As filed with the Securities and Exchange Commission on September 24, 1996
File No. 333-06625
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ATLANTIC CITY ELECTRIC NEW JERSEY
COMPANY DELAWARE
ATLANTIC CAPITAL I (STATE OR OTHER 21-0398280
(EXACT NAME OF REGISTRANT JURISDICTION 22-6701238
AS SPECIFIED OF INCORPORATION (I.R.S. EMPLOYER
IN ITS CHARTER) OR ORGANIZATION) IDENTIFICATION NUMBER)
6801 Black Horse Pike
Egg Harbor Township, New Jersey 08234-4130
(609) 645-4100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
James E. Franklin II, Esq.
Senior Vice President, Secretary
and General Counsel
Atlantic City Electric Company
6801 Black Horse Pike
Egg Harbor Township, New Jersey 08234-4130
(609) 645-4100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Vincent Pagano, Jr. J.H. Byington, Jr.
Simpson Thacher & Bartlett Winthrop, Stimson, Putnam & Roberts
425 Lexington Avenue One Battery Park Plaza
New York, New York 10017 New York, New York 10004
(212) 455-2000 (212) 858-1000
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the Registration Statement becomes effective. If the only
securities being registered on this form are being offered pursuant to dividend
or interest reinvestment plans, check the following box. |_|
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 1996
2,800,000 PREFERRED SECURITIES
ATLANTIC CAPITAL I
% Cumulative Quarterly Income Preferred Securities (QUIPS(SM))*
(Liquidation Preference $25 per Preferred Security)
Guaranteed to the extent the Issuer has funds, as
set forth herein, by
Atlantic City Electric Company
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The __% Cumulative Quarterly Income Preferred Securities (the "QUIPS"),
offered hereby represent undivided beneficial interests in the assets of
Atlantic Capital I, a trust formed under the laws of the State of Delaware (the
"Issuer"). Atlantic City Electric Company, a New Jersey corporation (the
"Company"), will be the owner of all of the beneficial interests represented by
common securities of the Issuer ("Common Securities"). The Bank of New York is
the Property Trustee of the Issuer. The Issuer exists for the sole purpose of
issuing the QUIPS and the Common Securities and investing the proceeds
(Continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 5 HEREOF FOR CERTAIN INFORMATION RELEVANT
TO AN INVESTMENT IN THE QUIPS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE COMMISSION(1) ISSUER (2)(3)
-------------- ------------- -------------
Per QUIPS.............. $ 25.00 (2) $ 25.00
Total.................. $ 70,000,000 (2) $70,000,000
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(1) The Issuer and the Company have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) In view of the fact that the proceeds of the sale of the QUIPS will be used
to purchase the QUIDS, the Underwriting Agreement provides that the Company
will pay to the Underwriters, as compensation ("Underwriters'
Compensation") for their arranging the investment therein of such proceeds,
$ per QUIPS (or $ in the aggregate). See "Underwriting".
(3) Expenses of the offering, which are payable by the Company, are estimated
to be $375,000.
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The QUIPS offered hereby are offered severally by the Underwriters, as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that the QUIPS will be
ready for delivery in book-entry form only through the facilities of The
Depository Trust Company in New York, New York, on or about , 1996, against
payment therefor in immediately available funds.
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* QUIPS and QUIDS are servicemarks of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
LEHMAN BROTHERS
PRUDENTIAL SECURITIES INCORPORATED
WHEAT FIRST BUTCHER SINGER
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The date of this Prospectus is , 1996.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE QUIPS AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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(Continued from previous page)
thereof in _____% Junior Subordinated Deferrable Interest Debentures (the
"QUIDS"SM), to be issued by the Company. The QUIDS will mature on _____, 2026,
which date may be extended to a date not later than _____, 2045 if certain
conditions are met. The QUIPS will have a preference under certain circumstances
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise over the Common Securities. See "Description of
QUIPS--Subordination of Common Securities".
Holders of the QUIPS will be entitled to receive preferential cumulative
cash distributions accruing from the date of original issuance and payable
quarterly in arrears on the last day of March, June, September and December of
each year, commencing December 31, 1996, at the annual rate of _____% of the
liquidation preference of $25 per QUIPS ("Distributions"). The Company has the
right to defer payment of interest on the QUIDS at any time or from time to time
for a period not exceeding 20 consecutive quarters with respect to each deferral
period (each, an "Extension Period"), during which Extension Periods the Company
shall have the right to make full or partial payments of interest on any
Interest Payment Date, provided that no Extension Period may extend beyond the
Stated Maturity (as defined herein) of the QUIDS. Upon the termination of any
such Extension Period and the payment of all amounts then due on any Interest
Payment Date (as defined herein), the Company may elect to begin a new Extension
Period subject to the requirements set forth herein. If interest payments on the
QUIDS are so deferred, distributions on the QUIPS will also be deferred and the
Company may not, and may not permit any subsidiary of the Company to, subject to
certain exceptions set forth herein, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, the Company's common stock, preferred stock or preference stock
(collectively, "Capital Stock") or (ii) make any payment of principal, interest
or premium, if any, on or repay, repurchase or redeem any debt securities that
rank pari passu with or junior to the QUIDS. During an Extension Period,
interest on the QUIDS will continue to accrue (and the amount of Distributions
to which holders of the QUIPS are entitled will accumulate at the rate of % per
annum, compounded quarterly), and holders of the QUIPS will be required to
accrue interest income for United States federal income tax purposes prior to
receipt of cash related to such interest income. See "Description of
QUIDS--Option to Extend Interest Payment Period" and "Certain Federal Income Tax
Consequences--Original Issue Discount".
The Company has, through the Guarantee, the Trust Agreement, the QUIDS, the
Indenture and the Expense Agreement (each, as defined herein), taken together,
fully, irrevocably and unconditionally guaranteed all of the Issuer's
obligations under the QUIPS. The Company guarantees the payment of Distributions
and payments on liquidation of the Issuer or redemption of the QUIPS, but only
in each case to the extent of funds held by the Issuer, as described herein (the
"Guarantee"). See "Description of Guarantee" herein. If the Company does not
make interest payments on the QUIDS held by the Issuer, the Issuer will have
insufficient funds to pay Distributions on the QUIPS. The Guarantee does not
cover payment of Distributions when the Issuer does not have sufficient funds to
pay such Distributions. In such event, a holder of QUIPS may institute a legal
proceeding directly against the Company to enforce payment of such Distributions
to such holder. The obligations of the Company under the Guarantee and the QUIDS
are subordinate and junior in right of payment to all Senior Debt (as defined in
"Description of QUIDS--Subordination" herein) of the Company.
The QUIPS are subject to mandatory redemption, in whole or in part, upon
repayment of the QUIDS at maturity or their earlier redemption in an amount
equal to the amount of related QUIDS maturing or being redeemed at a redemption
price equal to the aggregate liquidation preference of such QUIPS plus
accumulated and unpaid Distributions thereon to the date of redemption. The
QUIDS are redeemable prior to maturity at the option of the Company (i) on or
after , 2001, in whole at any time or in part from time to time, at a redemption
price equal to the accrued and unpaid interest on the QUIDS so redeemed to the
date fixed for redemption, plus 100% of the principal amount thereof or (ii) at
any time, in whole (but not in part), upon the occurrence and continuation of a
Special Event (as defined herein), at a redemption price equal to the accrued
and unpaid interest on the QUIDS so redeemed to the date fixed for redemption,
plus 100% of the principal amount thereof, in each case subject to the further
conditions described under "Description of QUIDS--Redemption".
At any time, the Company will have the right to terminate the Issuer and
cause the QUIDS to be distributed to the holders of the QUIPS and the Common
Securities in liquidation of the Issuer. If the Company elects to liquidate the
Issuer and thereby causes the QUIDS to be distributed to holders of the QUIPS
and the Common Securities in liquidation of the Issuer, the Company shall have
the right to shorten or extend the maturity of the QUIDS, provided that it can
extend the maturity only if certain conditions are met. See "Description of
QUIPS--Redemption--Special Event Redemption or Distribution of QUIDS".
The QUIDS are subordinate and junior in right of payment to all Senior Debt
(as defined herein) of the Company. As of June 30, 1996, the Company had
approximately $802,000,000 aggregate principal amount of Senior Debt
outstanding.
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The terms of the QUIDS place no limitation on the amount of Senior Debt that may
be incurred by the Company. See "Description of QUIDS--Subordination".
In the event of the liquidation of the Issuer, after satisfaction of the
creditors of the Issuer, if any, as provided by applicable law, the holders of
the QUIPS will be entitled to receive a liquidation preference of $25 per QUIPS
plus accumulated and unpaid Distributions thereon to the date of payment, which
may be in the form of a distribution of such amount in QUIDS, subject to certain
exceptions. See "Description of QUIPS--Liquidation Distribution Upon
Termination".
The QUIPS have been approved for listing on the New York Stock Exchange,
subject to notice of issuance. Trading of the QUIPS on the New York Stock
Exchange is expected to commence within 30 days after the initial delivery of
the QUIPS. If the QUIDS are distributed to the holders of QUIPS upon the
liquidation of the Issuer, the Company will use its best efforts to list the
QUIDS on the New York Stock Exchange or such other stock exchanges, if any, on
which the QUIPS are then listed.
The QUIPS will be represented by one or more global certificates registered
in the name of The Depository Trust Company ("DTC") or its nominee. Beneficial
interests in the QUIPS will be shown on, and transfers thereof will be effected
only through, records maintained by participants in DTC. Except as described
herein, QUIPS in certificated form will not be issued in exchange for the global
certificates. See "Description of QUIPS--Book-Entry Issuance".
As used herein, (i) the "Indenture" means the Junior Subordinated
Indenture, as amended and supplemented from time to time, between the Company
and The Bank of New York, as trustee (the "Debenture Trustee"), and (ii) the
"Trust Agreement" means the Amended and Restated Trust Agreement among the
Company, as Depositor, The Bank of New York, as Property Trustee (the "Property
Trustee") and The Bank of New York (Delaware), as Delaware Trustee (the
"Delaware Trustee"), the Administrative Trustees named therein (collectively,
with the Property Trustee and Delaware Trustee, the "Issuer Trustees") and the
Holders as defined therein.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company with the Commission pursuant to the informational
requirements of the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Chicago Regional Office, Suite 1400,
Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661;
and New York Regional Office, 7 World Trade Center, 13th Floor, Suite 1300, New
York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission also maintains a
Web site (http://www.sec.gov) that contains reports, proxy statements and other
information regarding the Company.
The Company and the Issuer have filed with the Commission a Registration
Statement on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. This
Prospectus omits, in accordance with the rules and regulations of the
Commission, certain of the information contained in the Registration Statement.
Reference is hereby made to the Registration Statement and the exhibits and the
financial statements, notes and schedules filed as a part thereof or
incorporated by reference therein for further information with respect to the
Company, the Issuer and the securities offered hereby. Statements contained
herein concerning the provisions of any document are not necessarily complete
and, in each instance, where a copy of such document has been filed as an
exhibit to the Registration Statement or otherwise has been filed with the
Commission, reference is made to the copy so filed. Each such statement is
qualified in its entirety by such reference.
No separate financial statements of the Issuer have been included herein.
The Company and the Issuer do not consider that such financial statements would
be material to holders of the QUIPS because the Issuer is a newly formed special
purpose entity, has no operating history or independent operations and is not
engaged in and does not propose to engage in any activity other than holding as
trust assets the QUIDS of the Company and issuing the QUIPS and Common
Securities. See "The Issuer", "Description of QUIPS", "Description of Guarantee"
and "Description of QUIDS".
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996 and the Company's Current Report on Form 8-K
dated May 29, 1996, June 26, 1996, July 25, 1996 and August 13, 1996 previously
filed by the Company with the Commission, are incorporated by reference in this
Prospectus and shall be deemed to be a part hereof.
Each document filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of any offering of securities made by
this Prospectus shall be deemed to be incorporated herein by reference and to be
a part hereof from the date of filing such document. Any statement contained
herein, or in a document all or a portion of which is incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of the Registration Statement and this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
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 the Registration Statement or this Prospectus.
The Company will provide without charge to any person to whom a copy of
this Prospectus is delivered, upon written or oral request of such person, a
copy of any and all of the documents that have been or may be incorporated by
reference herein (other than exhibits to such documents which are not
specifically incorporated by reference into such documents). Such
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requests should be directed to Robert K. Marshall, Manager, Finance & Treasury
Operations, Atlantic City Electric Company, 6801 Black Horse Pike, Egg Harbor
Township, New Jersey 08234-4130 (telephone: (609) 645-4655).
RECENT DEVELOPMENTS
On August 9, 1996, Atlantic Energy, Inc. ("Energy"), the parent of the
Company, and Delmarva Power & Light Company ("DP&L") entered into a merger
agreement pursuant to which Energy will merge into a yet-to-be-named new company
that will become the parent company of the Company and DP&L. The merger is
expected to be a tax-free, stock-for-stock transaction accounted for as a
purchase. Under the terms of the merger agreement, DP&L shareholders will
receive one share of the new company's common stock for each share of DP&L
common stock. Energy shareholders will receive 0.75 shares of the new company's
common stock and 0.125 shares of the new company's Class A common stock for each
share of Energy common stock. All of the debt and preferred stock obligations of
the Company will continue to be outstanding obligations of the Company. In order
for the merger to be effective, approvals are needed by the shareholders of both
Energy and DP&L and a number of federal and state regulators. Securing the
necessary approvals may take from 12 to 18 months.
There can be no assurance when and if such approvals will be obtained.
RISK FACTORS
Prospective purchasers of the QUIPS should carefully review the information
contained elsewhere in this Prospectus and should particularly consider the
following matters.
Ranking of Subordinated Obligations Under the Guarantee and the QUIDS
The obligations of the Company under the Guarantee issued by the Company
for the benefit of the holders of QUIPS are unsecured and rank subordinate and
junior in right of payment to all general liabilities of the Company. The
obligations of the Company under the QUIDS are subordinate and junior in right
of payment to all Senior Debt. At June 30, 1996, the Senior Debt of the Company
aggregated approximately $802,000,000. Neither the Indenture, the Guarantee nor
the Trust Agreement places any limitation on the amount of secured or unsecured
debt, including Senior Debt, that may be incurred by the Company. See
"Description of Guarantee--Status of the Guarantee" and "Description of
QUIDS--Subordination".
The ability of the Issuer to pay amounts due on the QUIPS is solely
dependent upon the Company making payments on the QUIDS as and when required.
Option to Extend Interest Payment Period; Tax Consequences
The Company has the right under the Indenture to defer the payment of
interest on the QUIDS at any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the Stated Maturity (as
defined below) of the QUIDS. As a consequence of any such deferral, quarterly
Distributions on the QUIPS by the Issuer will be deferred (and the amount of
Distributions to which holders of the QUIPS are entitled will accumulate
additional Distributions thereon at the rate of % per annum, compounded
quarterly from the relevant payment date for such Distributions) during any such
Extension Period. During any such Extension Period, the Company may not, and may
not permit any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's Capital Stock or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank pari passu with or junior in interest
to the QUIDS or make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu or junior in interest to the QUIDS (other than (a)
dividends or distributions in Common Stock of the Company and (b) payments under
the Guarantee). Prior to the termination of any such Extension Period, the
Company may further extend the interest payment period, provided that no
Extension Period may exceed 20 consecutive quarters or extend beyond the Stated
Maturity (as defined below) of the QUIDS. Upon the termination of any Extension
Period and the payment of all amounts then due on any Interest Payment Date, the
Company may elect to begin a new Extension Period subject to the above
requirements. See "Description of QUIPS--Distributions" and "Description of
QUIDS--Option to Extend Interest Payment Period".
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Should the Company defer payment of interest on the QUIDS, a holder of
QUIPS will continue to accrue income (in the form of original issue discount) in
respect of its pro rata share of the QUIDS held by the Issuer for United States
federal income tax purposes. As a result, a holder of QUIPS will include such
income in gross income for United States federal income tax purposes in advance
of the receipt of cash, and will not receive the cash related to such income
from the Issuer if the holder disposes of the QUIPS prior to the record date for
the payment of Distributions. See "Certain Federal Income Tax
Consequences--Original Issue Discount" and "--Sale or Redemption of QUIPS".
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the QUIDS.
However, should the Company elect to exercise such right in the future, the
market price of the QUIPS is likely to be affected. A holder that disposes of
its QUIPS during an Extension Period, therefore, might not receive the same
return on its investment as a holder that continues to hold its QUIPS. In
addition, as a result of the existence of the Company's right to defer interest
payments, the market price of the QUIPS (which represent preferred undivided
beneficial interests in the QUIDS) may be more volatile than the market prices
of other securities on which original issue discount accrues that are not
subject to such deferrals.
Special Event Redemption
Upon the occurrence and continuation of a Special Event (as defined below),
the Company has the right to redeem the QUIDS in whole (but not in part) at the
redemption price within 90 days following the occurrence of such Special Event
and thereby cause a mandatory redemption of the QUIPS and Common Securities.
A "Special Event" means a Tax Event or an Investment Company Event. A "Tax
Event" means the receipt by the Issuer of an opinion of counsel, rendered by a
law firm having a national tax and securities practice, to the effect that, as a
result of any amendment to, change in or announced proposed change in the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is adopted or such
pronouncement or decision is announced on or after the date of issuance of the
QUIPS under the Trust Agreement, there is more than an insubstantial risk that
(i) the Issuer is, or will be within 90 days of the date of such opinion,
subject to United States federal income tax with respect to income received or
accrued on the QUIDS, (ii) interest payable by the Company on such QUIDS is not,
or within 90 days of the date of such opinion, will not be, deductible by the
Company, in whole or in part, for United States federal income tax purposes, or
(iii) the Issuer is, or will be within 90 days of the date of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges. "Investment Company Event" means the receipt by the Issuer
of an opinion of counsel, rendered by a law firm having a recognized national
tax and securities practice, to the effect that, as a result of the occurrence
of a change in law or regulation or a change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), the Issuer is or will be
considered an "investment company" that is required to be registered under the
Investment Company Act of 1940, as amended, which Change in 1940 Act Law becomes
effective on or after the date of original issuance of the QUIPS.
On March 19, 1996, President Clinton announced a 1997 balanced budget
proposal (the Revenue Reconciliation Bill of 1996, the "Bill"). The Bill would,
among other things, deny interest deductions on a debt instrument issued on or
after December 7, 1995 if the instrument had a maximum weighted average maturity
of more than 40 years. The Bill would also generally deny interest deductions
for interest on an instrument, issued by a corporation, that has a maximum term
of more than 20 years and that is not shown as indebtedness on the separate
balance sheet of the issuer or, where the instrument is issued to a related
party (other than a corporation), where the holder or some other related party
issues a related instrument that is not shown as indebtedness on the issuer's
consolidated balance sheet. For purposes of determining the weighted average
maturity or the term of an instrument, any right to extend would be treated as
exercised. The above-described provisions of the Bill were proposed to be
effective generally for instruments issued on or after December 7, 1995. If
either provision were to apply to the QUIDS, the Company would be unable to
deduct interest on the QUIDS. However, on March 29, 1996, the Chairmen of the
Senate Finance and House Ways and Means Committees issued a joint statement to
the effect that it was their intention that the effective date of the
President's legislative proposals, if adopted, will be no earlier than the date
of appropriate Congressional action. The Company believes that, under current
law, it will be able to deduct interest on the QUIDS. There can be no assurance,
however, that current or future legislative or administrative proposals or final
legislation will not affect the ability of the Company to deduct interest on the
QUIDS. Such a change would give rise to a Tax Event, which would permit the
Company to cause a redemption of the QUIPS upon receiving an opinion of counsel,
as described
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more fully under "Description of QUIPS--Redemption--Special Event Redemption or
Distribution of QUIDS". Such a tax law change would not alter the United States
federal income tax consequences of the purchase, ownership and disposition of
QUIPS.
There can be no assurance as to the market prices for QUIPS or QUIDS that
may be distributed in exchange for QUIPS if a liquidation of the Issuer occurs.
Accordingly, the QUIPS that an investor may purchase, whether pursuant to the
offer made hereby or in the secondary market, or the QUIDS that a holder of
QUIPS may receive on liquidation of the Issuer, may trade at a discount to the
price that the investor paid to purchase the QUIPS offered hereby. In addition,
because the Company has the right to shorten or extend the maturity of the QUIDS
upon the termination of the Issuer and the distribution of QUIDS to holders of
QUIPS, there can be no assurance that the Company will not exercise its option
to change the maturity of the QUIDS upon such an event. Because holders of QUIPS
may receive QUIDS on termination of the Issuer prospective purchasers of QUIPS
are also making an investment decision with regard to the QUIDS and should
carefully review all the information regarding the QUIDS contained herein. See
"Description of QUIPS--Redemption--Special Event Redemption or Distribution of
QUIDS" and "Description of QUIDS--General".
Rights Under the Guarantee
The Guarantee will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Bank of New York will
act as the indenture trustee under the Guarantee (the "Guarantee Trustee") for
the purposes of compliance with the Trust Indenture Act and will hold the
Guarantee for the benefit of the holders of the QUIPS. The Bank of New York will
also act as Debenture Trustee for the QUIDS and as Property Trustee under the
Trust Agreement and The Bank of New York (Delaware) will act as Delaware Trustee
under the Trust Agreement. The Guarantee guarantees to the holders of the QUIPS
the following payments, to the extent not paid by the Issuer: (i) any
accumulated and unpaid Distributions required to be paid on the QUIPS, to the
extent that the Issuer has funds on hand available therefor at such time, (ii)
the redemption price including all accrued and unpaid Distributions to the date
of redemption with respect to any QUIPS called for redemption, to the extent
that the Issuer has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding-up or liquidation of the
Issuer (unless the QUIDS are distributed to holders of the QUIPS), the lesser of
(a) the aggregate of the liquidation preference and all accrued and unpaid
Distributions to the date of payment to the extent that the Issuer has funds on
hand available therefor at such time and (b) the amount of assets of the Issuer
remaining available for distribution to holders of the QUIPS. The holders of not
less than a majority in aggregate liquidation amount of the QUIPS have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee. Any holder of the QUIPS may institute a proceeding directly against
the Company to enforce its rights under the Guarantee without first instituting
a proceeding against the Issuer, the Guarantee Trustee or any other person or
entity. If the Company were to default on its obligation to pay amounts payable
under the QUIDS, the Issuer would lack funds for the payment of Distributions or
amounts payable on redemption of the QUIPS or otherwise, and, in such event,
holders of the QUIPS would not be able to rely upon the Guarantee for payment of
such amounts. Instead, in the event a Debenture Event of Default shall have
occurred and be continuing and such event is attributable to the failure of the
Company to pay interest on or principal of the QUIDS on the payment date on
which such payment is due and payable, then a holder of QUIPS may directly
institute a proceeding against the Company for enforcement of payment to such
holder of the interest on or principal of such QUIDS having a principal amount
equal to the aggregate liquidation preference of the QUIPS of such holder (a
"Direct Action"). In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of QUIPS under the Trust Agreement to
the extent of any payment made by the Company to such holder of QUIPS in such
Direct Action. Except as set forth herein, holders of QUIPS will not be able to
exercise directly any other remedy available to the holders of QUIDS or assert
directly any other rights in respect of the QUIDS. See "Description of
QUIPS--Enforcement of Certain Rights by Holders QUIPS", "Description of
Guarantee" and "Description of QUIDS--Debenture Events of Default". The Trust
Agreement provides that each holder of QUIPS by acceptance thereof agrees to the
provisions of the Guarantee and the Indenture.
Limited Voting Rights
Holders of QUIPS will generally have limited voting rights relating only to
the modification of the QUIPS and certain other matters described herein.
Holders of QUIPS will not be entitled to vote to appoint, remove or replace the
Property Trustee or the Delaware Trustee, which voting rights are vested
exclusively in the holder of the Common Securities except upon the occurrence of
certain events described herein. The Issuer Trustees (as defined below) and the
Company may
7
<PAGE>
amend the Trust Agreement without the consent of holders of QUIPS to ensure that
the Issuer will be classified for United States federal income tax purposes as a
grantor trust even if such action adversely affects the interests of such
holders. See "Description of QUIPS--Voting Rights; Amendment of the Trust
Agreement" and "--Removal of Issuer Trustees".
Trading Characteristics of QUIPS
The QUIPS have been approved for listing on the New York Stock Exchange,
subject to notice of issuance. The QUIPS may trade at prices that do not fully
reflect the value of accrued but unpaid interest with respect to the underlying
QUIDS. A holder of QUIPS that disposes of its QUIPS between record dates for
payments of Distributions (and consequently does not receive a Distribution from
the Issuer for the period prior to such disposition) will nevertheless be
required to include in income as ordinary income an amount equal to the accrued
but unpaid interest on the QUIDS through the date of disposition and to add such
amount to its adjusted tax basis in the QUIPS disposed of. Such holder will
recognize a capital loss to the extent the selling price (which may not fully
reflect the value of accrued but unpaid interest) is less than its adjusted tax
basis (which will include accrued but unpaid interest). Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes. See "Certain Federal Income Tax
Consequences--Sale or Redemption of QUIPS".
ATLANTIC CAPITAL I
The Issuer is a statutory business trust formed under Delaware law pursuant
to (i) the Amended and Restated Trust Agreement (the "Trust Agreement") executed
by the Company, as Depositor, The Bank of New York, as Property Trustee and The
Bank of New York (Delaware), as Delaware Trustee, and the Administrative
Trustees named therein, and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on June 20, 1996. The Issuer's business and affairs
are conducted by The Bank of New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee, and two individual Administrative Trustees who
are employees or officers of or affiliated with the Company (collectively, the
"Issuer Trustees"). The Issuer exists for the exclusive purposes of (i) issuing
and selling the QUIPS and Common Securities, (ii) using the proceeds from the
sale of QUIPS and Common Securities to acquire QUIDS issued by the Company and
(iii) engaging in only those other activities necessary, convenient or
incidental thereto. Accordingly, the QUIDS will be the sole assets of the
Issuer, and payments under the QUIDS and the Expense Agreement will be the sole
revenue of the Issuer. All of the Common Securities will be owned by the
Company. The Common Securities will rank pari passu, and payments will be made
thereon pro rata, with the QUIPS, except that upon the occurrence and
continuance of an Event of Default (as defined herein) under the Trust Agreement
resulting from a Debenture Event of Default (as defined herein) under the
Indenture, the rights of the Company as holder of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the QUIPS. See
"Description of QUIPS--Subordination of Common Securities". The Company will
acquire Common Securities in an aggregate liquidation amount equal to 3% of the
total capital of the Issuer. The Issuer has a term of 55 years, but may
terminate earlier as provided in the Trust Agreement. The principal executive
office of the Issuer is 6801 Black Horse Pike, Egg Harbor Township, New Jersey
08234-4130, Attention: Manager of Finance, and its telephone number is (609)
645-4655.
The Trust Agreement will be substantially in the form filed as an exhibit
to the Registration Statement of which this Prospectus forms a part. The Trust
Agreement will be qualified as an indenture under the Trust Indenture Act. The
Bank of New York, as Property Trustee, will act as sole indenture trustee under
the Trust Agreement for purposes of compliance with the Trust Indenture Act. The
Bank of New York will also act as trustee under the Guarantee and the Indenture
(each as defined herein). See "Description of Guarantee" and "Description of
QUIDS". The holder of the Common Securities, unless a Debenture Event of Default
has occurred and is continuing, or the holders of a majority in liquidation
preference of the QUIPS if any Debenture Event of Default has occurred and is
continuing, will be entitled to appoint, remove or replace the Property Trustee
and/or the Delaware Trustee. In no event will the holders of the QUIPS have the
right to vote to appoint, remove or replace the Administrative Trustees; such
voting rights are vested exclusively in the holder of the Common Securities. The
duties and obligations of each Issuer Trustee are governed by the Trust
Agreement. The Company will pay all fees and expenses related to the Issuer and
the offering of the QUIPS and will pay, directly or indirectly, all ongoing
costs, expenses and liabilities of the Issuer.
8
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
The Company was formed under the laws of New Jersey on April 28, 1924 by
merger and consolidation of several utility companies. The Company is engaged in
the generation, transmission, distribution, and sale of electric energy in the
southern part of New Jersey. The Company, which has a wholly owned subsidiary,
Deepwater Operating Company, is the principal subsidiary of Energy which is a
public utility holding company as defined in the Public Utility Holding Company
Act of 1935 and which has claimed exemption from substantially all of the
provisions of such Act. The other direct subsidiary of Energy is Atlantic Energy
Enterprises, Inc. Energy has recently entered into a merger agreement with DP&L.
See "Recent Developments."
The Company's principal office is located at 6801 Black Horse Pike, Egg
Harbor Township, New Jersey, 08232-4130, telephone 609-645-4100. The Company is
subject to regulation by the New Jersey Board of Public Utilities and the
Federal Energy Regulatory Commission. At December 31, 1995, the Company had over
473,000 customers and employed 1,455 persons, of which 622 were affiliated with
a national labor organization. With the exception of a municipal electric system
providing electric service within the municipal boundaries of the City of
Vineland, New Jersey, the Company supplies electric service to the southern
one-third of the State of New Jersey. The Company has qualified to do business
as a foreign corporation in the Commonwealth of Pennsylvania to enable it to
participate in the ownership and operation of generation and transmission
facilities located therein.
As of June 30, 1996, the Company had approximately $802,000,000 aggregate
principal amount of Senior Debt outstanding. Neither the Indenture, the
Guarantee nor the Trust Agreement will place any limitation on the amount of
secured or unsecured debt, including Senior Debt, that may be incurred by the
Company.
USE OF PROCEEDS
All of the proceeds from the sale of QUIPS will be invested by the Issuer
in QUIDS. The Company intends that the proceeds from the sale of such QUIDS will
be applied to the redemption and/or purchase of shares of the Company's
preferred stock and/or the repayment of short-term debt, including the
redemption of $5,000,000 aggregate liquidation value of the Company's $8.25
No Par Preferred Stock and $10,000,000 aggregate liquidation value of the
Company's 7.52% Cumulative Preferred Stock and the purchase pursuant to an
outstanding tender offer of shares of the Company's $7.80 No Par Preferred
Stock.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer will be
included in the consolidated financial statements of the Company. The QUIPS will
be presented as a separate line item in the consolidated balance sheet of the
Company and appropriate disclosures about the QUIPS, the Guarantee and the QUIDS
will be included in the notes to the consolidated financial statements.
SELECTED FINANCIAL INFORMATION
The following information is qualified by the detailed information and
financial statements included elsewhere in the Prospectus, including documents
incorporated by reference.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------- Twelve Months Ended
1991 1992 1993 1994 1995 June 30, 1996
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
(000) ...................... $ 808,482 $ 816,931 $ 865,799 $ 913,226 $ 953,779 $1,000,374
Net Income (000) ............ $ 107,428 $ 107,446 $ 109,026 $ 93,174 $ 98,752 $ 100,642
Ratio of Earnings to Fixed
Charges ..................... 3.41 3.55 3.37 3.05 3.16 3.18
Ratio of Earnings to Combined
Fixed Charges and Preferred
Dividend Requirements ...... 2.48 2.49 2.44 2.22 2.39 2.47
</TABLE>
9
<PAGE>
As of June 30, 1996
-----------------------------
Amount Percentage
(in thousands) (%)
-------------- ----------
Long Term Debt* ............................ 802,378 45.72%
Cumulative Preferred Stock:
Subject to Mandatory Redemption* .......... 125,000 7.12
Not Subject to Mandatory Redemption ....... 40,000 2.28
Common Equity .............................. 787,471 44.88
---------- -----
Total Capitalization ..................... 1,754,849 100.00%
========== ========
- ----------
* Includes current portion
DESCRIPTION OF QUIPS
Pursuant to the terms of the Trust Agreement, the Administrative Trustees
on behalf of the Issuer will issue the QUIPS and the Common Securities. The
QUIPS will represent preferred undivided beneficial interests in the assets of
the Issuer and the holders thereof will be entitled to a preference in certain
circumstances with respect to Distributions and amounts payable on redemption or
liquidation over the Common Securities, as well as other benefits as described
in the Trust Agreement. This summary of certain provisions of the QUIPS and the
Trust Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms, and the Trust
Indenture Act. Wherever particular defined terms of the Trust Agreement (as
supplemented or amended from time to time) are referred to herein, the
definitions of such defined terms are incorporated herein by reference. The form
of the Trust Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
General
The QUIPS will rank pari passu, and payments will be made thereon pro rata,
with the Common Securities except as described under "--Subordination of Common
Securities". Legal title to the QUIDS will be held by the Property Trustee in
trust for the benefit of the holders of the QUIPS and the Common Securities. The
Guarantee executed by the Company for the benefit of the holders of the QUIPS
will be a guarantee on a subordinated basis with respect to the QUIPS but will
not guarantee payment of Distributions or amounts payable on redemption or
liquidation of the QUIPS when the Issuer does not have funds on hand available
to make such payments. See "Description of Guarantee".
Distributions
The QUIPS represent undivided beneficial interests in the assets of the
Issuer, and Distributions on each QUIPS will be payable at the annual rate of %
of the stated Liquidation Amount of $25, payable quarterly in arrears on March
31, June 30, September 30 and December 31 of each year. Distributions will
accumulate from _____, 1996, the date of original issuance. The first
Distribution payment date for the QUIPS will be December 31, 1996. The amount of
Distributions payable in the first payment period will be computed on the basis
of days in a 360-day year. The amount of Distributions payable for any period
thereafter will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which Distributions are payable on the
QUIPS is not a Business Day, then payment of the Distributions payable on such
date will be made on the next succeeding day that is a Business Day (and without
any additional Distributions or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the date such payment was
originally payable (each date on which Distributions are payable in accordance
with the foregoing, a "Distribution Date"). A "Business Day" shall mean any day
other than a Saturday or a Sunday, or a day on which banking institutions in The
City of New York are authorized or required by law or executive order to remain
closed or a day on which the corporate trust office of the Property Trustee or
the Debenture Trustee (as defined herein) is closed for business.
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<PAGE>
The revenue of the Issuer available for distribution to holders of its
QUIPS will be limited to payments under the QUIDS in which the Issuer will
invest the proceeds from the issuance and sale of the QUIPS and the Common
Securities. See "Description of QUIDS". If the Company does not make interest
payments on the QUIDS, the Property Trustee will not have funds available to pay
Distributions on the QUIPS. The payment of Distributions (if and to the extent
the Issuer has funds legally available for the payment of such Distributions) is
guaranteed by the Company on a limited basis as set forth herein under
"Description of Guarantee".
Distributions on the QUIPS (other than distributions on a Redemption Date)
will be payable to the holders thereof as they appear on the register of the
Issuer on the relevant record dates, which, as long as the QUIPS remain in
book-entry form, will be the close of business one Business Day prior to the
relevant Distribution Date. Subject to any applicable laws and regulations and
the provisions of the Trust Agreement, each such payment will be made as
described under "--Book-Entry Issuance". In the event the QUIPS are not in
book-entry form, the relevant record date for the QUIPS shall be 15 days prior
to the relevant Distribution Date.
So long as no Debenture Event of Default under the Indenture has occurred
and is continuing, the Company has the right under the Indenture to defer the
payment of interest on the QUIDS at any time or from time to time for a period
not exceeding 20 consecutive quarters (each, an "Extension Period"), provided
that no Extension Period may extend beyond the Stated Maturity (as defined
below) of the QUIDS. As a consequence of any such extension, quarterly
Distributions on the QUIPS will be deferred by the Issuer during any such
Extension Period. Distributions to which holders of the QUIPS are entitled will
accumulate additional Distributions thereon at the rate per annum of % thereof,
compounded quarterly from the relevant payment date for such Distributions. The
term "Distributions" as used herein shall include any such additional
Distributions. During any such Extension Period, the Company may not, and may
not permit any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's Capital Stock or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank pari passu with or junior in interest
to the QUIDS or make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu or junior in interest to the QUIDS (other than (a)
dividends or distributions in Common Stock of the Company and (b) payments under
the Guarantee). Prior to the termination of any such Extension Period, the
Company may further extend the interest payment period, provided that no
Extension Period may exceed 20 consecutive quarters or extend beyond the Stated
Maturity (as defined below) of the QUIDS. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, the Company may elect to begin a new Extension Period. See "Description of
the QUIDS--Option to Extend Interest Payment Period" and "Certain Federal Income
Tax Consequences--Original Issue Discount".
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period of the QUIDS.
Redemption
Mandatory Redemption. Upon the repayment or redemption, in whole or in
part, of the QUIDS, whether at Stated Maturity (as defined below) or upon
earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption shall be applied by the Property Trustee to redeem a
Like Amount (as defined below) of the QUIPS and Common Securities, upon not less
than 30 nor more than 60 days notice prior to the date fixed for repayment or
redemption, at a redemption price (the "Redemption Price"), with respect to the
QUIPS, equal to the aggregate Liquidation Amount of such QUIPS plus accrued and
unpaid Distributions thereon to the date of redemption (the "Redemption Date").
If less than all of the QUIDS are to be repaid or redeemed on a Redemption Date,
then the proceeds from such repayment or redemption shall be allocated to the
redemption pro rata of the QUIPS and the Common Securities.
The Company will have the right to redeem the QUIDS (i) on or after , 2001,
in whole at any time or in part from time to time, at a redemption price equal
to the accrued and unpaid interest on the QUIDS so redeemed to the date fixed
for redemption, plus 100% of the principal amount thereof or (ii) at any time,
in whole (but not in part), upon the occurrence and continuation of a Special
Event, at a redemption price equal to the accrued and unpaid interest on the
QUIDS so redeemed to the date fixed for redemption, plus 100% of the principal
amount thereof, in each case subject to the further conditions described under
"Description of QUIDS--Redemption" and "Description of QUIDS--Optional
Redemption".
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<PAGE>
Special Event Redemption or Distribution of QUIDS. If a Special Event shall
occur and be continuing, the Company will have the right to redeem the QUIDS in
whole (but not in part) and thereby cause a mandatory redemption of the QUIPS in
whole (but not in part) at the Redemption Price within 90 days following the
occurrence of such Special Event. At any time, the Company will have the right
to terminate the Issuer and, after satisfaction of the liabilities of creditors
of the Issuer as provided by applicable law, cause the QUIDS to be distributed
to the holders of the QUIPS in liquidation of the Issuer. Under current United
States federal income tax law and interpretations and assuming, as expected, the
Issuer is treated as a grantor trust, a distribution of the QUIDS should not be
a taxable event to holders of the QUIPS. Should there be a change in law, a
change in legal interpretation, a Special Event or other circumstances, however,
the distribution could be a taxable event to holders of the QUIPS. See "Certain
Federal Income Tax Consequences--Distribution of QUIDS to Holders of QUIPS". If
the Company does not elect either option described above, the QUIPS will remain
outstanding until the repayment of the QUIDS, and in the event a Tax Event has
occurred and is continuing, Additional Sums (as defined below) may be payable on
the QUIDS. "Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Issuer on the
outstanding QUIPS and Common Securities shall not be reduced as a result of any
additional taxes, duties and other governmental charges to which the Issuer has
become subject as a result of a Tax Event.
If the Company elects to liquidate the Issuer and thereby causes the QUIDS
to be distributed to holders of the QUIPS in liquidation of the Issuer, the
Company shall have the right to shorten or extend the maturity of the QUIDS at
the time of such election, provided that it can extend the maturity only if
certain conditions are met at the time such election is made and at the time of
such extension. See "Description of QUIDS--General".
"Like Amount" means (i) with respect to a redemption of the QUIPS and the
Common Securities, the QUIPS and the Common Securities having a Liquidation
Amount (as defined below) equal to the principal amount of the QUIDS to be
contemporaneously redeemed in accordance with the Indenture allocated 3% to the
Common Securities and 97% to the QUIPS and the proceeds of which will be used to
pay the Redemption Price of such QUIPS and to redeem such Common Securities, and
(ii) with respect to a distribution of the QUIDS to holders of QUIPS and Common
Securities in connection with a dissolution or liquidation of the Issuer, the
QUIDS having a principal amount equal to the Liquidation Amount of the QUIPS or
the Common Securities, as the case may be, of the holder to whom such QUIDS are
distributed. "Liquidation Amount" means the stated amount of $25 per QUIPS or
Common Security. After the liquidation date fixed for any distribution of QUIDS
(i) the QUIPS will no longer be deemed to be outstanding, (ii) The Depository
Trust Company ("DTC") or its nominee, as the record holder of such QUIPS, will
receive a registered global certificate or certificates representing the QUIDS
to be delivered upon such distribution and (iii) any certificates representing
QUIPS not held by DTC or its nominee will be deemed to represent QUIDS having a
principal amount equal to the stated liquidation preference of such QUIPS, and
bearing accrued and unpaid interest in an amount equal to the accrued and unpaid
Distributions on such QUIPS until such certificates are presented to the
Administrative Trustees or their agent for transfer or reissuance.
There can be no assurance as to the market prices for the QUIPS or the
QUIDS that may be distributed in exchange for QUIPS if a dissolution and
liquidation of the Issuer were to occur. Accordingly, the QUIPS that an investor
may purchase, or the QUIDS that the investor may receive on dissolution and
liquidation of the Issuer, may trade at a discount to the price that the
investor paid to purchase QUIPS offered hereby.
Redemption Procedures
QUIPS redeemed on each Redemption Date shall be redeemed at the Redemption
Price with the applicable proceeds from the contemporaneous redemption or
payment at Stated Maturity (as defined below) of the QUIDS. Redemptions of the
QUIPS shall be made and the Redemption Price shall be payable on each Redemption
Date only to the extent that the Issuer has funds on hand available for the
payment of such Redemption Price. See also "--Subordination of Common
Securities".
If the Issuer gives a notice of redemption in respect of the QUIPS, then,
by 12:00 noon, New York City time, on the Redemption Date, to the extent funds
are available, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the
QUIPS. See "--Book-Entry Issuance". If the QUIPS are no longer in book-entry
form, the Issuer, to the extent funds are available, will irrevocably deposit
with the paying agent for the QUIPS funds sufficient to pay the applicable
Redemption Price and will give the paying agent irrevocable instructions and
authority to pay the Redemption Price to the holders thereof upon surrender of
their certificates evidencing the QUIPS. Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date for any QUIPS called
for redemption shall be payable to the holders of such
12
<PAGE>
QUIPS on the relevant record dates for the related Distribution Dates. If notice
of redemption shall have been given and funds deposited as required, then upon
the date of such deposit, all rights of the holders of such QUIPS so called for
redemption will cease, except the right of the holders of such QUIPS to receive
the Redemption Price, but without interest on such Redemption Price, and such
QUIPS will cease to be outstanding. In the event that any date fixed for
redemption of QUIPS is not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding day which is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day falls in the next calendar year, such payment
will be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on the date such payment was originally
payable. In the event that payment of the Redemption Price in respect of QUIPS
called for redemption is improperly withheld or refused and not paid either by
the Issuer or by the Company pursuant to the Guarantee as described under
"Description of Guarantee", Distributions on such QUIPS will continue to accrue
at the then applicable rate, from the Redemption Date originally established by
the Issuer for the QUIPS to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding QUIPS by tender, in the open market or by
private agreement.
If less than all of the QUIPS and Common Securities issued by the Issuer
are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount
of such QUIPS and Common Securities to be redeemed shall be allocated pro rata
among the QUIPS and the Common Securities. The particular QUIPS to be redeemed
shall be selected on a pro rata basis not more than 60 days prior to the
Redemption Date by the Property Trustee from the outstanding QUIPS not
previously called for redemption, by such method as the Property Trustee shall
deem fair and appropriate and which may provide for the selection for redemption
of portions (equal to $25 or an integral multiple of $25 in excess thereof) of
the liquidation preference of QUIPS of a denomination larger than $25. The
Property Trustee shall promptly notify the trust registrar in writing of the
QUIPS selected for redemption and, in the case of any QUIPS selected for partial
redemption, the liquidation preference thereof to be redeemed. For all purposes
of the Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of QUIPS shall relate, in the case of any QUIPS
redeemed or to be redeemed only in part, to the portion of the aggregate
liquidation preference of QUIPS which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of QUIPS to be redeemed at its
registered address. Unless the Issuer defaults in payment of the Redemption
Price, on and after the Redemption Date Distributions cease to accrue on such
QUIPS or portions thereof called for redemption.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, the QUIPS and the
Common Securities, as applicable, shall be made pro rata based on the
Liquidation Amount of such QUIPS and Common Securities; provided, however, that
if on any Distribution Date or Redemption Date a Debenture Event of Default
shall have occurred and be continuing, no payment of any Distribution on, or
Redemption Price of, any of the Common Securities, and no other payment on
account of the redemption, liquidation or other acquisition of such Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions on all of the outstanding QUIPS for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
Redemption Price the full amount of such Redemption Price on all of the
outstanding QUIPS then called for redemption, shall have been made or provided
for, and all funds available to the Property Trustee shall first be applied to
the payment in full in cash of all Distributions on, or Redemption Price of, the
QUIPS then due and payable.
In the case of any Event of Default resulting from a Debenture Event of
Default, the Company as holder of the Common Securities will be deemed to have
waived any right to act with respect to any such Event of Default under the
Trust Agreement until the effect of all such Events of Default with respect to
the QUIPS have been cured, waived or otherwise eliminated. Until any such Events
of Default under the Trust Agreement with respect to the QUIPS have been so
cured, waived or otherwise eliminated, the Property Trustee shall act solely on
behalf of the holders of the QUIPS and not on behalf of the Company as holder of
the Common Securities, and only the holders of the QUIPS will have the right to
direct the Property Trustee to act on their behalf.
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<PAGE>
Liquidation Distribution Upon Termination
Pursuant to the Trust Agreement, the Issuer shall automatically terminate
upon expiration of its term and shall terminate on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Company; (ii)
the distribution of a Like Amount of the QUIDS to the holders of the QUIPS and
Common Securities, if the Company, as Depositor, has given written direction to
the Property Trustee to terminate the Issuer (which direction is optional and
wholly within the discretion of the Company, as Depositor); (iii) the redemption
of all of the QUIPS in connection with the redemption of all of the QUIDS and
(iv) the entry by a court of competent jurisdiction of an order for the
dissolution of the Issuer.
If an early termination occurs as described in clause (i), (ii) or (iv)
above, the Issuer shall be liquidated by the Issuer Trustees as expeditiously as
the Issuer Trustees determine to be possible by distributing, after satisfaction
of liabilities to creditors of the Issuer as provided by applicable law, to the
holders of the QUIPS and Common Securities a Like Amount of the QUIDS, unless
such distribution is determined by the Property Trustee not to be practical, in
which event such holders will be entitled to receive out of the assets of the
Issuer available for distribution to holders, after satisfaction of liabilities
to creditors of the Issuer as provided by applicable law, an amount equal to, in
the case of holders of QUIPS, the aggregate of the liquidation preference plus
accrued and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"). If such Liquidation Distribution can be
paid only in part because the Issuer has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Issuer on the QUIPS shall be paid on a pro rata basis. The holder(s) of
the Common Securities will be entitled to receive distributions upon any such
liquidation pro rata with the holders of the QUIPS, except that if a Debenture
Event of Default has occurred and is continuing, the QUIPS shall have a priority
over the Common Securities.
Events of Default; Notice
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the QUIPS issued
thereunder (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture (see
"Description of QUIDS--Debenture Events of Default"); or
(ii) default in the payment of any Distribution when it becomes due and
payable, and continuation of such default for a period of 30 days; or
(iii) default in the payment of any Redemption Price of any QUIPS or Common
Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Issuer Trustees in the Trust Agreement (other than a
covenant or warranty a default in the performance of which or the breach of
which is dealt with in clause (ii) or (iii) above), and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the defaulting Issuer Trustee or Trustees by
the holders of at least 25% in aggregate liquidation preference of the
outstanding QUIPS, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Issuer.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the QUIPS, the Administrative
Trustees and the Company, as Depositor, unless such Event of Default shall have
been cured or waived. The Company, as Depositor, and the Administrative Trustees
are required to file annually with the Property Trustee a certificate as to
whether or not they are in compliance with all the conditions and covenants
applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the QUIPS
shall have a preference over the Common Securities upon termination of the
Issuer as described above. See "--Liquidation Distribution Upon Termination".
The existence of an Event of Default does not entitle the holders of QUIPS to
accelerate the maturity thereof.
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Enforcement of Certain Rights by Holders of QUIPS
If an Event of Default has occurred and is continuing, then the holders of
QUIPS would rely on the enforcement by the Property Trustee of its rights as a
holder of the QUIDS against the Company. Notwithstanding the foregoing, if an
Event of Default has occurred and is continuing and such event is attributable
to the failure of the Company to pay interest or principal on the QUIDS on the
date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then a holder of QUIPS may directly
institute a proceeding against the Company for enforcement of payment to such
holder of the principal of or interest on the QUIDS having a principal amount
equal to the aggregate liquidation preference of the QUIPS of such holder (a
"Direct Action"). In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of QUIPS under the Trust Agreement to
the extent of any payment made by the Company to such holder of QUIPS in such
Direct Action.
Removal of Issuer Trustees
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a majority in Liquidation Amount of the outstanding QUIPS. In no
event will the holders of the QUIPS have the right to vote to appoint, remove or
replace the Administrative Trustees, which voting rights are vested exclusively
in the Company as the holder of the Common Securities. No resignation or removal
of an Issuer Trustee and no appointment of a successor trustee shall be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Trust Agreement.
Co-Trustees and Separate Property Trustee
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property may
at the time be located, the Company, as the holder of the Common Securities, and
the Administrative Trustees shall have power to appoint one or more persons
either to act as a co-trustee, jointly with the Property Trustee, of all or any
part of such Trust Property, or to act as separate trustee of any such property,
in either case with such powers as may be provided in the instrument of
appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the Trust Agreement. In case a Debenture Event of Default has
occurred and is continuing, the Property Trustee alone shall have power to make
such appointment.
Merger or Consolidation of Issuer Trustees
Any corporation into which the Property Trustee, the Delaware Trustee or
any Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of such Trustee, shall be the successor of such Trustee under the
Trust Agreement, provided such corporation shall be otherwise qualified and
eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Issuer
The Issuer may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. The Issuer may, at the request of the Company, with the consent
of the Administrative Trustees and without the consent of the holders of the
QUIPS, merge with or into, consolidate, amalgamate, be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to a
trust organized as such under the laws of any State; provided that (i) such
successor entity either (a) expressly assumes all of the obligations of the
Issuer with respect to the QUIPS or (b) substitutes for the QUIPS other
securities having substantially the same terms as the QUIPS (the "Successor
Securities") so long as the Successor Securities rank the same as the QUIPS rank
in priority with respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) the Company expressly appoints a trustee of such
successor entity possessing the same powers and duties as the Property Trustee
as the holder of the QUIDS, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the QUIPS are then
listed, if any, (iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does
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not cause the QUIPS (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
QUIPS (including any Successor Securities) in any material respect, (vi) such
successor entity has a purpose identical to that of the Issuer, (vii) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer, or
lease, the Company has received an opinion from independent counsel to the
Issuer experienced in such matters to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
QUIPS (including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Issuer nor such successor entity will be required
to register as an investment company under the Investment Company Act, (viii)
the Company or any permitted successor or assignee owns all of the Common
Securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee and (ix) such successor entity expressly assumes all of the
obligations of the Issuer with respect to the Trustees. Notwithstanding the
foregoing, the Issuer shall not, except with the consent of holders of 100% in
aggregate liquidation preference of the QUIPS, consolidate, amalgamate, merge
with or into, be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to any other entity or permit any other
entity to consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the Issuer or the successor entity to be classified as other than a
grantor trust for United States federal income tax purposes.
Voting Rights; Amendment of the Trust Agreement
Except as provided below and under "Description of Guarantee--Amendments
and Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the QUIPS will have no voting rights.
The Trust Agreement may be amended from time to time by the Company and the
Issuer Trustees, without the consent of the holders of the QUIPS (i) to cure any
ambiguity, correct or supplement any provisions in the Trust Agreement that may
be inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement that shall not
be inconsistent with the other provisions of the Trust Agreement, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as shall be necessary to ensure that the Issuer will be classified for United
States federal income tax purposes as a grantor trust at all times that any
QUIPS and Common Securities are outstanding or to ensure that the Issuer will
not be required to register as an "investment company" under the Investment
Company Act, provided, however, that such action shall not adversely affect in
any material respect the interests of any holder of QUIPS or Common Securities,
and any amendments of the Trust Agreement shall become effective when notice
thereof is given to the holders of QUIPS and Common Securities. The Trust
Agreement may be amended by the Issuer Trustees and the Company with (i) the
consent of holders representing not less than a majority (based upon Liquidation
Amounts) of the outstanding QUIPS and Common Securities and (ii) receipt by the
Issuer Trustees of an opinion of counsel to the effect that such amendment or
the exercise of any power granted to the Issuer Trustees in accordance with such
amendment will not affect the Issuer's status as a grantor trust for United
States federal income tax purposes or the Issuer's exemption from status of an
"investment company" under the Investment Company Act, provided, further that
without the consent of each holder of QUIPS and Common Securities affected
thereby, the Trust Agreement may not be amended to (i) change the amount or
timing of any Distribution on the QUIPS and Common Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the QUIPS and Common Securities as of a specified date or (ii) restrict the
right of a holder of QUIPS or Common Securities to institute suit for the
enforcement of any such payment on or after such date.
So long as any QUIDS are held by the Property Trustee, the Issuer Trustees
shall not (i) direct the time, method and place of conducting any proceeding for
any remedy available to the Debenture Trustee or executing any trust or power
conferred on the Property Trustee with respect to such QUIDS, (ii) waive any
past default that is waiveable under Section 5.13 of the Indenture, (iii)
exercise any right to rescind or annul a declaration that the principal of all
the QUIDS shall be due and payable or (iv) consent to any amendment,
modification or termination of the Indenture or such QUIDS, where such consent
shall be required, without, in each case, obtaining the prior approval of the
holders of a majority in aggregate liquidation preference of all outstanding
QUIPS; provided, however, that where a consent under the Indenture would require
the consent of each holder of QUIDS affected thereby, no such consent shall be
given by the Property Trustee without the prior consent of each holder of QUIPS.
The Issuer Trustees shall not revoke any action previously authorized or
approved by a vote of the holders of the QUIPS except pursuant to a subsequent
vote of the holders of the QUIPS. The Property
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Trustee shall notify each holder of record of the QUIPS of any notice of default
which it receives with respect to the QUIDS. In addition to obtaining the
foregoing approvals of the holders of the QUIPS, prior to taking any of the
foregoing actions, the Issuer Trustees shall receive an opinion of counsel
experienced in such matters to the effect that the Issuer will not be classified
as other than a grantor trust for United States federal income tax purposes on
account of such action.
Any required approval of holders of QUIPS may be given at a meeting of
holders of QUIPS convened for such purpose or pursuant to written consent. The
Property Trustee will cause a notice of any meeting at which holders of QUIPS
are entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be given to each holder of record of QUIPS in
the manner set forth in the Trust Agreement.
No vote or consent of the holders of QUIPS will be required for the Issuer
to redeem and cancel its QUIPS in accordance with the Trust Agreement.
Notwithstanding that holders of QUIPS are entitled to vote or consent under
any of the circumstances described above, any of the QUIPS that are owned by the
Company, the Issuer Trustees or any affiliate of the Company or any Issuer
Trustees, shall, for purposes of such vote or consent, be treated as if they
were not outstanding.
Payment and Paying Agency
Payments in respect of the QUIPS shall be made to DTC, which shall credit
the relevant accounts at DTC on the applicable Distribution Dates or, if the
QUIPS are not held by DTC, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall appear on the
Register. The paying agent (the "Paying Agent") shall initially be the Property
Trustee and any co-paying agent chosen by the Property Trustee and acceptable to
the Administrative Trustees and the Company. The Paying Agent shall be permitted
to resign as Paying Agent upon 30 days' written notice to the Property Trustee
and the Company. In the event that the Property Trustee shall no longer be the
Paying Agent, the Administrative Trustees shall appoint a successor (which shall
be a bank or trust company acceptable to the Administrative Trustees and the
Company) to act as Paying Agent.
Book-Entry Issuance
DTC will act as securities depositary for all of the QUIPS. The QUIPS will
be issued only as fully-registered securities registered in the name of Cede &
Co. (DTC's nominee). One or more fully-registered global certificates will be
issued for the QUIPS, representing in the aggregate the total number of QUIPS,
and will be deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain custodial relationships with Direct Participants, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of QUIPS within the DTC system must be made by or through Direct
Participants, which will receive a credit for the QUIPS on DTC's records. The
ownership interest of each actual purchaser of each QUIPS ("Beneficial Owner")
is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchases, but Beneficial Owners are expected to receive written confirmations
providing details of the transactions, as well as periodic statements of their
holdings, from the Direct or Indirect Participants through which the Beneficial
Owners purchased QUIPS. Transfers of ownership interests in the QUIPS are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in QUIPS, except in the event that use of the
book-entry system for the QUIPS of the Issuer is discontinued.
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DTC has no knowledge of the actual Beneficial Owners of the QUIPS; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such QUIPS are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Redemption notices shall be sent to Cede & Co. as the registered holder of
the QUIPS. If less than all of the QUIPS are being redeemed, DTC's current
practice is to determine by lot the amount of the interest of each Direct
Participant to be redeemed.
Although voting with respect to the QUIPS is limited to the holders of
record of the QUIPS, in those instances in which a vote is required, neither DTC
nor Cede & Co. will itself consent or vote with respect to QUIPS. Under its
usual procedures, DTC would mail an omnibus proxy (the "Omnibus Proxy") to the
Property Trustee as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts such QUIPS are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Distribution payments on the QUIPS will be made by the Property Trustee to
DTC. DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices and will be the responsibility of
such Participant and not of DTC, the Property Trustee, the Issuer or the
Company, subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment of Distributions to DTC is the responsibility of the
Property Trustee, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursements of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to any of the QUIPS at any time by giving reasonable notice to the
Property Trustee and the Company. In the event that a successor securities
depositary is not obtained, definitive QUIPS certificates representing such
QUIPS are required to be printed and delivered. The Company, at its option, may
decide to discontinue use of the system of book-entry transfers through DTC (or
a successor depositary). After a Debenture Event of Default, the holders of a
majority in liquidation preference of QUIPS may determine to discontinue the
system of book-entry transfers through DTC. In any such event, definitive
certificates for the QUIPS will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuer or the Company believe to be
accurate, but the Issuer and the Company assume no responsibility for the
accuracy thereof. None of the Issuer Trustees, the Issuer or the Company has any
responsibility for the performance by DTC or its Participants of their
respective obligations as described herein or under the rules and procedures
governing their respective operations.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for the
QUIPS.
Registration of transfers of QUIPS will be effected without charge by or on
behalf of the Issuer, but upon payment of any tax or other governmental charges
that may be imposed in connection with any transfer or exchange. The Issuer will
not be required (i) to register or cause to be registered the transfer or
exchange of the QUIPS during a period beginning at the opening of business 15
days before the day of the mailing of the relevant notice of redemption and
ending at the close of business on the day of mailing of such notice of
redemption or (ii) to register or cause to be registered the transfer or
exchange of any QUIPS so selected for redemption, except in the case of any
QUIPS being redeemed in part, any portion thereof not to be redeemed.
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Information Concerning the Property Trustee
The Company and its affiliates utilize various of the banking services
offered by the Property Trustee. Such services include acting as a depositary
and providing lines of credit. In addition, the Property Trustee acts as
indenture trustee under the Mortgage and Deed of Trust dated January 13, 1937
under which the Company's First Mortgage Bonds are issued.
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of QUIPS unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby. If no Event of Default has occurred and is continuing and the
Property Trustee is required to decide between alternative causes of action,
construe ambiguous provisions in the Trust Agreement or is unsure of the
application of any provision of the Trust Agreement, and the matter is not one
on which holders of QUIPS are entitled under the Trust Agreement to vote, then
the Property Trustee may, but shall be under no duty to, take such action as is
directed by the Company and, if not so directed, shall take such action as it
deems advisable and in the best interests of the holders of the QUIPS and the
Common Securities and will have no liability except for its own bad faith,
negligence or willful misconduct.
Miscellaneous
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Issuer in such a way that the Issuer will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as other than a
grantor trust for United States federal income tax purposes and so that the
QUIDS will be treated as indebtedness of the Company for United States federal
income tax purposes. In this connection, the Company and the Administrative
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of the Issuer or the Trust Agreement, that the
Company and the Administrative Trustees determine in their discretion to be
necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the holders of the QUIPS.
Holders of the QUIPS have no preemptive or similar rights.
The Issuer may not borrow money nor issue debt nor mortgage or pledge any
of its assets.
DESCRIPTION OF QUIDS
The QUIDS are to be issued under a Junior Subordinated Indenture (the
"Indenture"), between the Company and The Bank of New York, as trustee (the
"Debenture Trustee"). This summary of certain terms and provisions of the QUIDS
and the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Indenture, the form of which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part, and to the Trust Indenture Act. Whenever particular defined terms of the
Indenture are referred to herein, such defined terms are incorporated herein by
reference.
General
Concurrently with the issuance of the QUIPS, the Issuer will invest the
proceeds thereof and the consideration paid by the Company for the Common
Securities in the QUIDS issued by the Company. The QUIDS will be in the
principal amount equal to the aggregate stated Liquidation Amount of the QUIPS
plus the Company's concurrent investment in the Common Securities. The QUIDS
will bear interest at the annual rate of % of the principal amount thereof,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year (each, an "Interest Payment Date"), commencing December 31, 1996,
to the person in whose name each QUIDS is registered, subject to certain
exceptions, at the close of business on the Business Day next preceding such
Interest Payment Date (other than interest payable on a Redemption Date or the
maturity date). In the event the QUIDS are not in book-entry form, the relevant
record date for the QUIDS shall be the fifteenth day of the month in which
occurs the relevant Interest Payment Date. It is anticipated that, until the
liquidation,
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if any, of the Issuer, each QUIDS will be held in the name of the Property
Trustee in trust for the benefit of the holders of the QUIPS and the Common
Securities. The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. In the event that any date
on which interest is payable on the QUIDS is not a Business Day, then payment of
the interest payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on the date such
payment was originally payable. Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate per annum of % thereof,
compounded quarterly. The term "interest" as used herein shall include quarterly
interest payments, interest on quarterly interest payments not paid on the
applicable Interest Payment Date and Additional Sums (as defined below), as
applicable.
The QUIDS will mature on _____, 2026, which date may be extended at any
time at the election of the Company for one or more periods, but in no event to
a date later than _____, 2045 (such date, as it may be so extended, the "Stated
Maturity"), provided that at the time such election is made and at the time of
extension (i) the Company is not in bankruptcy, otherwise insolvent or in
liquidation, (ii) the Company is not in default in the payment of any interest
or principal on the QUIDS, (iii) the Issuer is not in arrears on payments of
Distributions on the QUIPS and no deferred Distributions are accumulated, (iv)
the QUIDS are rated not less than BBB- by Standard & Poor's or Baa3 by Moody's
Investors Service, Inc. or the equivalent by any other nationally recognized
statistical rating organization and (v) the extended Stated Maturity is no later
than the 49th anniversary of the initial issuance of the QUIPS; provided,
however, that, if the Company exercises its right to liquidate the Issuer and
distribute the QUIDS, effective upon such exercise the Stated Maturity of the
QUIDS may be changed to any date elected by the Company that is (i) no earlier
than the date five years after the initial issuance of the QUIPS and (ii) no
later than the date 30 years (plus an extended term of up to an additional 19
years if the above-referenced conditions are satisfied) after the date of the
initial issuance of the QUIPS.
The QUIDS will be unsecured and will rank junior and be subordinate in
right of payment to all Senior Debt (as defined below) of the Company. See
"Description of QUIDS--Subordination". The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
whether under the Indenture or any existing or other indenture that the Company
may enter into in the future or otherwise. See "--Subordination".
Option to Extend Interest Payment Period
So long as no Event of Default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture to defer the payment
of interest at any time or from time to time for a period not exceeding 20
consecutive quarters with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity of the QUIDS. At the end
of such Extension Period, the Company must pay all interest then accrued and
unpaid (together with interest thereon at the annual rate of ______%, compounded
quarterly, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of QUIDS (or holders of
QUIPS while the QUIPS are outstanding) will be required to accrue interest
income for United States federal income tax purposes. See "Certain Federal
Income Tax Consequences--Original Issue Discount".
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's Capital Stock or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank pari passu with or junior in interest
to the QUIDS or make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu or junior in interest to the QUIDS (other than (a)
dividends or distributions in common stock of the Company and (b) payments under
the Guarantee). Prior to the termination of any such Extension Period, the
Company may further extend the interest payment period, provided that no
Extension Period may exceed 20 consecutive quarters or extend beyond the Stated
Maturity of the QUIDS. Upon the termination of any such Extension Period and the
payment of all amounts then due on any Interest Payment Date, the Company may
elect to begin a new Extension Period subject to the above requirements. No
interest shall be due and payable during an Extension Period, except at the end
thereof. The Company must give the Property Trustee, the Administrative Trustees
and the Debenture Trustee notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the QUIPS would have been payable except for the election to begin such
Extension Period or (ii) the date the Administrative Trustees are
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required to give notice to the Nasdaq National Market or other applicable
self-regulatory organization or to holders of such QUIPS of the record date or
the date such Distributions are payable, but in any event not less than one
Business Day prior to such record date. The Property Trustee shall give notice
of the Company's election to begin a new Extension Period to the holders of the
QUIPS.
Certain Covenants of the Company
The Company will covenant in the Indenture that if and so long as (i) the
Issuer is the holder of all QUIDS, (ii) a Tax Event in respect of the Issuer has
occurred and is continuing and (iii) the Company has not exercised its right to
(x) redeem the QUIDS or (y) terminate the Issuer, the Company will pay to the
Issuer Additional Sums (as defined herein) in respect of the QUIPS and the
Common Securities, subject to the conditions described under "Description of
QUIPS--Redemption--Special Event Redemption or Distribution of QUIDS". The
Company will also covenant that it will not, and will not permit any subsidiary
of the Company to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
the Company's Capital Stock or (ii) make any payment of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities of the
Company that rank pari passu with or junior in interest to the QUIDS or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
or junior in interest to the QUIDS (other than (a) dividends or distributions in
common stock of the Company and (b) payments under the Guarantee) if at such
time (i) there shall have occurred any event of which the Company has actual
knowledge that (a) with the giving of notice or the lapse of time, or both,
would constitute an "Event of Default" under the Indenture with respect to QUIDS
and (b) in respect of which the Company shall not have taken reasonable steps to
cure, (ii) the Company shall be in default with respect to its payment of any
obligations under the Guarantee or (iii) the Company shall have given notice of
its election of an Extension Period as provided in the Indenture and shall not
have rescinded such notice, or such Extension Period, or any extension thereof,
shall be continuing. The Company will also covenant (i) to maintain directly or
indirectly 100% ownership of the Common Securities of the Issuer, provided that
certain successors which are permitted pursuant to the Indenture may succeed to
the Company's ownership of the Common Securities, (ii) not to voluntarily
terminate, wind-up or liquidate the Issuer, except (a) in connection with a
distribution of QUIDS to the holders of the QUIPS in liquidation of the Issuer
or (b) in connection with certain mergers, consolidations or amalgamations
permitted by the Trust Agreement, and (iii) to use its reasonable efforts,
consistent with the terms and provisions of the Trust Agreement, to cause the
Issuer to remain classified as a grantor trust and not as an association taxable
as a corporation for United States federal income tax purposes.
Redemption
The QUIDS are redeemable prior to maturity at the option of the Company (i)
on or after ______, 2001, in whole at any time or in part from time to time, at
a redemption price equal to the accrued and unpaid interest on the QUIDS so
redeemed to the date fixed for redemption, plus 100% of the principal amount
thereof or (ii) at any time in whole (but not in part), within 90 days of the
occurrence of a Special Event, at a redemption price equal to the accrued and
unpaid interest on the QUIDS so redeemed to the date fixed for redemption, plus
100% of the principal amount thereof.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of QUIDS to be redeemed at its
registered address. Unless the Company defaults in payment of the redemption
price, on and after the redemption date interest ceases to accrue on such QUIDS
or portions thereof called for redemption.
Distributions of QUIDS
Under certain circumstances involving the termination of the Issuer, QUIDS
may be distributed to the holders of the QUIPS in liquidation of the Issuer
after satisfaction of liabilities to creditors of the Issuer as provided by
applicable law. If distributed to holders of QUIPS in liquidation, the QUIDS
will initially be issued in the form of one or more global securities and DTC,
or any successor depositary for the QUIPS, will act as depositary for the QUIDS.
It is anticipated that the depositary arrangements for the QUIDS would be
substantially identical to those in effect for the QUIPS. If the QUIDS are
distributed to the holders of QUIPS upon the liquidation of the Issuer, the
Company will use its best efforts to list the QUIDS on the New York Stock
Exchange or such other stock exchanges, if any, on which the QUIPS are then
listed. There can be no assurance as to the market price of any QUIDS that may
be distributed to the holders of QUIPS. For a description of DTC and the terms
of the depositary matters, see "Description of QUIPS--Book-Entry Issuance".
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Global QUIDS
The QUIDS may be issued in whole or in part in the form of a Global QUIDS
that will be deposited with, or on behalf of, a depositary (the "Depositary").
Global QUIDS may be issued only in fully registered form and in either temporary
or permanent form. Unless and until it is exchanged in whole or in part for the
individual QUIDS represented thereby, a Global QUIDS may not be transferred
except as a whole by the Depositary for such Global QUIDS to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by the Depositary or any nominee to a successor
Depositary or any nominee of such successor.
Upon the issuance of a Global QUIDS and the deposit of such Global QUIDS
with or on behalf of the Depositary, the Depositary for such Global QUIDS or its
nominee will credit on its book-entry registration and transfer system the
respective principal amounts of the individual QUIDS represented by such Global
QUIDS to the accounts of persons that have accounts with such Depositary
("Participants"). Such accounts shall be designated by the dealers, underwriters
or agents with respect to such QUIDS or by the Company if such QUIDS are offered
and sold directly by the Company. Ownership of beneficial interests in a Global
QUIDS will be limited to Participants or persons that may hold interests through
Participants. Ownership of beneficial interests in such Global QUIDS will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the applicable Depositary or its nominee (with respect to
interests of Participants) and the records of Participants (with respect to
interests of persons who hold through Participants). The laws of some states
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 transfer beneficial interests in a Global QUIDS.
So long as the Depositary for a Global QUIDS, or its nominee, is the
registered owner of such Global QUIDS, such Depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the QUIDS
represented by such Global QUIDS for all purposes under the Indenture governing
such QUIDS. Except as provided below, owners of beneficial interests in a Global
QUIDS will not be entitled to have any of the individual QUIDS of the series
represented by such Global QUIDS registered in their names, will not receive or
be entitled to receive physical delivery of any such QUIDS of such series in
definitive form and will not be considered the owners or holders thereof under
the Indenture.
Payments of principal of and premium, if any, and interest on individual
QUIDS represented by a Global QUIDS registered in the name of a Depositary or
its nominee will be made to the Depositary or its nominee, as the case may be,
as the registered owner of the Global QUIDS representing such QUIDS. None of the
Company, the Debenture Trustee, any Paying Agent or the Securities Registrar for
such QUIDS will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Global QUIDS representing such QUIDS or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal, premium, if any, or interest in respect of a permanent
Global QUIDS representing any of such QUIDS, immediately will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of such Global QUIDS
representing such QUIDS as shown on the records of such Depositary or its
nominee. The Company also expects that payments by Participants to owners of
beneficial interests in such Global QUIDS held through such Participants will be
governed by standing 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". Such payments will be the responsibility of such Participants.
If the Depositary is at any time unwilling, unable or ineligible to
continue as depositary and a successor depositary is not appointed by the
Company within 90 days, the Company will issue individual QUIDS in exchange for
the Global QUIDS representing such QUIDS. In addition, the Company may at any
time and in its sole discretion, determine not to have any QUIDS represented by
one or more Global QUIDS and, in such event, will issue individual QUIDS in
exchange for the Global QUIDS representing such QUIDS. Further, if the Company
so specifies with respect to the QUIDS, an owner of a beneficial interest in a
Global QUIDS representing QUIDS may, on terms acceptable to the Company, the
Debenture Trustee and the Depositary for such Global QUIDS, receive individual
QUIDS in exchange for such beneficial interests. In any such instance, an owner
of a beneficial interest in a Global QUIDS will be entitled to physical delivery
of individual QUIDS of the series represented by such Global QUIDS equal in
principal amount to such beneficial interest and to have such QUIDS registered
in its name. Individual QUIDS so issued will be issued in denominations, unless
otherwise specified by the Company, of $25 and integral multiples thereof.
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Payment and Paying Agents
Payment of principal of and any interest on QUIDS will be made at the
office of the Debenture Trustee in the City of New York or at the office of such
Paying Agent or Paying Agents as the Company may designate from time to time,
except that at the option of the Company payment of any interest may be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Securities Register or by wire transfer. Payment of any interest
on QUIDS (other than interest payable on a Redemption Date or the maturity date)
will be made to the Person in whose name such QUIDS is registered at the close
of business on the Regular Record Date for such interest, except in the case of
Defaulted Interest. The Company may at any time designate additional Paying
Agents or rescind the designation of any Paying Agent; however the Company will
at all times be required to maintain a Paying Agent in each Place of Payment.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Company in trust, for the payment of the principal of and
premium, if any, or interest on any QUIDS and remaining unclaimed for two years
after such principal and premium, if any, or interest has become due and payable
shall, at the request of the Company, be repaid to the Company and the holder of
such QUIDS shall thereafter look, as a general unsecured creditor, only to the
Company for payment thereof.
Registration and Transfer of QUIDS
A global security shall be exchangeable for QUIDS registered in the names
of persons other than DTC or its nominee only if (i) DTC notifies the Company
that it is unwilling or unable to continue as a depository for such global
security and no successor depository shall have been appointed, or if at any
time DTC ceases to be a clearing agency registered under the Securities Exchange
Act of 1934, as amended, (ii) the Company in its sole discretion determines that
such global security shall be so exchangeable, or (iii) there shall have
occurred and be continuing an Event of Default with respect to such global
security. Any global security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for definitive certificates registered in such
names as DTC shall direct. It is expected that such instructions will be based
upon directions received by DTC from its Participants with respect to ownership
of beneficial interests in such global security. In the event that QUIDS are
issued in definitive form, such QUIDS will be in denominations of $25 and
integral multiples thereof and may be transferred or exchanged at the offices
described below. Payments on QUIDS represented by a global security will be made
to DTC, as the Depositary for the QUIDS. In the event QUIDS are issued in
definitive form, principal and interest will be payable, the transfer of the
QUIDS will be registrable, and QUIDS will be exchangeable for QUIDS of other
denominations of a like aggregate principal amount, at the corporate office of
the Debenture Trustee in New York, New York or at the offices of any paying
agent or transfer agent appointed by the Company, provided that payment of
interest may be made at the option of the Company by check mailed to the address
of the persons entitled thereto or by wire transfer. In addition, if the QUIDS
are issued in certificated form, the record dates for payment of interest will
be the 15th day of the last month of each calendar quarter. For a description of
DTC and the terms of the depositary arrangements relating to payments,
transfers, voting rights, redemptions and other notices and other matters, see
"Description of QUIPS--Book-Entry Issuance".
QUIDS may be presented for exchange as provided above, and may be presented
for registration of transfer (with the form of transfer endorsed thereon, or a
satisfactory written instrument of transfer, duly executed), at the office of
the appropriate Securities Registrar or at the office of any transfer agent
designated by the Company for such purpose with respect to the QUIDS, without
service charge and upon payment of any taxes and other governmental charges as
described in the Indenture. The Company will appoint the Debenture Trustee as
Securities Registrar under the Indenture. The Company may at any time rescind
the designation of any transfer agent or approve a change in the location
through which any transfer agent acts, provided that the Company maintains a
transfer agent in each Place of Payment. The Company may at any time designate
additional transfer agents with respect to the QUIDS.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
QUIDS during a period beginning at the opening of business 15 days before the
day of the mailing of the relevant notice of redemption and ending at the close
of business on the day of mailing of such notice of redemption or (ii) transfer
or exchange any QUIDS so selected for redemption, except, in the case of any
QUIDS being redeemed in part, any portion thereof not to be redeemed.
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Modification of Indenture
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of the QUIDS, amend, waive or supplement the Indenture
for specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies (provided that any such action does not materially
adversely affect the interest of the holders of QUIDS) and qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act.
The Indenture contains provisions permitting the Company and the Debenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of outstanding QUIDS affected, to modify the Indenture in a
manner affecting the rights of the holders of such QUIDS; provided that no such
modification may, without the consent of the holder of each outstanding QUIDS so
affected, (i) change the stated maturity of QUIDS, or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon (except such change or extension as is contemplated hereby) or (ii)
reduce the percentage of principal amount of QUIDS, the holders of which are
required to consent to any such modification of the Indenture, provided that, so
long as any QUIPS remain outstanding, no such modification may be made that
adversely affects the holders of such QUIPS in any material respect, and no
termination of the Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Indenture may be effective,
without the prior consent of the holders of at least a majority of the aggregate
liquidation preference of the QUIPS unless and until the principal of the QUIDS
and all accrued and unpaid interest thereon have been paid in full and certain
other conditions are satisfied.
Debenture Events of Default
The Indenture provides that any one or more of the following described
events with respect to the QUIDS that has occurred and is continuing constitutes
a "Debenture Event of Default" with respect to the QUIDS:
(i) failure for 30 days to pay any interest on the QUIDS, when due (subject
to the deferral of any due date in the case of an Extension Period); or
(ii) failure to pay any principal on the QUIDS when due whether at
maturity, upon redemption by declaration or otherwise, provided, however, that a
change or an extension of the maturity of the QUIDS in accordance with the terms
of the Indenture shall not constitute a Debenture Event of Default; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to the
Company from the Debenture Trustee or the holders of at least 25% in aggregate
outstanding principal amount of outstanding QUIDS; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of
QUIDS have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee. The Debenture
Trustee or the holders of not less than 25% in aggregate outstanding principal
amount of QUIDS may declare the principal due and payable immediately upon a
Debenture Event of Default, and, should the Debenture Trustee or such holders of
such QUIDS fail to make such declaration, the holders of at least 25% in
aggregate liquidation preference of the QUIPS shall have such right. The holders
of a majority in aggregate outstanding principal amount of QUIDS may annul such
declaration and waive the default if the default (other than the non-payment of
the principal of QUIDS which has become due solely by such acceleration) has
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Debenture Trustee, and should the holders of such QUIDS fail to annul such
declaration and waive such default, the holders of a majority in aggregate
liquidation preference of the QUIPS shall have such right.
The holders of a majority in aggregate outstanding principal amount of the
QUIDS affected thereby may, on behalf of the holders of all the QUIDS, waive any
past default, except a default in the payment of principal or interest (unless
such default has been cured and a sum sufficient to pay all matured installments
of interest and principal due otherwise than by acceleration has been deposited
with the Debenture Trustee) or a default in respect of a covenant or provision
which under the Indenture cannot be modified or amended without the consent of
the holder of each outstanding QUIDS, and should the holders of such QUIDS fail
to annul such declaration and waive such default, the holders of a majority in
aggregate liquidation preference of the QUIPS shall have such right. The Company
is required to file annually with the Debenture Trustee a certificate as to
whether or not the Company is in compliance with all the conditions and
covenants applicable to it under the Indenture.
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In case a Debenture Event of Default shall occur and be continuing, the
Property Trustee will have the right to declare the principal of and the
interest on such QUIDS and any other amounts payable under the Indenture, to be
forthwith due and payable and to enforce its other rights as a creditor with
respect to such QUIDS.
Enforcement of Certain Rights by Holders of QUIPS
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or principal
on the QUIDS on the date such interest or principal is otherwise payable, a
holder of QUIPS may institute a Direct Action for payment. The Company may not
amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the QUIPS.
Notwithstanding any payment made to such holder of QUIPS by the Company in
connection with a Direct Action, the Company shall remain obligated to pay the
principal of or interest on the QUIDS held by the Issuer or the Property Trustee
and the Company shall be subrogated to the rights of the holder of such QUIPS
with respect to payments on the QUIPS to the extent of any payments made by the
Company to such holder in any Direct Action. The holders of QUIPS will not be
able to exercise directly any other remedy available to the holders of the
QUIDS.
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, unless (i) in case the Company
consolidates with or merges into another Person or conveys, transfers or leases
its properties and assets substantially as an entirety to any Person, the
successor Person is organized under the laws of the United States or any state
or the District of Columbia, and such successor Person expressly assumes the
Company's obligations on the QUIDS issued under the Indenture; (ii) immediately
after giving effect thereto, no Debenture Event of Default, and no event which,
after notice or lapse of time or both, would become a Debenture Event of
Default, shall have happened and be continuing; (iii) if at the time any QUIPS
are outstanding, such transaction is permitted under the Trust Agreement or
Guarantee and does not give rise to any breach or violation of the Trust
Agreement and Guarantee, (iv) any such lease shall provide that it will remain
in effect so long as any QUIDS are outstanding, and (v) certain other conditions
as prescribed in the Indenture are met.
The general provisions of the Indenture do not afford holders of the QUIDS
protection in the event of a highly leveraged or other transaction involving the
Company that may adversely affect holders of the QUIDS.
Satisfaction and Discharge
Under the terms of the Indenture, the Company will be discharged from any
and all obligations in respect of the QUIDS (except in each case to register the
transfer or exchange of the QUIDS, replace stolen, lost or mutilated QUIDS,
maintain paying agencies and hold moneys for payment in trust) if the Company
deposits with the Debenture Trustee, in trust, moneys or Government Obligations
(as defined in the Indenture), or a combination thereof, in an amount sufficient
to pay all the principal of, and interest on, the QUIDS on the dates such
payments are due in accordance with the terms of the QUIDS. Such defeasance or
discharge may occur only if, among other things, the Company has delivered to
the Debenture Trustee an Opinion of Counsel to the effect that the holders of
the QUIDS will not recognize gain, loss or income for federal income tax
purposes as a result of the satisfaction and discharge of the Indenture and such
holders will be subject to federal income taxation on the same amounts and in
the same manner and at the same times as if such satisfaction and discharge had
not occurred.
Subordination
In the Indenture, the Company has covenanted and agreed that any QUIDS
issued thereunder will be subordinate and junior in right of payment to all
Senior Debt to the extent provided in the Indenture. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution,
winding-up, reorganization, assignment for the benefit of creditors, marshaling
of assets or any bankruptcy, insolvency, debt restructuring or similar
proceedings in connection with any insolvency or bankruptcy proceeding of the
Company, the holders of Senior Debt will first be entitled to receive payment in
full of principal of and premium, if any, and interest, if any, on such Senior
Debt before the holders of QUIDS or the Property Trustee on behalf of the
holders of QUIPS will be entitled to receive or retain any payment in respect of
the principal of and premium, if any, or interest, if any, on the QUIDS.
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In the event of the acceleration of the maturity of any QUIDS, the holders
of all Senior Debt outstanding at the time of such acceleration will first be
entitled to receive payment in full of all amounts due thereon (including any
amounts due upon acceleration) before the holders of QUIDS will be entitled to
receive or retain any payment in respect of the principal of or premium, if any,
or interest, if any, on the QUIDS.
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the QUIDS may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Debt, or an event of
default with respect to any Senior Debt resulting in the acceleration of the
maturity thereof, or if any judicial proceeding shall be pending with respect to
any such default.
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; and (vi) every
guarantee of or responsibility or liability for, direct or indirect, as obligor
or otherwise of (a) any obligation of the types referred to in clauses (i)
through (v) of another Person or (b) the payment of any dividends of another
Person.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the QUIDS or to other Debt which is pari passu
with, or subordinated to, the QUIDS; provided, however, that Senior Debt shall
not be deemed to include (i) any Debt of the Company which when incurred and
without respect to any election under Section 1111 (b) of the Bankruptcy Code,
was without recourse to the Company, (ii) any Debt of the Company to any of its
subsidiaries, (iii) Debt to any employee of the Company, (iv) any liability for
taxes, and (v) indebtedness or monetary obligations to trade creditors or
assumed by the Company or any of its subsidiaries in the ordinary course of
business in connection with the obtaining of materials or services.
The Indenture places no limitation on the amount of additional Senior Debt
that may be incurred by the Company.
Governing Law
The Indenture and the QUIDS will be governed by and construed in accordance
with the laws of the State of New York.
Information Concerning the Debenture Trustee
The Company and its affiliates utilize various of the banking services
offered by the Debenture Trustee. Such services include acting as a depositary
and providing lines of credit. In addition, the Debenture Trustee acts as
indenture trustee under the Mortgage and Deed of Trust dated January 13, 1937
under which the Company's First Mortgage Bonds are issued.
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of QUIDS, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance by the Issuer of the QUIPS for the benefit of the holders from
time to time of such QUIPS. The Bank of New York will act as indenture trustee
("Guarantee Trustee") under the Guarantee for the purposes of compliance with
the Trust Indenture Act and the Guarantee will be qualified as an Indenture
under the Trust Indenture Act. This summary of certain provisions of the
Guarantee does
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not purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Guarantee, including the definitions
therein of certain terms, and the Trust Indenture Act. The form of the Guarantee
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the QUIPS.
General
The Company will irrevocably and unconditionally agree to pay in full on a
subordinated basis, to the extent set forth herein, the Guarantee Payments (as
defined below) to the holders of the QUIPS, as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer may have or assert
other than the defense of payment. The following payments with respect to the
QUIPS, to the extent not paid by or on behalf of the Issuer (the "Guarantee
Payments"), will be subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on the QUIPS, to the extent that the Issuer
has funds on hand available therefor at the time, (ii) the Redemption Price with
respect to any QUIPS called for redemption to the extent that the Issuer has
funds on hand available therefor at such time, or (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of the Issuer (unless the
QUIDS are distributed to holders of the QUIPS), the lesser of (a) the
Liquidation Distribution to the extent that the Issuer has funds on hand
available therefor at such time and (b) the amount of assets of the Issuer
remaining available for distribution to holders of QUIPS. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Company to the holders of the applicable QUIPS or by
causing the Issuer to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Issuer's obligations under the QUIPS, but will apply only to the extent that
the Issuer has funds on hand available to make such payments, and is not a
guarantee of collection.
If the Company does not make interest payments on the QUIDS held by the
Issuer, the Issuer will not be able to pay Distributions on the QUIPS and will
not have funds legally available therefor. The Guarantee will rank subordinate
and junior in right of payment to all general liabilities of the Company. See
"--Status of the Guarantee". The Guarantee does not limit the incurrence or
issuance of other secured or unsecured debt of the Company, whether under the
Indenture or any existing or other indenture that the Company may enter into in
the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the QUIDS, the
Indenture and the Expense Agreement, taken together, fully, irrevocably and
unconditionally guaranteed all of the Issuer's obligations under the QUIPS. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Issuer's obligations under the
QUIPS. See "Relationship Among the QUIPS, the QUIDS and the Guarantee--General".
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all general liabilities
of the Company.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the holders of the QUIPS. The
Guarantee will not be discharged except by payment of the Guarantee Payments in
full to the extent not paid by the Issuer or upon distribution of the QUIDS to
the holders of the QUIPS in exchange for all of the QUIPS. The Guarantee does
not place a limitation on the amount of additional Senior Debt that may be
incurred by the Company.
Amendments and Assignment
Except with respect to any changes which do not materially adversely affect
the rights of holders of the QUIPS (in which case no vote will be required), the
Guarantee may not be amended without the prior approval of the holders of not
less than a majority of the aggregate liquidation preference of the outstanding
QUIPS. The manner of obtaining any such approval will be as set forth under
"Description of the QUIPS--Voting Rights; Amendment of the Trust Agreement". All
guarantees and
27
<PAGE>
agreements contained in the Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Company and shall inure to the
benefit of the holders of the QUIPS then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the QUIPS
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee.
Any holder of the QUIPS may institute a legal proceeding directly against
the Company to enforce its rights under the Guarantee without first instituting
a legal proceeding against the Issuer, the Guarantee Trustee or any other person
or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
Information Concerning the Guarantee Trustee
The Company and its affiliates utilize various of the banking services
offered by the Guarantee Trustee. Such services include acting as a depositary
and providing lines of credit. In addition, the Guarantee Trustee acts as
indenture trustee under the Mortgage and Deed of Trust dated January 13, 1937
under which the Company's First Mortgage Bonds are issued.
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in each Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Guarantee Trustee is under no obligation
to exercise any of the powers vested in it by the Guarantee at the request of
any holder of any QUIPS unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the QUIPS, upon full payment of the
amounts payable upon liquidation of the Issuer or upon distribution of QUIDS to
the holders of the QUIPS in exchange for all of the QUIPS. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the QUIPS must restore payment of any sums paid under the
QUIPS or the Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
The Expense Agreement
Pursuant to an Expense Agreement entered into by the Company under the
Trust Agreement (the "Expense Agreement"), the Company will irrevocably and
unconditionally guarantee to each person or entity to whom the Issuer becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the Issuer, other than obligations of the Issuer to pay to the holders of any
QUIPS or other similar interests in the Issuer the amounts due such holders
pursuant to the terms of the QUIPS or such other similar interests, as the case
may be.
RELATIONSHIP AMONG THE QUIPS,
THE QUIDS AND THE GUARANTEE
Payments of Distributions and other amounts due on the QUIPS (to the extent
the Issuer has funds available for the payment of such Distributions) are
irrevocably guaranteed by the Company as and to the extent set forth under
"Description of Guarantee". Taken together, the Company's obligations under the
QUIDS, the Indenture, the Trust Agreement, the Expense Agreement and the
Guarantee provide, in the aggregate, a full, irrevocable and unconditional
guarantee of payments of
28
<PAGE>
distributions and other amounts due on the QUIPS. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the Issuer's obligations under the QUIPS. If and to the extent that the
Company does not make payments on the QUIDS, the Issuer will not pay
Distributions or other amounts due on the QUIPS. The Guarantee does not cover
payment of Distributions when the Issuer does not have sufficient funds to pay
such Distributions. In such event, a holder of QUIPS may institute a legal
proceeding directly against the Company to enforce payment of such Distributions
to such holder after the respective due dates. The obligations of the Company
under the Guarantee are subordinate and junior in right of payment to all
general liabilities of the Company.
Sufficiency of Payments
As long as payments of interest and other payments are made when due on the
QUIDS, such payments will be sufficient to cover Distributions and other
payments due on the QUIPS, primarily because (i) the aggregate principal amount
of the QUIDS will be equal to the sum of the aggregate stated liquidation amount
of the QUIPS and the Common Securities; (ii) the interest rate and interest and
other payment dates on the QUIDS will match the Distribution rate and
Distribution and other payment dates for the related QUIPS; (iii) the Company
shall pay for all and any costs, expenses and liabilities of the Issuer except
the Issuer's obligations to holders of its QUIPS under the QUIPS; and (iv) the
Trust Agreement further provides that the Issuer will not engage in any activity
that is not consistent with the limited purposes of the Issuer.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
Enforcement Rights of Holders of QUIPS
A holder of QUIPS may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Guarantee Trustee, the Issuer or any other person
or entity.
A default or event of default under any Senior Debt of the Company will not
constitute a default or Event of Default under the Indenture. However, in the
event of payment defaults under, or acceleration of, Senior Debt of the Company,
the subordination provisions of the Indenture provide that no payments may be
made in respect of the QUIDS until such Senior Debt has been paid in full or any
payment default thereunder has been cured or waived. Failure to make required
payments on the QUIDS would constitute an Event of Default under the Indenture.
Limited Purpose of Issuer
The QUIPS evidence a beneficial interest in the Issuer, and the Issuer
exists for the sole purpose of issuing the QUIPS and the Common Securities and
investing the proceeds thereof in QUIDS. A principal difference between the
rights of a holder of a QUIPS and a holder of a QUIDS is that a holder of a
QUIDS is entitled to receive from the Company the principal amount of and
interest accrued on QUIDS held, while a holder of QUIPS is entitled to receive
Distributions from the Issuer (or from the Company under the Guarantee) if and
to the extent the Issuer has funds available for the payment of such
Distributions.
Rights Upon Termination
Upon any voluntary or involuntary termination, winding-up or liquidation of
the Issuer involving the liquidation of the QUIDS, the holders of the QUIPS will
be entitled to receive, out of assets held by the Issuer, the Liquidation
Distribution in cash. See "Description of QUIPS--Liquidation Distribution Upon
Termination". Upon any voluntary or involuntary liquidation or bankruptcy of the
Company, the Property Trustee, as holder of the QUIDS, would be a subordinated
creditor of the Company, subordinated in right of payment to all Senior Debt,
but entitled to receive payment in full of principal and interest before any
stockholders of the Company receive payments or distributions. Since the Company
is the guarantor under the Guarantee and has agreed to pay for all costs,
expenses and liabilities of the Issuer (other than the Issuer's obligations to
the holders of the QUIPS), the positions of a holder of QUIPS and a holder of
the QUIDS relative to other creditors and to stockholders of the Company in the
event of liquidation or bankruptcy of the Company would be substantially the
same.
29
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the principal United States federal income
tax consequences of the ownership of QUIPS. Unless otherwise stated, this
summary addresses QUIPS held as capital assets by United States Holders (defined
below) and does not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, insurance companies, persons
holding QUIPS as part of a hedging or conversion transaction or a straddle or
United States Holders whose "functional currency" is not the U.S. dollar. As
used herein, a "United States Holder" means a holder that is a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust the income of which is subject to
United States federal income taxation regardless of its source. Furthermore,
this summary only addresses the tax consequences to a United States Holder that
acquires QUIPS on their original issue at their original offering price.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Simpson Thacher & Bartlett, counsel to the Company and
the Issuer. This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations, rulings and judicial decisions thereunder
as of the date hereof, and such authorities may be repealed, revoked or modified
so as to result in federal income tax consequences different from those
discussed below. Such changes may be applied retroactively in a manner that
could cause the tax consequences to vary substantially from the consequences
described below, possibly adversely affecting a beneficial owner of QUIPS. In
particular, legislation has been proposed that could adversely affect the
Company's ability to deduct interest on the QUIDS, which may in turn permit the
Company to cause a redemption of the QUIPS. See "--Possible Tax Law Changes".
The authorities on which this summary is based are subject to various
interpretations and it is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of QUIPS may differ from
the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF QUIPS, AS WELL AS THE EFFECT OF
ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Classification of the Issuer
Under current law and assuming compliance with the terms of the Trust
Agreement and certain other documents, the Issuer will be classified as a
grantor trust and not as an association taxable as a corporation for United
States federal income tax purposes. As a result, each beneficial owner of QUIPS
(a "Securityholder") will be treated as owning an undivided beneficial interest
in the QUIDS. Accordingly, each Securityholder will be required to include in
its gross income its pro rata share of the original issue discount, if any,
accrued with respect to the QUIDS whether or not cash is actually distributed to
the Securityholders. See "--Original Issue Discount." No amount included in
income with respect to the QUIPS will be eligible for the dividends-received
deduction.
Payments of Interest
Except as set forth below, stated interest on a QUID will generally be
taxable to a United States Holder as ordinary income at the time it is paid or
accrued in accordance with the United States Holder's method of accounting for
tax purposes.
Original Issue Discount
Under income tax regulations that recently became effective, the Company
believes that the QUIDS will not be treated as issued with original issue
discount ("OID"). It should be noted that these regulations have not yet been
addressed in any rulings or other interpretations by the Internal Revenue
Service ("IRS"). Accordingly, it is possible that the IRS could take a position
contrary to the interpretation described herein.
Under the Indenture, the Company has the right to defer the payment of
interest on the QUIDS at any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the Stated Maturity of the
QUIDS. Should the Company exercise this right to defer payments of interest, the
QUIDs would at that time be treated as issued with OID and all the stated
interest payments on the QUIDS would thereafter be treated as OID for as long as
they remained outstanding. As a result, all holders would, in effect, be
required to accrue interest income even if the holders are on a cash method of
accounting. Consequently, in the event that
30
<PAGE>
the payment of interest is deferred, a holder would be required to include OID
in income on an economic accrual basis notwithstanding that the Company will not
make any interest payments during such period on the QUIDS.
Distribution of QUIDS to Holders of QUIPS
Generally, a distribution by the Issuer of the QUIDS pursuant to a
liquidation of the Issuer (as described under the caption "Certain Terms of
QUIPS--Redemption--Special Event Redemption or Distribution of QUIDS") will be
non-taxable and will result in the Securityholder receiving directly his pro
rata share of the QUIDS previously held indirectly through the Issuer, with a
holding period and aggregate tax basis equal to the holding period and aggregate
tax basis such Securityholder had in its QUIPS before such distribution. If,
however, the liquidation of the Issuer were to occur because the Issuer is
subject to United States federal income tax with respect to income accrued or
received on the QUIDS, the distribution of QUIDS would be a taxable event to
each holder and a holder would recognize gain or loss as if the holder had
exchanged its QUIPS for the QUIDS it received upon liquidation of the Issuer.
A Securityholder will accrue interest in respect of QUIDS received from the
Issuer in the manner described above under "--Original Issue Discount".
Sales or Redemption of QUIPS
Gain or loss will be recognized by a Securityholder on a sale of QUIPS
(including a redemption for cash) in an amount equal to the difference between
the amount realized and the Securityholder's adjusted tax basis in the QUIPS
sold or so redeemed. Gain or loss recognized by a Securityholder on QUIPS held
for more than one year will generally be taxable as long-term capital gain or
loss.
The QUIPS may trade at a price that does not fully reflect the value of
accrued but unpaid interest with respect to the underlying QUIDS. A
Securityholder that disposes of its QUIPS between record dates for payments of
Distributions (and consequently does not receive a Distribution from the Issuer
for the period prior to such disposition) will nevertheless be required to
include in income as ordinary income accrued but unpaid interest on the QUIDS
through the date of disposition and to add such amount to its adjusted tax basis
in its QUIPS disposed of. Such Securityholder will recognize a capital loss on
the disposition of its QUIPS to the extent the selling price (which may not
fully reflect the value of accrued but unpaid interest) is less than the
Securityholder's adjusted tax basis in the QUIPS (which will include accrued but
unpaid interest). Subject to certain limited exceptions, capital losses cannot
be applied to offset ordinary income for federal income tax purposes.
Information Reporting and Backup Withholding
The Administrative Trustees will report OID accrued, if any, on the QUIPS
held of record by United States Holders (other than corporations and other
exempt Securityholders) annually to the such holders and to the Internal Revenue
Service. The Administrative Trustees currently intend to deliver such reports to
holders of record prior to January 31 following each calendar year. It is
anticipated that persons who hold QUIPS as nominees for beneficial holders will
report the required tax information to beneficial holders on Form 1099.
"Backup withholding" at a rate of 31% will apply to payments of interest
to non-exempt United States Holders unless the Securityholder furnishes its
taxpayer identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
Payment of the proceeds from the disposition of QUIPS to or through the
United States office of a broker is subject to information reporting and backup
withholding unless the holder or beneficial owner establishes an exemption from
information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
31
<PAGE>
Possible Tax Law Changes
On March 19, 1996, President Clinton announced a 1997 balanced budget
proposal (the Revenue Reconciliation Bill of 1996, the "Bill"). The Bill would,
among other things, deny interest deductions on a debt instrument issued on or
after December 7, 1995 if the instrument had a maximum weighted average maturity
of more than 40 years. The Bill would also generally deny interest deductions
for interest on an instrument, issued by a corporation, that has a maximum term
of more than 20 years and that is not shown as indebtedness on the separate
balance sheet of the issuer or, where the instrument is issued to a related
party (other than a corporation), where the holder or some other related party
issues a related instrument that is not shown as indebtedness on the issuer's
consolidated balance sheet. For purposes of determining the weighted average
maturity or the term of an instrument, any right to extend would be treated as
exercised. The above-described provisions of the Bill were proposed to be
effective generally for instruments issued on or after December 7, 1995. If
either provision were to apply to the QUIDS, the Company would be unable to
deduct interest on the QUIDS. However, on March 29, 1996, the Chairmen of the
Senate Finance and House Ways and Means Committees issued a joint statement to
the effect that it was their intention that the effective date of the
President's legislative proposals, if adopted, will be no earlier than the date
of appropriate Congressional action. The Company believes that, under current
law, it will be able to deduct interest on the QUIDS. There can be no assurance,
however, that current or future legislative or administrative proposals or final
legislation will not affect the ability of the Company to deduct interest on the
QUIDS. Such a change would give rise to a Tax Event, which would permit the
Company to cause a redemption of the QUIPS upon receiving an opinion of counsel,
as described more fully under "Description of QUIPS--Redemption--Special Event
Redemption or Distribution of QUIDS". Such a tax law change would not alter the
United States federal income tax consequences of the purchase, ownership and
disposition of QUIPS.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Issuer have agreed that the Issuer will sell to
each of the Underwriters named below, and each of such Underwriters, for whom
Goldman, Sachs & Co., Dean Witter Reynolds Inc., A.G. Edwards & Sons, Inc.,
Lehman Brothers Inc., Prudential Securities Incorporated and Wheat, First
Securities, Inc. are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Issuer the respective number of QUIPS set
forth opposite its name below:
NUMBER OF
QUIPS
-----
UNDERWRITER
Goldman, Sachs & Co. .................................................
Dean Witter Reynolds Inc..............................................
A.G. Edwards & Sons, Inc..............................................
Lehman Brothers Inc...................................................
Prudential Securities Incorporated....................................
Wheat, First Securities, Inc..........................................
Total ........................................................... 2,800,000
=========
Under the terms and conditions set forth in the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the QUIPS offered hereby,
if any are taken.
The Underwriters propose to offer the QUIPS in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of $_____ per QUIPS. The Underwriters may allow, and such dealers may
reallow, a concession not to exceed $_____ per QUIPS to certain brokers and
dealers. After the QUIPS are released for sale to the public, the offering price
and other selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds from the sale of the QUIPS will be
used to purchase the QUIDS issued by the Company, the Underwriting Agreement
provides that the Company will pay as Underwriters' Compensation for the
32
<PAGE>
Underwriters' arranging the investment therein of such proceeds an amount of
$_____ per QUIPS for the accounts of the several Underwriters.
The Company and the Issuer have agreed that, during the period beginning
from the date of the Underwriting Agreement and continuing to and including the
earlier of (i) the termination of trading restrictions on the QUIPS, as
communicated to the Company by the Representatives, and (ii) 90 days following
the Closing Date, they will not offer, sell, contract to sell or otherwise
dispose of any additional securities of the Issuer or the Company substantially
similar to the QUIPS or any securities convertible into or exchangeable for, or
that represent the right to receive any such similar securities, without the
consent of the Representatives, which consent shall not be unreasonably
withheld.
Prior to this offering, there has been no public market for the QUIPS. The
QUIPS have been approved for listing on the New York Stock Exchange (the
"NYSE"), subject to notice of issuance. In order to meet one of the requirements
for listing the QUIPS on the NYSE, the Underwriters will undertake to sell lots
of 100 or more QUIPS to a minimum of 400 beneficial holders. Trading of the
QUIPS on the NYSE is expected to commence within 30 days after the initial
delivery of the QUIPS. The Representatives' have advised the Company that they
intend to make a market in the QUIPS prior to commencement of trading on the
NYSE, but are not obligated to do so and may discontinue market making at any
time without notice. No assurance can be given as to the liquidity of or the
existence of the trading market for the QUIPS.
The Company and the Issuer have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or commercial banking
services to the Company and its affiliates, for which such Underwriters or their
affiliates have received or will receive customary fees and commissions.
LEGAL OPINIONS
Certain matters of Delaware law relating to the legality of the QUIPS, the
validity of the Trust Agreement and the formation of the Issuer will be passed
upon by Richards, Layton & Finger, special Delaware Counsel to the Company and
the Issuer. The legality of the Guarantee and the QUIDS will be passed upon for
the Company by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), and for the Underwriters by Winthrop, Stimson,
Putnam & Roberts, New York, New York. Certain matters relating to United States
federal income tax considerations will be passed upon for the Company by Simpson
Thacher & Bartlett.
EXPERTS
The consolidated financial statements incorporated herein by reference from
the Company's Annual Report on Form 10-K for the year ended December 31, 1995
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.
33
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
DESCRIBED IN THIS PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------------
TABLE OF CONTENTS
PAGE
Available Information ...................................................... 4
Incorporation of Certain Information by Reference........................... 4
Recent Developments......................................................... 5
Risk Factors ............................................................... 5
Atlantic Capital I.......................................................... 8
Atlantic City Electric Company.............................................. 9
Use of Proceeds............................................................. 9
Accounting Treatment ....................................................... 9
Selected Financial Information ............................................. 10
Description of QUIPS ....................................................... 10
Description of QUIDS ....................................................... 20
Description of Guarantee.................................................... 28
Relationship among the QUIPS, the QUIDS and
the Guarantee............................................................. 30
Certain Federal Income Tax Consequences..................................... 31
Underwriting................................................................ 34
Legal Opinions ............................................................. 35
Experts..................................................................... 35
================================================================================
================================================================================
2,800,000 Preferred Securities
ATLANTIC CAPITAL I
__% CUMULATIVE QUARTERLY
INCOME PREFERRED SECURITIES
(QUIPS(SM))
GUARANTEED TO THE EXTENT
THE
ISSUER HAS FUNDS, AS SET FORTH
HEREIN, BY
ATLANTIC CITY
ELECTRIC COMPANY
----------------------
PROSPECTUS
----------------------
GOLDMAN, SACHS & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
LEHMAN BROTHERS
PRUDENTIAL SECURITIES
INCORPORATED
WHEAT FIRST BUTCHER SINGER
REPRESENTATIVES OF THE UNDERWRITERS
================================================================================
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, ATLANTIC CITY
ELECTRIC COMPANY CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT
MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF EGG HARBOR AND STATE
OF NEW JERSEY ON SEPTEMBER 24, 1996.
Atlantic City Electric Company
By: /s/ L.M. Walters
--------------------------------------
(Vice President, Treasurer
and Assistant Secretary)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING OFFICERS AND
DIRECTORS OF ATLANTIC CITY ELECTRIC COMPANY ON SEPTEMBER 24, 1996 IN THE
CAPACITIES INDICATED BELOW.
SIGNATURE TITLE
--------- -----
* Principal Executive Officer, Director
- ---------------------------------
(J.L. Jacobs)
* Principal Financial and Accounting Officer
- ---------------------------------
(M.J. Barron)
* Director
- ---------------------------------
(M.I. Harlacher, Jr.)
Director
- ---------------------------------
(M.J. Chesser)
* Director
- ---------------------------------
(M.T. Powell)
II-1
<PAGE>
SIGNATURE TITLE
--------- -----
* Director
- ---------------------------------
(J.E. Franklin II)
* Director
- ---------------------------------
(H.K. Levari, Jr.)
* The undersigned, by signing his name hereto, does hereby sign this
Registration Statement on behalf of each of the above-indicated directors
and officers of the registrant pursuant to powers of attorney signed by
such directors and officers.
/s/ L.M. Walters
---------------------------------
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, ATLANTIC
CAPITAL I CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF EGG HARBOR AND STATE
OF NEW JERSEY ON SEPTEMBER 24, 1996.
Atlantic Capital I
By: Atlantic City Electric Company
as Depositor
By: /s/ L.M. Walters
--------------------------------------
(Vice President, Treasurer
and Assistant Secretary)
II-2
