Filed pursuant to Rule 424(b)(5)
Registration No. 333-47119
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 18, 1998)
$150,000,000
Virginia Electric and Power Company
1999 SERIES A 6.70% SENIOR NOTES DUE JUNE 30, 2009 (LIQUIDs)*
----------------
Interest payable on March 31, June 30, September 30 and December 31
----------------
We may redeem the 1999 Series A 6.70% Senior Notes due June 30, 2009 (Listed
Insured Quarterly Interest Debentures--sometimes called LIQUIDs), in whole or
in part, at any time on or after June 30, 2002 at a price equal to 100% of the
principal amount of the 1999 Series A Senior Notes to be redeemed plus any
accrued and unpaid interest to the date of redemption. The initial interest
payment date is June 30, 1999.
----------------
Payments of principal and interest on the 1999 Series A Senior Notes when due
will be insured by a financial guaranty insurance policy to be issued by Ambac
Assurance Corporation.
----------------
We plan to list the 1999 Series A Senior Notes on the New York Stock Exchange.
We expect that trading of the 1999 Series A Senior Notes will begin on the New
York Stock Exchange within 30 days after the 1999 Series A Senior Notes are
first issued.
----------------
Underwriting
Price to Discounts Proceeds to
Public and Commissions (1) Company (1)
-------- ------------------- ------------
Per 1999 Series A Senior Note.... 100% 2.5% 97.5%
Total............................ $150,000,000 $3,750,000 $146,250,000
(1) The underwriting discount will be 1.5% of the principal amount of the 1999
Series A Senior Notes sold to certain institutions. To the extent any
sales are made to these certain institutions, the actual total
underwriting discount will be less than and the actual total proceeds to
us will be greater than, the amounts shown in the table above.
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 is truthful or complete. Any
representation to the contrary is a criminal offense.
We expect that the 1999 Series A Senior Notes will be ready for delivery in
book-entry form through the facilities of The Depository Trust Company on or
about June 10, 1999.
----------------
* LIQUIDs is a Servicemark of Morgan Stanley Dean Witter & Co.
----------------
MORGAN STANLEY DEAN WITTER
FIRST UNION CAPITAL MARKETS CORP.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
June 3, 1999
You should rely only on the information contained in this document or in
documents to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities. The information in this document
may only be accurate on the date of this document.
----------------
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Summary.................................................................... S-3
Use of Proceeds............................................................ S-5
Capitalization............................................................. S-5
Selected Consolidated Financial Information................................ S-6
Description of the 1999 Series A Senior Notes.............................. S-7
The Policy................................................................. S-11
The Insurer................................................................ S-12
Ratings.................................................................... S-15
Underwriting............................................................... S-16
Experts.................................................................... S-18
Legal Opinions............................................................. S-18
Appendix A-Form of Policy.................................................. S-19
Prospectus
Available Information...................................................... 2
Documents Incorporated by Reference........................................ 2
The Company................................................................ 4
Ratios of Earnings to Fixed Charges........................................ 4
Use of Proceeds............................................................ 4
Description of the Bonds................................................... 4
Description of the Senior Notes and Senior Subordinated Notes.............. 7
Concerning the Trustee..................................................... 14
Plan of Distribution....................................................... 14
Experts.................................................................... 15
S-2
SUMMARY
In this prospectus supplement and the accompanying prospectus, the words
"Company," "we," "our," "ours" and "us" refer to Virginia Electric and Power
Company 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 the
1999 Series A Senior Notes" section of this prospectus supplement and the
"Description of the Senior Notes and Senior Subordinated Notes" section in the
accompanying prospectus contain more detailed information regarding the terms
and conditions of the 1999 Series A Senior Notes.
The Company
The Company is a Virginia corporation with its principal office located at
701 East Cary Street, Richmond, Virginia 23219-3932. The telephone number is
(888) 667-3000. All of our common stock is held by Dominion Resources, Inc., a
Virginia corporation (Dominion Resources).
The Company is a public utility engaged in the generation, transmission,
distribution and sale of electric energy within a 30,000 square-mile area in
Virginia and northeastern North Carolina. We transact business under the name
of Virginia Power in Virginia and under the name of North Carolina Power in
North Carolina. The Virginia service area comprises about 65% of Virginia's
total land area but accounts for over 80% of its population.
The Offering
1999 Series A Senior Notes We are offering $150,000,000 aggregate principal
............................ amount of our 1999 Series A Senior Notes.
Interest Payment Dates...... Interest on the 1999 Series A Senior Notes will
be payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year,
commencing on June 30, 1999.
Record Date................. The regular record date for each Interest Payment
Date will be the close of business on the 15th
calendar day prior to the applicable Interest
Payment Date.
Ranking..................... The 1999 Series A Senior Notes will be our
direct, unsecured and unsubordinated obligations
ranking pari passu with all of our other
unsecured and unsubordinated obligations. The
1999 Series A Senior Notes will be effectively
subordinated to all of our secured debt,
including our first mortgage bonds, aggregating
approximately $2.58 billion outstanding at March
31, 1999. The Senior Indenture contains no
restrictions on the amount of additional
indebtedness that we may incur.
Use of Proceeds............. We will apply the proceeds from the sale of the
1999 Series A Senior Notes to retire a portion of
our first mortgage bonds and a portion of our
medium-term notes, and for other general
corporate purposes.
S-3
Optional Redemption......... The 1999 Series A Senior Notes will be redeemable
by us (in whole or in part), from time to time on
or after June 30, 2002, at 100% of the principal
amount to be redeemed plus accrued and unpaid
interest to the redemption date. See "Description
of the 1999 Series A Senior Notes" under the
headings "Optional Redemption" and "Redemption
Procedures."
Insurance................... The payment of the principal and interest on the
1999 Series A Senior Notes will be insured by a
financial guaranty insurance policy issued by
Ambac Assurance Corporation that will be issued
at the same time the 1999 Series A Senior Notes
are delivered.
Form of Note................ One global security deposited with The Depository
Trust Company.
Rating...................... It is anticipated that the 1999 Series A Senior
Notes will be rated "AAA" by Standard & Poor's,
"Aaa" by Moody's, "AAA" by Fitch and "AAA" by
Duff & Phelps. There is no assurance that these
ratings will remain in effect for any period of
time or that they will not be revised downward or
withdrawn entirely by the rating agencies if, in
their judgment, circumstances warrant. See
"Ratings."
Proposed Listing............ New York Stock Exchange.
S-4
USE OF PROCEEDS
We will apply the proceeds from the sale of the 1999 Series A Senior Notes
to retire a portion of our first mortgage bonds and a portion of our medium-
term notes, and for other general corporate purposes.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999, and
as adjusted to reflect the transactions described in notes (1) and (2) below.
The following data is qualified in its entirety by reference to and,
therefore, should be read together with the detailed information and financial
statements appearing in the documents incorporated in this prospectus
supplement and the accompanying prospectus by reference.
March 31, 1999
---------------------
Actual As Adjusted*
-------- ------------
(in millions)
Long-Term Debt
Mortgage Bonds.......................................... $2,580.0 $2,480.0
1999 Series A Senior Notes.............................. -- 150.0
Other Senior Notes & Medium Term Notes.................. 672.6 563.6
Tax Exempt Bonds and Notes.............................. 518.1 518.1
-------- --------
Total Long-Term Debt................................... $3,770.7 $3,711.7
Company-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust................ $ 135.0 $ 135.0
Preferred Stock
Not Subject to Mandatory Redemption..................... 180.0 180.0
Subject to Mandatory Redemption......................... 509.0 509.0
-------- --------
Total Preferred Stock.................................. $ 689.0 $ 689.0
Common Stock Equity...................................... $3,685.2 $3,685.2
Total Capitalization..................................... $8,279.9 $8,220.9
======== ========
- --------
* Reflects the following adjustments:
(1) Mandatory maturities of $100 million in Mortgage Bonds and $109 million
in Medium Term Notes during the second quarter of 1999.
(2) Issuance of $150 million of 1999 Series A Senior Notes.
S- 5
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following summary of consolidated financial information for the years
ended December 31, 1994-1998 was derived from, and should be read in
conjunction with, the audited financial statements contained in our most
recent Annual Report on Form 10-K. Information for the 12 months ended March
31, 1999, and as of that date, is derived from financial statements that have
not been audited but which, in the opinion of our management, contain all
adjustments, including normal recurring accruals, necessary to present fairly
our financial position and results of operations and cash flows for the
applicable period, and should be read in conjunction with our most recent
Quarterly Report on Form 10-Q. See "Documents Incorporated by Reference" in
the accompanying prospectus.
For the Year ended December 31, For the Twelve
-------------------------------------------------- Months ended
1994 1995 1996 1997 1998 March 31, 1999
-------- -------- ----------- ----------- -------- --------------
Operating revenues (mil-
lions)................. $4,170.8 $4,351.9 $4,382.0(a) $4,663.9(a) $4,284.6 $4,322.2
Net (loss) income (mil-
lions)................. $ 447.1 $ 432.8 $ 457.3 $ 469.1 $ 229.9 ($9.1)(b)
Income before extraordi-
nary item (millions)... 447.1 432.8 457.3 469.1 229.9 245.7
Ratio of earnings to
fixed charges.......... 3.19 2.99 3.14 3.21 2.19 2.27 (c)
- --------
(a) 1996 and 1997 have been restated to reflect the Company's change in the
way it reports energy commodity contracts to net the cost of
commodities purchased for trading purposes, not subject to cost of
service rate regulation, against commodity trading revenue.
(b) As discussed in our Form 8-K, filed March 29, 1999, we discontinued the
application of Statement of Financial Accounting Standards No. 71,
ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION, to our
generation operations upon enactment of deregulation legislation. This
resulted in an after-tax charge of $254.8 million as disclosed in our
most recent Quarterly Report on Form 10-Q incorporated by reference
into this prospectus supplement and the accompanying prospectus.
(c) Exclusive of extraordinary item noted in (b) above.
In the ratios of earnings to fixed charges, earnings are determined by
adding taxes on income and fixed charges to income before extraordinary item.
These earnings are then divided by total fixed charges. Fixed charges consist
of interest charges (without reduction for Allowance for Funds Used During
Construction) on long-term and short-term debt, and the portion of rentals as
is representative of the interest factor.
S-6
DESCRIPTION OF THE 1999 SERIES A SENIOR NOTES
Set forth below is a description of the specific terms of the 1999 Series A
6.70% Senior Notes due June 30, 2009 (Listed Insured Quarterly Interest
Debentures) (the 1999 Series A Senior Notes--sometimes called LIQUIDs). The
Servicemark LIQUIDs is merely an acronym and in no way relates to the nature
of the liquidity of the security itself. This description supplements, and
should be read together with, the description of the general terms and
provisions of the Senior Notes set forth in the accompanying prospectus under
the caption "Description of the Senior Notes and Senior Subordinated Notes."
The following description does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the description in the
accompanying prospectus and the Senior Indenture.
General
The 1999 Series A Senior Notes will be issued as a series of Senior Notes
under the Senior Indenture. The 1999 Series A Senior Notes will be limited in
aggregate principal amount to $150,000,000.
The entire principal amount of the 1999 Series A Senior Notes will mature
and become due and payable, together with any accrued and unpaid interest
thereon, on June 30, 2009. The 1999 Series A Senior Notes are not subject to
any sinking fund provision. The 1999 Series A Senior Notes are available for
purchase in denominations of $25 and any integral multiple thereof.
Interest
Each 1999 Series A Senior Note shall bear interest at the rate of 6.70% per
annum (the Securities Rate) from the date of original issuance, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year (each, an Interest Payment Date) to the person in whose name the
applicable 1999 Series A Senior Note is registered at the close of business on
the fifteenth calendar day prior to that payment date. The initial Interest
Payment Date is June 30, 1999. The amount of interest payable will be computed
on the basis of a 360-day year of twelve 30-day months. In the event that any
date on which interest is payable on the 1999 Series A Senior Notes is not a
Business Day, then payment of the interest payable on that date will be made
on the next succeeding day which is a Business Day (and without any interest
or other payment in respect of any delay), except that, if the applicable
Business Day is in the next succeeding calendar year, the payment will be made
on the immediately preceding Business Day, in each case with the same force
and effect as if made on such date.
Ranking
The 1999 Series A Senior Notes will be our direct, unsecured and
unsubordinated obligations and will rank equally with all of our other
unsecured and unsubordinated obligations. The 1999 Series A Senior Notes will
be effectively subordinated to all of our secured debt, including our first
mortgage bonds, aggregating approximately $2.58 billion outstanding at March
31, 1999. The Senior Indenture contains no restrictions on the amount of
additional indebtedness that we may incur.
Special Insurance Provisions of the Senior Indenture
Subject to applicable provisions of the Senior Indenture, so long as the
Insurer (as defined below) is not in default under the Policy (as defined
below), the Insurer shall be entitled to control and direct the enforcement of
all rights and remedies with respect to the 1999 Series A Senior Notes upon
the occurrence and continuation of an Event of Default (as defined in the
Senior Indenture). The Senior Indenture Trustee shall within one Business Day
notify the Insurer of any Nonpayment (as defined in the Policy) and such
notice shall specify the amount of the Nonpayment. The Senior Indenture
Trustee shall make a claim for Nonpayment under the Policy prior to exercising
any other rights under the Senior Indenture; provided, however, if the Insurer
defaults under the Policy, the Senior Indenture Trustee may assert any and all
rights it has under the Senior Indenture.
Trading Characteristics
The 1999 Series A Senior Notes are expected to trade at a price that takes
into account the value, if any, of accrued but unpaid interest; thus,
purchasers will not pay and sellers will not receive accrued and unpaid
interest
S-7
with respect to the 1999 Series A Senior Notes that is not included in the
trading price thereof. Any portion of the trading price of a 1999 Series A
Senior Note received that is attributable to accrued and unpaid 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 1999 Series A Senior Note.
The trading price of the 1999 Series A Senior Notes is likely to be
sensitive to the level of interest rates generally. If interest rates rise in
general, the trading price of the 1999 Series A Senior Notes may decline to
reflect the additional yield requirements of the purchasers. Conversely, a
decline in interest rates may increase the trading price of the 1999 Series A
Senior Notes, although any increase will be moderated by our ability to call
the 1999 Series A Senior Notes at any time on or after June 30, 2002 at a
redemption price equal to 100% of the principal amount to be redeemed plus
accrued but unpaid interest.
Optional Redemption
We shall have the right to redeem the 1999 Series A Senior Notes, in whole
or in part, without premium, from time to time, on or after June 30, 2002,
upon not less than 30 nor more than 60 days' notice, at a Redemption Price
equal to 100% of the principal amount to be redeemed plus any accrued and
unpaid interest to the Redemption Date.
Redemption Procedures
If notice of redemption is given as set forth in the preceding paragraph,
the 1999 Series A Senior Notes to be redeemed will, on the Redemption Date,
become due and payable at the Redemption Price together with any accrued and
unpaid interest thereon, and from and after the Redemption Date (unless the
Company will default in the payment of the Redemption Price and accrued
interest) the 1999 Series A Senior Notes to be redeemed will cease to bear
interest. If any 1999 Series A Senior Note called for redemption is not paid
upon surrender, the principal will, until paid, bear interest from the
Redemption Date at the Securities Rate. See "Description of the Senior Notes
and Senior Subordinated Notes--Events of Default" in the accompanying
prospectus.
In the event that any date fixed for redemption of 1999 Series A Senior
Notes is not a Business Day, then payment of the Redemption Price payable on
that date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any delay), except that,
if the Business Day falls in the next calendar year, the payment will be made
on the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of the 1999 Series A Senior Notes is improperly
withheld or refused and not paid by us, interest on those 1999 Series A Senior
Notes will continue to accrue at the Securities Rate, from the Redemption Date
to the date the Redemption Price is actually paid. See "Description of the
Senior Notes and Senior Subordinated Notes--Events of Default" in the
accompanying prospectus.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), we or our affiliates may,
at any time and from time to time, purchase outstanding 1999 Series A Senior
Notes by tender, in the open market or by private agreement.
Book Entry Only Issuance--The Depository Trust Company
The Depository Trust Company (DTC) will act as the initial securities
depositary for the 1999 Series A Senior Notes. The 1999 Series A Senior Notes
will be issued only as fully registered securities registered in the name of
Cede & Co., DTC's nominee. One fully registered global 1999 Series A Senior
Notes certificate will be issued, representing in the aggregate the total
principal amount of 1999 Series A Senior Notes, and will be deposited with
DTC.
The following is based on information furnished to us by DTC:
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial
S-8
Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended (the 1934
Act). DTC was created to hold securities of its participants (Participants)
and to facilitate the clearance and settlement of securities transactions
among its Participants in these securities through electronic book-entry
changes in accounts of the Participants, thereby eliminating the need for
physical movement of securities certificates. DTC's Participants include
securities brokers and dealers (including the underwriters), banks, trust
companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. Persons who are not
Participants may beneficially own securities held by DTC only through
Participants.
DTC is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange LLC and the National
Association of Securities Dealers, Inc. Access to DTC's system is also
available to others including securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship
with a Direct Participant, either directly or indirectly (Indirect
Participants). The rules applicable to DTC and its Participants are on file
with the SEC.
Purchases of 1999 Series A Senior Notes within the DTC system must be
made by or through Direct Participants, which will receive a credit for the
1999 Series A Senior Notes on DTC's records. The ownership interest of each
actual purchaser of 1999 Series A Senior Notes (Beneficial Owner) is in
turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants
through which the Beneficial Owners purchased 1999 Series A Senior Notes.
Transfers of ownership interests in the 1999 Series A Senior Notes are to
be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in 1999 Series A Senior
Notes, except in the event that use of the book-entry system for the 1999
Series A Senior Notes is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the 1999 Series A
Senior Notes. DTC's records reflect only the identity of the Direct
Participants to whose accounts the 1999 Series A Senior Notes are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
1999 Series A Senior Notes are being redeemed, DTC will reduce the amount
of the interest of each Direct Participant in the 1999 Series A Senior
Notes in accordance with its procedures.
Although voting with respect to the 1999 Series A Senior Notes is
limited, in those cases where a vote is required, neither DTC nor Cede &
Co. will itself consent or vote with respect to 1999 Series A Senior Notes.
Under its usual procedures, DTC would mail an Omnibus Proxy to us as soon
as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts
the 1999 Series A Senior Notes are credited on the record date (identified
in a listing attached to the Omnibus Proxy).
Payments on the 1999 Series A Senior Notes will be made to DTC in
immediately available funds. DTC's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on the relevant payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held
for the account of customers in bearer form or registered in "street name",
and will be the responsibility of the Participant and not of DTC or the
Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment to DTC is our responsibility,
disbursement of the payments to Direct Participants is the
S-9
responsibility of DTC, and disbursement of the payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
Except as provided in this prospectus supplement, a Beneficial Owner of a
global 1999 Series A Senior Note will not be entitled to receive physical
delivery of 1999 Series A Senior Notes. Accordingly, each Beneficial Owner
must rely on the procedures of DTC to exercise any rights under the 1999
Series A Senior Notes. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of securities in definitive
form. These laws may impair the ability to transfer beneficial interests in
a global 1999 Series A Senior Note.
Management of DTC is aware that some computer applications, systems and
the like for processing data (Systems) that are dependent upon calendar
dates, including dates before, on, and after January 1, 2000, may encounter
"Year 2000 problems". DTC has informed Direct Participants and Indirect
Participants and other members of the financial community (the Industry)
that it has developed and is implementing a program so that its Systems, as
the same relate to the timely payment of distributions (including principal
and interest payments) to securityholders, book-entry deliveries, and
settlement of trades within DTC (Depositary Services), continue to function
appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within
appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their
agents, as well as DTC's Direct Participants and Indirect Participants,
third party vendors from whom DTC licenses software and hardware, and third
party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service
providers, among others. DTC has informed the Industry that it is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to: (i) impress upon them the importance of these
services being Year 2000 compliant; and (ii) determine the extent of their
efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes
only and is not intended to serve as a representation, warranty, or
contract modification of any kind.
DTC may discontinue providing its services as securities depositary with
respect to the 1999 Series A Senior Notes at any time by giving reasonable
notice to us. Under those circumstances, in the event that a successor
securities depositary is not obtained, 1999 Series A Senior Notes
certificates will be printed and delivered to the holders of record.
Additionally, we may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor depositary) with respect to the 1999
Series A Senior Notes. In that event, certificates for the 1999 Series A
Senior Notes will be printed and delivered to the holders of record.
We have no responsibility for the performance by DTC or its Participants of
their respective obligations as described in this prospectus supplement or
under the rules and procedures governing their respective operations.
S-10
THE POLICY
The information set forth in this section and under the section entitled
"The Insurer" has been provided by Ambac Assurance Corporation (the Insurer).
We make no representation as to the accuracy or completeness of any such
information.
The Insurer will issue a financial guaranty insurance policy relating to the
1999 Series A Senior Notes (the Policy). The following summary of the terms of
the Policy does not purport to be complete and is qualified in its entirety by
reference to the Policy. See "Appendix A--Form of Policy".
The Insurer has made a commitment to issue the Policy relating to the 1999
Series A Senior Notes effective as of the date of issuance of the 1999 Series
A Senior Notes. Under the terms of the Policy, the Insurer will pay to the
United States Trust Company of New York, in New York, New York or any
successor thereto (the Insurance Trustee) that portion of the principal of and
interest on the 1999 Series A Senior Notes which shall become Due for Payment
but shall be unpaid by reason of Nonpayment by the Company (as such terms are
defined in the Policy). The Insurer will make such payments to the Insurance
Trustee within one business day following the date on which the Insurer shall
have received notice of Nonpayment from the Senior Indenture Trustee. The
insurance will extend for the term of the 1999 Series A Senior Notes and, once
issued, cannot be canceled by the Insurer.
The Policy will insure payment only on the stated date of maturity, 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 1999 Series A Senior
Notes, the insured payments will be made at such times and in such amounts as
would have been made had there not been an acceleration.
In the event the Senior Indenture Trustee has notice that any payment of
principal of or interest on a 1999 Series A Senior Note which has become Due
for Payment and which is made to a holder by or on behalf of the Company has
been deemed a preferential transfer and theretofore recovered from its
registered owner pursuant to the United States Bankruptcy Code in accordance
with a final, nonappealable order of a court of competent jurisdiction, such
registered owner will be entitled to payment from the Insurer to the extent of
such recovery if sufficient funds are not otherwise available.
The Policy does not insure any risk other than Nonpayment, as defined in the
Policy. Specifically, the 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;
.nonpayment of principal or interest caused by the insolvency or negligence
of any trustee.
If it becomes necessary to call upon the Policy, payment of principal
requires surrender of 1999 Series A Senior Notes to the Insurance Trustee
together with an appropriate instrument of assignment so as to permit
ownership of such 1999 Series A Senior Notes to be registered in the name of
the Insurer to the extent of the payment under the Policy. Payment of interest
pursuant to the Policy requires proof of holder entitlement to interest
payments and an appropriate assignment of the holder's right to payment to the
Insurer.
Upon payment of the insurance benefits, in the case of the payment of
principal, whether at maturity or acceleration, the Insurer will become the
owner of the 1999 Series A Senior Note and shall be entitled to all the rights
as a holder thereunder, and in the case of the payment of interest, the
Insurer will be fully subrogated to the rights of the holders of the 1999
Series A Senior Notes under the Senior Indenture to the extent of the
insurance payments made by the Insurer.
The insurance provided by the Policy is not covered by the property/casualty
insurance security fund specified by the insurance laws of the State of New
York.
The Policy shall not be deemed invalid due to the absence of the required
signature or countersignature.
S-11
THE INSURER
The Insurer 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 50 states, the District of Columbia, the Territory
of Guam and the Commonwealth of Puerto Rico. The Insurer primarily insures
newly issued municipal and structured finance obligations. The Insurer is a
wholly-owned subsidiary of Ambac Financial Group, Inc. (formerly AMBAC Inc.),
a 100% publicly held company (the Parent). Standard & Poor's Ratings Services,
a Division of The McGraw-Hill Companies, Moody's Investors Service and Fitch
IBCA, Inc. have each assigned a triple-A financial strength rating to the
Insurer.
The Insurer makes no representation regarding the 1999 Series A Senior Notes
or the advisability of investing in the 1999 Series A Senior Notes and makes
no representation regarding, nor has it participated in the preparation of,
this prospectus supplement other than the information supplied by the Insurer
and presented under the headings "The Policy" and "The Insurer", in "Appendix
A--Form of Policy" and in the Parent's financial statements incorporated by
reference in this prospectus supplement.
Where You Can Find More Information
The Parent is subject to the informational requirements of the 1934 Act, and
in accordance therewith files reports, proxy statements and other information
with the SEC. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional
offices at 7 World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the public reference section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates,
or can be inspected at the offices of the New York Stock Exchange, Inc. at 20
Broad Street, New York, New York 10005. The Parent's Common Stock is listed on
the New York Stock Exchange.
Copies of the Insurer's financial statements prepared in accordance with
statutory accounting standards are available from the Insurer. The address of
the Insurer's administrative offices and its telephone number are One State
Street Plaza, 17th Floor, New York, New York, 10004 and (212) 668-0340.
Incorporation of Certain Documents by Reference
The following documents filed by the Parent with the SEC (File No. 1-10777)
are incorporated by reference in this prospectus supplement:
. The Parent's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and filed on March 30, 1999;
. The Parent's Current Report on Form 8-K dated March 24, 1999 and filed on
March 24, 1999;
. The Parent's 1999 Proxy Statement dated March 30, 1999 and filed on March
30, 1999; and
. The Parent's Quarterly Report on Form 10-Q for the fiscal quarterly
period ended March 31, 1999 and filed on May 12, 1999.
All documents subsequently filed by the Parent pursuant to the requirements
of the 1934 Act after the date of this prospectus supplement will be available
for inspection in the same manner as described above in "Where You Can Find
More Information".
Any statement contained in a document incorporated herein by reference shall
be modified or superseded for the purposes of this prospectus supplement to
the extent that a statement contained herein or in any other subsequently
filed document which also is incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
prospectus supplement.
S-12
All financial statements of the Insurer and subsidiaries included in
documents filed by the Parent with the SEC pursuant to Section 13(a), 13(c),
14 or 15(d) of the 1934 Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the 1999 Series A Senior Notes
shall be deemed to be incorporated by reference into this prospectus
supplement and to be a part hereof from the respective dates of filing such
documents.
Insurer Financial Information
The following table sets forth the Insurer's capitalization as of December
31, 1996, December 31, 1997, December 31, 1998 and March 31, 1999,
respectively in conformity with generally accepted accounting principles:
Ambac Assurance Corporation
Consolidated Capitalization Table
(Dollars in Millions)
March 31,
December 31, December 31, December 31, 1999
1996 1997 1998 (unaudited)
------------ ------------ ------------ -----------
Unearned premiums.......... $ 995 $1,184 $1,303 $1,324
Other liabilities.......... 259 562 548 544
------ ------ ------ ------
Total liabilities.......... 1,254 1,746 1,851 1,868
------ ------ ------ ------
Stockholder's equity:(1)
Common stock.............. 82 82 82 82
Additional paid-in
capital.................. 515 521 541 541
Accumulated other
comprehensive income..... 66 118 138 112
Retained earnings......... 992 1,180 1,405 1,467
------ ------ ------ ------
Total stockholder's
equity.................... 1,655 1,901 2,166 2,202
------ ------ ------ ------
Total liabilities and
stockholder's equity...... $2,909 $3,647 $4,017 $4,070
====== ====== ====== ======
(1) Components of stockholder's equity have been restated for all periods
presented to reflect "Accumulated other comprehensive income" in accordance
with the Statements of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" adopted by the Insurer effective January 1, 1998. As
this new standard only requires additional information on the financial
statements, it does not affect the Insurer's financial position or results of
operations.
Year 2000 Readiness Disclosure
The Parent is addressing the issue of computer programs' and embedded chips'
ability to distinguish between the year 1900 and the year 2000, commonly known
as the Y2K problem. The Parent is assessing the risks to its businesses
(including the Insurer) related to the functionality of its own computer
systems and those of third parties. Year 2000 readiness disclosure for the
Parent is set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Parent's 1998 Annual Report to
Shareholders (incorporated by reference into the Parent's Annual Report on
Form 10K for fiscal year ended December 31, 1998 filed with the SEC on March
30, 1999). Such information is specifically incorporated by reference in this
prospectus supplement. The Parent is using internal and external resources and
estimated its Y2K project costs
S-13
to be $1.1 million, all of which was charged to operating expense. With
respect to the Insurer, the plan was completed on March 31, 1999 and consisted
of three phases:
. assessment and impact analysis (including inventory and code scanning),
. testing and review, and
. remediation.
Although there are no indications that the Insurer's internal systems will be
non-compliant, management is in the process of developing contingency
procedures in the event its critical systems should fail.
A potential exposure to the Insurer is the failure by any insured issuer to
make debt service payments due to an issuer's systems failure. An issuer's
failure to make debt service payments due to Y2K related systems failures
could result in a claim under an Insurer insurance policy. In such event, the
Insurer would utilize its sources of liquidity to pay claims. The Insurer
would expect full recovery of such claims when Y2K problems are resolved.
No assurance is made regarding the ultimate outcome of the Parent's plan,
and external failures (such as failures affecting securities exchanges or
funds and securities clearing organizations) could have a material adverse
impact on the operations of the Parent and its subsidiaries, including the
Insurer.
S-14
RATINGS
It is anticipated that Standard & Poor's Ratings Services, a Division of The
McGraw-Hill Companies (Standard & Poor's), Moody's Investors Service
(Moody's), Fitch IBCA, Inc. (Fitch) and Duff & Phelps Credit Rating Co. (Duff
& Phelps) will assign the 1999 Series A Senior Notes the ratings of "AAA",
"Aaa", "AAA" and "AAA," respectively, conditioned upon the issuance and
delivery by the Insurer at the time of delivery of the 1999 Series A Senior
Notes of the Policy, insuring the timely payment of the principal of and
interest on the 1999 Series A Senior Notes. These ratings reflect only the
views of the ratings agencies, and an explanation of the significance of these
ratings may be obtained only from the applicable rating agencies at the
following addresses:
.Moody's Investors Service, Inc., 99 Church Street, New York, New York
10007;
.Standard & Poor's, 25 Broadway, New York, New York 10004;
.Fitch IBCA, Inc., One State Street Plaza, New York, New York 10004; and
.Duff & Phelps Credit Rating Co., 55 East Monroe Street, Chicago, Illinois
60603.
There is no assurance that these ratings will remain in effect for any
period of time or that they will not be revised downward or withdrawn entirely
by the rating agencies if, in their judgment, circumstances warrant. The
Insurer does not guarantee the market price of the 1999 Series A Senior Notes
nor does it guarantee that the ratings on the 1999 Series A Senior Notes will
not be revised or withdrawn. Neither we nor any underwriter has undertaken any
responsibility to oppose any proposed downward revision or withdrawal of a
rating on the 1999 Series A Senior Notes. Any downward revision or withdrawal
of these ratings may have an adverse effect on the market price of the 1999
Series A Senior Notes.
At present, each of these rating agencies maintains four categories of
investment grade ratings. They are for Standard & Poor's - AAA, AA, A and BBB,
for Moody's - Aaa, Aa, A and Baa and for both Fitch and Duff & Phelps - AAA,
AA+, AA and AA-. Standard & 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. Fitch
assigns "AAA" to a debt obligation of the highest credit quality denoting the
lowest expectation of credit risk. Duff & Phelps defines "AAA" as representing
a debt obligation of the highest credit quality.
S-15
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, we have
agreed to sell to each of the underwriters named below (for whom Morgan
Stanley & Co. Incorporated is acting as Representative) and each of the
underwriters has severally agreed to purchase from us the respective principal
amount of 1999 Series A Senior Notes set forth opposite its name below:
Principal
Amount of
1999 Series A
Name Senior Notes
- ---- -------------
Morgan Stanley & Co. Incorporated................................. $21,300,000
First Union Capital Markets Corp.................................. 21,300,000
Lehman Brothers Inc............................................... 21,300,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................. 21,300,000
PaineWebber Incorporated.......................................... 21,300,000
Banc of America Securities LLC.................................... 3,000,000
Banc One Capital Markets, Inc. ................................... 3,000,000
BT Alex. Brown Incorporated....................................... 3,000,000
Chase Securities Inc. ............................................ 3,000,000
Credit Suisse First Boston Corporation............................ 3,000,000
Wachovia Securities, Inc.......................................... 3,000,000
BB&T Capital Markets.............................................. 1,500,000
A Division of Scott & Stringfellow
Davenport & Company LLC........................................... 1,500,000
A.G. Edwards & Sons, Inc. ........................................ 1,500,000
Goldman, Sachs & Co............................................... 1,500,000
Prudential Securities Incorporated................................ 1,500,000
Roney Capital Markets............................................. 1,500,000
A Division of Banc One Capital Markets, Inc.
Schroder & Co. Inc................................................ 1,500,000
SG Cowen Securities Corporation................................... 1,500,000
Advest, Inc....................................................... 500,000
Robert W. Baird & Co. Incorporated................................ 500,000
J.C. Bradford & Co................................................ 500,000
Branch, Cabell and Company........................................ 500,000
Dain Rauscher Incorporated........................................ 500,000
Edward D. Jones & Co., L.P. ...................................... 500,000
Fahnestock & Co. Inc. ............................................ 500,000
Ferris, Baker Watts, Incorporated................................. 500,000
Fidelity Capital Markets.......................................... 500,000
A Division of National Financial Services Corporation
Fifth Third Securities, Inc....................................... 500,000
First Albany Corporation.......................................... 500,000
Fleet Securities, Inc............................................. 500,000
J.J.B. Hilliard, W.L. Lyons, Inc.................................. 500,000
Janney Montgomery Scott Inc....................................... 500,000
Legg Mason Wood Walker, Incorporated.............................. 500,000
McDonald Investments Inc.,........................................ 500,000
A Keycorp Company
S-16
Principal
Amount of
1999 Series A
Name Senior Notes
- ---- -------------
Mesirow Financial, Inc............................................ 500,000
Morgan Keegan & Company, Inc...................................... 500,000
Olde Discount Corporation......................................... 500,000
Raymond James & Associates, Inc................................... 500,000
The Robinson-Humphrey Company, LLC................................ 500,000
Charles Schwab & Co., Inc......................................... 500,000
Sterne, Agee & Leach, Inc......................................... 500,000
Stifel, Nicolaus & Company, Incorporated.......................... 500,000
Tucker Anthony Incorporated....................................... 500,000
U.S. Bancorp Piper Jaffray Inc.................................... 500,000
Wedbush Morgan Securities......................................... 500,000
------------
Total........................................................... $150,000,000
============
In the Underwriting Agreement, the underwriters have agreed, subject to the
terms and conditions set forth in that agreement, to purchase all of the 1999
Series A Senior Notes offered hereby if any of the 1999 Series A Senior Notes
are purchased.
The expenses associated with the offer and sale of the 1999 Series A Senior
Notes are expected to be $804,000, which includes the initial premium for the
Policy.
The underwriters propose to offer the 1999 Series A Senior Notes in part
directly to the public at the initial public offering price set forth on the
cover page of this prospectus supplement, and in part to certain securities
dealers at that price less a concession not in excess of $.40 per 1999 Series
A Senior Note. The Underwriters may allow, and these dealers may reallow, a
concession not in excess of $.35 per 1999 Series A Senior Note to certain
brokers and dealers. After the 1999 Series A Senior Notes are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the underwriters.
Prior to this offering, there has been no public market for the 1999 Series
A Senior Notes. The 1999 Series A Senior Notes are expected to be approved for
listing on the New York Stock Exchange, subject to official notice of
issuance. Trading of the 1999 Series A Senior Notes on the New York Stock
Exchange is expected to commence within a 30-day period after the initial
delivery of the 1999 Series A Senior Notes. The underwriters have advised us
that they intend to make a market in the 1999 Series A Senior Notes prior to
the commencement of trading on the New York Stock Exchange. The underwriters
will have no obligation to make a market in the 1999 Series A Senior Notes,
however, and may cease market making activities, if commenced, at any time.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
In connection with this offering and in compliance with applicable law and
industry practice, the underwriters may overallot or effect transactions which
stabilize, maintain or otherwise affect the market price of the 1999 Series A
Senior Notes at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, purchasing 1999 Series A
Senior Notes to cover syndicate short positions and imposing penalty bids. A
stabilizing bid means the placing of any bid, or the affecting of any purchase
for the purpose of pegging, fixing or maintaining the price of a security.
Covering a syndicate short position means placing a bid or affecting a
purchase of a security on behalf of the underwriting syndicate to reduce a
short position created in connection with the offering. Imposing a penalty bid
means purchasing a security in the open market to reduce the underwriting
syndicate's short position or to stabilize the price of the security and in
connection therewith reclaiming the amount of the selling concession from the
underwriters and selling group members who sold such securities as part of the
offering.
S-17
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might be in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the 1999 Series A Senior
Notes. In addition, neither we nor any of the underwriters makes any
representation that the underwriters will engage in these transactions or that
these transactions once commenced will not be discontinued without notice.
Certain of the underwriters or their affiliates engage in transactions with,
and, from time to time, have performed services for, us and our affiliates in
the ordinary course of business. The Chase Manhattan Bank, the Trustee, is an
affiliate of Chase Securities Inc.
EXPERTS
The financial statements included in our 1998 Annual Report on Form 10-K
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report in the Form 10-K. These financial statements have been
incorporated herein in reliance upon the report of Deloitte & Touche LLP, also
incorporated herein by reference, which report is given upon their authority
as experts in accounting and auditing.
Legal conclusions relating to our franchises and title to our properties in
our Annual Report on Form 10-K and legal conclusions under Description of the
Bonds and Description of the Senior Notes and Subordinated Notes in the
prospectus and under Description of the 1999 Series A Senior Notes in this
prospectus supplement have been reviewed by McGuire, Woods, Battle & Boothe
LLP, Richmond, Virginia except that, with respect to the Bonds, insofar as
matters relating to title to properties are governed by the laws of West
Virginia, they have been reviewed by Jackson & Kelly, Charleston, West
Virginia. The statements are included on the authority of these firms,
respectively, as experts.
The consolidated financial statements of the Insurer, Ambac Assurance
Corporation and subsidiaries, as of December 31, 1998 and 1997 and for each of
the years in the three-year period ended December 31, 1998, are incorporated
by reference in this prospectus supplement and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference in this prospectus supplement, and upon
the authority of said firm as experts in accounting and auditing.
LEGAL OPINIONS
Certain legal matters in connection with the 1999 Series A Senior Notes will
be passed on for us by McGuire, Woods, Battle & Boothe LLP, Richmond,
Virginia, and for the underwriters by Mays & Valentine, L.L.P., which also
performs certain legal services for us on other matters.
S-18
APPENDIX A--FORM OF POLICY
FINANCIAL GUARANTY INSURANCE POLICY
["SPECIMEN" IS STAMPED ACROSS THE TEXT OF THE POLICY]
Ambac Assurance Corporation
c/o CT Corporation Systems
44 East Mifflin Street, Madison,
Wisconsin 53703
Administrative Office:
One State Street Plaza, New York,
New York 10004
Telephone: (212) 668-0340
ambac logo here
Financial Guaranty Insurance Policy
Obligor: Policy Number:
Obligations: Premium:
Ambac Assurance Corporation (Ambac) A Wisconsin Stock Insurance Company in
consideration of the payment of the premium and subject to the terms of this
Policy, hereby agrees to pay to United States Trust Company of New York, as
trustee, or its successor (the "Insurance Trustee"), for the benefit of the
Obligees, 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 notification to Ambac of Nonpayment. Upon an Obligee's
presentation and surrender to the Insurance Trustee of such unpaid Obligations
or appurtenant coupons, uncanceled and in bearer form and free of any adverse
claim, the Insurance Trustee will disburse to the Obligee the face 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
coupons and shall be fully subrogated to all of the Obligee's rights to
payment.
In cases where the Obligations are issuable only in a form whereby principal
is payable to registered Obligees or their assigns, the Insurance Trustee
shall disburse principal to an Obligee as aforesaid 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 the Insurance Trustee duly executed by the Obligee or such
Obligee's duly authorized representative, so as to permit ownership of such
Obligation to be registered in the name of Ambac or its nominee. In cases
where the Obligations are issuable only in a form whereby interest is payable
to registered Obligees or their assigns the Insurance Trustee shall disburse
interest to an Obligee as aforesaid 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 the Insurance Trustee, duly
executed by the claimant Obligee or such Obligee's duly authorized
representative, transferring to Ambac all rights under such Obligations to
receive the interest in respect of which the insurance disbursement was made.
Ambac shall be subrogated to all of the Obligees' rights to payment on
registered Obligations to the extent of the Insurance disbursement 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 an Obligee by or on behalf of the Obligor
has been deemed a preferential transfer and theretofore recovered from the
Obligee pursuant to the United States Bankruptcy Code in accordance with a
final, nonappealable order of a court of competent jurisdiction, such Obligee
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 "Obligee" means any person other than the Obligor
who, at the time of Nonpayment, is the owner of an Obligation or of a coupon
appertaining to an Obligation. As used herein, "Due for Payment", when
referring to the principal of Obligations, is when the stated 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
stated 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 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/ P. Lassiter/s/ Stephen D. Cooke
PresidentSecretary
Effective Date:Authorized Representative
[SEAL APPEARS HERE]
UNITED STATES TRUST COMPANY OF NEW /s/ H. William
YORK acknowledges that it has agreed Weber
to perform the duties of Insurance Authorized
Trustee under this Policy. Officer
Form No: 2B-0012 (7/97)
S-19
PROSPECTUS
VIRGINIA ELECTRIC AND POWER COMPANY
DEBT SECURITIES
----------------
Virginia Electric and Power Company (the Company) may offer, from time to
time, up to $375,000,000 aggregate principal amount of Debt Securities,
including its First and Refunding Mortgage Bonds (the Bonds), Senior Notes
(the Senior Notes) or Senior Subordinated Notes (the Senior Subordinated
Notes, and together with the Bonds and the Senior Notes, the Debt Securities)
or any combination thereof in one or more series at prices and on terms to be
determined at the time or times of sale. The Bonds will be issued under, and
secured by, the Indenture of Mortgage that constitutes a lien on substantially
all of the properties and franchises of the Company. See "Description of the
Bonds." The Senior Notes and the Senior Subordinated Notes will be unsecured,
and the indentures under which they are to be issued contain no limitations on
the issuance by the Company of other indebtedness (whether secured or
unsecured). The Senior Notes will rank equally and ratably with all other
unsecured and unsubordinated indebtedness of the Company. The Senior
Subordinated Notes will be subordinated to all Senior Indebtedness (as
hereinafter defined) of the Company. Certain series of Senior Subordinated
Notes may also be subordinated to other series of Senior Subordinated Notes.
See "Description of the Senior Notes and Senior Subordinated Notes."
For each offering of Bonds (the Offered Bonds), Senior Notes (the Offered
Senior Notes) or Senior Subordinated Notes (the Offered Senior Subordinated
Notes) (collectively, the Offered Securities) for which this Prospectus is
being delivered, there will be an accompanying Prospectus Supplement (the
Prospectus Supplement) that sets forth the specific designation, aggregate
principal amount, maturity or maturities, rate or rates and times of payment
of interest, sinking fund provisions, redemption terms and any other special
terms of the Offered Securities, and any planned listing thereof on a
securities exchange (although no assurance can be given as to the liquidity
of, or the trading market for, any of the Offered Securities).
The Company may sell the Offered Securities (a) to or through underwriters
or dealers, (b) directly to a limited number of purchasers or to a single
purchaser or (c) through agents. The names of any underwriters, dealers or
agents involved in the distribution of the Offered Securities, any applicable
discounts, commissions or allowances, any initial public offering price and
the proceeds to the Company from the sale of the Offered Securities will be
set forth in the Prospectus Supplement. See "Plan of Distribution" herein.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROSPECTUS IS MARCH 18, 1998.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT NOR ANY SALE MADE
HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the Exchange Act), and in accordance
therewith, files periodic and current reports, and other information with the
Securities and Exchange Commission (the Commission). Such reports and other
information filed by the Company can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located
at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can also be obtained at prescribed rates by writing to
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a Worldwide Web site
(address: http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. In addition, such reports and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the Registration
Statement) under the Securities Act of 1933, as amended (the Securities Act)
with respect to the securities offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations
of the Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits and the financial statements, notes and schedules filed as a part
thereof or incorporated by reference therein, which may be inspected at the
public reference facilities of the Commission, at the addresses set forth
above. Statements made in this Prospectus concerning the contents of any
documents referred to herein are not necessarily complete, and in each
instance are qualified in all respects by reference to the copy of such
document filed as an exhibit to the Registration Statement.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference as of their respective dates of
filing and shall be deemed to be a part hereof:
. The Company's Annual report on Form 10-K for the year ended December 31,
1996.
. The Company's Current Report on Form 8-K, dated February 20, 1997.
. The Company's Quarterly reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997.
2
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering made by this Prospectus and the
accompanying Prospectus Supplement shall be deemed to be incorporated by
reference in this Prospectus and to be made a part hereof from the date of
filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein or in the accompanying Prospectus
Supplement modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT HAS BEEN DELIVERED, UPON ORAL OR WRITTEN REQUEST OF ANY
SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS REFERRED TO ABOVE WHICH
HAVE BEEN OR MAY BE INCORPORATED BY REFERENCE IN THIS PROSPECTUS, OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE THEREIN. REQUESTS FOR COPIES OF SUCH DOCUMENTS SHOULD BE
ADDRESSED TO CORPORATE SECRETARY, VIRGINIA ELECTRIC AND POWER COMPANY, P.O.
BOX 26666, RICHMOND, VIRGINIA 23261-6666 (TELEPHONE NO. 804-771-3000).
3
THE COMPANY
The Company was incorporated in Virginia in 1909, and has its principal
office at 701 E. Cary Street, Richmond, Virginia 23219-3932, telephone (804)
771-3000. The Company is a wholly owned subsidiary of Dominion Resources, Inc.
(Dominion Resources).
The Company is a regulated public utility engaged in the generation,
purchase, transmission, distribution and sale of electric energy within a
30,000 square mile service area in Virginia and in northeastern North
Carolina. It transacts business under the name Virginia Power in Virginia and
under the name North Carolina Power in North Carolina. Its Virginia service
area comprises about 65% of Virginia's total land area but accounts for over
80% of its population.
RATIO OF EARNINGS TO FIXED CHARGES
Years
------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges..................... 3.21 3.14 2.99 3.19 3.36
For purposes of this ratio (i) earnings consist of income from continuing
operations before income taxes and fixed charges and (ii) fixed charges
consist of all interest deductions and the interest component of rentals.
USE OF PROCEEDS
Except as otherwise provided in the accompanying Prospectus Supplement, the
proceeds from the sale of the Offered Securities will be added to the general
funds of the Company and will be used to meet a portion of its capital
requirements. Such requirements consist principally of construction, upgrading
and maintenance expenditures and refunding of outstanding securities. Pending
use by the Company, the Company will invest the net proceeds of the sale of
the Offered Securities. For a more detailed discussion of the Company's
capital requirements and its financing program, see BUSINESS--CAPITAL
REQUIREMENTS AND FINANCING PROGRAM and MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS in the Company's most recent
Annual Report on Form 10-K (incorporated herein by reference).
DESCRIPTION OF THE BONDS
The following description sets forth certain general terms and provisions of
the Bonds to which any Prospectus Supplement will relate. The particular terms
of the Bonds offered by any Prospectus Supplement will be described in such
Prospectus Supplement.
The Bonds will constitute one or more new series of the Company's First and
Refunding Mortgage Bonds issued under an Indenture of Mortgage dated November
1, 1935, as supplemented and modified by eighty-five supplemental indentures
and as to be supplemented by one or more additional supplemental indentures to
be entered into in connection with each new series of Bonds. The Indenture of
Mortgage and all such supplemental indentures are collectively referred to as
the Mortgage. The Indenture of Mortgage, the eighty-five supplemental
indentures and a form of supplemental indenture are Exhibits to the
Registration Statement of which this Prospectus is a part. The Trustee under
the Mortgage is The Chase Manhattan Bank (the Trustee).
The statements herein concerning the Bonds and the Mortgage are merely
descriptive and do not purport to be complete. They are qualified in their
entirety by express reference to the cited Sections and Articles of the
Mortgage. Terms defined in the Mortgage are used herein as so defined.
4
General
Unless otherwise provided in the applicable Prospectus Supplement, the Bonds
will be issuable only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof and will be
exchangeable for a like aggregate principal amount of Bonds of other
authorized denominations of the same series. No charge will be made for any
transfer or exchange of the Bonds, but the Company may require payment of a
sum sufficient to cover any stamp tax or other governmental charge incident
thereto. Transfers and exchanges of the Bonds may be made at The Chase
Manhattan Bank, 55 Water Street, New York, New York 10041.
Interest, Maturity and Payment
The Bonds will bear interest from their issue date at the rate shown in the
Prospectus Supplement relating thereto, payable semiannually on the interest
payment dates shown in such Prospectus Supplement. The Bonds will mature on
the date shown in the accompanying Prospectus Supplement. Interest will be
paid to the persons in whose names the Bonds are registered at the close of
business on the 15th day (whether or not a business day) of the calendar month
next preceding the interest payment date, except for defaulted interest and
except for unmatured accrued interest on Bonds called for redemption on a date
other than an interest payment date. Principal of, premium, if any, and
interest on the Bonds are payable at the office or agency of the Trustee in
New York City.
Reference is made to the Prospectus Supplement relating to a particular
series of the Bonds offered thereby for the following terms of that series of
Bonds: (i) its specific designation, (ii) the aggregate principal amount;
(iii) the date or dates on which the series will mature, (iv) the rate per
annum at which the series will bear interest, (v) if applicable, the date or
dates after which and the price or prices at which such series may, pursuant
to any optional or mandatory redemption provisions, be redeemed at the option
of the Company or of the holder thereof and the other terms and provisions of
such optional or mandatory redemption and (vi) any other special terms.
Security and Priority
The Bonds are to be secured, together with all other bonds now or hereafter
issued under the Mortgage, by a direct lien on all public utility property now
or hereafter owned by the Company but subject to the operation of the release
provisions (which in effect permit the disposition of all property in excess
of the amount used under the Mortgage). Prior lien debt on after-acquired
property may be extended or refunded under the same lien until property is
certified under the Mortgage, but not thereafter except upon consent of the
holders of 60% in the amount of the bonds issued and outstanding under the
Mortgage. (See Sections 4.03 and 4.07.) There are excepted from the lien all
cash, securities, accounts receivable, agreements, leases, materials and
supplies, automotive equipment, timber, coal and other minerals under the
mortgaged land, and certain other assets. (See Preamble to the Mortgage, Part
VIII and Fourteenth Supplemental Indenture, Part VI.) In case of a merger,
consolidation or sale of substantially all of the assets of the Company, the
lien may be limited to the system of the Company at that time. (See Sections
8.02, 8.03 and 8.04.)
The lien of the Mortgage is, subject to due recording and filing, a first
lien junior only to (i) statutory liens and equitable priorities for taxes,
services, materials and supplies and (ii) pre-existing liens on after-acquired
property.
Other than the security afforded by the lien of the Mortgage and described
under the "Description of the Bonds" herein, there are no provisions of the
Mortgage which afford holders of the Bonds protection in the event of a highly
leveraged transaction involving the Company. Such a transaction would require
regulatory approval, however, and management of the Company believes such
approval would be unlikely in a transaction that would result in the Company
having a highly leveraged capital structure.
5
Issuance of Additional Bonds
Additional bonds of any series may be issued from time to time without limit
in aggregate amount, but not in excess of the amount authorized by the
Company's stockholder (currently $5 billion), on the following bases:
1. Up to 60% of the net amount of additional property certified under
Section 2.03 and subject to no senior lien except permitted liens and liens
securing refundable debt, but only if net earnings (in 12 consecutive
months within the 15 next previous months), after depreciation but before
income taxes, are at least twice the annual interest charges on all bonds
then outstanding or applied for and any indebtedness secured by senior
liens. But no more than 20% of total net earnings may be from nonoperating
income, principally Allowance for Funds Used During Construction, and the
aggregate of maintenance and repairs and depreciation shall be not less
than 15% of total operating revenues (less (i) the cost of electricity
purchased for resale and (ii) rentals paid by the Company for electric
properties) for such period. Refundable debt may not exceed 60% of the
property securing it or 15% of the bonds outstanding or issuable and is
deducted from the amount of bonds otherwise issuable. (See Sections 2.02,
2.03, 2.08, 2.09 and 4.16.)
2. Up to the amount of bonds or refundable debt retired (unless from
certain funds). (See Sections 2.02, 2.04, 2.05, 2.08 and 2.09.)
3. Up to the amount of cash deposited for the purpose, but only if net
earnings are as required in 1 above. The cash may be withdrawn in the
amount of the bonds issuable as shown in 1 and 2 above, without regard to
earnings. This is the only restriction on the disposition of proceeds of
additional bonds. (See Sections 2.02, 2.06 and 2.07.)
The Bonds will be issued on the basis set forth in 1 or 2 above.
Release and Substitution of Security
Property may be released upon filing a Credit Certificate or upon depositing
cash in the amount of its value (which then may be withdrawn upon filing a
Credit Certificate). The Credit Certificate supplies evidence, between formal
certifications under Section 2.03, that credits previously established on the
basis of property acquisition or bonds or refundable debt retirement have not
been exhausted by showing that the retirements not yet certified are less than
the balance of such credits that would remain unused after the action then
sought (including in such credits the amount of additional property not
formally certified and the amount of release moneys, etc., then held by the
Trustee). Instead of cash, purchase money bonds or bonds of the United States
or any State or a political subdivision thereof may be deposited. Special
provisions are made for property and cash subject to senior liens and for
refundable debt held in pledge. (See Section 2.09(q), Article 5 and Article
6.)
Modification
With the consent of the holders of 75% in amount of all bonds issued and
outstanding under the Mortgage (including at least 60% in amount of each
affected series), any default may be waived except for a default in the
payment of principal or interest at their due dates and the Mortgage may be
changed in any way except to extend the due dates of principal or interest or
reduce the amount of principal, interest or premium, if any. (See Section 7.24
and Article 14.)
Default and Action by the Trustee
An event of default includes default in payment of principal of any series
of bonds issued under the Mortgage, continuous default for 90 days in payment
of interest on any series of such bonds (except that such default need only
continue for 30 days in the case of certain series), default for 90 days after
notice in the performance of any other covenant in the Mortgage and the
occurrence of certain bankruptcy-related events. (See Section 7.01.) During an
event of default, the Trustee must use the same degree of care and skill as a
prudent man in the conduct of his own affairs. Subject to that standard, a
majority in amount of bonds issued under the Mortgage is necessary to require
the Trustee to take action, and the Trustee is entitled first to be
indemnified to
6
its satisfaction. (See Section 7.20 and Third Supplemental Indenture Sections
7.02 and 7.03.) The Company is required to report annually to the Trustee that
it is not in default under the Mortgage. (See Third Supplemental Indenture
Section 6.03.)
Listing
The Bonds will not be listed on any national or regional securities
exchange.
DESCRIPTION OF THE SENIOR NOTES AND SENIOR SUBORDINATED NOTES
The Senior Notes and Senior Subordinated Notes will constitute either senior
or subordinated unsecured debt of the Company and will be issued in one or
more series under (i) an indenture (the Senior Indenture) for Senior Notes or
(ii) an indenture (the Senior Subordinated Indenture) for Senior Subordinated
Notes. The Senior Indenture and the Senior Subordinated Indenture
(collectively, the Indentures) are to be dated as of the date of first issue
of Senior Notes or Senior Subordinated Notes, as the case may be, and are to
be entered into between the Company and The Chase Manhattan Bank, as Trustee
(the Trustee). Forms of the Indentures are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The statements
under this heading do not purport to be complete and are subject to the
detailed provisions of, and are qualified in their entirety by reference to,
the applicable Indenture or Indentures and are summaries which make use of
terms defined in one or both Indentures.
General
Neither Indenture limits the aggregate principal amount of the Senior Notes
or Senior Subordinated Notes issuable thereunder or of any particular series
of Senior Notes or Senior Subordinated Notes. The Senior Notes and Senior
Subordinated Notes of any series need not be issued at the same time or bear
interest at the same rate or mature on the same date. Reference is made to the
Prospectus Supplement for the following terms of any particular series of
Offered Senior Notes or Offered Senior Subordinated Notes (collectively, the
Offered Securities): (i) the title of such Senior Notes or Senior Subordinated
Notes; (ii) any limit on the aggregate principal amount of such Senior Notes
or Senior Subordinated Notes or the series of which they are a part; (iii) the
date or dates on which the principal of any of such Senior Notes or Senior
Subordinated Notes will be payable or the method by which such date or dates
will be determined; (iv) the rate or rates at which any of such Senior Notes
or Senior Subordinated Notes will bear interest, if any, or the method by
which such rate or rates will be determined, and the date or dates from which
any such interest will accrue; (v) the Interest Payment Dates on which any
such interest will be payable and the Regular Record Date, if any, for any
such interest payable on any Interest Payment Date; (vi) if applicable,
whether the interest payment periods may be extended by the Company and, if
so, the duration of any such extension; (vii) the place or places where the
principal of and any premium and interest on any of such Senior Notes or
Senior Subordinated Notes will be payable; (viii) the obligation, if any, of
the Company to redeem or purchase any of such Senior Notes or Senior
Subordinated Notes pursuant to any sinking fund, purchase fund or analogous
provision or at the option of the Holder thereof and the terms and conditions
on which any of such Senior Notes or Senior Subordinated Notes may be redeemed
or purchased pursuant to such obligation; (ix) the denominations in which any
of such Senior Notes or Senior Subordinated Notes will be issuable, if other
than denominations of $1,000 or any integral multiple thereof; (x) the terms
and conditions, if any, on which any of such Senior Notes or Senior
Subordinated Notes may be redeemed at the option of the Company; (xi) if
applicable, the fact that the terms of the applicable Indenture which are
described below under the caption "Defeasance and Covenant Defeasance" will
not apply to any of such Senior Notes or Senior Subordinated Notes; (xii) the
currency, currencies or currency units in which the principal of and any
premium and interest on any of such Senior Notes or Senior Subordinated Notes
will be payable, if other than U.S. dollars, and the manner of determining the
equivalent thereof in U.S. dollars for any purpose; (xiii) the portion of the
principal amount of any of such Senior Notes or Senior Subordinated Notes that
will be payable upon declaration of acceleration of the Maturity thereof, if
other than the entire principal amount thereof; (xiv) whether any of such
Senior Notes or Senior Subordinated Notes will be issuable in whole
7
or in part in the form of one or more Global Securities and, if so, the
identity of the depositary (the Depositary) for any such Global Security and
any provisions regarding the transfer, exchange or legending of any such
Global Security if different from those described below under the caption
Global Securities; (xv) any addition to, change in or deletion from the Events
of Default or covenants provided for with respect to any of such Senior Notes
or Senior Subordinated Notes and any change in the right of the Trustee or the
Holders to declare the principal amount of any of such Senior Notes or Senior
Subordinated Notes due and payable; (xvi) any index or formula used to
determine the amount of principal of or any premium or interest on any of such
Senior Notes or Senior Subordinated Notes and the manner of determining any
such amounts; (xvii) if the principal amount payable at the Stated Maturity of
any of such Senior Notes or Senior Subordinated Notes will not be determinable
as of any one or more dates prior to the Stated Maturity, the amount which
will be deemed to be such principal amount as of any such date for any
purpose, including the principal amount thereof which will be due and payable
upon any Maturity other than the Stated Maturity (or the manner of determining
any such deemed principal amount); (xviii) the subordination of such Senior
Notes or Senior Subordinated Notes to any other indebtedness of the Company,
including other series of Senior Subordinated Notes (for series of Senior
Subordinated Notes only); and (xix) any other terms of such Senior Notes or
Senior Subordinated Notes.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Senior Notes or Senior Subordinated Notes will be issued only in fully
registered certificated or book-entry form, without coupons, in denominations
of $1,000 or any integral multiple thereof. Notes issued in book-entry form
will be represented by certificates deposited with, or on behalf of, the
Depositary, and registered in the name of the Depositary's nominee. No service
charge will be made for any registration of transfer or exchange of Senior
Notes or Senior Subordinated Notes, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the principal of and any premium and interest on the Offered Debt Securities
will be payable, and the Offered Debt Securities will be exchangeable and
transfers thereof will be registrable, at The Chase Manhattan Bank, 55 Water
Street, New York, New York 10041 and payment of any interest due on any
Offered Debt Security will be made to the Person in whose name such Offered
Debt Security is registered at the close of business on the Regular Record
Date for such interest.
If the Senior Notes or Senior Subordinated Notes of any series (or any
series and specified tenor) are to be redeemed, the Company will not be
required to (i) issue, register the transfer of, or exchange any Senior Note
or Senior Subordinated Note of that series (or of that series and specified
tenor, as the case may be) during a period beginning at the opening of
business 15 days before the day of mailing of a notice of redemption of any
such Debt Security that may be selected for redemption and ending at the close
of business on the day of such mailing or (ii) register the transfer of or
exchange any Debt Security so selected for redemption, in whole or in part,
except the unredeemed portion of any such Debt Security being redeemed in
part.
Senior Notes or Senior Subordinated Notes, including Original Issue Discount
Securities, may be offered and sold at a substantial discount below their
principal amount. Special Federal income tax and other considerations, if any,
applicable thereto will be described in the applicable Prospectus Supplement.
Except as otherwise described in the applicable Prospectus Supplement, the
covenants contained in either Indenture would not afford any Holders of Senior
Notes or Senior Subordinated Notes issued thereunder protection in the event
of a highly leveraged transaction involving the Company. Such a transaction
would require regulatory approval, however, and management of the Company
believes such approval would be unlikely in a transaction that would result in
the Company having a highly leveraged capital structure.
Global Securities
Some or all of the Senior Notes or Senior Subordinated Notes of a series may
be represented in whole or in part by one or more Global Securities that will
be deposited with or on behalf of one or more Depositaries.
8
The specific terms of the depositary arrangement with respect to any Senior
Notes or Senior Subordinated Notes of a series will be described in the
Prospectus Supplement relating thereto. The Company anticipates that the
following provisions will apply to all depositary arrangements.
Unless otherwise specified in the related Prospectus Supplement, Senior
Notes or Senior Subordinated Notes which are to be represented by a Global
Security to be deposited with or on behalf of a Depositary will be represented
by a Global Security registered in the name of such Depositary or its nominee.
Upon the issuance of a Global Security in registered form, the Depositary for
such Global Security will credit, on its book-entry registration and transfer
system, the respective principal amounts of the Senior Notes or Senior
Subordinated Notes represented by such Global Security to the accounts of
institutions that have accounts with such Depositary or its nominee
(Participants). The accounts to be credited will be designated by the
underwriters or agents of such Senior Notes or Senior Subordinated Notes or by
the Company, if such Senior Notes or Senior Subordinated Notes are offered and
sold directly by the Company. Ownership of beneficial interests in such Global
Securities will be limited to Participants or persons that may hold interests
through Participants. Ownership of beneficial interests by participants in
such Global Securities will be shown on, and the transfer of any such
ownership interest will be effected only through, records maintained by the
Depositary or its nominee for such Global Security. Ownership of beneficial
interests in Global Securities by persons that hold through Participants will
be effected only through records maintained by such Participants. The laws of
some jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Senior
Notes or Senior Subordinated Notes represented by such Global Security for all
purposes under the applicable Indenture. Except as set forth below, owners of
beneficial interests in the Global Security will not be entitled to have the
Senior Notes or Senior Subordinated Notes represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of the Senior Notes or Senior Subordinated Notes in definitive form
and will not be considered the owners or Holders thereof under the applicable
Indenture.
Payment of principal of and any premium and interest on Senior Notes or
Senior Subordinated Notes registered in the name of or held by a Depositary or
its nominee will be made in immediately available funds to the Depositary or
its nominee, as the case may be, as the registered owner or the Holder of the
Global Security representing such Senior Notes or Senior Subordinated Notes.
None of the Company, the Trustee, any Paying Agent or the Security Registrar
for such Senior Notes or Senior Subordinated Notes will have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in a Global
Security for such Senior Notes or Senior Subordinated Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Company expects that a Depositary for Senior Notes or Senior
Subordinated Notes of a series, upon receipt of any payment of principal or
any premium or interest in respect of a Global Security, will credit
immediately Participants' accounts with payment in amounts proportionate to
their respective beneficial interests in the principal amount of such Global
Security as shown on the records of such Depositary. The Company also expects
that payments by Participants to owners of beneficial interests in such Global
Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name", and will be the
responsibility of such Participants.
A Global Security may not be transferred in whole or in part except by the
Depositary for such Global Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. If a Depositary for Senior Notes or
Senior Subordinated Notes of a series is at any
9
time unwilling or unable to continue as Depositary and a successor Depositary
is not appointed by the Company within 90 days, the Company will issue Senior
Notes or Senior Subordinated Notes in definitive registered form in exchange
for the Global Security or Global Securities representing such Senior Notes or
Senior Subordinated Notes. In addition, the Company may at any time determine
not to have any Senior Notes or Senior Subordinated Notes represented by one
or more Global Securities and, in such event, will issue Senior Notes or
Senior Subordinated Notes in definitive registered form in exchange for the
Global Securities representing such Senior Notes or Senior Subordinated Notes.
In any such instance, an owner of a beneficial interest in a Global Security
will be entitled to physical delivery in definitive form of Senior Notes or
Senior Subordinated Notes of the series represented by such Global Security
equal in principal amount to such beneficial interest and to have such Senior
Notes or Senior Subordinated Notes registered in its name.
Redemption
Any terms and conditions for the optional or mandatory redemption of any
Offered Debt Securities will be set forth in the applicable Prospectus
Supplement. Except as otherwise provided in the applicable Prospectus
Supplement with respect to Senior Notes or Senior Subordinated Notes that are
redeemable at the option of the Holder, Senior Notes or Senior Subordinated
Notes will be redeemable by the Company, subject to the subsequent sentence,
only upon notice mailed not less than 30 nor more than 60 days prior to the
date fixed for redemption. With certain exceptions, a notice of redemption at
the option of the Company may state that such redemption will be conditional
upon receipt by the Trustee or any applicable Paying Agent or Agents, on or
prior to the date fixed for such redemption, of money sufficient to pay the
principal of and any premium and interest on such Senior Notes or Senior
Subordinated Notes and that if such money has not been so received, such
notice will be of no force and effect and the Company will not be required to
redeem such Senior Notes or Senior Subordinated Notes.
Consolidation, Merger, etc.
Each Indenture provides that the Company may, without the consent of any
Holders of the Senior Notes or Senior Subordinated Notes Outstanding
thereunder, consolidate or merge with or into any other Person or Persons, or
convey or transfer its properties and assets as an entirety or substantially
as an entirety to any Person, provided that the successor Person, if any,
assumes by a supplemental indenture the Company's obligations under such
Indenture and such Senior Notes or Senior Subordinated Notes and the Company
delivers an Officers' Certificate and an Opinion of Counsel to the Trustee
stating that all conditions precedent in such Indenture relating to the
transaction have been complied with. Upon the assumption by the successor
Person of the Company's obligations under the applicable Indenture and the
Senior Notes or Senior Subordinated Notes issued thereunder, and the
satisfaction of any other condition precedent provided for in such Indenture,
the successor Person will succeed to and be substituted for the Company under
such Indenture and the Company will be relieved of its obligations under such
Indenture and the Senior Notes or Senior Subordinated Notes issued thereunder.
Amendments of Indenture; Waiver
Each Indenture provides that modifications and amendments thereof may be
made by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount of the Outstanding Senior
Notes or Outstanding Senior Subordinated Notes of each series affected
thereby; provided, however, that no such modification or amendment may,
without the consent of the Holder of each Outstanding Senior Note or
Outstanding Senior Subordinated Note affected thereby, (a) change the Stated
Maturity of the principal of, or any instalment of principal of or interest
on, any Senior Note or Senior Subordinated Note; (b) reduce the principal
amount of or any premium or the rate of interest on any Senior Note or Senior
Subordinated Note or reduce the amount of principal of any Original Issue
Discount Security or any other Senior Note or Senior Subordinated Note which
would be due and payable upon acceleration of the Maturity thereof; (c) change
the place of payment of principal of or any premium or interest on any Senior
Note or Senior Subordinated Note; (d) impair the right to institute suit for
the enforcement of any such payment on any Senior Note or Senior
10
Subordinated Note on or after the Stated Maturity thereof (or date of
redemption); (e) reduce the percentage in principal amount of Outstanding
Senior Notes or Outstanding Senior Subordinated Notes of any series, the
consent of whose Holders is required for modification or amendment of such
Indenture, for waiver of compliance with certain provisions of such Indenture
or for waiver of certain defaults or (f) with certain exceptions, modify the
above provisions or the sections of the applicable Indenture governing waiver
of certain covenants and past defaults. Notwithstanding the foregoing, under
certain limited circumstances and only upon the fulfillment of certain
conditions, modifications and amendments of the relevant Indenture may be made
by the Company and the Trustee without the consent of any Holders of the
Senior Notes or Senior Subordinated Notes issued thereunder.
The Holders of not less than a majority in aggregate principal amount of the
Outstanding Senior Notes or Outstanding Senior Subordinated Notes of any
series may waive, insofar as that series is concerned, compliance by the
Company with certain restrictive provisions of the Indenture under which such
Senior Notes or Senior Subordinated Notes were issued. The Holders of not less
than a majority in aggregate principal amount of the Outstanding Senior Notes
or Outstanding Senior Subordinated Notes of any series may waive any past
default under the Indenture under which such Senior Notes or Senior
Subordinated Notes were issued with respect to that series except a default in
the payment of principal of, or any premium or interest on any Senior Note or
Senior Subordinated Note of such series or in respect of a covenant or
provision under such Indenture which cannot be modified or amended without the
consent of the Holder of each Outstanding Senior Note or Outstanding Senior
Subordinated Note of such series affected thereby.
The Senior Subordinated Indenture may not be amended to alter the
subordination of any of the Outstanding Senior Subordinated Notes without the
written consent of each holder of Senior Indebtedness then outstanding that
would be adversely affected thereby.
Events of Default
The following will be Events of Default under each Indenture with respect to
Senior Notes or Senior Subordinated Notes of any series issued thereunder
(unless inapplicable to the particular series, specifically modified or
deleted as a term of such series or otherwise modified or deleted in an
indenture supplemental to such Indenture): (a) failure to pay principal of or
any premium on any Senior Note or Senior Subordinated Note of that series when
due, (b) failure for 60 days to pay any interest on any Senior Note or Senior
Subordinated Note of that series when due, (c) failure to make any sinking
fund payment when and as due by the terms of any Senior Note or Senior
Subordinated Note of that series, continued for 60 days, (d) failure to
perform any covenant of the Company in the applicable Indenture (other than a
covenant that has expressly been included in such Indenture solely for the
benefit of series of Senior Notes or Senior Subordinated Notes other than that
series), continued for 90 days after written notice has been given by the
Trustee or the Holders of at least 33% in principal amount of the Outstanding
Senior Notes or Outstanding Senior Subordinated Notes of that series (unless
such time period is extended by the Trustee or by the Trustee and the Holders
of a principal amount of Senior Notes or Senior Subordinated Notes of that
series not less than the principal amount of Senior Notes or Senior
Subordinated Notes the Holders of which had given such notice of default;
provided, however, that the Trustee, or the Trustee and such Holders, as the
case may be, will be deemed to have agreed to such an extension if corrective
action is initiated, and is being diligently pursued, by the Company, as
further provided in the applicable Indenture), (e) certain events in
bankruptcy, insolvency or reorganization and (f) any other Event of Default
provided with respect to Senior Notes or Senior Subordinated Notes of that
series. No Event of Default with respect to a particular series of Senior
Notes or Senior Subordinated Notes issued under an Indenture necessarily
constitutes an Event of Default with respect to any other series of Senior
Notes or Senior Subordinated Notes issued thereunder.
If an Event of Default with respect to Senior Notes or Senior Subordinated
Notes of any series at the time Outstanding occurs and is continuing, then the
Trustee or the Holders of not less than 33% in principal amount of the
Outstanding Senior Notes or Outstanding Senior Subordinated Notes of that
series may, by a notice in
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writing to the Company (and to the Trustee if given by Holders), declare to be
immediately due and payable the principal amount (or, if any Senior Notes or
Senior Subordinated Notes of that series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of the series) of all Senior Notes or Senior Subordinated Notes of that
series. However, at any time after such a declaration of acceleration with
respect to Senior Notes or Senior Subordinated Notes of any series has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee, the Event of Default giving rise to such declaration
of acceleration will, without further act, be deemed to have been waived, and
such declaration will be deemed to have been rescinded and annulled, if (a)
the Company has paid or deposited with the Trustee a sum sufficient to pay all
overdue interest on the Senior Notes or Senior Subordinated Notes of such
series, the principal of and any premium on the Senior Notes or Senior
Subordinated Notes of such series which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate or rates
prescribed therefor in such Senior Notes or Senior Subordinated Notes,
interest on overdue interest at the rate or rates prescribed therefor in the
Senior Notes or Senior Subordinated Notes of such series (to the extent that
payment of such interest is lawful), and all amounts due to the Trustee under
the applicable Indenture and (b) all Events of Default with respect to the
Senior Notes or Senior Subordinated Notes of such series (other than the
nonpayment of the principal of the Senior Notes or Senior Subordinated Notes
of such series that has become due solely by such declaration of acceleration)
have been cured or waived as provided in the applicable Indenture. Reference
is made to the Prospectus Supplement relating to any series of Senior Notes or
Senior Subordinated Notes which are Original Issue Discount Securities for the
particular provisions relating to acceleration of a portion of the principal
amount of such Original Issue Discount Securities upon the occurrence of an
Event of Default and the continuation thereof.
Subject to the provisions of each Indenture relating to the duties of the
Trustee in case an Event of Default occurs and is continuing, each Indenture
provides that the Trustee will be under no obligation to exercise any of its
rights or powers under such Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee reasonable
security or indemnity. Subject to such provisions for security and
indemnification of the Trustee and certain other rights of the Trustee, the
Holders of a majority in principal amount of the Outstanding Senior Notes or
Outstanding Senior Subordinated Notes of any series have the right to direct
the time, method and place of conducting any proceedings for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Senior Notes or Senior Subordinated Notes of that
series.
No Holder of any Senior Note or Senior Subordinated Note of any series will
have any right to institute any proceeding with respect to the Indenture under
which such Senior Note or Senior Subordinated Note was issued or for any
remedy thereunder unless such Holder has previously given to the Trustee
written notice of a continuing Event of Default with respect to the Senior
Notes or Senior Subordinated Notes of that series and unless the Holders of
not less than a majority in principal amount of the Outstanding Senior Notes
or Outstanding Senior Subordinated Notes of that series have made such written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee under the applicable Indenture, and the Trustee has not
received from the Holders of a majority in principal amount of the Outstanding
Senior Notes or Outstanding Senior Subordinated Notes of that series a
direction inconsistent with such request and has failed to institute such
proceeding within 60 days after receipt of such notice and offer of indemnity.
Notwithstanding the foregoing, the Holder of any Senior Note or Senior
Subordinated Note will have an absolute and unconditional right to receive
payment of the principal of and any premium and, subject to certain
limitations specified in the applicable Indenture, interest on such Senior
Note or Senior Subordinated Note on the Stated Maturity thereof (or, in the
case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment.
The Company is required to furnish annually to the Trustee for each
Indenture a statement by certain officers of the Company to the effect that to
the best of their knowledge the Company is not in default in the performance
and observance of any terms, provisions or conditions of such Indenture or, if
there has been such a default, specifying each such default and the status
thereof.
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Defeasance and Covenant Defeasance
Unless otherwise provided in the Prospectus Supplement for a series of
Senior Notes or Senior Subordinated Notes, the Company may cause itself
(subject to the terms of the Indenture under which such Senior Notes or Senior
Subordinated Notes were issued) (i) to be discharged from any and all
obligations with respect to any Senior Notes or Senior Subordinated Notes or
series of Senior Notes or Senior Subordinated Notes (except for certain
obligations to register the transfer or exchange of such Senior Notes or
Senior Subordinated Notes, to replace such Senior Notes or Senior Subordinated
Notes if stolen, lost or mutilated, to maintain paying agencies and to hold
money for payment in trust) (Defeasance) and/or (ii) to be released from any
covenants expressly established in respect of any Senior Notes or Senior
Subordinated Notes or series of Senior Notes or Senior Subordinated Notes
(Covenant Defeasance), in either case on and after the date the conditions set
forth in such Indenture are satisfied. Such conditions include the deposit
with the Trustee, in trust for such purpose, of money and/or U.S. Government
Obligations (as such term is defined in the applicable Indenture), which
through the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide money in an amount sufficient to pay
the principal of and any premium and interest on such Senior Notes or Senior
Subordinated Notes on the Stated Maturity of such payments or upon redemption,
as the case may be, in accordance with the terms of the applicable Indenture
and such Senior Notes or Senior Subordinated Notes.
Defeasance by the Company with respect to any Senior Notes or Senior
Subordinated Notes of a series is permitted under certain circumstances under
each Indenture notwithstanding the Company's prior Covenant Defeasance with
respect to Senior Notes or Senior Subordinated Notes of that series. Following
a Defeasance, payment of any of such Senior Notes or Senior Subordinated Notes
may not be accelerated because of an Event of Default (as defined in the
applicable Indenture). Following a Covenant Defeasance, payment of Senior
Notes or Senior Subordinated Notes may not be accelerated under the applicable
Indenture by reference to the covenants noted under clause (ii) above.
However, if such an acceleration were to occur, the realizable value at the
acceleration date of the money and U.S. Government Obligations in the
defeasance trust could be less than the principal and interest then due on
such Senior Notes or Senior Subordinated Notes, in that the required deposit
in the defeasance trust is based upon scheduled cash flows rather than market
value, which will vary depending upon interest rates and other factors.
Under current Federal income tax law, the Defeasance contemplated in the
preceding paragraphs would be treated as a taxable exchange of the relevant
Senior Notes or Senior Subordinated Notes in which Holders of Senior Notes or
Senior Subordinated Notes would recognize gain or loss. In addition,
thereafter, the amount, timing and character of amounts that Holders would be
required to include in income might be different from that which would be
includible in the absence of such Defeasance. Prospective investors are urged
to consult their own tax advisors as to the specific consequences of a
Defeasance, including the applicability and effect of tax laws other than the
Federal income tax law.
Under current Federal income tax law, unless accompanied by other changes in
the terms of the Senior Notes or Senior Subordinated Notes, Covenant
Defeasance should not be treated as a taxable exchange.
Subordination of Senior Subordinated Notes
The Senior Subordinated Indenture provides that, unless otherwise provided
in the Prospectus Supplement for a series of Senior Subordinated Notes, the
Senior Subordinated Notes of any series will be expressly subordinate in right
of payment, to the extent and in the manner set forth in the Senior
Subordinated Indenture, to all Senior Indebtedness. The Senior Subordinated
Indenture defines "Senior Indebtedness" to mean, with respect to any series of
Senior Subordinated Notes, the principal of, and premium, if any, and interest
on and any other payment due pursuant to any of the following, whether
outstanding at the date of execution of the Senior Subordinated Indenture or
thereafter incurred, created or assumed: (a) all indebtedness of the Company
evidenced by notes, debentures, bonds or other securities sold by the Company
for money or other obligations for money borrowed, (b) all indebtedness of
others of the kinds described in the preceding clause (i) assumed by or
guaranteed in any manner by the Company or (ii) in effect guaranteed by the
Company through an agreement
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to purchase, contingent or otherwise, and (c) all renewals, extensions or
refundings of indebtedness of the kinds described in either of the preceding
clauses (a) and (b) unless, in the case of any particular indebtedness,
renewal, extension or refunding, the instrument creating or evidencing the
same or the assumption or guarantee of the same expressly provides that such
indebtedness, renewal, extension or refunding is not superior in right of
payment to or is pari passu with or subordinate to such Senior Subordinated
Notes.
In the event, with certain exceptions specified in the Indenture, (a) of any
payment by, or distribution of assets of, the Company to creditors upon any
dissolution, winding up, liquidation or reorganization of the Company, whether
in bankruptcy, insolvency or other proceedings, or (b) that (i) a default
(continuing beyond any period of grace) shall have occurred and be continuing
with respect to the payment of principal, interest or any other monetary
amounts due and payable on any Senior Indebtedness or (ii) the maturity of any
Senior Indebtedness shall have been accelerated because of a default with
respect to such Senior Indebtedness, then the Holders of all Senior
Indebtedness shall first be entitled to receive payment, in the case of (a)
above, of all amounts due or to become due upon all Senior Indebtedness, and,
in the case of (b) above, of all amounts due thereon, or provision shall be
made for such payment in money or money's worth, before the Holders of the
Senior Subordinated Notes are entitled to receive a payment on account of the
principal of or premium, if any, or interest on such Senior Subordinated
Notes.
On December 31, 1997, approximately $4.0 billion of Senior Indebtedness was
outstanding. The Senior Subordinated Indenture does not restrict the amount of
Senior Indebtedness that the Company may incur.
CONCERNING THE TRUSTEE
The Chase Manhattan Bank is the Trustee under the Mortgage and each of the
Indentures. The Chase Manhattan Bank is also the trustee under the Company's
Indenture dated as of April 1, 1988 and its Subordinated Note Indenture, dated
as of August 1, 1995. The Chase Manhattan Bank is the agent for the Company's
$500 million credit facility, under which its commitment is $46 million.
The occurrence of a default under the Mortgage, the Senior Subordinated
Indenture, the Senior Indenture with respect to one or more series of Debt
Securities could create a conflicting interest for the Trustee under the Trust
Indenture Act of 1939, as amended (the 1939 Act). If such default has not been
cured or waived within 90 days after the Trustee has or acquires a conflicting
interest, the Trustee generally would be required by the 1939 Act to eliminate
such conflicting interest or resign as Trustee with respect to the Debt
Securities issued under the Mortgage, the Senior Indenture or the Senior
Subordinated Indenture. In the event of the Trustee's resignation, the Company
shall promptly appoint a successor Trustee with respect to the affected
securities.
PLAN OF DISTRIBUTION
The Offered Securities may be sold (a) through underwriters or dealers, (b)
directly to a limited number of purchasers or to a single purchaser or (c)
through agents.
The Prospectus Supplement will set forth the manner and terms of the
offering of the related Offered Securities, including the name or names of any
underwriters, dealers or agents, the purchase price or prices of the Offered
Securities, the proceeds to the Company from the sale of the Offered
Securities, any initial public offering price, any underwriting discount or
commission and any discounts, concessions or commissions allowed or reallowed
or paid by any underwriter to other dealers. Any initial public offering price
and any discounts, concessions or commissions allowed or reallowed or paid to
dealers may be changed from time to time. Unless otherwise indicated in the
Prospectus Supplement, any agent will be acting on a best efforts basis for
the period of its appointment.
The Company may agree to indemnify the underwriters, dealers and agents
named in a Prospectus Supplement against certain liabilities, including
liabilities under the Securities Act.
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Unless otherwise set forth in the Prospectus Supplement, the obligations of
any underwriter or underwriters to purchase the related Offered Securities
will be subject to certain conditions precedent and such underwriter or
underwriters with respect to the sale of such Offered Securities will be
obligated to purchase all of such Offered Securities if any are purchased.
The Prospectus Supplement will set forth any planned listing of the related
Offered Securities on a national securities exchange and indicates whether any
underwriters, dealers or agents intend to make a market in the Offered
Securities as permitted by applicable laws and regulations. No assurance can
be given as to the liquidity of or the trading market for the Offered
Securities.
EXPERTS
The financial statements included in the Company's Annual Report on Form 10-
K, which is incorporated in this Prospectus by reference, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report in such
Form 10-K. Such financial statements have been so incorporated in reliance
upon the report of Deloitte & Touche LLP, also incorporated herein by
reference, which report is given upon their authority as experts in accounting
and auditing.
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