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Filed Pursuant to Rule 424(b)(2)
Registration No. 333-39551
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 22, 1998)
$250,000,000
THE WASHINGTON WATER POWER COMPANY
MEDIUM-TERM NOTES, SERIES C
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DUE FROM 9 MONTHS TO 40 YEARS FROM DATE OF ISSUE
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The Washington Water Power Company, a Washington corporation
(the "Company"), may offer from time to time up to $250,000,000
aggregate principal amount of its Medium-Term Notes, Series C
(the "Notes"), on terms determined at the time of sale. Each
Note will mature on a date from 9 months to 40 years from the
issue date as selected by the purchaser and agreed to by the
Company and set forth in the applicable Pricing Supplement. The
authorized denominations of the Notes will be $1,000 and any
larger amount that is an integral multiple of $1,000.
The interest rate on each Note will be either a fixed rate
established by the Company at the date of issue of such Note (a
"Fixed Rate Note") or a floating rate as set forth therein (a
"Floating Rate Note") and will be specified in the applicable
pricing supplement to this Prospectus Supplement (the "Pricing
Supplement"). Any such floating interest rate may be determined
by reference to the prices of certain securities or commodities.
The Interest Payment Dates for each Fixed Rate Note will be April
1 and October 1 of each year. See "Description of the Notes."
The interest rate or interest rate formula, original issue
price, Stated Maturity, Interest Payment Dates, provisions for
redemption of any Note at the option of the Company, provisions
for the redemption or purchase by the Company of any Note at the
option of the Holder and certain other terms with respect to each
Note will be established at the time of issuance and set forth in
the applicable Pricing Supplement. For further information
relating to any Notes, including redemption provisions, if any,
see "Description of the Notes" and the applicable Pricing
Supplement.
Each Note will be represented either by a Global Note
registered in the name of a nominee of The Depository Trust
Company ("DTC"), as depositary (a "Book-Entry Note"), or by a
certificate issued in definitive form (a "Certificated Note"), as
set forth in the applicable Pricing Supplement. Interests in
Global Notes representing Book-Entry Notes will be shown on, and
transfers thereof will be effected only through, records
maintained by the Depositary (with respect to participants'
interests) and its participants. Book-Entry Notes will not be
issuable as Certificated Notes except under the circumstances
described under "Description of the Notes - Book-Entry Only
Issuance - The Depository Trust Company." See "Description of
the Notes."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(2)(3)
--------- -------------- ----------------
Per Note . . . . . 100.000% .125%-.875% 99.125%-99.875%
Total . . . . . . . $250,000,000 $312,500- $247,812,500-
$2,187,500 $249,687,500
------------
(1) Unless otherwise specified in the applicable Pricing Supplement,
the Notes will be sold at 100% of their principal amount. If the
Company issues any Note at a discount from or at a premium over
its principal amount, the Price to Public of any such Note will
be set forth in the applicable Pricing Supplement.
(2) Unless otherwise specified in the applicable Pricing Supplement,
the commission payable to an Agent for each Note sold through
such Agent will range from .125% to .875% of the Price to Public
of such Note. The Company may also sell Notes to an Agent, as
principal, at negotiated discounts, for resale to investors and
other purchasers.
(3) Before deducting expenses payable by the Company estimated at
$520,000.
---------------
Offers to purchase the Notes are being solicited from time to
time by Morgan Stanley & Co. Incorporated, Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc (each individually, an "Agent" and, collectively, the
"Agents"), on behalf of the Company. The Agents have agreed to use
reasonable efforts to solicit purchases of the Notes. The Company may
also sell Notes to an Agent acting as principal for its own account.
In addition, the Company has reserved the right to sell, solicit and
accept offers to purchase Notes on its own behalf. The Company or the
particular Agent may reject any order in whole or in part. The Notes
will not be listed on any securities exchange, and there can be no
assurance that the Notes offered hereby will be sold or that there
will be a secondary market for the Notes. See "Supplemental Plan of
Distribution."
---------------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
APRIL 24, 1998
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN
THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT AND THE ACCOM-
PANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRE-
SENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE AGENTS. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT, ANY PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR
ANY SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT, ANY
PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY NOTES BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE
OF THE NOTES. SPECIFICALLY, THE AGENTS MAY OVERALLOT IN CONNECTION
WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "SUPPLEMENTAL
PLAN OF DISTRIBUTION."
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
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Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Description of the Notes . . . . . . . . . . . . . . . . . . . . S-3
Certain United States Tax Considerations . . . . . . . . . . . . S-16
Supplemental Plan of Distribution . . . . . . . . . . . . . . . . S-21
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
PROSPECTUS
Available Information . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . . . . . . 2
The Washington Water Power Company . . . . . . . . . . . . . . . . 3
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Description of the Debt Securities . . . . . . . . . . . . . . . . 4
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
S-2
USE OF PROCEEDS
The Company intends to use the net proceeds from the issuance and
sale of the Notes for any or all of the following purposes: (a) to
fund a portion of the Company's construction, facility improvement and
maintenance programs (estimated to require $127 million over the
period 1998-2000), (b) to retire one or more outstanding series of its
preferred stock, bonds or long-term notes (estimated to require $122.5
million over such period), (c) to reduce or eliminate outstanding
short-term debt issued for any of these purposes ($80 million at March
31,1998), (d) to reimburse the Company's treasury for funds previously
expended for any of these purposes and (e) for other general corporate
purposes. The Pricing Supplement relating to each Note will indicate
the expected use of the proceeds of such Note.
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes
supplements, and to the extent inconsistent therewith supersedes, the
description of the general terms and provisions of the Debt Securities
set forth under "Description of the Debt Securities" in the
accompanying Prospectus, to which description reference is hereby
made. Certain capitalized terms used herein are defined under
"Description of the Debt Securities" in the accompanying Prospectus.
The particular terms and conditions of the Notes sold pursuant to any
Pricing Supplement to this Prospectus Supplement will be described
therein. The terms and conditions set forth in this "Description of
Notes" will apply to each Note unless otherwise specified in the
applicable Pricing Supplement and in such Note.
GENERAL
The Notes will be issued as a series of debt securities under the
Indenture. The aggregate principal amount of the Notes which may be
authenticated and delivered under the Indenture will not be limited.
The Notes will be issued in fully registered form only, without
coupons. Each Note will be issued initially as either a Book-Entry
Note or a Certificated Note. Except as set forth herein under "--
Book-Entry Only Issuance - The Depository Trust Company" or in any
Pricing Supplement relating to specific Notes, the Notes will not be
issuable as Certificated Notes. The authorized denominations of the
Notes will be $1,000 and any larger amount that is an integral
multiple of $1,000.
Each Note will mature on a Business Day (as defined below) from
nine months to forty years from its date of issue, as selected by the
purchaser and agreed to by the Company. Each Note may also be subject
to redemption at the option of the Company or to redemption or
purchase by the Company at the option of the Holder prior to its
Stated Maturity (as defined below). Each Floating Rate Note will
mature on an Interest Payment Date (as defined below) for such Note.
The Pricing Supplement relating to each Note will describe the
following terms: (a) the date or dates on which the principal of such
Note is payable or the method of determination thereof and the right,
if any, to extend such date or dates; (b) whether such Note is a Fixed
Rate Note or a Floating Rate Note; (c) if such Note is a Fixed Rate
Note, the rate per annum at which such Note will bear interest; (d) if
such Note is a Floating Rate Note, the Base Rate, the Initial Interest
Rate, the Interest Reset Period, the Interest Reset Dates, the Index
Maturity, the Maximum Interest Rate, if any, the Minimum Interest
Rate, if any, the Spread or Spread Multiplier, if any (all as defined
below), and any other terms relating to the particular method of
calculating the interest rate on such Note; (e) the date or dates from
which such interest will accrue on such Note, the Interest Payment
Dates on which such interest shall be payable, the right, if any, of
the Company to defer or extend an Interest Payment Date, and the
Regular Record Date for any interest payable on any Interest Payment
Date and the person or persons to whom interest on such Notes shall be
payable on any Interest Payment Date, if other than the person in
whose name such Note is registered at the close of business on the
Regular Record Date for such interest; (f) the place or places where,
subject to the terms of the Indenture as described in the accompanying
Prospectus under "Description of the Debt Securities -- Payment and
S-3
Paying Agents," the principal of and premium, if any, and interest, if
any, on such Note will be payable and where, subject to the terms of
the Indenture as described in the accompanying Prospectus under
"Description of the Debt Securities -- Registration and Transfer,"
such Note may be presented for registration of transfer or exchange
and the place or places where notices and demands to or upon the
Company in respect of such Note and the Indenture may be served; the
Security Registrar and Paying Agents for such Note; and, if such is
the case, that the principal of such Note shall be payable without
presentation or surrender thereof; (g) any period or periods within,
or date or dates on, which, the price or prices at which and the terms
and conditions upon which such Note may be redeemed, in whole or in
part, at the option of the Company; (h) the obligation or obligations,
if any, of the Company to redeem or purchase such Note or any portion
thereof pursuant to any sinking fund or other mandatory redemption
provisions or at the option of the holder thereof, and the period or
periods within, or date or dates on which, the price or prices at
which, and the terms and conditions upon which such Note shall be
redeemed or purchased, in whole or in part, pursuant to such
obligation, and applicable exceptions to the requirements of a notice
of redemption in the case of mandatory redemption or redemption at the
option of the holder; (i) the denominations in which such Note shall
be issuable if other than denominations of $1,000 and any larger
amount that is an integral multiple of $1,000; and (j) any other terms
of such Note.
"Business Day" with respect to any Note means any day, other than
Saturday or Sunday, which is (a) not a day on which banking
institutions or trust companies in The City of New York, New York or
other city in which is located any office or agency maintained for the
payment of principal of or premium, if any, or interest on such Note,
are authorized or required by law, regulation or executive order to
remain closed and (b) if such Note is a LIBOR Note (as defined below),
a London Banking Day. "London Banking Day" with respect to any Note
means any day on which dealings in deposits in U.S. dollars are
transacted in the London Interbank market.
PAYMENT OF PRINCIPAL AND INTEREST
The interest payable on the Notes on any Interest Payment Date
(other than interest payable at Maturity) will be paid to the Holders
in whose names the Notes are registered as of the Regular Record Date
next preceding such Interest Payment Date, such payment to be made by
check mailed to the addresses appearing in the Note register.
Notwithstanding the foregoing, (a) if the Original Interest Accrual
Date of a Note is after a Regular Record Date and before the
corresponding Interest Payment Date, interest so payable for the
period from and including the Original Interest Accrual Date to but
excluding such Interest Payment Date will be paid on the next
succeeding Interest Payment Date to the Holder of such Note on the
related Regular Record Date; (b) interest payable at Maturity will be
paid to the Person to whom principal is paid; (c) defaulted interest
will be payable as described under "Description of the Debt Securities
- Payment and Paying Agents" in the accompanying Prospectus; (d) if
such Holder is a securities depositary, such payment may be made by
such other means in lieu of check, as shall be agreed upon by the
Company, the Trustee and such Holder; and (e) upon the written request
of a Holder of not less than $10 million in aggregate principal amount
of Notes of the same tranche delivered to the Company and the Paying
Agent at least 10 days prior to any Interest Payment Date, payment of
interest on such Notes to such Holder on such Interest Payment Date
will be made by wire transfer of immediately available funds to an
account maintained within the continental United States specified by
such Holder or, if such Holder maintains an account with the entity
acting as Paying Agent, by deposit into such account.
The principal of and premium, if any, and interest on the Notes
at Maturity will be made upon presentation at the corporate trust
office of the Paying Agent.
The "Regular Record Date" with respect to any Interest Payment
Date for a Fixed Rate Note will be the March 15 or September 15
(whether or not a Business Day) next preceding such Interest Payment
Date; and the "Record Date" with respect to any Interest Payment Date
for a Floating Rate Note will be the date (whether or not a Business
Day) fifteen calendar days next preceding such Interest Payment Date.
Interest rates offered by the Company with respect to the Notes
may differ depending upon, among other things, the aggregate principal
amount of Notes purchased in any transaction. Notes with similar
S-4
variable terms but different interest rates may be offered
concurrently at any time. The Company may also concurrently offer
Notes having different variable terms (as are described herein or in
any applicable Pricing Supplement and Note).
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from its Original
Interest Accrual Date at the rate per annum stated on the face thereof
until the principal amount thereof is paid or duly provided for.
Unless otherwise set forth in the applicable Pricing Supplement,
interest on each Fixed Rate Note will be payable semi-annually in
arrears on each Interest Payment Date and at Maturity. Each payment
of interest in respect of an Interest Payment Date will include
interest accrued through the day before such Interest Payment Date.
Interest on Fixed Rate Notes will be computed on the basis of a 360-
day year of twelve 30-day months.
If, with respect to any Fixed Rate Note, any Interest Payment
Date, any redemption date or the Stated Maturity is not a Business
Day, payment of the amounts due on such Note on such date may be made
on the next succeeding Business Day; and, if such payment is made or
duly provided for on such Business Day, no interest shall accrue on
such amounts for the period from and after such Interest Payment Date,
redemption date or Stated Maturity, as the case may be, to such
Business Day.
FLOATING RATE NOTES
General
Each Floating Rate Note will bear interest from its Original
Interest Accrual Date to the first Interest Reset Date for such Note
at the Initial Interest Rate set forth on the face thereof and in the
applicable Pricing Supplement. Thereafter, the interest rate on such
Note for each Interest Reset Period will be determined by reference to
an interest rate basis (the "Base Rate"), plus or minus the Spread, if
any, and/or multiplied by the Spread Multiplier, if any. The "Spread"
is the number of basis points (one basis point being equal to one one-
hundredth of a percentage point) that may be specified in the
applicable Pricing Supplement as being applicable to such Note, and
the "Spread Multiplier" is the percentage that may be specified in the
applicable Pricing Supplement as being applicable to such Note. The
applicable Pricing Supplement will designate one of the following Base
Rates as applicable to a Floating Rate Note: (i) the CD Rate (a "CD
Rate Note"), (ii) the Constant-Maturity Treasury Rate (a "CMT Rate
Note"), (iii) the Commercial Paper Rate (a "Commercial Paper Rate
Note"), (iv) the Federal Funds Rate (a "Federal Funds Rate Note"), (v)
LIBOR (a "LIBOR Note"), (vi) the Prime Rate (a "Prime Rate Note"),
(vii) the Treasury Rate (a "Treasury Rate Note"), or (viii) such other
Base Rate as is set forth in such Pricing Supplement and in such Note.
As used herein, "H.15(519)" means the publication entitled
"Statistical Release H.15(519)," Selected Interest Rates, or any
successor publication, published by the Board of Governors of the
Federal Reserve System; "Calculation Date," with respect to an
interest determination date, means the earlier of (a) the tenth
calendar day after such interest determination date, or, if such day
is not a Business Day, the next succeeding Business Day, and (b) the
Business Day next preceding the related Interest Payment Date or the
Maturity Date, as the case may be; and "Composite Quotations" means
the daily statistical release entitled "Composite 3:30 p.m. Quotations
for U.S. Government Securities," or any successor release, published
by the Federal Reserve Bank of New York.
As specified in the applicable Pricing Supplement, a Floating
Rate Note may also have either or both of the following (in each case
expressed as a rate per annum on a simple interest basis): (i) a
maximum limitation, or ceiling, on the rate at which interest may
accrue during any interest period ("Maximum Interest Rate") and (ii) a
minimum limitation, or floor, on the rate at which interest may accrue
during any interest period ("Minimum Interest Rate"). In addition to
any Maximum Interest Rate that may be applicable to any Floating Rate
Note, the interest rate on a Floating Rate Note will in no event be
higher than the maximum rate permitted by New York law, as the same
may be modified by U.S. law of general application. Under New York
law currently in effect, a business corporation may not use usury or
the taking of more than the lawful interest rate as a defense to any
proceeding to recover damages on, or enforce payment of, any
obligation executed or effected by such corporation.
S-5
The Company will appoint, and enter into an agreement with, an
agent (the "Calculation Agent") to calculate interest rates on
Floating Rate Notes. Unless otherwise specified in the applicable
Pricing Supplement, The Chase Manhattan Bank will be the Calculation
Agent. All determinations of interest rates by the Calculation Agent
will, in the absence of manifest error, be conclusive for all purposes
and binding on the Holders of the Floating Rate Notes.
The interest rate on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semi-annually or annually (such period
being the "Interest Reset Period" for such Note, and the first day of
each Interest Reset Period being an "Interest Reset Date"), as
specified in the applicable Pricing Supplement; and such interest
rate, as so reset, will be effective as of and for the related
Interest Reset Date and for the balance of the Interest Reset Period
to, but excluding, the next succeeding Interest Reset Date. Unless
otherwise specified in the applicable Pricing Supplement, the Interest
Reset Dates will be, in the case of Floating Rate Notes that reset
daily, each Business Day; in the case of Floating Rate Notes (other
than Treasury Rate Notes) that reset weekly, Wednesday of each week;
in the case of Treasury Rate Notes that reset weekly, Tuesday of each
week (except as provided below under "Treasury Rate Notes"); in the
case of Floating Rate Notes that reset monthly, the third Wednesday of
each month; in the case of Floating Rate Notes that reset quarterly,
the third Wednesday of March, June, September and December of each
year; in the case of Floating Rate Notes that reset semi-annually, the
third Wednesday of the two months of each year specified in the
applicable Pricing Supplement; and, in the case of Floating Rate Notes
that reset annually, the third Wednesday of the month of each year
specified in the applicable Pricing Supplement; provided, however,
that the interest rate in effect for the ten days immediately prior to
Maturity will be that in effect on the tenth day preceding Maturity.
If an Interest Reset Date for any Floating Rate Note would otherwise
be a day that is not a Business Day, such Interest Reset Date will be
postponed to the next succeeding Business Day, except that, in the
case of a LIBOR Note, if such Business Day is in the next succeeding
calendar month, such Interest Reset Date shall be the immediately
preceding Business Day.
Unless otherwise specified in the applicable Pricing Supplement,
interest payments on Floating Rate Notes will be the amount of
interest accrued from and including the last date to which interest
has been paid or duly provided for, or, if no interest has been paid
or duly provided for, from and including the Original Interest Accrual
Date, to but excluding the next succeeding Interest Payment Date;
provided, however, that in the case of a Floating Rate Note that
resets daily or weekly, interest payments will be the amount of
interest accrued from and including the most recent date to which
interest has been paid or duly provided for, or if no interest has
been paid, from the Original Interest Accrual Date, to, but excluding,
the Regular Record Date next preceding such Interest Payment Date,
except that, at Maturity, interest payable will include interest
accrued to but excluding the date of Maturity.
Accrued interest for each Floating Rate Note will be calculated
by multiplying the principal amount of such Note by an accrued
interest factor. Such accrued interest factor will be computed by
adding the interest factors calculated for each day in the Interest
Payment Period for which accrued interest is being calculated. The
interest factor (expressed as a decimal calculated to seven decimal
places without rounding) for each such day is computed by dividing the
interest rate applicable to such day by 360, in the case of CD Rate
Notes, Commercial Paper Rate Notes, Federal Fund Rate Notes, LIBOR
Notes and Prime Rate Notes or by the actual number of days in the
year, in the case of CMT Rate Notes and Treasury Rate Notes. For
purposes of making the foregoing calculation, the interest rate in
effect on any Interest Reset Date will be the applicable rate as reset
on such date. Unless otherwise specified in the applicable Pricing
Supplement, all percentages resulting from any calculation of the rate
of interest on a Floating Rate Note will be rounded, if necessary, to
the nearest 1/100,000 of 1% (.0000001), with five one-millionths of a
percentage point rounded upward, and all dollar amounts used in or
resulting from such calculation will be rounded to the nearest one-
hundredth of a cent (with .005 of a cent being rounded upward).
Unless otherwise indicated in the applicable Pricing Supplement
and except as provided below, interest will be payable, in the case of
Floating Rate Notes that reset daily, weekly or monthly, on the third
Wednesday of each month or on the third Wednesday of March, June,
September and December of each year, as specified in the applicable
Pricing Supplement; in the case of Floating Rate Notes that reset
quarterly, on the third Wednesday of March, June, September and
December of each year; in the case of Floating Rate Notes that reset
semi-annually, on the third Wednesday of the two months of each year
specified in the Pricing Supplement; and in the case of Floating Rate
S-6
Notes that reset annually, on the third Wednesday of the month of each
year specified in the applicable Pricing Supplement (each such day
being an "Interest Payment Date").
If, with respect to any Floating Rate Note, any Interest Payment
Date other than a redemption date or the Stated Maturity is not a
Business Day, such Interest Payment Date will be postponed to the next
succeeding Business Day, except that, if such Note is a LIBOR Note and
such next succeeding Business Day is in the next succeeding calendar
month, such Interest Payment Date will be the next preceding Business
Day. If a redemption date or the Stated Maturity is not a Business
Day, payment of the amounts due on such Note on such date in respect
of principal, premium, if any, and/or interest may be made on the next
succeeding Business Day; and if payment is made or duly provided for
on such Business Day, no interest shall accrue on such amounts for the
period from and after such redemption date or Stated Maturity, as the
case may be, to such Business Day.
CD Rate Notes
Each CD Rate Note will bear interest for each Interest Reset
Period at an interest rate calculated with reference to the CD Rate
and the Spread or Spread Multiplier, if any, and subject to the
Maximum Interest Rate, if any, and the Minimum Interest Rate, if any,
specified in such CD Rate Note and the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
the "CD Rate" for each Interest Reset Period in respect of each CD
Rate Note will be determined by the Calculation Agent on the
Calculation Date and will be (a) the rate (expressed as a percentage
per annum) as of the second Business Day prior to the related Interest
Reset Date (a "CD Rate Determination Date") for negotiable
certificates of deposit having the Index Maturity specified in such CD
Rate Note and the applicable Pricing Supplement as published in
H.15(519) under the heading "CDs (Secondary Market)", or (b) if such
rate is not so published by 9:00 A.M., New York City time, on the
Calculation Date, the rate as of such CD Rate Determination Date for
negotiable certificates of deposit of such Index Maturity as published
in Composite Quotations, or (c) if neither of such rates is published
by 3:00 P.M., New York City time, on the Calculation Date, the
arithmetic mean of the secondary market offered rates as of 10:00
A.M., New York City time, on such CD Rate Determination Date for
certificates of deposit in an amount that is representative of a
single transaction at that time with a remaining maturity closest to
such Index Maturity of three leading nonbank dealers in negotiable
U.S. dollar certificates of deposit in The City of New York selected
by the Calculation Agent, in its discretion (after consultation with
the Company); provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting as described in
clause (c) above, the CD Rate for such Interest Reset Period will be
the same as the CD Rate for the immediately preceding Interest Reset
Period (or, if there was no such previous Interest Reset Period in
respect of such CD Rate Note, the rate of interest on such Note for
such Interest Reset Period shall be the Initial Interest Rate).
CMT Rate Notes
Each CMT Rate Note will bear interest for each Interest Reset
Period at a rate calculated with reference to the CMT Rate and the
Spread or Spread Multiplier, if any, and subject to the Maximum
Interest Rate, if any, and the Minimum Interest Rate, if any,
specified in such CMT Rate Note and the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
the "CMT Rate" for each Interest Reset Period in respect of each CMT
Rate Note will be determined by the Calculation Agent on the
Calculation Date and will be the rate (expressed as a percentage per
annum) displayed on the Designated CMT Telerate Page (as defined
below) under the caption "...Treasury Constant Maturities... Federal
Reserve Board Release H.15...Mondays Approximately 3:45 p.m." under
the column for the Designated CMT Maturity Index (as defined below)
for (a)(i) if the Designated CMT Telerate Page is 7055, the second
Business Day prior to the related Interest Reset Date (a "CMT Rate
Determination Date") or (ii) if the Designated CMT Telerate Page is
7052, the week or the month, as applicable, ended immediately
preceding the week in which such CMT Rate Determination Date occurs,
or (b) if such rate is no longer displayed on the relevant page, or if
not displayed by 3:00 p.m., New York City time on the Calculation
Date, the Treasury Constant Maturity rate for the Designated CMT
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Maturity Index as published in H.15(519), or (c) if such rate is no
longer published or, if not published by 3:00 p.m., New York City
time, on the Calculation Date, the Treasury Constant Maturity rate for
the Designated CMT Maturity Index (or other United States Treasury
rate for the Designated CMT Maturity Index) for such CMT Rate
Determination Date as may then be published by either the Board of
Governors of the Federal Reserve System or the United States
Department of the Treasury that the Calculation Agent determines to be
comparable to the rate formerly displayed on the Designated CMT
Telerate Page and published in H.15(519), or (d) if such information
is not provided by 3:00 p.m., New York City time, on the Calculation
Date, then the CMT Rate for the CMT Rate Determination Date shall be a
yield to maturity, based on the arithmetic mean of the secondary
market closing offer side prices as of approximately 3:30 p.m., New
York City time, on the CMT Rate Determination Date reported, according
to their written records, by three leading primary United States
government securities dealers (each, a "Reference Dealer") in The City
of New York selected by the Calculation Agent (from five such
Reference Dealers selected by the Calculation Agent, in its discretion
(after consultation with the Company), and eliminating the highest
quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)),
for the most recently issued direct noncallable fixed rate obligations
of the United States ("Treasury notes") with an original maturity of
approximately the Designated CMT Maturity Index and a remaining term
to maturity of not less than such Designated CMT Maturity Index minus
one year, or (e) if the Calculation Agent cannot obtain three such
Treasury notes quotations, a yield to maturity based on the arithmetic
mean of the secondary market offer side prices as of approximately
3:30 p.m., New York City time, on the CMT Rate Determination Date of
three Reference Dealers in The City of New York (from five such
Reference Dealers selected by the Calculation Agent, in its discretion
(after consultation with the Company), and eliminating the highest
quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)),
for Treasury notes with an original maturity of the number of years
that is the next highest to the Designated CMT Maturity Index and a
remaining term to maturity closest to the Designated CMT Maturity
Index and in an amount of at least $100 million, or (f) if three or
four (and not five) of such Reference dealers are quoting as described
above, the arithmetic mean of the offer prices obtained without the
elimination of either the highest or the lowest of such quotes;
provided, however, that if fewer than three Reference Dealers selected
by the Calculation Agent are quoting as described above, the CMT Rate
for such Interest Reset Period will be the same as the CMT Rate for
the immediately preceding Interest Reset Period (or, if there was no
such previous Interest Reset Period in respect of such CMT Rate Note,
the rate of interest on such Note for such Interest Reset Period shall
be the Initial Interest Rate). For purposes of clause (e) in the
first sentence of this paragraph, if two Treasury notes have remaining
terms to maturity equally close to the Designated CMT Maturity Index,
the quotes for the Treasury note with the shorter remaining term to
maturity shall be used.
"Designated CMT Maturity Index", with respect to any CMT Rate
Note, will be the original period to maturity of the U.S. Treasury
securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified in
such CMT Rate Note and the applicable Pricing Supplement with respect
to which the CMT Rate will be calculated. If no such maturity is so
specified, the Designated CMT Maturity Index will be 2 years.
"Designated CMT Telerate Page", with respect to any CMT Rate
Note, means the display on the Dow Jones Market service (formerly
known as the Dow Jones Telerate Service) on the page specified in such
CMT Rate Note and the applicable Pricing Supplement (or any other page
that may replace such page on that service, or any successor service,
for the purpose of displaying Treasury Constant Maturities as reported
in H.15(519)), for the purpose of displaying Treasury Constant
Maturities as reported in H.15(519). If no such page is so specified,
the page shall be 7052, for the most recent week.
Commercial Paper Rate Notes
Each Commercial Paper Rate Note will bear interest for each
Interest Reset Period at a rate calculated with reference to the
Commercial Paper Rate and the Spread or Spread Multiplier, if any, and
subject to the Maximum Interest Rate, if any, and the Minimum Interest
Rate, if any, specified in such Commercial Paper Rate Note and the
applicable Pricing Supplement.
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Unless otherwise specified in the applicable Pricing Supplement,
the "Commercial Paper Rate" for each Interest Reset Period in respect
of each Commercial Paper Rate Note will be determined by the
Calculation Agent on the Calculation Date and will be (a) the Money
Market Yield (as hereinafter defined) as of the second Business Day
prior to the related Interest Reset Date (a "Commercial Paper Rate
Determination Date") of the rate (expressed as a percentage per annum)
for commercial paper having the Index Maturity specified in such
Commercial Paper Rate Note and the applicable Pricing Supplement, as
such rate shall be published in H.15(519) (as hereinafter defined)
under the heading "Commercial Paper - Nonfinancial", or (b) if such
rate is not so published prior to 9:00 a.m., New York City time, on
the Calculation Date, the Money Market Yield as of such Commercial
Paper Rate Determination Date of the rate for commercial paper of the
Index Maturity as published in Composite Quotations under the heading
"Commercial Paper", or (c) if none of such rates is published by 3:00
p.m., New York City time, on the Calculation Date, the Money Market
Yield of the arithmetic mean of the offered rates, as of 11:00 a.m.,
New York City time, on such Commercial Paper Rate Determination Date,
of three leading dealers in commercial paper in The City of New York
selected by the Calculation Agent, in its discretion (after
consultation with the Company), for commercial paper of the Index
Maturity placed for a nonfinancial issuer whose bond rating is "AA,"
or the equivalent, from a nationally recognized statistical rating
organization; provided, however, that if the dealers selected as
aforesaid are not quoting offered rates as described in clause (c)
above, the Commercial Paper Rate for such Interest Reset Period will
be deemed to be the same as the Commercial Paper Rate for the
preceding Interest Reset Period (or, if there was no such previous
Interest Reset Period in respect of such Commercial Paper Rate Note,
the rate of interest on such Note for such Interest Reset Period shall
be the Initial Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance
with the following formula:
Money Market Yield = D x 360 x 100
---------------
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper
quoted on a bank discount basis and expressed as a decimal, and "M"
refers to the actual number of days in the Index Maturity specified in
such Commercial Paper Rate Note and the applicable Pricing Supplement.
Federal Funds Rate Notes
Each Federal Funds Rate Note will bear interest for each Interest
Reset Period at a rate calculated with reference to the Federal Funds
Rate and the Spread or Spread Multiplier, if any, and subject to the
Maximum Interest Rate, if any, and the Minimum Interest Rate, if any,
specified in such Federal Funds Rate Note and the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
the "Federal Funds Rate" for each Interest Reset Period in respect of
each Federal Funds Rate Note will be determined by the Calculation
Agent on the Calculation Date and will be (a) the rate (expressed as a
percentage per annum) as of the second Business Day prior to the
related Interest Reset Date (a "Federal Funds Rate Determination
Date") for Federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)", or (b) if such rate is not so published
by 9:00 A.M., New York City time, on the Calculation Date, the rate on
such Federal Funds Rate Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate", or (c) if
neither of such rates is published by 3:00 P.M., New York City time,
on the Calculation Date, the arithmetic mean of the rates for the last
transaction in overnight Federal funds as of 11:00 A.M., New York City
time, on such Federal Funds Rate Determination Date arranged by three
leading brokers in Federal Funds transactions in The City of New York
selected by the Calculation Agent, in its discretion (after
consultation with the Company); provided, however, that if the brokers
selected as aforesaid by the Calculation Agent are not quoting as
described in clause (c) above, the Federal Funds Rate for such
Interest Reset Period will be the same as the Federal Funds Rate for
the immediately preceding Interest Reset Period (or, if there was no
such previous Interest Reset Period in respect of such Federal Funds
Rate Note, the rate of interest on such Note for such Interest Reset
Period will be the Initial Interest Rate).
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LIBOR Notes
Each LIBOR Note will bear interest for each Interest Reset Period
at a rate calculated with reference to LIBOR and the Spread or Spread
Multiplier, if any, and subject to the Maximum Interest Rate, if any,
and the Minimum Interest Rate, if any, specified in such LIBOR Note
and the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" for each Interest Reset Period will be determined by the
Calculation Agent and will be:
(a)(i) if "LIBOR Reuters" is specified in such Note and
the applicable Pricing Supplement as the Reporting Service, the
arithmetic mean of the offered rates (unless the specified
Designated LIBOR Page (as hereinafter defined) by its terms
provides only for a single rate, in which case such single rate
shall be used) for deposits in the Index Currency specified in
such LIBOR Note and the applicable Pricing Supplement in the
London interbank market, for the period of the Index Maturity so
specified commencing on the related Interest Reset Date for such
Interest Reset Period, which appear or appears on the Designated
LIBOR Page at approximately 11:00 a.m., London time, on the
second London Banking Day (as defined above) prior to such
Interest Reset Date (a "LIBOR Determination Date"), or (ii) if
"LIBOR Telerate" is specified in such Note and the applicable
Pricing Supplement as the Reporting Service, the rate for
deposits in the Index Currency, for the period of such Index
Maturity commencing on such Interest Reset Date (or, if the pound
sterling is the Index Currency, commencing on the LIBOR
Determination Date), that appears on the Designated LIBOR Page at
approximately 11:00 a.m., London time, on such LIBOR
Determination Date;
(b) with respect to a LIBOR Determination Date on which
fewer than two offered rates appear (if "LIBOR Reuters" is
specified in such Note as the Reporting Service and calculation
of LIBOR is based on the arithmetic mean of the offered rates) or
on which no rate appears (if the Reporting Service specified in
such Note and the applicable Pricing Supplement is either (x)
"LIBOR Reuters" and the Designated LIBOR Page by its terms
provides only for a single rate or (y) "LIBOR Telerate"), the
Calculation Agent shall request the principal London office of
each of four major reference banks in the London interbank market
selected by the Calculation Agent, in its discretion (after
consultation with the Company), to provide the Calculation Agent
with its offered quotations for deposits in the Index Currency,
for the period of the Index Maturity commencing on the Interest
Reset Date (or, if the pound sterling is the Index Currency,
commencing on the LIBOR Determination Date) for such Interest
Reset Period and in a principal amount equal to an amount of not
less than U.S.$1 million (or the equivalent amount in the Index
Currency) that is representative of a single transaction in the
Index Currency in such market at such time, to prime banks in the
London interbank market at approximately 11:00 a.m., London time,
on such LIBOR Determination Date; if at least two such quotations
are provided, LIBOR, in respect of such LIBOR Determination Date,
shall be the arithmetic mean of such quotations;
(c) if fewer than two such quotations are so provided,
LIBOR in respect of such LIBOR Determination Date shall be the
arithmetic mean of the rates quoted by three major banks in the
applicable Principal Financial Center for the country of the
Index Currency on such LIBOR Determination Date selected by the
Calculation Agent, in its discretion (after consultation with the
Company), at approximately 11:00 a.m. on such LIBOR Determination
Date, for loans in the Index Currency to leading European banks,
for the period of the Index Maturity commencing on the Interest
Reset Date (or, if the pound sterling is the Index Currency,
commencing on the LIBOR Determination Date) for such Interest
Reset Period and in a principal amount of not less than U.S.$1
million (or the equivalent amount in the Index Currency) that is
representative of a single transaction in the Index Currency in
such market at such time; provided, however, that if fewer than
three banks selected as aforesaid by the Calculation Agent are
quoting rates described in this clause (c), LIBOR for such
Interest Reset Period shall be the same as LIBOR for the
immediately preceding Interest Reset Period (or, if there was no
such previous Interest Reset Period, the rate of interest on such
Note for such Interest Reset Period shall be the Initial Interest
Rate).
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"Designated LIBOR Page" means (x) if "LIBOR Reuters" is specified
in a LIBOR Note and the applicable Pricing Supplement as the Reporting
Service, the display on the Reuters monitor money rates service (or
any successor service) for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency, or
(y) if "LIBOR Telerate" is so specified as the Reporting Service, the
display on the Dow Jones Market service (formerly known as the Dow
Jones Telerate Service), or any successor service, for the purpose of
displaying the London interbank rates of major banks for the Index
Currency. If neither LIBOR Reuters nor LIBOR Telerate is so specified
as the Reporting Service, LIBOR shall be determined as if LIBOR
Telerate Page 3750 had been specified.
"Index Currency", with respect to any LIBOR Note, means the
currency (including any composite currency) so specified in such LIBOR
Note and the applicable Pricing Supplement. If no such currency is so
specified, "Index Currency" means U.S. dollars.
"LIBOR Telerate Page 3750" means the display designated as "Page
3750" on the Dow Jones Market service (formerly known as the Dow Jones
Telerate Service), or such other page as may replace Page 3750 on such
service or such other successor service or services as may be
nominated by the British Bankers' Association as the information
vendor for the purpose of displaying London interbank offered rates
for U.S. dollar deposits.
"Principal Financial Center" will be, for purposes of clause (c)
above, the principal financial center of the country of the specified
Index Currency, which generally will be the capital city of such
country, except that with respect to U.S. Dollars, Deutsche Marks and
Euros, the Principal Financial Center shall be the City of New York,
Frankfurt or Brussels, as the case may be.
Prime Rate Notes
Each Prime Rate Note will bear interest for each Interest Reset
Period at a rate calculated with reference to the Prime Rate and the
Spread or Spread Multiplier, if any, and subject to the Maximum
Interest Rate, if any, and the Minimum Interest Rate, if any,
specified in such Prime Rate Note and the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
the "Prime Rate" for each Interest Reset Period in respect of each
Prime Rate Note will be determined by the Calculation Agent on the
Calculation Date and will be (a) the rate (expressed as a percentage
per annum) as of the second Business Day prior to the related Interest
Reset Date (a "Prime Rate Determination Date") set forth in H.15(519)
opposite the caption "Bank Prime Loan", or (b) if such rate is not so
published prior to 3:00 p.m., New York City time, on the Calculation
Date, the arithmetic mean of the rates publicly announced by each bank
named on the Reuters Screen USPRIME1 Page (as defined below) as such
bank's prime rate or base lending rate as in effect on such Prime Rate
Determination Date as quoted on the Reuters Screen USPRIME1 Page on
such Prime Rate Determination Date or (c) if fewer than four such
rates appear on the Reuters Screen USPRIME1 Page for such Prime Rate
Determination Date, the arithmetic mean of the prime rates quoted on
the basis of the actual number of days in the year divided by 360 as
of the close of business on such Prime Rate Determination Date by at
least two of three major money center banks in The City of New York
selected by the Calculation Agent, in its discretion (after
consultation with the Company), from which quotations are requested;
provided, however, that if fewer than two such prime rates are so
quoted by major money center banks as aforesaid, there shall be
included in the group of rates whose arithmetic mean is to be so
determined the prime rates or base lending rates, as of such Prime
Rate Determination Date, of that number of substitute banks or trust
companies organized and doing business under the laws of the United
States, or any State thereof, in each case having total equity capital
of at least U.S. $500 million and being subject to supervision or
examination by Federal or State authority, selected by the Calculation
Agent, in its discretion (after consultation with the Company), which,
when added to the number of rates provided by major money center banks
as aforesaid, shall equal two.
If in any calendar month the Prime Rate is not published in
H.15(519) and the banks or trust companies selected as aforesaid are
not quoting as described in the preceding paragraph, the "Prime Rate"
for the applicable Interest Reset Period will be Prime Rate for the
immediately preceding Interest Reset Period (or, if there was no such
S-11
previous Interest Reset Period in respect of such Prime Rate Note, the
rate of interest on such Prime Rate Note for such Interest Reset
Period shall be the Initial Interest Rate).
"Reuters Screen USPRIME1 Page" means the display designated as
Page "USPRIME1" on the Reuters monitor money rates service (or such
other page as may replace the USPRIME1 Page on that service for the
purpose of displaying prime rates or base lending rates of major
United States banks).
Treasury Rate Notes
Each Treasury Rate Note will bear interest for each Interest
Reset Period at a rate calculated with reference to the Treasury Rate
and the Spread or Spread Multiplier, if any,and subject to the maximum
Interest Rate, if any, and the minimum Interest Rate, if any,
specified in such Treasury Rate Note and the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
the "Treasury Rate" for each Interest Reset Period in respect of each
Treasury Rate Note will be determined by the Calculation Agent on the
Calculation Date and will be (a) the rate (expressed as a percentage
per annum) for the auction held on the Treasury Rate Determination
Date (as hereinafter defined) for such Interest Reset Period of direct
obligations of the United States ("Treasury bills") having the Index
Maturity specified in such Treasury Rate Note and the applicable
Pricing Supplement, as such rate shall be published in H.15(519) under
the heading "U.S. Government Securities - Treasury bills - auction
average (investment)", or (b) if such rate is not published prior to
9:00 a.m., New York City time, on the Calculation Date, the auction
average rate (expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) on such
Treasury Rate Determination Date as otherwise announced by the United
States Department of Treasury, or (c) if the results of the auction of
Treasury bills having such Index Maturity are not published or
reported as provided above by 3:00 p.m., New York City time, on the
Calculation Date, or if no such auction is held on such Treasury Rate
Determination Date, a yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable,
and applied on a daily basis) of the arithmetic mean of the secondary
market bid rates, as of approximately 3:30 p.m., New York City time,
on such Treasury Rate Determination Date, of three leading primary
United States government securities dealers selected by the
Calculation Agent, in its discretion (after consultations with the
Company), for the issue of Treasury bills with a remaining maturity
closest to such Index Maturity; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting bid
rates as described in clause (c) above, then the "Treasury Rate" for
such Interest Reset Period will be deemed to be the same as the
Treasury Rate for the immediately preceding Interest Reset Period (or,
if there was no such previous Interest Reset Period in respect of such
Treasury Rate Note, the rate of interest on such Note for such
Interest Reset Period shall be the Initial Interest Rate).
The "Treasury Rate Determination Date" for each Interest Reset
Period shall be the day of the week in which the Interest Reset Date
for such Interest Reset Period falls on which Treasury bills would
normally be auctioned. (As of the date of this Prospectus Supplement,
Treasury bills are normally sold at auction on Monday of each week,
unless that day is a legal holiday, in which case the auction is
normally held on the following Tuesday, except that such auction may
be held on the preceding Friday.) If, as the result of a legal
holiday, an auction is so held on the preceding Friday, such Friday
shall be the Treasury Rate Determination Date pertaining to the
Interest Reset Period commencing in the next succeeding week. If an
auction date shall fall on any day that would otherwise be an Interest
Reset Date for a Treasury Rate Note, then such Interest Reset Date
shall instead be the Business Day immediately following such auction
date.
REDEMPTION
The Pricing Supplement relating to each Note will indicate either
that such Note cannot be redeemed at the election of the Company prior
to Stated Maturity or that such Note will be redeemable, at the
election of the Company, in whole or in part, on any date on or after
the date designated as the "Initial Redemption Date" in such Pricing
Supplement, at the applicable redemption price plus accrued interest
to the date fixed for redemption. If such Note is so redeemable, the
redemption price will initially be a percentage of the principal
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amount of such Note to be redeemed equal to the "Initial Redemption
Price" specified in such Pricing Supplement for the twelve-month
period commencing on the Initial Redemption Date and shall decline for
the twelve-month period commencing on each anniversary of the Initial
Redemption Date by a percentage of principal amount equal to the
"Redemption Percentage" specified in such Pricing Supplement until
such redemption price is 100% of the principal amount of such Note.
Such Pricing Supplement may specify a "Redemption Limitation Date"
prior to which the Company may not redeem a Note as contemplated above
as a part of, or in anticipation of, any refunding operation by the
application, directly or indirectly, of moneys borrowed having an
effective interest cost to the Company (calculated in accordance with
generally accepted financial practice) less than the effective
interest cost to the Company (similarly calculated) of such Note.
The Pricing Supplement relating to each Note will also specify
any sinking fund or other mandatory redemption provisions applicable
to such Note, and any provisions for the redemption or purchase by the
Company of such Note at the option of the Holder.
Reference is made to the information contained under "Description
of the Debt Securities -- Redemption" in the accompanying Prospectus.
LIMITATION ON SECURED DEBT
The Indenture will provide that, so long as any of the Notes
remain Outstanding, the Company will not create, issue, incur or
assume any Secured Debt (as hereinafter defined) other than Permitted
Secured Debt (as hereinafter defined) without the consent of the
Holders of a majority in principal amount of the Outstanding Indenture
Securities of all series (including the Notes) and tranches with
respect to which this covenant is made (all such Indenture Securities
being hereinafter called "Benefitted Securities"), considered as one
class; provided, however, that the foregoing covenant will not
prohibit the creation, issuance, incurrence or assumption of any
Secured Debt if either (a) the Company shall make effective provision
whereby all Benefitted Securities then Outstanding will be secured
equally and ratably with such Secured Debt; or (b) the Company
delivers to the Trustee bonds, notes or other evidences of
indebtedness secured by the Lien (as hereinafter defined) which
secures such Secured Debt in an aggregate principal amount equal to
the aggregate principal amount of the Benefitted Securities then
Outstanding and meeting certain other requirements set forth in the
Indenture.
"Debt", with respect to any Person, means (a) indebtedness of
such Person for borrowed money evidenced by a bond, debenture, note or
other written instrument or agreement by which such Person is
obligated to repay such borrowed money and (b) any guaranty by such
Person of any such indebtedness of another Person. "Debt" does not
include, among other things, (x) indebtedness of such Person under any
installment sale or conditional sale agreement or any other agreement
relating to indebtedness for the deferred purchase price of property
or services, (y) obligations of such Person under any lease agreement
(including any lease intended as security), whether or not such
obligations are required to be capitalized on the balance sheet of
such Person under generally accepted accounting principles, or (z)
liabilities secured by any Lien on any property owned by such Person
if and to the extent that such Person has not assumed or otherwise
become liable for the payment thereof.
"Excepted Property" includes, among other things, cash, deposit
accounts, securities; contracts, leases and other agreements of all
kinds; contract rights, bills, notes and other instruments; revenues,
accounts and accounts receivable and unbilled revenues, claims,
demands and judgments; governmental and other licenses, permits,
franchises, consents and allowances (except to the extent that any of
the same constitute rights or interests relating to the occupancy or
use of real property); certain intellectual property rights and other
general intangibles; vehicles, movable equipment and aircraft; all
goods, stock in trade, wares, merchandise and inventory held for sale
or lease in the ordinary course of business; materials, supplies,
inventory and other personal property consumable in the operation of
any property of the Company; fuel; portable tools and equipment;
furniture and furnishings; computers and data processing,
telecommunications and other facilities used primarily for
administrative or clerical purposes or otherwise not used in
connection with the operation or maintenance of electric, gas or water
utility facilities; coal, ore, gas, oil and other minerals and timber;
electric energy, gas (natural or artificial), steam, water and other
products generated, produced, manufactured, purchased or otherwise
acquired by the Company; real property, gas wells, pipe lines, and
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other facilities used primarily for the production or gathering of
natural gas; all property which is the subject of a lease agreement
designating the Company as lessee and the Company's interest in such
property and such lease agreement, whether or not such lease agreement
is intended as security.
"Lien" means any mortgage, deed of trust, pledge, security
interest, conditional sale or other title retention agreement or any
lease in the nature thereof.
"Permitted Secured Debt" means, as of any particular time, (a)
Secured Debt which matures less than one year from the date of the
issuance or incurrence thereof and is not extendible at the option of
the issuer; and any refundings, refinancings and/or replacements of
any such Secured Debt by or with similar Secured Debt; (b) Secured
Debt secured by Purchase Money Liens or any other Liens existing or
placed upon property at the time of, or within one hundred eighty
(180) days after, the acquisition thereof by the Company, and any
refundings, refinancings and/or replacements of any such Secured Debt;
provided, however, that no such Purchase Money Lien or other Lien
shall extend to or cover any property of the Company other than (i)
the property so acquired and improvements, extensions and additions to
such property and renewals, replacements and substitutions of or for
such property or any part or parts thereof and (ii) with respect to
Purchase Money Liens, other property subsequently acquired by the
Company; (c) Secured Debt relating to governmental obligations the
interest on which is not included in gross income for purposes of
federal income taxation pursuant to Section 103 of the Internal
Revenue Code of 1986, as amended (or any successor provision of law),
for the purpose of financing or refinancing, in whole or in part,
costs of acquisition or construction of property to be used by the
Company, to the extent that the Lien which secures such Secured Debt
is required either by applicable law or by the issuer of such
governmental obligations or is otherwise necessary in order to
establish or maintain such exclusion from gross income; and any
refundings, refinancings and/or replacements of any such Secured Debt
by or with similar Secured Debt; (d) Secured Debt (i) which is related
to the construction or acquisition of property not previously owned by
the Company or (ii) which is related to the financing of a project
involving the development or expansion of property of the Company and
(iii) in either case, the obligee in respect of which has no recourse
to the Company or any property of the Company other than the property
constructed or acquired with the proceeds of such transaction or the
project financed with the proceeds of such transaction (or the
proceeds of such property or such project); and any refundings,
refinancings and/or replacements of any such Secured Debt by or with
Secured Debt described in clause (iii) above; (e) Secured Debt
permitted as described in the first paragraph under this heading; and
(f) in addition to the Permitted Secured Debt described in clauses (a)
through (e) above, Secured Debt not otherwise so permitted in an
aggregate principal amount not exceeding 10% of the total assets of
the Company and its consolidated subsidiaries, as shown on the latest
balance sheet of the Company and its consolidated subsidiaries,
audited by independent certified public accountants, dated prior to
the date of the creation, issuance, incurrence or assumption of such
Secured Debt.
"Purchase Money Lien" means, with respect to any property being
acquired by the Company, a Lien on such property which (a) is taken
or retained by the transferor of such property to secure all or part
of the purchase price thereof; (b) is granted to one or more Persons
other than the transferor which, by making advances or incurring an
obligation, give value to enable the grantor of such Lien to acquire
rights in or the use of such property; (c) is held by a trustee or
agent for the benefit of one or more Persons described in clause (a)
or (b) above, provided that such Lien may be held, in addition, for
the benefit of one or more other Persons which shall have theretofore
given, or may thereafter give, value to or for the benefit or account
of the grantor of such Lien for one or more other purposes; or (d)
otherwise constitutes a purchase money mortgage or a purchase money
security interest under applicable law; and, without limiting the
generality of the foregoing, for purposes of the Indenture, the term
Purchase Money Lien will be deemed to include any Lien described above
whether or not such Lien (x) shall permit the issuance or other
incurrence of additional indebtedness secured by such Lien on such
property, (y) shall permit the subjection to such Lien of additional
property and the issuance or other incurrence of additional
indebtedness on the basis thereof and/or (z) shall have been granted
prior to the acquisition of such property, shall attach to or
otherwise cover property other than the property being acquired and/or
shall secure obligations issued prior and/or subsequent to the
issuance of the obligations delivered in connection with such
acquisition.
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"Secured Debt", with respect to any Person, means Debt created,
issued, incurred or assumed by such Person which is secured by a Lien
upon any property (other than Excepted Property) of the Company, real,
personal or mixed, of whatever kind or nature and wherever located,
whether owned at the date of the initial authentication and delivery
of the Notes or thereafter acquired.
BOOK-ENTRY ONLY ISSUANCE - THE DEPOSITORY TRUST COMPANY
DTC will act as securities depositary for the Notes. The Notes
will be issued only as fully-registered securities registered in the
name of Cede & Co. (DTC's nominee). One or more fully-registered
global certificates for the Notes, representing the aggregate
principal amount of Notes, will be issued and will be deposited with
DTC.
The following is based upon information furnished by DTC:
DTC is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within
the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as
amended. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. "Direct
Participants" in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its Direct
Participants and by the NYSE, the American Stock Exchange,
Inc., and the National Association of Securities Dealers,
Inc. Access to the DTC system is also available to others,
such as securities brokers and dealers, banks and trust
companies that clear transactions through or maintain a
custodial relationship with a Direct Participant either
directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the
Securities and Exchange Commission.
Purchases of Notes within the DTC system must be made
by or through Direct Participants, which will receive a
credit for the Notes on DTC's records. The ownership
interest of each actual purchaser of each Note ("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 purchase, but
Beneficial Owners are expected to receive written
confirmation providing details of the transaction, as well
as periodic statements of their holdings, from the Direct or
Indirect Participants through which the Beneficial Owners
entered into the transaction. Transfers of ownership
interests in the Notes are to be accomplished by entries
made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the
Notes, except in the event that use of the book-entry system
for the Notes is discontinued, as discussed below.
To facilitate subsequent transfers, all Notes deposited
by Participants with DTC are registered in the name of DTC's
partnership nominee, Cede & Co. The deposit of Notes with
DTC and their registration in the name of Cede & Co. effect
no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Notes; DTC's records
reflect only the identity of the Direct Participants to
whose accounts such Notes are credited, which may or may not
be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf
of their customers.
The delivery of notices and other communications by DTC
to Direct Participants, by Direct Participants to Indirect
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Participants, and by Direct Participants and Indirect
Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to
time.
Redemption notices will be sent to Cede & Co., as
registered Holder of the Notes. If less than all of the
Notes are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant to
be redeemed.
Neither DTC nor Cede & Co. will itself consent or vote
with respect to Notes. Under its usual procedures, DTC mails
an Omnibus Proxy to the Company as soon as possible after
the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to
whose accounts the Notes are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Payments on the Notes will be made to DTC. 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 payment on such payment
date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices,
as is the case with securities held for the accounts of
customers in bearer form or registered in "street name", and
will be the responsibility of such Participants and not of
DTC or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment
to DTC will be the responsibility of the Company,
disbursement of payments to Direct Participants will be the
responsibility of DTC, and further disbursement of payments
to the Beneficial Owners will be the responsibility of
Direct Participants and Indirect Participants.
DTC may discontinue providing its services as securities
depositary with respect to the Notes at any time by giving notice to
the Company. Under such circumstances, in the event that a successor
securities depositary is not obtained, Note certificates will be
delivered to the Beneficial Owners. Additionally, the Company may
decide to discontinue use of the system of book-entry transfers
through DTC (or a successor depositary). In that event, certificates
for the Notes will be delivered.
The information in this section concerning DTC and DTC's book-
entry system and procedures has been obtained from sources that the
Company believes to be reliable, but the Company takes no
responsibility for the accuracy thereof. Neither the Company, the
Trustee or the Agents will have any responsibility or liability for
any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Notes or for maintaining,
supervising or reviewing any records relating thereto.
Except as provided herein, a Beneficial Owner of an interest in a
global Note certificate will not be entitled to receive physical
delivery of Notes. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Notes.
CERTAIN UNITED STATES TAX CONSIDERATIONS
The following is a discussion of certain U.S. income tax
considerations based on the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury regulations (the
"Regulations"), published rulings, and judicial decisions, all as
currently in effect. This discussion deals only with Notes held as
capital assets by U.S. Holders (as defined below) that are initial
purchasers, and not with special classes of holders such as banks,
insurance companies, dealers in securities or currencies, traders in
securities that elect to mark to market, tax-exempt organizations,
persons holding Notes as part of a straddle, hedging or conversion
transaction, persons who are not U.S. Holders (as defined below), or
persons whose functional currency is not the U.S. dollar. Moreover,
the summary deals only with Notes that are due to mature 30 years or
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less from the date on which they are issued. The U.S. federal income
tax consequences of ownership of Notes that are due to mature more
than 30 years from their date of issue will be discussed in an
applicable Pricing Supplement. All persons considering the purchase
of Notes are advised to consult their own tax advisors concerning the
consequences, in their particular circumstances, under the Code and
the laws of any other taxing jurisdiction, of the ownership of the
Notes.
As used herein, the term "U.S. Holder" means a beneficial owner
that is for United States federal income tax purposes (a) a citizen or
resident of the United States, (b) a domestic corporation, (c) an
estate the income of which is subject to United States federal income
tax without regard to its source or (d) a trust if a court within the
United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have
the authority to control all substantial decisions of the trust.
PAYMENTS OF INTEREST
Interest on a Note, other than Original Issue Discount, generally
will be taxable to a U.S. Holder as ordinary income at the time it is
received or accrued, depending on the holder's regular method of
accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT
General
Original Issue Discount ("OID") is the excess of the "stated
redemption price at maturity" of a Note over its issue price if such
excess equals or exceeds a "de minimis amount" (as defined below).
The issue price of a Note generally will be the first price at which a
substantial amount of Notes included in the issue of which the Note is
a part is sold to other than bond houses, brokers, or similar persons
or organizations acting in the capacity of underwriters, placement
agents, or wholesalers. The stated redemption price at maturity is
the sum of all payments provided for under the terms of the Note other
than "qualified stated interest". A qualified stated interest payment
is generally any one of a series of stated interest payments on a Note
that are unconditionally payable at least annually at a single fixed
rate (with certain exceptions for lower rates paid during some
periods) applied to the outstanding principal amount of the Note.
Notes issued with OID are hereinafter called "OID Notes". Special
rules for "Floating Rate Notes" are described below under "Notes
Issued with Floating Interest Rates."
U.S. Holders of OID Notes that mature more than one year from the
date of issuance generally must include OID in income as ordinary
interest income in advance of actual receipt of some or all of the
corresponding interest payments from the Company. U.S. Holders of OID
Notes generally must include in income the daily portion of OID as it
accrues during each accrual period over the life of a Note under a
formula based upon the compounding of interest at a rate that provides
for a constant yield to maturity (the "Constant Yield Method").
The Constant Yield Method
Under the Constant Yield Method, the amount of OID includible in
income by a U.S. Holder of an OID Note is the sum of the daily
portions of OID with respect to the OID Note for each day during the
taxable year or portion of the taxable year on which the U.S. Holder
holds such OID Note ("accrued OID"). The daily portion is determined
by allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. Accrual periods with
respect to a Note may be of any length selected by the U.S. Holder and
may vary in length over the term of the Note as long as (a) no accrual
period is longer than one year and (b) each scheduled payment of
interest or principal on the Note occurs on either the final or first
day of an accrual period. The amount of OID allocable to an accrual
period equals the excess of (x) the product of the OID Note's adjusted
issue price at the beginning of the accrual period and such Note's
yield to maturity (determined on the basis of compounding at the close
of each accrual period and properly adjusted for the length of the
accrual period) over (y) the sum of the payments of qualified stated
interest on the Note allocable to the accrual period. The "adjusted
issue price" of an OID Note at the beginning of any accrual period is
the issue price of the Note increased by (a) the amount of accrued OID
for each prior accrual period and decreased by (b) the amount of any
payments previously made on the Note that were not qualified stated
interest payments. For purposes of determining the amount of OID
S-17
allocable to an accrual period, if an interval between payments of
qualified stated interest on the Note contains more than one accrual
period, the amount of qualified stated interest payable at the end of
the interval (including any qualified stated interest that is payable
on the first day of the accrual period immediately following the
interval) is allocated pro rata on the basis of relative lengths to
each accrual period in the interval, and the adjusted issue price at
the beginning of each accrual period in the interval must be increased
by the amount of any qualified stated interest that has accrued prior
to the first day of the accrual period but that is not payable until
the end of the interval. The amount of OID allocable to an initial
short accrual period may be computed using any reasonable method if
all other accrual periods other than a final short accrual period are
of equal length. The amount of OID allocable to the final accrual
period is the difference between (x) the amount payable at the
maturity of the Note (other than any payment of qualified stated
interest) and (y) the Note's adjusted issue price as of the beginning
of the final accrual period. Because OID is calculated based on the
compounding of interest, U.S. Holders will generally have to include
in income increasingly greater amounts of OID in successive accrual
periods.
De Minimis OID
In general, if the excess of a Note's stated redemption price at
maturity over its issue price is less than 1/4 of 1 percent of the
Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity (the "de minimis amount"), then such
excess, if any, constitutes "de minimis original issue discount" and
the Note is not an OID Note. Unless the election described below
under "Election to Treat All Interest as Original Issue Discount" is
made, a United States Holder of a Note with de minimis original issue
discount must include such de minimis original issue discount in
income as stated principal payments on the Note are made. The
includible amount with respect to each such payment will equal the
product of the total amount of the Note's de minimis original issue
discount and a fraction, the numerator of which is the amount of the
principal payment made and the denominator of which is the stated
principal amount of the Note.
Short Term Notes
In general, an individual or other cash basis U.S. Holder of a
Note with a term of one year or less (a "short-term Note") is not
required to accrue OID (as specially defined below for the purposes of
this paragraph) for U.S. federal income tax purposes unless it elects
to do so (but may be required to include any stated interest in income
as the interest is received). Accrual basis U.S. Holders and certain
other U.S. Holders, including banks, regulated investment companies,
dealers in securities, common trust funds, U.S. Holders who hold Notes
as part of certain identified hedging transactions, certain pass-
through entities and cash basis U.S. Holders who so elect, are
required to accrue OID on short-term Notes on either a straight-line
basis or under the Constant Yield Method (based on daily compounding),
at the election of the U.S. Holder. In the case of a U.S. Holder not
required and not electing to include OID in income currently, any gain
realized on the sale or retirement of the short-term Note will be
ordinary income to the extent of the OID accrued on a straight-line
basis (unless an election is made to accrue the OID under the Constant
Yield Method) through the date of sale or retirement. U.S. Holders
who are not required and do not elect to accrue OID on short-term
Notes will be required to defer deductions for interest on borrowings
allocable to short-term Notes in an amount not exceeding the deferred
income until the deferred income is realized.
For purposes of determining the amount of OID subject to these
rules, all interest payments on a short-term Note, including stated
interest, are included in the short-term Note's stated redemption
price at maturity.
Election to Treat All Interest as Original Issue Discount
A U.S. Holder may elect to include in gross income all interest
that accrues on a Note using the Constant Yield Method, with the
modifications described below. For purposes of this election,
interest includes stated interest, OID, de minimis original issue
discount, market discount, de minimis market discount and unstated
interest, as adjusted by an amortizable bond premium (described below
under "Notes Purchased at a Premium") or acquisition premium.
S-18
In applying the Constant Yield Method to a Note with respect to
which this election has been made, the issue price of the Note will
equal its cost to the electing U.S. Holder, the issue date of the Note
will be the date of its acquisition by the electing U.S. Holder, and
no payments on the Note will be treated as payments of qualified
stated interest. This election will generally apply only to the Note
with respect to which it is made and may not be revoked without the
consent of the Internal Revenue Service. If this election is made
with respect to a Note with amortizable bond premium, then the
electing U.S. Holder will be deemed to have elected to apply
amortizable bond premium against interest with respect to all debt
instruments with amortizable bond premium (other than debt instruments
the interest on which is excludible from gross income) held by the
electing U.S. Holder as of the beginning of the taxable year in which
the Note with respect to which the election is made is acquired or
thereafter acquired. The deemed election with respect to amortizable
bond premium may not be revoked without the consent of the Internal
Revenue Service.
Notes Issued with Floating Interest Rates
Floating Rate Notes are subject to special rules. For these
purposes, a Floating Rate Note will qualify as a "variable rate debt
instrument" if it: (a) has an issue price that does not exceed the
total noncontingent principal payments by more than the lesser of (1)
the product of (A) the total noncontingent principal payments, (B) the
number of complete years to maturity from the issue date and (C) .015
and (2) 15 percent of the total noncontingent principal payments, and
(b) does not provide for stated interest other than stated interest
compounded or paid at lease annually at (1) one or more "qualified
floating rates," (2) a single fixed rate and one or more qualified
floating rates, (3) a single "objective rate" or (4) a single fixed
rate and a single objective rate that is a "qualified inverse floating
rate."
A qualified floating rate or objective rate in effect at any time
during the term of the instrument must be set at a "current value" of
that rate. A "current value" of a rate is the value of the rate on
any day that is no earlier than 3 months prior to the first day on
which that value is in effect and no later than 1 year following that
first day.
A variable rate is a "qualified floating rate" if (a) variations
in the value of the rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds in the
currency in which the Note is denominated or (b) it is equal to the
product of such a rate and either (1) a fixed multiple that is greater
than 0.65 but not more that 1.35, or (2) a fixed multiple greater than
0.65 but not more than 1.35, increased or decreased by a fixed rate.
If a Note provides for two or more qualified floating rates that (x)
are within 0.25 percentage points of each other on the issue date or
(z) can reasonably be expected to have approximately the same values
throughout the term of the Note, the qualified floating rates together
constitute a single qualified floating rate. A rate is not a
qualified floating rate, however, if the rate is subject to certain
restrictions (including caps, floors, governors, or other similar
restrictions) unless such restrictions are fixed throughout the term
of the Note or are not reasonably expected to significantly affect the
yield on the Note.
An "objective rate" is a rate, other than a qualified floating
rate, that is determined using a single, fixed formula and that is
based on objective financial or economic information that is not
within the control of or unique to the circumstances of the issuer or
a related party. A variable rate is not an objective rate, however,
if it is reasonably expected that the average value of the rate during
the first half of the Note's term will be either significantly less
than or significantly greater than the average value of the rate
during the final half of the Note's term. An objective rate is a
"qualified inverse floating rate" if (a) the rate is equal to a fixed
rate minus a qualified floating rate, and (b) the variations in the
rate can reasonably be expected to inversely reflect contemporaneous
variations in the cost of newly borrowed funds.
If interest on a Note is stated at a fixed rate for an initial
period of one year or less followed by either a qualified floating
rate or an objective rate for a subsequent period and (a) the fixed
rate and the qualified floating rate or objective rate have values on
the issue date of the Note that do not differ by more than 0.25
percentage points or (b) the value of the qualified floating rate or
objective rate is intended to approximate the fixed rate, the fixed
rate and the qualified floating rate or the objective rate constitute
a single qualified floating rate or objective rate. Under these
rules, CD Rate Notes, CMT Rate Notes, Commercial Paper Rate Notes,
S-19
Federal Funds Rate Notes, LIBOR Notes, Prime Rate Notes and Treasury
Rate Notes should generally be treated as "variable rate debt
instruments."
In general, if (a) a Floating Rate Note that provides for stated
interest at a single qualified floating rate or objective rate
throughout the term thereof qualifies as a "variable rate debt
instrument," and (b) interest on such Note is unconditionally payable
in cash or other property (other than debt instruments of the issuer),
then all stated interest on the Note is qualified stated interest and
will be taxed accordingly. The amount of OID for such Notes, if any,
is determined by using, in the case of a qualified floating rate or
qualified inverse floating rate, the value as of the issue date of the
qualified floating rate or qualified inverse floating rate, or, in the
case of any other objective rate, a fixed rate that reflects the yield
reasonably expected for the Note.
In general, any other Floating Rate Note that qualifies as a
variable rate debt instrument will be converted into an "equivalent"
fixed rate debt instrument for purposes of determining the amount and
accrual of OID and qualified stated interest on the Note. For this
calculation, the amount of interest and OID accruals on the Note are
generally determined by (a) determining a fixed rate substitute for
each variable rate provided under the Floating Rate Note (generally,
the value of each variable rate as of the issue date or, in the case
of an objective rate that is not a qualified inverse floating rate, a
rate that reflects the reasonably expected yield on the Note), (b)
constructing the equivalent fixed rate debt instrument (using the
fixed rate substitutes described above), (c) determining the amount of
qualified stated interest and OID with respect to the equivalent fixed
rate debt instrument, and (d) making the appropriate adjustments for
actual variable rates during the applicable accrual period.
If a Floating Rate Note does not qualify as a "variable rate debt
instrument," then the Note would be treated as a contingent payment
debt obligation.
NOTES PURCHASED AT A PREMIUM
A U.S. Holder that purchases a Note for an amount in excess of
its principal amount may elect to treat such excess as "amortizable
bond premium," in which case the amount required to be included in the
U.S. Holder's income each year with respect to interest on the Note
will be reduced by the amount of amortizable bond premium allocable
(based on the Note's yield to maturity) to such year. Any election to
amortize bond premium shall apply to all bonds (other than bonds the
interest on which is excludible from gross income) held by the U.S.
Holder at the beginning of the first taxable year to which the
election applies or thereafter acquired by the U.S. Holder, and is
irrevocable without the consent of the Internal Revenue Service. See
also "Original issue Discount -- Election to Treat All Interest as
Original issue Discount."
BASIS AND SALES, EXCHANGES OR RETIREMENTS
A U.S. Holder's tax basis in a Note will generally equal the cost
of such Note to the U.S. Holder plus the total amount of OID or market
discount included in such U.S. Holder's income plus the amount of
income, if any, attributable to de minimis OID and de minimis market
discount included in the U.S Holder's income with respect to the Note,
less (a) any payments received by such U.S. Holder that are not
qualified stated interest and (b) the amount of any amortizable bond
premium applied to reduce interest on the Note.
Upon the sale, exchange or payment of a Note having a maturity
date more than one year from the date of issuance, the U.S. Holder of
a Note will generally realize gain or loss equal to the difference
between the amount realized and the U.S. Holder's tax basis in such
Note. U.S. Holders of OID Notes that have a maturity date one year or
less from the date of issuance, and who do not elect to accrue OID
using the Constant Yield Method, will generally be required to treat
gain realized on the sale, exchange or payment of such Note as
interest income to the extent of OID accrual on a straight-line basis
through the date of the such sale, exchange or payment. Capital gain
of a non-corporate U.S. Holder is generally subject to a maximum tax
rate of 28% in respect of property held for more than one year and to
a maximum rate of 20% in respect of property held in excess of 18
months.
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BACKUP WITHHOLDING
Certain backup withholding and information reporting requirements
may apply to payments on a Note to registered U.S. Holders who are not
otherwise exempt from such requirements pursuant to the Code. In
general, information reporting requirements will apply to payments of
principal, any premium and interest on a Note and the proceeds of the
sale of a Note before maturity, and to the accrual of OID on an OID
Note with respect to non-corporate U.S. Holders, and backup
withholding at a rate of 31% will apply to such payments and to
payments of OID if the U.S. Holder fails to provide an accurate
taxpayer identification number or is notified by the Internal Revenue
Service that it has failed to report all interest and dividends
required to be shown on its federal income tax returns. Any amounts
withheld from a payment to a U.S. Holder under backup withholding
rules would be allowed as a refund or a credit against such U.S.
Holder's U.S. federal income tax provided the required information is
furnished to the Internal Revenue Service.
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Company
through Morgan Stanley & Co. Incorporated, Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon
Brothers Inc, the Agents, who have agreed to use reasonable efforts to
solicit offers to purchase such Notes; provided that the Company has
reserved its right to sell, solicit and accept offers to purchase
Notes on its own behalf. The Company will have the sole right to
accept offers to purchase Notes and may reject any such offer in whole
or in part. An Agent will have the right to reject any such offer in
whole or in part. Payment of the purchase price of the Notes will be
required to be made in immediately available funds. Unless otherwise
specified in the applicable Pricing Supplement, the Company will pay
an Agent, in connection with sales of Notes resulting from a
solicitation made or an offer to purchase received by such Agent, a
commission ranging from .125% to .875% of the initial offering price
of the Notes to be sold, depending upon the maturity of the Notes.
The Company may also sell Notes to an Agent as principal for its
own account at discounts to be agreed upon at the time of sale. Such
Notes may be resold to investors and other purchasers at a fixed
offering price or at prevailing market prices, or prices related
thereto at the time of such resale or otherwise, as determined by the
Agent and specified in the applicable Pricing Supplement. An Agent
may offer the Notes it has purchased as principal to other dealers.
An Agent may sell the Notes to any dealer at a discount and, unless
otherwise specified in the applicable Pricing Supplement, such
discount allowed to any dealer will not be in excess of the discount
to be received by such Agent from the Company. After the initial
public offering of the Notes that are to be resold by the Agents to
investors and other purchasers on a fixed public offering price basis,
the public offering price, concession, and discount may be changed.
In order to facilitate the offering of the Notes, the Agents may
engage in transactions that stabilize, maintain or otherwise affect
the price of the Notes. Specifically, the Agents may overallot in
connection with the offering, creating a short position in the Notes
for their own account. In addition, to cover overallotments or to
stabilize the price of the Notes, the Agents may bid for, and
purchase, the Notes in the open market. Finally, any underwriting
syndicate participating in a sale of Notes to one or more Agents
acting as principal may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Notes in the offering, if
the syndicate repurchases previously distributed Notes in transactions
to cover syndicate short positions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the
market price of the Notes above independent market levels. The Agents
are not required to engage in these activities, and may end any of
these activities at any time.
The Agents may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). The
Company and the Agents have agreed to indemnify each other against
certain liabilities, including liabilities under the federal
securities laws, or to contribute to payments made in respect of any
such liabilities. The Company has also agreed to reimburse the Agents
for certain expenses.
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The Company does not intend to apply for the listing of the Notes
on a national securities exchange, but has been advised by the Agents
that the Agents intend to make a market in the Notes, as permitted by
applicable laws and regulations. The Agents are not obligated to do
so, however, and the Agents may discontinue making a market at any
time without notice. No assurance can be given as to the liquidity of
any trading market for the Notes.
Concurrently with the offering of Notes through the Agent as
described herein, the Company may issue other Debt Securities under
the Indenture referred to herein. Any Debt Securities sold by the
Company pursuant to the Prospectus will reduce the aggregate principal
amount of Notes that may be offered by this Prospectus Supplement and
the Prospectus.
The Agents and/or certain of their affiliates may engage in
transactions with and perform services for the Company and certain of
its affiliates in the ordinary course of business.
LEGAL MATTERS
The validity of the Notes and certain other matters of New York
law and matters of federal securities law will be passed upon for the
Company by Reid & Priest LLP, New York, New York, counsel to the
Company. The authorization of the Notes by the Company and certain
other matters of Washington corporate law and the authorization of the
Notes by public utility regulatory commissions under Washington,
Idaho, Montana, Oregon and California law will be passed upon for the
Company by Paine, Hamblen, Coffin, Brooke & Miller LLP, Spokane,
Washington, general counsel for the Company. Certain U.S. federal
income tax matters will be passed upon for the Company by Reid &
Priest LLP. The validity of the Notes will be passed upon for the
Agents by Sullivan & Cromwell, New York, New York. In giving their
opinions Reid & Priest LLP and Sullivan & Cromwell may assume the
conclusions of Washington, California, Idaho, Montana and Oregon law
set forth in the opinion of Paine, Hamblen, Coffin, Brooke & Miller
LLP. The opinions of Paine, Hamblen, Coffin, Brooke & Miller LLP,
Reid & Priest LLP and Sullivan & Cromwell will be conditioned upon,
and subject to certain assumptions regarding, future action required
to be taken by the Company and the Trustee in connection with the
issuance and sale of any particular Note, the specific terms of Notes
and other matters which may affect the validity of Notes but which
cannot be ascertained on the date of such opinions.
S-22
PROSPECTUS
$250,000,000
THE WASHINGTON WATER POWER COMPANY
DEBT SECURITIES
---------------
The Washington Water Power Company (the "Company"), a
Washington corporation, intends from time to time to issue up to
$250,000,000 aggregate principal amount of its Debt Securities,
in one or more series, on terms to be determined at the time or
times of sale.
The terms of the Debt Securities in respect of which this
Prospectus is being delivered, including where applicable the
series designation, the principal amount of the series, the
maturity date or dates, the rate or rates and times of payment of
interest, the initial public offering price, the provisions for
redemption, if any, and other provisions, are set forth in one or
more Prospectus Supplements (each a "Prospectus Supplement"),
together with the terms of offering such Debt Securities. The
Debt Securities may be sold by the Company through underwriters
or dealers, directly or through agents for offering pursuant to
the terms fixed at the time of sale. See "Plan of Distribution"
herein.
This Prospectus may not be used to consummate sales of
securities unless accompanied by a Prospectus Supplement.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is April 22, 1998
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration
Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") filed by the Company with
the Securities and Exchange Commission (the "SEC" or the
"Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby.
This Prospectus does not contain all of the information set forth
in such Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC,
although it does include a summary of the material terms of the
Indenture (as defined herein). Reference is made to such
Registration Statement and to the exhibits relating thereto for
further information with respect to the Company and the
securities offered hereby. Any statements contained herein
concerning the provisions of any document filed as an exhibit to
the Registration Statement or otherwise filed with the SEC or
incorporated by reference herein are not necessarily complete,
and, in each instance, reference is made to the copy of such
document so filed for a more complete description of the matter
involved. Each such statement is qualified in its entirety by
such reference.
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy
statements and other information with the SEC. Information, as of
particular dates, concerning the Company's directors and
officers, their remuneration, the principal holders of the
Company's securities, and any material interest of such persons
in transactions with the Company is disclosed in proxy statements
distributed to shareholders of the Company and filed with the
SEC. These reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549; 7 World Trade Center, 13th Floor, New York, New York
10048; and 500 West Madison Street, 14th Floor, Chicago, Illinois
60601; and copies of such material can be obtained from the
Public Reference Section of the SEC, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC
maintains a Web site that contains reports, proxy and information
statements and other information regarding reporting companies
under the Exchange Act, including the Company, at
http://www.sec.gov. The Company's Common Stock is listed on the
New York and Pacific Stock Exchanges, and reports, proxy
statements and other information concerning the Company can be
inspected at the offices of such exchanges located at the New
York Stock Exchange, 20 Broad Street, New York, New York 10005,
and the Pacific Stock Exchange, 301 Pine Street, San Francisco,
California 94104, respectively.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates herein by reference, and as
of any time hereafter prior to the termination of the offering
made by this Prospectus the Company shall be deemed to have
incorporated herein by reference, (1) the Company's latest Annual
Report on Form 10-K (the "Latest Annual Report") filed by the
Company with the SEC pursuant to the Exchange Act and (2) all
other reports and documents filed by the Company with the SEC
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the filing of the Latest Annual Report, and all of
such documents shall be deemed to be a part hereof from the
respective dates of filing thereof. The documents incorporated
herein by reference are sometimes hereinafter called the
"Incorporated Documents." Any statement contained in an
Incorporated Document shall be deemed to be modified or
superseded for all purposes to the extent that a statement in
this Prospectus or in any subsequently filed Incorporated
Document modifies or replaces such statement. The Incorporated
Document incorporated herein by reference as of the date of this
Prospectus is the Annual Report on Form 10-K for the year ended
December 31, 1997.
2
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO
EACH PERSON TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED,
ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY
OR ALL OF THE INCORPORATED DOCUMENTS, OTHER THAN EXHIBITS THERETO
(UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
INTO SUCH INCORPORATED DOCUMENTS). REQUESTS FOR SUCH COPIES
SHOULD BE DIRECTED TO: TREASURER, BY MAIL AT THE WASHINGTON
WATER POWER COMPANY, POST OFFICE BOX 3727, SPOKANE, WASHINGTON
99220, OR BY TELEPHONE AT 509-489-0500.
THE WASHINGTON WATER POWER COMPANY
The Company, which was incorporated in the State of
Washington in 1889, primarily operates in the electric and
natural gas utility businesses. At December 31, 1997, the
Company's employees included 1,467 people in its utility
operations and approximately 1,751 people in its majority-owned
non-regulated business (energy and non-energy). The Company's
corporate headquarters are located at 1411 East Mission Avenue,
in Spokane, Washington 99202, which serves as the Inland
Northwest's center for manufacturing, transportation, healthcare,
education, communication, agricultural and service businesses.
Regulatory, economic and technological changes have brought
about the accelerating transformation of the electric utility
industry from a vertically integrated monopoly to separate market
driven businesses. Since 1996, the Company has reorganized its
operations to take advantage of the changes in the Company's
business environment and to proactively respond to regulatory and
structural changes in the industry. The restructuring reinforces
the Company's commitment to and advocacy of utility industry
deregulation.
The Company's operations are organized into four lines of
businesses, two of which comprise its utility operations. The
Energy Delivery business provides electricity and natural gas in
a 26,000 square mile in eastern Washington and northern Idaho,
with a combined population of approximately 825,000, as of
December 31, 1997, as well as natural gas services in a 4,000
square mile area in northeast and southwest Oregon and South Lake
Tahoe region of California, with a combined population of
approximately 495,000, as of such date. The Generation and
Resources business includes the generation and production of
electric energy, and short- and long-term electric and natural
gas wholesale sales and wholesale marketing primarily to, and
commodity trading with, other utilities and power brokers in the
Western Systems Coordinating Council. The National Energy
Trading and Marketing business, which is conducted through
subsidiaries, focuses on commodity trading, energy marketing and
energy related products and services on a national basis. The
Non-energy business, which is conducted through a subsidiary,
involves acquiring controlling interests in a broad range of
middle-market companies, helping these companies grow through
internal development and strategic acquisitions and selling the
portfolio investments either to the public or to strategic buyers
when it becomes most advantageous to do so.
USE OF PROCEEDS
The Company intends to use the net proceeds from the
issuance and sale of the Debt Securities for any or all of the
following purposes: (a) to fund a portion of the Company's
construction, facility improvement and maintenance programs, (b)
to retire one or more outstanding series of its preferred stock,
bonds or long-term notes, (c) to reduce or eliminate outstanding
short-term debt issued for any of these purposes, (d) to
reimburse the Company's treasury for funds previously expended
for any of these purposes and (e) for other general corporate
purposes.
3
DESCRIPTION OF THE DEBT SECURITIES
GENERAL
The Debt Securities may be issued from time to time in one or
more series under an Indenture, dated as of April 1, 1998 (the
"Original Indenture"), between the Company and The Chase
Manhattan Bank, as trustee (the "Trustee"), the Original
Indenture, as amended and supplemented from time to time, being
hereinafter referred to as the "Indenture." The terms of the Debt
Securities will include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture
Act. The following summary does not purport to be complete and
is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Indenture, which is filed as
an exhibit to the Registration Statement of which this Prospectus
forms a part, and the Trust Indenture Act. Capitalized terms
used under this heading which are not otherwise defined in this
Prospectus shall have the meanings ascribed thereto in the
Indenture. Whenever particular provisions or defined terms in
the Indenture are referred to herein, such provisions or defined
terms are incorporated by reference herein.
The Indenture provides that, in addition to the Debt
Securities, additional debt securities may be issued thereunder,
without limitation as to aggregate principal amount. The Debt
Securities and all other debt securities issued under the
Indenture are collectively referred to herein as the "Indenture
Securities." Each series of Indenture Securities will be
unsecured and will rank pari passu with all other series of
Indenture Securities, except as otherwise provided in the
Indenture, and with all other unsecured and unsubordinated
indebtedness of the Company. Except as otherwise described in
the applicable Prospectus Supplement, the Indenture does not
limit the incurrence or issuance of other secured or unsecured
debt of the Company, whether under the Indenture, any other
indenture that the Company may enter into in the future or
otherwise. See the Prospectus Supplement relating to any
offering of Debt Securities.
At December 31, 1997, the total long-term debt of the Company
and its consolidated subsidiaries, as shown in the Company's
consolidated financial statements, was approximately $762.2
million. Of such amount, $171.6 represents long-term unsecured
and unsubordinated indebtedness of the Company, with which the
Debt Securities will be pari passu, and $445.2 million represents
secured indebtedness of the Company. The balance of $145.4
million includes short-term notes to be refinanced as well as
indebtedness of subsidiaries. Consolidated long-term debt does
not include the Company's subordinated indebtedness held by the
issuers of Company-obligated preferred trust securities.
Reference is made to the consolidated financial statements and
notes thereto contained in the Latest Annual Report and
subsequently filed Incorporated Documents for more detailed and
more recent information.
The applicable Prospectus Supplement or Prospectus Supplements
will describe the following terms of such Debt Securities: (a)
the title of such Debt Securities; (b) any limit upon the
aggregate principal amount of such Debt Securities; (c) the date
or dates on which the principal of such Debt Securities is
payable or the method of determination thereof and the right, if
any, to extend such date or dates; (d) the rate or rates at which
such Debt Securities will bear interest, if any, or the method by
which such rate or rates, if any, will be determined, the date or
dates from which any such interest will accrue, the Interest
Payment Dates on which any such interest will be payable, the
right, if any, of the Company to defer or extend an Interest
Payment Date, and the Regular Record Date for any interest
payable on any Interest Payment Date and the person or persons to
whom interest on such Debt Securities will be payable on any
Interest Payment Date, if other than the persons in whose names
such Debt Securities are registered at the close of business on
the Regular Record Date for such interest; (e) the place or
places where, subject to the terms of the Indenture as described
below under "-- Payment and Paying Agents," the principal of and
premium, if any, and interest, if any, on such Debt Securities
4
will be payable and where, subject to the terms of the Indenture
as described below under "-- Registration and Transfer," such
Debt Securities may be presented for registration of transfer or
exchange and the place or places where notices and demands to or
upon the Company in respect of such Debt Securities and the
Indenture may be served; the Security Registrar and Paying Agents
for such Debt Securities; and, if such is the case, that the
principal of such Debt Securities will be payable without
presentation or surrender thereof; (f) any period or periods
within, or date or dates on, which, the price or prices at which
and the terms and conditions upon which such Debt Securities may
be redeemed, in whole or in part, at the option of the Company;
(g) the obligation or obligations, if any, of the Company to
redeem or purchase any of such Debt Securities pursuant to any
sinking fund or other mandatory redemption provisions or at the
option of the holder thereof, and the period or periods within,
or date or dates on, which, the price or prices at which, and the
terms and conditions upon which such Debt Securities will be
redeemed or purchased, in whole or in part, pursuant to such
obligation, and applicable exceptions to the requirements of a
notice of redemption in the case of mandatory redemption or
redemption at the option of the holder; (h) the denominations in
which any Debt Securities will be issuable if other than
denominations of $1,000 and any integral multiple thereof; (i) if
such Debt Securities are to be issued in global form, the
identity of the depositary thereof; and (j) any other terms of
such Debt Securities.
PAYMENT AND PAYING AGENTS
Except as may be provided in the applicable Prospectus
Supplement, interest, if any, on each Debt Security payable on
each Interest Payment Date will be paid to the person in whose
name such Debt Security is registered as of the close of business
on the regular record date relating to such Interest Payment Date
(each such period of interest accrual being hereinafter called a
"Scheduled Interest Period"); provided, however, that interest
payable at maturity (whether at stated maturity, upon redemption
or otherwise, hereinafter "Maturity") will be paid to the person
to whom principal is paid. However, if there has been a default
in the payment of interest on any Debt Security, such defaulted
interest may be payable to the holder of such Debt Security as of
the close of business on a date selected by the Trustee which is
not more than 30 days and not less than 10 days prior to the date
proposed by the Company for payment of such defaulted interest or
in any other lawful manner not inconsistent with the requirements
of any securities exchange on which such Debt Security may be
listed, if the Trustee deems such manner of payment practicable.
Unless otherwise specified in the applicable Prospectus
Supplement, the principal of and premium, if any, and interest,
if any, on the Debt Securities at Maturity will be payable upon
presentation of the Debt Securities at the corporate trust office
of The Chase Manhattan Bank in New York, New York, as Paying
Agent for the Company. The Company may change the Place of
Payment on the Debt Securities, may appoint one or more
additional Paying Agents (including the Company) and may remove
any Paying Agent, all at its discretion.
REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable Prospectus
Supplement, the transfer of Debt Securities may be registered,
and Debt Securities may be exchanged for other Debt Securities of
the same series and tranche, of authorized denominations and of
like tenor and aggregate principal amount, at the corporate trust
office of The Chase Manhattan Bank in New York, New York, as
Security Registrar for the Debt Securities. The Company may
change the place for registration of transfer and exchange of the
Debt Securities and may designate one or more additional places
for such registration and exchange, all at its discretion.
Except as otherwise provided in the applicable Prospectus
Supplement, no service charge will be made for any transfer or
exchange of the Debt Securities, but the Company may require
5
payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any
registration of transfer or exchange of the Debt Securities. The
Company will not be required to execute or to provide for the
registration of transfer of or the exchange of (a) any Debt
Security during a period of 15 days prior to giving any notice of
redemption or (b) any Debt Security selected for redemption in
whole or in part, except the unredeemed portion of any Debt
Security being redeemed in part.
REDEMPTION
Any terms for the optional or mandatory redemption of Debt
Securities will be set forth in the applicable Prospectus
Supplement. Except as shall otherwise be provided in the
applicable Prospectus Supplement with respect to Debt Securities
redeemable at the option of the holder, Debt Securities will be
redeemable only upon notice by mail not less than 30 nor more
than 60 days prior to the date fixed for redemption, and, if less
than all the Debt Securities of a series, or any tranche thereof,
are to be redeemed, the particular Debt Securities to be redeemed
will be selected by such method as shall be provided for such
series or tranche, or in the absence of any such provision, by
such method of random selection as the Security Registrar deems
fair and appropriate.
Any notice of redemption at the option of the Company may
state that such redemption will be conditional upon receipt by
the Paying Agent or Agents, on or prior to the dates fixed for
such redemption, of money sufficient to pay the principal of and
premium, if any, and interest, if any, on such Debt Securities
and that if such money has not been so received, such notice will
be of no force or effect and the Company will not be required to
redeem such Debt Securities.
MODIFICATION OF INDENTURE
Without the consent of any holders of Indenture Securities,
the Company and the Trustee may enter into one or more
supplemental indentures for any of the following purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants
of the Company in the Indenture and in the Indenture Securities;
or
(b) to add one or more covenants of the Company or other
provisions for the benefit of all holders of Indenture Securities
or for the benefit of the holders of, or to remain in effect only
so long as there shall be outstanding, Indenture Securities of
one or more specified series, or one or more tranches thereof, or
to surrender any right or power conferred upon the Company by the
Indenture; or
(c) to change or eliminate any provision of the Indenture or
to add any new provision to the Indenture, provided that if such
change, elimination or addition adversely affects the interests
of the holders of the Indenture Securities of any series or
tranche in any material respect, such change, elimination or
addition will become effective with respect to such series or
tranche only when no Indenture Security of such series or tranche
remains outstanding; or
(d) to provide collateral security for the Indenture
Securities or any series thereof; or
(e) to establish the form or terms of the Indenture Securities
of any series or tranche as permitted by the Indenture; or
6
(f) to provide for the authentication and delivery of bearer
securities and coupons appertaining thereto representing
interest, if any, thereon and for the procedures for the
registration, exchange and replacement thereof and for the giving
of notice to, and the solicitation of the vote or consent of, the
holders thereof, and for any and all other matters incidental
thereto; or
(g) to evidence and provide for the acceptance of appointment
by a successor trustee with respect to the Indenture Securities
of one or more series; or
(h) to provide for the procedures required to permit the
utilization of a non-certificated system of registration for all,
or any series or tranche of, the Indenture Securities; or
(i) to change any place or places where (1) the principal of
and premium, if any, and interest, if any, on all or any series
of Indenture Securities, or any tranche thereof, will be payable,
(2) all or any series of Indenture Securities, or any tranche
thereof, may be surrendered for registration of transfer, (3) all
or any series of Indenture Securities, or any tranche thereof,
may be surrendered for exchange and (4) notices and demands to or
upon the Company in respect of all or any series of Indenture
Securities, or any tranche thereof, and the Indenture may be
served; or
(j) to cure any ambiguity, to correct or supplement any
provision therein which may be defective or inconsistent with any
other provision therein, or to make any other changes to the
provisions thereof or to add other provisions with respect to
matters and questions arising under the Indenture, so long as
such other changes or additions do not adversely affect the
interests of the holders of Indenture Securities of any series or
tranche in any material respect.
Without limiting the generality of the foregoing, if the Trust
Indenture Act is amended after the date of the Original Indenture
in such a way as to require changes to the Indenture or the
incorporation therein of additional provisions or so as to permit
changes to, or the elimination of, provisions which, at the date
of the Original Indenture or at any time thereafter, were
required by the Trust Indenture Act to be contained in the
Indenture, the Indenture will be deemed to have been amended so
as to conform to such amendment or to effect such changes or
elimination, and the Company and the Trustee may, without the
consent of any holders of Indenture Securities, enter into one or
more supplemental indentures to evidence or effect such
amendment.
Except as provided above, the consent of the holders of a
majority in aggregate principal amount of the Indenture
Securities of all series then outstanding, considered as one
class, is required for the purpose of adding any provisions to,
or changing in any manner, or eliminating any of the provisions
of, the Indenture pursuant to one or more supplemental
indentures; provided, however, that if less than all of the
series of Indenture Securities outstanding are directly affected
by a proposed supplemental indenture, then the consent only of
the holders of a majority in aggregate principal amount of
outstanding Indenture Securities of all series so directly
affected, considered as one class, will be required; and
provided, further, that if the Indenture Securities of any series
have been issued in more than one tranche and if the proposed
supplemental indenture directly affects the rights of the holders
of one or more, but less than all, of such tranches, then the
consent only of the holders of a majority in aggregate principal
amount of the outstanding Indenture Securities of all tranches so
directly affected, considered as one class, will be required; and
provided, further, that no such amendment or modification may
(a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Indenture
Security other than pursuant to the terms thereof, or reduce the
principal amount thereof or the rate of interest thereon (or the
amount of any installment of interest thereon) or change the
method of calculating such rate or reduce any premium payable
upon the redemption thereof, or reduce the amount of the
7
principal of any Discount Security that would be due and payable
upon a declaration of acceleration of Maturity or change the coin
or currency (or other property) in which any Indenture Security
or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment
on or after the Stated Maturity of any Indenture Security (or, in
the case of redemption, on or after the redemption date) without,
in any such case, the consent of the holder of such Indenture
Security, (b) reduce the percentage in principal amount of the
outstanding Indenture Securities of any series, or any tranche
thereof, the consent of the holders of which is required for any
such supplemental indenture, or the consent of the holders of
which is required for any waiver of compliance with any provision
of the Indenture or of any default thereunder and its
consequences, or reduce the requirements for quorum or voting,
without, in any such case, the consent of the holder of each
outstanding Indenture Security of such series or tranche, or
(c) modify certain of the provisions of the Indenture relating to
supplemental indentures, waivers of certain covenants and waivers
of past defaults with respect to the Indenture Securities of any
series, or any tranche thereof, without the consent of the holder
of each outstanding Indenture Security of such series or tranche.
A supplemental indenture which changes or eliminates any
covenant or other provision of the Indenture which has expressly
been included solely for the benefit of the holders of, or which
is to remain in effect only so long as there shall be
outstanding, Indenture Securities of one or more specified
series, or one or more tranches thereof, or modifies the rights
of the holders of Indenture Securities of such series or tranches
with respect to such covenant or other provision, will be deemed
not to affect the rights under the Indenture of the holders of
the Indenture Securities of any other series or tranche.
If the supplemental indenture or other document establishing
any series or tranche of Indenture Securities so provides, and as
specified in the applicable Prospectus Supplement and/or Pricing
Supplement, the Holders of such Indenture Securities will be
deemed to have consented, by virtue of their purchase of such
Indenture Securities, to a supplemental indenture containing the
additions, changes or eliminations to or from the Indenture which
are specified in such supplemental indenture or other document,
no Act of such Holders will be required to evidence such consent
and such consent may be counted in the determination of whether
the Holders of the requisite principal amount of Indenture
Securities have consented to such supplemental indenture.
EVENTS OF DEFAULT
The Indenture provides that any one or more of the following
described events with respect to a series of Indenture Securities
that has occurred and is continuing constitutes an "Event of
Default" with respect to such series of Indenture Securities:
(a) failure for 60 days to pay any interest on such series
of Indenture Securities, when due and payable; provided,
however, that no such failure shall constitute an Event of
Default if the Company shall have made a valid extension of
the interest payment period with respect to such series of
Indenture Securities if so provided with respect to such
series; or
(b) failure to pay any principal or premium, if any, on
such series of Indenture Securities within 3 business days
after its maturity; provided, however, that no such failure
shall constitute an Event of Default if the Company shall have
made a valid extension of the maturity of such series of
Indenture Securities, if so provided with respect to such
series; or
(c) failure to perform, or breach of, any covenant or
warranty of the Company contained in the Indenture for 90 days
after written notice to the Company from the Trustee or to the
8
Company and the Trustee by the holders of at least 25% in
principal amount of such series of outstanding Indenture
Securities as provided in the Indenture unless the Trustee, or
the Trustee and the holders of a principal amount of
Securities of such series not less than the principal amount
of Indenture Securities the holders of which gave such notice,
as the case may be, agree in writing to an extension of such
period prior to its expiration; provided, however, that the
Trustee, or the Trustee and the holders of such principal
amount of Indenture Securities of such series, as the case may
be, will be deemed to have agreed to an extension of such
period if corrective action is initiated by the Company within
such period and is being diligently pursued; or
(d) default under any bond, debenture, note or other
evidence of indebtedness of the Company for borrowed money
(including Indenture Securities of other series) or under any
mortgage, indenture, or other instrument to evidence any
indebtedness of the Company for borrowed money, which default
(1) shall constitute a failure to make any payment in excess
of $5,000,000 of the principal of, or interest on, such
indebtedness or (2) shall have resulted in such indebtedness
in an amount in excess of $10,000,000 becoming or being
declared due and payable prior to the date it would otherwise
have become due and payable, without such payment having been
made, such indebtedness having been discharged, or such
acceleration having been rescinded or annulled, within a
period of 90 days after written notice to the Company by the
Trustee or to the Company and the Trustee by the holders of at
least 25% in principal amount of the Securities of such series
outstanding under the Indenture, as provided in the Indenture;
or
(e) certain events in bankruptcy, insolvency or
reorganization of the Company.
REMEDIES
If an Event of Default applicable to the Indenture Securities
of any series occurs and is continuing, then either the Trustee
or the holders of not less than 33% in aggregate principal amount
of the outstanding Indenture Securities of such series may
declare the principal of all of the Indenture Securities of such
series and interest accrued thereon to be due and payable
immediately by written notice to the Company (and to the Trustee
if given by the holders of Indenture Securities); provided,
however, that if an Event of Default occurs and is continuing
with respect to more than one series of Indenture Securities, the
Trustee or the holders of not less than 33% in aggregate
principal amount of the outstanding Indenture Securities of all
such series, considered as one class, may make such declaration
of acceleration and not the holders of the Indenture Securities
of any one such series.
At any time after such a declaration of acceleration with
respect to the Indenture Securities of any series has been made,
but before a judgment or decree for payment of the money due has
been obtained, such declaration and its consequences will,
without further act, be deemed to have been rescinded and
annulled, if
(a) the Company has paid or deposited with the Trustee a
sum sufficient to pay
(1) all overdue interest, if any, on all Indenture
Securities of such series;
(2) the principal of and premium, if any, on any
Indenture Securities of such series which have become due
otherwise than by such declaration of acceleration and
interest thereon at the rate or rates prescribed therefor in
such Indenture Securities;
9
(3) interest upon overdue interest at the rate or rates
prescribed therefor in such Indenture Securities, to the
extent that payment of such interest is lawful; and
(4) all amounts due to the Trustee under the Indenture;
and
(b) all Events of Default with respect to Indenture
Securities of such series, other than the non-payment of the
principal of the Indenture Securities of such series which has
become due solely by such declaration of acceleration, have
been cured or waived as provided in the Indenture.
If an Event of Default with respect to the Indenture
Securities of any series occurs and is continuing, the holders of
a majority in principal amount of the outstanding Indenture
Securities of such series will have the right to direct the time,
method and place of conducting any proceedings for any remedy
available to the Trustee or exercising any trust or power
conferred on the Trustee; provided, however, that if an Event of
Default occurs and is continuing with respect to more than one
series of Indenture Securities, the holders of a majority in
aggregate principal amount of the outstanding Indenture
Securities of all such series, considered as one class, will have
the right to make such direction, and not the holders of the
Indenture Securities of any one of such series; and provided,
further, that (a) such direction does not conflict with any
rule of law or with the Indenture, and could not involve the
Trustee in personal liability in circumstances where indemnity
would not, in the Trustee's sole discretion, be adequate and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
The Indenture provides that no holder of any Indenture
Security will have any right to institute any proceeding,
judicial or otherwise, with respect to the Indenture or for the
appointment of a receiver or for any other remedy thereunder
unless (a) such holder has previously given to the Trustee
written notice of a continuing Event of Default with respect to
the Indenture Securities of any one or more series; (b) the
holders of a majority in aggregate principal amount of the
outstanding Indenture Securities of all series in respect of
which such Event of Default has occurred, considered as one
class, have made written request to the Trustee to institute
proceedings in respect of such Event of Default and have offered
the Trustee reasonable indemnity against costs and liabilities to
be incurred in complying with such request; and (c) for 60 days
after receipt of such notice, the Trustee has failed to institute
any such proceeding and no direction inconsistent with such
request has been given to the Trustee during such 60 day period
by the holders of a majority in aggregate principal amount of
Indenture Securities then outstanding. Furthermore, no holder of
Indenture Securities of any series will be entitled to institute
any such action if and to the extent that such action would
disturb or prejudice the rights of other holders of Indenture
Securities of such series. Notwithstanding that the right of a
holder to institute a proceeding with respect to the Indenture is
subject to certain conditions precedent, each holder of an
Indenture Security will have the right, which is absolute and
unconditional, to receive payment of the principal of and
premium, if any, and interest, if any, on such Indenture Security
when due and to institute suit for the enforcement of any such
payment, and such rights may not be impaired or affected without
the consent of such holder. The Indenture provides that the
Trustee give the holders notice of any default under the
Indenture to the extent required by the Trust Indenture Act,
unless such default shall have been cured or waived, except that
no such notice to holders of a default of the character described
in clause (c) under "-- Events of Default" may be given until at
least 75 days after the occurrence thereof. For purposes of the
preceding sentence, the term "default" means any event which is,
or after notice or lapse of time, or both, would become, an Event
of Default. The Trust Indenture Act currently permits the
Trustee to withhold notices of default (except for certain
payment defaults) if the Trustee in good faith determines the
withholding of such notice to be in the interests of the holders.
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The Company is required to file annually with the Trustee a
certificate as to whether or not the Company is in compliance
with all the conditions and covenants applicable to it under the
Indenture.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate
with or merge into any other Person, or convey or otherwise
transfer, or lease, all of its properties, as or substantially as
an entirety, to any Person, unless the Person formed by such
consolidation or into which the Company is merged or the Person
which acquires by conveyance or other transfer, or which leases
(for a term extending beyond the last Stated Maturity of the
Indenture Securities then outstanding), all of the properties of
the Company, as or substantially as an entirety, shall be a
Person organized and existing under the laws of the United
States, any State or Territory thereof or the District of
Columbia or under the laws of Canada or any Province thereof and
shall expressly assume the due and punctual payment of the
principal of and premium, if any, and interest, if any, on all
the Indenture Securities then outstanding and the performance and
observance of every covenant and condition of the Indenture to be
performed or observed by the Company. In the case of the
conveyance or other transfer, or lease, of all of the properties
of the Company, as or substantially as an entirety, to any person
as contemplated above, the Company would be released and
discharged from all obligations under the Indenture and on all
Indenture Securities then outstanding unless the Company elects
to waive such release and discharge. Upon any such consolidation
or merger or any such conveyance, transfer or lease of properties
of the Company, the successor, transferee or lessee shall succeed
to, and be substituted for, and may exercise every power and
right of, the Company under the Indenture. For purposes of the
Indenture, the conveyance, other transfer, or lease by the
Company of all of its facilities (a) for the generation of
electric energy, (b) for the transmission of electric energy or
(c) for the distribution of electric energy and/or natural gas,
in each case considered alone, or all of its facilities described
in clauses (a) and (b), considered together, or all of its
facilities described in clauses (b) and (c), considered together,
shall in no event be deemed to constitute a conveyance or other
transfer of all the properties of the Company, as or
substantially as an entirety, unless, immediately following such
conveyance, transfer or lease, the Company shall own no unleased
properties in the other such categories of property not so
conveyed or otherwise transferred or leased.
If the Company shall convey or otherwise transfer any part of
its properties which does not constitute the entirety, or
substantially the entirety, thereof to another Person meeting the
requirements set forth in the preceding paragraph, and if
(a) such transferee shall expressly assume the due and punctual
payment of the principal of and premium, if any, and interest, if
any, on all Indenture Securities then outstanding and the
performance and observance of every covenant and condition of the
Indenture to be performed or observed by the Company, and
(b) there shall be delivered to the Trustee an independent
expert's certificate (i) describing the property so conveyed or
transferred and identifying the same as facilities for the
generation, transmission or distribution of electric energy or
for the storage, transportation or distribution of natural gas
and (ii) stating that the aggregate principal amount of the
Indenture Securities then outstanding does not exceed 70% of the
fair value of such property, then the Company shall be released
and discharged from all obligations and covenants under the
Indenture and on all Indenture Securities then outstanding unless
the Company elects to waive such release and discharge. In such
event, the transferee shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the
Indenture.
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SATISFACTION AND DISCHARGE
Any Indenture Securities, or any portion of the principal
amount thereof, will be deemed to have been paid for purposes of
the Indenture and, at the Company's election, the entire
indebtedness of the Company in respect thereof will be deemed to
have been satisfied and discharged, if there shall have been
irrevocably deposited with the Trustee or any Paying Agent (other
than the Company), in trust: (a) money in an amount which will be
sufficient, or (b) in the case of a deposit made prior to the
maturity of such Indenture Securities, Eligible Obligations,
which do not contain provisions permitting the redemption or
other prepayment thereof at the option of the issuer thereof, the
principal of and the interest on which when due, without any
regard to reinvestment thereof, will provide moneys which,
together with the money, if any, deposited with or held by the
Trustee or such Paying Agent, will be sufficient, or (c) a
combination of (a) and (b) which will be sufficient, to pay when
due the principal of and premium, if any, and interest, if any,
due and to become due on such Indenture Securities. For this
purpose, Eligible Obligations include direct obligations of, or
obligations unconditionally guaranteed by, the United States
entitled to the benefit of the full faith and credit thereof and
certificates, depositary receipts or other instruments which
evidence a direct ownership interest in such obligations or in
any specific interest or principal payments due in respect
thereof and such other obligations or instruments as shall be
specified in an accompanying Prospectus Supplement.
The Indenture will be deemed to have been satisfied and
discharged when no Indenture Securities remain outstanding
thereunder and the Company has paid or caused to be paid all
other sums payable by the Company under the Indenture.
INFORMATION CONCERNING THE TRUSTEE
The Trustee will have, and will be subject to, all the duties
and responsibilities specified with respect to an indenture
trustee under the Trust Indenture Act. Subject to such
provisions, the Trustee will be under no obligation to exercise
any of the powers vested in it by the Indenture at the request of
any holder of Indenture Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Trustee will
not be required to expend or risk its own funds or otherwise
incur personal financial liability in the performance of its
duties if the Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
The Trustee may resign at any time with respect to the
Indenture Securities of one or more series by giving written
notice thereof to the Company or may be removed at any time with
respect to the Indenture Securities of one or more series by Act
of the Holders of a majority in principal amount of the
outstanding Indenture Securities of such series delivered to the
Trustee and the Company. No resignation or removal of the
Trustee and no appointment of a successor trustee will become
effective until the acceptance of appointment by a successor
trustee in accordance with the requirements of the Indenture. So
long as no Event of Default or event which, after notice or lapse
of time, or both, would become an Event of Default has occurred
and is continuing, if the Company has delivered to the Trustee
with respect to one or more series a resolution of its Board of
Directors appointing a successor trustee with respect to that or
those series and such successor has accepted such appointment in
accordance with the terms of the Indenture, the Trustee with
respect to that or those series will be deemed to have resigned
and the successor will be deemed to have been appointed as
trustee in accordance with the Indenture.
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EVIDENCE TO BE FURNISHED TO THE TRUSTEE
Compliance with the Indenture provisions is evidenced by
written statements of Company officers or persons selected or
paid by the Company. In certain cases, opinions of counsel and
certifications of an engineer, appraiser or other expert (who in
some cases must be independent) must be furnished. In addition,
the Indenture requires that the Company give the Trustee, not
less than annually, a brief statement as to the Company's
compliance with the conditions and covenants under the Indenture.
GOVERNING LAW
The Indenture and the Indenture Securities will be governed by
and construed in accordance with the laws of the State of New
York, except to the extent that the Trust Indenture of 1939, as
amended, shall be applicable.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities in any of four ways:
(i) directly to a limited number of institutional purchasers or
to a single purchaser, (ii) through agents, (iii) through
underwriters or (iv) through dealers. The applicable Prospectus
Supplement relating to each series of Debt Securities will set
forth the terms of the offering of such Debt Securities,
including the name or names of any such agents, underwriters or
dealers, the purchase price of such Debt Securities and the net
proceeds to the Company from such sale, any underwriting
discounts and other items constituting underwriters'
compensation, the initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers. Any
initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time
to time.
If underwriters are used in any sale of Debt Securities, such
Debt Securities will be acquired by such underwriters for their
own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time
of sale. Unless otherwise set forth in the Prospectus Supplement
relating to a series of Debt Securities, the obligations of any
underwriter or underwriters to purchase such Debt Securities will
be subject to certain conditions precedent, and such underwriter
or underwriters will be obligated to purchase all of such Debt
Securities if any are purchased, except that, in certain cases
involving a default by one or more underwriters, less than all of
such Debt Securities may be purchased.
If an agent of the Company is used in any sale of a series of
Debt Securities, any commissions payable by the Company to such
agent will be set forth in the applicable Prospectus Supplement
relating to such Debt Securities. Unless otherwise indicated in
the applicable Prospectus Supplement, any such agent will be
acting on a best efforts basis for the period of its appointment.
Any underwriters, dealers or agents participating in the
distribution of the Debt Securities may be deemed to be
underwriters, and any discounts or commissions received by them
on the sale or resale of Debt Securities may be deemed to be
underwriting discounts and commissions, under the Securities Act.
Agents, underwriters and dealers may be entitled under agreements
entered into with the Company to indemnification by the Company
against certain liabilities, including liabilities under the
Securities Act.
Unless otherwise provided in the applicable Prospectus
Supplement relating to a series of Debt Securities, the Company
does not intend to apply for the listing of the Notes on a
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national securities exchange, but has been advised by the agents
that the agents intend to make a market in the Notes, as
permitted by applicable laws and regulations. The agents are not
obligated to do so, however, and the agents may discontinue
making a market at any time without notice. No assurance can be
given as to the liquidity of any trading market for the Notes.
The agents and/or certain of their affiliates may engage in
transactions with and perform services for the Company and
certain of its affiliates in the ordinary course of business.
LEGAL MATTERS
Certain matters of New York law and of federal securities laws
relating to the validity of the Debt Securities and certain
matters relating thereto will be passed upon for the Company by
Reid & Priest LLP, New York, New York, counsel to the Company.
Certain matters of Washington corporate law and of public utility
regulatory approvals under Washington, Idaho, Montana, Oregon and
California law relating to the authorization of the Debt
Securities will be passed upon for the Company by Paine, Hamblen,
Coffin, Brooke & Miller LLP, Spokane, Washington, general counsel
for the Company. The validity of the Debt Securities will be
passed upon for the underwriters by Sullivan & Cromwell, New
York, New York. In giving their opinions Reid & Priest LLP and
Sullivan & Cromwell may assume the conclusions of Washington,
California, Idaho, Montana and Oregon law set forth in the
opinion of Paine, Hamblen, Coffin, Brooke & Miller LLP.
EXPERTS
The financial statements and the related financial statement
schedules incorporated in this Prospectus by reference from the
Company's Latest Annual Report on Form 10-K have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
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