As filed with the Securities and Exchange Commission on June 29, 2004
Registration No. 333-115852
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
Pre-Effective
Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
(Exact name of registrant as specified in its charter)
OHIO 4911 34-0150020
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
C/O FIRSTENERGY CORP.
76 SOUTH MAIN STREET
AKRON, OHIO 44308-1890
(800) 384-5800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------------------------
LEILA L. VESPOLI, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
C/O FIRSTENERGY CORP.
76 SOUTH MAIN STREET
AKRON, OHIO 44308-1890
(800) 384-5800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------------
WITH COPIES TO:
LUCAS F. TORRES, ESQ. BRUCE S. MENDELSOHN, ESQ.
PILLSBURY WINTHROP LLP AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1540 BROADWAY 1333 NEW HAMPSHIRE AVENUE, N.W.
NEW YORK, NY 10036 WASHINGTON, D.C. 20036-1564
(212) 858-1000 (202) 887-4000
FAX: (212)858-1500 FAX: (202) 887-4288
DOUGLAS E. DAVIDSON, ESQ.
THELEN REID & PRIEST LLP
875 THIRD AVENUE
NEW YORK, NY 10022-6225
(212) 603-2000
FAX: (212) 603-2001
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the registration statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box, and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 29, 2004
PROSPECTUS
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
OFFER TO EXCHANGE
$300,000,000
5.65% EXCHANGE SENIOR NOTES
DUE 2013
FOR ANY AND ALL
5.65% SENIOR NOTES
DUE 2013
--------------------------------
We are offering to exchange up to $300,000,000 in aggregate principal
amount of our registered 5.65% Exchange Senior Notes due 2013, which we refer to
as the Exchange Notes, for $300,000,000 in aggregate principal amount of our
outstanding unregistered 5.65% Senior Notes due 2013, which we refer to as the
Original Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Original Notes, except that the Exchange Notes have
been registered under the Securities Act of 1933, and, therefore, the terms
relating to transfer restrictions, registration rights and additional interest
applicable to the Original Notes are not applicable to the Exchange Notes, and
the Exchange Notes will bear different CUSIP numbers.
- This exchange offer will expire at 5:00 p.m., New York City time, on ,
2004, unless extended.
- All Original Notes that are validly tendered, and not validly withdrawn,
will be exchanged. You should carefully review the procedures for
tendering the Original Notes beginning on page 29 of this prospectus.
- You may validly withdraw tenders of Original Notes at any time before the
expiration of this exchange offer.
- If you fail to tender your Original Notes, you will continue to hold
unregistered, restricted securities, and your ability to transfer them
could be adversely affected.
- The exchange of Original Notes for Exchange Notes will not be a taxable
event for United States federal income tax purposes.
- Original Notes may be exchanged for Exchange Notes only in minimum
denominations of $1,000 and integral multiples thereof.
- We will not receive any proceeds from this exchange offer.
- No public market currently exists for the Exchange Notes. We do not intend
to apply for listing of the Exchange Notes on any national securities
exchange or to arrange for the Exchange Notes to be quoted on any
automated quotation system, and, therefore, an active public market is not
anticipated.
Each broker-dealer that receives Exchange Notes for its own account in
this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of those Exchange Notes. The
related letter of transmittal that is delivered with this prospectus states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933. This prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of Exchange
Notes received in exchange for Original Notes the broker-dealer acquired as a
result of market-making activities or other trading activities. We have agreed
that we will make this prospectus available to any broker-dealer for use in
connection with any such resale for a period ending 90 days after the
consummation of this exchange offer or, if sooner, the date on which those
Exchange Notes held by the broker-dealer have been sold (unless such period is
extended pursuant to the registration rights agreement). See "Plan of
Distribution" beginning on page 53 of this prospectus.
Each holder of Original Notes wishing to accept this exchange offer must
effect a tender of Original Notes by book-entry transfer into the exchange
agent's account at The Depository Trust Company ("DTC"). All deliveries are at
the risk of the holder. You can find detailed instructions concerning delivery
in the section of this prospectus entitled "The Exchange Offer" beginning on
page 25.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF FACTORS THAT
YOU SHOULD CONSIDER IN CONNECTION WITH AN INVESTMENT IN EXCHANGE NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
YOU SHOULD READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING LETTER OF
TRANSMITTAL AND RELATED DOCUMENTS AND ANY AMENDMENTS OR SUPPLEMENTS CAREFULLY
BEFORE MAKING YOUR DECISION TO PARTICIPATE IN THIS EXCHANGE OFFER.
The date of this prospectus is , 2004.
Table of Contents
Page
----
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS............................... 2
SUMMARY............................................................................ 4
RISK FACTORS...................................................................... 16
USE OF PROCEEDS................................................................... 23
CAPITALIZATION AND SHORT-TERM DEBT................................................ 24
SUMMARY CONSOLIDATED FINANCIAL INFORMATION........................................ 25
THE EXCHANGE OFFER................................................................ 25
DESCRIPTION OF EXCHANGE NOTES..................................................... 36
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES............................. 50
PLAN OF DISTRIBUTION.............................................................. 53
LEGAL MATTERS..................................................................... 55
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..................................... 55
WHERE YOU CAN FIND MORE INFORMATION............................................... 55
THIS PROSPECTUS INCORPORATES BY REFERENCE IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT US THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT.
COPIES OF THIS INFORMATION ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM
THIS PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST. WRITTEN REQUESTS
SHOULD BE SENT TO THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, C/O FIRSTENERGY
CORP., 76 SOUTH MAIN STREET, AKRON, OHIO 44308-1890, ATTENTION: INVESTOR
SERVICES. ORAL REQUESTS SHOULD BE MADE BY TELEPHONING (800) 736-3402. TO OBTAIN
TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION NO LATER THAN , 2004,
WHICH IS FIVE BUSINESS DAYS BEFORE THE EXPIRATION DATE OF THIS EXCHANGE OFFER.
THIS PROSPECTUS IS PART OF A REGISTRATION STATEMENT WE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. YOU SHOULD RELY ONLY ON THE INFORMATION WE
HAVE PROVIDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH ADDITIONAL OR DIFFERENT INFORMATION. WE
ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER
IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE ON THE FRONT COVER AND THAT ANY INFORMATION WE HAVE
INCORPORATED BY REFERENCE IS ACCURATE ONLY AS OF THE DATE OF THE DOCUMENT
INCORPORATED BY REFERENCE.
1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus and incorporated by
reference into this prospectus are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 (the Securities Act) and Section
21E of the Securities Exchange Act of 1934 (the Exchange Act). These statements
include declarations regarding our or our management's intents, beliefs and
current expectations. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology. Forward-looking
statements are not guarantees of future performance, and actual results could
differ materially from those indicated by the forward-looking statements.
Forward-looking statements involve estimates, assumptions, known and unknown
risks, uncertainties and other factors that may cause our or our industry's
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements.
The forward-looking statements contained and incorporated by reference
herein are qualified in their entirety by reference to the following important
factors, which are difficult to predict, contain uncertainties, are beyond our
control and may cause actual results to differ materially from those contained
in forward-looking statements:
- the speed and nature of increased competition and deregulation in the
electric utility industry;
- economic or weather conditions affecting future sales and margins;
- changes in markets for energy services;
- changing energy and commodity market prices;
- replacement power costs being higher than anticipated or inadequately
hedged;
- maintenance costs being higher than anticipated;
- legislative and regulatory changes (including revised environmental
requirements);
- adverse regulatory or legal decisions and the outcome of governmental
investigations (including revocation of necessary licenses or operating
permits);
- availability and cost of capital;
- the continuing availability and operation of generating units;
- the inability to accomplish or realize anticipated benefits of strategic
goals;
- the ability to improve electric commodity margins and to experience growth
in the distribution business;
- the ability to access the public securities markets;
2
- further investigation into the causes of the August 14, 2003 regional
power outage and the outcome, cost and other effects of present and
potential legal and administrative proceedings and claims related to the
outage;
- the final outcome in the proceeding related to our Application for a Rate
Stabilization Plan; and
- the risks and other factors discussed from time to time in our filings
with the Securities and Exchange Commission, including our Annual Report
on Form 10-K for the year ended December 31, 2003, as amended, and our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, and in
this prospectus under the heading "RISK FACTORS"; and
- other similar factors.
Any forward-looking statements speak only as of the date of this prospectus, and
we undertake no obligation to update any forward-looking statements to reflect
events or circumstances after the date on which such statements are made or to
reflect the occurrence of unanticipated events. New factors emerge from time to
time, and it is not possible for us to predict all of such factors, nor can we
assess the impact of any such factor on our business or the extent to which any
factor, or combination of factors, may cause results to differ materially from
those contained in any forward-looking statements. The foregoing review of
factors should not be construed as exhaustive.
3
SUMMARY
This summary highlights selected information from this prospectus. This
summary is not complete and may not contain all of the information that you
should consider prior to making a decision to exchange Original Notes for
Exchange Notes. You should read the entire prospectus carefully, including the
"Risk Factors" section beginning on page 16 of this prospectus and the financial
statements and notes to these statements incorporated by reference in this
prospectus. In this prospectus, unless the context indicates otherwise, the
words "Cleveland Electric," "the company," "we," "our," "ours" and "us" refer to
The Cleveland Electric Illuminating Company.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
We are a wholly owned electric utility operating subsidiary of FirstEnergy
Corp., or FirstEnergy. FirstEnergy is a holding company registered under the
Public Utility Holding Company Act of 1935. We engage in the generation,
distribution and sale of electric energy in an area of approximately 1,700
square miles in northeastern Ohio. We also engage in the sale, purchase and
interchange of electric energy with other electric companies. The area we serve
has a population of approximately 1.9 million.
Our principal executive offices are located at 76 South Main Street,
Akron, Ohio 44308-1890. Our telephone number is (800) 736-3402.
RECENT DEVELOPMENTS
Davis-Besse Restoration
On April 30, 2002, the Nuclear Regulatory Commission, or NRC, initiated a
formal inspection process at the Davis-Besse nuclear plant. This action was
taken in response to corrosion found by FirstEnergy Nuclear Operating Committee,
or FENOC, in the reactor vessel head near the nozzle penetration hole during a
refueling outage in the first quarter of 2002. The purpose of the formal
inspection process was to establish criteria for NRC oversight of the licensee's
performance and to provide a record of the major regulatory and licensee actions
taken, and technical issues resolved.
Restart activities included both hardware and management issues. In
addition to refurbishment and installation work at the plant, FENOC made
significant management and human performance changes with the intent of
enhancing the proper safety culture throughout the workforce. The focus of
activities in the first quarter of 2004 involved management and human
performance issues. On March 8, 2004, the NRC approved the restart of the plant
and on April 4, 2004 Davis-Besse resumed generating electricity at 100% power.
The Davis-Besse restoration resulted in additional capital and operating costs
of $292 million, as well as $380 million of replacement power costs.
FENOC has received a subpoena from a grand jury sitting in the United
States District Court for the Northern District of Ohio, Eastern Division
requesting the production of certain documents and records relating to the
inspection and maintenance of the reactor vessel head at the Davis-Besse plant.
We are unable to predict the outcome of this investigation. FENOC remains
subject to possible civil enforcement action by the NRC in connection with the
events leading to the Davis-Besse outage. If it were ultimately determined that
we or FirstEnergy have legal liability or are otherwise made subject to
regulatory or civil enforcement action with respect to the Davis-Besse outage,
it could have a material adverse effect on our financial condition and results
of operations.
As part of its informal inquiry, which began last September, the U.S.
Securities and Exchange Commission ("SEC") requested in a letter dated June 24,
2004 that FirstEnergy voluntarily provide information and documents related to
the outage at Davis-Besse. FirstEnergy intends to comply with this request
and to cooperate fully with this inquiry.
4
Power Outage
On August 14, 2003, various states and parts of southern Canada
experienced a widespread power outage. That outage affected approximately 1.4
million customers in FirstEnergy's service area. On April 5, 2004, the
U.S.-Canada Power Outage System Task Force released its final report on this
outage. The final report supercedes the interim report that had been issued in
November 2003. In the final report, the Task Force concluded, among other
things, that the problems leading to the outage began in FirstEnergy's Ohio
service area. Specifically, the final report concludes, among other things, that
the initiation of the August 14th outage resulted from the coincidence on that
afternoon of several events, including an alleged failure of both FirstEnergy
and the East Central Area Reliability Agreement, or ECAR, to assess and
understand perceived inadequacies within the FirstEnergy system, inadequate
situational awareness of the developing conditions and a perceived failure to
adequately manage tree growth in certain transmission rights of way. The Task
Force also concluded that there was a failure of the interconnected grid's
reliability organizations (Midwest Independent System Operator or MISO, and PJM
Interconnection) to provide effective diagnostic support. FirstEnergy believes
that the final report does not provide a complete and comprehensive picture of
the conditions that contributed to the August 14th outage and that it does not
adequately address the underlying causes of the outage. FirstEnergy remains
convinced that that the outage cannot be explained by events on any one
utility's system. The final report contain 46 "recommendations to prevent or
minimize the scope of future blackouts." Forty-five of those recommendations
relate to broad industry or policy matters while one relates to activities the
Task Force recommends be undertaken by FirstEnergy, MISO, PJM, and ECAR.
FirstEnergy has undertaken several initiatives, some prior to and some since the
August 14th power outage, to enhance reliability which are consistent with these
and other recommendations and believes it will complete those related to summer
2004 by June 30 (see Reliability Initiatives below). As many of these
initiatives already were in process and budgeted in 2004, FirstEnergy does not
believe that any incremental expenses associated with additional initiatives
undertaken during 2004 will have a material effect on its operations or
financial results. The applicable government agencies and reliability
coordinators may, however, take a different view as to recommended enhancements
or may recommend additional enhancements in the future that could require
additional, material expenditures.
Legal Matters
A number of legal and regulatory proceedings have been filed against
FirstEnergy in connection with, among other things, the Davis-Besse outage, the
restatement by FirstEnergy, us, Ohio Edison Company ("Ohio Edison") and The
Toledo Edison Company ("Toledo Edison") of earnings and the August 14th outage,
alleging violations of federal securities laws, breaches of fiduciary duties by
the respective directors and officers, or damages as a result of one or more of
those events. We, Ohio Edison and Toledo Edison have also been named as
respondents in two such regulatory proceedings initiated at the Public Utilities
Commission of Ohio, or PUCO, in response to complaints alleging failure to
provide reasonable and adequate service stemming primarily from the August 14th
power outage. We and FirstEnergy intend to defend these actions vigorously, but
cannot predict the outcome of any of these proceedings or whether any further
regulatory proceedings or legal actions may be instituted against us. In
particular, if we or FirstEnergy were ultimately determined to have legal
liability in connection with the August 14th outage, it could have a material
adverse effect on our respective financial conditions and results of operations.
Regulatory Matters
On October 21, 2003, we, together with Ohio Edison and Toledo Edison,
filed an application with the PUCO to establish generation service rates
beginning January 1, 2006, in response to expressed concerns by the PUCO about
price and supply uncertainty following the end of the market development period.
The filing included two options (a) a competitive auction, which would establish
a price for
5
generation that customers would be charged during the period covered by the
auction, or (b) a rate stabilization plan, which would extend current generation
prices through 2008, ensuring adequate generation supply at stable prices and
continuing our support of energy efficiency and economic development efforts.
Under the first option, an auction would be conducted to secure generation
service for our Ohio customers. Beginning in 2006, customers would pay market
prices for generation as determined by the auction. Under the Rate Stabilization
Plan option, customers would have price and supply stability through 2008, three
years beyond the end of the market development period, as well as the benefits
of a competitive market. Customer benefits would include: customer savings by
extending the current five percent discount on generation costs and other
customer credits; maintaining current distribution base rates through 2007;
market-based auctions that may be conducted annually to ensure that customers
pay the lowest available prices; extension of our support of energy-efficiency
programs and the potential for continuing the program to give preferred access
to nonaffiliated entities to generation capacity if shopping drops below 20%.
Under the proposed plan, we are requesting: (i) extension of the transition cost
amortization period from 2008 to July 2009; (ii) deferral of interest costs on
the accumulated shopping incentive and other cost deferrals as new regulatory
assets; and (iii) ability to initiate a request to increase generation rates
only under certain limited conditions. On January 7, 2004, the PUCO staff filed
testimony on the proposed rate plan generally supporting the Rate Stabilization
Plan as opposed to the competitive auction proposal. Hearings began on February
11, 2004. On February 23, 2004, after consideration of PUCO Staff comments and
testimony as well as those provided by some of the intervening parties,
we and the other applicants made certain modifications to the Rate Stabilization
Plan. Oral arguments were held before the PUCO on April 21, 2004. While much of
the modified plan was approved as filed on June 9, 2004 -- including provisions
for extending current generation prices for customers through 2008, applying
appropriate accounting modifications, and continuing residential customer
shopping credits totaling approximately $285 million in savings -- we and the
other applicants filed an application for rehearing of certain issues in the
approved plan on June 18, 2004. These include: (1) the ability to request
recovery of increased costs that are outside the companies' control, such as
environmental costs and fuel, which is at record-high market prices and
recoverable in Ohio's only other approved rate plan for the period beginning
January 1, 2006, (2) deferral of costs associated with distribution reliability
improvements, (3) duplication of certain customer charge credits that already
had been included in a revision FirstEnergy made to the plan, (4) the terms of
offering any below-market-priced power, called Market Support Generation, to
other suppliers, and (5) the allocation of funding for low-income,
energy-efficient and economic development programs.
Reliability Initiatives
On October 15, 2003, NERC issued a Near Term Action Plan that contained
recommendations for all control areas and reliability coordinators with respect
to enhancing system reliability. Approximately 20 of the recommendations were
directed at us and other FirstEnergy companies and broadly focused on
initiatives that are recommended for completion by summer 2004. These
initiatives principally relate to changes in voltage criteria and reactive
resources management; operational preparedness and action plans; emergency
response capabilities; and preparedness and operating center training.
FirstEnergy presented a detailed compliance plan to NERC, which NERC
subsequently endorsed on May 7, 2004, and the various initiatives are expected
to be completed no later than June 30, 2004.
On February 26 and 27, 2004, we and other FirstEnergy companies
participated in a NERC Control Area Readiness Audit. This audit, part of an
announced program by NERC to review control area operations throughout much of
the United States during 2004, is an independent review to identify areas for
improvement. The final audit report was completed on April 30, 2004. The report
identified positive observations and included various recommendations for
improvement. FirstEnergy is currently reviewing the audit results and
recommendations and expects to implement those relating to summer 2004 by June
30. Based on its review thus far, FirstEnergy believes that none of the
recommendations identify a need for any incremental material investment or
upgrades to existing equipment. NERC or other applicable government agencies and
reliability coordinators may, however, take a different view as to recommended
enhancements or may recommend additional enhancements in the future that could
require additional, material expenditures.
On March 1, 2004, we and other FirstEnergy companies filed, in accordance
with a November 25, 2003 order from the PUCO, their plan for addressing certain
issues identified by the PUCO from the U.S. - Canada Power System Outage Task
Force interim report. In particular, the filing addressed upgrades to
FirstEnergy's control room computer hardware and software and enhancements to
the training of control room operators. The PUCO will review the plan before
determining the next steps, if any, in the proceeding.
6
On April 22, 2004, FirstEnergy filed with the Federal Energy Regulatory
Commission, or FERC, the results of the FERC-ordered independent study of part
of Ohio's power grid. The study examined, among other things, the reliability of
the transmission grid in critical points in the Northern Ohio area and the need,
if any, for reactive power reinforcements during summer 2004 and 2005.
FirstEnergy is currently reviewing the results of that study and expects to
complete the implementation of recommendations relating to 2004 by this summer.
Based on its review thus far, FirstEnergy believes that the study does not
recommend any incremental material investment or upgrades to existing equipment.
FERC or other applicable government agencies and reliability coordinators may,
however, take a different view as to recommended enhancements or may recommend
additional enhancements in the future that could require additional, material
expenditures.
With respect to each of the foregoing initiatives, FirstEnergy has
requested and NERC has agreed to provide, a technical assistance team of experts
to provide ongoing guidance and assistance in implementing and confirming timely
and successful completion.
Ratings of Securities
S&P, Moody's and Fitch rate our senior unsecured debt at BB+, Baa3 and BB,
respectively.
On September 30, 2003, Fitch Ratings lowered the senior unsecured ratings
of FirstEnergy to "BBB-" from "BBB." Fitch also lowered our senior secured,
senior unsecured, and preferred stock ratings. Fitch announced that the Rating
Outlook is Stable for the securities of FirstEnergy, and all of the securities
of its electric utility operating companies.
On December 23, 2003, Standard & Poor's, or S&P, lowered its corporate
credit ratings on FirstEnergy and its regulated utility subsidiaries to "BBB-"
from "BBB" and lowered FirstEnergy's senior unsecured debt rating to "BB+" from
"BBB-". Our ratings were lowered one notch as well. The ratings were removed
from CreditWatch with negative implications, where they had been placed by S&P
on August 18, 2003, and the Ratings Outlook returned to Stable. On March 9,
2004, S&P stated that the NRC's permission for FirstEnergy to restart
Davis-Besse was positive for credit quality because it would positively affect
cash flow by eliminating replacement power costs and "demonstrating management's
ability to overcome operational challenges." However, S&P did not change
FirstEnergy's ratings or outlook because it stated that financial performance
still "significantly lags expectations and management faces other operational
hurdles."
On February 6, 2004, Moody's downgraded FirstEnergy senior unsecured debt
to Baa3 from Baa2. Our ratings were confirmed.
7
THE EXCHANGE OFFER
Issuance of the Original Notes........ We issued and sold $300,000,000 of 5.65%
Senior Notes on December 12, 2003 in a
transaction not requiring registration under the
Securities Act.
The initial purchasers of the Original Notes sold
beneficial interests in the Original Notes to
qualified institutional buyers pursuant to Rule
144A of the Securities Act and to non-US
persons pursuant to Regulation S of the
Securities Act. All of the Original Notes
originally issued by us on December 12, 2003 are
currently outstanding.
The Exchange Offer; Exchange Notes.... We are offering to exchange the Exchange Notes
for the Original Notes to satisfy our obligations
under the registration rights agreement we
entered into when the Original Notes were issued
and sold. The Exchange Notes will have been
registered under the Securities Act and are of a
like principal amount and like tenor of the
Original Notes. Noteholders that validly tender
their Original Notes and do not validly withdraw
such tender before the expiration date will have
the benefit of this exchange offer. Original Notes
may be exchanged for Exchange Notes only in
minimum denominations of $1,000 and integral
multiples thereof. In order to exchange your
Original Notes, you must validly tender them
before the expiration date of this exchange offer.
Expiration Date....................... 5:00 p.m., New York City time, on , 2004,
unless extended by us in our sole discretion. If
extended, the term expiration date as used in this
prospectus will mean the latest date and time to
which this exchange offer is extended. We will
accept for exchange any and all Original Notes
which are validly tendered and not validly
withdrawn before 5:00 p.m., New York City
time, on the expiration date.
Conditions to the Exchange Offer...... This exchange offer is subject to certain
customary conditions, some of which we may
waive. See "The Exchange Offer - Conditions to
the Exchange Offer."
Consequences of Failure to Exchange If you fail to validly tender your Original Notes
Your Original Notes................... for Exchange Notes in accordance with the terms
8
of this exchange offer, or withdraw your tender,
your Original Notes will continue to be subject to
transfer restrictions. If you are eligible to
participate in this exchange offer and you fail to
validly tender your Original Notes, or withdraw
your tender, you will not have any further rights
under the registration rights agreement, including
the right to require us to register your Original
Notes, but your Original Notes will remain
outstanding and continue to accrue interest. See
"The Exchange Offer - Consequences of Failure
to Exchange."
Because we anticipate that most holders of
Original Notes will elect to exchange their
Original Notes, we expect that the liquidity of the
markets, if any, for any Original Notes remaining
after the completion of this exchange offer will
be substantially limited.
Procedures for Tendering Original If you are a holder of Original Notes who wishes
Notes................................. to accept this exchange offer you must:
- complete, sign and date the accompanying
letter of transmittal in accordance with the
instructions contained in the letter of
transmittal; and
- mail or otherwise deliver the letter of
transmittal together with the Original Notes
and any other required documentation to the
exchange agent at the address set forth in
this prospectus.
However, if you hold Original Notes through The
Depository Trust Company, or DTC, and wish to
accept this exchange offer, you must arrange for
DTC to transmit required information to the
exchange agent in connection with a book-entry
transfer. See "The Exchange Offer - Procedures
for Tendering Original Notes."
By tendering your Original Notes in either of
these manners, you will be making a number of
important representations to us, as described
under "The Exchange Offer - Resale of Exchange
Notes," including that you do not intend to
participate in a distribution of the Exchange
Notes.
9
Please do not send your letter of transmittal or
certificates representing your Original Notes to
us. Those documents should be sent only to the
exchange agent. Questions regarding how to
tender Original Notes and requests for
information should be directed to the exchange
agent. See "The Exchange Offer - Exchange
Agent."
Guaranteed Delivery Procedures........ If you wish to tender your Original Notes and
your Original Notes are not immediately
available or you cannot deliver your Original
Notes, the letter of transmittal or any other
documents required by the letter of transmittal to
be delivered to the exchange agent, or you are
unable to comply with the procedures for book-
entry transfer prior to the expiration of this
exchange offer, you must tender your Original
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer -
Procedures for Tendering Original Notes -
Guaranteed Delivery" in order to participate in
this exchange offer.
Special Procedures for Beneficial If your Original Notes are registered in the name
Owners................................ of a broker, dealer, commercial bank, trust
company or other nominee and you wish to
tender your Original Notes, we urge you to
contact that person promptly and instruct the
registered holder to tender your Original Notes
on your behalf.
If your Original Notes are registered in the name
of a broker, dealer, commercial bank, trust
company or other nominee and you wish to
tender your Original Notes on your own behalf,
you must, prior to completing and executing the
letter of transmittal and delivering your Original
Notes to the exchange agent, either make
appropriate arrangements to register ownership
of the Original Notes in your name or obtain a
properly completed note power from the
registered holder. Please note that the transfer of
registered ownership may take considerable time.
Withdrawal Rights..................... You may validly withdraw the tender of your
Original Notes at any time prior to 5:00 p.m.,
New York City time, on the expiration date. See
"The Exchange Offer - Withdrawal Rights."
10
Acceptance of Original Notes and
Delivery of Exchange Notes............ We will accept for exchange any and all Original
Notes which are validly tendered and not
withdrawn in accordance with the terms and
conditions of this exchange offer prior to 5:00
p.m., New York City time, on the expiration date.
The Exchange Notes issued pursuant to this
exchange offer will be delivered on the earliest
practicable date following the exchange date. See
"The Exchange Offer - Terms of the Exchange
Offer."
Resales of Exchange Notes............. We believe that you will be able to offer for
resale, resell or otherwise transfer Exchange
Notes issued in this exchange offer without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that:
- You are acquiring the Exchange Notes in the
ordinary course of your business;
- You have no arrangement or understanding with
any person to participate in a distribution of
the Exchange Notes;
- You are not an affiliate of ours; and
- If you are not a broker-dealer, you are not
engaged in, and do not intend to engage in,
the distribution of Exchange Notes.
In addition, each participating broker-dealer that
receives Exchange Notes for its own account in
exchange for Original Notes which were acquired
by the broker-dealer as a result of market-making
or other trading activities must acknowledge that
it will deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resale of the Exchange Notes. A broker-
dealer may use this prospectus for an offer to sell,
resell or otherwise transfer Exchange Notes. See
"Plan of Distribution."
Our belief is based on interpretations by the staff of
the SEC set forth in several no-action letters issued
to third parties. The SEC has not considered this
exchange offer in the context of a no-action
letter, and we cannot be sure that the staff of the
SEC would make a similar determination with
11
respect to this exchange offer. See "The
Exchange Offer - Resale of Exchange Notes."
If our belief is not accurate and you transfer an
Exchange Note without delivering a prospectus
meeting the requirements of the Securities Act or
without an exemption from those requirements,
you may incur liability under the Securities Act.
We do not and will not assume, or indemnify you
against, such liability.
Accrued Interest on the Exchange Notes
and Original Notes.................... Interest on each Exchange Note will accrue from
the last date on which interest was paid on the
Original Note surrendered in this exchange offer,
or if no interest has been paid, from the original
date of issuance of the Original Notes.
Certain United States Federal Income
Tax Consequences...................... The exchange of Original Notes for Exchange
Notes pursuant to this exchange offer will not be
a taxable event for United States federal income
tax purposes. See "Certain United States Federal
Income Tax Consequences."
Use of Proceeds....................... We will not receive any cash proceeds from the
issuance of the Exchange Notes. See "Use of
Proceeds."
Exchange Agent........................ JPMorgan Chase Bank.
Registration Rights Agreement......... The registration rights agreement by and among
us and the initial purchasers of the Original Notes
entitles you to exchange your Original Notes for
Exchange Notes with substantially identical
terms. This exchange offer satisfies this right.
After this exchange offer is completed, you will
no longer be entitled to any exchange or
registration rights with respect to your Original
Notes. However, under the circumstances
described in the registration rights agreement,
you may require us to file a shelf registration
statement under the Securities Act. See "The
Exchange Offer - Purpose of the Exchange
Offer" and "The Exchange Offer - Consequences
of Failure to Exchange."
12
THE EXCHANGE NOTES
Securities Offered.................... We are offering $300,000,000 aggregate principal
amount of 5.65% Exchange Senior Notes due 2013.
General............................... The form and terms of the Exchange Notes are
identical in all material respects to the form and terms
of the Original Notes, except that the Exchange Notes
(i) will be registered under the Securities Act and,
therefore, will not be subject to the restrictions on
transfer applicable to the Original Notes, (ii) will bear a
different CUSIP number and (iii) will not be entitled to
the rights of holders of Original Notes under the
registration rights agreement we entered into when the
Original Notes were issued and sold. The Exchange
Notes will evidence the same debt as the Original
Notes and will be entitled to the benefits of the senior
note indenture. See "Description of the Exchange
Notes."
Maturity.............................. The Exchange Notes will mature on December 15,
2013.
Interest.............................. Interest on the Exchange Notes will accrue at a rate of
5.65% per annum. Interest on the Exchange Notes will
accrue from the last date on which interest was paid on
the Original Notes surrendered in the exchange offer,
or, if no interest has been paid, from the original date
of issuance of the Original Notes, and will be payable
semi-annually in arrears on each June 15 and
December 15.
Indenture............................. We will issue the Exchange Notes under the indenture
dated as of December 1, 2003 between us and
JPMorgan Chase Bank, as trustee.
Optional Redemption................... The Exchange Notes will be redeemable in whole or in
part, at our option, at any time at a redemption price
equal to the greater of
- 100% of the principal amount of the Exchange
Notes being redeemed, and
- the sum of the present values of the remaining
scheduled payments of principal and interest
(excluding the portion of any such interest
accrued to the redemption date) on the
Exchange Notes being redeemed discounted to
the redemption date semiannually (assuming a
360-day year consisting of twelve 30-day
months) at the Adjusted Treasury Rate (as
13
defined below) plus 25 basis points, plus
accrued and unpaid interest on the Exchange
Notes being redeemed to the date of
redemption. See "Description of Exchange
Notes-Optional Redemption."
Ranking............................... The Exchange Notes will be our senior unsecured
general obligations and will rank equally with all of our
other unsecured and unsubordinated indebtedness and
junior to our secured debt. As of March 31, 2004, we
had approximately $1.6 billion of secured debt
outstanding.
Limitation on Liens................... So long as any Exchange Notes are outstanding, we
may not issue, assume, guarantee or permit to exist any
debt for money borrowed that is secured by any
mortgage, security interest, pledge or lien of or upon
any of our Operating Property (as defined below) with
certain exceptions for certain permitted secured debt
without also equally and ratably securing the
outstanding debt securities and all other indebtedness
entitled to be so secured. See "Description of
Exchange Notes-Limitation on Liens."
Limitation on Sale and Lease-Back
Transactions.......................... So long as any Exchange Notes are outstanding, we
may not enter into or permit to exist, any sale and
lease-back transaction with respect to any Operating
Property (except for transactions involving leases for a
term, including renewals, of not more than 48 months),
if the purchasers' commitment is obtained more than
18 months after the later of the completion of the
acquisition, construction or development of that
operating property or the placing in operation of that
operating property or of that operating property as
constructed or developed or substantially repaired,
altered or improved. See "Description of Exchange
Notes-Limitation on Sale and Lease-Back
Transactions."
Risk Factors.......................... You should carefully read and consider, in addition to
matters set forth elsewhere in this prospectus, the
information in the "RISK FACTORS" section
beginning on page 16.
Further Issuances..................... We may from time to time, without the consent of the
holders of the Exchange Notes or our other debt
securities, create and issue further debt securities
having the same terms and conditions as the Exchange
Notes so that the further issuance is consolidated and
forms a single series with the previously outstanding
Exchange Notes.
14
Form and Denomination................. The Exchange Notes will be issued in fully registered
form only in denominations of $1,000 and integral
multiples thereof.
DTC Eligibility....................... The Exchange Notes will be represented by a Global
Certificate deposited with, or on behalf of, The
Depository Trust Company (DTC) or its nominee. See
"Description of Exchange Notes - Book-Entry,
Delivery and Form."
Trustee and Paying Agent.............. JPMorgan Chase Bank.
Governing Law......................... The indenture and the Exchange Notes will be
governed by, and construed in accordance with, the
laws of the State of New York.
15
RISK FACTORS
You should consider the following risk factors, in addition to the other
information presented in this prospectus and the documents incorporated by
reference into this prospectus, in evaluating us, our business and whether to
participate in this exchange offer. Any of the following risks, as well as other
risks and uncertainties, could harm the value of the Exchange Notes directly or
our business and financial results and thus indirectly cause the value of the
Exchange Notes to decline, which in turn could cause you to lose all or part of
your investment. The risks below are not the only ones facing us or the Exchange
Notes. Additional risks not currently known to us or that we currently deem
immaterial also may impair our business and cause the value of the Exchange
Notes to decline. See "Cautionary Note Regarding Forward-Looking Statements."
RISKS RELATED TO OUR BUSINESS
CHANGES IN COMMODITY PRICES COULD DECREASE REVENUES FROM POWER WE SELL AND
INCREASE THE COST OF POWER WE BUY.
We and FirstEnergy's other electric utility operating companies sell all
of the power generated at our nuclear plants to FirstEnergy Solutions Corp., or
FES, our competitive services affiliate. Substantially all of the non-nuclear
plants owned by us and FirstEnergy's other utility operating companies are
leased to and operated by FirstEnergy Generation Corp., a subsidiary of FES. All
of the power generated by these non-nuclear plants is sold by FirstEnergy
Generation to FES. FES in turn sells all of this power to us and other
FirstEnergy electric utility operating companies at fixed prices.
While our rates are set by regulatory bodies and the electricity generated
at FirstEnergy plants is purchased at fixed prices, a portion of the electricity
we purchase from FES comes from purchases it makes in the open market. FES
passes on to us and the other FirstEnergy electric utility operating companies
the costs of purchased power. As a result, increases in the costs of fuel
(particularly coal and natural gas) can affect our financial results and
financial position by increasing the amounts passed through to us by FES for
open market purchases. In addition, since we still bear the fuel and operations
and maintenance costs related to our nuclear plants, increased nuclear fuel
costs may adversely affect our results of operations. Changes in the market
prices of electricity, which are affected by changes in fuel costs and other
factors, may impact our financial results and financial position by increasing
the amount we pay to purchase power to supply our provider of last resort, or
PLR, obligations in Ohio.
Electricity and fuel prices may fluctuate substantially over relatively
short periods of time for a variety of reasons, including:
- severe or unexpected weather or seasonality;
- changes in electricity usage;
- illiquidity in wholesale power and other markets;
- transmission or transportation constraints, inoperability or
inefficiencies;
- availability of competitively priced alternative energy sources;
- changes in supply and demand for energy commodities;
- changes in power production capacity;
- outages at our power production facilities or those of our competitors;
- changes in production and storage levels of natural gas, lignite, coal,
crude oil and refined products;
- natural disasters, wars, acts of sabotage, terrorist acts, embargoes and
other catastrophic events; and
- federal, state, local and foreign energy, environmental and other
regulation and legislation.
16
We could be particularly vulnerable if power prices rise while any of
FirstEnergy's generating units are out of service as a result of an unscheduled
outage, since the amount of electricity available to us from FES at fixed prices
would be reduced.
OUR FACILITIES MAY NOT OPERATE AS PLANNED, WHICH MAY INCREASE OUR EXPENSES OR
DECREASE OUR REVENUES AND HAVE AN ADVERSE EFFECT ON OUR FINANCIAL PERFORMANCE.
Operation of power plants and distribution facilities involves many risks,
including the breakdown or failure of equipment or processes, accidents, labor
disputes, and performance below expected levels. In addition, weather-related
incidents and other natural disasters can disrupt generation, transmission and
distribution delivery systems. Because the transmission facilities on which we
rely are interconnected with those of third parties, the operation of our
facilities may be adversely affected by unexpected or uncontrollable events
occurring on the systems of such third parties.
Operation of our power plants below expected capacity levels could result
in lost revenues or increased expenses, including higher maintenance costs that
we may not be able to recover from customers. Unplanned outages may require us
to incur significant replacement power costs. Moreover, if we are unable to
perform our contractual obligations, penalties or liability for damages may
result.
A DOWNGRADE IN OUR CREDIT RATING COULD NEGATIVELY AFFECT OUR ABILITY TO ACCESS
CAPITAL.
S&P, Moody's and Fitch rate our senior unsecured debt at BB+, Baa3 and
BB, respectively.
On September 30, 2003, Fitch Ratings lowered the senior unsecured ratings
of FirstEnergy to "BBB-" from "BBB." Fitch also lowered our senior secured,
senior unsecured, and preferred stock ratings. Fitch announced that the Rating
Outlook is Stable for the securities of FirstEnergy, and all of the securities
of its electric utility operating companies.
On December 23, 2003, S&P lowered its corporate credit ratings on
FirstEnergy and its regulated utility subsidiaries to "BBB-" from "BBB" and
lowered FirstEnergy's senior unsecured debt rating to "BB+" from "BBB-". Our
ratings were lowered one notch as well. The ratings were removed from
CreditWatch with negative implications, where they had been placed by S&P on
August 18, 2003, and the Ratings Outlook returned to Stable. On March 9, 2004,
S&P stated that the NRC's permission for FirstEnergy to restart Davis-Besse was
positive for credit quality because it would positively affect cash flow by
eliminating replacement power costs and "demonstrating management's ability to
overcome operational challenges." However, S&P did not change FirstEnergy's
ratings or outlook because it stated that financial performance still
"significantly lags expectations and management faces other operational
hurdles."
On February 6, 2004, Moody's downgraded FirstEnergy senior unsecured debt
to Baa3 from Baa2. Our ratings were confirmed.
Further changes in the credit ratings of FirstEnergy could also affect our
credit ratings, as well as those of the other FirstEnergy companies. If our or
our affiliates' credit ratings are downgraded, particularly below investment
grade, our ability to access the capital markets would be negatively affected
and our borrowing costs would increase, which could adversely impact our
financial results. In addition, we would likely be required to pay a higher
interest rate in future financings, and our potential pool of investors and
funding sources could decrease.
17
WE MAY ULTIMATELY INCUR LIABILITY IN CONNECTION WITH THE AUGUST 14, 2003
REGIONAL OUTAGE, THE RESTATEMENT OF EARNINGS OR THE DAVIS-BESSE REACTOR OUTAGE.
A number of legal and regulatory proceedings have been filed against
FirstEnergy in connection with, among other things, the Davis-Besse outage, the
restatement by FirstEnergy, us, Ohio Edison and Toledo Edison of earnings and
the August 14th outage, as described under "Summary - Recent Developments",
alleging violations of federal securities laws, breaches of fiduciary duties by
FirstEnergy's directors and officers, or damages as a result of one or more of
those events. We, Ohio Edison and Toledo Edison have also been named as
respondents in two such regulatory proceedings initiated at the PUCO in response
to complaints alleging failure to provide reasonable and adequate service
stemming primarily from the August 14th power outage. We and FirstEnergy intend
to defend these actions vigorously, but cannot predict the outcome of any of
these proceedings or whether any further regulatory proceedings or legal actions
may be instituted against us. In particular, if we or FirstEnergy were
ultimately determined to have legal liability in connection with the August 14th
outage, it could have a material adverse effect on our respective financial
conditions and results of operations.
FENOC has received a subpoena from a grand jury sitting in the United
States District Court for the Northern District of Ohio, Eastern Division
requesting the production of certain documents and records relating to the
inspection and maintenance of the reactor vessel head at the Davis-Besse plant.
We are unable to predict the outcome of this investigation. FENOC remains
subject to possible civil enforcement action by the NRC in connection with the
events leading to the Davis-Besse outage. Further, a petition was filed with the
NRC on March 29, 2004 by a group objecting to the NRC's restart order of the
Davis-Besse plant. The petition seeks, among other things, suspension of the
Davis-Besse operating license. If it were ultimately determined that we or
FirstEnergy have legal liability or are otherwise made subject to regulatory or
civil enforcement action with respect to the Davis-Besse outage, it could have a
material adverse effect on our financial condition and results of operations.
As part of its informal inquiry, which began last September, the SEC
requested in a letter dated June 24, 2004 that FirstEnergy voluntarily provide
information and documents related to the outage at Davis-Besse. FirstEnergy
intends to comply with this request and to cooperate fully with this inquiry.
RISKS RELATED TO OUR INDUSTRY
WE ARE SUBJECT TO COMPLEX AND CHANGING GOVERNMENT REGULATIONS THAT MAY REQUIRE
INCREASED EXPENSE AND/OR CHANGES IN BUSINESS STRATEGY THAT COULD HAVE A NEGATIVE
IMPACT ON OUR RESULTS OF OPERATIONS.
We are subject to comprehensive regulation by various federal, state and
local regulatory agencies that significantly influences our operating
environment. We are required to have numerous permits, approvals and
certificates from the agencies that regulate our business. We believe the
necessary permits, approvals and certificates have been obtained for our
existing operations and that our business is conducted in accordance with
applicable laws; however, we are unable to predict the impact on our operating
results from the future regulatory activities of any of these agencies. Changes
in or reinterpretations of existing laws or regulations or the imposition of new
laws or regulations could require us to incur additional expenses or change the
way we run our business, and therefore have an adverse impact on our results of
operations.
18
RESTRUCTURING AND DEREGULATION IN THE ELECTRIC UTILITY INDUSTRY MAY RESULT IN
INCREASED COMPETITION AND UNRECOVERABLE COSTS THAT COULD ADVERSELY AFFECT OUR
BUSINESS AND RESULTS OF OPERATIONS.
As a result of the actions taken by state legislative bodies over the last
few years, major changes in the electric utility business have occurred and are
continuing to take place in parts of the United States, including Ohio where we
operate. These changes have resulted in fundamental alterations in the way
integrated utilities conduct their business. Beginning on January 1, 2001, Ohio
customers were able to choose their electricity suppliers as a result of
legislation which restructured the electric utility industry. That legislation
required unbundling the price for electricity into its component elements -
including generation, transmission, distribution and transition charges.
Increased competition resulting from restructuring efforts could have a
significant adverse financial impact on us and our subsidiaries and consequently
on our results of operations. Increased competition could result in increased
pressure to lower prices, including the price of electricity. Retail competition
and the unbundling of regulated electric service could have a significant
adverse financial impact on us and our subsidiaries due to potential impairment
of assets, a loss of retail customers, lower profit margins or increased costs
of capital. We cannot predict the extent and timing of entry by additional
competitors into the electric markets.
FERC and the U.S. Congress are also proposing significant changes in the
structure and conduct of our business. If the restructuring and deregulation
efforts result in increased competition or unrecoverable costs, our business and
results of operations may be adversely affected. We cannot predict the extent
and timing of further efforts to restructure, deregulate or re-regulate us or
the industry.
In Ohio, laws applicable to electric industry restructuring and our
transition plans include provisions:
- establishing PLR obligations for customers who have not selected other
suppliers in our respective service areas;
- allowing customers to select other generation suppliers; and
- deregulating our electric generation businesses.
Under our PLR obligations, see "Summary-Regulatory Matters" above, we are
required to provide electric service to customers who have not selected other
suppliers at capped rates, which may be below current market rates and below our
cost of supplying this power. To satisfy PLR obligations in our service area
during applicable transition periods, we source power from FES. We entered into
a power supply agreement whereby FES purchases all of the output of our nuclear
generating facilities and leases and operates our fossil generating facilities.
We are a "full requirements" customer of FES which enables us to meet our PLR
responsibilities in our service area. Because PLR rates are capped, we bear the
risks associated with increases in the costs of procuring power necessary to
satisfy those obligations, whether those increases are experienced directly by
us through increases in fuel prices or environmental compliance costs at our
nuclear units, for example, or reflected in the increased market prices paid by
FES for purchased power and passed on to us from time to time. In addition,
increases in these costs can no longer be recovered from customers as was
permitted prior to state utility restructuring. If these supply costs were to
increase significantly and prove unrecoverable, our profit margins may
significantly decrease and adversely affect our results of operations.
Our PLR customers may choose to purchase power from alternative suppliers.
Should they choose to switch from us, our revenues from power sales would
decrease. On the other hand, customers originally choosing alternative suppliers
may switch back to us, which may increase demand above our available capacity
and force us to purchase power from FES which it must buy in the open market at
potentially unfavorable prices. Switching by customers as permitted by the state
laws referred to above, therefore, could have an adverse effect on our results
of operations and financial position.
As part of our Ohio transition plan, we are obligated to supply
electricity to customers who do not choose an alternative supplier of
electricity. We are also required to provide up to 400 megawatts, or MW, of low
cost supply to unaffiliated alternative suppliers that serve customers within
our service area. FES acts as an alternate supplier for a portion of the load in
our franchise area. In 2004, the total peak load forecasted for customers
electing to stay with us as supplier, including the 400 MW of low cost supply
and the load served by FES, is approximately 3,500 MW.
19
We may incur potentially significant lost opportunity costs if we could
have sold such capacity at more favorable wholesale prices or used it in
satisfaction of PLR obligations in preference to higher priced purchased power
obtained for that purpose.
On October 21, 2003, we, together with Ohio Edison and Toledo Edison filed
an application with the PUCO to establish generation service rates beginning
January 1, 2006, in response to expressed concerns by the PUCO about price and
supply uncertainty following the end of the market development period. The
filing included two options (a) a competitive auction, which would establish a
price for generation that customers would be charged during the period covered
by the auction, or (b) a rate stabilization plan, which would extend current
generation prices through 2008, ensuring adequate generation supply at stable
prices and continuing our support of energy efficiency and economic development
efforts. Under the first option, an auction would be conducted to secure
generation service for our Ohio customers. Beginning in 2006, customers would
pay market prices for generation as determined by the auction. Under the Rate
Stabilization Plan option, customers would have price and supply stability
through 2008, three years beyond the end of the market development period, as
well as the benefits of a competitive market. Customer benefits would include:
customer savings by extending the current five percent discount on generation
costs and other customer credits; maintaining current distribution base rates
through 2007; market-based auctions that may be conducted annually to ensure
that customers pay the lowest available prices; extension of our support of
energy-efficiency programs and the potential for continuing the program to give
preferred access to nonaffiliated entities to generation capacity if shopping
drops below 20%. Under the proposed plan, we are requesting: (i) extension of
the transition cost amortization period from 2008 to July 2009; (ii) deferral of
interest costs on the accumulated shopping incentive and other cost deferrals as
new regulatory assets; and (iii) ability to initiate a request to increase
generation rates only under certain limited conditions. On January 7, 2004, the
PUCO staff filed testimony on the proposed rate plan generally supporting the
Rate Stabilization Plan as opposed to the competitive auction proposal. Hearings
began on February 11, 2004. On February 23, 2004, after consideration of PUCO
Staff comments and testimony as well as those provided by some of the
intervening parties, we and the other applicants made certain modifications to
the Rate Stabilization Plan. Oral arguments were held before the PUCO on April
21, 2004. While much of the modified plan was approved as filed on June 9, 2004
-- including provisions for extending current generation prices for customers
through 2008, applying appropriate accounting modifications, and continuing
residential customer shopping credits totaling approximately $285 million in
savings -- we and the other applicants filed an application for rehearing of
certain issues in the approved plan on June 18, 2004. These include: (1) the
ability to request recovery of increased costs that are outside the companies'
control, such as environmental costs and fuel, which is at record-high market
prices and recoverable in Ohio's only other approved rate plan for the period
beginning January 1, 2006, (2) deferral of costs associated with distribution
reliability improvements, (3) duplication of certain customer charge credits
that already had been included in a revision FirstEnergy made to the plan, (4)
the terms of offering any below-market-priced power, called Market Support
Generation, to other suppliers, and (5) the allocation of funding for
low-income, energy-efficient and economic development programs.
WE ARE EXPOSED TO RISKS OF NUCLEAR GENERATION, WHICH INVOLVE ISSUES AND
UNCERTAINTIES RELATING TO HEALTH AND SAFETY, ADDITIONAL CAPITAL COSTS, THE
ADEQUACY OF INSURANCE COVERAGE AND NUCLEAR PLANT DECOMMISSIONING.
We currently have interests in two nuclear generating units operated by
our affiliate, FENOC: Beaver Valley Power Station Unit 2 and Davis-Besse Nuclear
Power Station Unit 1. Our ownership and leasehold interests in these units
comprise a total of 657 MW, or 16.1% of our total owned and leased generating
capacity. Our affiliates also own the Perry Nuclear Power Plant Unit 1, which is
also operated by FENOC. We are, therefore, subject to the risks of nuclear
generation, which include the following:
- the potential harmful effects on the environment and human health
resulting from the operation of nuclear facilities and the storage,
handling and disposal of radioactive materials;
- limitations on the amounts and types of insurance commercially available
to cover losses that might arise in connection with our nuclear operations
or those of others in the United States;
- uncertainties with respect to contingencies and assessment amounts if
insurance coverage is inadequate; and
20
- uncertainties with respect to the technological and financial aspects of
decommissioning nuclear plants at the end of their licensed operation.
The NRC has broad authority under federal law to impose licensing and
safety-related requirements for the operation of nuclear generation facilities.
In the event of non-compliance, the NRC has the authority to impose fines or
shut down a unit, or both, depending upon its assessment of the severity of the
situation, until compliance is achieved. Revised safety requirements promulgated
by the NRC could necessitate substantial capital expenditures at nuclear plants,
including ours. Unlike our fossil plants, which have been leased to and operated
by FirstEnergy Generation since 2001, new capital costs as well as fuel,
operation and maintenance expenses, for our nuclear plants continue to be borne
by us.
Any of our nuclear plants could face prolonged outages for unforeseen
repair issues such as the outage at the Davis-Besse plant described above or
could experience a serious nuclear incident at any time. If such an outage or
incident did occur, it could cause us to incur significant repair expenses and
replacement power costs, which could adversely affect our results of operations,
cash flows or financial condition. In addition, a major incident at any nuclear
facility anywhere in the world could cause the NRC to limit or prohibit the
operation or licensing of any domestic nuclear unit. Such an incident, to the
extent it reduced the amount of FirstEnergy-owned generation available to us
through FES, could also lead to our bearing the burden of potentially
unfavorable costs to purchase power on the open market. Depending on prevailing
market prices for replacement power, our financial condition, cash flows and
results of operations could be materially adversely affected if this were to
occur.
The Price-Anderson Act limits the public liability relative to a single
incident at a nuclear power plant to $10.9 billion. The amount is covered by a
combination of private insurance and an industry retrospective rating plan.
Based on our ownership and leasehold interests in Beaver Valley Unit 2, the
Davis-Besse Station and the Perry Plant, our maximum potential assessment under
the industry retrospective rating plan (assuming the other affiliate co-owners
contribute their proportionate shares of any assessments under the retrospective
rating plan) would be $121.4 million per incident, but not more than $12.1
million in any one year for each incident. We are also insured as to our
respective interests in Beaver Valley Unit 2, Davis-Besse and Perry under
policies issued to the operating company for each plant. Under these policies,
up to $2.75 billion is provided for property damage and decontamination and
decommissioning costs. We have also obtained approximately $382 million of
insurance coverage for replacement power costs for its respective interests in
Beaver Valley Unit 2, Davis-Besse and Perry. Under these policies, we can be
assessed a maximum of approximately $20.5 million for incidents at any covered
nuclear facility occurring during a policy year which are in excess of
accumulated funds available to the insurer for paying losses.
We intend to maintain insurance against nuclear risks as described above
as long as it is available. To the extent that replacement power, property
damage, decontamination, decommissioning, repair and replacement costs and other
such costs arising from a nuclear incident at any of our plants exceed the
policy limits of the insurance in effect with respect to that plant, to the
extent a nuclear incident is determined not to be covered by our insurance
policies, or to the extent such insurance becomes unavailable in the future, we
would remain at risk for such costs.
OUR OPERATING RESULTS ARE AFFECTED BY WEATHER CONDITIONS AND MAY FLUCTUATE ON A
SEASONAL AND QUARTERLY BASIS.
Weather conditions directly influence the demand for electric power. In
our service territory, demand for power peaks during the hot summer months, with
market prices also typically peaking at that time. As a result, our overall
operating results may fluctuate on a seasonal and quarterly basis. In addition,
we have historically sold less power, and consequently received less revenue,
when weather conditions are milder. Severe weather, such as tornadoes,
hurricanes, storms and droughts, may cause outages and property damage which may
require us to incur additional expenses that are generally not insured and that
we would not be able to recover from customers. The effect of the failure of our
facilities to operate as planned, as described above, would be particularly
burdensome during a peak demand period.
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OUR COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS ARE SIGNIFICANT, AND THE COST OF
COMPLIANCE WITH FUTURE ENVIRONMENTAL LAWS COULD HARM OUR CASH FLOW AND
PROFITABILITY.
Our operations are subject to extensive federal, state and local
environmental statutes, rules and regulations. Compliance with these legal
requirements requires us to incur significant costs toward environmental
monitoring, installation of pollution control equipment, emission fees,
maintenance, upgrading, remediation and permitting at all of our facilities.
These expenditures have been significant in the past and may increase in the
future, although FirstEnergy Generation has been primarily responsible for such
costs at our fossil plants since it began leasing and operating them in 2001. If
the costs of compliance with existing environmental regulations do increase, it
could adversely affect our business and our results of operations, financial
position and cash flows. Moreover, environmental laws are subject to change,
which may materially increase our costs of compliance or accelerate the timing
of these capital expenditures. Because of the deregulation of generation, we may
not recover through rates additional costs incurred for such compliance. Our
compliance strategy, although reasonably based on the information available to
us today, may not successfully address the relevant standards and
interpretations in the future.
GOVERNMENTAL AUTHORITIES MAY ASSESS PENALTIES ON US FOR FAILURES TO COMPLY WITH
ENVIRONMENTAL LAWS AND REGULATIONS.
If we fail to comply with environmental laws and regulations, even if
caused by factors beyond our control or based on new interpretations of
longstanding requirements, that failure may result in the assessment of civil or
criminal penalties and fines against us.
RISKS RELATED TO THIS EXCHANGE OFFER.
IF YOU DO NOT PROPERLY TENDER YOUR ORIGINAL NOTES FOR EXCHANGE NOTES, YOU WILL
CONTINUE TO HOLD UNREGISTERED NOTES WHICH ARE SUBJECT TO TRANSFER RESTRICTIONS.
We will only issue Exchange Notes in exchange for Original Notes that are
received by the exchange agent in a timely manner together with all required
documents. Therefore, you should allow sufficient time to ensure timely delivery
of the Original Notes, and you should carefully follow the instructions on how
to tender your Original Notes set forth under "The Exchange Offer - Procedures
for Tendering Original Notes" and in the letter of transmittal that you receive
with this prospectus. Neither we nor the exchange agent are required to tell you
of any defects or irregularities with respect to your tender of the Original
Notes.
If you do not tender your Original Notes or if we do not accept your
Original Notes because you did not tender your Original Notes properly, you will
continue to hold Original Notes. Any Original Notes that remain outstanding
after the expiration of this exchange offer will continue to be subject to
restrictions on their transfer in accordance with the Securities Act. After the
expiration of this exchange offer, holders of Original Notes will not (with
limited exceptions) have any further rights to have their Original Notes
registered under the Securities Act. In addition, if you tender your Original
Notes for the purpose of participating in a distribution of the Exchange Notes,
you will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the Exchange
Notes. If you continue to hold any Original Notes after this exchange offer is
completed, you may have difficulty selling them because of the restrictions on
transfer and because there will be fewer Original Notes outstanding. The value
of the remaining Original Notes could be adversely affected by the conclusion of
this exchange offer. There may be no market for the remaining Original Notes and
thus you may be unable to sell such notes.
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IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THE EXCHANGE NOTES, YOU MAY BE
UNABLE TO SELL THE EXCHANGE NOTES OR TO SELL THEM AT A PRICE YOU DEEM
SUFFICIENT.
The Exchange Notes will be new securities for which there is no
established trading market. We do not intend to apply for listing of the
Exchange Notes on any national securities exchange or to arrange for the
Exchange Notes to be quoted on any automated system. We provide no assurance as
to:
- the liquidity of any trading market that may develop for the Exchange
Notes;
- the ability of holders to sell their Exchange Notes; or
- the price at which holders would be able to sell their Exchange Notes.
Even if a trading market develops, the Exchange Notes may trade at higher
or lower prices than their principal amount or purchase price, depending on many
factors, including:
- prevailing interest rates;
- the number of holders of the Exchange Notes;
- the interest of securities dealers in making a market for the Exchange
Notes; and
- our operating results.
If a market for the Exchange Notes does not develop, purchasers may be
unable to resell the Exchange Notes for an extended period of time.
Consequently, a holder of Exchange Notes may not be able to liquidate its
investment readily, and the Exchange Notes may not be readily accepted as
collateral for loans. In addition, market-making activities will be subject to
restrictions of the Securities Act and the Exchange Act.
In addition, if a large number of holders of Original Notes do not tender
Original Notes or tender Original Notes improperly, the limited amount of
Exchange Notes that would be issued and outstanding after we complete this
exchange offer could adversely affect the development of a market for the
Exchange Notes.
IF YOU ARE A BROKER-DEALER, YOUR ABILITY TO TRANSFER THE ORIGINAL NOTES MAY BE
RESTRICTED.
A broker-dealer that purchased Original Notes for its own account as part
of market-making or trading activities must deliver a prospectus when it sells
the Exchange Notes. Our obligation to make this prospectus available to
broker-dealers is limited. Consequently, we cannot guarantee that a proper
prospectus will be available to broker-dealers wishing to resell their Exchange
Notes.
USE OF PROCEEDS
This exchange offer is intended to satisfy some of our obligations under
the related registration rights agreement.
We will not receive any cash proceeds from the issuance of the Exchange
Notes in this exchange offer. In consideration for issuing the Exchange Notes as
contemplated in this prospectus, we will receive
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outstanding Original Notes in like principal amount. We will cancel all Original
Notes surrendered to us in this exchange offer.
We used the net proceeds from the sale of the Original Notes (i) to
provide for the redemption of $150 million aggregate principal amount of our
outstanding 9.00% first mortgage bonds due July 1, 2023 at a redemption premium
of 104.13% for a total redemption price of $156,195,000 plus accrued interest to
the redemption date, (ii) to provide for the repayment of short-term debt and
(iii) for general corporate purposes.
CAPITALIZATION AND SHORT-TERM DEBT
The following table shows our capitalization and short-term debt on a
consolidated basis as of March 31, 2004.
ACTUAL
MARCH 31, 2004
-----------------------
AMOUNT % OF TOTAL
---------- -----------
(Dollars In Thousands)
SHORT-TERM DEBT ................................... $ 16,203 0.4%
CAPITALIZATION:
Common stockholder's equity ....................... 1,775,311 42.0%
Preferred stock not subject to mandatory redemption 96,404 2.3%
Long-term debt and other long-term obligations (a) 2,334,493 55.3%
---------- -----------
TOTAL CAPITALIZATION AND SHORT-TERM DEBT .......... $4,222,411 100.0%
---------- -----------
(a) Includes current maturities of $380 million.
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following consolidated financial information should be read in
conjunction with the consolidated financial statements contained in our most
recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with
the SEC.
YEAR ENDED DECEMBER 31, THREE MONTHS
---------------------------------------------------------- ENDED MARCH 31,
1999 2000 2001 2002 2003 2004
---------- ---------- ---------- ---------- ---------- ----------------
(Dollars In Thousands)
Operating Revenues $1,864,954 $1,890,339 $2,064,622 $1,843,671 $1,720,784 $ 426,535
Operating Income 405,640 397,568 354,422 306,152 255,148 73,313
Net Income 204,963 210,424 177,905 136,952 239,411 48,475
Total Assets $6,189,261 $6,756,921 $6,526,596 $6,510,243 $6,773,448 $ 6,559,938
Consolidated Ratio of
Earnings to Fixed Charges* 2.14 2.30 2.26 1.92 2.53 2.22
* The ratio of earnings to fixed charges represents, on a pre-tax basis, the
number of times earnings cover fixed charges. Earnings consist of income
before extraordinary items adding back fixed charges and the provision for
income taxes. Fixed charges consist of interest on long-term debt, other
interest expense, and an estimate of the interest portion of all rentals
charged to income.
THE EXCHANGE OFFER
GENERAL
We are offering to exchange up to $300,000,000 in aggregate principal
amount of Exchange Notes for the same aggregate principal amount of Original
Notes, properly tendered and not validly withdrawn before the expiration date.
Unlike the Original Notes, the Exchange Notes will be registered under the
Securities Act. We are making this exchange offer for all of the Original Notes.
Your participation in this exchange offer is voluntary, and you should carefully
consider whether to accept this offer.
On the date of this prospectus, $300,000,000 in aggregate principal amount
of Original Notes are outstanding. Our obligations to accept Original Notes for
Exchange Notes pursuant to this exchange offer are limited by the conditions
listed below under "The Exchange Offer - Conditions to the Exchange Offer." We
currently expect that each of the conditions will be satisfied and that no
waivers will be necessary.
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PURPOSE OF THE EXCHANGE OFFER
On December 12, 2003, we issued and sold $300,000,000 in aggregate
principal amount of 5.65% Senior Notes due 2013 in a transaction exempt from the
registration requirements of the Securities Act. The initial purchasers of the
Original Notes subsequently resold the Original Notes to qualified institutional
buyers in reliance on Rule 144A under the Securities Act and under Regulation S
under the Securities Act.
Because the transactions were exempt from registration under the
Securities Act, a holder may reoffer, resell or otherwise transfer Original
Notes only if the Original Notes are registered under the Securities Act or if
an applicable exemption from the registration and prospectus delivery
requirements of the Securities Act is available.
In connection with the issuance and sale of the Original Notes, we entered
into a registration rights agreement with the initial purchasers of the Original
Notes, which requires us to (i) prepare and, as soon as practicable following
the date of original issuance of the Original Notes (December 12, 2003), file
with the SEC an exchange offer registration statement with respect to this
exchange offer and the issuance and delivery to the holders, in exchange for the
Original Notes, a like principal amount of Exchange Notes, (ii) use our
reasonable best efforts to cause the exchange offer registration statement to be
declared effective under the Securities Act not later than 180 calendar days
following the date of original issuance of the Original Notes, (iii) use our
reasonable best efforts to keep the exchange offer registration statement
effective until the closing of this exchange offer and (iv) use our reasonable
best efforts to cause this exchange offer to be consummated within 210 calendar
days following the date of original issuance of the Original Notes. In addition,
there are circumstances under which we are required to file a shelf registration
statement with respect to resales of the Original Notes. The registration rights
agreement also provides that if neither this exchange offer is consummated nor a
shelf registration statement is declared effective within 210 calendar days of
the date of original issuance of the Original Notes, the annual interest rate
borne by the Original Notes will be increased by 0.25% per annum commencing on
the date that is 210 days after the date of original issuance of the Original
Notes until this exchange offer is consummated or the shelf registration
statement is declared effective. We have filed a copy of the registration rights
agreement as an exhibit to the registration statement on Form S-4 with respect
to the Exchange Notes offered by this prospectus.
We are making this exchange offer to satisfy our obligations under the
registration rights agreement. Holders of Original Notes who do not tender their
Original Notes or whose Original Notes are tendered but not accepted will have
to rely on an applicable exemption from registration requirements under the
Securities Act and applicable state securities laws in order to sell their
Original Notes.
The Exchange Notes will be issued in a like principal amount and will be
identical in all material respects to the Original Notes, except that the
Exchange Notes will be registered under the Securities Act, will be issued
without a restrictive legend, will bear different CUSIP numbers and will not be
entitled to the rights of holders of Original Notes under the registration
rights agreement, including additional interest. Consequently, the Exchange
Notes, unlike the Original Notes, may be resold by a holder without any
restrictions on their transfer under the Securities Act.
RESALE OF EXCHANGE NOTES
We have not requested, and do not intend to request, an interpretation by
the staff of the SEC as to whether the Exchange Notes issued pursuant to this
exchange offer in exchange for the Original Notes may be offered for sale,
resold or otherwise transferred by any holder without compliance with the
registration and prospectus delivery provisions of the Securities Act. Instead,
based on existing
26
interpretations of the Securities Act by the staff of the SEC set forth in
several no-action letters to third parties, and subject to the immediately
following sentence, we believe that the Exchange Notes to be issued pursuant to
this exchange offer in exchange for Original Notes may be offered for resale,
resold and otherwise transferred by any holder of Exchange Notes (other than
holders who are broker-dealers) without further compliance with the registration
and prospectus delivery requirements of the Securities Act. However, any
purchaser of the Original Notes who is an affiliate of ours or who intends to
participate in this exchange offer for the purpose of distributing the Exchange
Notes, or any broker-dealer who purchased the Original Notes from us for resale
pursuant to Rule 144A or any other available exemption under the Securities Act,
(i) will not be able to rely on the interpretations of the staff of the SEC set
forth in the above-mentioned no-action letters, (ii) will not be entitled to
tender its Original Notes in this exchange offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Original Notes unless such sale or
transfer is made pursuant to an exemption from such requirements. Because the
SEC has not considered our exchange offer in the context of a no-action letter,
we cannot assure you that the staff would make a similar determination with
respect to this exchange offer.
If you participate in this exchange offer, you must represent to us, among
other things, that:
(i) any Exchange Notes you receive will be acquired in the ordinary
course of business;
(ii) you have no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of the
Exchange Notes;
(iii) you are not an "affiliate" (as defined in Rule 405 of the Securities
Act) of ours;
(iv) if you are not a broker-dealer, you are not engaged in, and do not
intend to engage in, the distribution (within the meaning of the Securities Act)
of the Exchange Notes; and
(v) if you are a participating broker-dealer that will receive Exchange
Notes for your own account in exchange for Original Notes that were acquired as
a result of market-making activities or other trading activities, you
acknowledge that you will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes.
Any holder that is not able to make these representations or certain
similar representations will not be entitled to participate in this exchange
offer and, therefore, will not be permitted to exchange its Original Notes for
Exchange Notes.
This exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of Original Notes in any jurisdiction in which this
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any Original Notes
validly tendered and not withdrawn before expiration of this exchange offer. The
date of acceptance for exchange of the Original Notes and completion of this
exchange offer is the exchange date, which will be the first business day
following the expiration date unless we extend the date as described in this
prospectus. The Original Notes may be tendered only in integral multiples of
$1,000. We will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of Original Notes surrendered under this exchange
offer. The Exchange Notes will be delivered on the earliest practicable date
following the exchange date.
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The form and terms of the Exchange Notes will be substantially identical
to the form and terms of the Original Notes, except the Exchange Notes:
(i) will be registered under the Securities Act;
(ii) will not bear legends restricting their transfer;
(iii) will bear different CUSIP numbers; and
(iv) will not be entitled to the rights of holders of Original Notes
under the registration rights agreement, including additional interest.
The Exchange Notes will evidence the same debt as the Original Notes. The
Exchange Notes will be issued under and entitled to the benefits of the senior
note indenture, as described below, under which the Original Notes were issued.
This exchange offer is not conditioned upon any minimum aggregate
principal amount of Original Notes being tendered for exchange. This prospectus
and the letter of transmittal are being sent to all registered holders of
outstanding Original Notes. There will be no fixed record date for determining
registered holders of Original Notes entitled to participate in this exchange
offer.
We intend to conduct this exchange offer in accordance with the applicable
requirements of the Securities Act, Exchange Act and rules and regulations of
the SEC. Original Notes that are not exchanged in this exchange offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits their holders have under the senior note indenture relating
to the Original Notes and Exchange Notes. Holders of Original Notes do not have
any appraisal or dissenters rights under the senior note indenture in connection
with this exchange offer.
We will be deemed to have accepted for exchange validly tendered Original
Notes when we have given oral (promptly confirmed in writing) or written notice
of the acceptance to the exchange agent. The exchange agent will act as agent
for the holders of Original Notes who surrender them in this exchange offer for
the purposes of receiving Exchange Notes from us and delivering Exchange Notes
to their holders. The exchange agent will make the exchange as promptly as
practicable on or after the date of acceptance for exchange of Original Notes.
We expressly reserve the right to amend or terminate this exchange offer and not
to accept for exchange any Original Notes not previously accepted for exchange,
upon the occurrence of any of the conditions specified below under "The Exchange
Offer - Conditions to the Exchange Offer."
Holders who tender Original Notes in this exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
Original Notes. We will pay all charges and expenses, other than applicable
taxes described below, in connection with this exchange offer. It is important
that you read "The Exchange Offer - Solicitation of Tenders; Fees and Expenses"
and "The Exchange Offer - Transfer Taxes" below for more details regarding fees
and expenses incurred in this exchange offer.
Any Original Notes not tendered for exchange will be entitled to the
benefits of the senior note indenture. If any tendered Original Notes are not
accepted for exchange because of an invalid tender or the occurrence of certain
other events, such Original Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the expiration date.
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EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
This exchange offer will expire at 5:00 p.m., New York City time, on ,
2004, unless we have extended the period of time that this exchange offer is
open. The expiration date will be at least 20 business days after the date we
mail notice of this exchange offer to DTC.
We reserve the right to extend the period of time that this exchange offer
is open, and delay acceptance for exchange of any Original Notes, by giving oral
(promptly confirmed in writing) or written notice to the exchange agent and by
timely public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date. During any
extension, all Original Notes previously tendered will remain subject to this
exchange offer unless validly withdrawn.
We also reserve the right, in our sole discretion, to:
(i) end or amend this exchange offer and not to accept for exchange any
Original Notes not previously accepted for exchange upon the occurrence of
any of the events specified below under "The Exchange Offer - Conditions
to the Exchange Offer" that have not been waived by us; and
(ii) amend the terms of this exchange offer in any manner.
If any termination or amendment occurs, we will notify the exchange agent
and will either issue a press release or give oral or written notice to holders
of Original Notes as promptly as practicable.
Exchange Notes will only be issued after the exchange agent timely
receives (1) a properly completed and duly executed letter of transmittal (or
facsimile thereof or an agent's message (as hereinafter defined) in lieu
thereof) and (2) all other required documents. However, we reserve the absolute
right to waive any defects or irregularities in the tender or conditions of this
exchange offer.
Original Notes that are not accepted for exchange, and those Original
Notes submitted for a greater principal amount than the tendering holder desires
to exchange, will be returned, without expense, to the tendering holder thereof
as promptly as practicable after the expiration date.
PROCEDURES FOR TENDERING ORIGINAL NOTES
VALID TENDER
Except as set forth below, in order for Original Notes to be validly
tendered pursuant to this exchange offer, either (i) (a) a properly completed
and duly executed letter of transmittal (or facsimile thereof) or an electronic
message agreeing to be bound by the letter of transmittal properly transmitted
through DTC's Automated Tender Offer Program ("ATOP") for a book-entry transfer,
with any required signature guarantees and any other required documents, must be
received by the exchange agent at the address or the facsimile number set forth
under "The Exchange Offer - Exchange Agent" on or prior to the expiration date
and (b) tendered Original Notes must be received by the exchange agent, or such
Original Notes must be tendered pursuant to the procedures for book-entry
transfer set forth below and a book-entry confirmation must be received by the
exchange agent, in each case on or prior to the expiration date, or (ii) the
guaranteed delivery procedures set forth below must be complied with. To receive
confirmation of valid tender of Original Notes, a holder should contact the
exchange agent at the telephone number listed under "The Exchange Offer -
Exchange Agent."
If less than all of the Original Notes are tendered, a tendering holder
should fill in the amount of Original Notes being tendered in the appropriate
box on the letter of transmittal. The entire amount of
29
Original Notes delivered to the exchange agent will be deemed to have been
tendered unless otherwise indicated.
If any letter of transmittal, endorsement, note power, power of attorney
or any other document required by the letter of transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing. Unless waived by us, evidence
satisfactory to us of such person's authority to so act also must be submitted.
Any beneficial owner of Original Notes that are held by or registered in
the name of a broker, dealer, commercial bank, trust company or other nominee is
urged to contact such entity promptly if such beneficial holder wishes to
participate in this exchange offer.
THE METHOD OF DELIVERING ORIGINAL NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER.
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR
HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE OBTAINED. NO ORIGINAL NOTE,
LETTER OF TRANSMITTAL OR OTHER REQUIRED DOCUMENT SHOULD BE SENT TO US. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR OTHER NOMINEES TO EFFECT THESE TRANSACTIONS FOR THEM.
BOOK-ENTRY TRANSFER
The exchange agent has established an account with respect to the Original
Notes at DTC for purposes of this exchange offer. The exchange agent and DTC
have confirmed that any financial institution that is a participant in DTC may
utilize DTC's ATOP procedures to tender Original Notes. Any participant in DTC
may make book-entry delivery of Original Notes by causing DTC to transfer the
Original Notes into the exchange agent's account in accordance with DTC's ATOP
procedures for transfer.
However, the exchange for the Original Notes so tendered will be made only
after a book-entry confirmation of such book-entry transfer of Original Notes
into the exchange agent's account and timely receipt by the exchange agent of an
agent's message and any other documents required by the letter of transmittal.
The term "agent's message" means a message, transmitted by DTC and received by
the exchange agent and forming part of a book-entry confirmation, which states
that DTC has received an express acknowledgment from a participant tendering
Original Notes that are the subject of the book-entry confirmation that the
participant has received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce that agreement against the participant.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES
Certificates for Original Notes need not be endorsed and signature
guarantees on a letter of transmittal or a notice of withdrawal, as the case may
be, are unnecessary unless (i) a certificate for Original Notes is registered in
a name other than that of the person surrendering the certificate or (ii) a
registered holder completes the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" in the letter of transmittal. In the case of (i)
or (ii) above, such certificates for Original Notes must be duly endorsed or
accompanied by a properly executed note power, with the endorsement or signature
on the note power and on the letter of transmittal or the notice of withdrawal,
as the case may be,
30
guaranteed by a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934 as an "eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank, (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer,
(iii) a credit union, (iv) a national securities exchange, registered securities
association or clearing agency or (v) a savings association that is a
participant in a Securities Transfer Association (each an "Eligible
Institution"), unless an Original Note is surrendered for the account of an
Eligible Institution. See Instruction 2 to the letter of transmittal.
GUARANTEED DELIVERY
If a holder desires to tender Original Notes pursuant to this exchange
offer and the certificates for such Original Notes are not immediately available
or time will not permit all required documents to reach the exchange agent
before the expiration date, or the procedures for book-entry transfer cannot be
completed on a timely basis, such Original Notes may nevertheless be tendered,
provided that all of the following guaranteed delivery procedures are complied
with:
(i) such tenders are made by or through an Eligible Institution;
(ii) prior to the expiration date, the exchange agent receives from the
Eligible Institution a properly completed and duly executed notice of
guaranteed delivery, substantially in the form accompanying the letter of
transmittal, or an electronic message through ATOP with respect to
guaranteed delivery for book-entry transfers, setting forth the name and
address of the holder of Original Notes and the amount of Original Notes
tendered, stating that the tender is being made thereby and guaranteeing
that within three New York Stock Exchange, Inc. trading days after the
date of execution of the notice of guaranteed delivery, or transmission of
such electronic message through ATOP for book-entry transfers, the
certificates for all physically tendered Original Notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, together
with a properly completed and duly executed letter of transmittal with any
required signature guarantees (or a facsimile thereof), or a properly
transmitted electronic message through ATOP in the case of book-entry
transfers, and any other documents required by the letter of transmittal
will be deposited by the Eligible Institution with the exchange agent; and
(iii) the certificates (or book-entry confirmation) representing all
tendered Original Notes, in proper form for transfer, together with a
properly completed and duly executed letter of transmittal with any
required signature guarantees (or a facsimile thereof), or a properly
transmitted electronic message through ATOP in the case of book-entry
transfers, and any other documents required by the letter of transmittal,
are received by the exchange agent within three New York Stock Exchange,
Inc. trading days after the date of execution of the notice of guaranteed
delivery or transmission of such electronic message through ATOP with
respect to guaranteed delivery for book-entry transfers.
DETERMINATION OF VALIDITY
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered Original Notes. Our determination will be final and binding. We reserve
the absolute right to reject any Original Notes not properly tendered or any
Original Notes the acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular Original Notes. Our interpretation of the
terms and conditions of this exchange offer, including the instructions in the
letter of transmittal, will be final and binding on all parties.
31
Unless waived, any defects or irregularities in connection with tenders of
Original Notes must be cured within the time that we determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
Original Notes, neither we, the exchange agent nor any other person will incur
any liability for failure to give notification. Tenders of Original Notes will
not be deemed made until those defects or irregularities have been cured or
waived. Any Original Notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the exchange agent without cost to the tendering
holder, unless otherwise provided in the letter of transmittal, as soon as
practicable after withdrawal, rejection of tender or termination of this
exchange offer.
WITHDRAWAL RIGHTS
You may withdraw your tender of Original Notes at any time before 5:00
p.m., New York City time, on the expiration date.
For a withdrawal to be effective, the exchange agent must receive a
computer generated notice of withdrawal, transmitted by DTC on behalf of the
holder in accordance with the standard operating procedure of DTC or a written
notice of withdrawal, sent by facsimile transmission, receipt confirmed by
telephone, or letter, before the expiration date.
Any notice of withdrawal must:
(i) specify the name of the person that tendered the Original Notes to
be withdrawn;
(ii) identify the Original Notes to be withdrawn, including the
certificate number or numbers (if in certificated form) and principal
amount of such Original Notes;
(iii) include a statement that the holder is withdrawing its election to
have the Original Notes exchanged;
(iv) be signed by the holder in the same manner as the original signature
on the letter of transmittal by which the Original Notes were tendered or
as otherwise described above, including any required signature guarantees,
or be accompanied by documents of transfer sufficient to have the trustee
under the senior note indenture register the transfer of the Original
Notes into the name of the person withdrawing the tender; and
(v) specify the name in which any of the Original Notes are to be
registered, if different from that of the person that tendered the
Original Notes.
The exchange agent will return the properly withdrawn Original Notes
promptly following receipt of a notice of withdrawal. If Original Notes have
been tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawn Original Notes or otherwise comply with DTC's procedures.
Any Original Notes withdrawn will not have been validly tendered for
exchange for purposes of this exchange offer. Any Original Notes that have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder without cost to the holder as soon as practicable after
withdrawal, rejection of tender or termination of this exchange offer. In the
case of Original Notes tendered by book-entry transfer into the exchange agent's
account at DTC pursuant to its book-entry transfer procedures, the Original
Notes will be credited to an account with DTC specified by the holder, as soon
as practicable after withdrawal, rejection of tender or termination of this
exchange offer. Properly
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withdrawn Original Notes may be retendered by following one of the procedures
described under "The Exchange Offer - Procedures for Tendering Original Notes"
above at any time on or before the expiration date.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to this exchange
offer, we will accept, promptly after the exchange date, all Original Notes
validly tendered and will issue the Exchange Notes promptly after the
acceptance. Please refer to the section in this prospectus entitled "The
Exchange Offer - Conditions to the Exchange Offer" below. For purposes of this
exchange offer, we will be deemed to have accepted validly tendered Original
Notes for exchange when we give notice of acceptance to the exchange agent.
For each Original Note accepted for exchange, the holder of the Original
Note will receive an Exchange Note having a principal amount at maturity equal
to that of the surrendered Original Note.
In all cases, delivery of Exchange Notes in exchange for Original Notes
tendered and accepted for exchange pursuant to this exchange offer will be made
only after timely receipt by the exchange agent of:
(i) Original Notes or a book-entry confirmation of a book-entry transfer
of Original Notes into the exchange agent's account at DTC;
(ii) a properly completed and duly executed letter of transmittal or an
electronic message agreeing to be bound by the letter of transmittal
properly transmitted through ATOP with any required signature guarantees;
and
(iii) any other documents required by the letter of transmittal.
Accordingly, the delivery of Exchange Notes might not be made to all
tendering holders at the same time and will depend upon when Original Notes,
book-entry confirmations with respect to Original Notes and other required
documents are received by the exchange agent.
CONDITIONS TO THE EXCHANGE OFFER
We are required to accept for exchange, and to issue Exchange Notes in
exchange for, any Original Notes duly tendered and not validly withdrawn
pursuant to this exchange offer and in accordance with the terms of this
prospectus and the accompanying letter of transmittal.
We will not be required to accept for exchange, or to issue Exchange Notes
in exchange for, any Original Notes, if:
(i) this exchange offer, or the making of any exchange by a holder,
would violate applicable law or any applicable interpretation of the staff
of the SEC;
(ii) the Original Notes are not tendered in accordance with the terms of
this exchange offer;
(iii) each holder of Original Notes exchanged in this exchange offer has
not represented that all Exchange Notes to be received by it shall be
acquired in the ordinary course of its business, that is not an affiliate
of ours and that at the time of the consummation of this exchange offer it
shall have no arrangement or understanding with any person to participate
in any distribution (within the meaning of the Securities Act) of the
Exchange Notes and shall not have made such
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other representations as may be reasonably necessary under applicable SEC
rules, regulations or interpretations to render the use of the
registration statement of which this prospectus is a part available; or
(iv) any action or proceeding has been instituted or threatened in any
court or by or before any governmental agency with respect to this
exchange offer that, in our judgment, would reasonably be expected to
impair our ability to proceed with this exchange offer.
In addition, we will not be obligated to accept for exchange the Original
Notes of any holder who has not made to us the representations described under
"The Exchange Offer - Resale of Exchange Notes" and "Plan of Distribution".
In addition, we will not accept for exchange any Original Notes tendered,
and no Exchange Notes will be issued in exchange for those Original Notes, if at
such time any stop order is threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the senior note indenture under the Trust Indenture Act of
1939. In any of those events we are required to use reasonable efforts to obtain
the withdrawal of any stop order at the earliest possible time.
EXCHANGE AGENT
We have appointed JPMorgan Chase Bank as the exchange agent for this
exchange offer. You should direct questions and requests for assistance, in each
case, with respect to exchange offer procedures, requests for additional copies
of this prospectus or of the letter of transmittal, requests for the notice of
guaranteed delivery with respect to the exchange of the Original Notes, as well
as all executed letters of transmittal, to the exchange agent at the addresses
listed below:
BY REGULAR, CERTIFIED OR
REGISTERED MAIL: BY HAND: BY COURIER:
------------------------------------------------------------------------------------------------------------
JPMorgan Chase Bank JPMorgan Chase Bank JPMorgan Chase Bank
Institutional Trust Services Institutional Trust Services Institutional Trust Services
P.O. Box 2320 Window 2001 Bryan Street, 9th Floor
Dallas, TX 75221-2320 4 New York Plaza, 1st Floor Dallas, TX 75201
Attn: Frank Ivins New York, NY 10004-2413 Attn: Frank Ivins
By Facsimile:
Attn: Frank Ivins
(214) 468-6494
Confirm by Telephone:
(214) 468-6464
For Information Call:
(800) 275-2048
DELIVERY TO AN ADDRESS OTHER THAN AS LISTED ABOVE, OR TRANSMISSIONS TO A
FACSIMILE NUMBER OTHER THAN AS LISTED ABOVE, WILL NOT CONSTITUTE A VALID
DELIVERY.
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JPMorgan Chase Bank is the trustee under the senior note indenture
governing the Original Notes and Exchange Notes.
SOLICITATION OF TENDERS; FEES AND EXPENSES
We will pay the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telecopier, telephone or in person by officers and employees of ours and of our
affiliates.
We have not retained any dealer-manager in connection with this exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of this exchange offer. However, we will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection with this exchange offer.
We will pay the estimated cash expenses to be incurred in connection with
this exchange offer, including the following:
(i) fees and expenses of the exchange agent and trustee;
(ii) SEC registration fees;
(iii) accounting and legal fees, including fees of one counsel for the
holders of the Original Notes; and
(iv) printing and mailing expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
Original Notes under this exchange offer. The tendering holder, however, will be
required to pay any transfer taxes, whether imposed on the registered holder or
any other person, if:
(i) certificates representing Original Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
Original Notes tendered;
(ii) Exchange Notes are to be delivered to, or issued in the name of, any
person other than the registered holder of the Original Notes;
(iii) tendered Original Notes are registered in the name of any person
other than the person signing the letter of transmittal; or
(iv) a transfer tax is imposed for any reason other than the exchange of
Original Notes under this exchange offer.
If satisfactory evidence of payment of such transfer taxes is not submitted with
the letter of transmittal, the amount of any transfer taxes will be billed to
the tendering holder.
ACCOUNTING TREATMENT
We will record the Exchange Notes at the same carrying value as the
Original Notes for which they are exchanged, which is the aggregate principal
amount of the tendered Original Notes as reflected in
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our accounting records on the date this exchange offer is completed.
Accordingly, we will not recognize any gain or loss for accounting purposes upon
the exchange of Exchange Notes for Original Notes. We will amortize the expenses
incurred in connection with the issuance of the Exchange Notes over the terms of
the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your Original Notes for Exchange Notes pursuant to
this exchange offer, you will continue to be subject to the restrictions on
transfer of the Original Notes as described in the legend on the Original Notes.
In general, the Original Notes may be offered or sold only if registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws.
Your participation in this exchange offer is voluntary, and you should
carefully consider whether to participate. We urge you to consult your financial
and tax advisors in making a decision whether or not to tender your Original
Notes. Please refer to the section in this prospectus entitled "Certain United
States Federal Income Tax Consequences."
As a result of the making of, and upon acceptance for exchange of all
validly tendered Original Notes pursuant to the terms of, this exchange offer,
we will have fulfilled a covenant contained in the registration rights
agreement. If you do not tender your Original Notes in this exchange offer, you
will be entitled to all of the rights and limitations applicable to the Original
Notes under the senior note indenture, except for any rights under the
registration rights agreement that by their terms end or cease to have further
effectiveness as a result of the making of this exchange offer, including the
right to require us to register your Original Notes or pay additional interest.
To the extent that Original Notes are tendered and accepted in this exchange
offer, the trading market for untendered, or tendered but unaccepted, Original
Notes could be adversely affected. Please refer to the section in this
prospectus entitled "Risk Factors - If you do not properly tender your Original
Notes for Exchange Notes, you will continue to hold unregistered notes which are
subject to transfer restrictions."
We may in the future seek to acquire untendered Original Notes in open
market or privately negotiated transactions through subsequent exchange offers
or otherwise. However, we have no present plans to acquire any Original Notes
that are not tendered in this exchange offer or to file a registration statement
to permit resales of any untendered Original Notes.
Holders of Original Notes and of Exchange Notes that remain outstanding
after consummation of this exchange offer will vote together as a single class
for purposes of determining whether holders of the requisite percentage thereof
have taken certain actions or exercised certain rights under the senior note
indenture.
DESCRIPTION OF EXCHANGE NOTES
The following is a summary of certain terms and provisions of the Exchange
Notes and the senior note indenture. The senior note indenture, as supplemented
by an officer's certificate, entered into with respect to the Original Notes and
Exchange Notes, contains the full legal text of the matters described in this
section. Because this section is a summary, it does not describe every aspect of
the Exchange Notes or the senior note indenture. This summary is subject to and
qualified in its entirety by reference to all the provisions of the senior note
indenture and the officer's certificate.
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GENERAL
The form and terms of Exchange Notes are identical in all material
respects to the form and terms of the Original Notes except that the Exchange
Notes (i) will be registered under the Securities Act, (ii) will not be subject
to the restrictions on transfer applicable to the Original Notes, (iii) will
bear a different CUSIP number and (iv) will not be entitled to the rights of
holders of Original Notes under the registration rights agreement, including
additional interest.
The Original Notes are, and the Exchange Notes will be, debt securities
issued under the indenture between us and JPMorgan Chase Bank, as trustee. The
Original Notes are, and the Exchange Notes will be, our senior unsecured general
obligations and will rank equally with all of our other unsecured and
unsubordinated indebtedness and junior to our secured debt. As of March 31,
2004, we had approximately $1.6 billion of secured debt outstanding. All debt
securities issued under the indenture, including the Exchange Notes, are
referred to in this prospectus as "debt securities" unless the context otherwise
requires.
The Exchange Notes will be issuable in book-entry only form in
denominations of $1,000 and integral multiples thereof. Exchange Notes will be
represented by a global certificate, will be issued only in fully registered
form and, when issued, will be registered in the name of Cede & Co., as
registered owner and as nominee for DTC for the accounts of Euroclear and
Clearstream Banking.
There is no requirement under the indenture that our future issues of debt
securities be issued exclusively under the indenture; accordingly, we will be
free to employ other indentures or documentation, containing provisions
different from those included in the indenture or applicable to one or more
issues of debt securities, in connection with future issues of other debt
securities. There is no limitation on the amount of debt securities that may be
issued under the indenture. However, the indenture contains certain restrictive
covenants, including a restriction that we may not issue, assume, guarantee or
permit to exist any Debt (as defined below) that is secured by any Lien of or
upon our Operating Property, so long as any of our debt securities are
outstanding, without similarly securing outstanding debt securities subject to
certain exceptions. In addition, the indenture also provides that so long as any
debt securities are outstanding, certain sale/leaseback arrangements are
restricted. See "--Certain Covenants--Limitation on Liens" and "--Limitation on
Sale and Lease-Back Transactions" below.
Under the indenture, all debt securities of any one series need not be
issued at the same time, and a series may be reopened for issuances of
additional debt securities of such series. This means that we may from time to
time, without the consent of the existing holders of the debt securities of any
series, including the Exchange Notes, create and issue further debt securities
having the same terms and conditions as the Exchange Notes offered hereby in all
respects, except for issue date, issue price and, if applicable, the initial
interest payment. Additional Exchange Notes issued in this manner will be
consolidated with, and will form a single series with, the Exchange Notes
offered hereby.
There is no provision in the indenture or applicable to the Exchange Notes
that requires us to redeem, or permits the holders to cause a redemption of, the
Exchange Notes, or that otherwise protects the holders in the event that we
incur substantial additional indebtedness, whether or not in connection with a
change in control relating to us.
MATURITY AND INTEREST
The Exchange Notes will mature on December 15, 2013 unless earlier
redeemed as described under "--Optional Redemption" below.
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Interest on the Exchange Notes will:
- be payable in U.S. dollars at the rate of 5.65% per annum;
- be computed for each interest period on the basis of a 360-day year
consisting of twelve 30-day months and with respect to any partial periods
on the basis of the number of days elapsed in a 360-day year consisting of
twelve 30-day months;
- be payable semiannually in arrears on each June 15 and December 15 and at
maturity;
- initially accrue from, and include, the last date on which interest was
paid on the Original Notes surrendered in this exchange offer, or if no
interest has been paid, from the original date of issuance of the Original
Notes (December 12, 2003); and
- be paid to the persons in whose names the Exchange Notes are registered at
the close of business on the regular record date, which is the business
day immediately preceding each interest payment date, with respect to the
Exchange Notes that are issued in book-entry form. Otherwise, the record
date will be the fifteenth calendar day next preceding each interest
payment date. We shall not be required to make transfers or exchanges of
Exchange Notes for the period of fifteen calendar days next preceding an
interest payment date.
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable in whole or in part, at our option,
at any time, at a redemption price equal to the greater of:
- 100% of the principal amount of the Exchange Notes being redeemed, and
- as determined by the Independent Investment Banker, the sum of the
present values of the Remaining Scheduled Payments (as defined below),
discounted to the redemption date on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate, plus 25 basis points,
plus, in each case, accrued and unpaid interest on such Exchange Notes to the
date of redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date:
- the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication
which is published weekly by the Board of Governors of the Federal
Reserve System and which establishes yields on actively traded United
States Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities," for the maturity corresponding
to the Comparable Treasury Issue (if no maturity is within three months
before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Comparable Treasury Issue
shall be determined and the Adjusted Treasury Rate shall be
interpolated or extrapolated from these yields on a straight line
basis, rounding to the nearest month); or
- if the release (or any successor release) is not published during the
week preceding the calculation date or does not contain these yields,
the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for
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the Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the Comparable Treasury Price for the
redemption date. The Adjusted Treasury Rate will be calculated on the
third business day preceding the redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Exchange Notes to be redeemed that would be utilized,
at the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such securities ("Remaining Life").
"Comparable Treasury Price" means (1) the average of three Reference
Treasury Dealer Quotations for the redemption date, after excluding the highest
and lowest Reference Treasury Dealer Quotations, or (2) if the Independent
Investment Banker obtains fewer than three Reference Treasury Dealer Quotations,
the average of all such quotations.
"Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by us.
"Reference Treasury Dealer" means:
- each of Barclays Capital Inc. and Morgan Stanley & Co. Incorporated and
their respective successors; provided, however, that if either of the
foregoing cease to be a primary U.S. Government securities dealer in
New York City (a "Primary Treasury Dealer"), we will substitute
therefor another Primary Treasury Dealer; and
- any other Primary Treasury Dealer selected by the Independent
Investment Banker after consultation with us.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Independent Investment Banker, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Independent Investment Banker at 5:00
p.m., New York City time, on the third business day preceding the redemption
date.
"Remaining Scheduled Payments" means, with respect to the Exchange Notes
to be redeemed, the remaining scheduled payments of principal of and interest on
such Exchange Notes that would be due after the related redemption date but for
such redemption. If such redemption date is not an interest payment date with
respect to such Exchange Notes, the amount of the next succeeding scheduled
interest payment on such Exchange Notes will be reduced by the amount of
interest accrued on such Exchange Notes to such redemption date.
We will mail notice of any redemption between 30 days and 60 days before
the redemption date to each holder of the Exchange Notes to be redeemed.
If less than all of the Exchange Notes are to be redeemed, the trustee
will select the Exchange Notes to be redeemed and will choose the method of
random selection it deems fair and appropriate.
Exchange Notes will cease to bear interest on the redemption date. We will
pay the redemption price and any accrued interest to the redemption date once
you surrender your Exchange Notes for redemption. If only part of a Exchange
Note is redeemed, the trustee will deliver to you a new Exchange Note for the
remaining portion without charge.
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We may make any redemption of Exchange Notes conditional upon the receipt
by the paying agent, on or prior to the date fixed for redemption, of money
sufficient to pay the redemption price. If the paying agent has not received the
money by the date fixed for redemption, we will not be required to redeem the
Exchange Notes.
PAYMENT AND PAYING AGENTS
We will pay interest on the Exchange Notes on each interest payment date
by wire transfer to an account at a banking institution in the United States
that is designated in writing to the trustee by the person entitled to that
payment or by check mailed to the person in whose name the Exchange Note is
registered as of the close of business on the regular record date relating to
the interest payment date, except that interest payable when principal is due,
whether at stated maturity or upon earlier acceleration or redemption, will be
paid to the person to whom principal is paid. However, if we default in paying
interest on a Exchange Note, we may pay defaulted interest to the registered
owner of the Exchange Note as of the close of business on a special record date
selected by the trustee, which will be between 10 and 15 days before the date we
propose for payment of the defaulted interest, or in any other lawful manner of
payment that is consistent with the requirements of any securities exchange on
which the Exchange Notes may be listed for trading, if the trustee finds it
practicable.
REGISTRATION, TRANSFER AND EXCHANGE
The Exchange Notes will be issued without interest coupons and in
denominations that are even multiples of $1,000. Exchange Notes will be
exchangeable for other Exchange Notes of any authorized denominations and of a
like aggregate principal amount and tenor.
Exchange Notes may be presented for registration of transfer, duly
endorsed or accompanied by a duly executed written instrument of transfer, at
the office or agency maintained for this purpose, without service charge except
for reimbursement of taxes and other governmental charges as described in the
indenture.
In the event of any redemption of Exchange Notes, the trustee will not be
required to exchange or register a transfer of (1) any Exchange Notes during the
15 days before giving any notice of redemption or (2) any Exchange Notes
selected for redemption except the unredeemed portion of any Exchange Note being
redeemed in part.
CERTAIN COVENANTS
Limitation on Liens
The indenture provides that, so long as any debt securities are
outstanding, we may not issue, assume, guarantee or permit to exist any Debt
that is secured by any mortgage, security interest, pledge or lien ("Lien") of
or upon any of our Operating Property (as defined below), whether owned at the
date of the indenture or subsequently acquired, without effectively securing the
outstanding debt securities (together with, if we so determine, any of our other
indebtedness ranking equally with such debt securities) equally and ratably with
that Debt (but only so long as that Debt is so secured).
The foregoing restriction will not apply to:
(1) Liens on any Operating Property existing at the time of its
acquisition (which Liens may also extend to subsequent repairs,
alterations and improvements to that Operating Property);
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(2) Liens on operating property of a corporation existing at the time
the corporation is merged into or consolidated with, or at the time
the corporation disposes of its properties (or those of a division)
as or substantially as an entirety to, us;
(3) Liens on Operating Property to secure the costs of acquisition,
construction, development or substantial repair, alteration or
improvement of property or to secure Debt incurred to provide funds
for any of those purposes or for reimbursement of funds previously
expended for any of those purposes, provided the Liens are created
or assumed contemporaneously with, or within 18 months after, the
acquisition or the completion of substantial repair or alteration,
construction, development or substantial improvement;
(4) Liens in favor of any state or any department, agency or
instrumentality or political subdivision of any state, or for the
benefit of holders of securities issued by any such entity (or
providers of credit enhancement with respect to those securities),
to secure any Debt (including, without limitation, our obligations
with respect to industrial development, pollution control or similar
revenue bonds) incurred for the purpose of financing or refinancing
all or any part of the purchase price or the cost of substantially
repairing or altering, constructing, developing or substantially
improving property which at the time of such purchase, repair,
alteration, construction, development or improvement was owned or
operated by us;
(5) Liens securing Debt outstanding as of the date of issuance of the
Exchange Notes (as the first series of debt securities issued under
the indenture);
(6) Liens securing Debt which matures less than one year from its
issuance or incurrence and is not extendible at our option;
(7) Liens on Operating Property which is the subject of a lease
agreement designating us as lessee and all of our right, title and
interest in such Operating Property and such lease agreement,
whether or not such lease agreement is intended as security;
(8) Liens for taxes and similar levies, deposits to secure performance
or obligations under certain specified circumstances and laws,
mechanics' and other similar Liens arising in the ordinary course of
business, Liens created by or resulting from legal proceedings being
contested in good faith, and certain other similar Liens arising in
the ordinary course of business;
(9) Liens to compensate the trustee as provided in the indenture; or
(10) any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any Lien referred
to in clauses (1) through (9) above, provided, however, that the
principal amount of Debt secured thereby and not otherwise
authorized by clauses (1) through (9) above, must not exceed the
principal amount of Debt, plus any premium or fee payable in
connection with the extension, renewal or replacement, so secured at
the time of the extension, renewal or replacement.
However, the foregoing restriction will not apply to our issuance,
assumption or guarantee of Debt secured by a Lien which would otherwise be
subject to the foregoing restriction up to an aggregate amount which, together
with all of our other secured Debt then outstanding (not including secured Debt
permitted under any of the foregoing exceptions) and the Value (as defined
below) of Sale and Lease-Back Transactions (as defined below) existing at that
time (other than Sale and Lease-Back Transactions
41
the proceeds of which have been applied to the retirement of certain
indebtedness, Sale and Lease-Back Transactions in which the property involved
would have been permitted to be subjected to a Lien under any of the foregoing
exceptions in clauses (1) to (10) and Sale and Lease-Back Transactions that are
permitted by the first sentence of "--Limitation on Sale and Lease-Back
Transactions" below), does not exceed the greater of 15% of our Net Tangible
Assets (as defined below) or 15% of our Capitalization as defined below.
Limitation on Sale and Lease-Back Transactions
The indenture provides that, so long as any debt securities are
outstanding, we may not enter into or permit to exist, any Sale and Lease-Back
Transaction with respect to any Operating Property (except for transactions
involving leases for a term of not more than 48 months, including renewals), if
the purchasers' commitment is obtained more than 18 months after the later of
the completion of the acquisition, construction or development of that Operating
Property or the placing in operation of that Operating Property or of that
Operating Property as constructed or developed or substantially repaired,
altered or improved.
This restriction will not apply if:
- we would be entitled pursuant to any of the provisions described in
clauses (1) to (10) of the first sentence of the second paragraph under
"--Limitation on Liens" above to issue, assume, guarantee or permit to
exist Debt secured by a Lien on that Operating Property without equally
and ratably securing the debt securities;
- after giving effect to a Sale and Lease-Back Transaction, we could incur,
pursuant to the provisions described in the third paragraph under
"--Limitation on Liens," at least $1.00 of additional Debt secured by
Liens (other than Liens permitted by the preceding paragraph); or
- we apply within 180 days after the effective date of such Sale and
Leaseback Transaction an amount equal to, in the case of a sale or
transfer for cash, the net proceeds (not exceeding the net book value of
such Operating Property at the date of such sale or transfer), and, in the
case of a sale or transfer otherwise than for cash, an amount equal to the
fair value (as determined by our Board of Directors) of the Operating
Property so leased, to the retirement of debt securities or our other Debt
ranking equally with the debt securities, subject to reduction for debt
securities and Debt retired during the 180-day period otherwise than
pursuant to mandatory sinking fund or prepayment provisions and payments
at stated maturity.
"Capitalization" means the total of all the following items appearing on,
or included in, our consolidated balance sheet: (i) liabilities for indebtedness
maturing more than twelve (12) months from the date of determination; and (ii)
common stock, preferred stock, hybrid preferred securities, premium on capital
stock, capital surplus, capital in excess of par value, and retained earnings
(however the foregoing may be designated), less, to the extent not otherwise
deducted, the cost of shares of our capital stock held in our treasury.
Capitalization shall be determined in accordance with generally accepted
accounting principles and practices applicable to the type of business in which
we are engaged and may be determined as of a date not more than sixty (60) days
prior to the happening of an event for which such determination is being made.
"Debt" means any outstanding debt for money borrowed evidenced by notes,
debentures, bonds, or other securities.
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"Net Tangible Assets" means the amount shown as total assets on our
consolidated balance sheet, less the following: (i) intangible assets including,
but without limitation, such items as goodwill, trademarks, trade names,
patents, and unamortized debt discount and expense and other regulatory assets
carried as an asset on our consolidated balance sheet; (ii) current liabilities;
and (iii) appropriate adjustments, if any, on account of minority interests.
"Operating Property" means (i) any interest in real property owned by us;
and (ii) any asset owned by us that is depreciable in accordance with generally
accepted accounting principles.
"Sale and Lease-Back Transaction" means any arrangement with any person or
entity providing for the leasing to us of any Operating Property (except for
leases for a term, including any renewals, of not more than 48 months), which
Operating Property has been or is to be sold or transferred by us to such person
or entity; provided, however, Sale and Lease-Back Transaction does not include
any arrangement first entered into prior to the date of the indenture and
involving the exchange of any Operating Property for any property subject to any
such arrangement.
"Value" means, with respect to a Sale and Lease-Back Transaction, as of
any particular time, the amount equal to the greater of (i) the net proceeds to
us from the sale or transfer of the Operating Property leased pursuant to the
Sale and Lease-Back Transaction or (ii) the net book value of the Operating
Property leased, as determined by us in accordance with generally accepted
accounting principles, in either case multiplied by a fraction, the numerator of
which will be equal to the number of full years of the term of the lease that is
part of the Sale and Lease-Back Transaction remaining at the time of
determination and the denominator of which will be equal to the number of full
years of the term of the lease, without regard, in any case, to any renewal or
extension options contained in the lease.
CONSOLIDATION, MERGER, CONVEYANCE, SALE OR TRANSFER
Under the terms of the indenture, we have agreed not to consolidate with
or merge into any other entity or convey or otherwise transfer or lease our
properties and assets substantially as an entirety to any entity unless:
- the successor is an entity organized and existing under the laws of the
United States of America or any State of the United States or the District
of Columbia;
- the successor expressly assumes by a supplemental indenture the due and
punctual payment of the principal of, and premium, if any, and interest,
if any, on all the outstanding debt securities under the indenture and the
performance of every covenant of the indenture that we would otherwise
have to perform or observe;
- immediately after giving effect to the transactions, no event of default
with respect to any series of debt securities and no event which after
notice or lapse of time or both would become an event of default with
respect to any series of debt securities will have occurred and be
continuing; and
- we have provided to the trustee an officer's certificate and an opinion of
counsel as to the compliance of such acts with the indenture.
MODIFICATION OF THE INDENTURE
Under the indenture or any supplemental indenture, the rights of the
holders of debt securities may be changed with the consent of the holders
representing a majority in principal amount of the
43
outstanding debt securities of all series affected by the change, voting as one
class, provided, however, that the following changes may not be made without the
consent of the holders of each outstanding debt security affected thereby:
- change the fixed date upon which the principal of or the interest on any
debt security is due and payable, or reduce the principal amount thereof
or the rate of interest thereon or any premium payable upon the redemption
thereof, or reduce the amount of the principal of an original issue
discount security that would be payable upon a declaration of acceleration
of the maturity thereof, or change any place of payment where, or the
currency in which, any debt security or any premium, if any, or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any payment on or after the date such payment is due or, in
the case of redemption, on or after the date fixed for such redemption;
- reduce the stated percentage of debt securities, the consent of the
holders of which is required for any modification of the applicable
indenture or for waiver by the holders of certain of their rights; or
- modify certain provisions of the indenture relating to supplemental
indentures, waivers of some covenants and waivers of past defaults with
respect to debt securities of any series.
An "original issue discount security" means any security authenticated and
delivered under the indenture which provides for an amount less than the
principal amount thereof to be due and payable upon the declaration of
acceleration of the maturity thereof.
The indenture also permits us and the trustee to amend the indenture
without the consent of the holders of any debt securities for any of the
following purposes:
- to evidence the assumption by any permitted successor of our covenants in
the indenture and in the debt securities;
- to add to the covenants with which we must comply or to surrender any of
our rights or powers under the indenture;
- to add additional Events of Default (as defined below);
- to change, eliminate, or add any provision to the indenture; provided,
however, if the change, elimination, or addition will adversely affect the
interests of the holders of debt securities of any series, other than any
series the terms of which permit such change, elimination or addition, in
any material respect, such change, elimination, or addition will become
effective with respect to such series only:
(1) when the consent of the holders of debt securities of such
series has been obtained in accordance with the indenture; or
(2) when no debt securities of such series remain outstanding
under the indenture;
- to provide collateral security for all of the debt securities;
- to establish the form or terms of debt securities of any other series as
permitted by the indenture;
- to provide for the authentication and delivery of bearer securities and
coupons attached thereto;
44
- to evidence and provide for the acceptance of appointment of a separate or
successor trustee or co-trustee;
- to provide for the procedures required for use of a noncertificated system
of registration for the debt securities of all or any series;
- to change any place where principal, premium, if any, and interest shall
be payable, debt securities may be surrendered for registration of
transfer or exchange and notices to us may be served; or
- to cure any ambiguity or inconsistency or to make any other changes or
additions to the provisions of the indenture with respect to matters and
questions arising under the indenture; provided that such action shall not
adversely affect the interests of the holders of debt securities of any
series in any material respect.
EVENTS OF DEFAULT
An event of default with respect to any series of debt securities is
defined in the indenture as being any one of the following:
- failure to pay interest on the debt securities of that series for 30 days
after payment is due;
- failure to pay principal of or any premium on the debt securities of that
series when due, whether at stated maturity or upon earlier acceleration,
redemption or otherwise;
- failure to perform other covenants or warranties in the indenture for 90
days after we are given written notice of such default from the trustee or
the trustee receives written notice from the registered owners of at least
33% in principal amount of the debt securities of that series; however,
the trustee or the trustee and the holders of such principal amount of
debt securities of that series can agree to an extension of the 90-day
period and such an agreement to extend will be automatically deemed to
occur if we are diligently pursuing action to correct the default;
- certain events of bankruptcy, insolvency, reorganization, receivership or
liquidation relating to us; and
- any other event of default included in the supplemental indenture, board
resolution or officer's certificate for that series of debt securities.
An event of default regarding a particular series of debt securities will
not necessarily constitute an event of default for any other series of debt
securities.
We will be required to file with the trustee annually an officer's
certificate as to the absence of default in performance of certain covenants in
the indenture. The indenture provides that the trustee may withhold notice to
the holders of the debt securities of any default, except in payment of
principal of, or premium, if any, or interest on, the debt securities or in the
payment of any sinking fund installment with respect to the debt securities, if
the trustee in good faith determines that it is in the interest of the holders
of the debt securities to do so.
The indenture provides that, if an event of default with respect to the
debt securities of any series occurs and continues, either the trustee or the
holders of 33% or more in aggregate principal amount of the debt securities of
that series may declare the principal amount of all the debt securities to be
due and
45
payable immediately. However, if the event of default is applicable to all
outstanding debt securities under the indenture, or if related to certain events
of bankruptcy, insolvency, reorganization, arrangement, adjustment, composition
or other similar events, only the trustee or holders of at least 33% in
principal amount of all outstanding debt securities of all series, voting as one
class, and not the holders of any one series, may make such a declaration of
acceleration.
At any time after a declaration of acceleration with respect to the debt
securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained, the event of default giving rise to
such declaration of acceleration will be considered waived, and such declaration
and its consequences will be considered rescinded and annulled, if:
- we have paid or deposited with the trustee a sum sufficient to pay:
(1) all overdue interest, if any, on all debt securities of that
series,
(2) the principal of and premium, if any, on any debt securities
of that series which have otherwise become due and interest,
if any, that is currently due, including interest on overdue
interest, if any, and
(3) all amounts due to the trustee under the indenture; and
- any other event of default with respect to the debt securities of that
series other than the nonpayment of principal of the securities of such
series which shall have become due solely by such declaration of
acceleration, has been cured or waived as provided in the indenture.
The indenture does not provide for automatic acceleration, even in the
event of our bankruptcy, insolvency or reorganization.
Subject to the provisions of the indenture relating to the duties of the
trustee, the trustee will be under no obligation to exercise any of its rights
or powers under the indenture at the request or direction of any of the holders
of the debt securities, unless the holders shall have offered to the trustee
reasonable indemnity.
The holders of a majority in principal amount of the debt securities of
any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee, or exercising
any trust or power conferred on the trustee with respect to the debt securities
of that series. However, if the event of default relates to more than one series
of debt securities, only the holders of a majority in aggregate principal amount
of all affected series, considered as a class, will have the right to give this
direction. However, the trustee shall have the right to decline to follow any
direction if the trustee shall determine that the action so directed conflicts
with any rule of law or the provisions of the indenture or could involve the
trustee in personal liability in circumstances where indemnity to the trustee
would not be adequate.
SATISFACTION AND DISCHARGE
We will be discharged from our obligations on the debt securities of any
series, or any portion of the principal amount of the debt securities of any
series, if we
(1) irrevocably deposit with the trustee sufficient cash or eligible
obligations (or a combination of both) to pay the principal, or
portion of principal, interest, any premium
46
and any other sums when due on the debt securities, whether at their
maturity, stated maturity date, redemption or otherwise; and
(2) deliver to the trustee:
(a) a company order stating that the money and eligible
obligations deposited in accordance with the indenture shall
be held in trust and, in the case eligible obligations are
deposited, certain opinions of counsel and of an independent
public accountant;
(b) if such deposit shall have been made prior to the maturity of
the debt securities of the series, an officer's certificate
stating our intention that, upon delivery of the officer's
certificate, our indebtedness in respect of those debt
securities, or the portions thereof, will have been satisfied
and discharged as contemplated in the indenture; and
(c) an opinion of counsel to the effect that, as a result of a
change in law or a ruling of the United States Internal
Revenue Service, the holders of the debt securities of the
series, or portions thereof, will not recognize income, gain
or loss for United States federal income tax purposes as a
result of the satisfaction and discharge of our indebtedness
and will be subject to United States federal income tax on the
same amounts, at the same times and in the same manner as if
we had not so satisfied and discharged our indebtedness.
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 which do not contain provisions permitting their redemption or other
prepayment at the option of the issuer thereof.
In the event that all of the conditions set forth above have been
satisfied for any series of debt securities, or portions thereof, except that,
for any reason, we have not delivered the officer's certificate and opinion
described in clauses (b) and (c) above, the holders of those debt securities
will no longer be entitled to the benefits of certain of our covenants under the
indenture, including the covenants described above in "Limitation on Liens" and
"Limitation of Sale and Lease-Back Transactions." Our indebtedness in respect of
those debt securities, however, will not be deemed to have been satisfied and
discharged prior to maturity, and the holders of those debt securities may
continue to look to us for payment of the indebtedness represented thereby.
The indenture will be deemed satisfied and discharged when no debt
securities remain outstanding and when we have paid all other sums payable by us
under the indenture. All moneys we pay to the trustee or any paying agent on
debt securities which remain unclaimed at the end of two years after payments
have become due will be paid to us or upon our order. Thereafter, the holder of
those debt securities may look only to us for payment and not the trustee or any
paying agent.
RESIGNATION OR REMOVAL OF TRUSTEE
The trustee may resign at any time by giving written notice to us
specifying the day upon which the resignation is to take effect. The resignation
will take effect immediately upon the later of the appointment of a successor
trustee and the specified day.
47
The trustee may be removed at any time by an instrument or concurrent
instruments in writing delivered to the trustee and us and signed by the
holders, or their attorneys in fact, representing a majority in principal amount
of the then outstanding debt securities. In addition, under certain
circumstances, we may remove the trustee upon notice to the holder of each debt
security outstanding and the trustee, and upon the appointment of a successor
trustee.
CONCERNING THE TRUSTEE
JPMorgan Chase Bank is the trustee under the indenture. We and our
affiliates maintain other banking relationships in the ordinary course of
business with the trustee and its affiliates.
GOVERNING LAW
The indenture and the debt 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 Act of 1939 shall be applicable.
BOOK-ENTRY
The certificate representing the Exchange Notes, or Global Certificate,
will be issued in fully registered form, without coupons. Upon the issuance of
the Global Certificate, DTC or its nominee will credit, on its internal system,
the principal amount of the individual beneficial interests represented by such
Global Certificate to the accounts of persons who have accounts with such
depositary. Such accounts initially will be designated by or on behalf of the
initial purchasers. Ownership of beneficial interests in a Global Certificate
will be limited to persons who have accounts with DTC, or participants, or
persons who hold interests through participants. Ownership of beneficial
interests in a Global Certificate will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Qualified Institutional Buyers may hold their interests in a Global Certificate
directly through DTC if they are participants in such system or indirectly
through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Exchange Notes represented by such Global
Certificate for all purposes under the indenture and the Exchange Notes. No
beneficial owner of an interest in a Global Certificate will be able to transfer
the interest except in accordance with DTC's applicable procedures, in addition
to those provided for under the indenture.
Payments of the principal of, and interest on, a Global Certificate will
be made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither we, the trustee nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global
Certificate or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. DTC or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Certificate, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global
Certificate as shown on the records of DTC or its nominee. We also expect that
payments by participants to owners of beneficial interests in such Global
Certificate held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants and
neither we, the trustee or any paying agent will have any responsibility
therefor.
48
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a holder requires physical delivery of a
certificated Exchange Note for any reason, including to sell Exchange Notes to
persons in jurisdictions which require such delivery of such Exchange Notes or
to pledge such Exchange Notes, such holder must transfer its interest in a
Global Certificate in accordance with DTC's applicable procedures, or the
procedures set forth in the indenture.
DTC will take any action permitted to be taken by a holder of Exchange
Notes (including the presentation of Exchange Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Certificate is credited and only in respect of such
portion of the aggregate principal amount of the Exchange Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Exchange Notes, DTC will exchange a Global
Certificate for certificated Exchange Notes, which it will distribute to its
participants.
DTC has advised us that it is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the Uniform Commercial Code and a
"Clearing Agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly (indirect
participants). The rules applicable to DTC and its participants are on file with
the SEC.
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Exchange Notes represented by a Global
Certificate among its participants, it is under no obligation to perform or
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither we nor the trustee will have any responsibility for the
performance by DTC or its respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as a depositary for
a Global Certificate and a successor depositary is not appointed by us within 90
days, we will issue certificated Exchange Notes in exchange for a Global
Certificate.
All payments of principal and interest will be made by us in immediately
available funds.
Secondary trading in long-term bonds and notes of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, beneficial
interests in the Exchange Notes that are not certificated Exchange Notes will
trade in DTC's Same-Day Funds Settlement System until maturity. Therefore, the
secondary market trading activity in such interests will settle in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the Exchange
Notes.
The information under this caption "Book-Entry" concerning DTC and DTC's
book-entry system has been obtained from information provided by DTC. We have
provided the foregoing descriptions of the operations and procedures of DTC
solely as a matter of convenience. The operations and procedures are solely
within the control of DTC and are subject to change by DTC from time to time.
You are urged to contact DTC or its participants directly to discuss these
matters.
49
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material United States federal income
tax consequences of this exchange offer and of the ownership and disposition of
Original Notes and Exchange Notes, which we refer to in this section
collectively as the Notes, and, insofar as it relates to matters of law and
legal conclusions, constitutes the opinion of Pillsbury Winthrop LLP. Unless
otherwise stated, this discussion deals only with U.S. holders who hold Notes as
capital assets.
As used herein, a "U.S. holder" is a beneficial owner of a Note that is,
for United States federal income tax purposes, (i) an individual citizen or
resident of the United States, (ii) a corporation, or other entity treated as a
corporation for United States federal income tax purposes, created or organized
in, or under the laws of, the United States, any state thereof or the District
of Columbia, (iii) an estate the income of which is subject to United States
federal income taxation regardless of its source or (iv) a trust if (a) a court
within the United States is able to exercise primary supervision over the
administration of the trust and (b) one or more U.S. persons have the authority
to control all substantial decisions of the trust. In addition, certain trusts
in existence on August 20, 1996 and treated as U.S. persons prior to that date
may also be treated as U.S. holders. As used herein, a "non-U.S. holder" is a
beneficial owner of a Note that is not a U.S. holder. If a partnership, or other
entity treated as a partnership for United States federal income tax purposes,
is a beneficial owner of a Note, the treatment of a partner in the partnership
will generally depend upon the status of the partner and upon the activities of
the partnership. Partnerships and partners in such partnerships should consult
their tax advisors about the United States federal income tax consequences of
owning and disposing of Notes.
This discussion does not describe all of the tax consequences that may be
relevant to a holder in light of its particular circumstances. For example, it
does not deal with special classes of holders such as banks, thrifts, real
estate investment trusts, regulated investment companies, insurance companies,
dealers or traders in securities or currencies, or tax-exempt investors. It also
does not discuss Notes held as part of a hedge, straddle, "synthetic security"
or other integrated transaction. This discussion does not address the tax
consequences to persons that have a functional currency other than the U.S.
dollar and certain United States expatriates. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of any
state or local government or of any foreign government that may be applicable to
the Notes. This discussion is based on the Code, the Treasury regulations
promulgated thereunder and administrative and judicial interpretations thereof,
all as of the date hereof, and all of which are subject to change or differing
interpretations, possibly on a retroactive basis.
YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL, AS WELL AS ANY STATE, LOCAL AND FOREIGN INCOME, FRANCHISE, PERSONAL
PROPERTY AND ANY OTHER TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF THE
NOTES.
TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Original Notes for Exchange Notes pursuant to this
exchange offer will not be a taxable event for United States federal income tax
purposes. Accordingly, a holder will not recognize any gain or loss as a result
of exchanging Original Notes for Exchange Notes pursuant to this exchange offer.
A holder will have the same tax basis in an Exchange Note as in the Original
Note exchanged therefor, and the holding period of an Exchange Note will include
the holding period of the Original Note exchanged therefor.
50
TAXATION OF U.S. HOLDERS
INTEREST INCOME
Interest paid on the Notes will be taxable to a U.S. holder as ordinary
income at the time it accrues or is received in accordance with the U.S.
holder's regular method of accounting.
NOTES PURCHASED WITH MARKET DISCOUNT
A U.S. holder will be considered to have purchased a Note with "market
discount" if the holder's tax basis in the Note immediately after the purchase
is less than the Note's stated redemption price at maturity. A Note is not
treated as having market discount if the amount of market discount is de
minimis. For this purpose, the amount of market discount is de minimis if it
does not exceed the product of 0.25% of the stated redemption price at maturity
multiplied by the number of complete years to maturity remaining as of such
date. If the Note has de minimis market discount, a U.S. holder must generally
include such de minimis amount in income (as capital gain) as stated principal
payments are made.
If a Note is treated as having market discount, any partial payment of
principal on, or gain recognized on the maturity or disposition of, the Note
will generally be treated as ordinary income to the extent that such gain does
not exceed the accrued market discount on the Note. Alternatively, a U.S. holder
of a Note may elect to include market discount in income currently over the life
of the Note. Such an election applies to all debt instruments with market
discount acquired by the electing holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the Internal Revenue Service. When such an election is made, market
discount accrues on a straight-line basis unless the holder further elects to
accrue such discount on a constant yield to maturity basis. This latter election
is applicable only to the debt security with respect to which it is made and is
irrevocable. A holder of a Note that does not elect to include market discount
in income currently will generally be required to defer deductions for interest
on borrowings allocable to such Note in an amount not exceeding the accrued
market discount on such Note until the maturity or disposition of such Note.
NOTES PURCHASED AT A PREMIUM
A U.S. holder will be considered to have purchased a Note at a premium if
the holder's tax basis in the Note immediately after the purchase (which does
not include any amount paid in respect of accrued interest on the Note) is
greater than the amount payable at maturity. A holder may elect to treat such
premium as "amortizable bond premium," in which case the amount of interest on
the Note required to be included in the holder's income each year will be
reduced by the amount of the amortizable bond premium allocable (generally under
a constant yield method based on the holder's yield to maturity) to such year,
with a corresponding decrease in the holder's adjusted tax basis in the Note.
Any election to amortize bond premium is applicable to all debt securities
(other than a tax-exempt debt security) held by the holder at the beginning of
the first taxable year to which the election applies or thereafter acquired by
the holder, and may not be revoked without the consent of the Internal Revenue
Service.
SALE, EXCHANGE OR REDEMPTION OF NOTES
Except as described above (with respect to this exchange offer and Notes
purchased with market discount), a U.S. holder will generally recognize capital
gain or loss equal to the difference between the amount realized on the sale,
exchange, redemption or other disposition of a Note and the holder's tax basis
in such Note. The amount realized is generally equal to the amount of cash and
the fair market value of property received for the Note (other than amounts
attributable to accrued but unpaid interest). A holder's tax basis in the Note
generally will be the purchase price paid therefor, increased by any market
51
discount included in income and reduced by any amortized bond premium. In the
case of a holder other than a corporation, preferential tax rates may apply to
capital gain recognized on the sale of a Note if such holder's holding period
for such Note exceeds one year. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal and interest on the Notes and payments of the proceeds of the sale of
the Notes, and a backup withholding tax may apply to such payments at the
applicable rate, if a non-exempt holder fails to comply with certain
identification requirements. Any amounts withheld under the backup withholding
rules from a payment to a holder generally will be allowed as a credit against
such holder's United States federal income tax liability and may entitle the
holder to a refund, provided that the required information is furnished to the
Internal Revenue Service.
TAXATION OF NON-U.S. HOLDERS
INTEREST INCOME
Generally, interest income of a non-U.S. holder that is not effectively
connected with a United States trade or business is subject to a withholding tax
at a 30% rate (or, if applicable, a lower tax rate specified by an income tax
treaty). However, interest income earned on a Note by a non-U.S. holder will
qualify for the "portfolio interest" exemption and therefore will not be subject
to United States federal income tax or withholding tax, provided that such
interest income is not effectively connected with a United States trade or
business of the non-U.S. holder and provided that: (i) the non-U.S. holder does
not actually or constructively own 10% of more of the total combined voting
power of all classes of our stock entitled to vote; (ii) the non-U.S. holder is
not a controlled foreign corporation that is related to us through stock
ownership; (iii) the non-U.S. holder is not a bank which acquired the Note in
consideration for an extension of credit made pursuant to a loan agreement
entered into in the ordinary course of business; and (iv) either (a) the
non-U.S. holder certifies to the payor or the payor's agent, under penalties of
perjury, that it is not a United States person and provides its name, address
and certain other information on a properly executed Internal Revenue Service
Form W-8BEN or a suitable substitute form or (b) a securities clearing
organization, bank or other financial institution that holds customer securities
in the ordinary course of its trade or business, and holds the Notes in such
capacity, certifies to the payor or the payor's agent, under penalties of
perjury, that such a statement has been received from the beneficial owner by it
or by a financial institution between it and the beneficial owner, and furnishes
the payor or the payor's agent with a copy thereof. The applicable United States
Treasury regulations also provide alternative methods for satisfying the
certification requirements of clause (iv), above. If a non-U.S. holder holds the
Note through certain foreign intermediaries or partnerships, such holder and the
foreign intermediary or partnership may be required to satisfy certification
requirements under applicable United States Treasury regulations.
Except to the extent that an applicable income tax treaty otherwise
provides, a non-U.S. holder generally will be taxed with respect to interest in
the same manner as a U.S. holder if the interest is effectively connected with a
United States trade or business of the non-U.S. holder. Effectively connected
interest income received or accrued by a corporate non-U.S. holder may also,
under certain circumstances, be subject to an additional "branch profits" tax at
a 30% rate (or, if applicable, at a lower tax rate specified by an applicable
income tax treaty). Even though such effectively connected income is subject to
income tax, and may be subject to the branch profits tax, it is not subject to
withholding tax if the non-U.S. holder delivers a properly executed Internal
Revenue Service Form W-8ECI (or successor form) to the payor or the payor's
agent.
52
SALE, EXCHANGE OR REDEMPTION OF NOTES
A non-U.S. holder generally will not be subject to United States federal
income tax or withholding tax on any gain realized on the sale, exchange,
redemption or other disposition of a Note unless (i) the gain is effectively
connected with a United States trade or business of the non-U.S. holder or (ii)
in the case of a non-U.S. holder who is an individual, such holder is present in
the United States for a period or periods aggregating 183 days or more during
the taxable year of the disposition, and certain other conditions are satisfied.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
United States backup withholding tax will not apply to payments on the
Notes to a non-U.S. holder if the statement described in clause (iv) under
"Interest Income" above is duly provided by such holder, provided that the payor
does not have actual knowledge that the holder is a United States person.
Information reporting requirements may apply with respect to interest payments
on the Notes, in which event the amount of interest paid and tax withheld (if
any) with respect to each non-U.S. holder will be reported annually to the
Internal Revenue Service. Information reporting requirements and backup
withholding tax will not apply to any payment of the proceeds of the sale of
Notes effected outside the United States by a foreign office of a "broker" as
defined in applicable Treasury regulations (absent actual knowledge that the
payee is a United States person), unless such broker (i) is a United States
person as defined in the Code, (ii) is a foreign person that derives 50% or more
of its gross income for certain periods from the conduct of a trade or business
in the United States, (iii) is a controlled foreign corporation for United
States federal income tax purposes or (iv) is a foreign partnership with certain
United States connections. Payment of the proceeds of any such sale effected
outside the United States by a foreign office of any broker that is described in
the preceding sentence may be subject to backup withholding tax and information
reporting requirements unless such broker has documentary evidence in its
records that the beneficial owner is a non-U.S. holder and certain other
conditions are met, or the beneficial owner otherwise establishes an exemption.
Payment of the proceeds of any such sale to or through the United States office
of a broker is subject to information reporting and backup withholding
requirements unless the beneficial owner of the Notes provides the statement
described in clause (iv) under "Interest Income" above or otherwise establishes
an exemption.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY
NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
UNITED STATES FEDERAL OR OTHER TAX LAWS.
PLAN OF DISTRIBUTION
As discussed under "The Exchange Offer" in this prospectus, based on
interpretations by the staff of the SEC set forth in no-action letters issued to
other companies, we believe that a holder, other than a person that is an
affiliate of ours within the meaning of Rule 405 under the Securities Act or a
broker-dealer registered under the Exchange Act that purchases Original Notes or
Exchange Notes from us to resell pursuant to Rule 144A under the Securities Act
or any other exemption, that acquires the Exchange Notes in the ordinary course
of business and that is not participating in, does not intend to participate in,
and has no arrangement or understanding with any person to participate in, the
distribution of the Original Notes or Exchange Notes will be allowed to resell
the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires Exchange Notes in this exchange offer for the
purpose of distributing or participating in a
53
distribution of the Exchange Notes, such holder cannot rely on the position of
the staff enunciated in Morgan Stanley & Co., Inc. (available June 5, 1991) and
Exxon Capital Holdings Corp. (available May 13, 1988), as interpreted in the
SEC's letter to Shearman & Sterling dated July 2, 1993, or similar no-action or
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, and such secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K if the
resales are of Exchange Notes obtained by such holder in exchange for Original
Notes acquired by such holder directly from us or an affiliate thereof, unless
an exemption from registration is otherwise available.
As contemplated by the above no-action letters and the registration rights
agreement, each holder accepting this exchange offer is required to represent to
us in the letter of transmittal that:
(i) any Exchange Notes it receives will be acquired in the ordinary
course of business;
(ii) it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act)
of the Exchange Notes;
(iii) it is not an "affiliate" of ours as defined in Rule 405 of the
Securities Act;
(iv) if it is not a broker-dealer, it is not engaged in, and does not
intend to engage in, the distribution (within the meaning of the
Securities Act) of the Exchange Notes within the meaning of the Securities
Act; and
(v) if it is a participating broker-dealer that it will receive Exchange
Notes for its own account in exchange for Original Notes that were
acquired as a result of market-making activities or other trading
activities, and acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes.
This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
as a result of market-making activities or other trading activities. We have
agreed that, for a period of the lesser of 90 days after the expiration date and
the date on which all participating broker-dealers have sold all Exchange Notes
held by them (unless such period is extended pursuant to the registration rights
agreement), we will make this prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale. In addition,
dealers effecting transactions in Exchange Notes may be required to deliver a
prospectus.
We will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to this exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to this exchange offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
54
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period the lesser of 90 days after the expiration date and the date
on which all participating broker-dealers have sold all Exchange Notes held by
them (unless such period is extended pursuant to the registration rights
agreement), we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the letter of transmittal. We have agreed to pay all expenses
incident to this exchange offer (including the expenses of one counsel for the
holders of Original Notes) other than commissions or concessions of any brokers
or dealers and will indemnify the holders of Original Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes will be passed
upon for us by Pillsbury Winthrop LLP, New York, New York and Gary D. Benz,
Esq., Associate General Counsel of FirstEnergy. As of June 28, 2004, Mr. Benz
owned approximately 2,972 shares of FirstEnergy common stock.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements incorporated in this prospectus by reference to
The Cleveland Electric Illuminating Company's Annual Report on Form 10-K for the
year ended December 31, 2003 have been so incorporated in reliance on the report
of PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
With respect to the unaudited financial information of The Cleveland
Electric Illuminating Company for the three-month periods ended March 31, 2004
and 2003, incorporated by reference in this prospectus, PricewaterhouseCoopers
LLP reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
report dated May 7, 2004 incorporated by reference herein states that they did
not audit and they do not express an opinion on that unaudited financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. PricewaterhouseCoopers LLP is not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their report on the
unaudited financial information because that report is not a "report" or a
"part" of the registration statement prepared or certified by
PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.
WHERE YOU CAN FIND MORE INFORMATION
We are required by the Exchange Act to file annual, quarterly and
special reports and other information with the SEC. These reports and other
information can be inspected and copied at the public reference room maintained
by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. You may also read and copy these SEC
filings by visiting the SEC's Web site at http://www.sec.gov or our
FirstEnergy's Web site at http://www.firstenergycorp.com. Information contained
on FirstEnergy's Web site does not constitute part of this prospectus.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the Exchange Notes offered by this prospectus.
This prospectus does not contain all of the information included in the
registration statement. For further information, you should refer to the
registration statement.
55
The SEC allows us to incorporate by reference in this prospectus the
information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus. The
information in this prospectus is not complete, and should be read together with
the information incorporated by reference. We incorporate by reference in this
prospectus the information contained in the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act, excluding, in each case, information deemed furnished and not
filed. Until the termination of this offering, information we file in the future
with the SEC will automatically update and supersede this information.
- Our Annual Report on Form 10-K (as amended by Form 10-K/A filed June 25,
2004) for the year ended December 31, 2003.
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.
- Our Current Reports on Form 8-K filed on January 13, 2004, January 20,
2004, February 9, 2004, February 24, 2004, March 8, 2004, May 24, 2004,
June 14, 2004 and June 28, 2004.
This prospectus is part of a registration statement on Form S-4 filed with
the SEC under the Securities Act.
You may request additional copies of our Exchange Act reports or copies of
our other SEC filings at no cost by writing or telephoning us at the following
address:
The Cleveland Electric Illuminating Company
c/o FirstEnergy Corp.
76 South Main Street
Akron, Ohio 44308-1890
Attention: Investor Services
(800) 736-3402
56
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1701.13(E) of Title 17 of Page's Ohio Revised Code Annotated gives
a corporation incorporated under the laws of Ohio power to indemnify any person
who is or has been a director, officer or employee of that corporation, or of
another corporation at the request of that corporation, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any threatened, pending or completed action, suit or
proceeding, criminal or civil, to which he is or may be made a party because of
being or having been such director, officer or employee, provided that in
connection therewith, such person is determined to have acted in good faith in
what he reasonably believed to be in or not opposed to the best interest of the
corporation of which he is a director, officer or employee, without reasonable
cause, in the case of a criminal matter, to believe that his conduct was
unlawful. The determination as to the conditions precedent to the permitted
indemnification of such person is made by the directors of the indemnifying
corporation acting at a meeting at which, for the purpose, any director who is a
party to or threatened with any such action, suit or proceeding may not be
counted in determining the existence of a quorum and may not vote. If, because
of the foregoing limitations, the directors are unable to act in this regard,
such determination may be made by the majority vote of the corporation's voting
shareholders (or without a meeting upon two-thirds written consent of such
shareholders), by judicial proceeding or by written opinion of independent legal
counsel other than an attorney who has been retained by or has performed
services for the corporation or any person to be indemnified during the five
years preceding the date of determination.
Section 40 of the Registrant's Amended and Restated Code of Regulations
provides as follows:
"The Corporation shall indemnify, to the full extent then permitted by
law, any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a member of the Board of Directors or an officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, trustee, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. The Corporation shall
indemnify such person against expenses, including attorney's fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by him by
reason of the fact that he is or was such person to the full extent to which the
Corporation is empowered or authorized to indemnify any person under the Ohio
General Corporation Law as now in effect or as amended from time to time. The
Corporation shall pay, to the full extent then permitted by law, expenses,
including attorney's fees, incurred by a member of the Board of Directors in
defending any such action, suit or proceeding as they are incurred, in advance
of the final disposition thereof, and may pay, in the same manner and to the
full extent then permitted by law, such expenses incurred by any other person.
The indemnification and payment of expenses provided hereby shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under any law, the Articles of Incorporation, any
agreement, vote of shareholders or disinterested members of the Board of
Directors, or otherwise, both as to action in official capacities and as to
action in another capacity while he or she is a member of the Board of
Directors, or an officer, employee or agent of the Corporation, and shall
continue as to a person who has ceased to be a member of the Board of Directors,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person."
II-1
Section 1701.13(E) of Title 17 of Page's Ohio Revised Code Annotated
provides that the indemnification thereby permitted shall not be exclusive of
any other rights that directors, officers or employees may have, including
rights under insurance purchased by the corporation.
Section 41 of the Registrant's Amended and Restated Code of Regulations
provides as follows:
"The Corporation may, to the full extent then permitted by law and
authorized by the Board of Directors, purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of credit
or self-insurance, on behalf of or for any persons described in Section 40
against any liability asserted against and incurred by any such person in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify such person against such
liability. Insurance may be purchased from or maintained with a person in which
the Corporation has a financial interest."
The Registrant maintains and pays the premium on contracts insuring the
Registrant (with certain exclusions) against any liability to directors and
officers they may incur under the above indemnity provisions and insuring each
director and officer of the Registrant (with certain exclusions) against
liability and expense, including legal fees, which he or she may incur by reason
of his or her relationship to the Registrant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT NO. DESCRIPTION
------------ -----------
3(a)** Amended Articles of Incorporation, effective March 30, 1994.
3(b)* Amended and Restated Code of Regulations, effective March 15,
2002. (Incorporated by reference to Exhibit 3c to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2001.)
4(a)* Indenture dated as of December 1, 2003 between The Cleveland
Electric Illuminating Company and JPMorgan Chase Bank, as
Trustee. (Incorporated by reference to Exhibit 4-1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2003.)
4(b)** Registration Rights Agreement, dated as of December 12, 2003,
among The Cleveland Electric Illuminating Company, Barclays
Capital Inc. and Morgan Stanley & Co. Incorporated, as
representatives of the Initial Purchasers (as defined
therein).
4(c)** Form of Exchange Note due 2013.
5(a)** Opinion of Gary D. Benz, Esq.
5(b)** Opinion of Pillsbury Winthrop LLP.
12** Statement of computation of ratio of earnings to fixed charges
of The Cleveland Electric Illuminating Company.
15 Letter of PricewaterhouseCoopers LLP re: unaudited interim
financial information.
II-2
23(a)** Consent of Gary D. Benz, Esq. (included in Exhibit 5(a)).
23(b)** Consent of Pillsbury Winthrop LLP (included in Exhibit 5(b)).
23(c) Consent of PricewaterhouseCoopers LLP.
24** Power of Attorney (See Signature Page).
25** Form T-1 Statement of Eligibility of JPMorgan Chase Bank to
act as Trustee under the Indenture.
99(a)** Form of Letter of Transmittal.
99(b)** Form of Notice of Guaranteed Delivery.
99(c)** Form of Letter to Registered Holders and/or DTC Participants.
* Incorporated by reference herein as indicated.
** Previously filed.
(b) Financial Statement Schedules.
None.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof; and
II-3
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
officer, director or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Pre-Effective
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Akron, State of Ohio, on
the 29th day of June, 2004.
THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY
By /s/ Richard H. Marsh
----------------------------
Richard H. Marsh
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Anthony J. Alexander*
---------------------------------------------- President and Director June 29, 2004
Anthony J. Alexander (principal executive officer)
/s/ Richard H. Marsh Senior Vice President, Chief June 29, 2004
---------------------------------------------- Financial Officer and Director
Richard H. Marsh (principal financial officer)
/s/ Harvey L. Wagner* Vice President and Controller June 29, 2004
---------------------------------------------- (principal accounting officer)
Harvey L. Wagner
/s/ Leila L. Vespoli* Director June 29, 2004
----------------------------------------------
Leila L. Vespoli
*By: /s/ Lucas F. Torres
-------------------
Lucas F. Torres