Filed pursuant to Rule 424(b)(2)
Registration No. 333-52690
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 17, 2001)
$125,000,000
Rochester Gas and Electric Corporation
FIRST MORTGAGE 6.65% BONDS, DUE 2032, SERIES UU
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We are offering $125 million of our First Mortgage 6.65% Bonds, due 2032,
Series UU. We will pay interest on the bonds on March 15, June 15, September
15 and December 15 of each year. The first interest payment on the bonds will
be made on September 15, 2002. We may redeem the bonds prior to maturity, in
whole or in part, at any time under the limited circumstances described in
this prospectus supplement at the redemption prices described herein or at any
time on or after June 20, 2007 at a redemption price equal to the principal
amount being redeemed plus any accrued and unpaid interest. The bonds will be
issued in denominations of $25 and integral multiples of $25.
We intend to apply to have the bonds listed on the New York Stock Exchange,
and we expect trading in the bonds on the New York Stock Exchange to begin
within 30 days after the original issue date.
The bonds are a series of first mortgage bonds issued under our mortgage,
which has the benefit of a first mortgage lien on substantially all of our
property. Our timely payment of the regularly scheduled principal and interest
on the bonds will be insured by a financial guaranty insurance policy to be
issued by Ambac Assurance Corporation simultaneously with the delivery of the
bonds.
[Ambac Logo]
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PRICE 100% AND ACCRUED INTEREST, IF ANY
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Underwriting
Price to Discounts and Proceeds to
Public Commissions Company
------------ ------------- ------------
Per Bond................................ 100.00% 3.15% 96.85%
Total................................... $125,000,000 $3,937,500 $121,062,500
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
supplement or the accompanying prospectus are truthful or complete. Any
representation to the contrary is a criminal offense.
The Underwriters expect to deliver the bonds to purchasers in book-entry form
only through The Depository Trust Company on June 20, 2002.
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MORGAN STANLEY
SALOMON SMITH BARNEY
UBS WARBURG
June 6, 2002
TABLE OF CONTENTS
Prospectus Supplement Page
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Forward-Looking Statements....... S-3
Summary.......................... S-4
Use of Proceeds.................. S-6
Recent Developments.............. S-6
Capitalization................... S-7
Selected Consolidated Financial
Data............................ S-8
Description of the Bonds......... S-9
The Insurance Policy and the
Insurer......................... S-13
Ratings.......................... S-16
Underwriters..................... S-17
Validity of Securities........... S-18
Experts.......................... S-19
Appendix A--Form of Insurance
Policy.......................... A-1
Prospectus Page
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About This Prospectus....... 2
Where You Can Find More
Information................ 3
Forward-Looking Statements.. 4
The Company................. 5
Ratio of Earnings to Fixed
Charges.................... 5
Application of Proceeds..... 5
Description of the Debt
Securities................. 6
New Mortgage Bonds......... 6
New Unsecured Notes........ 9
Legal Opinions.............. 12
Experts..................... 12
Plan of Distribution........ 12
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You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone else to provide you with any different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making any offer to sell securities in any
jurisdiction where the offer or sale is not permitted. The information
contained in this prospectus supplement is current only as of the date of this
prospectus supplement and the information contained in the accompanying
prospectus is current only as of the date of the accompanying prospectus.
S-2
FORWARD-LOOKING STATEMENTS
This prospectus supplement contains and incorporates by reference
statements which are not historic fact and which can be classified as forward
looking. These statements can be identified by the use of certain words which
suggest forward looking information, such as "believes," "will," "expects,"
"projects," "estimates" and "anticipates". They can also be identified by the
use of words which relate to future goals or strategies. In addition to the
assumptions and other factors referred to specifically in connection with the
forward looking statements, some of the factors that could have a significant
effect on whether the forward looking statements ultimately prove to be
accurate include:
. uncertainties related to the regulatory treatment of our nuclear
generation facility;
. any state or federal legislative or regulatory initiatives (including
the results of negotiations between us and other parties including the
New York Public Service Commission or PSC) that affect the cost or
recovery of investments necessary to provide utility service in the
electric and natural gas industries. Such initiatives could include, for
example, changes in the regulation of rate structures or changes in the
speed or degree to which competition occurs in the electric and natural
gas industries;
. any changes in our ability to recover environmental compliance costs
through increased rates;
. the determination in the nuclear generation proceeding initiated by the
PSC, including any changes in the regulatory status of nuclear
generating facilities and their related costs, including recovery of
costs related to spent fuel and decommissioning;
. fluctuations in energy supply and demand and market prices for energy,
capacity and ancillary services;
. any changes in the rate of industrial, commercial and residential growth
in our service territory;
. the development of any new technologies, as well as regulatory policies,
which allow customers to generate their own energy or produce lower cost
energy;
. any unusual or extreme weather or other natural phenomena;
. the timing and extent of changes in commodity prices and interest rates;
. any adverse impact on us from the operations of RGS Energy Group, Inc.
and its other subsidiaries;
. risks associated with the proposed merger of RGS Energy Group, Inc. with
and into Eagle Merger Corp., a wholly owned subsidiary of Energy East
Corporation, at the effective time of the merger, and if the merger is
completed, the integration of RGS and Energy East;
. uncertainties related to the outcome of our pending rate proceeding with
the PSC; and
. any other considerations that may be disclosed from time to time in our
publicly disseminated documents and filings.
S-3
SUMMARY
In this prospectus supplement and the accompanying prospectus, the words
"company," "we," "our," "ours," and "us" refer to Rochester Gas and Electric
Corporation and its consolidated subsidiaries unless otherwise stated or the
context otherwise requires. The following summary contains basic information
about this offering. It may not contain all the information that is important
to you. The "Description of Bonds" section of this prospectus supplement and
the "Description of the Debt Securities" section in the accompanying prospectus
contain more detailed information regarding the terms and conditions of the
bonds.
THE COMPANY
Rochester Gas and Electric Corporation was formed in 1904 and is engaged
principally in the business of generating, purchasing, transmitting and
distributing electricity and purchasing, transporting and distributing natural
gas. We produce and distribute electricity and distribute gas in parts of nine
New York counties including and surrounding the City of Rochester.
The service area for our regulated business has a population of
approximately one million and is well diversified among residential, commercial
and industrial consumers. In addition to the City of Rochester, which is the
third largest city and a major industrial center in New York State, it includes
a substantial suburban area with a large and prosperous farming area. A
majority of the industrial firms in our service area manufacture consumer
goods. Many of our industrial customers are nationally known, such as Xerox
Corporation, Eastman Kodak Company and Bausch & Lomb Incorporated.
On August 2, 1999, all of our outstanding shares of common stock were
exchanged on a share-for-share basis for shares of RGS Energy Group, Inc. and
we became a subsidiary of RGS. We continue to have non-voting preferred stock
outstanding. In connection with the restructuring, our subsidiaries that were
conducting unregulated businesses became subsidiaries of RGS. The mortgage
bonds offered by this prospectus supplement and the accompanying prospectus are
not obligations of and are not guaranteed by RGS or any of its other
subsidiaries.
The board of directors of RGS Energy Group, Inc. and Energy East Corporation
have approved and adopted a merger agreement that contemplates the merger of
RGS with and into Eagle Merger Corp., which will be a wholly owned subsidiary
of Energy East at the effective time of the merger. All regulatory applications
required in connection with the Merger have been filed and all related
regulatory approvals have been received, other than the approval of the SEC.
Assuming that SEC approval is obtained shortly, RGS anticipates that the merger
will be consummated in the second quarter of 2002.
The mailing address of our executive office is 89 East Avenue, Rochester,
New York 14649 and our telephone number is (585) 546-2700.
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THE OFFERING
Bonds Offered............... $125,000,000 in principal amount of First
Mortgage 6.65% Bonds, due 2032, Series UU
Maturity Date............... June 15, 2032
Issue Price................. $25.00
Interest Rate............... 6.65% per year
Interest Payment Dates...... March 15, June 15, September 15 and December 15,
beginning on September 15, 2002. Interest will
accrue from the issue date of the bonds.
Ranking..................... The bonds will be secured equally and ratably
with our other mortgage bonds by a valid and
direct first mortgage lien on substantially all
of our property (except accounts receivable and
cash), subject to excepted encumbrances,
reservations, contracts and exceptions which we
do not consider material to the operation of the
property. The bonds are not obligations of or
guaranteed by RGS or any of its other
subsidiaries.
Redemption.................. We may redeem some or all of the bonds at any
time on or after June 20, 2007 at a redemption
price equal to 100% of the principal amount of
bonds being redeemed plus accrued and unpaid
interest thereon to the redemption date. We may
also redeem some or all of the bonds prior to
such date at the same redemption price under the
limited circumstances described in the
"Description of Bonds" section under the heading
"Limited Redemption". We are obligated to redeem
the bonds under the limited circumstances and at
a redemption price described in the "Description
of Bonds" section under the heading "Mandatory
Redemption".
Listing..................... We intend to apply to have the bonds listed on
the New York Stock Exchange, and we expect
trading in the bonds on the New York Stock
Exchange to begin within 30 days after the
original issue date.
Use of Proceeds............. We will use the proceeds of the bonds to repay
outstanding short term indebtedness. Any
remaining proceeds will be used for additional
capital expenditures or for general corporate
purposes.
S-5
USE OF PROCEEDS
We anticipate our net proceeds from the sale of the bonds will be $117.5
million after deducting underwriting discounts and commissions and estimated
offering expenses of $3.5 million (which includes $1.3 million of mortgage
recording taxes and the initial installment of the premium for the insurance
policy of $1.9 million). We will use the proceeds of the bonds to repay
outstanding short term indebtedness. Any remaining proceeds will be used for
additional capital expenditures or for general corporate purposes.
RECENT DEVELOPMENTS
Merger
The board of directors of RGS Energy Group, Inc. and Energy East
Corporation have approved and adopted a merger agreement that contemplates the
merger of RGS with and into Eagle Merger Corp., which will be a wholly owned
subsidiary of Energy East at the effective time of the merger. Eagle Merger
Corp. will be the corporation surviving the merger and, at the effective time,
will change its name to "RGS Energy Group, Inc." At the effective time of the
merger, RGS will become a direct wholly owned subsidiary of Energy East and,
accordingly, we will become an indirect wholly owned subsidiary of Energy
East.
Because we are a subsidiary of RGS, our assets, liabilities and operations
will not be affected by the merger. Accordingly, the bonds, the mortgage
securing the bonds, the other mortgage bonds issued under the mortgage and the
assets subject to the mortgage will not be affected by the merger.
At the 2001 Annual Meetings of RGS and Energy East, the shareholders of RGS
approved the Merger Agreement and the shareholders of Energy East approved the
issuance of Energy East shares in connection with the merger. All regulatory
applications required in connection with the Merger have been filed and all
related regulatory approvals have been received, other than the approval of
the SEC. RGS anticipates that the merger will be consummated in the second
quarter of 2002.
2002 Electric and Gas Rate Proposal
On February 15, 2002, we filed a request with the PSC for new electric and
gas rate tariffs to go into effect in January 2003. The filing is comprised of
two components. The first is a traditional, single-year rate case filing in
the form required by New York State law. The second is a multi-year settlement
proposal. We anticipate that the filing will initiate negotiations with the
staff of the PSC and other interested parties regarding long-term rate plans,
electric rate unbundling, electric pricing options and other related programs.
We believe a multi-year negotiated settlement of these issues would be in
the best interest of all parties. We, however, are unable to predict whether
any settlement will be achieved or the effect any ultimate PSC decision in
this proceeding will have on our operating results or financial position.
Likewise, if one or more settlements are achieved and submitted to the PSC for
its approval, we cannot predict how the PSC might rule on any particular
aspect of such settlements. If a negotiated agreement resolving the issues
involved in the case cannot be achieved, New York State law requires the PSC
to act on our proposal within eleven months after the initial filing. Thus, a
PSC decision is expected no later than January 2003.
Sale of Interest in Nine Mile Two
On November 7, 2001, we sold our ownership interest in Nine Mile Point
Nuclear Plant Unit No. 2 to Constellation Nuclear, LLC. The purchase price for
our interest was $101.0 million, $50.5 million of which was paid in cash at
the closing and $50.5 million of which was paid in the form of a five year
promissory note which has been prepaid. In addition, we received approximately
$1.9 million cash for the sale of our share of certain transmission assets
related to the Nine Mile Two facility.
S-6
At November 7, 2001, the net book value of our 14 percent interest in the
Nine Mile Two facility was approximately $348.8 million. We also had
investments in fuel of approximately $6.0 million, transmission and
distribution facilities of $3.3 million, materials and supplies inventory of
$6.9 million, and construction work in progress of $7.6 million.
Also, part of the transaction is a power purchase agreement whereby
Constellation Nuclear has agreed to sell 90 percent of the actual output
corresponding to our prior 14 percent interest in Nine Mile Two's actual
output back to us for approximately 10 years at an average price of less than
$35 per MWH over the term of the power purchase agreement.
After completion of the term of the power purchase agreement, a 10-year
revenue sharing agreement begins. The revenue sharing agreement will provide
us with a hedge against electricity price increases and could provide us
additional revenue through 2021. The revenue sharing agreement provides that
to the extent market prices (for energy and capacity) exceed certain strike
prices 14% of the market value of Nine Mile Two's actual output (capped at 160
MW) above the strike price will be allocated 80% to us and 20% to
Constellation Nuclear. When actual market prices are lower than strike prices,
such negative amounts will be carried forward as credits against subsequent
payments.
At the closing, our pre-existing decommissioning funds relating to Nine
Mile Two were transferred to Constellation Nuclear and Constellation Nuclear
assumed our obligation to decommission Nine Mile Two.
CAPITALIZATION
The following table sets forth our debt and equity capitalization as of
March 31, 2002 (i) on a historical basis and (ii) adjusted to give effect to
this offering of bonds and the application of our estimated net proceeds as
described under "Use of Proceeds." You should read this table in conjunction
with our selected financial data presented elsewhere in this prospectus
supplement, along with the consolidated financial statements and related notes
of Rochester Gas and Electric Corporation incorporated by reference into the
accompanying prospectus.
March 31, 2002
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Actual As Adjusted(1)
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(Thousands of dollars)
Long term debt(2)......................... $ 788,769 48.6% $ 788,769 45.1%
Bonds offered hereby...................... -- -- 125,000 7.2
Preferred stock subject to mandatory
redemption............................... 25,000 1.6 25,000 1.4
Preferred stock redeemable at the option
of the Company........................... 47,000 2.9 47,000 2.7
Common shareholder's equity............... 761,333 46.9 761,333 43.6
---------- ----- ---------- -----
Total Capitalization.................... $1,622,102 100.0% $1,747,102 100.0%
========== ===== ========== =====
Short term debt........................... $ 59,500 $ --
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(1) As adjusted for the new bonds offered hereby and the repayment of $59.5
million of short term debt.
(2) Excludes $4.5 million of long term debt due within one year and excludes
the long term liability payable to the Department of Energy for nuclear
waste disposal ($101.6 million).
S-7
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary historical financial data is derived from our
consolidated financial statements. You should read the financial data
presented below in conjunction with our consolidated financial statements and
accompanying notes as well as the management's discussion and analysis of
results of operations and financial condition, all of which are incorporated
by reference into the accompanying prospectus.
As of and for As of or for the Year Ended
the Twelve December 31
Months Ended ----------------------------------
March 31, 2002 2001 2000 1999 1998 1997
-------------- ------ ------ ------ ------ ------
(unaudited)
(In millions, except ratios and per share values)
Statement of Operations:
Operating revenues........... $ 988 $1,040 $1,044 $1,091 $1,034 $1,037
Operating income............. $ 108 $ 135 $ 147 $ 141 $ 128 $ 145
Interest charges, net........ $ 62 $ 62 $ 61 $ 57 $ 46 $ 51
Net income................... $ 51 $ 74 $ 96 $ 94 $ 94 $ 95
Balance Sheet Data:
Total assets................. $2,440 $2,453 $2,453 $2,403 $2,453 $2,268
Long-term debt and preferred
stock subject to mandatory
redemption (excluding
current portion)............ $ 814 $ 812 $ 817 $ 821 $ 783 $ 622
Preferred stock redeemable at
the option of the Company... $ 47 $ 47 $ 47 $ 47 $ 47 $ 47
Common stock equity.......... $ 761 $ 757 $ 749 $ 755 $ 783 $ 808
Book value per share......... $22.06 $21.94 $21.71 $21.00 $20.94 $20.80
Other Data:
Depreciation and
amortization................ $ 109 $ 113 $ 112 $ 117 $ 116 $ 117
Construction expenditures.... $ 163 $ 148 $ 143 $ 108 $ 114 $ 88
Ratio of earnings to fixed
charges (times)............. 2.77 3.30 3.23 3.49 3.97 3.67
Cash dividends declared per
common share................. $ 1.80 $ 1.80 $ 1.80 $ 1.80 $ 1.80 $ 1.80
S-8
DESCRIPTION OF THE BONDS
You should read the following information concerning the bonds in
conjunction with the statements under "Description of the Debt Securities--New
Mortgage Bonds" in the accompanying prospectus. Certain capitalized terms used
herein are defined under "Description of the Debt Securities--New Mortgage
Bonds" in the accompanying prospectus.
We will issue the First Mortgage 6.65% Bonds, Due 2032, Series UU (referred
to herein as the "bonds") as a separate series of first mortgage bonds under
our Mortgage granted to Deutsche Bank Trust Company Americas (formerly Bankers
Trust Company). We will issue bonds with an aggregate principal amount of
$125,000,000. We will issue the bonds in denominations of $25.00 or more in
multiples of $25.00. The bonds will be New Mortgage Bonds as described in the
accompanying prospectus.
The bonds will mature on June 15, 2032. Interest on the bonds will accrue
from June 20, 2002 at a rate of 6.65% per annum, computed on the basis of a
360-day year of twelve 30-day months. Interest will be payable quarterly on
March 15, June 15, September 15 and December 15 in each year, commencing
September 15, 2002, and at maturity. We will make each interest payment to the
persons in whose names the bonds are registered at the close of business on
the last day of the calendar month immediately preceding the interest payment
date.
Interest on the bonds will be computed on the basis of a 360-day year of
twelve 30-day months. If any interest payment date or the maturity date falls
on a day that is not a Business Day, the payment due on that interest payment
date or the maturity date will be made on the next Business Day, and without
any interest or other payment in respect of such delay. As long as the bonds
are registered in the name of The Depository Trust Company ("DTC") or its
nominee, we will pay principal, any premium, and interest due on the bonds to
DTC. DTC will then make payment to its participants for disbursement to the
beneficial owners of the bonds as described under the heading "Book-Entry
System, Form and Delivery". "Business Day" means any day other than a Saturday
or a Sunday or a day on which banking institutions in The City of New York are
authorized or required by law or executive order to remain closed or a day on
which the corporate trust office of the corporate trustee is closed for
business.
We may, without the consent of the holders of the bonds, issue additional
bonds having the same ranking and the same interest rate, maturity and other
terms as the bonds. Any additional bonds having similar terms, together with
the bonds, will constitute a single series of bonds under the Mortgage.
We will issue the bonds in the form of one or more global securities, which
will be deposited with DTC and registered in the name of DTC's nominee, Cede &
Co.
Optional Redemption
We will have the option to redeem the bonds, in whole or in part, at any
time on or after June 20, 2007 at a redemption price equal to 100% of the
principal amount of bonds being redeemed plus accrued and unpaid interest
thereon to the date of redemption.
We will mail a notice of redemption at least 30 days but not more than 90
days before the redemption date to each holder of bonds to be redeemed. If we
elect to partially redeem the bonds, the trustee will select by lot in such
manner as it deems appropriate the bonds to be redeemed.
Unless we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the bonds or portions
thereof called for redemption.
Limited Redemption
We may also redeem the bonds at a redemption price of 100% of the principal
amount of the bonds redeemed plus accrued and unpaid interest thereon to the
date of redemption as follows:
. as a whole or from time to time in part, from cash deposited in the
Sinking and Improvement Fund or the Maintenance Fund as described in the
accompanying prospectus;
S-9
. as a whole, upon the release from the lien of the Mortgage or the taking
by eminent domain of all or substantially all of the mortgaged property;
or
. as a whole, upon any governmental acquisition of all of our outstanding
common stock.
Mandatory Redemption
In the event that (a) we reorganize, or otherwise transfer a substantial
portion of our assets, and (b) that reorganization results in us no longer
being a regulated utility company, and (c) the bonds and our obligations under
the mortgage are not assumed by, and do not become the direct and primary
obligations of, a regulated utility company, unless Ambac Assurance
Corporation consents to such reorganization or transfer, we are obligated
redeem the bonds prior to maturity. We will also be obligated to redeem the
bonds if we fail to pay an insurance premium to Ambac Assurance. Our
obligation to pay annual insurance premiums commences on June 20, 2007. If we
are required to redeem the bonds, we will redeem the bonds, in whole, upon not
less than 30 days' nor more than 60 days' notice.
If we redeem the bonds under these circumstances on or after June 20, 2007,
the redemption price will be 100% of the principal amount of bonds plus
accrued and unpaid interest thereon to the date of redemption. If we redeem
the bonds under these circumstances before June 20, 2007, the redemption price
will be equal to the accrued interest on the bonds to the date of redemption
plus the greater of:
. 100% of the principal amount of bonds; or
. the sum of the present values of the remaining scheduled payments of
principal and interest on the bonds (not including any portion of such
payments of interest accrued as of the date of redemption) discounted to
the date of redemption on a quarterly basis (assuming a 360-day year
consisting of twelve 30-day months) at the Adjusted Treasury Rate plus
twenty-five (25) basis points, as calculated by an Independent
Investment Banker.
For purposes of determining the redemption price where the redemption occurs
before June 20, 2007, the following terms shall have the following meanings:
"Adjusted Treasury Rate" means, with respect to any redemption rate:
. 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 United
States Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities," for the maturity corresponding
to the Comparable Treasury Issue (if no maturity is within three months
before or after the maturity date of the bonds, yields for the two
published maturities most closely corresponding to the Comparable
Treasury Issue shall be determined and the adjusted Treasury Rate shall
be interpolated or extrapolated from such yields on a straight line
basis, rounding to the nearest month); or
. 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 semi-annual equivalent yield to maturity of
the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such redemption date.
The Adjusted Treasury Rate shall be calculated on the third business day
preceding the redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable
to the remaining term of the securities 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 the bonds.
S-10
"Comparable Treasury Price" means (1) the average of five Reference
Treasury Dealer Quotations for such Redemption Date, after excluding the
highest and lowest Reference Treasury Dealer Quotations, or (2) if the
Independent Investment Banker obtains fewer than five such Reference Treasury
Dealer Quotations, the average of all such quotations.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by us.
"Reference Treasury Dealer" means:
. each of Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc. and
UBS Warburg LLC, and their respective successors; provided that, if any
of the foregoing ceases to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), we will
substitute another Primary Treasury Dealer; and
. any other Primary Treasury Dealer selected by us.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined
by the Independent Investment Banker, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Independent Investment Banker at
5:00 p.m., New York City time, on the third business day preceding such
redemption date.
Special Insurance Provisions
Subject to the provisions of our mortgage, so long as Ambac Assurance
Corporation is not in default under the insurance policy relating to the
bonds, Ambac Assurance is entitled to control and direct the enforcement of
all rights and remedies with respect to the bonds upon the occurrence and
continuation of a default (as defined in our mortgage). No amendment,
supplement or change to, or other modification of, our mortgage requiring the
consent of holders of the bonds may be made without the prior written consent
of Ambac Assurance. See "The Insurance Policy and the Insurer" in this
prospectus supplement.
Book-Entry System, Form and Delivery
DTC (the "Depositary") is a limited-purpose trust company organized under
New York banking law, a "banking organization" within the meaning of 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 pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. The Depositary holds securities
that its participants deposit with the Depositary. The Depositary also
facilitates the settlement among its 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. The Depositary 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 Depositary's system is also available to indirect
participants in the Depositary 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. The rules
applicable to the Depositary and its participants are on file with the
Securities and Exchange Commission.
According to the Depositary, the foregoing information with respect to the
Depositary has been provided to the financial community for informational
purposes only and is not intended to serve as a representation, warranty or
contract modification of any kind.
Purchases of the bonds under the Depositary's system must be made by or
through direct participants, which will receive a credit for the bonds on the
Depositary's records. The beneficial ownership interest of each actual
S-11
purchaser of each bond is in turn to be recorded on the direct and indirect
participants' respective records. Beneficial owners will not receive written
confirmation from the Depositary of their purchase, but beneficial owners are
expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
or indirect participant through which the beneficial owner entered into the
transaction. Transfers of ownership interest in the bonds are to be
accomplished by entries made on the books of participants acting on behalf of
beneficial owners. Beneficial owners are not entitled to receive certificates
representing their ownership interest in bonds except in the event that use of
the book-entry system for the bonds is discontinued.
To facilitate subsequent transfers, all bonds deposited with the Depositary
by participants in the Depositary will be registered in the name of Cede & Co.
The deposit of the bonds with the Depositary and their registration in the
name of Cede & Co. effect no change in beneficial ownership. The Depositary
has no knowledge of the actual beneficial owners of the bonds; the
Depositary's records reflect only the identity of the direct participants to
whose accounts such bonds 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 the Depositary 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.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the bonds. Under its usual procedures, the Depositary mails an omnibus proxy
to the Company 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 bonds are credited on the record date (identified in a
listing attached to the omnibus proxy).
Payments of principal, interest and premium, if any, on the bonds will be
made to Cede & Co. The Depositary's practice is to credit direct participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on the Depositary's records unless the Depositary has reason to
believe that it will not receive payment on such payment date. Payments by
participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities for the accounts of
customers in bearer form or registered in "street-name," and will be the
responsibility of each participant and not of the Depositary, the
underwriters, or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal,
interest and premium, if any, to Cede & Co. is the responsibility of the
Company or the respective trustees. Disbursement of such payments to direct
participants is the responsibility of the Depositary, and disbursement of such
payments to the beneficial owners of the bonds is the responsibility of direct
and indirect participants in the Depositary.
The Depositary may discontinue providing its services as securities
depository with respect to the bonds at any time by giving reasonable notice
to the Company. Under such circumstances and in the event that a successor
securities depository is not obtained, certificates for the bonds are required
to be printed and delivered. In addition, the Company may decide to
discontinue use of the system of book-entry transfers through the Depositary
(or a successor securities depository). In that event, certificates will be
printed and delivered.
The Company will not have any responsibility or obligation to participants
in the Depositary or the persons for whom they act as nominees with respect to
the accuracy of the records of the Depositary, its nominee or any direct or
indirect participant with respect to any ownership interest in the bonds, or
with respect to payments to or providing of notice for the direct
participants, the indirect participants or the beneficial owners of the bonds.
The information contained herein under the caption "Description of Bonds--
Book-Entry System, Form and Delivery" concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable. Neither the Company, the trustee nor the
underwriters, dealers or agents take responsibility for the accuracy or
completeness thereof.
S-12
Trading Characteristics
The bonds are expected to trade at a price that takes into account the
value, if any, of accrued but unpaid interest. This means that purchasers will
not pay, and sellers will not receive, accrued and unpaid interest on the
bonds except as included in the trading price thereof. Any portion of the
trading price of a bond that is attributable to accrued interest will be
treated as ordinary interest income for federal income tax purposes and will
not be treated as part of the amount realized for purposes of determining gain
or loss on the disposition of the bonds.
THE INSURANCE POLICY AND THE INSURER
The Insurance Policy
We will enter into an insurance agreement with Ambac Assurance Corporation
under which Ambac Assurance will issue a financial guaranty insurance policy
relating to the bonds. A form of this policy is attached to this prospectus
supplement as Appendix A. The following summary of the terms of the insurance
policy does not purport to be complete and is qualified in its entirety by
reference to the insurance policy.
Ambac Assurance has made a commitment to issue the insurance policy
effective as of the date of issuance of the bonds. Under the terms of the
insurance policy, Ambac Assurance will pay to The Bank of New York in New
York, New York, or any successor, as insurance trustee, that portion of the
principal of and interest on the bonds that becomes "due for payment" but has
not been paid by reason of "nonpayment" (as such terms are defined in the
insurance policy) by us. Ambac Assurance will make such payments to the
insurance trustee on the later of the date on which such principal and/or
interest becomes due for payment or within one business day following the date
on which Ambac Assurance receives notice of nonpayment from the bonds trustee.
The insurance policy will extend for the term of the bonds and, once issued,
cannot be canceled by us or Ambac Assurance.
The insurance policy will insure payment only on the stated maturity date,
in the case of principal, and on interest payment dates, in the case of
interest. In the event of any acceleration of the principal of the bonds, as
more fully described in the accompanying prospectus under "Description of the
Debt Securities" the insured payments will be made at the times and in the
amounts as would have been made had there not been an acceleration.
If the bonds trustee has notice that any payment of principal of or
interest on a bond that has become due for payment and that is made to a
holder by or on our behalf has been deemed a preferential transfer and
recovered from its holder pursuant to the United States Bankruptcy Code in
accordance with a final, nonappealable order of a court of competent
jurisdiction, that holder will be entitled to payment from Ambac Assurance to
the extent of such recovery if sufficient funds are not otherwise available.
The insurance policy does not insure any risk other than nonpayment, as
defined in the policy. Specifically, the insurance policy does not cover:
. payment on acceleration, as a result of a call for redemption or as a
result of any other advancement of maturity;
. payment of any redemption, prepayment or acceleration premium; and
. nonpayment of principal or interest caused by the insolvency or
negligence of the bonds trustee or any payment agent.
If it becomes necessary to call upon the insurance policy, payment of
principal requires surrender of the related bonds to the insurance trustee
together with an appropriate instrument of assignment so as to permit
ownership of such bonds to be registered in the name of Ambac Assurance to the
extent of the payment under the insurance policy. Payment of interest pursuant
to the insurance policy requires proof of holder entitlement to interest
payments and an appropriate assignment of the holder's right to payment to
Ambac Assurance.
S-13
Upon payment of the insurance benefits in respect of any bonds, Ambac
Assurance will become the owner of the related rights to payment of principal
and/or interest on such bonds and will be fully subrogated to the surrendering
holder's rights to payment.
Ambac Assurance Corporation
The following information has been supplied by Ambac Assurance for
inclusion in this prospectus supplement. No representation is made by us, the
trustee, the underwriter of any of our or their affiliates as to the accuracy
or completeness of the information.
Ambac Assurance is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in all 50 states, the District of
Columbia, the Commonwealth of Puerto Rico and the Territory of Guam. Ambac
Assurance primarily insures newly-issued municipal and structured finance
obligations. Ambac Assurance is a wholly owned subsidiary of Ambac Financial
Group, Inc. (formerly, AMBAC Inc.), a 100% publicly held company. Moody's
Investors Services, Inc., Standard & Poor's Ratings Services, a division of
the McGraw-Hill Companies, Inc. and Fitch Ratings have each assigned a triple-
A financial strength rating to Ambac Assurance.
The consolidated financial statements of Ambac Assurance and its
subsidiaries as of December 31, 2001 and December 31, 2000, and for each of
the years in the three-year period ended December 31, 2001, prepared in
accordance with accounting principles generally accepted in the United States
of America, included in the Annual Report on Form 10-K of Ambac Financial
Group, Inc. for the year ended December 31, 2001 (filed with the Securities
and Exchange Commission, or "SEC," on March 26, 2002, Commission File Number
1-10777), the unaudited consolidated interim financial statements of Ambac
Assurance and its subsidiaries as of March 31, 2002 and for the three-month
periods ended March 31, 2002 and March 31, 2001 included in the Quarterly
Report on Form 10-Q of Ambac Financial Group, Inc. for the period ended March
31, 2002 (filed with the SEC on May 13, 2002), and the Current Reports on Form
8-K of Ambac Financial Group, Inc. filed with the SEC on January 25, 2002 and
April 18, 2002, as they related to Ambac Assurance, are hereby incorporated by
reference into this prospectus supplement and are deemed to be a part of this
prospectus supplement. Any statement contained in a document incorporated in
this prospectus supplement by reference will be modified or superseded for the
purposes of this prospectus supplement to the extent that the statement is
modified or superseded by this prospectus supplement or by any other document
incorporated by reference into this prospectus supplement. Any statement so
modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this prospectus supplement.
All information related to Ambac Assurance and its subsidiaries, including
the financial statements of Ambac Assurance and its subsidiaries, that is
contained in documents filed by Ambac Financial Group, Inc. with the SEC
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, subsequent to the date of this prospectus supplement and prior to the
termination of the offering of the bonds will be deemed to be incorporated by
reference into this prospectus supplement and to be a part hereof from the
respective dates of filing the documents.
S-14
The following table sets forth the capitalization of Ambac Assurance and
its subsidiaries as of March 31, 2002, December 31, 2001 and December 31, 2000
in conformity with accounting principles generally accepted in the United
States of America.
Ambac Assurance Corporation and Subsidiaries
Capitalization Table
(Dollars in millions)
March 31, December 31, December 31,
2002 2001 2000
----------- ------------ ------------
(unaudited)
Unearned premiums.................... $1,817 $1,790 $1,556
Other liabilities.................... 835 888 581
------ ------ ------
Total liabilities.................. 2,652 2,678 2,137
------ ------ ------
Stockholder's equity:
Common stock....................... 82 82 82
Additional paid-in capital......... 928 928 760
Accumulated other comprehensive
income............................ 53 81 82
Retained earnings.................. 2,488 2,386 2,002
------ ------ ------
Total stockholder's equity........... 3,551 3,477 2,926
------ ------ ------
Total liabilities and stockholder's
equity.............................. $6,203 $6,155 $5,063
====== ====== ======
For additional financial information concerning Ambac Assurance, see the
audited financial statements of Ambac Assurance incorporated by reference in
this prospectus supplement. Copies of the financial statements of Ambac
Assurance incorporated by reference and copies of Ambac Assurance's annual
statement for the year ended December 31, 2001 prepared in accordance with
statutory accounting standards are available, without charge, from Ambac
Assurance. The address of Ambac Assurance's administrative offices and its
telephone number are One State Street Plaza, 19th Floor, New York, New York
10004 and (212) 668-0340.
Ambac Assurance makes no representation regarding the bonds or the
advisability of investing in the bonds and makes no representation regarding,
nor has it participated in the preparation of, this prospectus supplement
other than the information supplied by Ambac Assurance and presented under
"The Policy and the Insurer" in this prospectus supplement and in its
financial statements incorporated in this prospectus supplement by reference.
S-15
RATINGS
We expect that Standard and Poor's and Moody's will assign the bonds
ratings of "AAA" and "Aaa" respectively, conditioned upon the issuance and
delivery by Ambac Assurance at the time of delivery of the bonds of the policy
insuring the timely payment of the principal and interest on the bonds. The
ratings reflect only the views of those rating agencies, and an explanation of
the significance of the ratings may be obtained from the rating agencies at
the following addresses: Standard and Poor's, a division of the McGraw-Hill
Companies, Inc. 55 Water Street, New York, New York 10041 and Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007.
A security rating is not a recommendation to buy, sell or hold securities
and may be revised or withdrawn at any time by the rating agency. Each rating
assigned to the bonds should be evaluated independently of any other rating.
No person is obligated to maintain its rating on the bonds, and accordingly,
we cannot assure you that a rating assigned to the bonds upon initial issuance
will not be revised or withdrawn by a rating agency at any time thereafter. If
a rating on the bonds is revised or withdrawn, the liquidity of the bonds may
be materially adversely affected. In general, ratings address credit risk and
the likelihood of payment in full of the bonds at maturity, as well as the
timely payment of interest.
At present, each of the rating agencies maintains four categories of
investment grade ratings. For Standard and Poor's, these categories are AAA,
AA, A and BBB, for Moody's, these categories are Aaa, Aa, A and Baa. Standard
and Poor's defines "AAA" as the highest rating assigned to a debt obligation.
Moody's defines "Aaa" as representing the best quality debt obligation
carrying the smallest degree of investment risk.
S-16
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement, dated June 6, 2002 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters") have severally agreed to purchase, and we have
agreed to sell to them, severally, the respective principal amount of the bonds
set forth opposite their respective names below:
Principal Amount
Name of Bonds
---- ----------------
Morgan Stanley & Co. Incorporated.......................... $ 36,362,500
Salomon Smith Barney Inc................................... 36,350,000
UBS Warburg LLC............................................ 36,350,000
A.G. Edwards & Sons, Inc................................... 625,000
Bear, Stearns & Co. Inc.................................... 625,000
CIBC World Markets Corp.................................... 625,000
Dain Rauscher Wessels...................................... 625,000
Deutsche Bank Securities Inc............................... 625,000
H&R Block Financial Advisors, Inc.......................... 625,000
HSBC Securities (USA) Inc.................................. 625,000
Legg Mason Wood Walker, Inc................................ 625,000
Prudential Securities Incorporated......................... 625,000
Quick and Reilly........................................... 625,000
Charles Schwab & Co., Inc.................................. 625,000
TD Waterhouse Investor Services, Inc....................... 625,000
U.S. Bancorp Piper Jaffray Inc............................. 625,000
Wells Fargo Van Kasper, LLC................................ 625,000
Advest Inc................................................. 312,500
Robert W. Baird & Co. Incorporated......................... 312,500
Banc One Capital Markets, Inc.............................. 312,500
BB&T Capital Markets, a Division of Scott & Stringfellow... 312,500
William Blair & Co......................................... 312,500
Davenport & Company LLC.................................... 312,500
D.A. Davidson & Co......................................... 312,500
Fahnestock & Co. Inc....................................... 312,500
Fifth Third Securities, Inc................................ 312,500
J.J.B. Hilliard, W.L. Lyons, Inc........................... 312,500
Janney Montgomery Scott LLC................................ 312,500
C.L. King & Associates, Inc................................ 312,500
McDonald Investments Inc., a KeyCorp Company............... 312,500
McGinn, Smith & Co., Inc................................... 312,500
Mesirow Financial, Inc..................................... 312,500
Morgan Keegan & Company, LLC............................... 312,500
Parker/Hunter Incorporated................................. 312,500
Pershing/ a Division of Donaldson, Lufkin & Jenrette....... 312,500
Raymond James & Associates, Inc............................ 312,500
Ryan, Beck & Co. LLC....................................... 312,500
Southwest Securities, Inc.................................. 312,500
Stifel, Nicolaus & Company Incorporated.................... 312,500
SunTrust Capital Markets, Inc.............................. 312,500
------------
Total.................................................... $125,000,000
============
S-17
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the bonds is subject to, among
other things, the approval of certain legal matters by their counsel and
certain other conditions. The Underwriters are obligated to take and pay for
all of the bonds if any are taken.
The Underwriters initially propose to offer part of the bonds directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents as concession not in excess
of $0.50 per bond. Any Underwriter may allow, and any such dealers may re-
allow, a concession to certain other dealers not to exceed $0.25 per bond.
After the initial offering of the bonds, the offering price and other selling
terms may from time to time be varied by the Underwriters.
We have agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
Prior to the offering, there has been no public market for the bonds. We
intend to apply to have the bonds listed on the New York Stock Exchange, and
we expect trading in the bonds on the New York Stock Exchange to begin within
30 days after the original issue date. In order to meet the requirements for
listing the bonds, the underwriters will undertake to sell lots of 100 or more
bonds to a minimum of 400 beneficial holders.
The bonds are a new issue of securities with no established trading market.
The Underwriters have advised us that they intend to make a market in the
bonds. The Underwriters are not obligated, however, to do so and may
discontinue their market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the bonds.
In order to facilitate the offering of the bonds, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the prices
of the bonds. Specifically, the Underwriters may overallot in connection with
the offering, creating a short position in the bonds for their own account. In
addition, to cover overallotments or to stabilize the price of the bonds, the
Underwriters may bid for, and purchase, the bonds in the open market. Finally,
the Underwriters may reclaim selling concessions allowed to an Underwriter or
a dealer for distributing the bonds in the offering, if they repurchase
previously distributed bonds in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price for the bonds above independent
market levels. The Underwriters are not required to engage in these activities
and may end any of these activities at any time.
It is expected that delivery of the bonds will be made on or about the date
specified on the cover page of this prospectus supplement, which will be the
tenth business day (T+10) following the date of this prospectus supplement.
Under Rule 15c6-1 under the Securities Exchange Act of 1934, trades in the
secondary market generally are required to settle in three business days
(T+3), unless the parties to any such trade expressly agree otherwise.
Accordingly, the purchasers who wish to trade the bonds on the date of this
prospectus supplement or the next seven succeeding business days will be
required to specify an alternate settlement cycle at the time of any such
trade to prevent a failed settlement. Purchasers of the bonds who wish to
trade the bonds on the date of this prospectus supplement or the next seven
succeeding business days should consult their own advisors.
Certain of the Underwriters and their respective affiliates have, from time
to time, performed various investment or commercial banking and financial
advisory services for us in the ordinary course of business.
VALIDITY OF SECURITIES
The validity of the bonds will be passed upon for us by Nixon Peabody LLP,
Clinton, Square, Rochester, New York 14604 and for the underwriters by
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004.
S-18
EXPERTS
The financial statements incorporated in the accompanying prospectus by
reference to the combined Annual Report on Form 10-K of RGS Energy Group, Inc.
and Rochester Gas and Electric Corporation for the year ended December 31,
2001 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Ambac Assurance Corporation and
subsidiaries as of December 31, 2001 and 2000 and for each of the years in the
three-year period ended December 31, 2001 are incorporated by reference in
this prospectus supplement and the registration statement in reliance on the
report of KPMG LLP, independent certified public accountants, incorporated by
reference in this prospectus supplement, upon the authority of that firm as
experts in auditing and accounting.
S-19
APPENDIX A -- FORM OF INSURANCE POLICY
[AMBAC LOGO] Ambac Assurance Corporation
One State Street Plaza, 15th Floor
FINANCIAL GUARANTY INSURANCE POLICY New York, New York 10004
Telephone: (212) 668-0340
Obligor: Policy Number:
Obligations: Premium:
SPECIMEN
Ambac Assurance Corporation ("Ambac"), a Wisconsin stock insurance
corporation, in consideration of the payment of the premium and subject to the
terms of this Policy, hereby agrees to pay to The Bank of New York, as trustee,
or its successor (the "Insurance Trustee"), for the benefit of the Holders, that
portion of the principal of and interest on the above-described obligations (the
"Obligations") which shall become Due for Payment but shall be unpaid by reason
of Nonpayment by the Obligor.
Ambac will make such payments to the Insurance Trustee within one (1)
business day following written notification to Ambac of Nonpayment. Upon a
Holder's presentation and surrender to the Insurance Trustee of such unpaid
Obligations or related coupons, uncanceled and in bearer form and free of any
adverse claim, the Insurance Trustee will disburse to the Holder the amount of
principal and interest which is then Due for Payment but is unpaid. Upon such
disbursement, Ambac shall become the owner of the surrendered Obligations and/or
coupons and shall be fully subrogated to all of the Holder's rights to payment
thereon.
In cases where the Obligations are issued in registered form, the Insurance
Trustee shall disburse principal to a Holder only upon presentation and
surrender to the Insurance Trustee of the unpaid Obligation, uncanceled and free
of any adverse claim, together with an instrument of assignment, in form
satisfactory to Ambac and the Insurance Trustee duly executed by the Holder or
such Holder's duly authorized representative, so as to permit ownership of such
Obligation to be registered in the name of Ambac or its nominee. The Insurance
Trustee shall disburse interest to a Holder of a registered Obligation only upon
presentation to the Insurance Trustee of proof that the claimant is the person
entitled to the payment of interest on the Obligation and delivery to the
Insurance Trustee of an instrument of assignment, in form satisfactory to Ambac
and the Insurance Trustee, duly executed by the Holder or such Holder's duly
authorized representative, transferring to Ambac all rights under such
Obligation to receive the interest in respect of which the insurance
disbursement was made, Ambac shall be subrogated to all of the Holder's rights
to payment on registered Obligations to the extent of any insurance
disbursements so made.
In the event that a trustee or paying agent for the Obligations has notice
that any payment of principal of or interest on an Obligation which has become
Due for Payment and which is made to a Holder by or on behalf of the Obligor has
been deemed a preferential transfer and theretofore recovered from the Holder
pursuant to the United States Bankruptcy Code in accordance with a final,
nonappealable order of a court of competent jurisdiction, such Holder will be
entitled to payment from Ambac to the extent of such recovery, if sufficient
funds are not otherwise available.
As used herein, the term "Holder" means any person other than (i) the
Obligor or (ii) any person whose obligations constitute the underlying security
or source of payment for the Obligations who, at the time of Nonpayment, is the
owner of an Obligation or of a coupon relating to an Obligation. As used herein,
"Due for Payment," when referring to the principal of Obligations, is when a
scheduled maturity date or mandatory redemption date for the application of a
required sinking fund installment has been reached and does not refer to any
earlier date on which payment is due by reason of call for redemption
(other than by application of required sinking fund installments), acceleration
or other advancement of maturity; and, when referring to interest on the
Obligations, is when the scheduled date for payment of interest has been
reached. As used herein, "Nonpayment" means the failure of the Obligor
to have provided sufficient funds to the trustee or paying agent for payment in
full of all principal of and interest on the Obligations which are Due for
Payment.
This Policy is noncancelable. The premium on this Policy is not refundable
for any reason, including payment of the Obligations prior to maturity. This
Policy does not insure against loss of any prepayment or other acceleration
payment which at any time may become due in respect of any Obligation, other
than at the sole option of Ambac, nor against any risk other than Nonpayment.
In witness whereof, Ambac has caused this Policy to be affixed with a
facsimile of its corporate seal and to be signed by its duly authorized officers
in facsimile to become effective as its original seal and signatures and binding
upon Ambac by virtue of the countersignature of its duly authorized
representative.
/s/ ROBERT J. GENADER
- ----------------------------------
President [AMBAC SEAL]
/s/ ANNE G. GILL
---------------------------------------
Secretary
Effective Date: Authorized Representative
THE BANK OF NEW YORK /s/ NORAIDA LAURO
acknowledges that it has agreed ---------------------------------------
to perform the duties of Insurance Authorized Officer of Insurance Trustee
Trustee under this Policy
Form No. 2B-0012 (1/01)
A-1
PROSPECTUS
$400,000,000
Rochester Gas and Electric Corporation
Debt Securities
----------------
Rochester Gas and Electric Corporation (RG&E) may offer and sell up to
$400,000,000 of our first mortgage bonds and unsecured notes in one or more
series. We will establish the terms of these debt securities at the time we
offer them.
We will issue a prospectus supplement for each offering of debt securities
that will describe the designation, principal amount, interest rate, interest
payment dates, maturity date or dates, public offering price, any redemption
terms and any other specific terms of the series of debt securities being
offered.
We may offer and sell our debt securities through underwriters, through
dealers, through agents, or directly to one or more institutional purchasers.
----------------
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.
----------------
The date of this Prospectus is January 17, 2001.
TABLE OF CONTENTS
Page
----
About This Prospectus...................................................... 2
Where You Can Find More Information........................................ 3
Forward-Looking Statements................................................. 4
The Company................................................................ 5
Ratio of Earnings to Fixed Charges......................................... 5
Application of Proceeds.................................................... 5
Description of the Debt Securities......................................... 6
New Mortgage Bonds....................................................... 6
New Unsecured Notes...................................................... 9
Legal Opinions............................................................. 12
Experts.................................................................... 12
Plan of Distribution....................................................... 12
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement we have filed with the
Securities and Exchange Commission using a "shelf" registration process. By
using this process, we may offer up to a total dollar amount of $400,000,000
of our debt securities in one or more offerings. This prospectus provides you
with a general description of the debt securities we may offer. Each time we
offer debt securities, we will provide you with a supplement to this
prospectus that will describe the specific terms of that offering. The
prospectus supplement may also add, update or change the information contained
in this prospectus. Before you invest, you should carefully read this
prospectus, the applicable prospectus supplement and the information contained
in the documents we refer to in this prospectus under "Where You Can Find More
Information."
References in this prospectus to the terms "we", "us" or other similar
terms mean Rochester Gas and Electric Corporation, unless the context clearly
indicates otherwise.
You should rely only on the information contained or incorporated by
reference in this prospectus and any accompanying prospectus supplement
(including any pricing supplement). We have not authorized anyone else to
provide you with any different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not
making an offer to sell securities in any jurisdiction where the offer or sale
is not permitted. The information contained in this prospectus is current only
as of the date of this prospectus.
2
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. We file such reports,
proxy statements and other information through the Commission's Electronic
Data Gathering, Analysis and Retrieval system and these filings are publicly
available through the Commission's Web site (http://www.sec.gov). You may read
and copy such material at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
at the Commission's New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048; and at its Chicago Regional Office, Northwest
Atrium Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661.
You may also obtain copies of such material at prescribed rates from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Section by calling the Commission at 1-800-SEC-0330.
The Commission allows us to "incorporate by reference" into this prospectus
the information we file with it. This means that we can disclose important
information to you by referring you to the documents containing the
information. The information we incorporate by reference is considered to be
an important part of this prospectus and should be read with the same care.
Information that we file later with the Commission that is incorporated by
reference into this prospectus will automatically update and supersede this
information. We are incorporating by reference into this prospectus the
following documents that we have filed with the Commission to the extent that
they relate to us:
. The combined Annual Report filed by RGS Energy Group, Inc. (RGS) and RG&E
on Form 10-K for the year ended December 31, 1999;
. The combined Quarterly Reports filed by RGS and RG&E for the quarterly
periods ended March 31, 2000, June 30, 2000 and September 30, 2000; and
. The combined Current Reports filed by RGS and RG&E on Form 8-K dated May
25, 2000 and December 14, 2000.
Any filings we make with the Commission under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 will also be incorporated by
reference into this prospectus until the offering of the debt securities
described in this prospectus is completed; provided, however, that such
filings are only incorporated by reference to the extent that they relate to
RG&E and we are not incorporating by reference any information furnished under
Item 9 of any Current Report on Form 8-K. We are not incorporating by
reference the portion of any filing that relates to RGS and its subsidiaries
other than us, and we make no representation with respect to such information.
This prospectus is part of a registration statement we have filed with the
Commission relating to our debt securities. As permitted by the Commission's
rules, this prospectus does not contain all of the information included in the
registration statement and the accompanying exhibits and schedules we file
with the Commission. You should read the registration statement and the
exhibits and schedules for more information about us and our debt securities.
The registration statement, exhibits and schedules are also available at the
Commission's Public Reference Section or through its Web site.
You may obtain a free copy of our filings with the Commission by writing or
calling us at our principal executive offices. Requests for copies should be
directed to Manager, Investor Relations, Rochester Gas and Electric
Corporation, 89 East Avenue, Rochester, New York 14649 at telephone number
(716) 724-8176.
3
FORWARD-LOOKING STATEMENTS
This prospectus contains and incorporates by reference statements which are
not historic fact and which can be classified as forward-looking. These
statements can be identified by the use of certain words which suggest
forward-looking information, such as "believes," "will," "expects,"
"projects," "estimates" and "anticipates". They can also be identified by the
use of words that relate to future goals or strategies. In addition to the
assumptions and other factors referred to specifically in connection with the
forward-looking statements, some of the factors that could have a significant
effect on whether the forward-looking statements ultimately prove to be
accurate include:
. uncertainties related to the regulatory treatment of our nuclear
generation facilities including the proposed sale of our interest in the
Nine Mile Point Two nuclear generating facility;
. any state or federal legislative or regulatory initiatives (including the
results of negotiations between us and the New York Public Service
Commission (the PSC) regarding certain gas restructurings) that affect
the cost or recovery of investments necessary to provide utility service
in the electric and natural gas industries. Such initiatives could
include, for example, changes in the regulation of rate structures or
changes in the speed or degree to which competition occurs in the
electric and natural gas industries;
. any changes in our ability to recover environmental compliance costs
through increased rates;
. the determination in the nuclear generation proceeding initiated by the
PSC, including any changes in the regulatory status of nuclear generating
facilities and their related costs, including recovery of costs related
to spent fuel and decommissioning;
. fluctuations in energy supply and demand and market prices for energy,
capacity and ancillary services;
. any changes in the rate of industrial, commercial and residential growth
in our service territory;
. the development of any new technologies which allow customers to generate
their own energy or produce lower cost energy;
. any unusual or extreme weather or other natural phenomena;
. the timing and extent of changes in commodity prices and interest rates;
. any adverse impact on us from the operations of RGS Energy Group, Inc.
and its other subsidiaries; or
. any other considerations that may be disclosed from time to time in our
publicly disseminated documents and filings.
4
THE COMPANY
Rochester Gas and Electric Corporation was formed in 1904 and is engaged
principally in the business of generating, purchasing, transmitting and
distributing electricity and purchasing, transporting and distributing natural
gas. We produce and distribute electricity and distribute gas in parts of nine
New York counties including and surrounding the City of Rochester.
The service area for our regulated business has a population of
approximately one million and is well diversified among residential,
commercial and industrial consumers. In addition to the City of Rochester,
which is the third largest city and a major industrial center in New York
State, it includes a substantial suburban area with commercial growth and a
large and prosperous farming area. A majority of the industrial firms in our
service area manufacture consumer goods. Many of our industrial customers are
nationally known, such as Xerox Corporation, Eastman Kodak Company, Bausch &
Lomb Incorporated and Delphi Automotive Systems, Inc.
On August 2, 1999, all of our outstanding shares of common stock were
exchanged on a share-for-share basis for shares of RGS Energy Group, Inc.
(RGS) and we became a subsidiary of RGS. We continue to have non-voting
preferred stock outstanding. In connection with the restructuring, our
subsidiaries that were conducting unregulated businesses became subsidiaries
of RGS. The debt securities offered by this prospectus and applicable
prospectus supplements are not obligations of and are not guaranteed by RGS or
any of its other subsidiaries.
The mailing address of our executive office is 89 East Avenue, Rochester,
New York 14649 and our telephone number is (716) 546-2700.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for the last five years and for the
twelve months ended September 30, 2000 are as follows:
Twelve Months
Ended Year Ended December 31,(1)
September 30, -------------------------------
2000 1999 1998 1997 1996 1995(2)
------------- ----- ----- ----- ----- -------
Ratio of earnings to fixed
charges(1)..................... 3.44x 3.49x 3.97x 3.76x 3.59x 2.80x
- --------
(1) Earnings are defined as pretax income from continuing operations to which
fixed charges have been added. Fixed charges are defined in this ratio as:
(i) interest charges on long-term debt, short-term debt and Department of
Energy liability for nuclear waste disposal; (ii) amortization of debt
premium and expense; and (iii) interest amounts included in rental
agreements.
(2) Excluding the effect of regulatory disallowances charged to current period
earnings, the ratio of earnings to fixed charges for 1995 would be 3.19x.
APPLICATION OF PROCEEDS
Unless we state otherwise in any prospectus supplement, we will use the net
proceeds from the sale of the debt securities being offered:
. to finance our ongoing construction program;
. to repay short-term debt or maturing securities;
. to redeem or purchase outstanding preferred stock or debt securities; or
. for general corporate purposes.
If we do not use the net proceeds immediately, we may temporarily invest
them in short-term interest-bearing obligations or deposit them with banks.
5
DESCRIPTION OF THE DEBT SECURITIES
The debt securities that may be offered by this prospectus and applicable
prospectus supplements will consist of our first mortgage bonds (New Mortgage
Bonds) and unsecured notes (New Unsecured Notes). Some or all of the New
Mortgage Bonds may be designated as secured medium-term notes.
This section summarizes the material terms that will apply generally to the
New Mortgage Bonds and the New Unsecured Notes. Each particular debt security
will have financial and other terms specific to it, and the specific terms of
each security will be described in the applicable prospectus supplement. Those
terms may vary from the terms described here. As you read this section,
therefore, please remember that the specific terms of your debt security as
described in your prospectus supplement will supplement and may modify or
replace the general terms described in this section. The statements we make in
this section may not apply to your debt security.
The specific legal terms of your debt security are contained in the debt
security itself, the Mortgage or Indenture (as such terms are described in the
sections below) and any supplemental indentures to the Mortgage or Indenture,
as applicable. The following discussion is a summary only and is qualified in
its entirety by the specific legal terms contained in the applicable governing
documents. See "Where You Can Find More Information" on page 3 for information
on how to obtain a copy of the applicable governing documents.
New Mortgage Bonds
General. The New Mortgage Bonds will be issued under a General Mortgage,
dated September 1, 1918, between RG&E and Bankers Trust Company, as Trustee
(the Trustee), as previously amended and supplemented and as to be further
amended and supplemented by one or more supplemental indentures relating to
such New Mortgage Bonds (herein collectively called the "Mortgage").
All of the Mortgage Bonds issued and to be issued under the Mortgage,
including any Mortgage Bonds designated as secured medium-term notes, are
hereinafter referred to as the "Mortgage Bonds."
The New Mortgage Bonds will be in a principal amount, mature, bear interest
and have other specific terms as set forth in the prospectus supplement
accompanying this prospectus. Interest on New Mortgage Bonds will accrue from,
and be payable semi-annually on, the dates set forth in such prospectus
supplement. When New Mortgage Bonds are issued, they will be signed by us and
authenticated by the Trustee or an authentication agent appointed by the
Trustee.
Redemption Provisions. Redemption provisions for the New Mortgage Bonds
will be set forth in the prospectus supplement offering the New Mortgage
Bonds.
Form and Exchange. The New Mortgage Bonds will be in fully registered form
in denominations of $1,000 and any multiple thereof, without coupons, and may
be exchanged for other New Mortgage Bonds of the same series of other
authorized denominations with the same interest rate, maturity and other terms
in each case for a like aggregate principal amount, without charge to the
holders thereof other than for any tax or taxes or other governmental charges.
Security and Priority. The New Mortgage Bonds will be secured equally and
ratably with other Mortgage Bonds issued under the Mortgage by a valid and
direct first mortgage on substantially all of our property (except accounts
receivable and cash), subject to excepted encumbrances, reservations,
contracts and exceptions which we do not consider material to the operations
of the property. The Mortgage provides for the subjection of after-acquired
property (subject to pre-existing liens) to the lien thereof. The New Mortgage
Bonds are not obligations of or guaranteed by RGS or any of its other
subsidiaries.
Sinking and Improvement Fund. While any Mortgage Bonds issued under the
Mortgage are outstanding, we will, on or before June 30 of each year, deposit
$333,540 with the Trustee. Instead of depositing cash, we may
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certify bondable value of property additions (on the basis of 60% thereof) or
apply the principal amount of prior liens or charges and Mortgage Bonds issued
under the Mortgage which might then be made the basis for the issuance of
Mortgage Bonds under the Mortgage. Cash so deposited with the Trustee may be
withdrawn or used as provided in the Mortgage to purchase or redeem Mortgage
Bonds, or to reimburse us for up to 60% of the cost or fair value of property
which might otherwise be made the basis of issuance of Mortgage Bonds or
withdrawal of cash. If on any December 31 the Trustee holds $250,000 or more
so deposited, such cash must be used to purchase or redeem Mortgage Bonds.
Maintenance Fund. If the aggregate amount applied by us subsequent to
December 31, 1948 for property additions does not, as of the end of each year,
equal the aggregate of the minimum provision for depreciation for the years
since that date, we are required to deposit cash with the Trustee to make up
any deficiency (less certain optional credits). Any cash thus deposited may be
used, among other things, to redeem Mortgage Bonds. The minimum provision for
depreciation for each year is 2 1/4% of the depreciable utility property at
the beginning of the year. As of December 31, 1999, property additions
acquired after 1948 exceeded the aggregate of the minimum provision for
depreciation by approximately $2.03 billion. This excess, even if not
increased by future property additions and assuming a maximum life of 30 years
for any given series of New Mortgage Bonds, could not be exhausted during the
life of such series of New Mortgage Bonds and thus we will not be required to
deposit cash to the maintenance fund during such period.
Issuance of Additional Bonds. Additional Mortgage Bonds may be issued under
the Mortgage for the following purposes:
. to pay for up to 60% of the cost of additional property constructed or
acquired on or after January 1, 1949;
. to reimburse us for up to 60% of our expenditures made on or after
January 1,1949, from income or surplus, for the construction or
acquisition of additional property; or
. to refund or replace any Mortgage Bonds issued under the Mortgage.
Whenever property subject to a prior lien is subjected to the lien of the
Mortgage, an amount of Mortgage Bonds or moneys equal to such prior lien is
reserved to pay such prior lien and thereafter Mortgage Bonds may be issued or
moneys withdrawn up to the amount remaining after deducting the amount of such
lien from 60% of the aggregate of the expenditures for such property and the
amount of such lien. As expenditures are made to pay or acquire such lien,
moneys or Mortgage Bonds so reserved equal to such expenditures (but not more
than the amount of such lien) are to be paid or authenticated and delivered to
us. We will not certify to the Trustee property additions subject to a prior
lien if thereby the principal amount of prior liens to be then outstanding
will exceed 15% of the principal amount of all Mortgage Bonds then outstanding
and which might then be issued.
No additional Mortgage Bonds may be issued other than to refund or replace
Mortgage Bonds unless earnings for a period of 12 months ending not earlier
than 60 days prior to the application for such Mortgage Bonds, after deducting
operating expenses, including taxes other than income and similar taxes,
rentals, insurance, actual charges for current repairs and maintenance and an
amount equal to the minimum provision for depreciation (see "Maintenance
Fund") but excluding Mortgage Bond interest, sinking fund charges and
amortization of utility plant account, all as set forth in the Mortgage, are
equal to at least two times the total annual interest on Mortgage Bonds
outstanding and to be outstanding. This ratio for the twelve months ended
September 30, 2000 was 6.46x.
At September 30, 2000, the unbonded bondable value of property additions
available for use as the basis for the issuance of Mortgage Bonds was
approximately $754 million. In addition, at September 30, 2000 approximately
$257 million of Mortgage Bonds could be issued against Mortgage Bonds which
have matured or have been redeemed. We intend to issue the New Mortgage Bonds
against Mortgage Bonds which have been retired or against property additions
or a combination of both.
7
Release and Substitution of Property. Release of property is permitted when
it is sold or exchanged if, among other conditions, it has ceased to be useful
or profitable to us, we deposit not less than the fair value of the property
with the Trustee or, if the property is exchanged, by subjecting to the lien
of the Mortgage the property we receive in exchange for the property.
We may under certain conditions without release sell certain disused or
undesirable personal property, and surrender or assent to the modification of
any franchise and certain easements for distribution purposes. We may under
certain conditions without release abandon, terminate, release or change any
leases and rights of way, surrender or assent to the modification of any
right, franchise, license or governmental permit, and dispose of interests in
poles and electric lines to certain other utilities.
Modification or Amendment of Mortgage. We and the Trustee may enter into
supplemental indentures to
. subject to the Mortgage after-acquired property,
. limit the amount, issue and purposes of the issue of Mortgage Bonds,
. provide that Mortgage Bonds of any particular series may be converted
into stock,
. provide for the issue of Mortgage Bonds in certain denominations,
. retire or redeem Mortgage Bonds, and
. make necessary or desirable provisions not inconsistent with the
Mortgage.
The Mortgage may be modified with the consent of the holders of not less
than 75% in principal amount of all Mortgage Bonds, or in case the rights of
the holders of one or more, but less than all, series would be affected, then
with the consent of the holders of 75% in principal amount of all series
affected, provided that in no event may action affecting less than all series
be effective unless approved by the majority holders of all the Mortgage
Bonds, and provided that no supplemental indenture may:
. extend the fixed maturity of the Mortgage Bonds, or reduce the rate or
extend the time of payment of interest, or reduce the principal amount,
or limit the right of a bondholder to institute suit for payment of
principal or interest without the consent of the holder of each Mortgage
Bond so affected; or
. reduce the percentages which are required to approve any such
supplemental indenture without the consent of the holders of all the
Mortgage Bonds then outstanding; or
. permit the creation of any lien prior to or equal with the lien of the
Mortgage without the consent of the holders of all the Mortgage Bonds.
Defaults. Events of default are defined as: default in the payment of
principal; default for 90 days in the payment of interest; default beyond any
grace period in payment of principal or interest on any outstanding prior lien
Mortgage Bonds; certain events of bankruptcy, insolvency, reorganization, or
similar arrangements; and default by us for 90 days after notice in the
performance of any other covenant or condition in the Mortgage. The Mortgage
requires us to file annually with the Trustee a Treasurer's certificate
stating that we are not, to the knowledge of the signers, in default under any
of the provisions of the Mortgage.
Upon the happening of any event of default, the holders of not less than a
majority in aggregate principal amount of the Mortgage Bonds secured by the
Mortgage then outstanding may require the Trustee to accelerate the maturity
of all such Mortgage Bonds and to take all steps necessary to enforce the
rights granted by the Mortgage. The holders of not less than 76% of the
aggregate principal amount of Mortgage Bonds then outstanding may direct and
control the Trustee's actions in such event and, in the event of any proposed
judicial sale, the holders of not less than a majority of such principal
amount may cause the Trustee to sell the mortgaged property in parcels, rather
than as a whole.
If, prior to any sale of the mortgaged property, all defaults have been
remedied, the holders of a majority in aggregate principal amount of all
Mortgage Bonds then outstanding may waive and rescind the default and its
8
consequences. Furthermore, the holders of not less than 75% in aggregate
principal amount of all the Mortgage Bonds (or if only certain series are
affected, of such series, together with the consent of the holders of at least
a majority in aggregate principal amount of all the Mortgage Bonds) then
outstanding may waive events of default (whether or not cured) other than the
failure to pay any interest or principal due or the granting of a lien ranking
equal to or prior to that granted by the Mortgage.
The holder of any Mortgage Bond secured by the Mortgage may not institute
any action to enforce the rights granted by the Mortgage unless the Trustee
shall have failed to take action after request by the holders of 25% of such
Mortgage Bonds and provided such holders have offered the Trustee security and
indemnity satisfactory to it. Any bondholder, however, shall have the right at
any time to bring an action to enforce the payments of principal and interest
due on his Mortgage Bonds.
The Trustee may not be compelled to take any action to enforce the rights
granted by the Mortgage unless the bondholders requesting the Trustee to take
such action have offered to it security and indemnity satisfactory to it
against the cost, expenses and liabilities to be incurred thereby.
Satisfaction and Discharge. When all Mortgage Bonds are paid or redeemed
(or all outstanding Mortgage Bonds are redeemable, have been called for
redemption and we have deposited money with the Trustee which is sufficient to
redeem all of the outstanding Mortgage Bonds) and we have paid all charges and
expenses of the Trustee, the Trustee is obligated to satisfy and cancel the
Mortgage.
Trustee under the Mortgage. In the normal course of our business, we
utilize banking services offered by the Trustee under the Mortgage, Bankers
Trust Company, 4 Albany Street, New York, New York 10006. Among such services
may be the making of short term loans.
New Unsecured Notes
General. The New Unsecured Notes will be issued under an Indenture to be
entered into between RG&E and The Bank of New York, as Trustee, as may be
amended and supplemented by one or more supplemental indentures relating to
such New Unsecured Notes (herein collectively called the "Indenture").
All of the notes issued and to be issued under the Indenture are
hereinafter referred to as the "Unsecured Notes." As of the date of this
prospectus, there are no Unsecured Notes outstanding.
The New Unsecured Notes will be in a principal amount, mature, bear
interest and have other specific terms as set forth in the prospectus
supplement accompanying this prospectus. Interest on New Unsecured Notes will
accrue from, and be payable on, the dates set forth in such prospectus
supplement. When New Unsecured Notes are issued, they will be signed by us and
authenticated by the Trustee or an authentication agent appointed by the
Trustee.
Redemption Provisions. Redemption provisions for the New Unsecured Notes
will be set forth in the prospectus supplement offering the New Unsecured
Notes.
Form and Exchange. Unless otherwise specified in the prospectus supplement
offering the New Unsecured Notes, the New Unsecured Notes will be in fully
registered form in denominations of $1,000 and any multiple thereof, without
coupons, and may be exchanged for other Unsecured Notes of the same series of
other authorized denominations with the same interest rate, maturity and other
terms in each case for a like aggregate principal amount, without charge to
the holders thereof other than for any taxes or other governmental charges.
Security and Priority. The New Unsecured Notes are unsecured obligations
and will rank pari passu with all other Unsecured Notes and with all of our
other unsecured and unsubordinated indebtedness. The Unsecured Notes are not
obligations of or guaranteed by RGS or any of its other subsidiaries.
9
Issuance of Additional Unsecured Notes. The Indenture does not contain any
limitation on the issuance of additional Unsecured Notes under the Indenture.
Our restated certificate of incorporation limits the aggregate amount of our
unsecured notes, debentures or other securities to no more than 15% of the sum
of the outstanding principal amount of our Mortgage Bonds and other securities
representing secured indebtedness plus the amount of our capital and surplus.
As of September 30, 2000, we would have been able to issue an additional $106
million of unsecured securities under this test.
Amendment of the Indenture and Unsecured Notes. There are three types of
amendments we can make to the Indenture and the Unsecured Notes: changes
requiring approval of each holder of affected Unsecured Notes, changes
requiring approval of the holders of a majority of the principal amount of the
particular series of Unsecured Notes affected, and changes not requiring any
approval.
There are a number of amendments that cannot be made to Unsecured Notes
without the specific approval of each holder of affected Unsecured Notes. The
following is a list of those types of amendments:
. change the stated maturity of the principal of or interest on any
Unsecured Note;
. reduce any amounts due on any Unsecured Note;
. reduce the amount of principal payable upon acceleration of the maturity
of any Unsecured Note following a default;
. change the place or currency of payment on any Unsecured Note;
. impair the right of the holder of an Unsecured Note to sue for payment;
. reduce the percentage of holders of Unsecured Notes whose consent is
needed to modify or amend the Indenture;
. reduce the percentage of holders of Unsecured Notes whose consent is
needed to waive compliance with provisions of the Indenture or to waive
defaults; and
. modify any other aspect of the provisions dealing with modification and
waiver of the Indenture.
The second type of amendment to the Indenture and the Unsecured Notes is
the kind that requires the consent of holders of Unsecured Notes owning a
majority of the principal amount of the particular series affected. Most
changes fall into this category, except for clarifying changes and certain
other changes that would not adversely affect holders of the Unsecured Notes.
The same consent would be required for us to obtain a waiver of all or part of
any covenants described in the prospectus supplement, or a waiver of a past
default. However, we cannot obtain a waiver of a payment default or any other
aspect of the Indenture or the Unsecured Notes in the list immediately
preceding this paragraph unless we obtain the consent of the individual holder
to the waiver.
The final type of amendment does not require any approval by holders of
Unsecured Notes. This type of amendment is limited to clarifications and
certain other changes that would not adversely affect holders of the
Securities.
Defaults. An event of default will occur with respect to an Unsecured Note
if:
. we do not pay the principal of or any premium on an Unsecured Note on its
due date;
. we do not pay interest on an Unsecured Note within 60 days of its due
date;
. we remain in breach of a covenant of the Indenture for 90 days after we
receive a notice of default stating we are in breach from either the
Trustee or holders of 10% of the principal amount of Unsecured Notes of
the affected series; or
. we file for bankruptcy or certain other events in bankruptcy, insolvency
or reorganization occur.
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If an event of default has occurred with respect to a series of Unsecured
Notes and has not been cured, the holders of not less than a majority in
aggregate principal amount of such series may require the Trustee to
accelerate the maturity of all Unsecured Notes of such series and to take all
steps necessary to enforce the rights granted by the Indenture. A declaration
of acceleration of maturity may be canceled by the holders of at least a
majority in principal amount of the Unsecured Notes of the affected series.
The Indenture requires us to file annually with the Trustee an officers'
certificate stating that we are not, to the best knowledge of the signers, in
default under any of the provisions of the Indenture.
Except in cases of default, where the Trustee has some special duties, the
Trustee is not required to take any action under the Indenture at the request
of any holders unless the holders offer the Trustee protection satisfactory to
it from expenses and liability. If satisfactory protection is provided, the
holders of 76% in principal amount of all outstanding Unsecured Notes issued
under the Indenture may direct the time, method and place of conducting any
lawsuit or other formal legal action seeking any remedy available to the
Trustee. These holders may also direct the Trustee in performing any other
action under the Indenture.
Holders of Unsecured Notes may not bypass the Trustee and bring their own
lawsuit or other formal legal action or take other steps to enforce their
rights or protect their interests relating to the Unsecured Notes unless:
. they give the Trustee written notice that an event of default has
occurred and remains uncured;
. the holders of 25% in principal amount of all outstanding Unsecured Notes
issued under the Indenture have made a written request that the Trustee
take action because of the event of default, and must have offered
indemnity satisfactory to the Trustee against the cost and other
liabilities of taking that action; and
. the Trustee has not taken action for 60 days after receiving the notice
and offer of indemnity.
However, holders of Unsecured Notes are entitled at any time to bring a
lawsuit for the payment of money due on their Unsecured Notes on or after the
applicable due dates of their Unsecured Notes.
Satisfaction and Discharge. The Indenture will be satisfied when all
Unsecured Notes issued under the Indenture are paid or:
. all outstanding Unsecured Notes are due or redeemable or will become due
or redeemable within one year,
. if outstanding Unsecured Notes are to be redeemed, arrangements for the
giving of the notice of redemption of such Unsecured Notes by the Trustee
have been established; and
. we have deposited cash or U.S. government securities with the Trustee
that are sufficient to pay or redeem all of the outstanding Unsecured
Notes when they become due or are to be redeemed.
We must also have paid all other amounts due under the Indenture and delivered
to the Trustee an officers' certificate and opinion of counsel to the effect
that all conditions precedent to the satisfaction and discharge have been
satisfied.
If provided for in a prospectus supplement with respect to any series of
Unsecured Notes, we may be released or discharged from all or a portion of our
obligations with respect to such Unsecured Notes under certain circumstances.
Currently, we can obtain a limited release from our obligation to comply with
certain restrictive covenants by irrevocably depositing with the Trustee cash
or U.S. government securities that, based on actuarial assumptions, will be
adequate to satisfy, as and when they become due, the payments due on the
series of Unsecured Notes. If the federal income tax law changes or is
interpreted by the IRS in a way that would permit a full discharge of our
obligations under the Indenture with respect to a series of Unsecured Notes
without causing a change in the federal income tax treatment to the holders of
such series of Unsecured Notes, we would be able to obtain a complete
discharge by making such a deposit. To obtain either type of release or
discharge, we cannot be in default under the Indenture and the release or
discharge cannot cause certain specified adverse
11
results. We would need to provide the Trustee with an officers' certificate
and legal opinion that all conditions precedent to the release or discharge
have been satisfied in order to obtain the release or discharge.
Trustee under the Indenture. In the normal course of our business, we
utilize banking services offered by the Trustee under the Indenture, The Bank
of New York, Corporate Trust Office, 101 Barclay Street, Floor 21 West, New
York, New York 10286. Among such services may be the making of short term
loans. As of the date of this prospectus, the Trustee under the Indenture is
providing or participating in our existing lines of credit and is the trustee
with respect to certain of our other outstanding bonds.
LEGAL OPINIONS
The validity of the Securities will be passed upon for us by Nixon Peabody
LLP, Clinton Square, Rochester, New York 14604 and for any underwriters by
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004.
EXPERTS
The financial statements incorporated in this prospectus by reference to
our combined Annual Report on Form 10-K with RGS for the year ended December
31, 1999 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
PLAN OF DISTRIBUTION
We may sell debt securities:
. to or through underwriting syndicates represented by managing
underwriters;
. through one or more underwriters without a syndicate for them to offer
and sell to the public;
. through dealers or agents; and
. to investors directly in negotiated sales or in competitively bid
transactions.
Any underwriter or agent involved in the offer and sale of any series of
the debt securities will be named in the applicable prospectus supplement.
The prospectus supplement for each series of debt securities will describe:
. the terms of the offering of the debt securities, including the name of
any underwriters, dealers or agents;
. the public offering or purchase price;
. any discounts and commissions to be allowed or paid to the underwriters,
dealers or agents and all other items constituting underwriting
compensation; and
. other specific terms of the particular debt securities.
Only the agents or underwriters named in a prospectus supplement are agents
or underwriters in connection with the debt securities being offered by that
prospectus supplement.
If underwriters are used in the sale, the debt securities will be acquired
by the underwriters for their own account and may be resold from time to time
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale.
Unless otherwise described in the
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applicable prospectus supplement, underwriters to whom debt securities are
sold by us for public offering and sale are obliged to purchase all of those
particular debt securities if any are purchased. This obligation is subject to
certain conditions and may be modified in the applicable prospectus
supplement.
Underwriters, agents and dealers may be entitled, under agreements with us,
to indemnification against certain civil liabilities, including liabilities
under the Securities Act of 1933.
Underwriters, dealers or agents may engage in transactions with, or perform
services for, us or our affiliates in the ordinary course of business.
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