Share of Common Stock includes $.14, from the cumulative
effect of a change in accounting to provide for the accrual of revenue for
service rendered but unbilled.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
---------------------
AMOUNT RATIO
------------ -------
(THOUSANDS)
<S> <C> <C>
Capital Structure (excluding nonutility subsidiary debt
and current maturities):
Long-Term Debt....................................... $ 1,703,370 44.9%
Preferred Stock...................................... 268,886 7.1
Common Equity........................................ 1,818,554 48.0
------------ -------
Total Capitalization............................... $ 3,790,810 100.0%
============
Parent Company Long-Term Debt Due in One Year and
Short-Term Debt....................................... $ 419,000
============
</TABLE>
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
12 MONTHS ENDED
-----------------------------------------------------
JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Parent company only....... 2.87 3.23 3.20 2.73 2.86 2.79
Fully consolidated........ 1.47 2.37 2.31 2.19 2.23 2.14
</TABLE>
For purposes of computing the ratio of earnings to fixed charges for rate-
regulated public utilities, earnings represent net income before cumulative
effect of accounting change plus income taxes and fixed charges. Fixed charges
represent interest charges on debt (exclusive of credits arising from the
allowance for funds used during construction) and the portion of rentals
deemed representative of the interest factor.
4
<PAGE>
DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture between the Company and The Bank
of New York, as Trustee (the "Trustee"), dated as of July 28, 1989 (such
Indenture as originally executed and delivered and as thereafter supplemented
and amended, together with any constituent instruments establishing the terms
of particular Notes, being herein called the "Indenture"). The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
of the provisions of the Indenture, a copy of which has been incorporated by
reference as an exhibit to the Registration Statements of which this
Prospectus is a part. The terms and conditions set forth below will apply to
each Note unless otherwise specified in the applicable Prospectus Supplement
or Pricing Supplement. Certain terms used are defined in the Indenture.
As of the date of this Prospectus, $350,000,000 aggregate principal amount
of Indenture Securities (defined herein) are issued and outstanding (not
including the Notes offered hereby). The Notes, issued and to be issued, will
be unsecured and will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Company from time to time outstanding. As
of the date of this Prospectus, an aggregate of $1,266,600,000 of secured debt
is outstanding. The terms of the Notes will not restrict the further
incurrence of secured debt by the Company. The Notes will not be subject to
any sinking fund.
Unless otherwise specified in a Prospectus Supplement, the Notes will mature
on any day from 9 months to 30 years from the date of original issue (the
"Original Issue Date"), as selected by the purchaser and agreed to by the
Company. Each Note will bear interest at either (a) a fixed rate (a "Fixed
Rate Note") or (b) rates determined by reference to a Base Rate (as hereafter
defined), which may be adjusted by a Spread or Spread Multiplier (as hereafter
defined) (a "Floating Rate Note").
The Notes will be offered on a continuous basis. Reference is made to the
Prospectus Supplement or the applicable Pricing Supplement with respect to the
Notes described therein for the following terms: (1) the purchase price of
such Notes (the "Issue Price"), or a statement that the Notes are being
offered by an agent as principal at varying market prices; (2) the Original
Issue Date; (3) the stated maturity date of such Notes (the "Maturity Date");
(4) the rate per annum at which such Notes if Fixed Rate Notes will bear
interest (the "Interest Rate"); (5) the interest rate formula and other
variable terms with respect to Floating Rate Notes; (6) the date or dates from
which any such interest shall accrue; (7) the terms for redemption, if any;
and (8) any other terms of such Notes.
The Notes will be subject to redemption by the Company on and after the
initial redemption date, if any, fixed at the time of sale and set forth in
the applicable Pricing Supplement (the "Initial Redemption Date"). If no
Initial Redemption Date is indicated with respect to a Note, such Note will
not be redeemable prior to maturity. On and after the Initial Redemption Date
with respect to any Note, such Note will be redeemable in whole or in part in
increments of $1,000 at the option of the Company at a redemption price (the
"Redemption Price") determined in accordance with the following paragraph,
together with interest thereon payable to the date of redemption, on notice
given no more than 60 nor less than 30 days prior to the date of redemption.
The Redemption Price for each Note subject to redemption shall initially be
equal to a certain percentage (the "Initial Redemption Percentage") of the
principal amount of such Note to be redeemed and shall decline at each
anniversary of the Initial Redemption Date with respect to such Note by a
percentage (the "Annual Redemption Percentage Reduction") of the principal
amount to be redeemed until the Redemption Price is 100% of such principal
amount. The Initial Redemption Percentage and any Annual Redemption Percentage
Reduction with respect to each Note subject to redemption prior to maturity
will be fixed at the time of sale and set forth in the applicable Pricing
Supplement.
The Notes will be issued only in fully registered certificated or book-entry
form without coupons and, except as may otherwise be provided in the
applicable Prospectus Supplement or Pricing Supplement, in the denomination of
$1,000 or any multiple thereof. Notes issued in certificated form may be
transferred or
5
<PAGE>
exchanged at the offices described in the immediately following paragraphs. In
the event the Notes are issued in book-entry form through the facilities of
the Depositary (as defined below), transfers or exchanges may be similarly
effected through a participating member of the Depositary.
For Notes issued in certificated form, principal and interest will be
payable, the transfer of the Notes will be registrable, and Notes will be
exchangeable for Notes bearing identical terms and provisions at the office or
agency of the Company in The City of New York designated for such purpose;
provided, however, that payment of interest, other than interest at maturity
(or on any date of redemption if a Note is redeemed prior to maturity), may be
made at the option of the Company by check mailed to the address of the person
in whose name the applicable Note is registered at the close of business on
the Regular Record Date (as hereafter defined) as shown on the security
register maintained by the Trustee. Interest will be payable on each date
specified in the Note on which an installment of interest is due and payable
(an "Interest Payment Date") and at maturity (or any date of redemption).
Notwithstanding the foregoing, if the original issue date of a Note is between
the Regular Record Date and the initial Interest Payment Date, the initial
interest payment will be made on the Interest Payment Date following the next
succeeding Regular Record Date to the registered holder on such next
succeeding Regular Record Date.
No service charge will be made to holders of Notes for any transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or governmental charge incident to the transfer or exchange.
Transfers and exchanges of Notes may be made at the Corporate Trust Office of
the Trustee.
Interest payments shall be the amount of interest accrued from and including
the next preceding Interest Payment Date in respect of which interest has been
paid (or from and including the date of issue, if no interest has been paid
with respect to such Note), to, but excluding, the Interest Payment Date,
maturity date or date of redemption (an "Interest Accrual Period"). However,
in the case of Floating Rate Notes on which the interest rate is reset daily
or weekly, the interest payments shall include interest accrued only through
and including the Regular Record Date next preceding the applicable Interest
Payment Date, except that the interest payment on the maturity date (or any
date of redemption) will include interest accrued to, but excluding, such
date. The principal and interest payable at maturity (or any date of
redemption) on each Note will be paid upon maturity (or any date of
redemption) in immediately available funds against presentation of the Note at
the Corporate Trust Office of The Bank of New York located at 101 Barclay
Street, New York, New York. Interest payable at maturity (or on any date of
redemption) will be payable to the person to whom the principal of the Note
shall be paid. Notwithstanding the above, a holder of $10,000,000 or more in
aggregate principal amount of Notes issued in certificated form having the
same Interest Payment Date shall be entitled to receive payments of interest
by wire transfer of immediately available funds if appropriate wire transfer
instructions have been received by The Bank of New York on or before the
Regular Record Date immediately preceding the applicable Interest Payment
Date.
The Indenture does not contain any covenants or other provisions that
specifically are intended to afford holders of the Notes special protection in
the event of a highly leveraged transaction.
BOOK-ENTRY NOTES. The Notes may be issued in whole or in part in the form of
one or more fully-registered Notes (each, a "Book-Entry Note") which will be
deposited with, or on behalf of, The Depository Trust Company, New York (the
"Depositary") and registered in the name of the Depositary's nominee. Except
as set forth below, the Book-Entry Note may not be transferred except as a
whole by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any nominee to a successor of the Depositary or a nominee of
such successor.
Upon the issuance of Notes by the Company represented by a Book-Entry Note,
the Depositary will credit, on its book-entry registration and transfer
system, the respective principal amounts of the Notes represented by such
Book-Entry Note to the accounts of participants. The accounts to be credited
shall be designated by the agents for such Notes, or by the Company if such
Notes are offered and sold directly by the Company. Ownership of beneficial
interests in a Book-Entry Note will be limited to participants or persons that
may hold
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interests through participants. Ownership of beneficial interests in a Book-
Entry Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary, or by
participants or persons that may hold interests through participants. The laws
of some states require that certain purchasers of securities take physical
delivery of such securities in certificated form. Such limits and such laws
may impair the ability to transfer beneficial interests in a Book-Entry Note.
So long as the Depositary for a Book-Entry Note, or its nominee, is the
registered owner of a Book-Entry Note, the Depositary or its nominee, as the
case may be, will be considered the sole owner or holder of the Notes
represented by such Book-Entry Note for all purposes under the Indenture.
Except as provided below, owners of beneficial interests in a Book-Entry Note
will not be entitled to have Notes represented by such Book-Entry Note
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in certificated form and will not be considered the owners
or holders thereof under the Indenture.
Principal, premium, if any, and interest payments on Notes issued in book-
entry form and represented by one or more Book-Entry Notes will be made by the
Company to the Depositary or its nominee, as the case may be, as the
registered owner of the related Book-Entry Note or Notes. Neither the Company
nor the Trustee will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of a Book-Entry Note, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests. The Company
expects that the Depositary, upon receipt of any payment of principal,
premium, if any, or interest in respect of a Book-Entry Note, will credit
immediately the accounts of the related participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in such Book-Entry Note as shown on the records of the Depositary.
The Company also expects that payments by participants to owners of beneficial
interests in a Book-Entry Note will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name"
and will be the responsibility of such participants.
The Depositary has advised the Company that it is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
The Depositary was created to hold securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. The Depositary's participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, some of whom (and/or their representatives)
own the Depositary. Access to the Depositary'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. Persons who are not participants may beneficially own
securities held by the Depositary only through participants.
If the Depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by the Company within
90 days, the Company will issue Notes in certificated form in exchange for
each Book-Entry Note. In addition, the Company may at any time determine not
to have Notes represented by one or more Book-Entry Notes, and, in such event,
will issue Notes in certificated form in exchange for the Book-Entry Note or
Notes representing such Notes. Further, if the Company so specifies with
respect to a Book-Entry Note, an owner of a beneficial interest in such Book-
Entry Note may, on terms acceptable to the Company and the Depositary, receive
Notes in certified form. In any such instance, an owner of a beneficial
interest in a Book-Entry Note will be entitled to physical delivery in
certificated form of Notes equal in principal amount to such beneficial
interest and to have such Notes registered in its name. Notes so issued in
certificated form will be issued in the denomination of $1,000 or any multiple
thereof and will be issued in registered form only.
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FIXED RATE NOTES
Each Fixed Rate Note will bear interest from the date of issue at the rate
per annum stated on the face thereof until the principal amount thereof is
paid or made available for payment. Interest on Fixed Rate Notes will be
payable semiannually on each February 1 and August 1 Interest Payment Date and
at maturity (or any date of redemption). The "Regular Record Date" for Fixed
Rate Notes will be the fifteenth day of the month next preceding the February
1 or August 1 Interest Payment Date. Interest on the Fixed Rate Notes will be
computed on the basis of a 360-day year of twelve 30-day months. If any
Interest Payment Date or the maturity date (or any date of redemption) on a
Fixed Rate Note falls on a day that is not a Business Day (as hereafter
defined), the payment shall be made on the next Business Day as if it were
made on the date such payment was due and no interest shall accrue on the
amount so payable for the period from and after such Interest Payment Date or
the Maturity Date (or any date of redemption), as the case may be.
FLOATING RATE NOTES
Unless otherwise specified in the applicable Prospectus Supplement or
Pricing Supplement, Floating Rate Notes will be issued as described below.
Interest on Floating Rate Notes will be determined by reference to a "Base
Rate," which shall be the "Commercial Paper Rate" ("Commercial Paper Rate
Notes"), "LIBOR" ("LIBOR Notes"), the "Treasury Rate" ("Treasury Rate Notes"),
the "CD Rate" ("CD Rate Notes") or other interest rate formula, based upon the
Index Maturity and adjusted by a Spread or Spread Multiplier, if any, as
specified in the applicable Pricing Supplement. The "Index Maturity" is the
period to maturity of the instrument or obligation from which the Base Rate is
calculated. The "Spread" is the number of basis points above or below the Base
Rate applicable to such Floating Rate Note, and the "Spread Multiplier" is the
percentage of the Base Rate applicable to the interest rate for such Floating
Rate Note. The Spread, Spread Multiplier, Index Maturity and other variable
terms of the Floating Rate Notes are subject to change by the Company from
time to time, but no such change will affect any Floating Rate Note
theretofore issued or as to which an offer has been accepted by the Company.
The rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually, as specified in the applicable
Prospectus Supplement or Pricing Supplement. The "Interest Rate Reset Date"
will be, in the case of Floating Rate Notes which reset daily, each day; in
the case of Floating Rate Notes which reset weekly, the Wednesday of each week
(with the exception of weekly reset Treasury Rate Notes which reset the
Tuesday of each week, except as specified below); in the case of Floating Rate
Notes which reset monthly, the third Wednesday of each month; in the case of
Floating Rate Notes which reset quarterly, the third Wednesday of March, June,
September and December; in the case of Floating Rate Notes which reset semi-
annually, the third Wednesday of the two months specified in the applicable
Pricing Supplement; and in the case of Floating Rate Notes which reset
annually, the third Wednesday of the month specified in the applicable Pricing
Supplement. If any Interest Rate Reset Date for any Floating Rate Note would
otherwise be a day that is not a Business Day, such Interest Rate Reset Date
shall be postponed to the next succeeding day that is a Business Day, except
that in the case of a LIBOR Note, if such next succeeding Business Day is in
the next succeeding calendar month, such Interest Rate Reset Date shall be the
next preceding Business Day. Unless otherwise specified in the applicable
Prospectus Supplement or Pricing Supplement, "Business Day" means any day,
other than a Saturday or Sunday, on which banks in The City of New York (and,
with respect to LIBOR Notes, the City of London) are not required or
authorized by law to close.
The interest rate applicable to each Interest Accrual Period commencing on
an Interest Rate Reset Date will be the rate determined on the "Interest Rate
Determination Date." The Interest Rate Determination Date with respect to the
Commercial Paper Rate and CD Rate will be the second Business Day preceding
the Interest Rate Reset Date. The Interest Rate Determination Date with
respect to LIBOR will be the second London Banking Date (defined in "LIBOR
Notes" below) preceding an Interest Rate Reset Date. With respect to the
Treasury Rate the Interest Rate Determination Date will be the day of the week
in which the Interest Rate Reset Date falls on which Treasury bills normally
would be auctioned; provided, however, that if as a result of a legal holiday
an auction is held on the Friday of the week preceding the Interest Rate Reset
Date, the related Interest Rate
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Determination Date shall be such preceding Friday; and provided, further, that
if an auction shall fall on any Interest Rate Reset Date then the Interest
Rate Reset Date shall instead be the first Business Day following such
auction.
A Floating Rate Note may also have either or both of the following: (i) a
maximum limit ("Maximum Interest Rate"), or ceiling, on the rate of interest
which may accrue during any Interest Accrual Period; and (ii) a minimum limit
("Minimum Interest Rate"), or floor, on the rate of interest which may accrue
during any Interest Accrual Period. In addition to any Maximum Interest Rate
which may be applicable to any Floating Rate Note pursuant to the above
provisions, the interest rate on the Floating Rate Notes will in no event be
higher than the maximum rate permitted by New York law, as the same may be
modified by United States law of general application. Under present New York
law, the maximum rate of interest is 25% per annum on a simple interest basis.
The limit does not apply to Floating Rate Notes in which $2,500,000 or more
has been invested.
The applicable Prospectus Supplement or Pricing Supplement will specify each
variable term with respect to each Floating Rate Note, including the
following: Initial Interest Rate, Interest Rate Reset Dates, Interest Payment
Dates, Index Maturity, Maturity, Maximum Interest Rate and Minimum Interest
Rate, if any, the Spread or Spread Multiplier, if any, and terms of
redemption, if any.
Each Floating Rate Note will bear interest from the date of issue at the
rates determined as described below until the principal thereof is paid or
otherwise made available for payment. Except as provided below, interest will
be payable, in the case of Floating Rate Notes which reset 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 Pricing Supplement; in the case of Floating Rate Notes which reset
quarterly, on the third Wednesday of March, June, September and December of
each year; in the case of Floating Rate Notes which reset semi-annually, on
the third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; in the case of Floating Rate Notes which reset annually,
on the third Wednesday of the month specified in the applicable Pricing
Supplement; and, in each case, at maturity (or any date of redemption).
If any Interest Payment Date for any Floating Rate Note would fall on a day
that is not a Business Day with respect to such Note, such Interest Payment
Date will be the following day that is a Business Day with respect to such
Note, except that, in the case of a LIBOR Note, if such Business Day is in the
next succeeding calendar month, such Interest Payment Date shall be the
immediately preceding day that is a Business Day with respect to such LIBOR
Note. If the Maturity Date (or any date of redemption) of any Floating Rate
Note would fall on a day that is not a Business Day, the payment of interest
and principal (and premium, if any) shall be made on the next succeeding
Business Day, and no interest on such payment shall accrue for the period from
and after the Maturity Date (or any date of redemption).
The "Regular Record Date" with respect to Floating Rate Notes will be the
date 15 calendar days (whether or not a Business Day) prior to the applicable
Interest Payment Date.
With respect to a Floating Rate Note, accrued interest is calculated by
multiplying the face amount of such Floating Rate Note by an accrued interest
factor. Such accrued interest factor is computed by adding the interest factor
calculated for each day from the date of issue, or from the last date to which
interest has been paid, to the date for which accrued interest is being
calculated. The interest factor for each such day is computed by dividing the
interest rate applicable to such day by 360 in the case of CD Rate Notes,
Commercial Paper Rate Notes and LIBOR Notes, or by the actual number of days
in the year in the case of Treasury Rate Notes.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded, if necessary, to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage point rounded
upward, (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or
.0987655)), and all dollar amounts used in or resulting from such calculation
on Floating Rates Notes will be rounded to the nearest cent (with one-half
cent being rounded upward).
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Unless otherwise provided for in the applicable Prospectus Supplement or
Pricing Supplement, The Bank of New York will be the "Calculation Agent." Upon
the request of the holder of any Floating Rate Note, the Trustee will provide
the interest rate then in effect and, if determined, the interest rate that
will become effective as a result of a determination made for the next
Interest Rate Reset Date with respect to such Floating Rate Note. The Company,
or the Calculation Agent, will notify the Trustee of each determination of the
interest rate applicable to any such Floating Rate Note promptly after such
determination is made. The "Calculation Date," where applicable, pertaining to
any Interest Rate Determination Date will be the tenth calendar day after such
Interest Rate Determination Date, or, if any such day is not a Business Day,
the next succeeding Business Day.
The interest rate in effect with respect to a Floating Rate Note from the
date of issue to the first Interest Rate Reset Date (the "Initial Interest
Rate") will be specified in the applicable Pricing Supplement. Unless
otherwise indicated in the applicable Prospectus Supplement or Pricing
Supplement, the interest rate determined with respect to any Interest Rate
Determination Date will become effective on and as of the next succeeding
Interest Rate Reset Date; provided, however, the interest rate in effect for
the period from the date of issue to the first Interest Rate Reset Date will
be the Initial Interest Rate, and the interest rate in effect for the ten days
immediately prior to the maturity date (or any date of redemption) will be
that in effect on the tenth day preceding such maturity date (or such date of
redemption). The interest rate for each subsequent Interest Rate Reset Date
will be determined by the Calculation Agent as follows:
CD RATE NOTES
CD Rate Notes will bear interest at the interest rates (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any)
specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Prospectus Supplement or
Pricing Supplement, "CD Rate" means, with respect to any Interest Rate
Determination Date relating to a CD Rate Note (a "CD Rate Interest
Determination Date"), the rate on such date for negotiable certificates of
deposit having the Index Maturity specified in the applicable Pricing
Supplement as published by the Board of Governors of the Federal Reserve
System in "Statistical Release H.15(519), Selected Interest Rates," or any
successor publication ("H.15(519)"), under the heading "CDs (Secondary
Market)," or, if not so published by 3:00 P.M., New York City time, on or
prior to the Calculation Date pertaining to such CD Rate Interest
Determination Date, the CD Rate will be the rate on such CD Rate Interest
Determination Date for negotiable certificates of deposit of the Index
Maturity specified in the applicable Pricing Supplement as published by the
Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" ("Composite Quotations")
under the heading "Certificates of Deposit." If such rate is not yet published
in either H.15(519) or the Composite Quotations by 3:00 P.M., New York City
time, on the 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 3:00 P.M., New
York City time, on such CD Rate Interest Determination Date, of three leading
nonbank dealers in negotiable U.S. dollar certificates of deposit in The City
of New York selected by the Calculation Agent for negotiable certificates of
deposit of major United States money center banks of the highest credit
standing in the market for negotiable certificates of deposit with a remaining
maturity closest to the Index Maturity designated in the Pricing Supplement in
denominations of $5,000,000; provided, however, that if the dealers selected
as aforesaid by the Calculation Agent are not quoting as set forth above, the
CD Rate will remain the CD Rate then in effect on such CD Rate Interest
Determination Date.
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread or
Spread Multiplier, if any) specified in the applicable Pricing Supplement.
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Unless otherwise indicated in the applicable Prospectus Supplement or
Pricing Supplement, "Commercial Paper Rate" means, with respect to any
Interest Rate Determination Date relating to a Commercial Paper Rate Note (a
"Commercial Paper Rate Interest Determination Date"), the Money Market Yield
(as defined below) on such date of the rate for commercial paper having the
Index Maturity specified in the applicable Pricing Supplement, as such rate
shall be published by the Board of Governors of the Federal Reserve System in
H.15(519), under the heading "Commercial Paper." In the event that such rate
is not published prior to 3:00 P.M., New York City time, on the Calculation
Date pertaining to such Commercial Paper Rate Interest Determination Date,
then the Commercial Paper Rate shall be the Money Market Yield on such
Commercial Paper Rate Interest Determination Date of the rate for commercial
paper of the specified Index Maturity as published in Composite Quotations
under the heading "Commercial Paper." If by 3:00 P.M., New York City time, on
such Calculation Date such rate is not published in either H.15(519) or
Composite Quotations, then the Commercial Paper Rate shall be the Money Market
Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York
City time, on such Commercial Paper Rate Interest Determination Date of three
leading dealers of commercial paper in The City of New York selected by the
Calculation Agent for commercial paper of the specified Index Maturity placed
for an industrial issuer whose bond rating is "AA," or the equivalent, from a
nationally recognized rating agency; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the rate of interest in effect for the applicable period will
remain the rate of interest then in effect on such Commercial Paper Rate
Interest Determination Date.
"Money Market Yield" shall be the yield calculated in accordance with the
following formula:
Money Market Yield = D X 360
------------ X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the interest period for which interest is being
calculated.
LIBOR NOTES
LIBOR Notes will bear interest at the interest rates (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any) specified in
the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Prospectus Supplement or
Pricing Supplement, LIBOR with respect to any Interest Rate Determination Date
relating to a LIBOR Note (a "LIBOR Interest Determination Date") will equal
the arithmetic mean (as determined by the Calculation Agent) of the offered
rates which appear as of 11:00 A.M., London time, on the Reuters Screen LIBOR
Page on the Reuter Monitor Money Rates Service for deposits (in United States
dollars for the period of the Index Maturity specified in the applicable
Pricing Supplement) commencing on the second day on which dealings in deposits
in United States dollars are transacted in the London interbank market (a
"London Banking Day") immediately following such LIBOR Interest Determination
Date; provided, however, that if fewer than two such quotations appear, the
Calculation Agent shall request the principal London office of four major
banks in the London interbank market selected by the Calculation Agent to
provide the Calculation Agent with a quotation of their offered rates at
approximately 11:00 A.M., London time, on such LIBOR Interest Determination
Date for deposits (in United States dollars for the period of the applicable
Index Maturity and in a principal amount equal to an amount that is
representative for a single transaction in such market at such time)
commencing on the second London Banking Day immediately following such LIBOR
Interest Determination Date. If at least two such quotations are provided,
LIBOR for such LIBOR Interest Determination Date will equal the arithmetic
mean of such quotations. If fewer than two quotations are provided, LIBOR for
such LIBOR Interest Determination Date will equal the arithmetic mean of the
rates quoted by three major banks in The City of New York, as selected by the
Calculation Agent, at approximately 11:00 A.M., New York City time, on such
LIBOR Interest Determination Date for loans to leading European banks (in
United States dollars for the period of the applicable Index Maturity and in a
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principal amount equal to an amount that is representative for a single
transaction in such market at such time) commencing on the second London
Banking Day following such LIBOR Interest Determination Date; provided,
however, that if the banks selected as aforesaid by the Calculation Agent are
not quoting as mentioned in this sentence, LIBOR for such LIBOR Interest
Determination Date will remain the LIBOR in effect on such LIBOR Interest
Determination Date.
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rates (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if
any) specified in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Prospectus Supplement or
Pricing Supplement, "Treasury Rate" means, with respect to any Interest Rate
Determination Date relating to a Treasury Rate Note (a "Treasury Rate Interest
Determination Date"), the rate applicable to the most recent auction of direct
obligations of the United States ("Treasury bills") having the Index Maturity
specified in the applicable Pricing Supplement, as such rate is published in
H.15(519) under the heading "Treasury Bills-auction average (investment)" or,
if not so published by 3:00 P.M., New York City time, on the Calculation Date
pertaining to such Treasury Rate Interest Determination Date, the auction
average 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) as otherwise announced
by the United States Department of the Treasury. Treasury bills are usually
sold at auction on Monday of each week unless that day is a legal holiday, in
which case the auction is usually held on the following Tuesday, except that
such auction may be held on the preceding Friday. In the event that the
results of the auction of Treasury bills having the specified Index Maturity
are not reported as provided by 3:00 P.M., New York City time, on such
Calculation Date, or if no such auction is held in a particular week, then the
Treasury Rate shall be calculated by the Calculation Agent and shall 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 selected
by the Calculation Agent for the issue of Treasury bills with a remaining
maturity closest to the applicable Index Maturity; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the rate of interest in effect for the applicable
period will remain the rate of interest in effect on such Treasury Rate
Interest Determination Date.
EVENTS OF DEFAULT, WAIVER AND NOTICE. An Event of Default with respect to
the Notes of a particular series (the "Series Notes") is defined in the
Indenture as (a) default in the payment of any installment of interest on any
of the Series Notes and the continuance of such default for a period of 30
days; (b) default in payment of the principal of (and premium, if any, on) any
of the Series Notes when due at maturity; (c) default in the deposit of any
sinking fund payment due under the Series Notes and the continuance of such
default for a period of 3 business days; (d) default by the Company in the
performance or breach of any other covenant or warranty contained in the
Indenture and the continuance of such default or breach for a period of 60
days after appropriate notice; (e) certain events of bankruptcy, insolvency
and reorganization of the Company; and (f) any other Event of Default
established with respect to the Series Notes. (Section 501).
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default with respect to the Series Notes, give all the
registered holders of Series Notes then outstanding and any other holder of
Series Notes entitled under the Indenture to receive reports notice of all
incurred defaults known to it (the term default to mean any event which is or
(after notice or lapse of time) would become an Event of Default); provided
that, except in the case of a default in the payment of principal of or
interest on any Series Note, the Trustee shall be protected in withholding
such notice if it determines in good faith that the withholding of such notice
is in the interest of all the holders of the Series Notes. (Section 602).
The Indenture provides that if an Event of Default with respect to the
Series Notes shall have occurred and be continuing, either the Trustee or the
holders of at least 33% in principal amount (calculated as provided in the
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Indenture) of the Series Notes may declare the principal of all of the Series
Notes and the interest accrued thereon or any lesser amount specified in the
Series Notes to be due and payable immediately. (Section 502).
Upon certain conditions, such declarations of acceleration with respect to
Series Notes may be annulled and past defaults (except for defaults in the
payment of principal, and premium (if any) or interest on such Series Notes
not theretofore cured or in respect of a covenant or provision of the
Indenture which cannot be amended or modified without the consent of the
holder of each Series Note) may be waived with respect to the Series Notes by
the holders of not less than a majority in principal amount (calculated as
provided in the Indenture) of the Series Notes. (Section 513).
The Indenture requires that the Company file with the Trustee annually a
written statement as to the presence or absence of any defaults in the
fulfillment of its obligations under the terms thereof and as to performance
and fulfillment of obligations therein. (Section 1005). Prior to the time the
Company must provide such written statement, the holders of not less than a
majority in principal amount of the Series Notes may waive the Company's
obligation to file a written statement as to the presence or absence of any
such defaults. (Section 1006).
The Indenture provides that the holders of not less than a majority in
principal amount (calculated as provided in the Indenture) of the Series Notes
shall 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 by the Indenture with respect to defaults or
Events of Default with respect to the Series Notes so long as any such
direction does not conflict with any provision of the Indenture or is not
unduly prejudicial to the rights of other holders of the Series Notes.
(Section 512).
In order to require the Trustee to take action with respect to the Series
Notes, holders of at least 33% in principal amount (calculated as provided in
the Indenture) of the Series Notes shall have made a written request upon the
Trustee (Section 507). The Indenture provides that the Trustee shall be under
no obligation, subject to the duty of the Trustee during default to act with
the required standard of care, to exercise any of the rights or powers vested
in it by the Indenture at the direction of the holders of the Series Notes
unless such holders shall have offered to the Trustee reasonable security or
indemnity against expenses and liabilities. (Section 603).
MODIFICATION OF THE INDENTURE. The Indenture contains provisions permitting
the Company and the Trustee, with the consent of the holders of not less than
66 2/3% in principal amount (calculated as provided in the Indenture) of each
series of securities, including the Notes, issued and outstanding pursuant to
the Indenture (the "Indenture Securities") and affected by such amendment to
modify the Indenture or any supplemental indenture or the rights of the
holders of the Indenture Securities affected by such modification; provided
that no such modification shall, without the consent of each holder of the
Indenture Securities affected thereby, change the maturity of principal of or
interest on any Indenture Security, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce
any amount payable upon redemption of any Indenture Security, or reduce the
overdue rate thereof or change the currency of payment of principal or
interest on any Indenture Security or reduce the percentage in principal
amount of Indenture Securities the consent of the holders of which is required
for modification or amendment of the Indenture or for waiver of certain
defaults or reduce the voting or quorum requirements under the Indenture.
(Section 902).
The Indenture also permits the Company and the Trustee to amend the
Indenture in certain circumstances without consent of the holders of any
Indenture Securities to evidence the merger of the Company or the replacement
of the Trustee and for certain other purposes. (Section 901).
RELATIONSHIPS WITH TRUSTEE. The Bank of New York is Trustee for the
Company's 5% Convertible Debentures due 2002. The Company has with the Trustee
and its affiliates, as it has with various other banks, a demand deposit
account and conventional and revolving credit arrangements. The Trustee is the
Issuing and Paying Agent for medium-term notes issued by PCI.
13
<PAGE>
PLAN OF DISTRIBUTION
The Notes may be offered on a continuous basis by the Company through
agents, each of which will agree to use its best efforts to solicit offers to
purchase the Notes. The Company may also sell the Notes to any of the agents
at negotiated discounts for such agent's own account or for resale to one or
more investors at varying prices related to prevailing market prices at the
time of resale, as determined by such agent.
The agents with respect to the offer and sale of any issue of the Notes will
be named in the Prospectus Supplement relating thereto. The Prospectus
Supplement will also describe the discounts and commissions to be allowed or
paid to agents and all other items constituting agents' compensation.
Agents may be entitled under agreements entered into with the Company to
indemnification by the Company against certain civil liabilities, including
liabilities under the 1933 Act. Agents may be customers of, engage in
transactions with or perform services for the Company in the ordinary course
of business.
The Notes will not be listed on any securities exchange. There currently is
no established trading market for the Notes and no assurance can be given as
to the existence or liquidity of a secondary market for the Notes in the
future.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
With respect to the unaudited consolidated financial information of the
Company for the three month periods ended March 31, 1995 and 1994, and the six
month periods ended June 30, 1995 and 1994 incorporated by reference in this
Prospectus, Price Waterhouse LLP reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate reports dated May 1, 1995 and July 28,
1995, incorporated by reference herein, state that they did not audit and they
do not express opinions on that unaudited consolidated financial information.
Price Waterhouse LLP has not carried out any significant or additional audit
tests beyond those which would have been necessary if such reports had not
been incorporated by reference. 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. Price Waterhouse LLP is not subject
to the liability provisions of Section 11 of the 1933 Act for their reports on
the unaudited consolidated financial information because each such report is
not a "report" or a "part" of the registration statement prepared or certified
by Price Waterhouse LLP within the meaning of Sections 7 and 11 of the 1933
Act.
----------------
LEGAL OPINIONS
Certain legal matters in connection with the Notes to be offered hereby will
be passed upon for the Company by Covington & Burling, 1201 Pennsylvania
Avenue, N.W., Washington, D.C., and William T. Torgerson, Esq., 1900
Pennsylvania Avenue, N.W., Washington, D.C. Mr. Torgerson is regularly
employed by the Company as Senior Vice President and General Counsel.
14
<PAGE>
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS,
AND, IF GIVEN OR MADE SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE AGENTS. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR
ANY SALE MADE THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICA-
TION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE OF THIS PROSPECTUS SUPPLEMENT. THIS PROSPECTUS SUPPLEMENT AND THE ACCOM-
PANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY-
ONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
--------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Plan of Distribution....................................................... S-2
Description of the Notes................................................... S-2
Proposed Merger............................................................ S-2
Legal Opinions............................................................. S-2
Experts.................................................................... S-2
Selected Financial Information............................................. S-3
Ratios of Earnings to Fixed Charges........................................ S-3
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Available Information....................................................... 2
Incorporation of Certain Documents by Reference............................. 2
The Company................................................................. 3
Use of Proceeds............................................................. 3
Selected Financial Information.............................................. 4
Ratios of Earnings to Fixed Charges......................................... 4
Description of the Notes.................................................... 5
Plan of Distribution........................................................ 14
Experts..................................................................... 14
Legal Opinions.............................................................. 14
</TABLE>
===============================================================================
===============================================================================
$175,000,000
[LOGO OF PEPCO APPEARS HERE]
MEDIUM-TERM NOTES,
SERIES A
----------------
PROSPECTUS SUPPLEMENT
----------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
DECEMBER 10, 1996
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