PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JUNE 21, 1995
$45,456,500
THE POTOMAC EDISON COMPANY
8% QUARTERLY INCOME DEBT SECURITIES* (QUIDS'sm')
(JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES, SERIES A)
------------------------
The Series A Junior Subordinated Debentures will mature on September 30,
2025. Interest on the Series A Junior Subordinated Debentures is payable
quarterly on each March 31, June 30, September 30 and December 31, commencing
September 30, 1995. The Series A Junior Subordinated Debentures will be
redeemable at the option of the Company, in whole or in part, on or after June
30, 2000 at 100% of the principal amount redeemed together with accrued interest
to the redemption date. The Series A Junior Subordinated Debentures will be
represented by a Global Security or Securities that will be deposited with, or
on behalf of, The Depository Trust Company, and will be available for purchase
in denominations of $25 and any integral multiple thereof. See 'Description of
the Series A Junior Subordinated Debentures'.
Payment of the principal of and interest on the Series A Junior Subordinated
Debentures is subordinate and subject in right of payment to the prior payment
in full of all Senior Debt of the Company. As of May 31, 1995, outstanding
Senior Debt of the Company aggregated approximately $602.8 million.
The Series A Junior Subordinated Debentures have been approved for listing
on the New York Stock Exchange, subject to notice of issuance.
------------------------
SEE 'INVESTMENT CONSIDERATIONS' FOR CERTAIN INFORMATION RELEVANT TO AN
INVESTMENT IN THE SERIES A JUNIOR SUBORDINATED DEBENTURES, INCLUDING THE PERIOD
AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENT OF INTEREST ON THE SERIES A
JUNIOR SUBORDINATED DEBENTURES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME
TAX CONSEQUENCES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
--------------------- --------------------- ---------------------
Per Series A Junior Subordinated Debenture............ 100% 3.15% 96.85%
Total................................................. $45,456,500 $1,431,879.75 $44,024,620.25
- ------------
(1) Plus accrued interest, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $102,175 payable by the Company.
------------------------
The Series A Junior Subordinated Debentures are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that the Series A Junior Subordinated Debentures will be ready for delivery in
New York, New York, on or about June 30, 1995.
- ------------
* QUIDS is a service mark of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
PRUDENTIAL SECURITIES INCORPORATED
DEAN WITTER REYNOLDS INC.
PAINEWEBBER INCORPORATED
PRYOR, MCCLENDON, COUNTS & CO., INC.
------------------------
The date of this Prospectus Supplement is June 27, 1995.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A JUNIOR
SUBORDINATED DEBENTURES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
------------------------
INVESTMENT CONSIDERATIONS
Prospective purchasers of Series A Junior Subordinated Debentures should
carefully review the information contained elsewhere in this Prospectus
Supplement and in the accompanying Prospectus and should particularly consider
the following matters:
SUBORDINATION OF SERIES A JUNIOR SUBORDINATED DEBENTURES. Payment of the
principal of and interest on the Series A Junior Subordinated Debentures is
subordinate and subject in right of payment to the prior payment in full of all
Senior Debt of the Company. As of May 31, 1995, outstanding Senior Debt of the
Company aggregated approximately $602.8 million. There are no terms in the
Series A Junior Subordinated Debentures that limit the Company's ability to
incur additional indebtedness, including indebtedness that ranks senior to the
Series A Junior Subordinated Debentures. See 'Description of Debt
Securities -- Subordination' in the accompanying Prospectus.
OPTION TO EXTEND INTEREST PAYMENT PERIOD. The Company has the right under
the terms of the Series A Junior Subordinated Debentures to extend the interest
payment period from time to time on the Series A Junior Subordinated Debentures
to a period not exceeding 20 consecutive quarters. Quarterly interest payments
on the Series A Junior Subordinated Debentures would be deferred (but would
continue to accrue with interest thereon at the rate specified for the Series A
Junior Subordinated Debentures to the extent permitted by applicable law) during
any such extended interest payment period. In the event that the Company
exercises this right, the Company may not declare or pay dividends on, or
redeem, purchase or acquire, or make any liquidation payment with respect to,
any of its capital stock or make any guarantee payment with respect to the
foregoing. Prior to the termination of any such extension period, the Company
may further extend the interest payment period, provided that such extension
period, together with all such previous and further extensions thereof, may not
exceed 20 consecutive quarters or extend beyond the maturity of the Series A
Junior Subordinated Debentures. Upon the termination of any extension period and
the payment of all amounts then due, the Company may select a new extension
period, subject to the above requirements. See 'Description of the Series A
Junior Subordinated Debentures -- Option to Extend Interest Payment Period.'
Should an extended interest payment period occur, holders of the Series A
Junior Subordinated Debentures will continue to accrue income for United States
federal income tax purposes even though interest is not being paid on a current
basis. As a result, such a holder will include such interest in gross income for
United States federal income tax purposes in advance of the receipt of cash, and
will not receive the cash from the Company related to such income if such a
holder disposes of his or her Series A Junior Subordinated Debentures prior to
the record date for payment of interest. See 'United States Taxation -- United
States Holders.'
CERTAIN TRADING CHARACTERISTICS OF THE SERIES A JUNIOR SUBORDINATED
DEBENTURES. The Series A Junior Subordinated Debentures have been approved for
listing as an equity security on the New York Stock Exchange, subject to notice
of issuance. Accordingly, the Series A Junior Subordinated Debentures are
expected to trade 'flat'. This means that purchasers will not pay and sellers
will not receive any accrued and unpaid interest on the Series A Junior
Subordinated Debentures that is not included in the trading price. However, for
United States federal income tax purposes, interest on the Series A Junior
Subordinated Debentures is included in income as it accrues, rather than when it
is paid. See 'United States Taxation -- United States Holders.'
S-2
RECENT DEVELOPMENTS
The Company has been named as a defendant in one new asbestos complaint
filed in state court in West Virginia involving sixty-three plaintiffs and
eighty-two defendants. The Company cannot predict the outcome of this
proceeding.
USE OF PROCEEDS
The net proceeds from the sale of the Series A Junior Subordinated
Debentures, together with other corporate funds, will be used to redeem (i) $5
million of the Company's $7.00 Cumulative Preferred Stock, Series D, (ii) $5
million of the Company's $8.32 Cumulative Preferred Stock, Series F, (iii) $10
million of the Company's $8.00 Cumulative Preferred Stock, Series G, and (iv)
$25,456,500 of the Company's $7.16 Cumulative Preferred Stock, Series J.
DESCRIPTION OF THE SERIES A JUNIOR SUBORDINATED DEBENTURES
The following description of the particular terms of the Series A Junior
Subordinated Debentures offered hereby (referred to in the Prospectus as 'Debt
Securities') supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of Debt Securities set forth in
the Prospectus, to which description reference is hereby made.
GENERAL
The Series A Junior Subordinated Debentures will be issued as a series of
Debt Securities under the Indenture. The Series A Junior Subordinated Debentures
will be limited in aggregate principal amount to $45,456,500.
The Series A Junior Subordinated Debentures will mature on September 30,
2025 and will bear interest at the rate per annum shown on the front cover of
this Prospectus Supplement payable quarterly on each March 31, June 30,
September 30 and December 31, commencing September 30, 1995 to the persons in
whose names the Series A Junior Subordinated Debentures are registered at the
close of business on the relevant record dates, which will be one Business Day
(as hereinafter defined) prior to the relevant payment dates. The amount of
interest payable for any period will be computed on the basis of a 360-day year
of twelve 30-day months. Interest will accrue from the date of original issuance
to, but not including, the relevant payment date. In the event that any date on
which interest is payable on the Series A Junior Subordinated Debentures is not
a Business Day, then payment of the interest payable on such date will be made
on the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date. A 'Business Day' shall mean any day other than a day on
which banking institutions in The City of New York are authorized or obligated
by law to close.
The covenants contained in the Indenture will not afford holders of the
Series A Junior Subordinated Debentures protection in the event of a highly
leveraged transaction involving the Company.
The Series A Junior Subordinated Debentures will be issued in denominations
of $25 and any integral multiple thereof.
GLOBAL SECURITIES
The Series A Junior Subordinated Debentures will be represented by a Global
Security or Securities that will be deposited with, or on behalf of, The
Depository Trust Company (the 'Depositary') and registered in the name of the
Depositary or a nominee thereof.
The Depositary has advised the Company and the Underwriters as follows: the
Depositary is a limited-purpose trust company organized under the New York
Banking Law, a 'banking organization' within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a
S-3
'clearing corporation' within the meaning of the New York Uniform Commercial
Code, and a 'clearing agency' registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934. The Depositary was created to hold
securities of its participating organizations ('participants') and to facilitate
the clearance and settlement of securities transactions, such as transfers and
pledges, among its participants in such securities through electronic
computerized book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates.
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 the Depositary.
Access to the Depositary's book entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Persons who are not participants may beneficially own securities held by the
Depositary only through participants.
A Global Security shall be exchangeable for Series A Junior Subordinated
Debentures registered in the names of persons other than the Depositary or its
nominee only if (i) the Depositary notifies the Company that it is unwilling or
unable to continue as a depositary for such Global Security and no successor
depositary shall have been appointed, or if at any time the Depositary ceases to
be a clearing agency registered under the Securities Exchange Act of 1934 at a
time when the Depositary is required to be so registered to act as such
depositary, (ii) the Company in its sole discretion determines that such Global
Security shall be so exchangeable or (iii) there shall have occurred and be
continuing an Event of Default with respect to such Series A Junior Subordinated
Debentures. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for Series A Junior Subordinated Debentures
registered in such names as the Depositary shall direct. It is expected that
such instructions will be based upon directions received by the Depositary from
its participants with respect to ownership of beneficial interest in such Global
Security.
A further description of the Depositary's procedures with respect to the
Series A Junior Subordinated Debentures is set forth under 'Description of Debt
Securities -- Global Securities' in the accompanying Prospectus.
OPTIONAL REDEMPTION
The Series A Junior Subordinated Debentures will be redeemable at the
option of the Company, as a whole or in part, at any time on or after June 30,
2000 and prior to maturity, upon not less than 30 nor more than 60 days' notice,
at 100% of the principal amount redeemed together with accrued interest to the
redemption date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time during the term of the Series
A Junior Subordinated Debentures to extend the interest payment period from time
to time to a period not exceeding 20 consecutive quarters (the 'Extension
Period'), at the end of which Extension Period the Company shall pay all
interest then accrued and unpaid (together with interest thereon at the rate
specified for the Series A Junior Subordinated Debentures to the extent
permitted by applicable law); provided, that, during any such Extension Period,
the Company shall not declare or pay any dividend on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
or make any guarantee payments with respect to the foregoing. Prior to the
termination of any such Extension Period, the Company may further extend the
interest payment period, provided that such Extension Period, together with all
such previous and further extensions thereof, may not exceed 20 consecutive
quarters or extend beyond the maturity of the Series A Junior Subordinated
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may select a new Extension Period, subject to the
above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Company shall give the holders of the
Series A Junior Subordinated Debentures notice of its selection of any Extension
Period at least ten Business Days prior to the earlier of (i) the next interest
payment date or (ii) the date the Company is required to give notice to holders
of the Series A Junior Subordinated Debentures (or, if applicable, to the New
S-4
York Stock Exchange or other applicable self-regulatory organization) of the
record or payment date of such interest payment, but in any event not less than
two Business Days prior to such record date.
SUBORDINATION
The provisions described in the accompanying Prospectus under the caption
'Description of Debt Securities -- Subordination' are applicable to the Series A
Junior Subordinated Debentures.
DEFEASANCE
The provisions described in the accompanying Prospectus under the caption
'Description of Debt Securities -- Defeasance and Covenant Defeasance' are
applicable to the Series A Junior Subordinated Debentures.
UNITED STATES TAXATION
GENERAL
This section is a summary of certain United States federal income tax
considerations that may be relevant to prospective purchasers of Series A Junior
Subordinated Debentures and represents the opinion of Sullivan & Cromwell,
counsel to the Company, insofar as it relates to matters of law and legal
conclusions. This section is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the 'Code'), existing and proposed regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Subsequent changes may cause tax consequences to vary
substantially from the consequences described below.
No attempt has been made in the following discussion to comment on all
United States federal income tax matters affecting purchasers of Series A Junior
Subordinated Debentures. Moreover, the discussion focuses on holders of Series A
Junior Subordinated Debentures who are individual citizens or residents of the
United States that are initial purchasers and that hold the Series A Junior
Subordinated Debentures as a capital asset and has only limited application to
corporations, estates, trusts or non-resident aliens. Accordingly, each
prospective purchaser of Series A Junior Subordinated Debentures should consult,
and should depend on, his or her own tax advisor in analyzing the federal,
state, local and foreign tax consequences of the purchase, ownership or
disposition of Series A Junior Subordinated Debentures.
UNITED STATES HOLDERS
For purposes of this discussion, a United States Holder is a beneficial
owner who or that is (i) a citizen or resident of the United States, (ii) a
domestic corporation or (iii) otherwise subject to United States federal income
taxation on a net income basis in respect of the Series A Junior Subordinated
Debentures.
Interest on Series A Junior Subordinated Debentures will be included in the
income of a United States Holder as it accrues, rather than when it is paid,
regardless of the United States Holder's regular method of accounting for tax
purposes. United States Holders may therefore include interest in income for
taxable years prior to the year in which the interest is actually received. This
should only be significant, however, during an Extension Period.
A United States Holder will generally recognize gain or loss on the sale or
retirement of a Series A Junior Subordinated Debenture equal to the difference
between the amount realized from the sale or retirement and the tax basis of the
Series A Junior Subordinated Debenture. Such gain or loss will be capital gain
or loss, and will be long-term capital gain or loss if the Series A Junior
Subordinated Debenture has been held for more than one year. The tax basis of
the Series A Junior Subordinated Debenture will generally equal the amount paid
for it, increased by the amount of any accrued but unpaid interest.
S-5
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a 'United States Alien Holder' is any
holder who or which is (i) a nonresident alien individual or (ii) a foreign
corporation, partnership or estate or trust, in either case not subject to
United States federal income tax on a net income basis in respect of a Series A
Junior Subordinated Debenture.
Under current United States federal income tax law, subject to the
discussion below with respect to backup withholding:
(i) Payments by the Company or any of its paying agents to any holder
of a Series A Junior Subordinated Debenture who or which is a United States
Alien Holder will not be subject to United States federal withholding tax
provided that (a) the beneficial owner of the Series A Junior Subordinated
Debenture does not actually or constructively own 10% or more of the total
combined voting power of all classes of capital stock of the Company
entitled to vote, (b) the beneficial owner of the Series A Junior
Subordinated Debenture is not a controlled foreign corporation that is
related to the Company through stock ownership and (c) either (x) the
beneficial owner of the Series A Junior Subordinated Debenture certifies to
the Company or its agent, under penalties of perjury, that it is a United
States Alien Holder and provides its name and address or (y) the holder of
the Series A Junior Subordinated Debenture is a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a 'financial
institution'), and such holder certifies to the Company or its agent under
penalties of perjury that such statement has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the Company or its agent with a copy
thereof, and (ii) a United States Alien Holder of a Series A Junior
Subordinated Debenture will generally not be subject to United States
federal withholding tax on any gain realized on the sale or exchange of a
Series A Junior Subordinated Debenture unless such holder is present in the
United States for 183 days or more in the taxable year of sale and either
has a 'tax home' in the United States or certain other requirements are
met.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments of
principal and interest on a Series A Junior Subordinated Debenture, and the
proceeds of the sale of a Series A Junior Subordinated Debenture prior to
maturity within the United States, with respect to non-corporate United States
Holders, and 'backup withholding' at a rate of 31% will apply to such payments
if the United States Holder fails to provide an accurate taxpayer identification
number or to report all interest and dividends required to be shown on its
federal income tax returns.
Information reporting and backup withholding will not apply to payments of
principal and interest made by the Company or a paying agent to a United States
Alien Holder on a Series A Junior Subordinated Debenture if the certification
described in clause (i)(c) under 'United States Alien Holders' above is
received, provided that the payor does not have actual knowledge that the holder
is a United States Holder.
Payments of the proceeds from the sale by a United States Alien Holder of a
Series A Junior Subordinated Debenture made to or through a foreign office of a
broker will not be subject to information reporting or backup withholding,
except that if the broker is a United States person, a controlled foreign
corporation for United States tax purposes or a foreign person 50% or more of
whose gross income is effectively connected with a United States trade or
business for a specified three-year period, information reporting may apply to
such payments. Payments of proceeds from the sale of a Series A Junior
Subordinated Debenture to or through the United States office of a broker is
subject to information reporting and backup withholding unless the United States
Alien Holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
S-6
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement
relating to the Series A Junior Subordinated Debentures, the Company has agreed
to sell to each of the Underwriters named below, and each of the Underwriters,
for whom Goldman, Sachs & Co., Prudential Securities Incorporated, Dean Witter
Reynolds Inc., PaineWebber Incorporated and Pryor, McClendon, Counts & Co., Inc.
are acting as representatives, has severally agreed to purchase, the principal
amount of Series A Junior Subordinated Debentures set forth opposite its name
below:
UNDERWRITER PRINCIPAL AMOUNT
- ----------------------------------------------------------------------- ----------------
Goldman, Sachs & Co.................................................... 7,689,000
Prudential Securities Incorporated..................................... 7,687,500
Dean Witter Reynolds Inc............................................... 7,687,500
PaineWebber Incorporated............................................... 7,687,500
Pryor, McClendon, Counts & Co., Inc.................................... 3,830,000
Advest, Inc............................................................ 375,000
Alex. Brown & Sons Incorporated........................................ 750,000
Cowen & Company........................................................ 375,000
Craigie Incorporated................................................... 375,000
Dain Bosworth Incorporated............................................. 375,000
Davenport & Co. of Virginia, Inc....................................... 375,000
Fahnestock & Co. Inc................................................... 375,000
Interstate/Johnson Lane Corporation.................................... 375,000
Janney Montgomery Scott Inc............................................ 375,000
Kemper Securities, Inc................................................. 750,000
Kennedy, Cabot & Co.................................................... 375,000
Legg Mason Wood Walker, Incorporated................................... 375,000
McGinn, Smith & Co., Inc............................................... 375,000
The Ohio Company....................................................... 375,000
Olde Discount Corporation.............................................. 375,000
Oppenheimer & Co., Inc................................................. 750,000
Parker/Hunter Incorporated............................................. 375,000
Piper Jaffray Inc...................................................... 375,000
Rauscher Pierce Refsnes, Inc........................................... 375,000
Raymond James & Associates, Inc........................................ 375,000
Stephens Inc........................................................... 375,000
Stifel, Nicolaus & Company, Incorporated............................... 375,000
Trilon International Inc............................................... 375,000
U.S. Clearing Corp..................................................... 375,000
Wedbush Morgan Securities Inc.......................................... 375,000
Wheat, First Securities, Inc........................................... 375,000
----------------
Total............................................................. $ 45,456,500
----------------
----------------
Under the terms and conditions of the Purchase Agreement, the Underwriters
are committed to take and pay for all of the Series A Junior Subordinated
Debentures, if any are taken.
The Underwriters propose to offer the Series A Junior Subordinated
Debentures to the public initially at the public offering price set forth on the
cover page of this Prospectus Supplement and to certain dealers at such price
less a concession not in excess of $.50 per Series A Junior Subordinated
Debenture. The Underwriters and such dealers may reallow a discount not in
excess of $0.25 per Series A Junior Subordinated Debenture on sales to certain
other dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Underwriters.
The Series A Junior Subordinated Debentures are a new issue of securities
with no established trading market. The Series A Junior Subordinated Debentures
have been approved for listing on the New York Stock Exchange, subject to notice
of issuance. Trading of the Series A Junior Subordinated Debentures on the New
York Stock Exchange is expected to commence within a thirty-day period after the
initial delivery of the Series A Junior Subordinated Debentures. No assurance
can be given as to the liquidity of the trading market for the Series A Junior
Subordinated Debentures.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
S-7
THE POTOMAC EDISON COMPANY
DEBT SECURITIES
The Potomac Edison Company (the "Company") may offer and sell,
from time to time in one or more series, or all at one time in one or more
series, up to $61,834,900 aggregate principal amount of its debt securities
(the "Debt Securities") at prices and on terms to be determined at the time of
sale. This Prospectus will be supplemented by one or more prospectus
supplements ("Prospectus Supplement") which will set forth for each offering
of Debt Securities, the aggregate principal amount, maturity, interest rate
(or method of calculating the interest rate), any redemption provisions, any
subordination provisions, offering price, any listing on a securities
exchange, proceeds to the Company, and any other specific terms of the
particular series of Debt Securities. Unless otherwise provided in a
Prospectus Supplement, the sale of one series of Debt Securities will not be
contingent upon the sale of any other series of Debt Securities.
The Company may sell Debt Securities to or through underwriters,
and also may sell Debt Securities directly to other purchasers or through
agents. The Prospectus Supplement will set forth the names of any
underwriters or agents involved in the sale of the Debt Securities in respect
of which this Prospectus is being delivered, the principal amounts, if any, to
be purchased by underwriters and the compensation, if any, of such
underwriters or agents. See "Plan of Distribution".
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 June 21, 1995
AVAILABLE INFORMATION
The Potomac Edison Company (the "Company"), 10435 Downsville Pike,
Hagerstown, Maryland 21740-1766 (tel. 301-790-3400), is subject to the
informational requirements of the Securities Exchange Act of 1934 and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other
information filed by the Company can be inspected at the public reference
facilities of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549;
500 West Madison Street, Chicago, Illinois 60661; and 7 World Trade Center,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at prescribed rates. Requests
should be directed to the Commission's Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. Certain securities of the Company are
listed on the Philadelphia Stock Exchange, and reports and other information
concerning the Company can be inspected at the offices of such Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with
the Commission pursuant to the Securities Exchange Act of 1934, are hereby
incorporated by reference in this Prospectus:
(i) The Annual Report of the Company on Form 10-K for the year
ended December 31, 1994 (the "Annual Report");
(ii) Report on Form 8-K dated February 15, 1995;
(iii) The Quarterly Report of the Company on Form 10-Q for the
Quarter ended March 31, 1995;
(iv) Report on Form 8-K dated May 12, 1995; and
(v) Report on Form 8-K dated May 17, 1995.
All documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of
this Prospectus and prior to the termination of the offering of the Securities
offered hereby shall be deemed to be incorporated in this Prospectus by
reference and to be 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 subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each
person to whom a copy of this Prospectus has been delivered, on the written or
oral request of any such person, a copy of any or all of the documents
referred to above which have been or may be incorporated by reference in this
Prospectus, other than exhibits to such documents. Requests for such copies
should be directed to: The Potomac Edison Company, 10435 Downsville Pike,
Hagerstown, Maryland 21740-1766, Attention: Mr. Dale F. Zimmerman, Secretary
and Treasurer (tel. 301-790-6240).
THE COMPANY
The Company, incorporated in Maryland in 1923 and in Virginia in
1974, is an electric utility operating in portions of Maryland, Virginia and
West Virginia. It also owns generating capacity in Pennsylvania. The Company
is a wholly-owned subsidiary of Allegheny Power System, Inc. and, together
with Monongahela Power Company ("Monongahela"), West Penn Power Company ("West
Penn") and Allegheny Generating Company ("AGC") (collectively, the
"affiliates"), makes up the Allegheny Power integrated electric utility system
(the "System"). The Company owns 28% of the common stock of AGC, and
Monongahela and West Penn own the remainder of AGC's common stock. AGC owns
an undivided 40% interest (840 MW) in a pumped-storage hydroelectric station
in Bath County, Virginia, which is operated by an unaffiliated company.
SELECTED INFORMATION
The following selected information is qualified in its entirety by
the detailed information appearing elsewhere in this Prospectus and by the
information and financial statements (including the notes thereto) appearing
in the documents incorporated in this Prospectus by reference.
12 Months Ended Years Ended December 31,
March 31, 1995 1994 1993 1992 1991 1990
Generating capability at end of
period (KW in Thousands):
Company-owned:
Coal-fired.................................... 1,831 1,831 1,831 1,831 1,831 1,831
Pumped-storage (a)............................ 235 235 235 235 235 235
Hydro......................................... 6 6 10 10 11 10
Maximum hour peak demand
(KW in Thousands)................................ 2,431 2,595 2,233 1,987 1,915 1,930
Sales (kWh in Millions):
Retail customers................................. 11,553 11,691 11,432 10,755 10,549 10,309
Nonaffiliated utilities (b)...................... 3,116 3,194 3,861 5,394 5,649 6,818
Other, including affiliates (b).................. 640 654 649 617 615 594
Customers (at end of period)...................... 363,559 361,355 354,288 346,740 338,870 332,006
(a) Capacity entitlement through percentage ownership of AGC.
(b) Amount for 1990 has been reclassified for comparative purposes to
reflect a change in a Federal Energy Regulatory Commission
classification.
CAPITALIZATION
March 31, 1995 December 31, 1994
Amount Percent Amount Percent
(Thousands of Dollars) (Thousands of Dollars)
Common Stock, Other Paid-in Capital, and Retained Earnings..... $ 667,207 50.1% $ 658,146 49.7%
Preferred Stock:
Not Subject to Mandatory Redemption.......................... 36,378 2.7 36,378 2.7
Subject to Mandatory Redemption.............................. 24,257 1.8 25,200 1.9
Long-Term Debt................................................. 604,119 45.4 604,749 45.7
Total Capitalization................................... $1,331,961 100.0% $1,324,473 100.0%
INCOME STATEMENT SUMMARY
The following summary income information as to the years ended
December 31, 1990 through 1994 and the twelve months ended March 31, 1995
should be read in conjunction with the audited Financial Statements contained
in the Annual Report. The unaudited income information for the twelve
months ended March 31, 1995 reflects all adjustments (which consist only of
normal recurring adjustments) which in the Company's opinion are necessary
for a fair presentation of that period.
12 Months Ended Years Ended December 31,
March 31, 1995 1994* 1993 1992 1991 1990
(Thousands of Dollars) (Thousands of Dollars)
Income Statement Data:
Total Operating Revenues**............. $ 754,064 $ 759,365 $ 712,585 $ 687,887 $ 674,077 $ 697,544
Operating Income....................... 109,955 112,322 101,716 92,148 82,113 80,757
Income Before Interest
Charges.............................. 123,949 126,236 114,464 104,704 93,587 93,286
Interest Charges....................... 46,134 44,253 40,997 37,228 35,346 31,706
Income Before Cumulative Effect
of Accounting Change................. 77,815 81,983 73,467 67,476 58,241 61,580
Cumulative Effect of Accounting Change. - 16,471 - - - -
Net Income............................. 77,815 98,454 73,467 67,476 58,241 61,580
Ratio of Earnings to Fixed
Charges.............................. 3.24 3.46 3.34 3.40 3.20 3.56
* Income Statement Data includes the cumulative effect of an accounting
change to record unbilled revenues recorded in the first quarter
of 1994. The Ratio of Earnings to Fixed Charges is before the
cumulative effect of the accounting change.
** Amount for 1990 has been reclassified for comparative purposes to
reflect a change in a Federal Energy Regulatory Commission
classification.
USE OF PROCEEDS
The net proceeds from the sale of the Debt Securities will be used
to redeem or tender for outstanding preferred stock.
CONSTRUCTION AND FINANCING
Construction expenditures by the Company in 1994 amounted to
$143 million and for 1995 and 1996 are expected to aggregate $92
million and $98 million, respectively. In 1994, these expenditures included
$51 million for environmental control technology,of which $39 million was for
compliance with the Clean Air Act Amendments of 1990 (the "CAAA"). The 1995
and 1996 estimated expenditures include $29 million and $19 million,
respectively, for environmental control technology, of which $12
million and $5 million, respectively, are to cover costs of compliance
with the CAAA. Allowance for funds used during construction (AFUDC)(shown
below) has been reduced for carrying charges on CAAA expenditures that are
being collected through currently approved base rates.
1994 1995 1996
(Millions of Dollars)
Generation.............................................. $ 55.6 $ 31.3 $ 29.7
Transmission and Distribution........................... 81.3 58.4 64.9
Other................................................... 5.9 2.6 3.6
Total............................................. $142.8 $ 92.3 $ 98.2
Allowance for Funds used During Construction
Included Above........................................ $ 5.9 $ 2.1 $ 1.8
In connection with its construction and demand-side
management programs, the Company must make estimates of the availability
and cost of capital as well as the future demands of its customers that
are necessarily subject to regional, national, and international
developments, changing business conditions, and other factors. The
construction of facilities and their cost are affected by laws and
regulations, lead times in manufacturing, availability of labor,
materials and supplies, inflation, interest rates, and licensing, rate,
environmental, and other proceedings before regulatory authorities. As
a result, the Company's future plans are subject to continuing review
and substantial change.
The Company has financed its construction program through
internally generated funds, first mortgage bond and preferred stock
issues, pollution control and solid waste disposal notes, instalment
loans, long-term lease arrangements, equity investments by its parent,
and, where necessary, interim short-term debt. The future ability of
the Company to finance its construction program by these means depends
on many factors, including creditworthiness, rate levels sufficient to
provide internally generated funds and adequate revenues to produce a
satisfactory return on the common equity portion of the Company's
capital structure and to support the issuance of senior and other
securities.
DESCRIPTION OF DEBT SECURITIES
General
The Debt Securities may be issued in one or more series under an
Indenture to be dated as of May 31, 1995, between the Company and The
Bank of New York, as Trustee (the "Trustee"). The following summary
does not purport to be complete and is subject in all respects to the
provisions of, and is qualified in its entirety by reference to, the
Indenture and the Debt Securities, the forms of which are filed, or will
be filed, as exhibits to the registration statement of which this
Prospectus forms a part, or as an exhibit to a Report on Form 8-K to be
incorporated by reference in such Prospectus. Whenever particular
provisions or defined terms in such documents are referred to herein or
in a Prospectus Supplement, such provisions or terms are incorporated by
reference herein or therein, as the case may be.
The Debt Securities will be unsecured obligations of the Company
and, unless otherwise provided in a Prospectus Supplement relating to a
particular series of Debt Securities, will be subordinated obligations
of the Company.
Reference is made to the Prospectus Supplement relating to any
particular issue of Debt Securities for the following terms: (1) the
title of such Debt Securities; (2) any limit on the aggregate principal
amount of such Debt Securities or the series of which they are a part;
(3) the date or dates on which the principal of any of such Debt
Securities will be payable; (4) the rate or rates at which any of such
Debt Securities will bear interest, if any, the date or dates from which
any such interest will accrue, the Interest Payment Dates on which any
such interest will be payable, including the right, if any, to defer the
payment of interest, and the Regular Record Date for any such interest
payable on any Interest Payment Date; (5) the place or places where the
principal of and any premium and interest on any of such Debt Securities
will be payable; (6) the period or periods within which, the price or
prices at which and the terms and conditions on which any of such Debt
Securities may be redeemed, in whole or in part, at the option of the
Company; (7) the obligation, if any, of the Company to redeem or
purchase any of such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of the Holder thereof, and the
period or periods within which, the price or prices at which and the
terms and conditions on which any of such Debt Securities will be
redeemed or purchased, in whole or in part, pursuant to any such
obligation; (8) the denominations in which any of such Debt Securities
will be issuable, if other than denominations of $1,000 and any integral
multiple thereof; (9) if the amount of principal of or any premium or
interest on any of such Debt Securities may be determined with reference
to an index or pursuant to a formula, the manner in which such amounts
will be determined; (10) if other than the currency of the United States
of America, the currency, currencies, or currency units in which the
principal of or any premium or interest on any of such Debt Securities
will be payable and the manner of determining the equivalent thereof in
the currency of the United States of America for any purpose, including
for purposes of determining the principal amount deemed to be
Outstanding at any time; (11) if the principal of or any premium or
interest on any of such Debt Securities is to be payable, at the
election of the Company or the Holder thereof, in one or more currencies
or currency units other than those in which such Debt Securities are
stated to be payable, the currency, currencies or currency units in
which payment of any such amount as to which such election is made will
be payable, the periods within which and the terms and conditions upon
which such election is to be made and the amount so payable (or the
manner in which such amount is to be determined); (12) if other than the
entire principal amount thereof, the portion of the principal amount of
any of such Debt Securities which will be payable upon declaration of
acceleration of the Maturity thereof; (13) if the principal amount
payable at the Stated Maturity of any of such Debt Securities 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 which will be deemed to be Outstanding as of any such date
(or, in any such case, the manner in which such deemed principal amount
is to be determined); (14) if applicable, that such Debt Securities, in
whole or any specified part, are defeasible pursuant to the provisions
of the Indenture described under "Defeasance and Covenant Defeasance -
Defeasance and Discharge" or "Defeasance and Covenant Defeasance -
Defeasance of Certain Covenants," or under both such captions; (15)
whether any of such Debt Securities will be issuable in whole or in part
in the form of one or more Global Securities and, if so, the respective
Depositaries for such Global Securities, the form of any legend or
legends to be borne by any such Global Security in addition to or in
lieu of the legend referred to under "Global Securities" and any
transfer of such Global Security in whole or in part may be registered,
in the names of Persons other than the Depositary for such Global
Security or its nominee; (16) any addition to or change in the Events of
Default applicable to any of such Debt Securities and any change in the
right of the Trustee or the Holders to declare the principal amount of
any of such Debt Securities due and payable; (17) any addition to or
change in the covenants in the Indenture; and (18) any other terms of
such Debt Securities not inconsistent with the provisions of the
Indenture. (Section 301).
Debt Securities, including Original Issue Discount Securities, may
be sold at a substantial discount below their principal amount. Certain
special United States federal income tax considerations (if any)
applicable to Debt Securities sold at an original issue discount may be
described in the applicable Prospectus Supplement. In addition, certain
special United States federal income tax or other considerations (if
any) applicable to any Debt Securities which are denominated in a
currency or currency unit other than United States dollars may be
described in the applicable Prospectus Supplement.
Prospective purchasers of Debt Securities should refer to the
applicable Prospectus Supplement for information concerning whether the
covenants contained in the Indenture would afford holders of such Debt
Securities protection in the event of a highly leveraged transaction
involving the Company.
Subordination
The Indenture provides that, unless otherwise provided in a
supplemental indenture or a Board Resolution and described in the
applicable Prospectus Supplement, the Debt Securities will be
subordinate and subject in right of payment to the prior payment in full
of all Senior Debt of the Company, whether outstanding as of the date of
the Indenture or thereafter incurred. (Section 1401). The balance of
the information under this section assumes that the relevant
supplemental indenture or Board Resolution results in the corresponding
series of Debt Securities being subordinated obligations of the Company.
No payment of principal of (including redemption and sinking fund
payments), premium, if any, or interest on, the Debt Securities may be
made if any Senior Debt is not paid when due, any applicable grace
period with respect to such default has ended and such default has not
been cured or waived, or if the maturity of any Senior Debt has been
accelerated because of a default. (Section 1402). Upon any
distribution of assets of the Company to creditors upon any dissolution,
winding-up, liquidation or reorganization, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all principal of, and premium, if any, and interest due or
to become due on, all Senior Debt must be paid in full before the
holders of the Debt Securities are entitled to receive or retain any
payment. (Section 1403). Subject to the payment in full of all Senior
Debt, the rights of the holders of the Debt Securities will be
subrogated to the rights of the holders of Senior Debt to receive
payments or distributions applicable to Senior Debt until all amounts
owing on the Debt Securities are paid in full. (Section 1404).
The term "Senior Debt" shall mean the principal of, premium, if
any, interest on and any other payment due pursuant to any of the
following, whether outstanding at the date of execution of the 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, including all first mortgage bonds of the Company
outstanding from time to time;
(b) all indebtedness of others of the kinds described in the
preceding clause (a) assumed by or guaranteed in any manner by the
Company, including through an agreement to purchase, contingent or
otherwise; and
(c) all renewals, extensions, or refundings of indebtedness
of the kinds described in any 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 the Debt Securities. (Section 101).
The Indenture does not limit the aggregate amount of Senior Debt
that the Company may issue. As of March 31, 1995, outstanding Senior
Debt of the Company aggregated approximately $604 million.
Form, Exchange, and Transfer
The Debt Securities of each series will be issuable only in fully
registered form without coupons and, unless otherwise specified in the
applicable Prospectus Supplement, in denominations of $1,000 and any
integral multiple thereof. (Section 302).
At the option of the Holder, subject to the terms of the Indenture
and the limitations applicable to Global Securities, Debt Securities of
any series will be exchangeable for other Debt Securities of the same
series, of any authorized denomination and of like tenor and aggregate
principal amount. (Section 305).
Subject to the terms of the Indenture and the limitations
applicable to Global Securities, Debt Securities may be presented for
exchange as provided above or for registration of transfer (duly
endorsed or with the form of transfer endorsed thereon duly executed) at
the office of the Security Registrar or at the office of any transfer
agent designated by the Company for such purpose. No service charge
will be made for any registration of transfer or exchange of Debt
Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection
therewith. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied
with the documents of title and identity of the person making the
request. The Company has appointed the Trustee as Security Registrar.
Any transfer agent (in addition to the Security Registrar) initially
designated by the Company for any Debt Securities will be named in the
applicable Prospectus Supplement. (Section 305). The Company may at any
time designate additional transfer agents or rescind the designation of
any transfer agent or approve a change in the office through which any
transfer agent acts, except that the Company will be required to
maintain a transfer agent in each Place of Payment for the Debt
Securities of each series. (Section 1002).
If the Debt Securities of any series (or of any series and
specified tenor) are to be redeemed in part, the Company will not be
required to (i) issue, register the transfer of, or exchange any Debt
Security 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. (Section 305).
Global Securities
Some or all of the Debt Securities of any series may be
represented, in whole or in part, by one or more Global Securities which
will have an aggregate principal amount equal to that of the Debt
Securities represented thereby. Each Global Security will be registered
in the name of a Depositary or a nominee thereof identified in the
applicable Prospectus Supplement, will be deposited with such Depositary
or nominee or a custodian therefor and will bear a legend regarding the
restrictions on exchanges and registration of transfer thereof referred
to below and any such other matters as may be provided for pursuant to
the Indenture.
Notwithstanding any provision of the Indenture or any Debt
Security described herein, no Global Security may be exchanged in whole
or in part for Debt Securities registered, and no transfer of a Global
Security in whole or in part may be registered, in the name of any
Person other than the Depositary for such Global Security or any nominee
of such Depositary unless (i) the Depositary has notified the Company
that it is unwilling or unable to continue as Depositary for such Global
Security or has ceased to be qualified to act as such as required by the
Indenture, (ii) there shall have occurred and be continuing an Event of
Default with respect to the Debt Securities represented by such Global
Security or (iii) there shall exist such circumstances, if any, in
addition to or in lieu of those described above as may be described in
the applicable Prospectus Supplement. All securities issued in exchange
for a Global Security or any portion thereof will be registered in such
names as the Depositary may direct. (Sections 204 and 305).
As long as the Depositary, or its nominee, is the registered
Holder of a Global Security, the Depositary or such nominee, as the case
may be, will be considered the sole owner and Holder of such Global
Security and the Debt Securities represented thereby for all purposes
under the Debt Securities and the Indenture. Except in the limited
circumstances referred to above, owners of beneficial interests in a
Global Security will not be entitled to have such Global Security or any
Debt Securities represented thereby registered in their names, will not
receive or be entitled to receive physical delivery of certificated Debt
Securities in exchange therefor and will not be considered to be the
owners or Holders of such Global Security or any Debt Securities
represented thereby for any purpose under the Debt Securities or the
Indenture. All payments of principal of and any premium and interest on
a Global Security will be made to the Depositary or its nominee, as the
case may be, as the Holder thereof. The laws of some jurisdictions
require that certain purchasers of securities take physical delivery of
such securities in definitive form. These laws may impair the ability
to transfer beneficial interests in a Global Security.
Ownership of beneficial interests in a Global Security will be
limited to institutions that have accounts with the Depositary or its
nominee ("participants") and to persons that may hold beneficial
interests through participants. In connection with the issuance of any
Global Security, the Depositary will credit, on its book-entry
registration and transfer system, the respective principal amounts of
Debt Securities represented by the Global Security to the accounts of
its participants. Ownership of beneficial interests in a Global
Security will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the
Depositary (with respect to participants' interests) or such
participants (with respect to interests of persons held by such
participants on their behalf). Payments, transfers, exchanges, and
other matters relating to beneficial interests in a Global Security may
be subject to various policies and procedures adopted by the Depositary
from time to time. None of the Company, the Trustee or any agent of the
Company or the Trustee will have any responsibility or liability for any
aspect of the Depositary's or any participant's records relating to, or
for payments made on account of, beneficial interests in a Global
Security, or for maintaining, supervising, or reviewing any records
relating to such beneficial interests.
Secondary trading in notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast,
beneficial interests in a Global Security, in some cases, may trade in
the Depositary's same-day funds settlement system, in which secondary
market trading activity in those beneficial interests would be required
by the Depositary to settle in immediately available funds. There is no
assurance as to the effect, if any, that settlement in immediately
available funds would have on trading activity in such beneficial
interests. Also, settlement for purchases of beneficial interests in a
Global Security upon the original issuance thereof may be required to be
made in immediately available funds.
Payment and Paying Agents
Unless otherwise indicated in the applicable Prospectus
Supplement, payment of interest on a Debt Security on any Interest
Payment Date will be made to the Person in whose name such Debt Security
(or one or more Predecessor Debt Securities) is registered at the close
of business on the Regular Record Date for such interest. (Section 307).
Unless otherwise indicated in the applicable Prospectus
Supplement, principal of and any premium and interest on the Debt
Securities of a particular series will be payable at the office of such
Paying Agent or Paying Agents as the Company may designate for such
purpose from time to time, except that at the option of the Company
payment of any interest may be made by check mailed to the address of
the Person entitled thereto as such address appears in the Security
Register. Unless otherwise indicated in the applicable Prospectus
Supplement, the principal corporate trust office of The Bank of New York
will be designated as the Company's sole Paying Agent for payments with
respect to Debt Securities of each series. Any other Paying Agents
initially designated by the Company for the Debt Securities of a
particular series will be named in the applicable Prospectus Supplement.
The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent or approve a change in the
office through which any Paying Agent acts, except that the Company will
be required to maintain a Paying Agent in each Place of Payment for the
Debt Securities of a particular series. (Section 1002).
All moneys paid by the Company to a Paying Agent for the payment
of the principal of or any premium or interest on any Debt Security
which remain unclaimed at the end of two years after such principal,
premium or interest has become due and payable will be repaid to the
Company, and the Holder of such Debt Security thereafter may look only
to the Company for payment thereof. (Section 1003).
Consolidation, Merger, and Sale of Assets
The Company may not consolidate with or merge into any other
Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and may not permit any
Person to consolidate with or merge into the Company or convey,
transfer, or lease its properties and assets substantially as an
entirety to the Company, unless (i) the successor Person (if any) is a
corporation, partnership, trust or other entity organized and validly
existing under the laws of any domestic jurisdiction and assumes the
Company's obligations on the Debt Securities and under the Indenture,
(ii) immediately after giving effect to the transaction, no Event of
Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be continuing
and (iii) certain other conditions are met. (Section 801).
Events of Default
Each of the following will constitute an Event of Default under
the Indenture with respect to Debt Securities of any series: (a) failure
to pay principal of or any premium on any Debt Security of that series
when due; (b) failure to pay any interest on any Debt Securities of that
series when due, continued for 30 days; (c) failure to deposit any
sinking fund payment, when due, in respect of any Debt Security of that
series; (d) failure to perform any other covenant of the Company in the
Indenture (other than a covenant included in the Indenture solely for
the benefit of a series other than that series), continued for 60 days
after written notice has been given by the Trustee, or the Holders of at
least 10% in principal amount of the Outstanding Debt Securities of that
series, as provided in the Indenture; provided, however, that no notice
by the Trustee to the Holders of such an occurrence shall be given until
at least 30 days after the occurrence of such failure to perform; and
(e) certain events in bankruptcy, insolvency or reorganization. (Section
501).
If an Event of Default (other than an Event of Default described
in clause (e) above) with respect to the Debt Securities of any series
at the time Outstanding shall occur and be continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of
the Outstanding Debt Securities of that series by notice as provided in
the Indenture may declare the principal amount of the Debt Securities of
that series (or, in the case of any Debt Security that is an Original
Issue Discount Security or the principal amount of which is not then
determinable, such portion of the principal amount of such Debt
Security, or such other amount in lieu of such principal amount, as may
be specified in the terms of such Debt Security) to be due and payable
immediately. If an Event of Default described in clause (e) above with
respect to the Debt Securities of any series at the time Outstanding
shall occur, the principal amount of all the Debt Securities of that
series (or, in the case of any such Original Issue Discount Debt
Security or other Debt Security, such specified amount) will
automatically, and without any action by the Trustee or any Holder,
become immediately due and payable. After any such acceleration, but
before a judgment or decree based on acceleration, the Holders of a
majority in aggregate principal amount of the Outstanding Debt
Securities of that series may, under certain circumstances, rescind and
annul such acceleration if all Events of Default, other than the non-
payment of accelerated principal (or other specified amount), have been
cured or waived as provided in the Indenture. (Section 502). For
information as to waiver of defaults, see "Modification and Waiver."
Subject to the provisions of the Indenture relating to the duties
of the Trustee in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request or direction of
any of the Holders, unless such Holders shall have offered to the
Trustee reasonable indemnity. (Section 603). Subject to such provisions
for the indemnification of the Trustee, the Holders of a majority in
principal amount of the Outstanding Debt Securities of any series will
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred on the Trustee, with respect to the Debt
Securities of that series. (Section 512).
No Holder of a Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture, or for the
appointment of a receiver or a trustee, or for any other remedy
thereunder, unless (i) such Holder has previously given to the Trustee
written notice of a continuing Event of Default with respect to the Debt
Securities of that series, (ii) the Holders of at least 25% in aggregate
principal amount of the Outstanding Debt Securities of that series have
made written request, and such Holder or Holders have offered reasonable
indemnity, to the Trustee to institute such proceeding as trustee and
(iii) the Trustee has failed to institute such proceeding, and has not
received from the Holders of a majority in aggregate principal amount of
the Outstanding Debt Securities of that series a direction inconsistent
with such request, within 60 days after such notice, request and offer.
(Section 507). However, such limitations do not apply to a suit
instituted by a Holder of a Debt Security for the enforcement of payment
of the principal of or any premium or interest on such Debt Security on
or after the applicable due date specified in such Debt Security.
(Section 508).
The Company will be required to furnish to the Trustee annually a
statement by certain of its officers as to whether or not the Company,
to their knowledge, is in default in the performance or observance of
any of the terms, provisions and conditions of the Indenture and, if so,
specifying all such known defaults. (Section 1004).
Modification and Waiver
Modifications and amendments of the Indenture 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 Debt
Securities of each series affected by such modification or amendment;
provided, however, that no such modification or amendment may, without
the consent of the Holder of each Outstanding Debt Security affected
thereby, (a) change the Stated Maturity of the principal of, or any
instalment of principal of or interest on, any Debt Security, (b) reduce
the principal amount of, or any premium or interest on, any Debt
Security, (c) reduce the amount of principal of an Original Issue
Discount Security or any other Debt Security payable upon acceleration
of the Maturity thereof, (d) change the place or currency of payment of
principal of, or any premium or interest on, any Debt Security, (e)
impair the right to institute suit for the enforcement of any payment on
or with respect to any Debt Security, (f) modify the subordination
provisions in a manner adverse to the Holders of the Debt Securities,
(g) reduce the percentage in principal amount of Outstanding Debt
Securities of any series, the consent of whose Holders is required for
modification or amendment of the Indenture, (h) reduce the percentage in
principal amount of Outstanding Debt Securities of any series necessary
for waiver of compliance with certain provisions of the Indenture or for
waiver of certain defaults or (i) modify such provisions with respect to
modification and waiver. (Section 902).
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Debt Securities of any series may waive
compliance by the Company with certain restrictive provisions of the
Indenture with respect to such series. (Section 1008). The Holders of a
majority in principal amount of the Outstanding Debt Securities of any
series may waive any past default under the Indenture with respect to
such series, except a default in the payment of principal, premium, or
interest and certain covenants and provisions of the Indenture which
cannot be amended without the consent of the Holder of each Outstanding
Debt Security of such series affected. (Section 513).
The Indenture provides that in determining whether the Holders of
the requisite principal amount of the Outstanding Debt Securities have
given or taken any direction, notice, consent, waiver, or other action
under the Indenture as of any date, (i) the principal amount of an
Original Issue Discount Security that will be deemed to be Outstanding
will be the amount of the principal thereof that would be due and
payable as of such date upon acceleration of the Maturity thereof to
such date, (ii) if, as of such date, the principal amount payable at the
Stated Maturity of a Debt Security is not determinable (for example,
because it is based on an index), the principal amount of such Debt
Security deemed to be Outstanding as of such date will be an amount
determined in the manner prescribed for such Debt Security and (iii) the
principal amount of a Debt Security denominated in one or more foreign
currencies or currency units that will be deemed to be Outstanding will
be the U.S. dollar equivalent, determined as of such date in the manner
prescribed for such Debt Security, of the principal amount of such Debt
Security (or, in the case of a Debt Security described in clause (i) or
(ii) above, of the amount described in such clause). Certain Debt
Securities, including those for whose payment or redemption money has
been deposited or set aside in trust for the Holders and those that have
been fully defeased pursuant to Section 1302, will not be deemed to be
Outstanding. (Section 101).
Except in certain limited circumstances, the Company will be
entitled to set any day as a record date for the purpose of determining
the Holders of Outstanding Debt Securities of any series entitled to
give or take any direction, notice, consent, waiver, or other action
under the Indenture, in the manner and subject to the limitations
provided in the Indenture. In certain limited circumstances, the
Trustee will be entitled to set a record date for action by Holders. If
a record date is set for any action to be taken by Holders of a
particular series, such action may be taken only by persons who are
Holders of Outstanding Debt Securities of that series on the record
date. To be effective, such action must be taken by Holders of the
requisite principal amount of such Debt Securities within a specified
period following the record date. For any particular record date, this
period will be 180 days or such shorter period as may be specified by
the Company (or the Trustee, if it set the record date), and may be
shortened or lengthened (but not beyond 180 days) from time to time.
(Section 104).
Defeasance and Covenant Defeasance
If and to the extent indicated in the applicable Prospectus
Supplement, the Company may elect, at its option at any time, to have
the provisions of Section 1302, relating to defeasance and discharge of
indebtedness, or Section 1303, relating to defeasance of certain
restrictive covenants in the Indenture, applied to the Debt Securities
of any series, or to any specified part of a series. (Section 1301).
Defeasance and Discharge. The Indenture will provide that, upon
the Company's exercise of its option (if any) to have Section 1302
applied to any Debt Securities, the Company will be discharged from all
its obligations with respect to such Debt Securities (except for certain
obligations to exchange or register the transfer of Debt Securities, to
replace stolen, lost or mutilated Debt Securities, to maintain paying
agencies and to hold moneys for payment in trust) upon the deposit in
trust for the benefit of the Holders of such Debt Securities of money or
U.S. Government Obligations, or both, which, through the 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 of such Debt Securities on the
respective Stated Maturities in accordance with the terms of the
Indenture and such Debt Securities. Such defeasance or discharge may
occur only if, among other things, the Company has delivered to the
Trustee an Opinion of Counsel to the effect that the Company has
received from, or there has been published by, the United States
Internal Revenue Service a ruling, or there has been a change in tax
law, in either case to the effect that Holders of such Debt Securities
will not recognize gain or loss for federal income tax purposes as a
result of such deposit, defeasance, and discharge and will be subject to
federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit, defeasance and
discharge were not to occur. (Sections 1302 and 1304).
Defeasance of Certain Covenants. The Indenture provides that,
upon the Company's exercise of its option (if any) to have Section 1303
applied to any Debt Securities, the Company may omit to comply with
certain restrictive covenants that may be described in the applicable
Prospectus Supplement, and the occurrence of certain Events of Default,
which are described above in clause (d) (with respect to such
restrictive covenants) in the first paragraph under "Events of Default"
and any that may be described in the applicable Prospectus Supplement,
will be deemed not to be or result in an Event of Default and the
provisions of the Indenture relating to subordination (if otherwise
applicable) will cease to be effective, in each case with respect to
such Debt Securities. The Company, in order to exercise such option,
will be required to deposit, in trust for the benefit of the Holders of
such Debt Securities, money or U.S. Government Obligations, or both,
which, through the 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
Debt Securities on the respective Stated Maturities in accordance with
the terms of the Indenture and such Debt Securities. The Company will
also be required, among other things, to deliver to the Trustee an
Opinion of Counsel to the effect that Holders of such Debt Securities
will not recognize gain or loss for federal income tax purposes as a
result of such deposit and defeasance of certain obligations and will be
subject to federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such deposit and
defeasance were not to occur. In the event the Company exercised this
option with respect to any Debt Securities and such Debt Securities were
declared due and payable because of the occurrence of any Event of
Default, the amount of money and U.S. Government Obligations so
deposited in trust would be sufficient to pay amounts due on such Debt
Securities at the time of their respective Stated Maturities but may not
be sufficient to pay amounts due on such Debt Securities upon any
acceleration resulting from such Event of Default. In such case, the
Company would remain liable for such payments. (Sections 1303 and 1304).
Notices
Notices to Holders of Debt Securities will be given by mail to the
addresses of such Holders as they may appear in the Security Register.
(Sections 101 and 106).
Title
The Company, the Trustee, and any agent of the Company or the
Trustee may treat the Person in whose name a Debt Security is registered
as the absolute owner thereof (whether or not such Debt Security may be
overdue) for the purpose of making payment and for all other purposes.
(Section 308).
Governing Law
The Indenture and the Debt Securities will be governed by, and
construed in accordance with, the law of the State of New York. (Section
112).
Regarding the Trustee
The Trustee under the Indenture is The Bank of New York. The
Company maintains normal banking arrangements with The Bank of New York.
PLAN OF DISTRIBUTION
The Company will sell the Debt Securities from time to time
through underwriters, dealers or agents in either negotiated or
competitively bid transactions. Any Debt Securities acquired by any
underwriters will be acquired by such underwriters for their own account
and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price, at
market prices prevailing at the time of sale or at varying prices
determined at the time of sale. The underwriter or underwriters with
respect to a particular underwritten offering of Debt Securities will be
named in the Prospectus Supplement relating to such offering and, if an
underwriting syndicate is used, the managing underwriter or underwriters
will be set forth on the cover page of such Prospectus Supplement. The
applicable Prospectus Supplement will also set forth the purchase price
of the Debt Securities offered and the proceeds to the Company from such
sale, any underwriting discounts and other items constituting
underwriters' compensation, any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers and
other specific terms of the particular Securities. Underwriters,
dealers and agents that participate in the distribution of Debt
Securities may be deemed to be underwriters and any discounts or
commissions received by them from the Company and any profit on the
resale of Debt Securities by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933.
Unless otherwise set forth in a Prospectus Supplement, the
obligations of the underwriters to purchase any Debt Securities will be
subject to certain conditions precedent, and the underwriters will be
obligated to purchase all of the particular Debt Securities offered
thereby if any are purchased. Underwriters and dealers may be entitled,
under agreements to be entered into with the Company, to indemnification
against certain civil liabilities, including liabilities under the
Securities Act of 1933.
VALIDITY OF THE DEBT SECURITIES
The validity of the Debt Securities offered hereby will be passed
upon for the Company by Sullivan & Cromwell, New York, New York, and for
the underwriters by Cahill Gordon & Reindel, a partnership including a
professional corporation, New York, New York. On matters of local law,
those firms will rely on Robert R. Winter, Esq., Vice President, Legal
Services of the Company.
EXPERTS
The financial statements incorporated in this Prospectus by
reference to the Annual Report have been so incorporated in reliance on
the reports of Price Waterhouse LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
___________________________________ ___________________________________
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
-----
Investment Considerations................................................................................................. S-2
Recent Developments....................................................................................................... S-3
Use of Proceeds........................................................................................................... S-3
Description of the Series A
Junior Subordinated Debentures.......................................................................................... S-3
United States Taxation.................................................................................................... S-5
Underwriting.............................................................................................................. S-7
PROSPECTUS
Available Information..................................................................................................... 2
Incorporation of Certain Documents by Reference........................................................................... 2
The Company............................................................................................................... 3
Selected Information...................................................................................................... 3
Capitalization............................................................................................................ 4
Income Statement Summary.................................................................................................. 4
Use of Proceeds........................................................................................................... 4
Construction and Financing................................................................................................ 5
Description of Debt Securities............................................................................................ 6
Plan of Distribution...................................................................................................... 17
Validity of the Debt Securities........................................................................................... 18
Experts................................................................................................................... 18
$45,456,500
THE POTOMAC EDISON COMPANY
8% QUARTERLY INCOME DEBT
SECURITIES (QUIDS'sm')
(JUNIOR SUBORDINATED
DEFERRABLE INTEREST
DEBENTURES, SERIES A)
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PROSPECTUS SUPPLEMENT
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GOLDMAN, SACHS & CO.
PRUDENTIAL SECURITIES INCORPORATED
DEAN WITTER REYNOLDS INC.
PAINEWEBBER INCORPORATED
PRYOR, MCCLENDON, COUNTS & CO., INC.
REPRESENTATIVES OF THE UNDERWRITERS
___________________________________ ___________________________________