<PAGE>
Filed pursuant to
Rule 424(b)(2)
File Nos. 333-66015
and 333-47110
PROSPECTUS SUPPLEMENT
DECEMBER 15, 2000
(TO PROSPECTUS DATED OCTOBER 18, 2000)
<TABLE>
<S> <C>
BALTIMORE GAS AND ELECTRIC COMPANY
[LOGO] 39 W. LEXINGTON STREET
BALTIMORE, MARYLAND 21201
(410) 234-5000
</TABLE>
$173,000,000
BALTIMORE GAS AND ELECTRIC COMPANY
6.75% REMARKETABLE OR REDEEMABLE SECURITIES (ROARS(SM)) DUE 2012
(REMARKETING DATE: DECEMBER 15, 2002)
------------------
The ROARS will bear interest at the rate of 6.75% per year from their date
of issuance to but excluding December 15, 2002, which is the first Remarketing
Date, and then at a fixed or floating rate. Interest on the ROARS is payable on
June 15 and December 15 of each year, beginning on June 15, 2001 and continuing
to December 15, 2002, and then at the intervals as described herein. On any
Remarketing Date, the ROARS will either be mandatorily tendered to and purchased
by Banc of America Securities LLC and Lehman Brothers Inc., as Remarketing
Dealers, or mandatorily redeemed by us. If purchased by the Remarketing Dealers,
the ROARS will bear interest from the Remarketing Date at a rate to be
determined as described herein. The ROARS will mature on December 15, 2012
unless extended to the tenth anniversary of the Fixed Rate Remarketing Date
which shall be no later than December 15, 2013. We may redeem all of the ROARS
on any Remarketing Date and at anytime after the Fixed Rate Remarketing Date.
The ROARS will not be listed on any national securities exchange.
WE URGE YOU TO CAREFULLY READ THIS PROSPECTUS SUPPLEMENT WHICH DESCRIBES THE
SPECIFIC TERMS OF THE OFFERING AND ACCOMPANYING PROSPECTUS BEFORE YOU MAKE YOUR
INVESTMENT DECISION.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
PER ROARS TOTAL
--------- ------------
<S> <C> <C>
Price to Public (1)......................................... 100.00% $173,000,000
Underwriting Commission..................................... 0.25% $ 432,500
Proceeds to Company (before expenses)(2).................... 102.15% $176,719,500
</TABLE>
------------------------
(1) Plus accrued interest from December 20, 2000, if settlement occurs after
that date.
(2) Includes consideration for the related option.
The underwriters are offering the ROARS subject to various conditions. The
underwriters expect to deliver the ROARS to purchasers on or about December 20,
2000 through the book-entry facilities of The Depositary Trust Company.
------------------------
Banc of America Securities LLC Lehman Brothers
Salomon Smith Barney
Scotia Capital
SunTrust Equitable Securities Corporation
------------------------
------------------------
(SM) "ROARS" is a service mark of Banc of America Securities LLC.
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. Neither
we nor the underwriters have authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. If this prospectus supplement is
inconsistent with the accompanying prospectus, you should rely on this
prospectus supplement. Neither we nor the underwriters are making an offer to
sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information in this prospectus supplement
and the accompanying prospectus is accurate only as of the respective dates on
the front of those documents or earlier dates specified therein. Our business,
financial condition, results of operations and prospects may have changed since
those dates.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary of Terms of the ROARS............................... S-3
Current Events.............................................. S-5
Ratio of Earnings to Fixed Charges.......................... S-6
Description of the ROARS.................................... S-6
Certain United States Federal Income Tax Considerations..... S-17
Underwriting................................................ S-20
PROSPECTUS
Forward Looking Statements.................................. 3
Baltimore Gas and Electric Company.......................... 4
Risk Factors................................................ 4
Pricing Supplement.......................................... 5
Use of Proceeds............................................. 5
Ratio of Earnings to Fixed Charges.......................... 6
Description of the Notes.................................... 6
Plan of Distribution........................................ 17
Legal Opinions.............................................. 18
Experts..................................................... 18
Where You Can Find More Information......................... 18
</TABLE>
S-2
<PAGE>
SUMMARY OF TERMS OF THE ROARS
The following summary is a short description of the main terms of the
offering of the ROARS. For that reason, this summary does not contain all of the
information that may be important to you. To fully understand the terms of the
offering of the ROARS, you will need to read both this prospectus supplement and
the accompanying prospectus, each in its entirety. The ROARS constitute an issue
of our Medium Term Notes, Series I referred to in the accompanying prospectus.
<TABLE>
<S> <C>
Issuer....................................... Baltimore Gas and Electric Company will issue
the ROARS.
Trustee...................................... The Bank of New York.
Offered Securities........................... We will issue $173,000,000 aggregate
principal amount of 6.75% ROARS due 2012. The
ROARS will mature on December 15, 2012 unless
extended to the tenth anniversary of the
Fixed Rate Remarketing Date which shall be no
later than December 15, 2013; however, we may
redeem, or be required to redeem, all of the
ROARS before that date.
Interest Rates............................... The ROARS will bear interest at the rate of
6.75% per year from the date of issuance to,
but excluding, December 15, 2002, which is
the first Remarketing Date, and then at a
rate or rates described later in this
prospectus supplement.
Interest Payment Dates....................... We will pay interest on June 15 and
December 15, beginning on June 15, 2001 and
continuing to December 15, 2002, and then at
intervals described later in this prospectus
supplement.
Interest Accrual............................. The ROARS will accrue interest at a rate of
6.75% per year from the date of issuance to,
but excluding, December 15, 2002, computed on
the basis of a 360-day year consisting of
twelve 30-day months. From December 15, 2002,
the ROARS will accrue interest at a fixed
rate or at a floating rate, depending on our
decision. If the rate is fixed, interest will
be computed on the basis of a 360-day year
consisting of twelve 30-day months. If the
rate is floating, interest will be computed
on the basis of the actual number of days in
the applicable floating rate reset period
over a 360-day year.
Ranking...................................... The ROARS will rank equal in priority with
all of our existing and future unsecured and
unsubordinated indebtedness.
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
Mandatory Tender............................. We have entered into a Remarketing Agreement
with Banc of America Securities LLC and
Lehman Brothers Inc., as Remarketing Dealers.
The agreement gives the Remarketing Dealers
the option to purchase all of the ROARS on
December 15, 2002 or on the subsequent
Remarketing Date unless we redeem them. The
purchase price for the ROARS will be equal to
100% of the aggregate principal amount
outstanding on the first Remarketing Date or
the Dollar Price on the subsequent
Remarketing Date.
Mandatory Redemption......................... If the Remarketing Dealers do not purchase
the ROARS on any Remarketing Date, the
Trustee, on behalf of the beneficial owners,
will require us to redeem all of the ROARS
for 100% of the aggregate principal amount of
ROARS outstanding on the first Remarketing
Date or at the Dollar Price on the subsequent
Remarketing Date, in addition to all accrued
and unpaid interest, if any.
Optional Redemption.......................... If the Remarketing Dealers elect to purchase
the ROARS, we will have the option of
redeeming all of the ROARS for 100% of the
aggregate principal amount of ROARS
outstanding on the first Remarketing Date on
December 15, 2002 or on the subsequent
Remarketing Date at the Dollar Price, plus
accrued and unpaid interest, if any.
Post-Remarketing Optional Redemption......... We may redeem some or all of the ROARS at any
time after the Fixed Rate Remarketing Date at
the redemption prices plus accrued and unpaid
interest, if any, to the post-remarketing
redemption date.
Sinking Fund................................. The ROARS are unsecured and are not entitled
to any sinking fund.
</TABLE>
S-4
<PAGE>
CURRENT EVENTS
On October 23, 2000, Constellation Energy Group, Inc. ("Constellation
Energy"), the parent holding company for Baltimore Gas and Electric Company,
announced several initiatives to advance growth strategies.
One of the initiatives is a plan to separate Constellation Energy's domestic
merchant energy business from its retail services business. The separation will
create two stand-alone, publicly traded energy companies. One will be a domestic
merchant energy business engaged in wholesale power marketing and generation
under the name "Constellation Energy Group" after the separation. The other will
be a regional retail energy and energy services company, BGE Corp., that will
include BGE and other subsidiaries.
Another initiative is a change in the common stock dividend policy effective
April 2001. Constellation Energy will maintain its current common stock dividend
through January 2001. Effective April 2001, the annual dividend is expected to
be set at $0.48 per share. After the business separation, BGE Corp. expects to
pay initial annual dividends of $0.48 per share.
A third initiative is that Constellation Energy entered into an agreement
with an affiliate of The Goldman Sachs Group, Inc. Under the terms of the
agreement, Goldman Sachs will acquire up to a 17.5% equity interest in
Constellation Energy's domestic merchant energy business, which will be
consolidated under a single holding company ("Holdco"). Goldman Sachs will also
acquire a ten-year warrant for up to 13% of Holdco's common stock (subject to
certain adjustments). The warrant is exercisable six months after Holdco's
common stock becomes publicly available. The amount of common stock which
Goldman Sachs may receive upon exercise will be equal to the excess of the
market price of Holdco's common stock at the time of exercise over the exercise
price of $60 per share for all the stock subject to the warrant, divided by the
market price. Holdco may at its option pay Goldman Sachs such excess in cash.
Goldman Sachs is acquiring its interest and the warrant in exchange for
$250 million in cash (subject to adjustment in certain instances) and certain
assets related to Constellation Energy's power marketing business. At closing,
Goldman Sachs' existing services agreement with Constellation Energy's power
marketing business will terminate.
The closing of the transaction with Goldman Sachs and the separation is
subject to customary closing conditions, including regulatory approvals and the
receipt of a Private Letter Ruling from the Internal Revenue Service regarding
certain tax matters. Both are expected to be completed by mid to late 2001.
On December 12, 2000, Constellation Energy announced that Constellation
Nuclear, LLC, a subsidiary of Constellation Energy, will purchase 1,550
megawatts of the 1,757 megawatts total generating capacity of Nine Mile Point
nuclear power plants, located in Scriba, New York. Constellation Nuclear will
buy 100 percent of Unit 1 and 82 percent Unit 2 for $815 million, including $78
million for fuel. The sale is expected to close in mid-2001 after receipt of all
necessary regulatory approvals.
S-5
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods indicated is
as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
--------------------- ----------------------------------------------------
2000 1999 1998 1997 1996 1995
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
2.28 3.45 2.94 2.78 3.10 3.21
</TABLE>
For current information on our ratio of earnings to fixed charges, please see
our most recent Form 10-K and 10-Q. See WHERE YOU CAN FIND MORE INFORMATION IN
THE ACCOMPANYING PROSPECTUS.
DESCRIPTION OF THE ROARS
GENERAL
This prospectus supplement is referred to as a pricing supplement throughout
the accompanying prospectus. This description of the particular terms of the
ROARS, which constitute an issue of our Medium Term Notes, Series I referred to
in the accompanying prospectus, supplements, and, to the extent that it is
inconsistent, replaces the description of the general terms and provisions of
the notes set forth in the accompanying prospectus under the heading
"Description of the Notes." Specifically, the terms outlined in the following
sections under the "Description of the Notes" in the accompanying prospectus
shall not apply for purposes of this offering, and the terms of this prospectus
supplement shall control: "Redemptions," "Repurchases," "Book-Entry
Notes--Registration, Transfer and Payment of Interest and Principal,"
"Book-Entry Notes--Method of Repurchase," "Certificate Notes--Method of
Repurchase" and "Interest Rate."
The ROARS will initially be issued in an aggregate principal amount of
$173,000,000. The ROARS will mature on December 15, 2012 unless extended to the
tenth anniversary of the Fixed Rate Remarketing Date (as defined under "Interest
and Interest Payment Dates" below) which shall be no later than December 15,
2013. We may redeem, or be required to redeem, the ROARS before that maturity
date as described in "Mandatory Redemption" below. We may also redeem all of the
ROARS on any Remarketing Date, as described in "Optional Redemption" and after
the Fixed Rate Remarketing Date as described in "Post-Remarketing Optional
Redemption" below. The ROARS may also be purchased by the Remarketing Dealers as
described in "Mandatory Tender" below.
The ROARS will rank equal in priority with all of our existing and future
unsecured and unsubordinated indebtedness. At September 30, 2000, we had
outstanding approximately $862 million of unsecured and unsubordinated
indebtedness and approximately $1.2 billion of secured indebtedness.
The ROARS are unsecured and are not entitled to any sinking fund.
The ROARS will initially be issued only in registered, book-entry form, in
denominations of $1,000. We will issue global securities in denominations that
together equal the total principal amount of the outstanding ROARS.
If any interest, principal or other payment date of the ROARS (including any
payment date in connection with the mandatory tender or any mandatory redemption
as described below) does not fall on a Business Day, a payment otherwise payable
on that day will be made on the next succeeding Business Day. It will have the
same effect as if made on the scheduled payment date, and no interest will
accrue for the period from and after such interest payment date, maturity date
or other payment date, except in the case of an interest payment date or other
payment date occurring during the Floating Rate Period.
"Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in New York, New York or
S-6
<PAGE>
Baltimore, Maryland are authorized or obligated by law or executive order to
close.
"London Business Day" means any day on which dealings in U.S. dollars are
transacted in the London Inter-Bank Market.
"Remarketing Date(s)" means (1) December 15, 2002, assuming the Remarketing
Dealers have elected to purchase the ROARS and we have not elected to exercise
our Floating Period Option (as defined under "Floating Rate Period" below) or
(2) December 15, 2002 and a subsequent remarketing date which shall fall on the
15th day of any one of the 12 consecutive months subsequent to the first
Remarketing Date until December 15, 2003 if the Remarketing Dealers have elected
to purchase the ROARS and we have elected to exercise our Floating Period Option
(as defined under "Floating Rate Period" below).
We have agreed with the Remarketing Dealers that we will not cause or permit
the terms or provisions of the ROARS to be modified in any way, and may not make
open market or other purchases of the ROARS prior to the first Remarketing Date,
without the prior written consent of the Remarketing Dealers.
INTEREST AND INTEREST PAYMENT DATES
The ROARS will bear interest at 6.75% per year, from the date of issuance
to, but excluding, December 15, 2002. We will pay interest during that period
semiannually on June 15 and December 15, beginning on June 15, 2001.
Unless we have chosen, or are required, to redeem the ROARS, we will pay
interest on the ROARS, accruing from the Fixed Rate Remarketing Date (as defined
below), semiannually on each day that is a six-month anniversary of such date.
Interest on the ROARS from the Fixed Rate Remarketing Date will be computed on
the basis of a 360-day year consisting of twelve 30-day months.
"Fixed Rate Remarketing Date" means December 15, 2002, assuming the
Remarketing Dealers have elected to purchase the ROARS and we have not elected
to exercise our Floating Period Option, or the subsequent Remarketing Date on
which the Floating Rate Termination Date occurs in the event that we have
elected to exercise our Floating Period Option. This subsequent Remarketing Date
shall be the Floating Period Termination Date (as defined under "Floating Rate
Period" below).
Interest on the ROARS accruing during any Floating Rate Reset Period (as
defined under "Floating Rate Period" below) will be payable on the next
following Reference Rate Reset Date (as defined under "Floating Period" below)
if such date is a Business Day or on the next following Business Day. Interest
on the ROARS during the Floating Rate Period (as defined below) will be computed
on the basis of the actual number of days in such Floating Rate Reset Period
over a 360-day year.
Interest payable on any Interest Payment Date will be payable to the persons
in whose names the ROARS are registered at the close of business on the
fifteenth calendar day (whether or not a Business Day) immediately preceding the
related interest payment date.
Interest payments will be in the amount of interest accrued from and
including the preceding interest payment date (or from and including the date of
issuance if no interest has been paid or duly provided with respect to the
ROARS) to but excluding the relevant interest payment date, Remarketing Date or
the maturity date, as the case may be. If any interest payment date does not
fall on a Business Day, the interest payment will be made on the next succeeding
Business Day and will have the same effect as if made on the scheduled payment
date and no interest will accrue after such interest payment date, except to the
extent it occurs during the Floating Rate Period.
INTEREST RATE TO MATURITY
If the Remarketing Dealers elect to purchase the ROARS for remarketing, then
by 3:30 p.m., on the third Business Day immediately preceding any Remarketing
Date (a "Floating Rate Spread Determination Date" or the "Fixed Rate
Determination Date," depending on the following election, and each, a
"Determination Date"), the Remarketing Dealers will determine either (a) the
Floating Rate Spread (as defined under "Floating Rate Period" below) if we have
S-7
<PAGE>
elected to exercise our Floating Period Option or (b) the Interest Rate to
Maturity (as defined below) to the nearest one hundredth of one percent per
annum, unless we have chosen to redeem, or are required to redeem, the ROARS.
Each Floating Period Interest Rate (as defined under "Floating Rate Period"
below) will equal the sum of a Reference Rate (as defined under "Floating Rate
Period" below) and a Floating Rate Spread. The "Interest Rate to Maturity" will
be equal to the sum of 4.684% (the "Base Rate") and the Applicable Spread (as
defined below), which will be based on the Dollar Price (as defined below) of
the ROARS. The Floating Period Interest Rate, the Interest Rate to Maturity and
the Dollar Price for the ROARS as announced by the Remarketing Dealers, absent
manifest error, will be binding and conclusive upon the beneficial owners, us
and the Trustee.
For this purpose, the following terms have the following meanings:
"Applicable Spread" means the lowest Fixed Rate Bid, expressed as a spread
(in the form of a percentage or in basis points) above the Base Rate for the
ROARS, obtained by the Remarketing Dealers by 3:30 p.m., New York City time, on
the Fixed Rate Determination Date, from the Fixed Rate Bids quoted to the
Remarketing Dealers by up to five Reference Corporate Dealers.
"Fixed Rate Bid" means an irrevocable offer to purchase the aggregate
outstanding principal amount of the ROARS at the Dollar Price, but assuming:
(1) a settlement date that is the Fixed Rate Remarketing Date, without
accrued interest,
(2) a maturity date that is the tenth anniversary of the Fixed Rate
Remarketing Date; and
(3) a stated annual interest rate equal to the Base Rate plus the spread bid
by the applicable Reference Corporate Dealer.
"Comparable Treasury Issues" for the ROARS means the U.S. Treasury security
or securities selected by the Remarketing Dealers, as of the first Determination
Date, as having an actual or interpolated maturity or maturities comparable to
the remaining term of the ROARS being purchased by the Remarketing Dealers.
"Comparable Treasury Price" means, with respect to the first Remarketing
Date:
(1) the offer prices for the Comparable Treasury Issues (expressed, in each
case, as a percentage of their principal amount) at 12:00 noon, New York City
time, on the first Determination Date, as set forth on "Telerate Page 500" (or
such other page as may replace "Telerate Page 500") or
(2) if such page (or any successor page) is not displayed or does not
contain such offer prices on such Determination Date, the average of the
Reference Treasury Dealer Quotations for such Determination Date, after
excluding the highest and lowest of such Reference Treasury Dealer Quotations,
or if the Remarketing Dealers obtain fewer than four such Reference Treasury
Dealer Quotations, the average of all such Reference Treasury Dealer Quotations.
"Telerate Page 500" means the display designated as "Telerate Page 500" on
Dow Jones Markets (or such other page as may replace "Telerate Page 500" on such
service) or such other service displaying the offer prices for the Comparable
Treasury Issues, as may replace Dow Jones Markets.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer, the offer prices for the Comparable Treasury Issues (expressed
in each case as a percentage of their principal amount) quoted in writing to the
Remarketing Dealers by such Reference Treasury Dealer, by 3:30 p.m., New York
City time, on the first Determination Date.
"Dollar Price" means, (1) the principal amount of the ROARS, plus (2) the
premium equal to the excess, if any, of (A) the present value, as of the first
Remarketing Date, of the Remaining Scheduled Payments for such ROARS, discounted
to the first Remarketing Date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate, over (B) the principal
amount of the ROARS.
S-8
<PAGE>
"Fixed Rate Determination Date" means the third Business Day prior to the
Fixed Rate Remarketing Date.
"Reference Corporate Dealer" means each of up to five leading dealers of
publicly traded debt securities, including our debt securities, which shall be
selected by us. We will advise the Remarketing Dealers of our selection of
Reference Corporate Dealers no later than five Business Days prior to the Fixed
Rate Remarketing Date. Two of the Reference Corporate Dealers we select will be
the Remarketing Dealers.
"Reference Treasury Dealer" means each of up to five primary U.S. Government
securities dealers (each a "Primary Treasury Dealer"), to be selected by us, and
their respective successors; PROVIDED that if any of the foregoing ceases to be,
and has no affiliate that is, a Primary Treasury Dealer we will substitute for
it another Primary Treasury Dealer. Two of the Reference Treasury Dealers we
select will be the Remarketing Dealers.
"Remaining Scheduled Payments" means, with respect to the ROARS, the
remaining scheduled payments of the principal of and interest on the ROARS,
calculated at the Base Rate applicable to such ROARS, that would be due from but
excluding the first Remarketing Date to and including the stated maturity date;
PROVIDED that if such Remarketing Date is not an interest payment date, the
amount of the next succeeding scheduled interest payment, calculated at the Base
Rate, will be reduced by the amount of interest accrued, calculated at the Base
Rate only, to the first Remarketing Date.
"Treasury Rate" for the ROARS means, with respect to the first Remarketing
Date, the rate per annum equal to the semiannual equivalent yield to maturity or
interpolated (on a day count basis) yield to maturity of the Comparable Treasury
Issues, assuming a price for the Comparable Treasury Issues (expressed as a
percentage of their principal amounts) equal to the Comparable Treasury Price
for such Remarketing Date.
FLOATING RATE PERIOD
Following the Remarketing Dealers' election to purchase the ROARS in
connection with the first Remarketing Date, but prior to the fourth Business Day
prior to the first Remarketing Date (the "Floating Period Notification Date"),
we may elect to exercise our Floating Period Option. If we exercise our Floating
Period Option, the ROARS will be remarketed at a floating rate equal to the
Floating Period Interest Rate until the earlier of (such calculation date, the
"Floating Rate Termination Date") (1) December 15, 2003, or (2) such date which
otherwise would be the Reference Rate Reset Date following the date on which we
elect to terminate such Floating Rate Period (the "Floating Rate Period
Termination Notification Date"). The Floating Rate Period Termination
Notification Date shall be at least four Business Days prior to the applicable
Reference Rate Reset Date. In the event that we exercise our Floating Period
Option, the maturity date of the ROARS will be extended to the tenth anniversary
of the subsequent Remarketing Date, not to exceed December 15, 2013.
The amount of interest payable for each day that the ROARS are outstanding
during the Floating Rate Period will be calculated by dividing the Floating
Period Interest Rate in effect for such day by 360 and multiplying the result by
the Dollar Price. The amount of interest payable for any Floating Rate Reset
Period (as defined below) will be calculated by adding the interest payable for
each day in the Floating Rate Reset Period.
For this purpose, the following terms have the following meanings:
"Floating Period Interest Rate" means the sum of the Reference Rate and the
Floating Rate Spread.
"Floating Period Option" means our right, on any date subsequent to the
Remarketing Dealers' election to purchase the ROARS in connection with the first
Remarketing Date but prior to the fourth Business Day prior to the first
Remarketing Date, to require the Remarketing Dealers to remarket the ROARS at
the Floating Period Interest Rate.
S-9
<PAGE>
"Floating Rate Period" means the period from and including the Floating Rate
Remarketing Date to but excluding the Floating Period Termination Date.
"Floating Rate Remarketing Date" means December 15, 2002 in the event we
have elected to exercise our Floating Period Option.
"Floating Rate Reset Period" means the period from and including the first
Reference Rate Reset Date to but excluding the next following Reference Rate
Reset Date and thereafter the period from and including a Reference Rate Reset
Date to but excluding the next following Reference Rate Reset Date; PROVIDED
that the final Floating Rate Reset Period will run to but exclude the Floating
Period Termination Date.
"Floating Rate Spread" means the lowest Floating Rate Bid expressed as a
spread (in the form of a percentage or in basis points) above the Reference Rate
for the ROARS obtained by the Remarketing Dealers by 3:30 p.m., New York City
time, on the Floating Rate Spread Determination Date, from the Floating Rate
Bids quoted to the Remarketing Dealers by up to five Reference Money Market
Dealers.
A "Floating Rate Bid" means an irrevocable offer to purchase the aggregate
outstanding principal amount of the ROARS at the Dollar Price, but assuming:
(1) a settlement date that is the Floating Rate Remarketing Date, without
accrued interest;
(2) a maturity date equal to the Floating Period Termination Date;
(3) a stated annual interest rate equal to the Reference Rate plus the
Floating Rate Spread;
(4) that the ROARS are callable by the Remarketing Dealers at the Dollar
Price on the Floating Period Termination Date; and
(5) that we will redeem the ROARS at the Dollar Price on the Floating Period
Termination Date, if not previously purchased by the Remarketing Dealers.
"Floating Rate Spread Determination Date" means the third Business Day prior
to the Floating Rate Remarketing Date.
"Reference Money Market Dealer" means each of up to five leading dealers of
publicly traded debt securities, including our debt securities, which we shall
select, who are also leading dealers in money market instruments. We will advise
the Remarketing Dealers of our selection of Reference Money Market Dealers no
later than five Business Days prior to the Floating Rate Remarketing Date. Two
of the Reference Money Market Dealers we select will be the Remarketing Dealers.
"Reference Rate" means:
(1) The rate for each Floating Rate Reset Period which will be the rate for
deposits in U.S. dollars for a period of one month which appears on the Telerate
Page 3750 (or any successor page) as of 11:00 a.m., London time, on the
applicable Reference Rate Determination Date.
(2) If no rate appears on Telerate Page 3750 on the Reference Rate
Determination Date, the Remarketing Dealers will request the principal London
offices of four major reference banks in the London Inter-Bank Market, to
provide the Remarketing Dealers, in the case of each such bank, with its offered
quotation for deposits in U.S. dollars for the period of one month, commencing
on the first day of the Floating Rate Reset Period, to prime banks in the London
Inter-Bank Market at approximately 11:00 a.m., London time, on that Reference
Rate Determination Date and in a principal amount that is representative for a
single transaction in U.S. dollars in that market at that time. If at least two
quotations are provided, then the Reference Rate will be the average of those
quotations. If fewer than two quotations are provided, then the Reference Rate
will be the average (rounded, if necessary, to the nearest one hundredth of a
percent) of the rates quoted at approximately 11:00 a.m., New York City time, on
the Reference Rate Determination Date by three major banks in New York City
selected by the Remarketing Dealers for loans in U.S. dollars to leading
European banks, having a one-month maturity and in a principal amount that is
representative for a single transaction in
S-10
<PAGE>
U.S. dollars in that market at that time. If the banks selected by the
Remarketing Dealers are not providing quotations in the manner described in this
paragraph, the rate for the Floating Rate Reset Period following the Reference
Rate Determination Date will be the rate in effect on that Reference Rate
Determination Date.
"Reference Rate Determination Date" will be the second London Business Day
preceding each Reference Rate Reset Date.
"Reference Rate Reset Date" means December 15, 2002 and the 15th day of each
month thereafter until, but excluding, the Floating Period Termination Date.
MANDATORY TENDER
On a Business Day not earlier than 15 Business Days prior to the first
Remarketing Date, and not later than 4:00 p.m., New York City time, on the 10th
Business Day prior to such Remarketing Date or not later than four Business Days
prior to the subsequent Remarketing Date, the Remarketing Dealers will notify us
and the Trustee as to whether they elect to purchase the ROARS for remarketing
on such Remarketing Date (the "Notification Date").
If, and only if, the Remarketing Dealers so elect, such ROARS will be
subject to mandatory tender, and will be deemed tendered, to the Remarketing
Dealers for purchase and remarketing on such Remarketing Date, in accordance
with the terms and subject to the conditions described in this prospectus
supplement.
The ROARS will be remarketed on the first Remarketing Date at a fixed rate
of interest equal to the Interest Rate to Maturity, unless we have elected to
exercise our Floating Period Option or have chosen to redeem, or are required to
redeem, the ROARS on the first Remarketing Date. If we exercise our Floating
Period Option, the ROARS will bear interest at the Floating Period Interest Rate
until the Floating Period Termination Date, at which time the ROARS will be
remarketed at a fixed rate of interest equal to the Interest Rate to Maturity,
unless we have chosen to redeem, or are required to redeem, the ROARS.
The purchase price of such tendered ROARS will be equal to 100% of the
aggregate principal amount thereof on the first Remarketing Date, or the Dollar
Price on the subsequent Remarketing Date.
Subject to the Remarketing Dealers' election to purchase the ROARS, then on
the applicable Remarketing Date the Remarketing Dealers will sell the aggregate
principal amount of the ROARS at the Dollar Price to the Reference Corporate
Dealer or to the Reference Money Market Dealer, whichever is applicable,
providing the lowest Fixed or Floating Rate Bid, in the case of the first
Remarketing Date, or the lowest Fixed Rate Bid, in the case of the subsequent
Remarketing Date. If the lowest applicable Bid is submitted by two or more of
the applicable Reference Dealers, the Remarketing Dealers will sell such ROARS
to one or more of such Reference Dealers, as they will determine in their sole
discretion.
If the Remarketing Dealers elect to purchase the ROARS, the obligation of
the Remarketing Dealers to purchase the ROARS on any Remarketing Date is subject
to certain conditions set forth in the Remarketing Agreement.
If for any reason the Remarketing Dealers do not purchase the ROARS on any
Remarketing Date, we will be required to redeem the ROARS at a price equal to
100% of their aggregate principal amount, plus accrued and unpaid interest, if
any, if such Remarketing Date is the first Remarketing Date, or at the Dollar
Price, plus accrued and unpaid interest, if any, on the subsequent Remarketing
Date.
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NOTIFICATION OF INTEREST RATE TO MATURITY
Subject to the Remarketing Dealers' election to purchase the ROARS, the
Remarketing Dealers will notify us, the Trustee and The Depository Trust Company
(DTC) by telephone, confirmed in writing (which may include facsimile or other
electronic transmission), by 4:00 p.m., New York City time, on the Fixed Rate
Determination Date of the Interest Rate to Maturity effective from and including
the Fixed Rate Remarketing Date.
MANDATORY REDEMPTION
We will be required to redeem the ROARS in whole on the applicable
Remarketing Date at a price equal to 100% of the aggregate principal amount of
the ROARS, if such Remarketing Date is the first Remarketing Date, or at the
Dollar Price on the subsequent Remarketing Date, in each case plus accrued and
unpaid interest, if any, to the applicable Remarketing Date, in the event that:
(1) the Remarketing Dealers for any reason do not elect, by notice to us and
the Trustee not later than such Notification Date, to purchase the ROARS for
remarketing on such Remarketing Date;
(2) the Remarketing Dealers for any reason do not notify us of the Floating
Period Interest Rate or of the Interest Rate to Maturity by 4:00 p.m., New York
City time, on the applicable Determination Date;
(3) at any time after the Remarketing Dealers elect on the Notification Date
to remarket the ROARS, the Remarketing Dealers elect to terminate the
Remarketing Agreement in accordance with its terms;
(4) prior to any Remarketing Date, either Remarketing Dealer resigns, the
remaining Remarketing Dealer has not notified the Company in writing that it
will assume the resigning Remarketing Dealer's obligations under the Remarketing
Agreement and no successor has been appointed on or before the applicable
Determination Date;
(5) the Remarketing Dealers for any reason do not deliver the purchase price
of the ROARS to the Trustee in same day funds by 12:00 noon, New York City time,
on such Remarketing Date, or do not purchase all tendered ROARS on such
Remarketing Date; or
(6) we for any reason fail to redeem the ROARS from the Remarketing Dealers
following our election to effect such optional redemption.
OPTIONAL REDEMPTION
If the Remarketing Dealers elect to purchase and remarket the ROARS, we will
notify the Remarketing Dealers and the Trustee, not later than 4:00 p.m., New
York City time, on the Business Day immediately preceding any Determination
Date, if we irrevocably elect to exercise our right to redeem the ROARS in whole
on the first Remarketing Date or on the Floating Period Termination Date
immediately following such Determination Date.
If we exercise our right to redeem the ROARS, we will redeem the ROARS in
whole on any Remarketing Date at the Dollar Price, in each case, plus all
accrued and unpaid interest, if any, to such Remarketing Date. Other than as set
forth above, we will have no option to redeem the ROARS prior to the Fixed Rate
Remarketing Date.
POST-REMARKETING OPTIONAL REDEMPTION
After the Fixed Rate Remarketing Date, the ROARS are redeemable, in whole or
in part, at any time, and at our option, at a redemption price equal to the
greater of:
(1) 100% of the principal amount of the ROARS then outstanding to be
redeemed, or
(2) the sum of the present values of the remaining scheduled payments of
principal and interest thereon (not including any portion of such
payments of interest accrued as of such post-remarketing redemption
date) discounted to such redemption date on a semiannual basis (assuming
a 360-day
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year consisting of twelve 30-day months) at the Adjusted Treasury Rate,
plus 25 basis points as calculated by an Independent Investment Banker,
plus, in either case, accrued and unpaid interest thereon to such
post-remarketing redemption date.
"Adjusted Treasury Rate" means, with respect to any post-remarketing
redemption date:
(1) the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication
which is published weekly by the Board of Governors of the Federal
Reserve System and which establishes yields on actively traded U.S.
Treasury securities adjusted to constant maturity under the caption
"Treasury Constant Maturities," for the maturity corresponding to the
Post-Remarketing Comparable Treasury Issue (if no maturity is within
three months before or after the remaining term of the ROARS, yields for
the two published maturities most closely corresponding to the
Post-Remarketing Comparable Treasury Issue will be determined and the
Adjusted Treasury Rate will be interpolated or extrapolated from such
yields on a straight line basis, rounding to the nearest month); or
(2) if such release (or any successor release) is not published during the
week preceding the calculation date or does not contain such yields, the
rate per annum equal to the semiannual equivalent yield to maturity of
the Post-Remarketing Comparable Treasury Issue, calculated using a price
for the Post-Remarketing Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Post-Remarketing
Comparable Treasury Price for such redemption date.
The Adjusted Treasury Rate will be calculated on the third Business Day
preceding the applicable post-remarketing redemption date.
"Post-Remarketing Comparable Treasury Issue" for the ROARS means the U.S.
Treasury security selected by an Independent Investment Banker as having a
maturity comparable to the remaining term of the ROARS to be redeemed that would
be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such ROARS or, if, in the reasonable judgment
of the Independent Investment Banker, there is no such security, then the
Post-Remarketing Comparable Treasury Issue will mean the U.S. Treasury security
or securities selected by an Independent Investment Banker as having an actual
or interpolated maturity or maturities comparable to the remaining term of the
ROARS.
"Post-Remarketing Comparable Treasury Price" means (1) the average of five
Post-Remarketing Reference Treasury Dealer Quotations for the post-remarketing
redemption date, after excluding the highest and lowest Post-Remarketing
Reference Treasury Dealer Quotations, or (2) if the Independent Investment
Banker obtains fewer than five such Post-Remarketing Reference Treasury Dealer
Quotations, the average of all such quotations.
"Independent Investment Banker" means Banc of America Securities LLC or
Lehman Brothers Inc. or any other firm selected by us, or if such firm is
unwilling or unable to serve as such, an independent investment and banking
institution of national standing appointed by us.
"Post-Remarketing Reference Treasury Dealer" means each of up to five
Primary Treasury Dealers to be selected by us, and their respective successors;
PROVIDED that if any of the foregoing ceases to be, and has no affiliate that
is, a Primary Treasury Dealer, we will substitute for it another Primary
Treasury Dealer.
"Post-Remarketing Reference Treasury Dealer Quotations" means, with respect
to each Post-Remarketing Reference Treasury Dealer and any post-remarketing
redemption date, the
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average, as determined by the Independent Investment Banker of the bid and asked
prices for the Post-Remarketing Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the
Independent Investment Banker at 5:00 p.m., New York City time, on the third
Business Day preceding such redemption date.
We will mail a notice of redemption at least 30 days but not more than
60 days before a post-remarketing redemption date to each holder of ROARS to be
redeemed. If we elect to partially redeem the ROARS, the Trustee will select in
a fair and appropriate manner the ROARS to be redeemed.
Unless we default in payment of the redemption price, interest will cease to
accrue on or after the post-remarketing redemption date on the ROARS or portions
thereof called for redemption.
SETTLEMENT
In the event that the ROARS are purchased by the Remarketing Dealers, the
Remarketing Dealers will pay to the Trustee, in same day funds not later than
12:00 noon, New York City time, on the first Remarketing Date, an amount equal
to 100% of the aggregate principal amount of the ROARS or on the subsequent
Remarketing Date, an amount equal to the Dollar Price.
On any such Remarketing Date, the Remarketing Dealers will cause the Trustee
to make payment of the purchase price for such tendered ROARS that have been
purchased for remarketing by the Remarketing Dealers to DTC for payment to the
DTC participant of each tendering beneficial owner of ROARS. This payment will
be made against delivery through DTC of such beneficial owner's ROARS by
book-entry through DTC by the close of business on such Remarketing Date.
The purchase price of such tendered ROARS will be equal to 100% of the
aggregate principal amount thereof, on the first Remarketing Date, and the
Dollar Price, on the subsequent Remarketing Date. We will make, or cause the
Trustee to make, payment of interest to DTC for payment to each beneficial owner
of ROARS due on a Remarketing Date by book-entry through DTC, by the close of
business on such Remarketing Date.
The transactions described above will be executed on the applicable
Remarketing Date through DTC in accordance with the procedures of DTC, and the
accounts of the respective Participants will be debited and credited, and the
ROARS delivered by book-entry as necessary to effect the purchases and sales
thereof.
Settlement for the ROARS will be made by the underwriters in immediately
available funds. All payments of principal and interest in respect of the ROARS
in book-entry form will be made in immediately available funds. The ROARS will
trade in DTC's Same-Day Funds Settlement System until the maturity date, the
applicable Remarketing Date or the post-remarketing redemption date, as the case
may be, or until the ROARS are issued in definitive form. Secondary market
trading activity in the ROARS will be required by DTC to settle in immediately
available funds.
The tender and settlement procedures described above, including the
provisions for payment to selling beneficial owners of tendered ROARS, or for
payment by the purchasers of ROARS, in a remarketing, may be modified to the
extent required by DTC or, if the book-entry system is no longer available for
the ROARS at the time of a remarketing, to the extent required to facilitate the
tendering and remarketing of ROARS in certificated form. In addition, the
Remarketing Dealers may modify the settlement procedures set forth above in
order to facilitate the settlement process.
As long as DTC or its nominee holds a certificate representing the ROARS in
the book-entry system of DTC, no certificates for such ROARS will be delivered
to any beneficial owner. In addition, under the terms of the ROARS and the
Remarketing Agreement, we have agreed that (1) we will use our reasonable best
efforts to maintain the ROARS in book-entry form with DTC or any successor
thereto, and to appoint a successor depositary to the extent necessary to
maintain the ROARS in book-entry form and (2) we will waive any
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discretionary right we otherwise have under our Indenture to cause the ROARS to
be issued in certificated form.
REMARKETING DEALER
On or prior to the date of original issuance of the ROARS, we will enter
into a Remarketing Agreement with the Remarketing Dealers. The Remarketing
Dealers will not receive any fees or reimbursement of expenses from us in
connection with the remarketing, except under certain circumstances. The
aggregate amount paid to us for the purchase of the ROARS will include an amount
paid by the Remarketing Dealers for their right to remarket the ROARS.
We will agree to indemnify the Remarketing Dealers against certain
liabilities, including liabilities under the Securities Act, arising out of or
in connection with their duties under the Remarketing Agreement or to contribute
with respect to payments which they may be required to make.
If the Remarketing Dealers elect to purchase the ROARS for remarketing, the
obligation of the Remarketing Dealers to purchase the ROARS will be subject to
several conditions set forth in the Remarketing Agreement. Pursuant to the
Remarketing Agreement, Banc of America Securities LLC will act as representative
of the Remarketing Dealers with full authority to act on their behalf. Under the
Remarketing Agreement, the Remarketing Dealers each will agree to remarket 50%
of the principal amount of the ROARS, and their respective commitments and
obligations under the Remarketing Agreement will be several and not joint.
Furthermore, upon the occurrence of certain events after the Remarketing Dealers
elect to purchase the ROARS for remarketing, the Remarketing Dealers will have
the right to terminate the Remarketing Agreement or terminate their obligations
to purchase the ROARS, or, until 3:30 p.m., New York City time, on the Business
Day immediately preceding the applicable Remarketing Date, to redetermine the
applicable interest rate.
No beneficial owner of the ROARS will have any rights or claims under the
Remarketing Agreement or against us or the Remarketing Dealers, as a result of
the Remarketing Dealers not purchasing the ROARS.
The Remarketing Agreement will provide that either Remarketing Dealer may
resign at any time as a Remarketing Dealer, such resignation to be effective ten
Business Days after the delivery to us and the Trustee of notice of such
resignation. In the event that either Remarketing Dealer so resigns, the
remaining Remarketing Dealer may notify the Company in writing that it will
assume the resigning Remarketing Dealer's obligations under the Remarketing
Agreement. If the remaining Remarketing Dealer does not so notify us, we have
the sole obligation to appoint a successor Remarketing Dealer. After it
purchases the ROARS, a Remarketing Dealer may exercise any vote or join in any
action that any beneficial owner of ROARS may be entitled to exercise, or take,
as if it did not act in any capacity under the Remarketing Agreement. Each
Remarketing Dealer, in its individual capacity, either as principal or agent,
may engage in or have an interest in any financial or other transaction with us,
as freely as if it did not act in any capacity under the Remarketing Agreement.
As long as the Remarketing Agreement is in effect, we will not acquire any
of the ROARS prior to any remarketing by the Remarketing Dealers, other than in
connection with the fulfillment of our obligation to redeem the ROARS, or the
exercise of our right to redeem the ROARS on a Remarketing Date without the
prior written consent of the Remarketing Dealers. After all Remarketing Dates or
termination of the Remarketing Agreement prior thereto, we may at any time
purchase any ROARS at any price in the open market or otherwise. The ROARS so
purchased by us may, at our discretion, be held, resold or surrendered to the
Trustee for cancellation.
RECENT ACCOUNTING DEVELOPMENTS
For purposes of financial accounting and reporting for publicly held
companies, the Securities and Exchange Commission may require prospective
investors to separately account for the Remarketing Dealers' option to purchase
and to remarket the ROARS on the
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first Remarketing Date. Persons considering investing in the ROARS, who are
required to file financial reports with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, should consult
their own accounting advisors concerning potential reporting requirements.
BOOK-ENTRY ONLY ISSUANCE--DTC
The Depository Trust Company ("DTC") will act as the initial securities
depositary for the ROARS. The ROARS will be initially issued as fully registered
securities registered in the name of Cede & Co., DTC's nominee. Fully registered
global certificates will be issued, representing the total principal amount of
the ROARS, 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 Securities Exchange
Act of 1934, as amended. 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 a custodial
relationship with a direct participant, either directly or indirectly ("indirect
participants"). The rules applicable to DTC and its participants are on file
with the Securities and Exchange Commission.
Purchases of ROARS within the DTC system must be made by or through direct
participants, which will receive a credit for the ROARS on DTC's records. The
ownership interest of each actual purchaser of ROARS ("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
entered into the transaction. Transfers of ownership interests in the ROARS 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 ROARS, except in the event that use of
the book-entry system for the ROARS is discontinued.
To facilitate subsequent transfers, all ROARS deposited by participants with
DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of ROARS with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the actual
beneficial owners of the ROARS. DTC's records reflect only the identity of the
direct participants to whose accounts such ROARS are credited, which may or may
not be the beneficial owners. The participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
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Neither DTC nor Cede & Co. will consent or vote with respect to ROARS. Under
its usual procedures, DTC would mail an Omnibus Proxy to us as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those direct participants to whose accounts the ROARS are
credited on the record date (identified in a listing attached to the Omnibus
Proxy).
Payments on the ROARS will be made to Cede & Co., as nominee of DTC. DTC's
practice is to credit direct participants' accounts, upon DTC's receipt of funds
and corresponding detailed information, on the relevant payment date in
accordance with their respective holdings shown on DTC's records. Payments by
participants to beneficial owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name," and will be the
responsibility of such participant and not our responsibility or the
responsibility of DTC, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment to Cede & Co. is our responsibility
or the responsibility of the paying agent, disbursement of such payments to
direct participants is the responsibility of Cede & Co., and disbursement of
such payments to the beneficial owners is the responsibility of direct and
indirect participants.
Except as provided herein, a beneficial owner of an interest in a global
ROARS will not be entitled to receive physical delivery of ROARS. Accordingly,
each beneficial owner must rely on the procedures of DTC to exercise any rights
under the ROARS. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in a global ROARS.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but neither we
nor any underwriter takes any responsibility for its accuracy. We have no
responsibility for the performance by DTC or its participants of their
respective obligations, including obligations that they have under the rules and
procedures that govern their operations.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States federal income tax
consequences of the purchase, ownership and disposition of the ROARS is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, Internal Revenue Service ("IRS") rulings and pronouncements and
administrative and judicial decisions currently in effect, all of which are
subject to change (possibly with retroactive effect) or possible differing
interpretations. This summary deals only with ROARS held by initial holders as
capital assets as defined in the Code and does not purport to deal with persons
in special tax situations, such as financial institutions, insurance companies,
regulated investment companies, real estate investment trusts, dealers in
securities or currencies, persons holding ROARS as a hedge against currency risk
or as a position in a "straddle" or conversion transaction, or persons whose
functional currency is not the U.S. dollar.
PROSPECTIVE INVESTORS CONSIDERING THE PURCHASE OF THE ROARS SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL
INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE ROARS ARISING UNDER THE LAWS OF
ANY OTHER TAXING JURISDICTION.
As used herein, the term "U.S. Holder" means a beneficial owner of ROARS
that is for United States federal income tax purposes (1) a citizen or resident
of the United States, (2) a corporation, partnership or other entity treated as
a corporation or partnership created or
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organized in or under the laws of the United States or of any political
subdivision thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations), (3) an estate the
income of which is subject to United States federal income tax regardless of its
source, or (4) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust. As used herein, the term "non-U.S. Holder" means a beneficial owner of a
ROARS that is not a U.S. Holder.
The United States federal income tax treatment of debt obligations such as
ROARS is not entirely certain. Because the ROARS are subject to mandatory tender
on the Remarketing Date, we intend to treat the ROARS as maturing on the
Remarketing Date in computing any original issue discount for United States
federal income tax purposes. Based on such treatment, interest on the ROARS
should constitute "qualified stated interest" and generally should be taxable to
a U.S. Holder as ordinary interest income at the time such payments are accrued
or received, in accordance with the U.S. Holder's regular method of tax
accounting. Under the foregoing, if the ROARS are issued to the U.S. Holder at
par value or the excess of par value over the issue price does not exceed a
statutory DE MINIMIS amount (generally 1/4 of 1% of the ROARS' stated redemption
price at the Remarketing Date multiplied by the number of complete years to the
Remarketing Date from its issue date), the ROARS will not be treated as having
original issue discount. If the ROARS are issued at a discount greater than the
statutory DE MINIMIS amount, a Holder will include original issue discount in
income as ordinary interest for United States federal income tax purposes as it
accrues under a constant yield method in advance of receipt of the cash payments
attributable to such income, regardless of the U.S. Holder's regular method of
tax accounting.
Under the foregoing treatment, upon the sale, exchange or retirement of a
ROARS, a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the ROARS. A U.S. Holder's adjusted tax basis in
a ROARS generally will equal such U.S. Holder's initial investment in the ROARS
increased by any original issue discount included in income and decreased by the
amount of any payments, other than qualified stated interest payments, received
with respect to the ROARS. Such gain or loss will generally be capital gain or
loss and will be long-term capital gain or loss if the ROARS are held by the
U.S. Holder for more than one year on the date of disposition.
There can be no assurance that the IRS will agree with our treatment of the
ROARS, and it is possible that the IRS could assert another treatment. For
instance, it is possible that the IRS could seek to treat the ROARS as maturing
on their stated maturity date. In the event the ROARS were treated as maturing
on their stated maturity date for United States federal income tax purposes, the
ROARS would be treated as having contingent interest under the Code. In such
event, under Treasury regulations governing debt instruments that provide for
contingent payments, we would be required to construct a projected payment
schedule for the ROARS, based upon our current borrowing costs for our
comparable debt instruments, from which an estimated yield on the ROARS would be
calculated. A U.S. Holder would be required to include in income original issue
discount in an amount equal to the product of the adjusted issue price of the
ROARS at the beginning of each interest accrual period and the estimated yield
of the ROARS. In general, for these purposes, a ROARS' adjusted issue price
would equal the ROARS' issue price increased by the original issue discount
previously accrued on the ROARS, and reduced by all payments made on the ROARS.
As a result of such a calculation, a U.S. Holder might be required to include
original issue discount in income in excess of actual cash payments received for
certain taxable years. Also, the character of any gain or loss, upon the sale or
exchange of a ROARS (including a sale pursuant to the mandatory
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tender on the Remarketing Date) by a U.S. Holder, will likely differ if the
ROARS were treated as contingent payment obligations. Any such taxable gain
generally would be treated as ordinary income. Any such taxable loss generally
would be ordinary to the extent of previously accrued original issue discount,
and any excess would generally be treated as capital loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a ROARS, unless such non-U.S. Holder is a direct or
indirect 10% or greater shareholder of the Company, a controlled foreign
corporation related to the Company through stock ownership or a bank receiving
interest on an extension of credit made pursuant to a loan agreement entered
into in the ordinary course of its trade or business. To qualify for the
exemption from taxation, a non-U.S. Holder must provide a statement signed by
the beneficial owner of the ROARS under penalties of perjury that certifies that
such owner is not a U.S. Holder and provides the name and address of the
beneficial owner.
Any gain or income realized by non-U.S. Holders upon the sale, exchange,
retirement or other disposition of ROARS generally will not be subject to United
States federal income tax unless (i) such gain or income is effectively
connected with the conduct of a trade or business in the United States of the
non-U.S. Holder or (ii) in the case of a non-U.S. Holder who is an individual,
such individual is present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other disposition, and
certain other conditions are met.
ROARS beneficially owned by an individual who at the time of death is not a
United States citizen or resident will not be subject to the United States
federal estate tax as a result of such individual's death, PROVIDED that such
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
and PROVIDED that the interest payments with respect to such ROARS would not
have been, if received at the time of such individual's death, effectively
connected with the conduct of a United States trade or business by such
individual.
BACKUP WITHHOLDING
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of the ROARS to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the ROARS to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for non-U.S. Holders.
Upon the sale of ROARS to or through a broker, the broker must withhold 31%
of the entire purchase price, unless either (i) the broker determines that the
seller is a corporation or other exempt recipient or (ii) the seller provides,
in the required manner, certain identifying information and, in the case of a
non-U.S. Holder, certifies that such seller is a non-U.S. Holder and certain
other conditions are met. Such a sale must also be reported by the broker to the
IRS, unless either (i) the broker determines that the seller is an exempt
recipient or (ii) the seller certifies its non-U.S. status and certain other
conditions are met. Certification of the registered owner's non-U.S. status
would be made normally on an IRS form under penalties of perjury.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States federal income tax, provided the required
information is furnished to the IRS.
S-19
<PAGE>
FINAL WITHHOLDING REGULATIONS
The Treasury Department recently issued final Treasury regulations (the
"Final Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. In general, the
Final Regulations do not significantly alter the substantive withholding and
information reporting requirements but unify certification procedures and terms
and clarify reliance standards. The Final Regulations will generally be
effective for payments made on or after January 1, 2001 subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the Final Regulations.
UNDERWRITING
Subject to the terms and conditions stated in the purchase agreement dated
December 15, 2000 among us and the underwriters named below, we have agreed to
sell to each of the underwriters and each of the underwriters has severally
agreed to purchase, the principal amount of ROARS set forth opposite the name of
such underwriter:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF ROARS
------------ ----------------
<S> <C>
Banc of America Securities
LLC........................... $ 88,230,000
Lehman Brothers Inc............. 53,630,000
Salomon Smith Barney Inc........ 10,380,000
Scotia Capital (USA) Inc........ 10,380,000
SunTrust Equitable Securities
Corporation................... 10,380,000
------------
Total....................... $173,000,000
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the ROARS included in this offering are subject to
approval of a number of legal matters by counsel and to some other conditions.
The underwriters are obligated to purchase all of the ROARS if they purchase any
of the ROARS.
The underwriters propose to offer the ROARS directly to the public at the
public offering price set forth on the cover page of this prospectus supplement
and to certain dealers at the public offering price less a concession not in
excess of 0.15% of the principal amount of the ROARS. The underwriters may
allow, and such dealers may reallow, a discount not in excess of 0.10% of the
principal amount of the ROARS on sales to certain other dealers. After the
initial offering of the ROARS to the public, the public offering price and such
concessions may be changed by the underwriters.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
which they may be required to make.
We will not offer or sell, without the prior consent of the underwriters,
any of our other debt securities which are substantially similar to the ROARS
within 10 Business Days after the closing of this offering.
The ROARS are a new issue of securities with no established trading market.
We do not intend to apply for listing of the ROARS on any securities exchange or
for quotation through any inter-dealer quotation system. We have been advised by
the underwriters that they intend to make a market in the ROARS as permitted by
applicable laws and regulations. The underwriters are not obligated, however, to
make a market in the ROARS, and any market making may be discontinued at any
time without notice. No assurances can be given as to the liquidity of, or
trading market for, the ROARS.
In connection with the offering, Banc of America Securities LLC, on behalf
of the underwriters, may purchase and sell ROARS in the open market. These
transactions may include over-allotment, syndicate covering transactions and
stabilizing transactions. Over-allotment involves syndicate sales of ROARS in
excess of the principal amount of the ROARS to be purchased by the underwriters
in the offering, which creates a syndicate short position. Syndicate covering
transactions involves purchases of the ROARS in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of ROARS made for
the purpose of preventing or retarding a decline in the market
S-20
<PAGE>
price of the ROARS while the offering is in progress.
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when Banc
of America Securities LLC, in covering syndicate short positions or making
stabilizing purchases, repurchases ROARS originally sold by that syndicate
member.
Any of these activities may cause the price of the ROARS to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. These transactions may be effected in the over-the-counter market
or otherwise and, if commenced, may be discontinued at any time.
We estimate that our total expenses of this offering will be $250,000.
The Remarketing Dealers will pay to us 2.40% of the aggregate principal
amount of the ROARS as consideration for the right to repurchase the ROARS at
100% of their aggregate principal amount on the first Remarketing Date.
If the Remarketing Dealers purchase the ROARS on the first Remarketing Date
and subsequently offer the ROARS for resale, the resale of the ROARS may have to
be registered with the Securities and Exchange Commission under the Securities
Act of 1933, as amended. If the resale of the ROARS has to be registered, we
have agreed to pay the expenses incident to such a registration.
The underwriters and their affiliates may have performed certain investment
banking or commercial banking transactions on our behalf from time to time for
which they have received customary fees and expenses. The underwriters and their
affiliates may, from time to time, engage in transactions with and perform
services on our behalf in the ordinary course of their business.
S-21
<PAGE>
[LOGO]
$173,000,000
Baltimore Gas and Electric Company
39 W. Lexington Street
MEDIUM TERM NOTES
Baltimore, Maryland 21201
SERIES I
(410) 234-5000
--------------------------------------------------------------------------------
P R O S P E C T U S
--------------------------------------------------------------------------------
This prospectus is part of a registration statement that we filed with the SEC
utilizing a "shelf" registration process. Under this shelf process, we may, from
time to time, sell the notes described in this prospectus in one or more
offerings up to a total dollar amount of $173,000,000. We will receive between
$171,702,500 and $172,783,750 of the proceeds from the sale of the notes (99.25%
- 99.875% on a per note basis), after paying the agents' commissions of between
$216,250 and $1,297,500 (0.125% - 0.75% on a per note basis).
This prospectus provides you with a general description of the notes we may
offer. Each time we sell notes, we will provide a pricing supplement (which may
also be referred to as a prospectus supplement) that will contain specific
information about the terms of that offering. The supplement may also add,
update or change information contained in this prospectus.
THIS INVESTMENT INVOLVES CERTAIN RISKS. PLEASE REFER TO THE DISCUSSION OF RISK
FACTORS ON PAGE 4.
--------------------------------------------------------------------------------
WE URGE YOU TO CAREFULLY READ THIS PROSPECTUS AND THE PRICING SUPPLEMENT WHICH
WILL DESCRIBE THE SPECIFIC TERMS OF THE OFFERING TOGETHER WITH ADDITIONAL
INFORMATION DESCRIBED UNDER THE HEADING WHERE YOU CAN FIND MORE INFORMATION
BEFORE YOU MAKE YOUR INVESTMENT DECISION.
--------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
LEHMAN BROTHERS
BANC OF AMERICA SECURITIES LLC GOLDMAN, SACHS & CO.
AGENTS
OCTOBER 18, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
FORWARD LOOKING STATEMENTS.................................. 3
BALTIMORE GAS AND ELECTRIC COMPANY.......................... 4
RISK FACTORS................................................ 4
PRICING SUPPLEMENT.......................................... 5
USE OF PROCEEDS............................................. 5
RATIO OF EARNINGS TO FIXED CHARGES.......................... 6
DESCRIPTION OF THE NOTES.................................... 6
PLAN OF DISTRIBUTION........................................ 17
LEGAL OPINIONS.............................................. 18
EXPERTS..................................................... 18
WHERE YOU CAN FIND MORE INFORMATION......................... 18
</TABLE>
<PAGE>
FORWARD-LOOKING STATEMENTS
We make statements in this prospectus and the documents we incorporate by
reference that are considered forward-looking statements within the meaning of
the Securities Act of 1933 and the Securities Exchange Act of 1934. Sometimes
these statements will contain words such as "believes," "expects," "intends,"
"plans" and other similar words. These statements are not guarantees of our
future performance and are subject to risks, uncertainties and other important
factors that could cause our actual performance or achievements to be materially
different from those we project. These risks, uncertainties and factors include,
but are not limited to:
- general economic, business and regulatory conditions;
- energy supply and demand;
- competition;
- federal and state regulations;
- availability, terms and use of capital;
- environmental issues;
- weather;
- implications of the restructuring order issued by the Maryland Public Service
Commission (Md. PSC) regarding electric deregulation including the outcome of
the appeal of the order;
- loss of revenues due to customers choosing alternative suppliers;
- inability to recover all costs associated with providing electric retail
customers service during the electric rate freeze period; and
- implications from the transfer of BGE's generation assets to non-regulated
subsidiaries of Constellation Energy Group, Inc., BGE's parent, including, the
outcome of the appeal of the Md. PSC's order regarding the asset transfer.
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Please see the documents we incorporate by reference
for more information on these factors. These forward-looking statements
represent our estimates and assumptions only as of the date of this prospectus.
3
<PAGE>
BALTIMORE GAS AND ELECTRIC COMPANY
BGE, a wholly-owned subsidiary of Constellation Energy Group, Inc.,
("Constellation Energy") is a regulated energy delivery company transmitting and
distributing electricity throughout a 2,300-square-mile service territory and
distributing natural gas throughout a 600-square-mile service territory in
Central Maryland. Effective on July 1, 2000 electric customer choice and
competition among electric suppliers was implemented in Maryland. For a more
detailed discussion of the Maryland law authorizing customer choice and
competition, and the Maryland Public Service Commission order (Restructuring
Order) that resolved major issues surrounding electric restructuring, please
refer to our Annual Report on Form 10-K. See WHERE YOU CAN FIND MORE
INFORMATION.
As part of the implementation of electric customer choice and competition in
Maryland, our generating assets were deregulated. As a result, on July 1, 2000,
we transferred, at book value, all of our nuclear and fossil generating assets,
including ownership in two coal plants and a hydroelectric plant located in
Pennsylvania to nonregulated subsidiaries of Constellation Energy. In total,
these generating assets represent about 6,240 megawatts of generation capacity
with a total net book value at June 30, 2000 of approximately $2.4 billion. The
electric generation portion of our business represented about one-half of our
operating income. In addition, on July 1, 2000 the electric fuel rate was
discontinued.
Under the Restructuring Order, we will provide electricity (standard offer
service) to customers at fixed rates over various time periods until June 30,
2006 if they do not choose an alternate supplier. A Constellation Energy
nonregulated subsidiary will provide us with the energy and capacity required to
meet our standard offer service obligations at fixed prices for the first three
years of the transition period. Standard offer service will be competitively bid
thereafter.
We also transferred approximately $278 million of our tax exempt debt to
nonregulated subsidiaries of Constellation Energy related to the transferred
assets. In addition, we received $366 million in unsecured promissory notes.
Repayment of the notes by a nonregulated subsidiary of Constellation Energy have
been and will be used exclusively to service certain long-term debt of BGE. We
also transferred equity associated with the generating assets to Constellation
Energy's nonregulated subsidiaries. Our fossil fuel and nuclear fuel
inventories, materials and supplies, and certain power purchase contracts were
also transferred.
On August 14, 2000, we filed a Form 10-Q for the quarter ended June 30, 2000
with the Securities and Exchange Commission which contains pro forma financial
information on the potential impact of the transfer of our generating assets.
See WHERE YOU CAN FIND MORE INFORMATION. We cannot estimate the impact on our
business of the increased financial risks associated with electric customer
choice and competition and the transfer of our generating assets. However, both
will have a material impact on our future financial results.
RISK FACTORS
Lower Revenues. Under deregulation, until our customers choose an alternate
supplier for electricity, we will continue to provide electricity to them under
our standard offer service. Once customers begin to choose alternate suppliers,
our revenues from the sale of electricity will decline. Therefore at some point
in the future, our revenues will come primarily from the delivery service we
provide to our gas and electric customers. No assurance can be given as to the
amount of revenues we will earn in the future, which will be affected by the
electric rate freeze discussed below and also by the same primary influences
that affect our revenues today:
- the rates approved by the Md. Public Service Commission that we are allowed to
charge our customers for the services we provide;
- the weather;
- the number of customers;
- the amount each customer uses; and
- competition.
4
<PAGE>
Electric Rate Freeze. On July 1, 2000, our annual residential rates decreased by
approximately $54 million and will be frozen at that level until June 30, 2006.
While commercial and industrial customer rates were not reduced, these customers
have up to 4 service options by which to fix electric rates and transition
charges for a period that generally ranges from 4 to 6 years. Electric delivery
service rates for commercial and industrial customers will be frozen for a
4-year period.
As a result, during the electric rate freeze periods, we may not be able to
recover from our ratepayers any additional costs associated with providing them
service. Once the electric rate freeze periods are over, we are free to
reexamine our rate structure and, if appropriate, file with the Md. PSC for a
change in the applicable rates.
Market Price Risk on Standard Offer Service. Until June 30, 2006, we are
required to provide electricity (standard offer service) at prices fixed by the
Md. PSC to our residential customers (and for up to 4 years to commercial and
industrial customers depending on what service option they choose) who do not
choose an alternate supplier. A nonregulated subsidiary of Constellation Energy
will provide us with the energy and capacity required to meet our standard offer
service obligations at fixed prices for the first three years of the transition
period (until June 30, 2003). As a result, we will not bear any market price
risk of providing standard offer service during this time. Thereafter, we will
competitively bid the energy and capacity for providing standard offer service
and will be subject to market price risk. As a result, during the last 3 years
of the transition period and thereafter we may be unable to purchase the
electricity we must provide at prices equal to or below the price at which we
can sell the electricity to our customers.
PRICING SUPPLEMENT
The pricing supplement, which may also be called a prospectus supplement, for
each offering of notes will contain the specific information and terms for that
offering. The pricing supplement may also add, update or change information
contained in this prospectus. It is important for you to consider the
information contained in this prospectus and the pricing supplement in making
your investment decision.
USE OF PROCEEDS
Based on our current plans and estimates, the net proceeds from the sale of the
notes will be used for general corporate purposes relating to our utility
business, including repayment of commercial paper borrowings used to finance
construction, other capital expenditures and operations. If we do not use the
net proceeds immediately, we temporarily invest them in short-term,
interest-bearing obligations.
For current information on our commercial paper balances and average interest
rate, see our most recent Form 10-K and 10-Q. See WHERE YOU CAN FIND MORE
INFORMATION.
5
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The Ratio of Earnings to Fixed Charges for each of the periods indicated is as
follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
--------------------- ----------------------------------------------------
2000 1999 1998 1997 1996 1995
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
3.40 3.45 2.94 2.78 3.10 3.21
</TABLE>
For current information on the Ratio of Earnings to Fixed Charges, please see
our most recent Form 10-K and 10-Q. See WHERE YOU CAN FIND MORE INFORMATION.
DESCRIPTION OF THE NOTES
GENERAL
We will issue the notes under an indenture between us and The Bank of New York,
dated as of July 1, 1985 as supplemented on October 1, 1987 and January 26,
1993. The indenture is a contract between us and The Bank of New York acting as
trustee. The trustee has two main roles. First, the trustee can enforce your
rights against us if an "Event of Default" described below occurs. Second, the
trustee performs certain administrative duties for us.
The indenture is summarized below. Because it is a summary, it does not contain
all of the information that may be important to you. We have filed the indenture
and its supplements with the SEC, and we suggest that you read it. You
especially need to read the indenture to get a complete understanding of your
rights and our obligations under the provisions described in EVENT OF DEFAULT;
MODIFICATION OF INDENTURE; AND CONSOLIDATION, MERGER OR SALE. See WHERE YOU CAN
FIND MORE INFORMATION on how to locate the indenture and the supplements. You
may also review the indenture at the Trustee's offices at 101 Barclay Street,
New York, New York.
The specific terms of each series of notes will be described in the particular
pricing supplement relating to that series. The pricing supplement may or may
not modify the general terms found in this prospectus and will be filed with the
SEC. For a complete description of the terms of a particular series of notes,
you should read both this prospectus and the pricing supplement relating to that
series.
The indenture does not limit the amount of notes that may be issued. Each series
of notes may differ as to their terms. For current information on our debt
outstanding see our most recent Form 10-K and 10-Q. See WHERE YOU CAN FIND MORE
INFORMATION.
The notes are unsecured and will rank equally with all our unsecured
indebtedness. The notes will be denominated in U.S. dollars and we will pay
principal and interest in U.S. dollars. The notes will not be subject to any
conversion, amortization, or sinking fund. It is anticipated that the notes will
be "book-entry," represented by a permanent global note registered in the name
of The Depository Trust Company, or its nominee. However, we reserve the right
to issue notes in certificate form registered in the name of the noteholders.
In the discussion that follows, whenever we talk about paying principal on the
notes, we mean at maturity, redemption or repurchase. Also, in discussing the
time for notices and how the different interest rates are calculated, all times
are New York City time, unless otherwise noted.
The following terms may apply to each note as specified in the applicable
pricing supplement and the note. The applicable pricing supplement will describe
the terms for the notes including: interest rate, maturity date, remarketing
provisions, our right to redeem notes, the holders' right to tender notes, and
any other provisions.
6
<PAGE>
REDEMPTIONS
We may redeem notes at our option. Notes may be redeemable in whole or in part
in increments of $1,000 upon no more than 60, and not less than 30 days prior
notice. If we do not redeem all the notes of a series at one time, the Trustee
selects the notes to be redeemed in a manner it determines to be fair.
REPURCHASES
The noteholder may have the right to cause us to repurchase the notes. We will
repurchase the notes in whole or in part in increments of $1,000. The method for
repurchases differs for book-entry and certificate notes, and is discussed later
in this section, DESCRIPTION OF THE NOTES.
REMARKETED NOTES
We may issue notes with remarketing features that allow holders the option to
sell their notes back to us. In turn, we have the option to retire these notes
or remarket and sell them to new holders.
BOOK-ENTRY NOTES--REGISTRATION, TRANSFER, AND PAYMENT OF INTEREST AND PRINCIPAL
Book-entry notes of a series will be issued in the form of a global note that
will be deposited with The Depository Trust Company, New York, New York ("DTC").
This means that we will not issue certificates to each holder. One global note
will be issued to DTC who will keep a computerized record of its participants
(for example, your broker) whose clients have purchased the notes. The
participant will then keep a record of its clients who purchased the notes.
Unless it is exchanged in whole or in part for a certificate note, a global note
may not be transferred; except that DTC, its nominees, and their successors may
transfer a global note as a whole to one another.
Beneficial interests in global notes will be shown on, and transfers of global
notes will be made only through, records maintained by DTC and its participants.
DTC has provided us the following information: 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 United States
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Direct Participants") deposit with DTC. DTC
also records the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for Direct Participant's accounts. This eliminates the need
to exchange certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations.
DTC's book-entry system is also used by other organizations such as securities
brokers and dealers, banks and trust companies that work through a Direct
Participant. The rules that apply to DTC and its participants are on file with
the SEC.
DTC is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., The American Stock Exchange, LLC and the National Association of
Securities Dealers, Inc.
We will wire principal and interest payments to DTC's nominee. We and the
Trustee will treat DTC's nominee as the owner of the global notes for all
purposes. Accordingly, we, the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global notes to owners of
beneficial interests in the global notes.
It is DTC's current practice, upon receipt of any payment of principal or
interest, to credit Direct Participants' accounts on the payment date according
to their respective holdings of beneficial interests in the global notes as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consenting or
7
<PAGE>
voting rights to Direct Participants whose accounts are credited with notes on a
record date, by using an omnibus proxy. Payments by participants to owners of
beneficial interests in the global notes, and voting by participants, will be
governed by the customary practices between the participants and owners of
beneficial interests, as is the case with notes held for the account of
customers registered in "street name." However, payments will be the
responsibility of the participants and not of DTC, the Trustee or us.
Notes represented by a global note will be exchangeable for certificate notes
with the same terms in authorized denominations only if:
- DTC notifies us that it is unwilling or unable to continue as depositary or if
DTC ceases to be a clearing agency registered under applicable law and a
successor depositary is not appointed by us within 90 days; or
- We determine not to require all of the notes of a series to be represented by
a global note and notify the Trustee of our decision.
BOOK-ENTRY NOTES--METHOD OF REPURCHASE
Participants, on behalf of the owners of beneficial interests in the global
notes, may exercise the repurchase option by delivering written notice to our
paying agent at least 30, but no more than 60, days prior to the date of
repurchase. The paying agent, The Bank of New York, must receive notice by
5:00 p.m. on the last day for giving notice. Procedures for the owners of
beneficial interests in global notes to notify their participants of their
desire to have their note repurchased will be governed by the customary
practices of the participant. The written notice to the paying agent must state
the principal amount to be repurchased. It is irrevocable and a duly authorized
officer of the participant (with signatures guaranteed) must sign it.
CERTIFICATE NOTES--REGISTRATION, TRANSFER, AND PAYMENT OF INTEREST AND PRINCIPAL
If we issue certificate notes, they will be registered in the name of the
noteholder. The notes may be transferred or exchanged, pursuant to
administrative procedures in the indenture, without the payment of any service
charge (other than any tax or other governmental charge) by contacting the
paying agent.
Holders of over $5 million in principal amount of notes can request that payment
of principal and interest be wired to them by contacting the paying agent at the
address set forth above at least one business day prior to the payment date.
Otherwise, payments will be made by check.
CERTIFICATE NOTES--METHOD OF REPURCHASE
Noteholders desiring to exercise their repurchase option must notify the paying
agent at least 30 but not more than 45 days prior to the repayment date by
providing the bank:
- the note, with the section entitled "Option to Elect Repayment" on the reverse
of the note completed; or
- a fax or letter (first class, postage prepaid) from a member of a national
securities exchange, the National Association of Securities Dealers, or a bank
or trust company in the United States which states the following:
- the name of the holder;
- the principal amount of the note and the amount to be repurchased;
- the certificate number or the maturity and a description of the terms
of the note;
- a statement that you wish to sell all or a portion of your note; and
- A guaranty that the note with the section entitled "Option to Elect Repayment"
on the reverse of the note completed, will be received by the paying agent
within 5 business days.
8
<PAGE>
The note and form must be received by the paying agent by such 5th business day.
Your notice of repurchase is irrevocable.
If you sell a portion of a note, the old note will be canceled and a new note
for the remaining principal amount will be issued to you.
INTEREST RATE
GENERAL
The interest rate on the notes will either be fixed or floating. The interest
paid will include interest accrued to, but excluding, the date of maturity,
redemption or repurchase. Interest is generally payable to the person in whose
name the note is registered at the close of business on the record date before
each interest payment date. Interest payable at maturity, redemption, or
repurchase, however, will be payable to the person to whom principal is payable.
The first interest payment on any note originally issued between a record date
and interest payment date or on an interest payment date will be made on the
interest payment date after the next record date. Interest payments, other than
those payable at maturity, redemption or repurchase will be paid, at our option,
by check or wire transfer.
FIXED RATE NOTES
Each pricing supplement will designate the fixed rate of interest payable on a
note. Interest will be paid May 1 and November 1, and upon maturity, redemption
or repurchase. If any payment date falls on a day that is not a Business Day
(defined below), payment will be made on the next Business Day and no additional
interest will be paid. The record dates for such notes will be April 15 (for
interest to be paid on May 1) and October 15 (for interest to be paid on
November 1). Interest payments will be the amount of interest accrued to, but
excluding, each May 1 and November 1. Interest will be computed using a 360-day
year of twelve 30-day months.
"BUSINESS DAY" means any day other than a Saturday or Sunday that (a) is not a
day on which banking institutions in the state of Maryland, or in New York, New
York, are authorized or obligated by law or executive order to be closed, and
(b) with respect to floating rate notes with a LIBOR interest rate formula only,
is a day on which dealings in deposits in U.S. dollars are transacted in the
London interbank market.
FLOATING RATE NOTES
GENERAL
Each floating rate note will have an interest rate formula. The formula may be
based on:
- the commercial paper rate;
- the prime rate;
- the CD rate;
- the federal funds effective rate;
- the LIBOR;
- the Treasury rate;
- the CMT rate; or
- another index to be described in the applicable pricing supplement.
The interest rate for each interest period will be based on the formula plus a
spread or multiplied by a spread multiplier, if any, as indicated in the
applicable pricing supplement. In addition, any floating rate note may have a
maximum or minimum interest rate limitation.
DATE OF INTEREST RATE CHANGE
The interest rate on each floating rate note may be reset daily, weekly,
monthly, quarterly, semi-annually, or annually based on the Index Maturity for
the interest rate formula as specified in the applicable pricing supplement.
"INDEX MATURITY" means the period to maturity on the referenced floating
interest rate contract on which the interest rate formula is based. The specific
dates on which the interest rate will reset (Interest Reset Date) will be
specified in the applicable pricing supplement and will be:
- for notes which reset daily, each Business Day;
9
<PAGE>
- for notes (other than Treasury rate notes) which reset weekly, the Wednesday
of each week;
- for Treasury rate notes which reset weekly, the Tuesday of each week;
- for notes which reset monthly, the third Wednesday of each month;
- for notes which reset quarterly, the third Wednesday of March, June, September
and December;
- for notes which reset semi-annually, the third Wednesday of the two months of
each year indicated in the applicable pricing supplement; and
- for notes which reset annually, the third Wednesday of the month of each year
indicated in the applicable pricing supplement.
The initial interest rate or interest rate formula on each note effective until
the first Interest Reset Date will be indicated in the applicable pricing
supplement. Thereafter, the interest rate will be the rate determined on the
next Interest Determination Date, as explained below. Each time a new interest
rate is determined, it will become effective on the subsequent Interest Reset
Date. If any Interest Reset Date is not a Business Day, then the Interest Reset
Date will be postponed to the next Business Day. However, in the case of a LIBOR
note, if the next Business Day is in the next calendar month, the Interest Reset
Date will be the immediately preceding Business Day.
WHEN INTEREST RATE IS DETERMINED
The interest rate for all notes (except Treasury rate notes) will be the rate
determined on the second Business Day before the Interest Reset Date (Interest
Determination Date).
The Interest Determination Date for Treasury rate notes will be the day of the
week in which the Interest Reset Date falls on which Treasury bills would
normally be auctioned. Treasury bills are usually sold at auction on Monday of
each week, unless that day is a legal holiday, in which case the auction is
usually held on Tuesday. However, the auction may be held on the preceding
Friday. If an auction is held on the preceding Friday, that day will be the
Interest Determination Date pertaining to the Interest Reset Date occurring in
the next week. If an auction date falls on any Interest Reset Date then the
Interest Reset Date will instead be the first Business Day immediately following
the auction date.
The Bank of New York, or its successor (Calculation Agent), will calculate the
interest rate on the tenth day or if not a business day, the next business day,
after the related Interest Determination Date (Calculation Date) for all
floating rate notes except LIBOR notes. For LIBOR notes the Calculation Date
will be the Interest Determination Date.
Upon request, the Calculation Agent will provide the current interest rate and,
if different, the interest rate which will become effective on the next Interest
Reset Date.
WHEN INTEREST IS PAID
Interest is paid as follows:
- for notes which reset daily or weekly, on the third Wednesday of March, June,
September and December;
- for notes which reset monthly, on the third Wednesday of each month or on the
third Wednesday of March, June, September and December (as indicated in the
applicable pricing supplement);
- for notes which reset quarterly, on the third Wednesday of March, June,
September, and December;
- for notes which reset semi-annually, on the third Wednesday of the two months
specified in the applicable pricing supplement;
- for notes which reset annually, on the third Wednesday of the month specified
in the applicable pricing supplement; and
- at maturity, redemption or repurchase.
If interest is payable on a day which is not a Business Day, payment will be
postponed to the next Business Day. However, for LIBOR notes, if the next
Business Day is in the next calendar month, interest will be paid on the
preceding Business Day.
10
<PAGE>
The record date will be 15 calendar days prior to each day interest is paid,
whether or not such day is a Business Day.
The interest payable will be the amount of interest accrued to, but excluding,
the interest payment date. However, for notes on which the interest resets daily
or weekly, the interest payable will include interest accrued to and including
the record date prior to the interest payment date. If the interest payment date
is also a day that principal is due, the interest payable will include interest
accrued to, but exclude, the date of maturity, redemption or repurchase.
The accrued interest for any period is calculated by multiplying the principal
amount of a note by an accrued interest factor. The accrued interest factor is
computed by adding the interest factor calculated for each day in the period to
the date for which accrued interest is being calculated. The interest factor
(expressed as a decimal rounded upwards if necessary, as described below) is
computed by dividing the interest rate (expressed as a decimal rounded upwards
if necessary) applicable to such date by 360, unless the notes are Treasury rate
notes or CMT rate notes in which case it will be divided by the actual number of
days in the year.
All percentages resulting from any calculation of floating rate notes will be
rounded, if necessary, to the nearest one-hundred thousandth of a percentage
point, with five one-millionths of a percentage point rounded upwards (e.g.,
9.876545% (or .09876545) being rounded to 9.87655% (or .0987655) and 9.876544%
(or .09876544) being rounded to 9.87654% (or .0987654)), and all dollar amounts
used in or resulting from such calculation will be rounded to the nearest cent
(with one-half cent being rounded upwards).
COMMERCIAL PAPER RATE NOTES
Each commercial paper rate note will bear interest at the rate (calculated with
reference to the Commercial Paper Rate and the spread and/or spread multiplier,
if any) specified on the commercial paper rate note and in the applicable
pricing supplement.
"Commercial Paper Rate" means, with respect to any Commercial Paper Interest
Determination Date, the Money Market Yield (calculated as described below) of
the rate on such date for commercial paper having the Index Maturity specified
in the applicable pricing supplement as published in H.15(519) under the heading
"Commercial Paper." "H.15(519)" means the weekly statistical release entitled
"Statistical Release H.15(519), Selected Interest Rates," or any successor
publication, published by the Board of Governors of the Federal Reserve System.
The "MONEY MARKET YIELD" is the yield (expressed as a percentage rounded
upwards, if necessary, to the next higher one-hundred thousandth of a percentage
point) calculated in accordance with the following formula:
Money Market Yield =
<TABLE>
<S> <C>
D X 360 X 100
------------
360 - (D X M)
</TABLE>
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the period for which interest is being calculated.
The following procedures will occur if the rate cannot be set as described
above:
(a) If that rate is not published in H.15(519) prior to 9:00 A.M. on the
Calculation Date, then the Commercial Paper Rate will be the Money Market Yield
of the rate on the Commercial Paper Interest Determination Date for commercial
paper having the Index Maturity specified in the applicable pricing supplement
as published in Composite Quotations under the heading "Commercial Paper."
"COMPOSITE QUOTATION" means the daily statistical release entitled "Composite
3:30 P.M. Quotations for U.S. Government Securities," or
11
<PAGE>
any successor publication, published by The Federal Reserve Bank of New York.
12
<PAGE>
(b) If the rate is not published or in Composite Quotations by 3:00 P.M. on the
Calculation Date, the Commercial Paper Rate for that Commercial Paper Interest
Determination Date will then be calculated by the Calculation Agent in the
following manner.
The Commercial Paper Rate will be calculated as the Money Market Yield of the
average for the offered rates, as of 11:00 A.M., on that date, of three leading
dealers of commercial paper in New York selected for commercial paper having the
applicable Index Maturity placed for an industrial issuer whose bond rating is
"AA," or the equivalent, from a nationally recognized rating agency.
(c) Finally, if fewer than three dealers are quoting as mentioned, the rate of
interest in effect for the applicable period will be the same as the rate of
interest in effect for the prior interest reset period.
PRIME RATE NOTES
Each prime rate note will bear interest at the rate (calculated with reference
to the Prime Rate and the spread and/or spread multiplier, if any) specified on
the prime rate note and in the applicable pricing supplement.
"Prime Rate" means, with respect to any Prime Rate Interest Determination Date,
the rate set forth on such date in H.15(519) under the heading "Bank Prime
Loan."
The following procedures will occur if the rate cannot be set as described
above:
(a) If that rate is not published in H.15(519) prior to 9:00 A.M. on the
Calculation Date, then the Prime Rate will be the average (rounded upwards, if
necessary, to the next higher one-hundred thousandth of a percentage point) of
the rates of interest publicly announced by each bank that appear on the Reuters
Screen USPRIMEONE Page as its prime rate or base lending rate as in effect for
that Prime Rate Interest Determination Date.
(b) If fewer than four, but more than one, rates appear on the Reuters Screen
USPRIMEONE Page or replacement page, the Prime Rate will be the average of the
prime rates (quoted on the basis of the actual number of days in the year
divided by a 360-day year) as of the close of business on the Prime Rate
Interest Determination Date by four major money center banks in New York
selected by the Calculation Agent.
(c) If fewer than two rates appear, the Prime Rate shall be determined on the
basis of the rates furnished in New York by the appropriate number of substitute
banks or trust companies organized and doing business under the laws of the
United States, or any State thereof, having total equity capital of at least
$500 million and being subject to supervision or examination by a Federal or
State authority, as selected by the Calculation Agent.
(d) Finally, if the banks are not quoting as mentioned above, the rate of
interest in effect for the applicable period will be the same as the rate of
interest in effect for the prior interest reset period.
CD RATE NOTES
Each CD rate note will bear interest at the rate (calculated with reference to
the CD Rate and the spread and/or spread multiplier, if any) specified on the CD
rate note and in the applicable pricing supplement.
"CD Rate" means, with respect to any CD Rate Interest Determination Date, the
rate on that date for negotiable certificates of deposit having the Index
Maturity specified in the applicable pricing supplement as published in
H.15(519) under the heading "CDs (Secondary Market)."
The following procedures will occur if the rate cannot be set as described
above:
(a) If that rate is not published in H.15(519) prior to 9:00 A.M. on the
Calculation Date, then the CD Rate will be the rate on that
12
<PAGE>
CD Rate Interest Determination Date for negotiable certificates of deposit
having the applicable Index Maturity as published in Composite Quotations under
the heading "Certificates of Deposit."
(b) If that rate is not published in Composite Quotations by 3:00 P.M. on that
Calculation Date, the CD Rate for that CD Interest Determination Date shall be
calculated by the Calculation Agent as follows:
The CD Rate will be calculated as the average of the secondary market offered
rates, as of 10:00 A.M., of three leading nonbank dealers of negotiable U.S.
dollar certificates of deposit in New York selected by the Calculation Agent for
negotiable certificates of deposit of major United States money market banks
with a remaining maturity closest to the Index Maturity specified in the
applicable pricing supplement in a denomination of $5,000,000.
(c) Finally, if fewer than three dealers are quoting as mentioned, the rate of
interest in effect for the applicable period will be the same as the rate of
interest in effect for the prior interest reset period.
FEDERAL FUNDS EFFECTIVE RATE NOTES
Each federal funds effective rate note will bear interest at the rate
(calculated with reference to the Federal Funds Effective Rate and the spread
and/or spread multiplier, if any) specified on the federal funds effective rate
note and in the applicable pricing supplement.
"Federal Funds Effective Rate" means, with respect to any Federal Funds
Effective Interest Determination Date, the rate on such date for Federal Funds
as published in H.15(519) prior to 11:00 A.M. under the heading "Federal Funds
(Effective)."
The following procedures will occur if the rate cannot be set as described
above:
(a) If that rate is not published in H.15(519) prior to 11:00 A.M. on the
Calculation Date, then the Federal Funds Effective Rate will be the rate on that
Federal Funds Effective Interest Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate."
(b) If that rate is not published in Composite Quotations by 3:00 P.M. on the
Calculation Date, the Federal Funds Effective Rate for that Federal Funds
Effective Interest Determination Date will be calculated by the Calculation
Agent as follows:
The Federal Funds Effective Rate will be the average of the rates, as of
11:00 A.M. on that date, for the last transaction in overnight Federal Funds
arranged by three leading brokers of federal funds transaction in New York
selected by the Calculation Agent.
(c) Finally, if fewer than three brokers are quoting as mentioned above, the
rate of interest in effect for the applicable period will be the same as the
rate of interest in effect for the prior interest reset period.
LIBOR NOTES
Each LIBOR note will bear interest at the rate (calculated with reference to
LIBOR and the spread and/or spread multiplier, if any) specified on the LIBOR
note and in the applicable pricing supplement.
LIBOR will be determined by the Calculation Agent as follows:
(a) With respect to any LIBOR Interest Determination Date, LIBOR will be
determined by either:
(1) the average of the offered rates for deposits of not less than $1,000,000
in U.S. dollars having the Index Maturity specified in the applicable pricing
supplement, beginning on the second Business Day immediately after that date,
that appear on the Reuters Screen LIBO Page as of 11:00 A.M., London time, on
that date, if at least two offered rates appear on the Reuters Screen LIBO Page;
or
(2) the rate for deposits in U.S. dollars having the Index Maturity designated
in the applicable pricing supplement, beginning on the second
13
<PAGE>
London Business Day immediately after such date, that appears on the Telerate
Page 3750 as of 11:00 A.M., London time, on that date.
If neither Reuters Screen LIBO Page nor Telerate Page 3750 is specified in the
applicable pricing supplement, LIBOR will be determined as if Telerate Page 3750
had been specified.
In the case where (1) above applies, if fewer than two offered rates appear on
the Reuters Screen LIBO Page, or, in the case where (2) above applies, if no
rate appears on the Telerate Page 3750, LIBOR for that date will be determined
as follows:
(b) LIBOR will be determined based on the rates at approximately 11:00 A.M.,
London time, on that LIBOR Interest Determination Date at which deposits of not
less than $1,000,000 in U.S. dollars having the applicable Index Maturity are
offered to prime banks in the London interbank market by four major banks in the
London interbank market selected by the Calculation Agent that in the
Calculation Agent's judgment is representative for a single transaction in such
market at such time (a "Representative Amount"). The offered rates must begin on
the second Business Day immediately after that LIBOR Interest Determination
Date.
The Calculation Agent will request the principal London office of each such bank
to provide a quotation of its rate. If at least two such quotations are
provided, LIBOR for such date will be the average of such quotations.
(c) If fewer than two quotations are provided, LIBOR for that date will be the
average of the rates quoted at approximately 11:00 A.M., New York City time, on
such date by three major banks in New York, selected by the Calculation Agent.
The rates will be for loans in U.S. dollars to leading European banks having the
specified Index Maturity beginning on the second Business Day after that date
and in a Representative Amount.
(d) Finally, if fewer than three banks are quoting as mentioned, the rate of
interest in effect for the applicable period will be the same as the rate of
interest in effect for the prior interest reset period.
TREASURY RATE NOTES
Each Treasury rate note will bear interest at the rate (calculated with
reference to the Treasury Rate and the spread and/or spread multiplier, if any)
specified on the Treasury rate note and in the applicable pricing supplement.
"Treasury Rate" means, with respect to any Treasury Interest Determination Date,
the rate for the most recent auction of direct obligations of the United States
("Treasury bills") having the Index Maturity specified in the applicable pricing
supplement as published in H.15(519) under the heading "U.S. Government
Securities/Treasury Bills/Auction Average (Investment)."
The following procedures will occur if the rate cannot be set as described
above:
(a) If that rate is not published in H.15(519) by 9:00 A.M. on the applicable
Calculation Date, the rate will be the auction average rate (expressed as a bond
equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) for such auction as otherwise announced by the United
States Department of the Treasury.
(b) If the results of the auction of Treasury bills having the applicable Index
Maturity are not published in H.15(519) by 9:00 A.M., or otherwise published or
reported as provided above by 3:00 P.M., on the Calculation Date, or if no
auction is held in a particular week, then the Treasury Rate shall be calculated
by the Calculation Agent as follows:
The rate will be calculated as a yield to maturity (expressed as a bond
equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) of the average of the secondary market bid rates as of
approximately 3:30 P.M. on the Treasury Interest Determination Date, of three
leading primary United States government securities dealers in New York selected
by the Calculation Agent for the issue
14
<PAGE>
of Treasury bills with a remaining maturity closest to the specified Index
Maturity.
(c) Finally, if fewer than three dealers are quoting as mentioned, the rate of
interest in effect for the period will be the same as the rate of interest in
effect for the prior interest reset period.
CMT RATE NOTES
Each CMT rate note will bear interest at the rate (calculated with reference to
the CMT Rate and the Spread or Spread Multiplier, if any) specified on such CMT
rate note and in the applicable pricing supplement.
"CMT Rate" means, with respect to any CMT Interest Determination Date, the rate
displayed on the Designated CMT Telerate Page under the caption ". . . Treasury
Constant Maturities. Federal Reserve Board Release H.15 . . . Mondays
Approximately 3:45 P.M.," under the column for the applicable Index Maturity
designated in the applicable pricing supplement for:
(1) if the Designated CMT Telerate Page is 7055, the rate for the applicable
CMT Interest Determination Date; or
(2) if the Designated CMT Telerate Page is 7052, the week, or the month, as
applicable, ended immediately preceding the week in which the CMT Interest
Determination Date occurs.
The following procedures will occur if the rate cannot be set as described
above:
(a) If no page is specified in the applicable pricing supplement and on the
face of such CMT Rate Note, the Designated CMT Telerate Page shall be 7052, for
the most recent week. If such rate is no longer displayed on the relevant page,
or if it is not displayed by 3:00 P.M. on the related Calculation Date, then the
CMT Rate will be the Treasury constant maturity rate for the applicable Index
Maturity as published in the relevant H.15 (519).
(b) If that rate is no longer published in H.15(519), or is not published by
3:00 P.M. on the related Calculation Date, then the CMT Rate for such CMT
Interest Determination Date will be the Treasury constant maturity rate for the
applicable Index Maturity (or other United States Treasury rate for such Index
Maturity for that CMT Interest Determination Date with respect to such Interest
Reset Date) as may then be published by either the Federal Reserve Board or the
United States Department of the Treasury that the Calculation Agent determines
to be comparable to the rate formerly displayed on the Designated CMT Telerate
Page and published in the relevant H.15(519).
(c) If that information is not provided by 3:00 P.M. on the related Calculation
Date, then the CMT Rate for that CMT Interest Determination Date will be
calculated by the Calculation Agent as follows:
The rate will be calculated as a yield to maturity, based on the average of the
secondary market closing offer side prices as of approximately 3:30 P.M. on that
CMT Interest Determination Date reported, according to their written records, by
three leading primary United States government securities dealers (each, a
"Reference Dealer") in New York selected by the Calculation Agent. These dealers
will be selected from five such Reference Dealers.
The Calculation Agent will eliminate the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest), for the most recently issued direct noncallable
fixed rate obligations of the United States ("Treasury Note") with an original
maturity of approximately the applicable Index Maturity and a remaining term to
maturity of not less than such Index Maturity minus one year.
If two Treasury Notes with an original maturity as described in the preceding
sentence have remaining terms to maturity equally close to the applicable Index
Maturity, the quotes for the Treasury Note with the shorter remaining term to
maturity will be used.
(d) If the Calculation Agent cannot obtain three such Treasury Note quotations,
the CMT
15
<PAGE>
Rate for that CMT Interest Determination Date will be calculated by the
Calculation Agent as follows:
The rate will be calculated as a yield to maturity based on the average of the
secondary market offer side prices as of approximately 3:30 P.M. on that CMT
Interest Determination Date of three Reference Dealers in New York selected by
the Calculation Agent using the same method described above, for Treasury Notes
with an original maturity of the number of years that is the next highest to the
applicable Index Maturity with a remaining term to maturity closest to such
Index Maturity and in an amount of at least $100 million.
If three or four (and not five) of the Reference Dealers are quoting as
described above, then the CMT Rate will be based on the average of the offer
prices obtained and neither the highest nor the lowest of such quotes will be
eliminated.
(e) Finally, if fewer than three Reference Dealers are quoting as mentioned,
the rate of interest in effect for the applicable period will be the same as the
rate of interest in effect for the prior interest reset period.
EVENT OF DEFAULT
"Event of Default" means any of the following:
- failure to pay the principal of (or premium, if any, on) any note of a series
when due and payable;
- failure to pay for 30 days any interest on any note of a series;
- failure to perform or observe any other covenant or agreement in any note of a
series or in the indenture in regard to such notes, for 60 days after notice;
or
- certain events of insolvency.
An Event of Default for a particular series of notes does not necessarily mean
that an Event of Default has occurred for any other series of notes issued under
the indenture. If an Event of Default shall have occurred and be continuing the
Trustee or the holders of at least 25% of the principal amount of the notes of
the series affected by an Event of Default may require us to repay the entire
principal of the notes of such series immediately. Subject to certain
conditions, this requirement may be rescinded by the holders of at least a
majority in aggregate principal amount of the notes of the series.
The Trustee must within 90 days after a default occurs, notify the holders of
the notes of the series of the default if we have not remedied it (default is
defined to include the events specified above without the grace periods or
notice). The Trustee may withhold notice to the holders of such notes of any
default (except in the payment of principal or interest) if it in good faith
considers such withholding in the interest of the holders. We are required to
file an annual certificate with the Trustee, signed by an officer, about any
default by us under any provisions of the indenture.
Subject to the provisions of the indenture relating to its duties in case of
default, the Trustee shall be under no obligation to exercise any of its rights
or powers under the indenture at the request, order or direction of any holders
unless such holders offer the Trustee reasonable indemnity. Subject to the
provisions for indemnification and certain other limitations, the holders of a
majority in principal amount of the notes of any series may direct the time,
method and place of conducting any proceedings for any remedy available to, or
exercising any trust or power conferred on, the Trustee with respect to such
notes.
MODIFICATION OF INDENTURE
Under the indenture, our rights and obligations and the rights of the holders of
any notes may be changed. Any change requires the consent of the holders of not
less than 66 2/3% in aggregate principal amount of the outstanding notes of all
series to be affected, voting as one class. However, no changes to the terms of
payment of principal or interest, or reducing the percentage required for
changes, is effective against any holder without its consent.
16
<PAGE>
CONSOLIDATION, MERGER OR SALE
We may not merge or consolidate with any corporation or sell all or
substantially all of our assets unless:
- we are the continuing corporation or the successor corporation expressly
assumes the payment of principal, and premium, if any, and interest on the
notes and the performance and observance of all the covenants and conditions
of the indenture binding on us; and
- we, or the successor corporation, are not immediately after the merger,
consolidation, or sale in default in the performance of a covenant or
condition in the indenture.
PLAN OF DISTRIBUTION
We may sell the notes (a) through agents; (b) through underwriters or dealers;
or (c) directly to one or more purchasers.
BY AGENTS
Notes may be sold on a continuing basis through agents designated by us. The
agents agree to use their reasonable efforts to solicit purchases for the period
of their appointment under the terms of an agency agreement between the agents
and us.
For each note and in total, we have set out below the offering price, the
compensation we will pay the agents and the proceeds we will receive, before
deducting expenses of approximately $150,000 depending on the maturity of the
notes they sell.
<TABLE>
<CAPTION>
PER NOTE
--------
<S> <C>
Public Offering Price 100%
Agents' Commissions 0.125% - 0.75%
Proceeds to BGE
(before expenses) 99.875% - 99.25%
</TABLE>
<TABLE>
<CAPTION>
TOTAL
-----
<S> <C>
Public Offering Price $173,000,000
Agents' Commissions $216,250 - $1,297,500
Proceeds to BGE
(before expenses) $172,783,750 - $171,702,500
</TABLE>
The agents will not be obligated to make a market in the notes. We cannot
predict the amount of trading or liquidity of the notes.
BY UNDERWRITERS
If underwriters are used in the sale, the notes will be acquired by the
underwriters for their own account. The underwriters may resell the notes in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase the notes will be subject to certain
conditions. The underwriters will be obligated to purchase all the notes of the
series offered if any of the notes are purchased. Any initial public offering
price and any discounts or concessions allowed or re-allowed or paid to dealers
may be changed from time to time.
DIRECT SALES
We may also sell notes directly. In this case, no underwriters or agents would
be involved.
GENERAL INFORMATION
In connection with sales by an agent or an underwritten offering, the SEC rules
permit the underwriters or agents to engage in transactions that stabilize the
price of the notes. These transactions may include purchases for the purpose of
fixing or maintaining the price of the notes.
The underwriters or agents may create a short position in the notes in
connection with the offering. That means they sell a larger principal amount of
the notes than is shown on the cover page of the prospectus or the applicable
pricing supplement. If they create a short position, the underwriters or agents
may purchase notes in the open market to reduce the short position.
If the underwriters or agents purchase the notes to stabilize the price or to
reduce their short position, the price of the notes could be higher than it
might be if they had not made such purchases. The underwriters or agents make no
representation or prediction about any effect
17
<PAGE>
that the purchases may have on the price of the notes. These transactions may be
effected on the open market and may be discontinued at any time.
Underwriters, dealers, and agents that participate in the distribution of the
notes may be underwriters as defined in the Securities Act of 1933 (the "Act"),
and any discounts or commissions received by them from us and any profit on the
resale of the notes by them may be treated as underwriting discounts and
commissions under the Act.
We may have agreements with the underwriters, dealers and agents to indemnify
them against certain civil liabilities, including liabilities under the Act, or
to contribute with respect to payments which the underwriters, dealers or agents
may be required to make.
One of Constellation Energy's subsidiaries, Constellation Power Source, has an
exclusive arrangement with a subsidiary of Goldman, Sachs & Co. to serve as an
advisor for power marketing and related risk management services. In addition,
Constellation Enterprises, Inc., has an ownership interest in Orion Power
Holdings, Inc. with an affiliate of Goldman, Sachs & Co. to acquire electric
generating plants in the United States and Canada. An agent, underwriter, or
dealer may engage in transactions with, or perform services for us,
Constellation Energy or its other subsidiaries in the ordinary course of its
business.
LEGAL OPINIONS
One of our lawyers will issue an opinion regarding certain legal matters in
connection with the notes offered pursuant to this prospectus. Cahill Gordon &
Reindel, New York, NY will issue an opinion for any underwriters, dealers or
agents. Cahill Gordon & Reindel will rely on the opinion of our lawyers as to
matters of Maryland law and the applicability of the Public Utility Holding
Company Act of 1935.
EXPERTS
The financial statements and financial statement schedule incorporated in this
Prospectus by reference to the Annual Report on Form 10-K of Constellation
Energy Group, Inc. and Baltimore Gas and Electric Company for the year ended
December 31, 1999 and the audited historical financial statements included on
pages 27-38 of Constellation Energy Group, Inc. and Baltimore Gas and Electric's
Report on Form 8-K dated February 15, 2000 have been so incorporated in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND
MORE INFORMATION
BGE jointly files annual, quarterly and special reports, and other information
with its parent Constellation Energy. BGE may file proxy statements with the
SEC. You may read and copy any document filed by BGE at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C., 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference room.
The SEC maintains an internet site at http://www.sec.gov that contains reports,
proxy and information statements, and other information, regarding companies
(including BGE) that file documents with the SEC electronically. BGE's SEC
filings may also be obtained from Constellation Energy's web site at
http://www.constellationenergy.com. The addresses for both the SEC's and
Constellation Energy's website are inactive textual references only, and the
contents of those sites (other than the documents incorporated by reference as
set forth below) are not part of this prospectus.
This prospectus is part of a registration statement we filed with the SEC. In
addition, the SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will
18
<PAGE>
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until
we sell all the notes.
- Constellation Energy and BGE's Annual Report on Form 10-K for the year ended
December 31, 1999.
- Constellation Energy and BGE's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2000 and June 30, 2000.
- Constellation Energy and BGE's current reports on Form 8-K filed February 15,
2000, March 17, 2000, and July 7, 2000.
Any person, including any beneficial owner, may request a copy of these filings,
at no cost, by writing or telephoning us at the following address:
Baltimore Gas and Electric Company
Shareholder Services
39 W. Lexington Street
Baltimore, Maryland 21201
410-783-5920
You should rely only on the information incorporated by reference or provided in
this prospectus or any supplement. We have not authorized anyone else to provide
you with different information. We are not making an offer of these notes in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
19
<PAGE>
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$173,000,000
[LOGO]
BALTIMORE GAS AND ELECTRIC COMPANY
6.75% REMARKETABLE OR REDEEMABLE SECURITIES (ROARS-SM-) DUE 2012
(REMARKETING DATE: DECEMBER 15, 2002)
---------------------
PROSPECTUS SUPPLEMENT
DECEMBER 15, 2000
---------------------------
Banc of America Securities LLC
Lehman Brothers
Salomon Smith Barney
Scotia Capital
SunTrust Equitable Securities Corporation
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