Filed Pursuant to Rule 424(b)(5)
Registration No. 333-38510
Prospectus Supplement
(To Prospectus Dated June 8, 2000)
$650,000,000
VIRGINIA ELECTRIC AND POWER COMPANY
2002 Series A 5 3/8% Senior Notes Due 2007
[DOMINION LOGO]
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The Senior Notes will bear interest at 5 3/8% per year and will mature on
February 1, 2007. We will pay interest on the Senior Notes on February 1 and
August 1 of each year, beginning August 1, 2002.
We may redeem all or any of the Senior Notes at any time at the make-whole
redemption price described in this prospectus supplement plus accrued interest.
We will not make application to list the Senior Notes on any securities
exchange or to include them in any automated quotation system.
Public Offering Underwriting Proceeds to Company
Price(1) Discount Before Expenses
--------------- ------------ -------------------
Per Senior Note................ 99.559% 0.60% 98.959%
Total.......................... $647,133,500 $3,900,000 $643,233,500
--------
(1) Plus accrued interest from January 30, 2002, if settlement occurs after
that date.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of 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.
The Senior Notes will be ready for delivery in book-entry form through The
Depository Trust Company on or about January 30, 2002.
Credit Suisse First Boston
------------
JPMorgan
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Mizuho International plc SunTrust Robinson Humphrey
Tokyo-Mitsubishi International plc
The date of this Prospectus Supplement is January 24, 2002
ABOUT THIS PROSPECTUS
SUPPLEMENT
This document is in two parts. The first part is the prospectus supplement,
which describes the specific terms of the Senior Notes we are offering and
certain other matters relating to us and our financial condition. The second
part, the base prospectus, gives more general information about securities we
may offer from time to time, some of which does not apply to the Senior Notes
we are offering. Generally, when we refer to the prospectus, we are referring
to both parts of this document combined. If the description of the Senior Notes
in the prospectus supplement differs from the description in the base
prospectus, the description in the prospectus supplement supersedes the
description in the base prospectus.
You should rely only on the information contained in this document or to
which this document refers you. We have not, and the underwriters have not,
authorized anyone to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate as of the date of this
document. Our business, financial condition, results of operations and
prospects may have changed since that date.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
About This Prospectus Supplement........................................... S-2
Where You Can Find More Information........................................ S-3
Forward-Looking Information................................................ S-3
Prospectus Supplement Summary.............................................. S-5
The Company................................................................ S-7
Use of Proceeds............................................................ S-8
Capitalization............................................................. S-9
Ratio of Earnings to Fixed Charges......................................... S-9
Selected Consolidated Financial Information................................ S-10
Description of the Senior Notes............................................ S-11
Book-Entry Procedures and Settlement....................................... S-13
Underwriting............................................................... S-16
Legal Matters.............................................................. S-17
Base Prospectus
Page
----
About This Prospectus.................................................... 2
Where You Can Find More Information...................................... 2
The Company.............................................................. 3
The Trust................................................................ 3
Use of Proceeds.......................................................... 3
Coverage Ratios.......................................................... 3
Description of the Bonds................................................. 4
Description of Debt Securities........................................... 7
Additional Terms of Senior Debt Securities............................... 15
Additional Terms of Junior Subordinated Notes............................ 16
Description of the Trust Preferred Securities............................ 18
Description of the Guarantee............................................. 28
Relationship Among the Trust Preferred Securities, the Guarantee and the
Junior Subordinated Notes Held by the Trust............................. 32
Accounting Treatment..................................................... 32
Description of Preferred Stock........................................... 33
Plan of Distribution..................................................... 33
Legal Opinions........................................................... 34
Experts.................................................................. 34
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WHERE YOU CAN FIND MORE
INFORMATION
We file annual, quarterly, special reports and other information with the
SEC. Our SEC filings are available to the public over the Internet at the SEC's
web site at http://www.sec.gov. You may also read and copy any document we file
at the SEC's public reference rooms in Washington, D.C., New York, and Chicago.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. You may also read and copy these documents at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus supplement and later information that
we file with the SEC will automatically update or supersede this information.
We incorporate by reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934, as amended (the Exchange Act), until such time as all of
the securities covered by this prospectus supplement have been sold:
. Annual Report on Form 10-K for the year ended December 31, 2000.
. Quarterly Reports on Form 10-Q for the quarterly periods ended March 31,
2001, June 30, 2001 and September 30, 2001.
. Current Reports on Form 8-K dated March 26, 2001 and January 18, 2002.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Corporate Secretary
Virginia Electric and Power Company
701 East Cary Street
Richmond, Virginia 23219
Telephone (804) 771-3000
FORWARD-LOOKING
INFORMATION
We have included certain information in this document which is "forward-
looking information" as defined by the Private Securities Litigation Reform Act
of 1995. Examples include discussions as to our expectations, beliefs, plans,
goals, objectives and future financial or other performance or assumptions
concerning matters discussed in this document. This information, by its nature,
involves estimates, projections, forecasts and uncertainties that could cause
actual results or outcomes to differ substantially from those expressed in the
forward-looking statements.
Our business is influenced by many factors that are difficult to predict,
involve uncertainties that may materially affect actual results and are often
beyond our ability to control. We have identified a number of these factors in
our filings with the SEC, including our most recent Quarterly Report on Form
10-Q which is incorporated by reference in this prospectus supplement, and we
refer you to those reports for further information.
Our business and financial condition is influenced by factors including
political and economic risks; market demand for energy; inflation; capital
market conditions; governmental policies, legislative and
S-3
regulatory actions (including those of the Federal Energy Regulatory
Commission, the SEC, the Environmental Protection Agency, the Department of
Energy, the Nuclear Regulatory Commission, and state utility regulatory
commissions in North Carolina and Virginia); industry and rate structure; and
legal and administrative proceedings. Some other important factors that could
cause actual results or outcomes to differ materially from those discussed in
the forward-looking statements include changes in and compliance with
environmental laws and policies; weather conditions and catastrophic weather-
related damage; present or prospective wholesale and retail competition;
electric generation deregulation; the functional separation of our generation,
transmission and distribution businesses; the transfer of control over our
transmission facilities to a regional transmission entity; competition for new
energy development opportunities; pricing and transportation of commodities;
operation of nuclear power facilities; acquisition and disposition of assets
and facilities; exposure to changes in the fair value of commodity contracts;
counterparty credit risk; and unanticipated changes in operating expenses and
capital expenditures. All such factors are difficult to predict, contain
uncertainties that may materially affect actual results, and may be beyond our
control. New factors emerge from time to time, and it is not possible to
predict all such factors, nor can we assess the impact of each such factor on
us.
Any forward-looking statement speaks only as of the date on which it is
made, and we undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which it is made.
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PROSPECTUS SUPPLEMENT
SUMMARY
In this prospectus supplement, the words "Company," "we," "our" and "us"
refer to Virginia Electric and Power Company, a Virginia corporation, and its
subsidiaries.
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 SENIOR NOTES section of this prospectus supplement and the DESCRIPTION
OF DEBT SECURITIES and ADDITIONAL TERMS OF SENIOR DEBT SECURITIES sections of
the base prospectus contain more detailed information regarding the terms and
conditions of the Senior Notes. The following summary is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
prospectus supplement and in the accompanying base prospectus.
THE COMPANY
We are a public utility with a power generation portfolio of more than
18,000 megawatts engaged in the generation, transmission and sale of electric
power within a 30,000 square-mile area in Virginia and northeastern North
Carolina. Operating as Dominion Virginia Power in Virginia and Dominion North
Carolina Power in North Carolina, we serve approximately two million retail
customers and sell electricity at wholesale to rural electric cooperatives,
power marketers, municipalities and other utilities. All of our common stock is
owned by Dominion Resources, Inc., a fully integrated gas and electric holding
company.
Our address and telephone number are: Virginia Electric and Power Company,
701 East Cary Street, Richmond, Virginia 23219, Telephone (804) 771-3000.
Recent Developments
On December 18, 2001, the Virginia State Corporation Commission (Virginia
Commission) ordered us to operate under a plan of functional separation by
division. Under the approved plan, we will maintain our electric transmission
and distribution operations in a regulated division, and will operate our
generation assets in a separate non-regulated division, in keeping with the
Virginia Electric Utility Restructuring Act's provision that deregulates
generation as of January 1, 2002. The order did not permit us to legally
transfer our generation assets into a separate affiliate but left open the
possibility that our generation assets may in the future be placed into a
separate affiliate. On January 17, 2002, we filed a Notice of Appeal with the
Virginia Commission.
In June 1999, the Company and other utilities applied to the Federal Energy
Regulatory Commission for approval to form an independent regional transmission
organization (RTO) operating as the "Alliance." On December 20, 2001, FERC
denied the proposal by the Alliance companies to become an independent RTO and
directed the Alliance companies to explore other possibilities. We are
evaluating the merits of combining the Alliance RTO with another RTO or with
joining another RTO.
Ratio of Earnings to Fixed Charges
Twelve Months
Ended Twelve Months Ended
September 30, December 31,
------------- ------------------------
2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges...... 3.48 3.76 3.50 2.19 3.21 3.14
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THE OFFERING
The Senior Notes
We are offering $650,000,000 aggregate principal amount of the Senior
Notes.
The Senior Notes will be represented by one or more global certificates
that will be deposited with, and registered in the name of, The Depository
Trust Company, New York, New York (DTC) or its nominee. This means that you
will not receive a certificate for your Senior Notes but, instead, will hold
your interest through DTC's system.
Interest Payment Dates
Interest on the Senior Notes will be payable semi-annually in arrears on
February 1 and August 1, commencing on August 1, 2002.
Record Dates
So long as the Senior Notes remain in book-entry only form, the record date
for each Interest Payment Date will be the close of business on the business
day before the applicable Interest Payment Date.
If the Senior Notes are not in book-entry only form, the record date for
each Interest Payment Date will be the close of business on the fifteenth
calendar day (whether or not a business day) before the applicable Interest
Payment Date. In any case, interest payable at maturity or upon redemption will
be payable to the person to whom principal is payable.
Optional Redemption
We may redeem some or all of the Senior Notes at any time at the make-whole
redemption price described in DESCRIPTION OF THE SENIOR NOTES-Optional
Redemption, plus accrued interest to the date of redemption.
The Senior Notes may not be redeemed at any time at the option of their
holders.
Ranking
The Senior Notes rank equally with all our other senior unsecured
indebtedness. The Senior Notes will be effectively subordinated to all our
secured debt, including our first and refunding mortgage bonds, of which there
were approximately $2.1 billion outstanding at December 31, 2001. See USE OF
PROCEEDS for information concerning our intention to exchange or redeem $200
million of these mortgage bonds by February 8, 2002. The Senior Indenture
contains no restrictions on the amount of additional indebtedness that we may
incur. The Senior Notes will not be guaranteed by Dominion Resources, Inc.
No Listing of the Senior Notes
We do not plan to make application to list the Senior Notes on any
securities exchange or to include them in any automated quotation system.
Use of Proceeds
Credit Suisse First Boston Corporation has purchased approximately $116.8
million aggregate principal amount of our 1997 Series A 6 3/4% First and
Refunding Mortgage Bonds that we have called for redemption on February 8,
2002. We have agreed to exchange these mortgage bonds held by Credit Suisse
First Boston Corporation for a portion of the Senior Notes being offered by
this prospectus. We intend to use the remaining net proceeds to repay short-
term and other indebtedness and for general corporate purposes. See USE OF
PROCEEDS in this prospectus supplement.
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THE COMPANY
The Company is a public utility with a power generation portfolio of more
than 18,000 megawatts engaged in the generation, transmission and distribution
of electric power within a 30,000 square-mile area in Virginia and northeastern
North Carolina. We serve approximately two million retail customers and sell
electricity at wholesale to rural electric cooperatives, power marketers,
municipalities and other utilities. All of our common stock is owned by
Dominion Resources, Inc., a fully integrated gas and electric holding company.
The Company transacts business under the name Dominion Virginia Power in
Virginia and Dominion North Carolina Power in North Carolina. The Virginia
service area comprises about 65% of Virginia's total land area, but includes
over 80% of its population. The North Carolina service area is concentrated in
the northeastern region of the state. We also engage in off-system wholesale
purchases and sales of electricity, purchases and sales of natural gas, and are
developing trading relationships beyond the geographic limits of our retail
service territory.
The majority of our revenue is currently provided through bundled rate
tariffs (i.e., no division between generation and transmission and distribution
components). However, deregulation legislation has been enacted in Virginia
that establishes plans to restructure Virginia's electric utility industry and
provides for a phased-in transition to a fully competitive retail electric
market. Since January 1, 2002 the generation portion of our Virginia
jurisdictional operations has not been subject to cost-based rate regulation.
However, we will continue to operate under capped rates through July 2007 and a
fuel cost recovery mechanism will also continue for this period. Also, recovery
of generation-related costs will be provided through a wires charge assessed to
those customers opting for alternate suppliers. If we find it desirable, we may
petition the Virginia Commission to terminate the capped rates before July
2007, but no earlier than January 1, 2004. Capped rates may be terminated in
response to such a petition if the Virginia Commission finds that an
effectively competitive market for generation services exists within our
service territory. In 2001, the Virginia General Assembly approved legislation
clarifying that generation rates for default service will, after the
termination or expiration of capped rate service, be based on competitive
market rates.
Recent Developments
The Virginia deregulation statute also requires separation of electric
generation and electric transmission and distribution operations by January 1,
2002. In order to comply with this statute, we filed a separation plan with the
Virginia Commission that proposed, among other things, to transfer our
generation related assets to a separate legal entity.
On December 18, 2001, the Virginia Commission ordered us to operate under a
plan of functional separation by division. Under the approved plan, we will
maintain our electric transmission and distribution operations in a regulated
division, and will operate our generation assets in a separate non-regulated
division, in keeping with the Virginia Electric Utility Restructuring Act's
provision that deregulated generation as of January 1, 2002. The order did not
permit us to legally transfer our generation assets
S-7
into a separate affiliate but left open the possibility that our generation
assets may in the future be placed into a separate affiliate. On January 17,
2002, we filed a Notice of Appeal with the Virginia Commission.
In June 1999, we and other utilities applied to the Federal Energy
Regulatory Commission for approval to form an independent regional transmission
organization (RTO) operating as the "Alliance." On December 20, 2001, the FERC
denied the proposal of by the Alliance companies to become an independent RTO
and directed the Alliance companies to explore other possibilities. We are
evaluating the merits of combining the Alliance RTO with another RTO or with
joining another RTO.
For additional information about us, see WHERE YOU CAN FIND MORE
INFORMATION in this prospectus supplement.
USE OF PROCEEDS
Credit Suisse First Boston Corporation has purchased approximately $116.8
million aggregate principal amount of our 1997 Series A 6 3/4% First and
Refunding Mortgage Bonds that we have called for redemption on February 8,
2002. We have agreed to exchange the mortgage bonds held by Credit Suisse First
Boston Corporation for a portion of the Senior Notes offered by this
prospectus. The mortgage bonds we receive from Credit Suisse First Boston
Corporation will be retired. We expect to use the remaining net proceeds (after
payment of the underwriting discount and redemption premiums) of approximately
$520 million to redeem the remainder of the mortgage bonds, for general
corporate purposes and to repay other debt. The repayment of other debt may
include a portion of our commercial paper, which at December 31, 2001
aggregated $435.9 million in outstanding principal. The weighted average
maturity date was 21.40 days and the weighted average interest rate was 1.96%.
We may also use a portion of the proceeds to repay approximately $220 million
of our variable rate medium-term notes that mature on March 22, 2002. The
variable interest rate on these notes was 2.053% at December 31, 2001.
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CAPITALIZATION
The table below shows our capitalization on a consolidated basis as of
September 30, 2001. The "As Adjusted" column reflects our capitalization after
giving effect to this offering of Senior Notes, the exchange of a portion of
the Senior Notes for outstanding mortgage bonds held by Credit Suisse First
Boston Corporation and the use of the remaining net proceeds from this
offering. You should read this table along with our audited financial
statements contained in our most recent Annual Report on Form 10-K as well as
the information presented in our Quarterly Reports on Form 10-Q. See WHERE YOU
CAN FIND MORE INFORMATION in this prospectus supplement.
September 30,
2001
---------------
As
Actual Adjusted
------ --------
(in millions)
Short-term debt/1/ ......................................... $ 702 $ 265/2/
Long-term debt/3/:
Mortgage bonds............................................ 1,866 1,666
Senior notes and medium-term notes........................ 1,195 1,845
Tax exempt financings..................................... 598 598
------ ------
Total long-term debt........................................ 3,659 4,109
Obligated mandatorily redeemable preferred securities of
subsidiary trust........................................... 135 135
Preferred stock/4/ ......................................... 509 509
Total common stockholder's equity........................... 3,918 3,918
------ ------
Total capitalization........................................ $8,923 $8,936
====== ======
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/1/Includes securities due within one year.
/2/Adjustment includes $220 million that may be used to repay medium-term notes
maturing in March 2002 and reflects approximately $5.8 million in redemption
call premiums associated with the redemption of our 1997 Series A 6 3/4%
First and Refunding Mortgage Bonds.
/3/Excludes the effect of unamortized discount ($20 million) and deferred gains
on fair value hedges ($6 million).
/4/Does not reflect our redemption of $125 million of variable rate preferred
stock during the fourth quarter of 2001.
RATIO OF EARNINGS TO FIXED CHARGES
Twelve Months Ended Twelve Months Ended
September 30, December 31,
------------------- ------------------------
2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
Ratio of earnings to fixed
charges......................... 3.48 3.76 3.50 2.19 3.21 3.14
For purposes of this ratio, earnings are determined by adding income tax
expense and fixed charges to income from continuing operations before
extraordinary item and cumulative effect of a change in accounting principle.
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.
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SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following summary of financial information for the three years ended
December 31, 2000 was derived from, and you should read it in conjunction with,
the audited financial statements contained in our most recent Annual Report on
Form 10-K. The remaining data is derived from financial statements incorporated
by reference in this prospectus supplement and contained in our Quarterly
Report on Form 10-Q for the period ended September 30, 2001. These financial
statements have not been audited, but, 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. See WHERE YOU CAN FIND MORE INFORMATION in this
prospectus supplement.
Nine Months
Ended
September Year Ended December
30, 31,
------------ --------------------
2001 2000 2000 1999 1998
------ ----- ------ ------ ------
INCOME STATEMENT INFORMATION, for period
ended
Total revenues............................. 3,843 3,651 $4,791 $4,591 $4,280
Income before income taxes, extraordinary
item, and cumulative effect of a change in
accounting principle...................... 694 746 837 743 387
Income before extraordinary item and
cumulative effect of a change in
accounting principle...................... 425 490 558 485 230
Net Income................................. 425 511 579 230 230
BALANCE SHEET INFORMATION, at period end
Cash and cash equivalents.................. 103 141 62
Total assets............................... 13,759 13,331 11,765
Short-term debt/1/ ........................ 702 955 753
Long-term debt............................. 3,645 3,561 3,551
Obligated mandatorily redeemable preferred
securities of subsidiary trust............ 135 135 135
Preferred stock............................ 509 509 509
Total common stockholder's equity.......... 3,918 3,849 3,743
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/1/Includes securities due within one year.
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DESCRIPTION OF THE SENIOR NOTES
Set forth below is a description of the specific terms of the Senior Notes.
This description supplements, and should be read together with, the description
of the general terms and provisions of the Senior Debt Securities set forth in
the accompanying base prospectus under the captions DESCRIPTION OF DEBT
SECURITIES and ADDITIONAL TERMS OF SENIOR DEBT SECURITIES. 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 base
prospectus, the Senior Indenture and the supplemental indenture pertaining to
the Senior Notes. Capitalized terms used in this DESCRIPTION OF THE SENIOR
NOTES that are not defined in this prospectus supplement have the meanings
given to them in the accompanying base prospectus, the Senior Indenture or the
supplemental indenture.
General
The Senior Notes will be issued as a series of Senior Debt Securities under
the Senior Indenture. The Senior Notes will initially be limited in aggregate
principal amount to $650,000,000. We may, without the consent of the holders of
Senior Notes, issue additional notes having the same ranking and the same
interest rate, maturity and other terms as the Senior Notes. Any additional
notes having such similar terms, together with the Senior Notes, will
constitute a single series of notes under the Senior Indenture.
The entire principal amount of the Senior Notes will mature and become due
and payable, together with any accrued and unpaid interest thereon, on February
1, 2007. The Senior Notes are not subject to any sinking fund provision. The
Senior Notes are available for purchase in denominations of $1,000 and any
integral multiple thereof.
Interest
Each Senior Note will bear interest at the rate of 5 3/8% per annum from
the date of original issuance, payable semi-annually in arrears on February 1
and August 1 of each year (each, an Interest Payment Date). The initial
Interest Payment Date is August 1, 2002. The amount of interest payable will be
computed on the basis of a 360-day year of twelve 30-day months. If any date on
which interest is payable on the 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), with the same force and effect as if made on
such date.
So long as the Senior Notes remain in book-entry only form, the record date
for each Interest Payment Date will be the close of business on the business
day before the applicable Interest Payment Date. If the Senior Notes are not in
book-entry only form, the record date for each Interest Payment Date will be
the close of business on the fifteenth calendar day (whether or not a business
day) before the applicable Interest Payment Date. In any case, interest payable
at maturity or upon redemption will be payable to the person to whom principal
is payable.
Ranking
The Senior Notes will be our direct, unsecured and unsubordinated
obligations and will rank equally with all of our other senior unsecured
indebtedness. The Senior
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Notes will be effectively subordinated to all our secured debt, including our
first and refunding mortgage bonds, of which there were approximately $2.1
billion outstanding at December 31, 2001. See USE OF PROCEEDS for information
concerning our intention to exchange or redeem $200 million of these mortgage
bonds by February 8, 2002. The Senior Notes will not be guaranteed by Dominion
Resources, Inc.
The Senior Indenture contains no restrictions on the amount of additional
indebtedness that we may incur.
Optional Redemption
The Senior Notes are redeemable, in whole or in part, at any time, and at
our option, at a redemption price equal to the greater of:
--100% of the principal amount of Senior Notes then outstanding to be
redeemed, or
--the sum of the present values of the remaining scheduled payments of
principal and interest thereon (not including any portion of such payments
of interest accrued as of the Redemption Date) discounted to the
Redemption Date on a semiannual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate, plus 15 basis
points, as calculated by an Independent Investment Banker,
plus, in either of the above cases, accrued and unpaid interest thereon to the
Redemption Date.
We will mail a notice of redemption at least 20 days but no more than 60
days before the Redemption Date to each holder of Senior Notes to be redeemed.
If we elect to partially redeem the Senior Notes, the trustee will select in a
fair and appropriate manner the Senior Notes to be redeemed.
Unless we default in payment of the redemption price, on and after the
Redemption Date, interest will cease to accrue on the Senior Notes or portions
thereof called for redemption.
"Adjusted Treasury Rate" means, with respect to any Redemption Date:
--the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication
which is published weekly by the Board of Governors of the Federal Reserve
System and which establishes yields on actively traded United States
Treasury securities adjusted to constant maturity under the caption
"Treasury Constant Maturities," for the maturity corresponding to the
Comparable Treasury Issue (if no maturity is within three months before or
after the Remaining Life, yields for the two published maturities most
closely corresponding to the Comparable Treasury Issue will be determined
and the Adjusted Treasury Rate will be interpolated or extrapolated from
such yields on a straight line basis, rounding to the nearest month); or
--if such release (or any successor release) is not published during the
week preceding the calculation date or does not contain such yields, the
rate per annum equal to the semi-annual equivalent yield to maturity of
the Comparable Treasury Issue, calculated
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using a price for the Comparable Treasury Issue (expressed as a percentage
of its principal amount) equal to the Comparable Treasury Price for such
Redemption Date.
The Adjusted Treasury Rate will be calculated on the third business day
preceding the Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Senior Notes to be redeemed that would be utilized,
at the time of selection and in accordance with customary financial practice,
in pricing new issues of corporate debt securities of comparable maturity to
the remaining term of such Senior Notes (Remaining Life).
"Comparable Treasury Price" means (1) the average of five Reference
Treasury Dealer Quotations for such Redemption Date, after excluding the
highest and lowest Reference Treasury Dealer Quotations, or (2) if the
Independent Investment Banker obtains fewer than five such Reference Treasury
Dealer Quotations, the average of all such quotations.
"Independent Investment Banker" means Credit Suisse First Boston
Corporation and its successors, or if that firm is unwilling or unable to serve
as such, an independent investment and banking institution of national standing
appointed by us.
"Reference Treasury Dealer" means:
--Credit Suisse First Boston Corporation and its successors; provided that,
if Credit Suisse First Boston Corporation ceases to be a primary U.S.
Government securities dealer in New York City (Primary Treasury Dealer),
we will substitute another Primary Treasury Dealer; and
--up to four other Primary Treasury Dealers selected by us.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined
by the Independent Investment Banker, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Independent Investment Banker at
5:00 p.m., New York City time, on the third business day preceding such
Redemption Date.
The Trustee
The trustee under the Senior Indenture is JPMorgan Chase Bank (formerly
known as The Chase Manhattan Bank). We and certain of our affiliates maintain
deposit accounts and banking relationships with JPMorgan Chase Bank. JPMorgan
Chase Bank also serves as trustee under other indentures under which we and
certain of our affiliates have issued securities. JPMorgan Chase Bank and its
affiliates have purchased, and are likely to purchase in the future, our
securities and securities of our affiliates.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Upon issuance, the Senior Notes will be represented by one or more fully
registered global certificates. Each global certificate will be deposited with
DTC or its custodian and will be registered in the name of DTC or a nominee of
DTC. DTC will thus be the only registered holder of these securities.
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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 Code and a "clearing
agency" registered under the provisions of Section 17A of the Exchange 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 securities within the DTC system must be made by or through
Direct Participants, which will receive a credit for the securities on DTC's
records. The ownership interest of each actual purchaser of securities
(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 securities. Transfers of
ownership interests in the securities 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
securities, unless use of the book-entry system for the securities is
discontinued.
DTC has no knowledge of the actual Beneficial Owners of the securities.
DTC's records reflect only the identity of the Direct Participants to whose
accounts the securities 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.
Although voting with respect to the Senior Notes is limited, in those cases
where a vote is required, neither DTC nor
S-14
Cede and Co. will itself consent or vote. 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 securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Payments on the 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 us, 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 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
securities will not be entitled to receive physical delivery of securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the 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 security.
DTC may discontinue providing its services as securities depositary with
respect to the Senior Notes at any time by giving reasonable notice to us.
Under those circumstances, if a successor securities depositary is not
obtained, securities 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 Senior Notes. In that event, certificates for the 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.
T+4 Settlement
We expect that delivery of the Senior Notes will be made against payment
therefor on or about the delivery date specified on the cover page of this
prospectus supplement, which will be the fourth business day following the date
of pricing of the Senior Notes (this settlement cycle being referred to as
"T+4"). Under Rule 15c6-1 of the SEC under the Exchange Act, trades in the
secondary market generally are required to settle in three business days,
unless the parties to that trade expressly agree otherwise. Accordingly,
purchasers who wish to trade Senior Notes on the date of pricing will be
required, by virtue of the fact that the Senior Notes initially will settle in
T+4, to specify an alternate settlement cycle at the
S-15
time of any such trade to prevent a failed settlement and should consult their
own advisors.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated January 24, 2002 (Underwriting Agreement), the underwriters
named below have agreed to purchase, and we have agreed to sell to them,
severally, the principal amount of the Senior Notes set forth opposite their
names below:
Principal Amount
Name of Senior Notes
---- ----------------
Credit Suisse First Boston Corporation......................... $422,500,000
J.P. Morgan Securities Inc..................................... 130,000,000
Mizuho International plc....................................... 32,500,000
SunTrust Capital Markets, Inc.................................. 32,500,000
Tokyo-Mitsubishi International plc............................. 32,500,000
------------
Total.......................................................... $650,000,000
============
Credit Suisse First Boston Corporation is acting as Representative in
connection with the offering of the Senior Notes.
The Underwriting Agreement provides that the obligations of the several
underwriters to purchase and pay for the Senior Notes are subject to, among
other things, the approval of certain legal matters by their counsel and
certain other conditions. The underwriters are obligated to take and pay for
all of the Senior Notes if any are taken.
Credit Suisse First Boston Corporation has purchased approximately $116.8
million aggregate principal amount of our 1997 Series A 6 3/4% First and
Refunding Mortgage Bonds, due February 1, 2007. On January 8, 2002 we called
these bonds for redemption on February 8, 2002. We have agreed to exchange a
portion of the Senior Notes being offered by this prospectus for these mortgage
bonds held by Credit Suisse First Boston Corporation. Accordingly, Credit
Suisse First Boston Corporation will retain approximately $120 million of the
net proceeds from the sale of the Senior Notes in connection with the exchange
for the mortgage bonds.
Additionally, Credit Suisse First Boston Corporation, and some of the other
underwriters or their affiliates hold and may in the future hold our mortgage
bonds and commercial paper and may receive a portion of the net proceeds of the
offering of the Senior Notes where we use such proceeds to retire or redeem
mortgage bonds or refund commercial paper. See USE OF PROCEEDS. The offering of
the Senior Notes is being made in compliance with the requirements of Rule
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc.
The underwriters initially propose to offer part of the Senior Notes
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of 0.35% of the principal amount of the Senior Notes. Any underwriter
may allow, and any such dealers may reallow, a concession to certain other
dealers not to exceed 0.25% of the principal amount of the Senior Notes. After
the initial offering of the Senior Notes, the offering price and other selling
terms may from time to time be varied by the underwriters.
We estimate that our total offering expenses not including the underwriting
discount will be approximately $300,000.
S-16
We have agreed to indemnify each of the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
We do not intend to apply for listing of the Senior Notes on a national
securities exchange, but have been advised by the underwriters that they intend
to make a market in the Senior Notes. The underwriters are not obligated,
however, to do so and may discontinue their market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the Senior Notes.
In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
. Stabilizing transactions permit bids to purchase the Senior Notes so long as
the stabilizing bids do not exceed a specified maximum.
. Over-allotment transactions involve sales by an underwriter of Senior Notes
in excess of the principal amount of the Senior Notes the underwriter is
obligated to purchase, which creates a syndicate short position.
. Syndicate covering transactions involve purchases of the Senior Notes in the
open market after the distribution has been completed in order to cover
syndicate short positions. A short position is more likely to be created if
an underwriter is concerned that there may be downward pressure on the price
of the Senior Notes in the open market after pricing that could adversely
affect investors who purchase in the offering.
. Penalty bids permit an underwriter to reclaim a selling concession from a
syndicate member when the Senior Notes originally sold by such syndicate
member are purchased in a stabilizing transaction or a syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of the
Senior Notes or preventing or retarding a decline in the market price of the
Senior Notes. As a result, the price of the Senior Notes may be higher than the
price that might otherwise exist in the open market. These transactions, if
commenced, may be discontinued at any time.
In the ordinary course of business, the underwriters and their affiliates
have provided, and continue to provide, financial advisory, investment banking
and general financing and banking services for us and our affiliates for
customary fees.
LEGAL MATTERS
Certain legal matters in connection with the offering of the Senior Notes
will be passed upon for the Company by McGuireWoods LLP and for the
underwriters by Troutman Sanders Mays & Valentine LLP, which also performs
certain legal services for us and our affiliates on other matters.
S-17
Prospectus
VIRGINIA ELECTRIC AND POWER COMPANY
One James River Plaza
701 East Cary Street
Richmond, Virginia 23219
(804) 771-3000
[LOGO OF DOMINION RESOURCES]
$1,500,000,000
Mortgage Bonds
Senior Debt Securities
Junior Subordinated Notes
Trust Preferred Securities and Related Guarantee
Preferred Stock
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is
a criminal offense.
This prospectus is dated June 8, 2000.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission utilizing a shelf registration process.
Under this shelf process, we may, from time to time, sell any combination of
the securities described in this prospectus in one or more offerings up to a
total dollar amount of $1,500,000,000. This prospectus provides you with a
general description of the securities we may offer. Each time we sell
securities, we will provide a prospectus supplement that will contain specific
information about the terms of that offering. Material United States federal
income tax considerations applicable to the offered securities will also be
discussed in the applicable prospectus supplement. The prospectus supplement
may also add, update or change information contained in this prospectus. You
should read both this prospectus and any prospectus supplement together with
additional information described under the heading WHERE YOU CAN FIND MORE
INFORMATION.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and other information with
the SEC. Our SEC filings are available to the public over the Internet at the
SEC's web site at http://www.sec.gov. You may also read and copy any document
we file at the SEC's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. You may also read and copy these
documents at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we sell all of the securities.
. Annual Report on Form 10-K for the year ended December 31, 1999;
. Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Corporate Secretary
Virginia Electric and Power Company
One James River Plaza
701 East Cary Street
Richmond, Virginia 23219
(804) 771-3000
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of those documents.
2
THE COMPANY
Virginia Electric and Power Company is a Virginia corporation with its
principal office located at 701 East Cary Street, Richmond, Virginia 23219.
The telephone number is (804) 771-3000. All of our common stock is held by
Dominion Resources, Inc., a Virginia corporation.
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 TRUST
Virginia Power Capital Trust II is a statutory business trust newly formed
under Delaware law by us, as sponsor for the Trust, and Chase Manhattan Bank
Delaware, who will serve as trustee in the State of Delaware for the purpose
of complying with the provisions of the Delaware Business Trust Act. The trust
agreement for the Trust will be amended and restated substantially in the form
filed as an exhibit to the registration statement, effective when securities
of the Trust are initially issued. The amended trust agreement will be
qualified as an indenture under the Trust Indenture Act of 1939.
The Trust exists for the exclusive purposes of
. issuing two classes of trust securities, Trust Preferred Securities and
trust common securities, which together represent undivided beneficial
interests in the assets of the Trust;
. investing the gross proceeds of the trust securities in our Junior
Subordinated Notes;
. making distributions; and
. engaging in only those other activities necessary, advisable or incidental
to the purposes listed above.
The Junior Subordinated Notes will be the sole asset of the Trust, and our
payments under the Junior Subordinated Notes and the Agreement as to Expenses
and Liabilities will be the sole revenue of the Trust.
No separate financial statements of the Trust are included in this
prospectus. We consider that these financial statements would not be material
to holders of the Trust Preferred Securities because the Trust has no
independent operations and the purposes of the Trust are as described above.
We do not expect that the Trust will be filing annual, quarterly or special
reports with the SEC.
The principal place of business of the Trust will be c/o Virginia Electric
and Power Company, One James River Plaza, 701 East Cary Street, Richmond,
Virginia 23219.
USE OF PROCEEDS
The net proceeds from the sale of the offered securities will be used to
meet a portion of the general capital requirements of the Company and for the
refinancing of other outstanding debt.
COVERAGE RATIOS
The ratio of earnings to fixed charges and ratio of earnings to fixed
charges and
3
preferred stock dividends for each of the periods indicated is as follows:
For the
Twelve
Months
Twelve Months ended Dec. 31, ended
----------------------------- March 31,
1995 1996 1997 1998 1999 2000
----- ----- ----- ----- ----- ---------
Ratio of earnings to fixed charges.... 2.99 3.14 3.21 2.19 3.50 3.61
Ratio of earnings to fixed charges and
preferred stock dividends............ 2.49 2.70 2.75 1.85 2.94 3.01
In the ratio of earnings to fixed charges, earnings are determined by
adding taxes on income and fixed charges to income before extraordinary items.
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.
In the ratio of earnings to fixed charges and preferred stock dividends,
earnings are determined by adding taxes on income, fixed charges, and preferred
stock dividends (grossed-up by a factor of pre-tax net income divided by net
income) to income before extraordinary items. These earnings are then divided
by the sum of total fixed charges and preferred stock dividends (as grossed-
up).
DESCRIPTION OF THE BONDS
We will issue our First and Refunding Mortgage Bonds (Bonds) in one or more
series 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). We have summarized selected provisions of the Mortgage
below. Capitalized terms used in the summary have the meanings specified in the
Mortgage.
General
Unless otherwise provided in the applicable prospectus supplement, we will
issue the Bonds only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof and these 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 we may require payment of a sum sufficient to cover
any stamp tax or other governmental charge. You may transfer and exchange your
Bonds 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
applicable prospectus supplement payable semiannually on the interest payment
dates shown in that prospectus supplement. The Bonds will mature on the date
shown in the applicable 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
4
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.
Provisions of a Particular Series
You should refer to the applicable prospectus supplement for the specific
terms relating to that particular series of Bonds including:
. its specific designation;
. the aggregate principal amount;
. the date or dates on which the series will mature;
. the rate per annum at which the series will bear interest;
. any optional or mandatory redemption provisions allowing the Bonds to be
redeemed at our option or of the holder of the Bonds including the redemption
or repayment dates and the redemption or repayment prices; and
. any other special terms.
Security and Priority
The Bonds will be our secured obligations, together with all other bonds
presently or issued later under the Mortgage. The Bonds will be secured by a
direct lien on all public utility property owned by us 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 after certification,
except upon consent of the holders of 60% in amount of the bonds issued and
outstanding under the Mortgage. (See Sections 4.03 and 4.07 of the Mortgage.)
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 are excluded from the lien. (See
Preamble to the Indenture of Mortgage, Part VIII and Fourteenth Supplemental
Indenture, Part VI.) In case of a merger, consolidation or sale of
substantially all of our assets, the lien may be limited to our system at that
time. (See Sections 8.02, 8.03 and 8.04 of the Mortgage.)
The lien of the Mortgage must be duly recorded and filed, and is 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 caption DESCRIPTION OF THE BONDS, there are no provisions of the
Mortgage which provide holders of the Bonds protection in the event of a highly
leveraged transaction involving our Company. Such a transaction would require
regulatory approval, however, and we believe such approval would be unlikely in
a transaction that would result in our having a highly leveraged capital
structure.
Issuance of Additional Bonds or Other Debt
We may issue additional bonds under the Mortgage of any series from time to
time, but not more in aggregate amount than the amount authorized by our
shareholders (currently $5 billion), on the following bases:
5
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.
a. But no more than 20% of total net earnings may be from nonoperating
income and the aggregate of maintenance and repairs and depreciation
shall be not less than 15% of total operating revenues less the cost of
electricity purchased for resale and resale paid by us for electric
properties for such period.
b. 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
of the Mortgage.)
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 of the Mortgage.)
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 of the Mortgage.)
The Bonds will be issued on the bases set forth above.
The Mortgage does not limit the Company's ability to issue additional
unsecured debt.
Release and Substitution of Security
Property may be released upon filing a Credit Certificate or upon
depositing cash in the amount of the value of the property (which then may be
withdrawn upon filing a Credit Certificate). The Credit Certificate supplies
evidence, between formal certifications under Section 2.03 of the Mortgage,
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 that have not yet been certified are less than the balance of the
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 their
respective political subdivisions 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 of the Mortgage.)
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
6
. 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 of the Mortgage.)
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 the 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. of the Mortgage)
During an event of default, the Trustee must use the same degree of care
and skill as a prudent person in the conduct of their 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 to
be indemnified to its satisfaction. (See Section 7.20 of Indenture of Mortgage
and Third Supplemental Indenture Sections 7.02 and 7.03.) We are required to
report annually to the Trustee that we are not in default under the Mortgage.
(See Third Supplemental Indenture Section 6.03.)
DESCRIPTION OF DEBT SECURITIES
The term Debt Securities includes the Senior Debt Securities and the Junior
Subordinated Notes. We will issue the Senior Debt Securities in one or more
series under our Senior Indenture dated as of June 1, 1998, between us and The
Chase Manhattan Bank as Trustee. We will issue the Junior Subordinated Notes in
one or more series under our Subordinated Note Indenture dated as of August 1,
1995 between us and The Chase Manhattan Bank (formerly Chemical Bank) as
Trustee, as supplemented from time to time. We have summarized selected
provisions of the Indentures below. The Senior Indenture and the Subordinated
Note Indenture are exhibits to the registration statement and you should read
the Indentures for provisions that may be important to you. In the summary
below, we have included references to section numbers of the Indentures so that
you can easily locate these provisions. Capitalized terms used in the summary
have the meanings specified in the Indentures.
General
The Senior Debt Securities will be our direct, unsecured obligations and
will rank equally with all of our other senior and unsubordinated debt. The
Junior Subordinated Notes will be our unsecured obligations and are junior in
right of payment to our Senior Indebtedness, as described under the caption
ADDITIONAL TERMS OF JUNIOR SUBORDINATED NOTES--Subordination.
Our ability to meet our obligations under the Debt Securities is dependent
on our earnings and cash flows. As of April 1, 2000, we have 6.5 million issued
and outstanding shares of Preferred Stock with an aggregate liquidation value
of $656.1 million. In addition to trade debt, we have ongoing corporate debt
programs used to finance our business activities. As of April
7
1, 2000, we had approximately $4.1 billion of outstanding debt.
Neither of the Indentures limits the amount of Debt Securities that we may
issue under it. We may issue Debt Securities from time to time under the
Indentures in one or more series by entering into supplemental indentures or by
our Board of Directors or a duly authorized committee authorizing the issuance.
A form of supplemental indenture to each of the Indentures is an exhibit to the
registration statement.
The Indentures do not protect the holders of Debt Securities if we engage
in a highly leveraged transaction.
Provisions of a Particular Series
The Debt Securities of a series need not be issued at the same time, bear
interest at the same rate or mature on the same date. The prospectus supplement
for a particular series of Debt Securities will specify the terms of that
series, including, if applicable, some or all of the following:
. the title and type of the Debt Securities;
. the total principal amount of the Debt Securities;
. the portion of the principal payable upon acceleration of maturity, if other
than the entire principal;
. the date or dates on which principal is payable or the method for determining
the date or dates, and any right that we have to change the date on which
principal is payable;
. the interest rate or rates, if any, or the method for determining the rate or
rates, and the date or dates from which interest will accrue;
. any interest payment dates and the regular record date for the interest
payable on each interest payment date, if any;
. any payments due if the maturity of the Debt Securities is accelerated;
. any optional redemption terms, or with respect to the Senior Debt Securities,
any repayment terms;
. the obligations, if any, of the Company to redeem or purchase any securities
of the series pursuant to any sinking fund, purchase fund or analogous
provisions or at the option of the Holder thereof and the period or periods
within which, the price or prices at which the terms and conditions upon
which any Securities of the series shall be redeemed or purchased, in whole
or in part, pursuant to such obligation;
. any provisions that would obligate us to repurchase or otherwise redeem the
Debt Securities, or, with respect to the Senior Debt Securities, any sinking
fund provisions;
. the currency in which payments will be made if other than U.S. dollars, and
the manner of determining the equivalent of those amounts in U.S. dollars;
. if payments may be made, at our election or at the holder's election, in a
currency other than that in which the Debt Securities are stated to be
payable, then the currency in which those payments may be made, the terms and
conditions of the election and the manner of determining those amounts;
. any index or formula used for determining principal, interest, or premium, if
any;
. the percentage of the principal amount at which the Debt Securities will be
issued,
8
if other than 100% of the principal amount;
. whether the Debt Securities will be issued in fully registered certificated
form or book-entry form, represented by certificates deposited with, or on
behalf of, a securities depositary and registered in the name of the
depositary's nominee (Book-Entry Debt Securities);
. denominations, if other than $1,000 each or multiples of $1,000;
. any changes to events of defaults or covenants; and
. any other terms of the Debt Securities. (Sections 201 & 301 of the Senior
Indenture & Sections 201 & 301 of the Subordinated Note Indenture)
The prospectus supplement will also indicate any special tax implications
of the Debt Securities and any provisions granting special rights to holders
when a specified event occurs.
Conversion or Redemption
No Debt Security will be subject to conversion, amortization, or
redemption, unless otherwise provided in the applicable prospectus supplement.
Any provisions relating to the conversion or redemption of Debt Securities will
be set forth in the applicable prospectus supplement, including whether
conversion is mandatory or at our option. If no redemption date or redemption
price is indicated with respect to a Debt Security, we may not redeem the Debt
Security prior to Stated Maturity. Debt Securities subject to redemption by us
will be subject to the following terms:
. redeemable on and after the applicable redemption dates;
. redemption dates and redemption prices fixed at the time of sale and set
forth on the Debt Security; and
. redeemable in whole or in part (provided that any remaining principal amount
of the Debt Security will be equal to an authorized denomination) at our
option at the applicable redemption price, together with interest, payable to
the date of redemption, on notice given not less than 30 nor more than 60
days prior to the date of redemption. (Section 1104 of the Senior Indenture &
Section 1104 of the Subordinated Note Indenture.)
We will not be required to:
. issue, register the transfer of, or exchange any Debt Securities of a series
during the period beginning 15 days before the date the notice is mailed
identifying the Debt Securities of that series that have been selected for
redemption; or
. register the transfer of, or exchange any Debt Security of that series
selected for redemption except the unredeemed portion of a Debt Security
being partially redeemed. (Section 305 of the Senior Indenture & Section 303
of the Subordinated Note Indenture.)
Payment and Transfer; Paying Agent
The paying agent will pay the principal of any Debt Securities only if
those Debt Securities are surrendered to it. Unless we state otherwise in the
applicable prospectus supplement, the paying agent will pay principal, interest
and premium, if any, on Debt Securities, subject to such surrender, where
applicable, at its office or, at our option:
. by wire transfer to an account at a banking institution in the United States
9
that is designated in writing to the Trustee prior to the deadline set forth
in the applicable prospectus supplement by the person entitled to that
payment (which in the case of Book-Entry Debt Securities is the securities
depositary or its nominee); or
. by check mailed to the address of the person entitled to that interest as
that address appears in the security register for those Debt Securities.
(Sections 307 & 1001 of the Senior Indenture & Sections 305 and 1001 of the
Subordinated Note Indenture.)
Neither we nor the Trustee 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 Book-Entry Debt Security, or for maintaining,
supervising or reviewing any records relating to the beneficial ownership
interests. We expect that the securities depositary, upon receipt of any
payment of principal, interest or premium, if any, in a Book-Entry Debt
Security, will credit immediately the accounts of the related participants with
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in the Book-Entry Debt Security as shown on the
records of the securities depositary. We also expect that payments by
participants to owners of beneficial interests in a Book-Entry Debt Security
will be governed by standing customer instructions and customary practices, as
is now the case with securities held for the accounts of customers in bearer
form or registered in "street name" and will be the responsibility of the
participants.
Unless we state otherwise in the applicable prospectus supplement, the
Trustee will act as paying agent for the Debt Securities, and the principal
corporate trust office of the Trustee will be the office through which the
paying agent acts. We may, however, change or add paying agents or approve a
change in the office through which a paying agent acts. (Section 1002 of the
Senior Indenture & Section 1002 of the Subordinated Note Indenture.)
Any money that we have paid to a paying agent for principal or interest on
any Debt Securities which remains unclaimed at the end of two years after that
principal or interest has become due will be repaid to us at our request. After
repayment to the Company, holders should look only to us for those payments.
(Section 1003 of the Senior Indenture & Section 1003 of the Subordinated Note
Indenture.)
Fully registered securities may be transferred or exchanged at the
corporate trust office of the Trustee or at any other office or agency we
maintain for those purposes, without the payment of any service charge except
for any tax or governmental charge. (Section 1002 of the Senior Indenture &
Section 1002 of the Subordinated Note Indenture.)
Global Securities
We may issue some or all of the Debt Securities as Book-Entry Debt
Securities. Book-Entry Debt Securities will be represented by one or more fully
registered global certificates. Book-Entry Debt Securities of like tenor and
terms up to $400,000,000 aggregate principal amount may be represented by a
single global certificate. Each global certificate will be deposited and
registered with the securities depositary or its nominee or a custodian for the
securities depositary. Unless it is exchanged in whole or in part for Debt
10
Securities in definitive form, a global certificate may generally be
transferred only as a whole unless it is being transferred to certain nominees
of the depositary. (Section 305 of the Senior Indenture & Section 203 of the
Subordinated Note Indenture.)
Unless otherwise stated in any prospectus supplement, The Depository Trust
Company will act as the securities depositary. Beneficial interests in global
certificates will be shown on, and transfers of global certificates will be
effected only through, records maintained by the securities depositary and its
participants. If there are any additional or differing terms of the depositary
arrangement with respect to the Book-Entry Debt Securities, we will describe
them in the applicable prospectus supplement.
Holders of beneficial interests in Book-Entry Debt Securities represented
by a global certificate are referred to as beneficial owners. Beneficial owners
will be limited to institutions having accounts with the securities depositary
or its nominee, which are called participants in this discussion, and to
persons that hold beneficial interests through participants. When a global
certificate representing Book-Entry Debt Securities is issued, the securities
depositary will credit on its book-entry, registration and transfer system the
principal amounts of Book-Entry Debt Securities the global certificate
represents to the accounts of its participants. Ownership of beneficial
interests in a global certificate will be shown only on, and the transfer of
those ownership interests will be effected only through, records maintained by:
. the securities depositary, with respect to participants' interests; and
. any participant, with respect to interests the participant holds on behalf of
other persons.
As long as the securities depositary or its nominee is the registered
holder of a global certificate representing Book-Entry Debt Securities, that
person will be considered the sole owner and holder of the global certificate
and the Book-Entry Debt Securities it represents for all purposes. Except in
limited circumstances, beneficial owners:
. may not have the global certificate or any Book-Entry Debt Securities it
represents registered in their names;
. may not receive or be entitled to receive physical delivery of certificated
Book-Entry Debt Securities in exchange for the global certificate; and
. will not be considered the owners or holders of the global certificate or any
Book-Entry Debt Securities it represents for any purposes under the Debt
Securities or the Indentures. (Section 202 of the Subordinated Note
Indenture.)
We will make all payments of principal, interest and premium, if any, on a
Book-Entry Debt Security to the securities depositary or its nominee as the
holder of the global certificate. 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 certificate.
Payments participants make to beneficial owners holding interests through
those participants will be the responsibility of those participants. The
securities depositary may from time to time adopt various policies and
procedures governing
11
payments, transfers, exchanges and other matters relating to beneficial
interests in a global certificate. None of the following will have any
responsibility or liability for any aspect of the securities depositary's or
any participant's records relating to beneficial interests in a global
certificate representing Book-Entry Debt Securities, for payments made on
account of those beneficial interests or for maintaining, supervising or
reviewing any records relating to those beneficial interests:
. the Company;
. the Trustee;
. the Trust (only with respect to the Junior Subordinated Notes if the Junior
Subordinated Notes are issued to a Trust); or
. any agent of any of the above.
Covenants
Under the Indentures we will:
. pay the principal, interest and premium, if any, on the Debt Securities when
due;
. maintain a place of payment;
. preserve and keep in full force and effect our corporate existence except as
provided in the Indentures;
. deliver an officer's certificate to the Trustee at the end of each fiscal
year confirming our compliance with our obligations under each of the
Indentures;
. deposit sufficient funds with any paying agent on or before the due date for
any principal, interest or premium, if any; and
. file a written notice with Trustee specifying the amount of original issue
discount (including daily rate and accrual periods) accrued on the
outstanding securities. (Sections 1001, 1002, 1003, 1004, 1005, 1006, 1007
of the Senior Indenture & Sections 1001, 1002, 1003 and 1006 of the
Subordinated Note Indenture.)
Consolidation, Merger or Sale
The Indentures provide that we may consolidate or merge with or into, or
sell all or substantially all of our properties and assets to, another
corporation or other entity, provided that any successor assumes our
obligations under the Indentures and the Debt Securities issued under the
Indentures. We must also deliver an opinion of counsel to the Trustee
affirming our compliance with all conditions in the applicable Indenture
relating to the transaction. When the conditions are satisfied, the successor
will succeed to and be substituted for us under the Senior Indenture, and we
will be relieved of our obligations under the Senior Indenture and the Debt
Securities issued under them. (Sections 801 & 802 of the Senior Indenture &
Sections 801 & 802 of the Subordinated Note Indenture.)
Events of Default
Event of Default when used in each of the Indentures, will mean any of the
following:
. failure to pay the principal or any premium on any Debt Security when due;
. with respect to the Senior Debt Securities, failure to deposit any sinking
fund payment when due that continues for 60 days;
. failure to pay any interest on any Debt Securities of that series, when due,
that continues for 60 days; provided that, if applicable, for this purpose,
the date on which interest is due is the date on which
12
we are required to make payment following any deferral of interest payments
by it under the terms of Junior Subordinated Notes that permit such
deferrals;
. failure to perform any other covenant in the Indentures (other than a
covenant expressly included solely for the benefit of other series) that
continues for 90 days after the Trustee or the holders of at least 33% of the
outstanding Debt Securities (25% in the case of the Junior Subordinated
Notes) of that series give us written notice of the default;
. certain events in bankruptcy, insolvency or reorganization of the Company; or
. any other Event of Default included in the Indentures or any supplemental
indenture. (Section 501 of the Senior Indenture & Section 501 of the
Subordinated Note Indenture.)
In the case of a general covenant default described above, the Trustee may
extend the grace period. In addition, if holders of a particular series have
given a notice of default, then holders of at least the same percentage of Debt
Securities of that series, together with the Trustee, may also extend the grace
period. The grace period will be automatically extended if we have initiated
and are diligently pursuing corrective action.
An Event of Default for a particular series of Debt Securities does not
necessarily constitute an Event of Default for any other series of Debt
Securities issued under the Indentures. Additional events of default may be
established for a particular series and, if established, will be described in
the applicable prospectus supplement.
If an Event of Default for any series of Debt Securities occurs and
continues, the Trustee or the holders of at least 33% (25%, in the case of the
Junior Subordinated Notes) in aggregate principal amount of the Debt Securities
of the series may declare the entire principal of all the Debt Securities of
that series to be due and payable immediately. If this happens, subject to
certain conditions, the holders of a majority of the aggregate principal amount
of the Debt Securities of that series can void the trust agreement. (Section
502 of the Senior Indenture & Section 502 of the Subordinated Note Indenture.)
The Trustee may withhold notice to the holders of Debt Securities of any
default (except in the payment of principal or interest) if it considers the
withholding of notice to be in the best interests of the holders. Other than
its duties in case of a default, a Trustee is not obligated to exercise any of
its rights or powers under the Indentures at the request, order or direction of
any holders, unless the holders offer the Trustee reasonable indemnity. If they
provide this reasonable indemnification, the holders of a majority in principal
amount of any series of Debt Securities may direct the time, method and place
of conducting any proceeding or any remedy available to the Trustee, or
exercising any power conferred upon the Trustee, for any series of Debt
Securities. However, the Trustee shall give the holders of Debt Securities
notice of any default to the extent provided by the Trust Indenture Act.
(Sections 512, 601 & 602 of the Senior Indenture & Sections 512, 601 and 602 of
the Subordinated Note Indenture.)
The holder of any Debt Security will have an absolute and unconditional
right to receive payment of the principal, any
13
premium and, within certain limitations, any interest on that Debt Security on
its maturity date or redemption date and to enforce those payments. (Section
508 of the Senior Indenture & Section 508 of the Subordinated Note Indenture.)
Satisfaction; Discharge
We may discharge all our obligations (except those described below) to
holders of the Debt Securities issued under the Indentures, which Debt
Securities have not already been delivered to the Trustee for cancellation and
which either have become due and payable or are by their terms due and payable
within one year, or are to be called for redemption within one year, by
depositing with the Trustee an amount certified to be sufficient to pay when
due the principal, interest and premium, if any, on all outstanding Debt
Securities. However, certain of our obligations under the Indentures will
survive, including with respect to the following:
. rights of holders to cause us to register the transfer, conversion,
substitution or exchange of Debt Securities of the applicable series;
. rights of holders to receive payments of principal of, and any interest on,
the Debt Securities of the applicable series, and other rights, duties and
obligations of the holders of Debt Securities with respect to any amounts
deposited with the Trustee; and
. the rights, obligations and immunities of the Trustee under the Indentures.
(Section 401 of Senior Indenture & Section 401 of Subordinated Note
Indenture.)
Modification of Indentures; Waiver
Under the Indentures our rights and obligations and the rights of the
holders may be modified with the consent of the holders of a majority in
aggregate principal amount of the outstanding Debt Securities of each series
affected by the modification. No modification of the principal or interest
payment terms, and no modification reducing the percentage required for
modifications, is effective against any holder without its consent. (Section
902 of the Senior Indenture & Section 902 of the Subordinated Note Indenture.)
In addition, we may supplement the Indentures to create new series of Debt
Securities and for certain other purposes, without the consent of any holders
of Debt Securities. (Section 901 of the Senior Indenture & Section 901 of the
Subordinated Note Indenture.)
The holders of a majority of the outstanding Debt Securities of all series
under the applicable Indenture with respect to which a default has occurred and
is continuing may waive a default for all those series, except a default in the
payment of principal or interest, or any premium, on any Debt Securities or a
default with respect to a covenant or provision which cannot be amended or
modified without the consent of the holder of each outstanding Debt Security of
the series affected. (Section 513 of the Senior Indenture & Section 513 of the
Subordinated Note Indenture.)
In addition, under certain circumstances, the holders of a majority of the
outstanding Junior Subordinated Notes of any series may waive in advance, for
that series, our compliance with certain restrictive provisions of the
Subordinated Note Indenture under which those Junior Subordinated Notes were
issued. (Section 1008 of the Subordinated Note Indenture.)
Concerning the Trustee
The Chase Manhattan Bank is the Subordinated Note Indenture Trustee and
14
the Trustee under the Senior Indenture. We and certain of our affiliates
maintain deposit accounts and banking relationships with The Chase Manhattan
Bank. The Chase Manhattan Bank also serves as trustee under other indentures
pursuant to which securities of ours and of certain of our affiliates are
outstanding. It has purchased, and is likely to purchase in the future, our
securities and securities of our affiliates.
The Trustee will perform only those duties that are specifically set forth
in the Indentures unless an event of default under an Indenture occurs and is
continuing. The Trustee is under no obligation to exercise any of its powers
under the Indentures at the request of any holder of Debt Securities unless
that holder offers reasonable indemnity to the Trustee against the costs,
expenses and liabilities which it might incur as a result. (Section 601 of the
Senior Indenture & Section 601 of the Subordinated Note Indenture.)
The Trustee administers its corporate trust business at 450 West 33rd
Street, New York, New York 10001 (Attention: Capital Markets Fiduciary
Services).
ADDITIONAL TERMS OF SENIOR DEBT SECURITIES
Repayment at the Option of the Holder; Repurchases by the Company
Upon execution of the Fourth Supplemental Indenture to the Senior Indenture
dated June 1, 1998, the Company may at its discretion issue Senior Debt
Securities with repayment provisions at the option of the holder. We must repay
the Senior Debt Securities at the option of the Holders prior to the Stated
Maturity Date only if specified in the applicable prospectus supplement. Unless
otherwise provided in the prospectus supplement, the Senior Debt Securities
subject to repayment at the option of the Holder will be subject to repayment:
. on the specified Repayment Dates; and
. at a repayment price equal to 100% of the unpaid principal amount to be
repaid, together with unpaid interest accrued to the Repayment Date.
For any Senior Debt Security to be repaid, the Trustee must receive, at its
office maintained for that purpose in the Borough of Manhattan, New York City
not more than 60 nor less than 30 calendar days prior to the date of repayment:
. in the case of a certificated Senior Debt Security, the certificated Senior
Debt Security and the form in the Senior Debt Security entitled Option of
Holder to Elect Purchase duly completed; or
. in the case of a book-entry Senior Debt Security, instructions to that effect
from the beneficial owner to the securities depositary and forwarded by the
securities depositary. Exercise of the repayment option by the Holder will be
irrevocable.
Only the securities depositary may exercise the repayment option in respect
of beneficial interests in the book-entry Senior Debt Securities. Accordingly,
beneficial owners that desire repayment in respect of all or any portion of
their beneficial interests must instruct the participants through which they
own their interests to direct the securities depositary to exercise the
repayment option on their behalf. All instructions given to participants from
beneficial owners relating to the option to elect repayment will be
irrevocable. In addition, at the time the instructions are given, each
beneficial owner will cause the
15
participant through which it owns its interest to transfer its interest in the
book-entry Senior Debt Securities or the global certificate representing the
related book-entry Senior Debt Securities, on the securities depositary's
records, to the Trustee. See DESCRIPTION OF DEBT SECURITIES--Global Securities.
Defeasance
We will be discharged from our obligations on the Senior Debt Securities of
any series at any time if we deposit with the Trustee sufficient cash or
government securities to pay the principal, interest, any premium and any other
sums due to the stated maturity date or a redemption date of the Senior Debt
Securities of the series. If this happens, the holders of the Senior Debt
Securities of the series will not be entitled to the benefits of the Senior
Indenture except for registration of transfer and exchange of Senior Debt
Securities and replacement of lost, stolen or mutilated Senior Debt Securities.
(Sections 1302 and 1304 of the Senior Indenture.)
Under federal income tax law as of the date of this prospectus, a discharge
may be treated as an exchange of the related Senior Debt Securities. Each
holder might be required to recognize gain or loss equal to the difference
between the holder's cost or other tax basis for the Senior Debt Securities and
the value of the holder's interest in the Trust. Holders might be required to
include as income a different amount than would be includable without the
discharge. We urge prospective investors to consult their own tax advisers as
to the consequences of a discharge, including the applicability and effect of
tax laws other than the federal income tax law.
ADDITIONAL TERMS OF JUNIOR SUBORDINATED NOTES
Additional Covenants Applicable to Junior Subordinated Notes
Under the Subordinated Note Indenture, we will:
. maintain 100% ownership of any trust to which the Junior Subordinated Notes
have been issued, if any, while the Junior Subordinated Notes remain
outstanding; and
. pay to any trust to which the Junior Subordinated Notes have been issued, if
any, any taxes, duties, assessments or governmental charges of whatever
nature (other than withholding taxes) imposed by the United States or any
other taxing authority on the trust, so that the net amounts received and
retained by the trust (after paying any taxes, duties, assessments or other
governmental charges) will be not less than the trust would have received had
no such taxes, duties, assessments or other governmental charges been
imposed. (Sections 303 and 305 of the Subordinated Note Indenture.)
Option to Extend Interest Payment Period
We can defer interest payments by extending the interest payment period for
the number of consecutive extension periods specified in the applicable
prospectus supplement (each, an Extension Period). Other details regarding the
Extension Period will also be specified in the applicable prospectus
supplement. No Extension Period may extend beyond the maturity of the Junior
Subordinated Notes. At the end of the Extension Period(s), we will pay all
interest then accrued and
16
unpaid, together with interest compounded quarterly at the rate for the Junior
Subordinated Notes, to the extent permitted by applicable law. (Section 301 of
the Subordinated Note Indenture.)
During any Extension Period, we will not make distributions related to our
capital stock, including dividends, redemptions, repurchases, liquidation
payments, or guarantee payments. Also we will not make any payments, redeem or
repurchase any Debt Securities of equal or junior rank to the Junior
Subordinated Notes or make any guarantee payments on any such Debt Securities.
We may, however, make the following types of distributions:
. dividends paid in common stock;
. dividends in connection with the implementation of a shareholder rights plan;
. payments to a trust holding securities of the same series under a guarantee;
or
. repurchases, redemptions or other acquisitions of shares of our capital stock
in connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of employees, officers, directors or
consultants.
Subordination
Each series of Junior Subordinated Notes will be subordinate and junior in
right of payment, to the extent set forth in the Subordinated Note Indenture,
to all Senior Indebtedness as defined below. If:
. we make a payment or distribution of any of our assets to creditors upon our
dissolution, winding-up, liquidation or reorganization, whether in
bankruptcy, insolvency or otherwise;
. a default beyond any grace period has occurred and is continuing with respect
to the payment of principal, interest or any other monetary amounts due and
payable on any Senior Indebtedness; or
. the maturity of any Senior Indebtedness has been accelerated because of a
default on that Senior Indebtedness,
then the holders of Senior Indebtedness generally will have the right to
receive payment, in the case of the first instance, of all amounts due or to
become due upon that Senior Indebtedness, and, in the case of the second and
third instances, of all amounts due on that Senior Indebtedness, or we will
make provision for those payments, before the holders of any Junior
Subordinated Notes have the right to receive any payments of principal or
interest on their Junior Subordinated Notes. (Sections 1301 and 1303 of the
Subordinated Note Indenture.)
Senior Indebtedness means, with respect to any series of Junior
Subordinated Notes, the principal, premium, interest and any other payment in
respect of any of the following:
. all of our indebtedness for borrowed or purchased money that is evidenced by
notes, debentures, bonds or other written instruments;
. our obligations for reimbursement under letters of credit, banker's
acceptances, security purchase facilities or similar facilities issued for
our account;
. any of our other indebtedness or obligations with respect to commodity
contracts, interest rate commodity and currency swap agreements and other
similar agreements or arrangements; and
17
. all indebtedness of others of the kinds described in the preceding categories
which we have assumed or guaranteed.
Senior Indebtedness will not include our obligations to trade creditors or
indebtedness. (Section 101 of the Subordinated Note Indenture.)
Senior Indebtedness will be entitled to the benefits of the subordination
provisions in the Subordinated Note Indenture irrespective of the amendment,
modification or waiver of any term of the Senior Indebtedness. We may not amend
the Subordinated Note Indenture to change the subordination of any outstanding
Junior Subordinated Notes without the consent of each holder of Senior
Indebtedness that the amendment would adversely affect. (Section 1308 of the
Subordinated Note Indenture.)
The Subordinated Note Indenture does not limit the amount of Senior
Indebtedness that we may issue.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The following is a summary of the principal terms of the Trust Preferred
Securities. The form of amended trust agreement is filed as an exhibit to the
registration statement of which this prospectus forms a part, or is
incorporated by reference. The terms of the Trust Preferred Securities will
include those stated in the amended trust agreement and those made part of the
amended trust agreement by the Trust Indenture Act.
General
The Trust will exist until terminated as provided in its amended trust
agreement. Except under certain circumstances, we will be entitled to appoint,
remove, or replace trustees, who will conduct the business and affairs of the
Trust. The trustees of the Trust will consist of:
. two employees, officers or affiliates of the Company as Administrative
Trustees;
. a financial institution unaffiliated with us that will act as property
trustee and as indenture trustee for purposes of the Trust Indenture Act,
under the terms set forth in a prospectus supplement (the Property Trustee);
and
. one trustee with its principal place of business or who resides in the State
of Delaware and who will act under the terms set forth in a prospectus
supplement. (Sections 6.1 through 6.5 of the Amended Trust Agreement.)
The amended trust agreement will authorize the Administrative Trustees to
issue, on behalf of the Trust, two classes of trust securities, Trust Preferred
Securities and trust common securities, each of which will have the terms
described in this prospectus and in the applicable prospectus supplement. We
will own all of the trust common securities. The trust common securities will
rank equally in right of payment, and payments will be made on the trust common
securities, proportionately with the Trust Preferred Securities. However, if an
event of default occurs and is continuing under the amended trust agreement,
the rights of the holders of the trust common securities to payment for
distributions and payments upon liquidation, redemption and otherwise, will be
subordinated to the rights of the holders of the Trust Preferred Securities. We
will acquire, directly or indirectly, trust common securities in a total
liquidation amount of approximately 3% of the total capital of the Trust.
(Sections 3.6, 5.1, 5.2 and 7.1 of the Amended Trust Agreement.)
18
The proceeds from the sale of the Trust Preferred Securities will be used
by the Trust to purchase our Junior Subordinated Notes. These Junior
Subordinated Notes will be held in trust by the Property Trustee for the
benefit of the holders of the trust securities. We will guarantee the payments
of distributions and payments on redemption or liquidation with respect to the
Trust Preferred Securities, but only to the extent the Trust has funds
available to make those payments and has not made the payments. See DESCRIPTION
OF THE GUARANTEE.
The assets of the Trust available for distribution to the holders of Trust
Preferred Securities will be limited to payments from us under the Junior
Subordinated Notes held by the Trust. If we fail to make a payment on the
Junior Subordinated Notes, the Trust will not have sufficient funds to make
related payments, including distributions, on its Trust Preferred Securities.
The Guarantee, when taken together with our obligations under the Junior
Subordinated Notes, the Subordinated Note Indenture and the amended trust
agreement, will have the effect of providing a full and unconditional guarantee
of amounts due on the Trust Preferred Securities issued by the Trust.
The Trust Preferred Securities will have the terms, including
distributions, redemption, voting, liquidation rights and other preferred,
deferred or other special rights or restrictions, that will be described in the
amended trust agreement or made part of the amended trust agreement by the
Trust Indenture Act or the Delaware Business Trust Act. The terms of the Trust
Preferred Securities will mirror the terms of the Junior Subordinated Notes
held by the Trust. In other words, the distribution rate and the distribution
payment dates and other payment dates for the Trust Preferred Securities will
correspond to the interest rate and interest payment dates and other payment
dates on the Junior Subordinated Notes. Holders of Trust Preferred Securities
have no preemptive or similar rights. (Section 7.1 of the Amended Trust
Agreement.)
Provisions of a Particular Series
The Trust may issue only one series of Trust Preferred Securities. The
applicable prospectus supplement will set forth the principal terms of the
Trust Preferred Securities that will be offered, including:
. the name of the Trust Preferred Securities;
. the liquidation amount and number of Trust Preferred Securities issued;
. the annual distribution rate(s) or method of determining such rate(s), the
payment date(s) and the record dates used to determine the holders who are to
receive distributions;
. the date from which distributions will be cumulative;
. the optional redemption provisions, if any, including the prices, time
periods and other terms and conditions on which the Trust Preferred
Securities will be purchased or redeemed, in whole or in part;
. the terms and conditions, if any, upon which the Junior Subordinated Notes
and the related Guarantee may be distributed to holders of those Trust
Preferred Securities;
. any securities exchange on which the Trust Preferred Securities will be
listed;
19
. whether the Trust Preferred Securities are to be issued in book-entry form
and represented by one or more global certificates, and if so, the depository
for those global certificates and the specific terms of the depositary
arrangements; and
. any other relevant rights, preferences, privileges, limitations or
restrictions of the Trust Preferred Securities. (Article 7 of the Amended
Trust Agreement.)
The interest rate and interest and other payment dates of each series of
Junior Subordinated Notes issued to the Trust will correspond to the rate at
which distributions will be paid and the distribution and other payment dates
of the Trust Preferred Securities of the Trust.
Extensions
We have the right under the Subordinated Note Indenture to defer payments
of interest on the Junior Subordinated Notes which may be held by the Trust by
extending the interest payment period from time to time on the particular
series of Junior Subordinated Notes. The Administrative Trustees will give the
holders of the Trust Preferred Securities notice of any Extension Period
applicable to the Trust Securities upon their receipt of notice from us. If
distributions are deferred, the deferred distributions and accrued interest
will be paid to holders of record of the Trust Preferred Securities as they
appear on the books and records of the Trust on the record date next following
the termination of such deferral period. See ADDITIONAL TERMS OF JUNIOR
SUBORDINATED NOTES--Option to Extend Interest Payment Period.
Distributions
Distributions on the Trust Preferred Securities will be made on the dates
payable to the extent that the Trust has funds available for the payment of
distributions in the property account. The Trust's funds available for
distribution to the holders of the trust securities will be limited to payments
received from us on the Junior Subordinated Notes. We have guaranteed the
payment of distributions out of monies held by the Trust to the extent set
forth under DESCRIPTION OF THE GUARANTEE.
Distributions on the Trust Preferred Securities will be payable to the
holders named on the securities books and records of the Trust at the close of
business on the relevant record dates, which, as long as the Trust Preferred
Securities remain in book-entry only form, will be one business day prior to
the relevant payment dates. Distributions will be paid through the Property
Trustee who will hold amounts received in respect of the Junior Subordinated
Notes in the Property Account for the benefit of the holders of the trust
securities. In the event that the Trust Preferred Securities do not continue to
remain in book-entry only form, the relevant record dates will conform to the
rules of any securities exchange on which the Trust Preferred Securities are
listed and, if none, the Administrative Trustees will have the right to select
relevant record dates, which will be more than 14 days but less than 60 days
prior to the relevant payment dates. In the event that any date on which
distributions are to be made on the Trust Preferred Securities is not a
business day, then payment of the distributions payable on that date will be
made on the next succeeding day which is a business
20
day and without any interest or other payment in respect of that delay, except
that, if that 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 the record date. (Section 7.2 of the
Amended Trust Agreement.)
Mandatory Redemption of Trust Preferred Securities
The Trust Preferred Securities have no stated maturity date, but will be
redeemed upon the maturity of the Junior Subordinated Notes held by the Trust
or to the extent the Junior Subordinated Notes held by the Trust are redeemed
prior to maturity. The Junior Subordinated Notes will mature on the date
specified in the applicable prospectus supplement and may be redeemed at any
time, in whole but not in part, in certain circumstances upon the occurrence of
a Tax Event or an Investment Company Event as described below under Special
Event Redemption.
Upon the maturity of the Junior Subordinated Notes held by the Trust, the
proceeds of their repayment will simultaneously be applied to redeem all the
outstanding trust securities at the Redemption Price. Upon the redemption of
the Junior Subordinated Notes, held by the Trust either at our option or as a
result of a Tax Event or an Investment Company Event, the proceeds from the
redemption will simultaneously be applied to redeem trust securities having a
total liquidation amount equal to the total principal amount of the Junior
Subordinated Notes held by the Trust so redeemed at the redemption price;
provided, that holders of trust securities will be given not less than 30 nor
more than 60 days' notice of the redemption. In the event that fewer than all
of the outstanding trust securities are to be redeemed, the trust securities
will be redeemed proportionately. (Section 7.3 of the Amended Trust Agreement.)
Special Event Redemption
Both a Tax Event and an Investment Company Act Event constitute Special
Events for purposes of the redemption provisions described in the preceding
paragraph.
A Tax Event means that the Administrative Trustees have received an opinion
of independent tax counsel experienced in those matters to the effect that, as
a result of any amendment to, change or announced proposed change in, the laws
or regulations of the United States or any of its political subdivisions or
taxing authorities, or any official administrative pronouncement, action or
judicial decision interpreting or applying those laws or regulations, which
amendment or change becomes effective or proposed change, pronouncement, action
or decision is announced on or after the date the Trust Preferred Securities
are issued and sold, there is more than an insubstantial risk that:
. the Trust is or within 90 days would be subject to U.S. federal income tax
with respect to income accrued or received on the Junior Subordinated Notes
held by it,
. interest payable to the Trust on the Junior Subordinated Notes held by it is
not or within 90 days would not be deductible, in whole or in part, by us for
U.S. federal income tax purposes, or
. the Trust is or within 90 days would be subject to a material amount of other
taxes, duties or other governmental charges.
21
Investment Company Event means that the Administrative Trustees have
received an opinion of a nationally recognized independent counsel to the
effect that, as a result of an amendment to or change in the Investment Company
Act or regulations thereunder on or after the date the Trust Preferred
Securities are issued and sold, the Trust is or will be considered an
investment company and is required to be registered under the Investment
Company Act. (Section 1.1 of the Amended Trust Agreement.)
Redemption Procedures
The Trust may not redeem fewer than all the outstanding trust securities
unless all accrued and unpaid distributions have been paid on all trust
securities for all distribution periods terminating on or before the date of
redemption. In the event that fewer than all of the outstanding trust
securities are to be redeemed, the trust securities will be redeemed
proportionately.
If the Trust gives a notice of redemption in respect of the trust
securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, and if we have paid to the Property Trustee
a sufficient amount of cash in connection with the related redemption or
maturity of the Junior Subordinated Notes held by it, the Property Trustee will
irrevocably deposit with the depositary funds sufficient to pay the applicable
redemption price and will give the depositary irrevocable instructions and
authority to pay the redemption price to the holders of the Trust Preferred
Securities, and the paying agent will pay the applicable redemption price to
the holders of the trust common securities by check. If notice of redemption
has been given and funds deposited as required, then, immediately prior to the
close of business on the date of the deposit, distributions will cease to
accrue and all rights of holders of Trust Preferred Securities called for
redemption will cease, except the right of the holders of the Trust Preferred
Securities to receive the redemption price but without interest on the
redemption price. In the event that any date fixed for redemption of Trust
Preferred Securities is not a business day, then payment of the redemption
price payable on that date will be made on the next succeeding day that is a
business day, without any interest or other payment in respect of any such
delay, except that, if that business day falls in the next calendar year,
payment will be made on the immediately preceding business day. In the event
that payment of the redemption price in respect of Trust Preferred Securities
is improperly withheld or refused and not paid either by the Trust or by us
under the Guarantee, distributions on the Trust Preferred Securities will
continue to accrue at the then applicable rate from the original redemption
date to the date of payment, in which case the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
redemption price.
Subject to the foregoing and applicable law, including, without limitation,
U.S. federal securities laws, we or our subsidiaries may at any time, and from
time to time, purchase outstanding Trust Preferred Securities by tender, in the
open market or by private agreement. (Section 7.4 of the Amended Trust
Agreement.)
Conversion or Exchange Rights
The terms on which the Trust Preferred Securities are convertible into or
22
exchangeable for common stock or our other securities will be contained in the
applicable prospectus supplement. Those terms will include provisions as to
whether conversion or exchange is mandatory, at the option of the holder or at
our option, and may include provisions under which the number of shares of
common stock or our other securities to be received by the holders of Trust
Preferred Securities would be subject to adjustment.
Distribution of the Junior Subordinated Notes
We will have the right at any time to dissolve the Trust and, after
satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, to cause Junior Subordinated Notes formerly held by the Trust
to be distributed to the holders of the Trust Preferred Securities in a total
stated principal amount equal to the total stated liquidation amount of the
Trust Preferred Securities then outstanding. Prior to any such dissolution, we
will obtain any required regulatory approvals. The right to dissolve the Trust
and distribute the Junior Subordinated Notes will be conditioned on our receipt
of an opinion rendered by an independent tax counsel that the distribution
would not result in the recognition of gain or loss for federal income tax
purposes by the holders. (Section 8.1 of the Amended Trust Agreement.)
Liquidation Distribution Upon Dissolution
The amended trust agreement will state that the Trust will be dissolved:
. upon our bankruptcy;
. upon the filing of a certificate of dissolution or its equivalent with
respect to us;
. upon the filing of a certificate of cancellation with respect to the Trust
after obtaining the consent of at least a majority in liquidation amount of
the Trust Preferred Securities, voting together as a single class;
. 90 days after the revocation of our charter, but only if the charter is not
reinstated during that 90-day period;
. upon the distribution of the related Junior Subordinated Notes formerly held
by the Trust directly to the holders of the trust securities;
. upon the redemption of all of the trust securities; or
. upon entry of a court order for the dissolution of us or the Trust. (Section
8.1 of the Amended Trust Agreement.)
In the event of a dissolution, after the Trust pays all amounts owed to
creditors, the holders of the Trust Preferred Securities will be entitled to
receive:
. cash equal to the total liquidation amount of each Trust Preferred Security
specified in an accompanying prospectus supplement, plus accumulated and
unpaid distributions to the date of payment, or
. Junior Subordinated Notes in a total principal amount equal to the total
liquidation amount of the Trust Preferred Securities.
If the Trust cannot pay the full amount due on its trust securities because
insufficient assets are available for payment, then the amounts payable by the
Trust on its trust securities will be paid proportionately. However, if an
event of default under the related amended trust agreement occurs, the total
amounts due on the Trust Preferred Securities will be paid before any
distribution on the trust common
23
securities. Under certain circumstances involving the dissolution of a Trust,
subject to obtaining any required regulatory approval, Junior Subordinated
Notes will be distributed to the holders of the trust securities in liquidation
of that Trust. (Section 8.2 of the Amended Trust Agreement.)
Trust Enforcement Events
An event of default under the Subordinated Note Indenture relating to the
Junior Subordinated Notes held by the Trust will be an event of default under
the amended trust agreement (a Trust Enforcement Event). See DESCRIPTION OF
DEBT SECURITIES--Events Of Default.
In addition, the voluntary or involuntary dissolution, winding up or
termination of the Trust is also a Trust Enforcement Event, except in
connection with:
. the distribution of the Junior Subordinated Notes formerly held by the Trust
to holders of the trust securities of the Trust,
. the redemption of all of the trust securities of the Trust, and
. mergers, consolidations or amalgamations permitted by the amended trust
agreement of the Trust.
Under the amended trust agreement, the holder of the trust common
securities will be deemed to have waived any Trust Enforcement Event with
respect to the trust common securities until all Trust Enforcement Events with
respect to the Trust Preferred Securities have been cured, waived or otherwise
eliminated. Until all Trust Enforcement Events with respect to the Trust
Preferred Securities have been so cured, waived, or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the holders of
the Trust Preferred Securities and only the holders of the Trust Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the amended trust agreement and the Subordinated Note
Indenture. In the event that any Trust Enforcement Event with respect to the
Trust Preferred Securities is waived by the holders of the Trust Preferred
Securities as provided in the amended trust agreement, under the amended trust
agreement the holders of trust common securities have agreed that the waiver
also constitutes a waiver of the Trust Enforcement Event with respect to the
trust common securities for all purposes under the amended trust agreement
without any further act, vote or consent of the holders of trust common
securities. (Section 2.6 of the Amended Trust Agreement.)
We and the Administrative Trustees must file annually with the Property
Trustee a certificate evidencing compliance with all the applicable conditions
and covenants under the amended trust agreement. (Section 2.4 of the Amended
Trust Agreement.)
Upon the occurrence of a Trust Enforcement Event involving an event of
default under the Subordinated Note Indenture the Property Trustee, as the sole
holder of a particular series of Junior Subordinated Notes, will have the right
under the Subordinated Note Indenture to declare the principal of, interest and
premium, if any, on the Junior Subordinated Notes held by the Trust to be
immediately due and payable.
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If a Property Trustee fails to enforce its rights under the amended trust
agreement or the Subordinated Note Indenture to the fullest extent permitted by
law and subject to the terms of the amended trust agreement and the
Subordinated Note Indenture, any holder of Trust Preferred Securities may sue
us, or seek other remedies, to enforce the Property Trustee's rights under the
amended trust agreement or the Subordinated Note Indenture without first
instituting a legal proceeding against the Property Trustee or any other
person. If a Trust Enforcement Event occurs and is continuing as a result of
our failure to pay principal of or interest or premium, if any, on the Junior
Subordinated Notes held by the Trust when payable, then a holder of the Trust
Preferred Securities may directly sue us or seek other remedies, to collect its
proportionate share of payments owned. See RELATIONSHIP AMONG THE TRUST
PREFERRED SECURITIES, THE GUARANTEE AND THE JUNIOR SUBORDINATED NOTES HELD BY
THE TRUST.
Removal and Replacement of Trustees
Only the holders of trust common securities have the right to remove or
replace the trustees of the Trust, except that while an event of default in
respect of the Junior Subordinated Notes held by the Trust has occurred or is
continuing, the holders of a majority of the Trust Preferred Securities will
have this right. The resignation or removal of any trustee and the appointment
of a successor trustee will be effective only on the acceptance of appointment
by the successor trustee in accordance with the provisions of the amended trust
agreement. (Section 6.6 of the Amended Trust Agreement.)
Mergers, Consolidations or Amalgamations of the Trust
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other corporation or other body (each, a
Merger Event), except as described below. The Trust may, with the consent of a
majority of its Administrative Trustees and without the consent of the holders
of its trust securities, consolidate, amalgamate, merge with or into, or be
replaced by another trust, provided that:
. the successor entity either
. assumes all of the obligations of the Trust relating to its trust
securities, or
. substitutes other securities for the trust securities that are
substantially similar to the trust securities, so long as the successor
securities rank the same as the trust securities for distributions and
payments upon liquidation, redemption and otherwise;
. we acknowledge a trustee of the successor entity who has the same powers and
duties as the Property Trustee of the Trust, as the holder of a particular
series of Junior Subordinated Notes;
. the Trust Preferred Securities are listed, or any successor securities will
be listed, upon notice of issuance, on the same securities exchange or other
organization that the Trust Preferred Securities are then listed;
. the Merger Event does not cause the Trust Preferred Securities or successor
securities to be downgraded by any nationally recognized rating agency;
. the Merger Event does not adversely affect the rights, preferences and
25
privileges of the holders of the trust securities or successor securities in
any material way, other than with respect to any dilution of the holders'
interest in the new entity;
. the successor entity has a purpose identical to that of the Trust;
. prior to the Merger Event, we have received an opinion of counsel from a
nationally recognized law firm stating that
. the Merger Event does not adversely affect the rights of the holders of the
Trust Preferred Securities or any successor securities in any material way,
other than with respect to any dilution of the holders' interest in the new
entity, and
. following the Merger Event, neither the Trust nor the successor entity will
be required to register as an investment company under the Investment
Company Act; and
. we guarantee the obligations of the successor entity under the successor
securities in the same manner as in the Guarantee.
In addition, unless all of the holders of the Trust Preferred Securities
and trust common securities approve otherwise, the Trust will not consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit
any other entity to consolidate, amalgamate, merge with or into, or replace it,
if, in the opinion of a nationally recognized tax counsel experienced in such
matters, the transaction would cause the Trust or the successor entity to be
classified other than as a grantor trust for U.S. federal income tax purposes.
(Section 3.15 of the Amended Trust Agreement.)
Voting Rights; Amendment of Trust Agreement
The holders of Trust Preferred Securities have no voting rights except as
discussed under DESCRIPTION OF THE TRUST PREFERRED SECURITIES--Mergers,
Consolidations Or Amalgamations Of The Trust and DESCRIPTION OF THE GUARANTEE--
Amendments, and as otherwise required by law and the amended trust agreement.
The amended trust agreement may only be amended by a written instrument
approved and executed by the Sponsor and (i) the Administrative Trustees (or,
if there are more than two Administrative Trustees, a majority of the
Administrative Trustees), (ii) the Property Trustee; and (iii) the Delaware
Trustee if the amendment affects the rights, powers, duties, obligations or
immunities of the Delaware Trustee. However, if any proposed amendment provides
for
. any change in the amount or timing of any distribution on the Trust Preferred
Securities or otherwise adversely affects the amount of any distribution
required to be made in respect of the Trust Preferred Securities as of a
specified date, or
. any restriction on the right of a Holder of Trust Preferred Securities to
institute suit for the enforcement of any such payment on or after such date,
then the holders of the Trust Preferred Securities as a single class will be
entitled to vote on the amendment or proposal. In that case, the amendment or
proposal will only be effective if approved by each Holder of the Trust
Preferred Securities affected by the amendment.
26
If any proposed amendment would
. adversely affect the powers, preferences or special rights of the Trust
Preferred Securities, whether by way of amendment to the amended trust
agreement or otherwise, or
. result in the dissolution, winding-up or termination of the Trust other than
under the terms of the amended trust agreement,
then the holders of the Trust Preferred Securities as a single class will be
entitled to vote on the amendment or proposal. In that case, the amendment or
proposal will only be effective if approved by at least a majority in
liquidation amount of the Trust Preferred Securities affected by the amendment
or proposal.
No amendment may be made to an amended trust agreement if that amendment
would:
. cause the Trust to be characterized as other than a grantor trust for U.S.
federal income tax purposes;
. reduce or otherwise adversely affect the powers of the Property Trustee in
contravention of the Trust Indenture Act; or
. cause the Trust to be deemed to be an investment company which is required
to be registered under the Investment Company Act. (Section 11.1 of the
Amended Trust Agreement.)
The holders of a majority of the total liquidation amount of the Trust
Preferred Securities have the right to:
. direct the time, method and place of conducting any proceeding for any
remedy available to the Property Trustee; or
. direct the exercise of any trust or power conferred upon the Property
Trustee under the amended trust agreement, including the right to direct the
Property Trustee, as the holder of a particular series of Junior
Subordinated Notes, to
. exercise the remedies available under the Subordinated Note Indenture with
respect to the Junior Subordinated Notes held by the Trust,
. waive any event of default under the Subordinated Note Indenture that is
waivable, or
. cancel an acceleration of the principal of the Junior Subordinated Notes
held by the Trust.
In addition, before taking any of the foregoing actions, the Property
Trustee must obtain an opinion of counsel stating that, as a result of that
action, the Trust will continue to be classified as a grantor trust for U.S.
federal income tax purposes. (Section 7.5 of the Amended Trust Agreement.)
As described in the form of amended trust agreement, the Property Trustee
may hold a meeting to have holders of Trust Preferred Securities vote on a
change or have them approve a change by written consent.
If a vote by the holders of Trust Preferred Securities is taken or a
consent is obtained, any Trust Preferred Securities owned by us or any of our
affiliates will, for purposes of the vote or consent, be treated as if they
were not outstanding, which will have the following consequences:
27
. we and any of our affiliates will not be able to vote on or consent to
matters requiring the vote or consent of holders of Trust Preferred
Securities; and
. any Trust Preferred Securities owned by us or any of our affiliates will not
be counted in determining whether the required percentage of votes or
consents has been obtained. (Section 7.5 of the Amended Trust Agreement.)
Information Concerning the Property Trustee
For matters relating to compliance with the Trust Indenture Act, the
Property Trustee will have all of the duties and responsibilities of an
indenture trustee under the Trust Indenture Act. The Property Trustee, other
than during the occurrence and continuance of a Trust Enforcement Event,
undertakes to perform only the duties that are specifically described in the
amended trust agreement and, upon a Trust Enforcement Event, must use the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers given it by the
applicable amended trust agreement at the request of any holder of Trust
Preferred Securities unless it is offered reasonable security or indemnity
against the costs, expenses and liabilities that it might incur. (Sections 3.9
and 3.10 of the Amended Trust Agreement.)
Information Concerning the Administrative Trustees
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in a way that:
. will not cause it to be deemed to be an investment company required to be
registered under the Investment Company Act;
. will cause it to be classified as a grantor trust for U.S. federal income tax
purposes; and
. will cause the Junior Subordinated Notes it holds to be treated as our
indebtedness for U.S. federal income tax purposes.
We and the Administrative Trustees are authorized to take any action, so
long as it is consistent with applicable law or the certificate of trust or
amended trust agreement, that we and the Administrative Trustees determine to
be necessary or desirable for those purposes. (Section 3.6 of the Amended Trust
Agreement.)
DESCRIPTION OF THE GUARANTEE
We will execute the Guarantee from time to time for the benefit of the
holders of the Trust Preferred Securities.
The Chase Manhattan Bank will act as Guarantee Trustee under the Guarantee.
The Guarantee Trustee will hold the Guarantee for the benefit of the holders of
the Trust Preferred Securities to which it relates.
The following description of the Guarantee is only a summary. The form of
Guarantee is an exhibit to the registration statement.
General
We will irrevocably and unconditionally agree under the Guarantee to pay
the Guarantee Payments that are defined below, to the extent specified in that
Guarantee, to the holders of the Trust Preferred Securities to which the
Guarantee relates, to the extent that the Guarantee
28
Payments are not paid by or on behalf of the Trust. We are required to pay the
Guarantee Payments to the extent specified in the Guarantee regardless of any
defense, right of set-off or counterclaim that we may have or may assert
against any person. (Section 5.1 of the Guarantee.)
The following payments and distributions on the Trust Preferred Securities
are Guarantee Payments:
. any accrued and unpaid distributions required to be paid on the Trust
Preferred Securities but only to the extent that the Trust has funds legally
and immediately available for those distributions;
. the redemption price for any Trust Preferred Securities that the Trust calls
for redemption, including all accrued and unpaid distributions to the
redemption date, but only to the extent that the Trust has funds legally and
immediately available for the payment; and
. upon a dissolution, winding-up or termination of the Trust, other than in
connection with the distribution of Junior Subordinated Notes to the holders
of Trust Securities or the redemption of all the Trust Preferred Securities,
the lesser of:
. the sum of the liquidation amount and all accrued and unpaid distributions
on the Trust Preferred Securities to the payment date, to the extent that
the Trust has funds legally and immediately available for the payment; and
. the amount of assets of the Trust remaining available for distribution to
holders of the Trust Preferred Securities in liquidation of the Trust.
(Section 1.1 of the Guarantee.)
We may satisfy our obligation to make a Guarantee Payment by making that
payment directly to the holders of the related Trust Preferred Securities or by
causing the Trust to make the payment to those holders. (Section 5.1 of the
Guarantee.)
The Guarantee will be a full and unconditional guarantee, subject to
certain subordination provisions, of the Guarantee Payments with respect to the
related Trust Preferred Securities from the time of issuance of those Trust
Preferred Securities, except that the Guarantee will only apply to the payment
of distributions and other payments on the Trust Preferred Securities when the
Trust has sufficient funds legally and immediately available to make those
distributions or other payments.
If we do not make the required payments on the Junior Subordinated Notes
that the Property Trustee holds under the Trust, the Trust will not make the
related payments on its Trust Preferred Securities.
Subordination
Our obligations under the Guarantee will be unsecured obligations of the
Company. Those obligations will rank:
. subordinate and junior in right of payment to all of our other liabilities,
other than obligations or liabilities that rank equal in priority or
subordinate by their terms;
. equal in priority with the Junior Subordinated Notes that we may issue and
similar guarantees; and
. senior to our common and preferred stock.
We have $139 million in Junior Subordinated Notes outstanding that will
29
rank equal in priority with the Guarantee. We have common and preferred stock
outstanding that will rank junior to the Guarantee.
The Guarantee will be a guarantee of payment and not of collection. This
means that the guaranteed party may institute a legal proceeding directly
against us, as guarantor, to enforce its rights under the Guarantee without
first instituting a legal proceeding against any other person or entity.
(Section 5.4 of the Guarantee.)
The terms of the Trust Preferred Securities will provide that each holder
of the Trust Preferred Securities, by accepting those Trust Preferred
Securities, agrees to the subordination provisions and other terms of the
Guarantee.
Amendments
We may amend the Guarantee without the consent of any holder of the Trust
Preferred Securities if the amendment does not materially and adversely affect
the rights of those holders. We may otherwise amend the Guarantee with the
approval of the holders of at least a majority in liquidation amount of the
outstanding Trust Preferred Securities. (Section 9.2 of the Guarantee.)
Termination
The Guarantee will terminate and be of no further effect when:
. the redemption price of the Trust Preferred Securities to which the Guarantee
relates is fully paid;
. we distribute the related Junior Subordinated Notes to the holders of those
Trust Preferred Securities; or
. the amounts payable upon liquidation of the Trust are fully paid. (Section
7.1 of the Guarantee.)
The Guarantee will remain in effect or will be reinstated if at any time
any holder of the related Trust Preferred Securities must restore payment of
any sums paid to that holder with respect to those Trust Preferred Securities
or under the Guarantee.
Material Covenants
We will covenant that, so long as any Trust Preferred Securities remain
outstanding, if there is an event of default under the Guarantee or the amended
trust agreement:
. we will not make distributions related to our Debt Securities that rank
equally with or junior to the Junior Subordinated Notes held by the Trust,
including any payment of interest, principal or premium, or repayments,
repurchases or redemptions; and
. we will not make distributions related to our capital stock, including
dividends, redemptions, repurchases, liquidation payments, or guarantee
payments.
We may, however, make the following types of distributions:
. dividends paid in common stock;
. dividends in connection with the implementation of a shareholder rights plan;
. payments to a trust holding securities of the same series under a guarantee;
and
. repurchases, redemptions or other acquisitions of shares of our capital stock
in connection with any benefit plan or other similar arrangement with or for
the benefit of employees, officers, directors or consultants. (Section 6.1 of
the Guarantee.)
30
Events of Default
An event of default will occur under the Guarantee if we fail to perform
any of our payment obligations under the Guarantee. The holders of a majority
of the Trust Preferred Securities of any series may waive any such event of
default and its consequences on behalf of all of the holders of the Trust
Preferred Securities of that series. (Section 2.6 of the Guarantee.) The
Guarantee Trustee is entitled to enforce the Guarantee for the benefit of the
holders of the Trust Preferred Securities of a series if an event of default
occurs under the Guarantee. (Section 3.1 of the Guarantee.)
The holders of a majority of the Trust Preferred Securities to which a
Guarantee relates have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee
with respect to the Guarantee or to direct the exercise of any trust or power
that the Guarantee Trustee holds under the Guarantee. Any holder of the related
Trust Preferred Securities may institute a legal proceeding directly against us
to enforce that holder's rights under the Guarantee without first instituting a
legal proceeding against the Guarantee Trustee or any other person or entity.
(Section 5.4 of the Guarantee.)
Concerning the Guarantee Trustee
The Chase Manhattan Bank is the Guarantee Trustee. It is also the Property
Trustee, the Subordinated Note Indenture Trustee and the Senior Indenture
Trustee. We and certain of our affiliates maintain deposit accounts and banking
relationships with The Chase Manhattan Bank. The Chase Manhattan Bank also
serves as trustee under other indentures pursuant to which securities of ours
and certain of our affiliates are outstanding.
The Guarantee Trustee will perform only those duties that are specifically
set forth in each Guarantee unless an event of default under the Guarantee
occurs and is continuing. In case an event of default occurs and is continuing,
the Guarantee Trustee will exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. (Section
3.1 of the Guarantee.) Subject to those provisions, the Guarantee Trustee is
under no obligation to exercise any of its powers under any Guarantee at the
request of any holder of the related Trust Preferred Securities unless that
holder offers reasonable indemnity to the Guarantee Trustee against the costs,
expenses and liabilities which it might incur as a result. (Section 3.2 of the
Guarantee.)
Agreement as to Expenses and Liabilities
We will enter into an Agreement as to Expenses and Liabilities under the
Trust Agreement. The Agreement as to Expenses and Liabilities will provide that
we will, with certain exceptions, irrevocably and unconditionally guarantee the
full payment of any indebtedness, expenses or liabilities of the Trust to each
person or entity to whom the Trust becomes indebted or liable. The exceptions
are the obligations of the Trust to pay to the holders of the related trust
common or other similar interests in the Trust the amounts due to the holders
under the terms of those trust common securities or those similar interests.
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RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE
GUARANTEE AND THE JUNIOR SUBORDINATED NOTES HELD BY THE TRUST
We will guarantee payments of distributions and redemption and liquidation
payments due on the Trust Preferred Securities, to the extent the Trust has
funds available for the payments, to the extent described under DESCRIPTION OF
THE GUARANTEE. No single document executed by us in connection with the
issuance of the Trust Preferred Securities will provide for our full,
irrevocable and unconditional guarantee of the Trust Preferred Securities. It
is only the combined operation of our obligations under the Guarantee, the
amended trust agreement and the Subordinated Note Indenture that has the effect
of providing a full, irrevocable and unconditional guarantee of the Trust's
obligations for the Trust Preferred Securities.
As long as we make payments of interest and other payments when due on the
Junior Subordinated Notes held by the Trust, those payments will be sufficient
to cover the payment of distributions and redemption and liquidation payments
due on the Trust Preferred Securities issued by the Trust, primarily because:
. the total principal amount of the Junior Subordinated Notes held by the Trust
will be equal to the sum of the total liquidation amount of the trust
securities;
. the interest rate and interest and other payment dates on the Junior
Subordinated Notes held by the Trust will match the distribution rate and
distribution and other payment dates for the Trust Preferred Securities;
. we will pay for any and all costs, expenses and liabilities of the Trust
except its obligations under its Trust Preferred Securities; and
. each amended trust agreement will provide that the Trust will not engage in
any activity that is not consistent with the limited purposes of the Trust.
If and to the extent that we do not make payments on the Junior
Subordinated Notes held by the Trust, the Trust will not have funds available
to make payments of distributions or other amounts due on its Trust Preferred
Securities. In those circumstances, you will not be able to rely upon the
Guarantee for payment of these amounts. Instead, you may directly sue us or
seek other remedies to collect your proportionate share of payments owed. If
you sue us to collect payment, then we will assume your rights as a holder of
Trust Preferred Securities under the amended trust agreement to the extent we
make a payment to you in any such legal action.
ACCOUNTING TREATMENT
The Trust will be treated as a subsidiary of ours for financial reporting
purposes. Accordingly, our consolidated financial statements will include the
accounts of the Trust. The Trust Preferred Securities, along with other trust
preferred securities that we guarantee on an equivalent basis, will be
presented as a separate line item in our consolidated balance sheets, and
appropriate disclosures about the Trust Preferred Securities, the Guarantee and
the Junior Subordinated Notes held by the Trust will be included in the notes
to the consolidated financial statements. We will record distributions that
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the Trust pays on the Trust Preferred Securities as an expense in our
consolidated statement of income.
DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of our authorized Preferred Stock. If we
offer Preferred Stock, the specific designations and rights will be described
in the prospectus supplement and a description will be filed with the SEC.
Our Board of Directors can, without approval of shareholders, issue one or
more series of Preferred Stock. The Board can also determine the number of
shares of each series and the rights, preferences and limitations of each
series including the dividend rights, voting rights, conversion rights,
redemption rights and any liquidation preferences of any wholly unissued series
of Preferred Stock, the number of shares constituting each series and the terms
and conditions of issue.
The Preferred Stock will, when issued, be fully paid and non-assessable.
Unless otherwise specified in the applicable prospectus supplement, the
Preferred Stock will rank on a parity in all respects with any outstanding
Preferred Stock we may have and will have priority over our common stock as to
dividends and distributions of assets. Therefore, the rights of any Preferred
Stock that may subsequently be issued may limit the rights of the holders of
our common stock and Preferred Stock.
The transfer agent, registrar, and dividend disbursement agent for a series
of Preferred Stock will be named in a prospectus supplement. The registrar for
shares of Preferred Stock will send notices to shareholders of any meetings at
which holders of the Preferred Stock have the right to elect directors or to
vote on any other matter.
PLAN OF DISTRIBUTION
We may sell the offered securities (a) through agents; (b) through
underwriters or dealers; or (c) directly to one or more purchasers.
By Agents
Offered securities may be sold through agents that we designate. The agents
agree to use their reasonable best efforts to solicit purchases for the period
of their appointment.
By Underwriters
If underwriters are used in the sale, the offered securities will be
acquired by the underwriters for their own account. The underwriters may resell
the securities in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the time of
sale. The obligations of the underwriters to purchase the securities will be
subject to certain conditions. The underwriters will be obligated to purchase
all the securities of the series offered if any of the securities are
purchased. Any initial public offering price and any discounts or concessions
allowed or re-allowed or paid to dealers may be changed from time to time.
Direct Sales
We may also sell offered securities directly. In this case, no underwriters
or agents would be involved.
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General Information
Underwriters, dealers and agents that participate in the distribution of
the offered securities may be underwriters as defined in the Securities Act of
1933 (the Act), and any discounts or commissions received by them from us and
any profit on the resale of the offered securities by them may be treated as
underwriting discounts and commissions under the Act. Any underwriters or
agents will be identified and their compensation described in a prospectus
supplement.
We may have agreements with the underwriters, dealers and agents to
indemnify them against certain civil liabilities, including liabilities under
the Act, or to contribute with respect to payments which the underwriters,
dealers or agents may be required to make.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us or our subsidiaries in the ordinary course of their
businesses.
LEGAL OPINIONS
McGuire, Woods, Battle & Boothe LLP, Richmond Virginia, counsel to the
Company, will issue an opinion about the legality of the offered securities for
us. Certain matters relating to the formation of the Trust and the issuance of
the Trust Preferred Securities under Delaware law and the Trust Agreement will
be passed upon by Richards, Layton & Finger, P.A., special Delaware counsel to
the Trust and the Company. Any underwriters will be advised about other issues
relating to any offering by their own legal counsel.
EXPERTS
The financial statements incorporated in this prospectus by reference from
the Company's Annual Report on Form 10-K for the year ended December 31, 1999
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated by reference, and has been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
Legal conclusions relating to the Company's franchises and title to its
properties in the Company's Annual Report on Form 10-K and legal conclusions
under Description of the Bonds and Description of the Senior Notes and Junior
Subordinated Notes held by the Trust, including limitations upon the Company's
issuance of Bonds, 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 such firms, respectively, as
experts.
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$650,000,000
VIRGINIA ELECTRIC AND POWER COMPANY
2002 Series A 5 3/8% Senior Notes Due 2007
[LOGO OF DOMINION RESOURCES INC.]