-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LJc7sGs3M/HWg4tloQQWh0aHb0Y3IfFO6qZg2GYcO4PMtsA88S5zCcd21ynFZm+5 ZWz23K0S/gQhU/bURO3cOA== 0000893220-97-001480.txt : 19970828 0000893220-97-001480.hdr.sgml : 19970828 ACCESSION NUMBER: 0000893220-97-001480 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19970827 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONECTIV INC CENTRAL INDEX KEY: 0001029590 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 510379417 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: 1935 Act SEC FILE NUMBER: 070-09095 FILM NUMBER: 97670901 BUSINESS ADDRESS: STREET 1: 800 KING STREET P O BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 3024293017 MAIL ADDRESS: STREET 1: 800 KING ST STREET 2: P O BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19801 U-1 1 FORM U-1 CONECTIV, INC. 1 As Filed with the Securities and Exchange Commission on ______, 1997 File No. 70-_____ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------------------ FORM U-1 APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ------------------------------------------------------ CONECTIV, INC. ATLANTIC CITY ELECTRIC COMPANY DELMARVA POWER & LIGHT COMPANY ATLANTIC ENERGY ENTERPRISES, INC. SUPPORT CONECTIV, INC. and SUBSIDIARIES 800 King Street 6801 Black Horse Pike Wilmington, DE 19899-0231 Egg Harbor Township, NJ 08234 DELMARVA CAPITAL INVESTMENTS, INC. and SUBSIDIARIES CONECTIV SERVICES, INC. CONECTIV COMMUNICATIONS, INC. Christiana Building University Plaza P.O. Box 6066 Newark, DE 19714-6066 ------------------------------------------------------ (Names of companies filing this statement and addresses of principal executive offices) CONECTIV, INC. ------------------------------------------------------ (Name of top registered holding company parent) Barbara S. Graham Michael J. Barron President and Secretary Vice President and Treasurer Conectiv, Inc. Conectiv, Inc. 800 King Street 6801 Black Horse Pike Wilmington, Delaware 19899 Egg Harbor Township, NJ 08234 (Names and addresses of agents for service) The Commission is requested to send copies of all notices, orders and communications in connection with this Application-Declaration to: Dale G. Stoodley, Esq. James E. Franklin II, Esq. Joyce Koria Hayes, Delmarva Power & Light Company Atlantic Energy, Inc. Esq. 800 King Street 6801 Black Horse Pike 7 Graham Court Wilmington, DE 19899 Egg Harbor Township, NJ 08234 Newark, DE 19711
2 PAGE 1 ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION (a) Furnish a reasonably detailed and precise description of the proposed transaction, including a statement of the reasons why it is desired to consummate the transaction and the anticipated effect thereof. If the transaction is part of a general program, describe the program and its relation to the proposed transaction. A. General Conectiv, Inc. ("Conectiv")1, a Delaware corporation, has previously filed an Application-Declaration on Form U-1 with the U. S. Securities and Exchange Commission (the "Commission") under Section 9(a)(2) of the Public Utility Holding Company Act of 1935, as amended (the "Act"), seeking approvals relating to the proposed acquisition by Conectiv of securities of Delmarva Power & Light Company ("Delmarva"), a Delaware and Virginia utility corporation, and merger into Conectiv of Atlantic Energy, Inc.("Atlantic"), a New Jersey corporation and parent of Atlantic City Electric Company ("Atlantic Electric"), a New Jersey utility corporation (collectively, these transactions are referred to as the "Merger"), and for other related transactions including the formation of Support Conectiv as a subsidiary service company in accordance with the provisions of Rule 88 under the Act (File No. 70-9069) (the "Merger U-1")2. Conectiv will register as a holding company under the Act upon consummation of the - ---------- 1 To be renamed Conectiv subsequent to merger. 2 No authority to issue debt or equity securities is sought in the Merger U-1 except for the authority for Conectiv to issue one share of Conectiv common stock for each share of Delmarva common stock outstanding on the effective date and .75 of a share of common stock and .125 of a share of Class A common stock for each share of Atlantic common stock outstanding on the effective date of the Merger and for Support Conectiv to issue up to 3,000 shares of its common stock to Conectiv. 3 PAGE 2 transactions contemplated in the Merger U-1. Each of the entities that will be directly and indirectly owned subsidiaries of Conectiv upon consummation of the transactions described in the Merger U-1 is referred to herein individually as a "Subsidiary" and collectively as "Subsidiaries". The terms "Subsidiary" and "Subsidiaries" shall also include other direct or indirect subsidiaries that Conectiv may form after the Merger with either the approval of the Commission, pursuant to the Rule 58 exemption or pursuant to Section 34 of the Act. Thus, future Rule 58 and exempt telecommunication companies ("ETCs") are included in the term "Subsidiaries", but exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs") are not. Conectiv and the Subsidiaries are sometimes hereinafter collectively referred to as the "Conectiv System" or as the "Applicants". In order to ensure that the Conectiv System is able to meet its capital requirements immediately following registration and plan its future financing, the Applicants hereby request authorization for financing transactions for the period beginning with the effective date of an order issued pursuant to this filing through December 31, 2000 (the "Authorization Period"). B. Description of the Parties to the Transaction Following the consummation of the Merger, Conectiv will have two operating utility subsidiaries (the "Utility Subsidiaries"): Delmarva, an electric and gas utility company providing gas and electric service in Delaware, and electric service in ten primarily Eastern Shore counties in Maryland and the Eastern Shore area of Virginia; and Atlantic Electric, an electric utility company providing service in the southern part of New Jersey. A description of Conectiv's other 4 PAGE 3 Subsidiaries is set forth in the Merger U-1 and the exhibits thereto. All of Conectiv's direct and indirect Subsidiaries, other than the Utility Subsidiaries, are herein called the "Non-Utility Subsidiaries". C. Overview of Financing Request The Applicants hereby request authorization to engage in the financing transactions set forth herein during the Authorization Period. The approval by the Commission of this Application-Declaration (the "Application") will give the Applicants flexibility that will allow them to respond quickly and efficiently to their financing needs and to changes in market conditions, which, in turn, should make them more competitive with other energy companies, including those not subject to the jurisdiction of the Act. At the same time, the Commission will continue to have oversight over financings by the Applicants through the regular disclosures under the Securities Act of 1933, as amended (the "1933 Act"), and the Securities Exchange Act of 1934, as amended (the "1934 Act"), and through the notification process established pursuant to this Application. This request for authority to issue a variety of securities over a period of time is consistent with existing Commission precedent. See, e.g., The Columbia Gas System, Inc., et al., HCAR No. 26634 (December 23, 1996); Consolidated Natural Gas Company, HCAR No. 26500, File 70-8667 (March 28, 1996); Gulf States Utilities Company, HCAR No. 26451 (January 16, 1996). The request for Conectiv to issue long-term debt is consistent with precedent noted in Regulation of Public Utility Holding Companies, the report of The Division of Investment Management dated 5 PAGE 4 June 1995 at page 44 and with the Commission order dated August 23, 1996 in General Public Utilities Corporation, HCAR No. 26559. The Applicants also hereby request authorization to deviate from the Commission's statements of policy with respect to first mortgage bonds and preferred stock in connection with the securities proposed to be issued and sold pursuant to this Application or pursuant to applicable exemption under the Act. The authorizations requested herein relate to (i)(a) external issuances by Conectiv of common stock, long-term debt, short-term debt, and other securities for cash and the issuance of common stock by Conectiv in consideration for the acquisition by Conectiv or a Non-Utility Subsidiary of securities acquired pursuant to an order issued in connection with the Merger U-1 or pursuant to Rule 58 or Section 34 and (b) the entering into by Conectiv of transactions to manage interest rate risk ("hedging transactions"); (ii) issuances of debt securities (including commercial paper) and the entering into of hedging transactions by the Utility Subsidiaries to the extent not exempt pursuant to Rule 52; (iii) issuances by Non-Utility Subsidiaries of debt securities which are not exempt pursuant to Rule 52; (iv) the establishment of a money pool (the "Money Pool") and the issuance of intrasystem guarantees by Conectiv and the Non-Utility Subsidiaries on behalf of Subsidiaries; and (v)(a) the ability of wholly-owned Subsidiaries to alter their capital stock to engage in financing with their parent company and to engage in a reverse stock split to reduce franchise taxes, subject in the case of Utility Subsidiaries to the approval of a state utility commission in a state where the utility is incorporated and doing business and (b) the 6 PAGE 5 ability of Non-Utility Subsidiaries to pay dividends out of capital or unearned surplus; (vi) the formation of financing entities and the issuance by such entities of securities otherwise authorized to be issued and sold pursuant to this Application or pursuant to applicable exemptions under the Act, including intrasystem guarantees of such securities and the retention of existing financing entities; and (vii) the establishment of intermediary subsidiaries which will invest in EWGs and FUCOs and the use of proceeds of the financings listed above for such investments. D. Parameters for Financing Authorization Authorization is requested herein to engage in certain financing transactions during the Authorization Period for which the specific terms and conditions are not at this time known, and which may not be covered by Rule 52, without further prior approval by the Commission. The following general terms will be applicable where appropriate to the financing transactions requested to be authorized hereby: 1. Effective Cost of Money on Borrowings The effective cost of money on long-term debt borrowings occurring pursuant to the authorizations granted under the Application will not exceed at issuance 300 basis points over comparable term U.S. Treasury securities and the effective cost of money on short-term borrowings pursuant to authorizations granted under the Application will not exceed at issuance 300 basis points over the comparable term London Interbank Offered Rate ("LIBOR"). 7 PAGE 6 2. Maturity of Debt The maturity of indebtedness will not exceed 50 years. 3. Issuance Expenses The underwriting fees, commissions, or other similar remuneration paid in connection with the non-competitive issue, sale or distribution of a security pursuant to the Application will not exceed 5% of the principal or total amount of the financing. 4. Use of Proceeds The proceeds from the sale of securities in external financing transactions will be used for general and corporate purposes including (i) the financing, in part, of capital expenditures of the Conectiv System, (ii) the financing of working capital requirements of the Conectiv System, (iii) the acquisition, retirement, or redemption pursuant to Rule 42 of securities previously issued by Conectiv or the Subsidiaries without the need for prior Commission approval, and (iv) other lawful purposes including direct or indirect investment in companies authorized under the Merger U-1 and in Rule 58 companies, ETCs, EWGs and FUCOs. The authorization requested herein to engage in external or intrasystem financing without additional Commission approval does not apply in the case of any financing, the proceeds of which will be used to invest in an EWG or a FUCO, unless such financing is in compliance with Rules 53 and 54 (as described below) at the time of the financing. The Applicants represent that no such financing proceeds will be used to acquire a new subsidiary unless such financing is 8 PAGE 7 consummated in accordance with an order of the Commission or an available exemption under the Act. Conectiv represents that, at all times during the Authorization Period, its common equity (as reflected in its most recent Form 10-K or Form 10-Q filed with the Commission pursuant to the 1934 Act) will be at least 30% of its consolidated capitalization as adjusted to reflect subsequent events that affect capitalization. E. Description of Specific Types of Financing 1. Conectiv External Financing Conectiv requests authorization to obtain funds externally through sales of common stock and long-term and short-term debt securities. With respect to common stock, Conectiv also requests authority to issue common stock to third parties in consideration for the acquisition by Conectiv or a Non-Utility Subsidiary of equity or debt securities of a company being acquired pursuant to Rule 58, Section 34 of the Act or pursuant to order issued in connection with the Merger U-1. In addition, Conectiv seeks the flexibility to enter into certain hedging transactions to manage interest rate risk. a. Common Stock. The aggregate amount of financing obtained by Conectiv during the Authorization Period from the issuance and sale of common stock, $0.01 par value per share, as described in this section, shall not exceed, when combined with issuances of long-term debt pursuant to this 9 PAGE 8 Application, $500 million for the uses set forth above. In addition, authorization is requested to issue up to 10 million shares of Conectiv common stock (or options to purchase such shares) pursuant to benefit plans and the dividend reinvestment plan described below during the ten year period from the date of the order of the Commission under this Application. The number of shares to be issued pursuant to the benefit plans will not exceed 5 million. The shares of common stock to be issued in connection with acquisitions will not exceed an aggregate market value of $100 million. i. General Subject to the foregoing, Conectiv may issue and sell common stock or, if pursuant to employee benefit plans, issue options exercisable for common stock and common stock upon the exercise of options. Conectiv may also buy back shares of such stock or such options during the Authorization Period in accordance with Rule 42. Common stock financings may be issued and sold pursuant to underwriting agreements of a type generally standard in the industry. Public distributions may be pursuant to private negotiation with underwriters, dealers or agents as discussed below or effected through competitive bidding among underwriters. In addition, sales may be made through private placements or other non-public offerings to one or more persons. All such common stock sales will be at rates or prices and under conditions negotiated or based upon, or otherwise determined by, competitive capital markets. 10 PAGE 9 Conectiv may sell common stock covered by this Application in any of the following ways: (i) through underwriters or dealers; (ii) through agents; (iii) directly to a limited number of purchasers or a single purchaser; or (iv) directly to employees (or to trusts established for their benefit) and other shareholders through its employee benefit plans or its dividend reinvestment plan. If underwriters are used in the sale of the securities, such securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The securities may be offered to the public either through underwriting syndicates (which may be represented by a managing underwriter or underwriters designated by Conectiv) or directly by one or more underwriters acting alone. The securities may be sold directly by Conectiv or through agents designated by Conectiv from time to time. If dealers are utilized in the sale of any of the securities, Conectiv will sell such securities to the dealers as principals. Any dealer may then resell such securities to the public at varying prices to be determined by such dealer at the time of resale. If common stock is being sold in an underwritten offering, Conectiv may grant the underwriters thereof a "green shoe" option permitting the purchase from Conectiv at the same price additional shares then being offered solely for the purpose of covering over-allotments. ii. Benefit Plans The number of shares of Conectiv common stock to be issued and sold under benefit plans pursuant to the authority requested herein shall be subject to the limitation set forth in Item 11 PAGE 10 1.E.1.a. above, relating to benefit plans and the dividend reinvestment plan. As described in the Merger U-1, it is intended that the Conectiv Incentive Compensation Plan will replace long-term incentive plans currently in place at Delmarva and Atlantic. Conectiv may adopt one or more other plans which will provide for the issuance and/or sale of Conectiv common stock, stock options and stock awards to a group which has not yet been determined but may include directors, officers and employees. Conectiv may issue shares of its common stock under the authorization, and within the limitations, set forth herein in order to satisfy its obligations under such plans. To the extent that, following consummation of the Merger, Conectiv modifies an existing Delmarva or Atlantic plan or adopts its own employee benefit plans that provide for the issuance of Conectiv common stock or options or awards for Conectiv common stock, Conectiv may issue shares of its common stock or options or awards for such shares under the authorization and within the limitations set forth herein, provided that Conectiv will provide the Commission with a summary of the terms of any such Conectiv employee benefit plan prior to issuing any shares or options or awards pursuant to any authorization provided in this proceeding. Shares of common stock for use under any employee benefit plan may either be newly issued shares, treasury shares, or shares purchased in the open market. iii. Dividend Reinvestment Plan The number of shares of Conectiv common stock to be issued and sold under the dividend reinvestment plan pursuant to the authority requested herein shall be subject to the limitation set forth in Item 1.E.1.a. above, relating to benefit plans and the dividend reinvestment plan. 12 PAGE 11 Concurrent with the Merger, a Conectiv Dividend Reinvestment Plan substantially in the form attached hereto as Exhibit B-5 will become operational. Under the Conectiv Dividend Reinvestment Plan, shares of common stock may be issued to stockholders reinvesting in the plan or to any individual making optional cash investments. Conectiv may issue and/or sell shares of its common stock under the authorization, and within the limitations set forth herein, in connection with the operation of the Conectiv Dividend Reinvestment Plan. Shares of common stock for use under the plan may either be newly issued shares, treasury shares or shares purchased in the open market. Conectiv hereby seeks authority for the issuance and sale of its shares in accordance with the Conectiv Dividend Reinvestment Plan. iv. Acquisitions Under the terms of the Merger U-1, Rule 58 and Section 34 of the Act, Conectiv is authorized to acquire securities of companies engaged in energy-related consumer services, "energy related businesses" as described in Rule 58 and ETCs. Historically, similar acquisitions have occasionally involved the exchange of parent company stock for securities of the company being acquired in order to provide the seller with certain tax advantages. These transactions are individually negotiated. The Conectiv common stock to be exchanged may be purchased on the open market pursuant to Rule 42, treasury shares or may be original issue. Original issue stock may be registered under the 1933 Act, but at present it is expected that the common stock would not be registered and the common stock acquired by the third parties would be subject to resale 13 PAGE 12 restrictions pursuant to Rule 144 under the 1933 Act. Such transactions would not occur while a public offering is being made. The ability to offer stock as consideration makes a transaction more economical for Conectiv as well as the seller of the business. Therefore, Conectiv requests authorization to issue common stock with an aggregate market value of up to $100 million in consideration for the acquisition by Conectiv or a Non-Utility Subsidiary of securities of a business, the acquisition of which is exempt under Rule 58 or Section 34 of the Act, or which has been authorized in the Merger U-1. The Conectiv common stock would be valued at market value based upon the closing price on the day before closing of the sale or based upon average high and low prices for a period prior to the closing of the sale as negotiated by the parties. From the perspective of the Commission, the use of stock as consideration valued at market value is no different than a sale of common stock on the open market and use of the proceeds to acquire securities, the acquisition of which is otherwise authorized. b. Long-Term Debt Conectiv requests Commission authorization during the Authorization Period to issue long-term debt securities in an amount, when combined with issuances of common stock (other than for benefit plans or the Conectiv Dividend Reinvestment Plan) under this Application, not to exceed $500 million. Such long-term debt securities would include notes, debentures and medium-term notes issued under an indenture (the "Conectiv Indenture") and/or borrowings from banks and other financial institutions under terms described below. Any long-term debt security 14 PAGE 13 would have such designation, aggregate principal amount, maturity, interest rate(s) or methods of determining the same, terms of payment of interest, redemption provisions, non-refunding provisions, sinking fund terms and other terms and conditions as Conectiv may determine at the time of issuance. i. Terms of Indenture The Conectiv Indenture will permit the issuance of a wide variety of unsecured debt securities in one or more series. Securities issuable can include notes, debentures, medium-term notes, securities having a low or zero coupon (which may be issued with original issue discount), securities as to which payments of interest or principal are based on a formula or index, and securities on which payment of interest or principal are denominated in a foreign currency or currencies. The terms of a specific issue of securities, including any applicable negative covenants, will be set under the Conectiv Indenture by a supplemental indenture. The Conectiv Indenture contains numerous variable terms, such as the principal amount, interest rate, redemption terms, denominations, events of default, etc., which may be included as part of the terms of a new issue, and permits other terms to be included or excluded in the supplemental indenture authorizing a particular series of securities. In theory, any combination of the variable terms could be included in a single series of securities which, under current practice, would be called "notes", "debentures" or "medium-term notes". The Conectiv Indenture also permits any series of securities to be issued either in certificated form or in "global" form (i.e., 15 PAGE 14 transferable only by book-entry on the records of a securities depository such as The Depository Trust Company). The Conectiv Indenture contains no negative covenants or restrictions. Any covenants or restrictions negotiated at the time of issuance will be included in a supplemental indenture establishing a particular security. The Conectiv Indenture contains the following event of default provisions: (i) defaults in payment of the Conectiv Indenture securities; (ii) failures to comply with covenants; and (iii) certain events of insolvency with respect to Conectiv, subject, as applicable, to customary grace periods. Conectiv may, at any time, terminate (i) all its obligations under the Conectiv Indenture securities and the Conectiv Indenture ("Legal Defeasance Option") or (ii) its obligations to comply with certain restrictive covenants, provided that Conectiv irrevocably deposits in trust money or U.S. Government obligations for the payment of principal of and interest on the Conectiv Indenture securities to maturity or redemption, as the case may be. Conditions to defeasance shall be that (i) no default exists or occurs and (ii) Conectiv obtains a certificate from a firm of nationally recognized independent accountants that the deposited U.S. Government obligations will be sufficient to pay principal when due and interest on the Conectiv Indenture securities to be defeased. An application on Form T-3 for qualification of the Conectiv Indenture under the Trust Indenture Act of 1939, as amended, will be filed and become effective prior to the issuance of any 16 PAGE 15 securities under the Conectiv Indenture. A form of the Conectiv Indenture will be filed by amendment herein as Exhibit A-2. ii. Terms of Borrowings from Banks and Other Financial Institutions. Borrowings from banks and other financial institutions will be unsecured debt and will rank pari passu with debt securities issued under the Conectiv Indenture and the short-term Credit Facility (as described below). Specific terms of any borrowings will be determined by Conectiv at the time of issuance and will comply in all regards to the parameters on financing authorization set forth above. A copy of any note or agreement executed pursuant to this authorization will be filed under cover of the next quarterly report under Rule 24. iii. Benefit of Structure Conectiv has chosen this financing structure (i.e., the issuance of long-term debt at both the holding company and subsidiary levels) because it provides more flexibility with a reduced administrative burden than the alternative of having the smaller and mostly startup (and likely less creditworthy) Non-Utility Subsidiaries issue long-term debt supported by a Conectiv guarantee. At the same time the proposed financial structure produces the same result in that the ultimate obligor is Conectiv. For example, the establishment of individual medium-term note programs for multiple Non-Utility Subsidiaries would be impractical from both cost and administrative perspectives. The establishment of a single, medium-term note program at the Conectiv level to primarily fund the capital requirements of the Non-Utility Subsidiaries provides administrative 17 PAGE 16 efficiencies without duplicative expenses for document preparation, printing, legal review, etc. Further, the funding of the capital requirements of the Non-Utility Subsidiaries, a substantial portion of which is anticipated to involve projects which are long-term by nature, with long-term debt is appropriate. To fund such requirements with short-term debt may increase Conectiv's exposure to short-term interest rate swings and to rollover risk. c. Short-Term Debt To provide financing for general corporate purposes, working capital requirements and Subsidiary capital expenditures until long-term financing can be obtained, Conectiv requests authorization to have outstanding at any one time during the Authorization Period, up to $500 million of short-term debt consisting of bank borrowings, commercial paper or bid notes (all as described below). As noted on Exhibit I-2, Atlantic entered into a Revolving Credit Agreement dated September 28, 1995 with the Bank of New York, as Agent under which approximately $63 million was owed and outstanding as of June 30, 1997. It is anticipated that, upon merger of Atlantic into Conectiv, this Revolving Credit Agreement will be terminated and another agreement entered into. Conectiv anticipates entering into a revolving credit facility (the "Credit Facility") with a group of banks on or before the effective date of the Merger. A portion of the Credit Facility may be used to support letters of credit issued by Conectiv or the Subsidiaries in the ordinary course of business. Also, as discussed below, if a Utility Subsidiary issues 18 PAGE 17 commercial paper, the Utility Subsidiary may be made a party to the Credit Facility as backup for the commercial paper. The interest rates on the Credit Facility are expected to be based on a triple option pricing formula as follows: Option 1: Prime Rate Option 2: LIBOR + Margin Option 3: CD + Margin Maturities on loans issued under the LIBOR rate option are expected to be for 1, 2, 3 or 6 months. Maturities on loans issued under the CD rate option are expected to be for 30, 60, 90 or 180 days. All such loans will be evidenced by promissory notes. It is expected that the Credit Facility will contain negative covenants consistent with those covenants required by bank lenders for comparable bank facilities. The Credit Facility will be unsecured debt of Conectiv and will rank pari passu with debt issued under the Conectiv Indenture and any long-term debt securities issued directly to banks or other financial institutions. A copy of the Credit Facility will be filed under cover of the next quarterly report under Rule 24 after execution. Conectiv may sell commercial paper, from time to time, in established domestic or European commercial paper markets. Such commercial paper would be sold to dealers at the discount rate or coupon rate per annum prevailing at the date of issuance for commercial paper of comparable quality and maturities sold to commercial paper dealers generally. It is expected that 19 PAGE 18 the dealers acquiring commercial paper from Conectiv will reoffer such paper at a discount to corporate, institutional and, with respect to European commercial paper, individual investors. Institutional investors are expected to include commercial banks, insurance companies, pension funds, investment trusts, foundations, colleges and universities and finance companies. Backup bank lines of credit for 100% of the outstanding amount of commercial paper are generally required by credit rating agencies. The Credit Facility will serve as backup for Conectiv's commercial paper program, thus negating the need for additional lines of credit. Conectiv requests approval to enter into individual agreements ("Bid Note Agreements") with one or more commercial banks which may or may not be lenders under the Credit Facility. The Bid Note Agreements would permit Conectiv to negotiate with one or more banks ("Bid Note Lender[s]") on any given day for such Bid Note Lender, or any affiliate or subsidiary of such lender, to purchase promissory notes ("Bid Notes") directly from Conectiv. Such notes would bear interest rates comparable to, or lower than, those available through other forms of short-term borrowing with similar terms requested in this Application. The maturity of any Bid Note would not exceed 270 days, and the total amount of Bid Notes outstanding at any time, when added to the aggregate amounts of short-term borrowing outstanding under other forms of short-term borrowing contemplated in this Application, would not exceed the total amount of short-term debt for which authorization is requested. A form of the proposed Bid Note Agreement will be filed by amendment as Exhibit A-5 to this Application; however, the exact form of the Bid Note Agreement will be negotiated separately with each of the Bid Note Lenders. 20 PAGE 19 d. Other Securities In addition to the specific securities for which authorization is sought herein, Conectiv may also find it necessary or desirable to minimize financing costs or to obtain new capital under then existing market conditions to issue and sell other types of securities from time to time during the Authorization Period. The issuance of any such securities would be subject to the aggregate $500 million limit on long-term debt or $500 million limit on short-term debt and to the parameters on financing authorization set forth above. Conectiv requests that the Commission reserve jurisdiction over the issuance of additional types of securities. Conectiv also undertakes to file a post-effective amendment in this proceeding which will describe the general terms of each such security and the amount to be issued and to request a supplemental order of the Commission authorizing the issuance thereof by Conectiv. e. Interest Rate Risk Management Devices Conectiv requests authority to enter into, perform, purchase and sell financial instruments intended to manage the volatility of interest rates, including but not limited to interest rate swaps, caps, floors, collars and forward agreements or any other similar agreements. Conectiv would employ interest rate swaps as a means of prudently managing the risk associated with any of its outstanding debt issued pursuant to this authorization or an applicable exemption by, in effect, synthetically (i) converting variable rate debt to fixed rate debt, (ii) converting fixed rate debt to variable rate debt, (iii) limiting the impact of changes in interest rates resulting from variable rate debt and (iv) providing an option to enter into interest rate swap transactions in future periods for 21 PAGE 20 planned issuances of debt securities. In no case will the notional principal amount of any interest rate swap exceed that of the underlying debt instrument and related interest rate exposure, i.e., Conectiv will not engage in "leveraged" or "speculative" transactions. The underlying interest rate indices of such interest rate swaps will closely correspond to the underlying interest rate indices of Conectiv's debt to which such interest rate swap relates. Conectiv will only enter into interest rate swap agreements with counterparties whose senior debt ratings, as published by Standard & Poor's Corporation, are greater than or equal to "BBB+", or an equivalent rating from Moody's Investor Service, Inc., Fitch Investor Service or Duff & Phelps. 2. Utility Subsidiary Financing As shown on Exhibit I-1, Delmarva has previously issued, and there are currently outstanding, preferred stock, commercial paper notes, first mortgage bonds issued under a Mortgage and Deed of Trust dated October 1, 1943, medium term notes issued under an Indenture dated as of November 1, 1988, unsecured subordinated debt securities issued in connection with certain securities issued by a subsidiary trust and various exempt revenue bonds and pollution control notes. Any future issue of such securities would qualify for issuance without prior approval by this Commission pursuant to Rule 52, except short-term debt securities which will have been approved by the Virginia State Corporation Commission ("VSCC") but not 22 PAGE 21 the Delaware Public Service Commission ("DPSC"),3 and except for unsecured subordinated debt securities issued in connection with securities issued by a subsidiary trust which involve affiliate guarantees. Commission authorization is sought for the issuance by Delmarva of up to $275 million of short-term debt securities consisting of commercial paper, unsecured bank loans and borrowings from the System Money Pool (as described below). A copy of the order issued by the VSCC will be filed by amendment as Exhibit D-1. Such issuances of securities will comply in all instances with the parameters for financing described above. Any short-term borrowings by Delmarva, when combined with short-term borrowings by Conectiv for which authority is sought herein, will not exceed $500 million at any time during the Authorization Period. As shown on Exhibit I-2, Atlantic also has previously issued and there are currently outstanding preferred stock, first mortgage bonds and secured medium term notes issued under a Mortgage and Deed of Trust dated January 15, 1937, unsecured medium term notes issued under an Indenture dated March 1, 1997, junior funded debt issued under an Indenture dated February 1, 1986, pollution control notes, and notes under bank credit lines and unsecured subordinated debt securities issued in connection with certain securities issued by a subsidiary trust. Any future issue of similar securities would be issued with the approval of the New Jersey Board of Public Utilities ("NJBPU") and thus, such issue would be exempt under the terms of Rule 52, except that - ---------- 3 Since Delmarva is incorporated both in Delaware and Virginia, it is unclear whether Rule 52 requires approval of a proposed security issue by both States. Therefore, Delmarva will assume that Rule 52 does not apply and requests authority from this Commission. 23 PAGE 22 unsecured subordinated debt securities issued by a subsidiary trust involve affiliate guarantees and do not qualify under Rule 52. In Item I.E.6 below, authorization is requested for both Utility Subsidiaries to retain certain existing financing entities, to establish and acquire new financing entities and for the financing entities to issue securities to third parties to be guaranteed by the applicable Utility Subsidiary. In addition, the Utility Subsidiaries may find it necessary or desirable to issue other types of securities during the Authorization Period that are not exempt from prior Commission approval. The Utility Subsidiaries request that the Commission reserve jurisdiction over the issuance of such additional types of securities and the amount thereof except to the extent the same are exempt pursuant to Rule 52. Each Utility Subsidiary also undertakes to have a post-effective amendment filed in this proceeding that will describe the general terms of each such security and the amount thereof of such Utility Subsidiary and request a supplemental order of the Commission authorizing the issuance thereof. To the extent that a Utility Subsidiary elects to issue commercial paper, either pursuant to Rule 52 or pursuant to an order in this file, the Utility may be made party to the Conectiv Credit Facility discussed above as back-up to the commercial paper. To the extent not exempt under Rule 52, the Utility Subsidiaries also request authority to enter into interest rate risk management transactions of the same type and under the same conditions as requested above by Conectiv. 24 PAGE 23 3. Non-Utility Subsidiary Financing As noted on Exhibits I-1 and I-2, certain Non-Utility Subsidiaries have debt, construction loans, letters of credit and support arrangements in place. Certain guarantees in favor of a direct or indirect Subsidiary issued by another Subsidiary may be replaced by a Conectiv guarantee as described below. It is expected that future financing by the Non-Utility Subsidiaries will be made pursuant to the terms of Rule 52. The Non-Utility Subsidiaries are engaged in and expect to continue to be active in the development and expansion of their existing energy-related or otherwise functionally-related, non-utility businesses. They will be competing with large, well-capitalized companies in different sectors of the energy and other industries. In order to quickly and effectively invest in such competitive arenas, it will be necessary for the Non-Utility Subsidiaries to have the ability to engage in financing transactions which are commonly accepted for such types of investments. The majority of such financings will be exempt from prior Commission authorization pursuant to Rule 52(b). The Non-Utility Subsidiaries may, however, engage in types of security financing with non-affiliates that are not exempt from prior Commission approval. The Non-Utility Subsidiaries therefore request that the Commission reserve jurisdiction over the issuance of such additional types of securities and the amounts thereof and undertake to cause a post-effective amendment to be filed in this proceeding which will describe the general terms of each such security and the amounts thereof and request a supplemental order of the Commission authorizing the issuance thereof by the subject Non-Utility Subsidiary. 25 PAGE 24 4. Guarantees and Intrasystem Money Pool a. Guarantees Conectiv requests authorization to enter into guarantees, obtain letters of credit, enter into expense agreements or otherwise provide credit support with respect to the obligations of Subsidiaries as may be appropriate to enable such Subsidiaries to carry on in the ordinary course of their respective businesses, in an aggregate principal amount not to exceed $350 million outstanding at any one time, except to the extent the same are exempt pursuant to Rule 45. Included in this amount are guarantees and other credit support mechanisms of Atlantic previously issued in favor of its subsidiaries which will be assumed by Conectiv upon consummation of the Merger. In addition, authority is requested for Non-Utility Subsidiaries to enter into arrangements with each other similar to those described with respect to Conectiv above in an aggregate principal amount not to exceed $100 million outstanding at any one time, except to the extent the same are exempt pursuant to Rule 45. The limits on guarantees and other credit support obligations described above are not to be included in the aggregate respective limits applicable to external financings requested elsewhere herein. Any guarantee of an existing Subsidiary which is an energy-related company as defined in Rule 58 or of a new subsidiary whose securities are acquired pursuant to Rule 58 will be included in the computation of aggregate investments in energy-related companies for purposes of Rule 58. 26 PAGE 25 Conectiv requests that this guarantee authority include the ability to guarantee debt. With respect to domestic Subsidiaries, the debt guaranteed will comply with the parameters for financing set forth above. Any promissory note or other similar evidence of indebtedness issued by a special purpose direct or indirect Subsidiary (hereinafter "Project Parent") formed in a foreign country for purposes of investment in an EWG or FUCO (EWGs and FUCOs are sometimes collectively referred to herein as "Exempt Projects") to a person other than Conectiv or an intermediary parent company with respect to which Conectiv or an intermediary parent may issue a guarantee would mature not later than 30 years after the date of issuance. It would bear interest at a rate that would not exceed (a) the greater of 250 basis points above the lending bank's or other recognized prime rate and 50 basis points above the federal funds rate; (b) 400 basis points above the specified LIBOR rate plus any applicable reserve requirement; or (c) a negotiated fixed rate 500 basis points above the 30 year "current coupon" U.S. treasury bond rate if such note or other indebtedness is U.S. dollar denominated. If such note or other indebtedness is denominated in the currency of a foreign nation, the interest rate will not exceed a fixed or floating rate on a U.S. dollar denominated borrowing of identical average life that does not exceed 10% over the highest rate set forth above. Conectiv may enter into reimbursement agreements with banks to support letters of credit delivered as security for Conectiv's direct or indirect equity contribution obligation to a Project Parent or otherwise in connection with project development activities. Any reimbursement agreement supporting a letter of credit would have a term not in excess of 30 years. Drawings 27 PAGE 26 under any such letter of credit would bear interest at not more than 5% above the prime rate of the letter of credit bank as in effect from time to time and letter of credit fees would not exceed 1% annually of the face amount of the letter of credit. (See New England Electric System, HCAR No. 26729, dated June 10, 1997) b. Authorization and Operation of System Money Pool Since all lending and borrowing transactions conducted through the proposed System Money Pool involve the issuance of a note, Rule 52 applies so long as the participation by any utility subsidiary has been approved by the state commission in the state where the utility is incorporated and doing business and the formulation of applicable interest rates comply with Rule 52. Participation in the System Money Pool by Delmarva will have been approved by the VSCC but not the DPSC. In addition, there is a question as to whether participation in the System Money Pool by an ETC is an affiliate transaction which is not exempt under Section 34 of the Act. Conectiv and the Subsidiaries hereby request authorization to establish the System Money Pool. The Applicants believe that the all-in cost of the proposed borrowings through the System Money Pool will generally be more favorable to the borrowing participants than the comparable all-in cost of external short-term borrowings, and the yield to the participants contributing available funds to the System Money Pool will generally be higher than the typical yield on short-term investments. 28 PAGE 27 Under the proposed terms of the System Money Pool, short-term funds would be available from surplus funds in the treasuries of Conectiv and the Subsidiaries for short-term loans to the Subsidiaries from time to time. The determination of whether a System Money Pool participant at any time has surplus funds to lend to the System Money Pool or shall lend funds to the System Money Pool would be made by such participant's chief financial officer or treasurer, or by a designee thereof, on the basis of current cash position, cash flow projections and other relevant factors. System Money Pool participants that borrow would borrow pro rata from each company that lends, in the proportion that the total amount loaned by each such lending company bears to the total amount then loaned through the System Money Pool. On any day when more than one fund source (e.g., surplus treasury funds of Conectiv and other System Money Pool participants ("Internal Funds") and funds from external borrowings by Conectiv ("External Funds")), with different rates of interest, is used to fund loans through the System Money Pool, each borrower would borrow pro rata from each such funding source in the System Money Pool in the same proportion that the amount of funds provided by that funding source bears to the total amount of short-term funds available to the System Money Pool. Interest expense (income) will be charged (credited) monthly to all participants in the System Money Pool based on each participant's daily average cash position. The cost of money for all advances from the System Money Pool and the investment rate for moneys invested in the System Money Pool will be the same. To derive this rate, Support Conectiv will use the System 29 PAGE 28 Money Pool's net monthly interest expense (expense less any income) generated by external borrowings incurred on behalf of the System Money Pool. This net amount will then be divided by Support Conectiv's average net daily investment/borrowing position to derive an interest rate for the month. In the unlikely event that, on a consolidated basis, investments in the System Money Pool are exactly offset by borrowings from the System Money Pool such that there are no external borrowings or investments, the cost of money and the investment rate will be the prior month's average Federal Funds Rate as published in the Federal Reserve Statistical Release, Publication H.15 (519). The cost of compensating balances, if any, and fees paid to banks to maintain credit lines and accounts by Conectiv in lending External Funds to the System Money Pool would initially be paid by Conectiv. A portion of such costs - -- or all of such costs in the event Conectiv establishes a line of credit solely for purposes of lending any External Funds obtained thereby into the System Money Pool -- would be allocated to the System Money Pool participants borrowing such External Funds through the System Money Pool in proportion to their respective daily outstanding borrowings of such External Funds. Borrowings from the System Money Pool would require authorization by the borrower's chief financial officer or treasurer, or by a designee thereof. No loans through the System Money Pool would be made to Conectiv. Conectiv and investing Subsidiaries would be investors ("Investors") pursuant to a System Money Pool evidence of deposit (see Exhibit A-7). Loans to Subsidiaries through the System 30 PAGE 29 Money Pool will be made pursuant to a short-term grid note (see Exhibit A-8) Such short-term grid note will be due upon demand by the Investor(s), but in any case will be repaid prior to May 1 of the calendar year after borrowing. A default rate equal to 2% per annum above the pre-default rate on unpaid principal or interest amounts will be assessed if any interest or principal payment becomes past due. Funds not required by the System Money Pool to make loans (with the exception of funds required to satisfy the Money Pool's liquidity requirements) would ordinarily be invested in one or more short-term investments, including: (i) interest-bearing accounts with banks; (ii) obligations issued or guaranteed by the U.S. government and/or its agencies and instrumentalities, including obligations under repurchase agreements; (iii) obligations issued or guaranteed by any state or political subdivision thereof, provided that such obligations are rated not less than "A" by a nationally recognized rating agency; (iv) commercial paper rated not less than "A-1" or "P-1" or their equivalent by a nationally recognized rating agency; (v) money market funds; (vi) bank certificates of deposit, (vii) Eurodollar funds; and (viii) such other investments as are permitted by Section 9(c) of the Act and Rule 40 thereunder. A draft copy of the Conectiv System Money Pool Investment Guidelines is included as Exhibit A-9. The interest income and investment income earned on loans and investments of surplus funds would be allocated among the participants in the System Money Pool in accordance with the proportion each participant's contribution of funds bears to the total amount of funds in the System Money Pool and the cost of funds provided to the System Money Pool by such participant. 31 PAGE 30 Operation of the System Money Pool, including record keeping and coordination of loans, will be handled by Support Conectiv under the authority of the appropriate officers of the participating companies. Support Conectiv will administer the System Money Pool on an "at cost" basis. Support Conectiv will act strictly in an agency capacity, and not as principal, with regard to funds deposited in the System Money Pool by other participants. The maximum amount of System Money Pool borrowings outstanding for each Subsidiary will be determined by Conectiv and the Subsidiaries in accordance with business needs. Actual short-term financing would be issued based on working capital requirements and any interim financing needed to bridge between issuances of long-term capital. Proceeds of any short-term borrowings from the System Money Pool by the Applicants may be used by each such Applicant (i) for the interim financing of its construction and capital expenditure programs; (ii) for its working capital needs; (iii) for the repayment, redemption or refinancing of its debt and preferred stock; (iv) to meet unexpected contingencies, payment and timing differences, and cash requirements; and (v) to otherwise finance its own business and (vi) for other lawful general purposes. 5. Changes in Capital Stock of Wholly-Owned Subsidiaries and Dividends Out of Capital or Unearned Surplus by Non-Utility Subsidiaries The portion of an individual Subsidiary's aggregate financing to be effected through the sale of stock to Conectiv or other intermediate parent company during the Authorization Period pursuant to Rule 52 and/or pursuant to an order issued pursuant to this file cannot be ascertained 32 PAGE 31 at this time. It may happen that the proposed sale of capital stock may in some cases exceed the then authorized capital stock of such Subsidiary. In addition, the Subsidiary may choose to use capital stock with no par value or a different par value. Also, a wholly-owned Subsidiary may wish to engage in a reverse stock split to reduce franchise or other taxes. As needed to accommodate such proposed transactions and to provide for future issues, request is made for authority to change the terms of any such wholly-owned Subsidiary's authorized capital stock capitalization by an amount deemed appropriate by Conectiv or other immediate parent company in the instant case. A Subsidiary would be able to change the par value, or change between par and no-par stock, without additional Commission approval. Any such action by a Utility Subsidiary would be subject to and would only be taken upon the receipt of any necessary approvals by the state commission in the state or states where the Utility Subsidiary is incorporated and doing business. (See New Century Energies, Inc. No. 35-26750, dated August 1, 1997). In addition, Conectiv requests the flexibility to withdraw capital from a Non-Utility Subsidiary with excess funds through a dividend out of capital surplus to the full extent permitted by the law of the state where the Non-Utility Subsidiary is incorporated. Said capital would then be used for the authorized business of the Conectiv System. Applicants expect that situations will arise where a direct or indirect Non-Utility Subsidiary will have unrestricted cash available for distribution in excess of current and retained earnings. Consequently, in these situations the declaration and payment of a dividend would have to be charged, in whole or in part, to capital or unearned surplus. 33 PAGE 32 One situation could result if Conectiv were to acquire all of the capital stock of an Exempt Project indirectly through an Project Parent and, following the acquisition, the Exempt Project incurred borrowings, some or all of the proceeds of which were distributed to the Project Parent, as a reduction in the amount invested in such Exempt Project (i.e., return of capital). Assuming it had no earnings, the Project Parent could not, without prior Commission approval, distribute such cash to its parent. In that same example, if the Project Parent were to sell a portion of its equity in the Exempt Project to a third party for cash, the Project Parent would again have substantial unrestricted cash available for upstream distribution, but (assuming no profit on the stock sale) would not have available current earnings and therefore could not, without prior Commission approval, declare and pay a dividend out of such cash proceeds. Any dividend actually declared and paid out of capital or unearned surplus pursuant to the authority requested herein will conform to applicable law of the respective company's jurisdiction or organization and applicable covenant restrictions in loan or other financing agreements. The ability of the Non-Utilities Subsidiaries to use distributable cash to pay dividends ultimately to Conectiv will benefit the Conectiv System by enabling Conectiv to apply such amounts to the reduction or refinancing of outstanding bank borrowings and to fund operations of other Subsidiaries. In addition, since the Non-Utility 34 PAGE 33 Subsidiaries are or will be engaged in activities exclusively dedicated to owning or operating non-utility facilities as permitted under existing Commission orders or regulations, the payment of dividends by the Non-Utility Subsidiaries out of capital or unearned surplus will not adversely affect the financial integrity of the Conectiv System or jeopardize the working capital of Utility Subsidiaries within the contemplation of Section 12(c) of the Act. The Commission has recently issued orders authorizing the payment of dividends out of capital or unearned surplus under circumstances substantially similar to those proposed herein. See The Columbia Gas System, Inc. Release No. 35-26209, December 29, 1994; GPU International, Inc., et al., Release No. 35-26678, February 28, 1997; The Southern Company, et al., Release No. 35-26543, July 17, 1996; Cinergy Corp., et al., Release No. 35-26719, May 22, 1997. 6. Financing Entities Authority is sought for the Subsidiaries to organize new corporations, trusts, partnerships or other entities created for the purpose of facilitating financings through their issuance to third parties of income preferred securities or other securities authorized hereby or issued pursuant to an applicable exemption. Request is also made for these financing entities to issue such securities to third parties in the event such issuances are not exempt pursuant to Rule 52. Additionally, request is made for authorization with respect to (i) the issuance of debentures or other evidences of indebtedness by any of the Subsidiaries to a financing entity in return for the proceeds of the financing, (ii) the acquisition by any of the Subsidiaries of voting interests or equity securities issued by the financing entity to establish any such Subsidiary's ownership of the financing entity (the equity portion of the entity generally being created through a capital contribution or the 35 PAGE 34 purchase of equity securities, ranging from 1 to 3 percent of the capitalization of the financing entity) and (iii) the guarantee by the Applicants of such financing entity's obligations in connection therewith. Each of the Subsidiaries also request authorization to enter into expense agreements with its respective financing entity, pursuant to which it would agree to pay all expenses of such entity. Any amounts issued by such financing entities to third parties pursuant to this authorization will be included in the overall external financing limitation authorized herein for the immediate parent of such financing entity. Applicants also request that Delmarva be authorized to retain Delmarva Power Financing I, a wholly-owned trust, that issued trust preferred securities and loaned the proceeds to Delmarva and that Atlantic Electric be authorized to retain Atlantic Capital I, a wholly-owned trust, that issued trust preferred securities and loaned the proceeds to Atlantic Electric. The authorization sought herein with respect to financing entities is substantially the same as that given to New Century Energies, Inc. in Release No. 35-26750 dated August 1, 1997. F. Financing of EWGs and FUCOs Sections 32 and 33 of the Act permit a registered holding company to acquire and maintain interests in one or more EWGs and FUCOs without the need to apply for or receive approval from the Commission. To the extent that funds for one or more projects are required in excess of internally generated funds, Conectiv hereby requests Commission authorization to form one or more intermediary companies and to fund those companies with some of the proceeds from the financings authorized hereby for the purpose of investing in EWGs and FUCOs in 36 PAGE 35 compliance with Rule 53(a)(1) such that Conectiv's aggregate investment at any one time during the period covered by this Application will not exceed 50% of its "consolidated retained earnings", as defined in Rule 53(a)(1)(ii). Conectiv undertakes to maintain, or cause to be maintained to the extent reasonable under the circumstances, the books and records of any EWG, foreign EWG or FUCO in which it holds an interest in accordance with the requirements of Rule 53(a)(2). It is also anticipated that a minimal number of employees of the Utility Subsidiaries may render services, directly or indirectly, to EWGs and FUCOs in the Conectiv System, provided that the number of such employees shall not in any event exceed two percent (2%) of the total number of employees of such public utility companies. Conectiv may seek additional Commission authorization if one or more prospective transactions warrant additional financing. At the time of issuance of any securities authorized in connection with this Application, the proceeds of which will be used to invest in any EWG or FUCO, Conectiv will be in compliance with Rule 53. G. Summary of Authorizations Sought Conectiv requests Commission authorization with this Application for the following financing transactions without any additional Commission approvals required except as indicated. Unless otherwise specifically indicated, all requested authorizations pertain to transactions initiated prior to December 31, 2000. 37 PAGE 36 1. Conectiv External Financing a. Authorization to issue common stock and long-term debt in an aggregate amount not to exceed $500 million, including $100 million of common stock to be issued for acquisitions b. Authorization to issue up to 10 million shares of Conectiv common stock (in addition to the authorization sought in Item 1.G.1.a above) pursuant to dividend reinvestment plans and Conectiv benefit plans and, in connection with benefit plans, to issue options to acquire Conectiv common stock for a period extending ten years from the date of the Commission Order under this Application c. Authorization to issue common stock aggregating no more than $100 million (included in the authorization sought in Item 1.G.1.a above) in market value at the time of issue in consideration for securities being acquired by Conectiv or a Non-Utility Subsidiary pursuant to the order issued in connection with the Merger U-1 or pursuant to Rule 58 or Section 34 d. Authorization to have outstanding at any one time, up to $500 million of short-term debt consisting of borrowings under the Credit Facility, the issuance of commercial paper and the sale of bid notes e. Authorization to issue other types of securities that Conectiv deems appropriate, for which the Commission would reserve jurisdiction over such issuance subject to the parameters for financing authorization described herein 38 PAGE 37 f. Authorization for Conectiv to enter into certain hedging transactions to convert all or a portion of its variable rate debt existing or to be issued pursuant to this Application to fixed rate debt or to convert all or a portion of its fixed rate debt existing or to be issued pursuant to this Application to variable rate debt or to limit the impact of changes in interest rates on variable rate debt or planned issuances of debt 2. Utility Subsidiary Financing a. Authorization for Delmarva to have outstanding at any one time up to $275 million of short-term debt consisting of commercial paper, unsecured bank loans and borrowings under the System Money Pool b. To the extent not exempt under Rule 52, authorization to enter into hedging transactions similar to those identified above for Conectiv c. To the extent not exempt under Rule 52, authorization to issue other types of securities that the Utility Companies deem appropriate, for which the Commission would reserve jurisdiction over issuance 3. Non-Utility Subsidiary Financing a. To the extent not exempt, authorization to issue other types of securities that the Non-Utility Companies deem appropriate, for which the Commission would reserve jurisdiction over issuance thereof 39 PAGE 38 4. Intrasystem Financing a. To the extent not exempt under Rule 45, authorization for Conectiv to enter into guarantees (of debt and otherwise), letters of credit or otherwise provide credit support with respect to the obligations of Conectiv System companies in an aggregate amount not to exceed $350 million b. To the extent not exempt under Rule 45, authorization for the Non-Utility Subsidiaries to enter into guarantees, letters of credit or otherwise provide credit support with respect to the debt and obligations of other Subsidiaries in an aggregate amount not to exceed $100 million c. To the extent not exempt under Rule 52, authorization to establish and operate the System Money Pool 5. Financing Entities a. Authorization for the Subsidiaries to organize new corporations, trusts, partnerships or other entities created for the purpose of facilitating financings through their issue to third parties of income preferred securities or other securities. Request is also made for these financing entities to issue such securities to third parties in the event such transactions may not be covered by Rule 52. Additionally, request is made for authorization with respect to (i) the issuance of debentures or other evidences of indebtedness by any of the Subsidiaries to a financing entity in return for the proceeds of the financing, (ii) the acquisition by any of the Subsidiaries of voting interests or 40 PAGE 39 equity securities issued by the financing entity to establish any such Subsidiary's ownership of the financing entity and (iii) the guarantee by the Applicants of such financing entity's obligations. b. Authorization for certain Subsidiaries to retain financing entities in existence prior to the Merger 6. Financing of EWGs and FUCOs a. Authorization for the formation of one or more intermediary companies for the purpose of investing the proceeds of borrowings by Conectiv in EWGs and FUCOs in compliance with the standards set forth in Rule 53. H. Filing of Certificates of Notification It is proposed that, with respect to Conectiv, the reporting systems of the 1933 Act and the 1934 Act be integrated with the reporting system under the Act. This would eliminate duplication of filings with the Commission that cover essentially the same subject matters, resulting in a reduction of expense for both the Commission and Conectiv. To effect such integration, the portion of the 1933 Act and 1934 Act reports containing or reflecting disclosures of transactions occurring pursuant to the authorization granted in this proceeding would be incorporated by reference into this proceeding through Rule 24 certificates of notification. The certificates would also contain all other information required by Rule 24, including the certification that each transaction being reported on had been carried out in accordance with the 41 PAGE 40 terms and conditions of and for the purposes represented in this Application. Such certificates of notification would be filed within 60 days after the end of each of the first three calendar quarters, and 90 days after the end of the last calendar quarter, in which transactions occur. The Rule 24 certificates will contain the following information: a. If sales of common stock or debt by Conectiv are reported, the purchase price per share and the market price per share at the date of the agreement of sale; b. The total number of shares of Conectiv common stock issued or issuable pursuant to options granted during the quarter under Conectiv's dividend reinvestment plan and employee benefit plans including any employee benefit plans hereinafter adopted as discussed in Item 1.E.1.a.ii; c. If Conectiv common stock has been transferred to a seller of securities of a company being acquired, the number of shares so issued, the value per share and whether the shares are restricted in the hands of the acquiror; d. If a guarantee is issued during the quarter, the name of the guarantor, the name of the beneficiary of the guarantee and the amount, terms and purpose of the guarantee; e. The amount and terms of any short-term debt issued by Conectiv and Delmarva during the quarter; f. The amount and terms of any financings consummated by any Utility Subsidiary that are not exempt under Rule 52; 42 PAGE 41 g. The amount and terms of any financings consummated by any Non-Utility Subsidiary during the quarter that are not exempt under Rule 52; h. A list of U-6B-2 forms filed with the Commission during the quarter, including the name of the filing entity and the date of filing; i. Consolidated balance sheets as of the end of the quarter and separate balance sheets as of the end of the quarter for each company, including Conectiv, that has engaged in jurisdictional financing transactions during the quarter; and j. Future registration statements filed under the 1933 Act with respect to securities that are subject of the Application will be filed or incorporated by reference as exhibits to the next certificate filed pursuant to Rule 24 I. Statement Pursuant to Rule 54 Rule 54 promulgated under the Act states that in determining whether to approve the issue or sale of a security by a registered holding company for purposes other than the acquisition of an EWG or a FUCO, or other transactions by such registered holding company or its subsidiaries other than with respect to EWGs or FUCOs, the Commission shall not consider the effect of the capitalization or earnings of any subsidiary which is an EWG or a FUCO upon the registered holding company system if Rules 53(a), (b) or (c) are satisfied. As demonstrated below, such rules are satisfied. 43 PAGE 42 Rule 53 requires that the aggregate investment in EWGs and FUCOs not exceed 50% of a system's consolidated retained earnings. Conectiv and the Subsidiaries will not make any investments in EWGs and FUCOs that cause it to exceed that limitation, unless the Commission otherwise authorizes. Conectiv and the Subsidiaries will maintain books and records to identify the investments in and earnings from EWGs and FUCOs in which they directly or indirectly hold an interest, thereby satisfying Rule 53(a)(2). In addition, the books and records of each such entity will be kept in conformity with United States generally accepted accounting principles ("GAAP"), the financial statements will be prepared according to GAAP, and Conectiv undertakes to provide the Commission access to such books and records and financial statements as it may request. Employees of Conectiv's domestic public-utility companies will not render services, directly or indirectly, to any EWGs or FUCOs in the Conectiv System, thereby satisfying Rule 53(a)(3). Conectiv will submit copies of this Form U-1 and every certificate filed pursuant to Rule 24 with every federal, state or local regulator having jurisdiction over the retail rates of the public utility companies in the Conectiv System. Rule 53(a)(4) will be correspondingly satisfied. None of the conditions described in Rule 53(b) exists with respect to Conectiv, thereby satisfying Rule 53(b) and making Rule 53(c) inapplicable. 44 PAGE 43 ITEM 2. FEES, COMMISSIONS AND EXPENSES (a) State (1) the fees, commissions and expenses paid or incurred, or to be paid or incurred, directly or indirectly, in connection with the proposed transaction by the applicant or declarant or any associate company thereof, and (2) if the proposed transaction involves the sale of securities at competitive bidding, the fees and expenses to be paid to counsel selected by applicant or declarant to act for the successful bidder. Estimated Legal Fees and Expenses Estimated Miscellaneous Expenses TOTAL *(TO BE PROVIDED BY AMENDMENT) * The above fees do not include the expenses for the public issuance of long-term debt and equity securities. As noted previously, Conectiv proposes that such fees be capped at 5% of the issuance amount. (b) If any person to whom fees or commissions have been or are to be paid in connection with the proposed transaction is an associate company or an affiliate of the applicant or declarant, or is an affiliate of an associate company, set forth the facts with respect thereto. Not applicable. ITEM 3. APPLICABLE STATUTORY PROVISIONS (a) State the section of the Act and the rules thereunder believed to be applicable to the proposed transaction. If any section or rule would be applicable in the absence of a specific exemption, state the basis of exemption. Conectiv External Financing: The issuance of common stock, long-term debt, short-term debt and other securities by Conectiv is subject to Sections 6 and 7 of the Act. Rule 54 is also applicable to the issuance of securities by Conectiv. Compliance with Rule 54 is discussed above. Section 6(a) provides in relevant part that it is unlawful for a registered holding company or subsidiary of a registered holding company to issue a security except in accordance with a 45 PAGE 44 declaration under Section 7 and with the order under such section permitting such declaration to become effective or except pursuant to applicable exemption or exception. Subparagraph (b) of Section 6 provides an exemption from the approval requirement for short-term (maturing in less than nine months) debt issued in a private offering aggregating no more than 5 per cent of the principal amount and par value of the other securities of the company outstanding or such greater amount as the Commission authorizes. The authorized level of short-term debt sought herein for Conectiv would be approximately 10% of consolidated capitalization and is well within the parameters established by Commission precedent. Section 7 sets forth the requirements for the declaration and the standards that must be met before an order may be issued permitting the declaration to become effective. Section 7(c) requires that the security to be issued be one of those set forth or be "for necessary and urgent corporate purposes of the declarant where the requirements of the provisions of paragraph (1) would impose an unreasonable financial burden upon the declarant and are not necessary or appropriate in the public interest of for the protection of investors or consumers." The debentures, and medium term notes meet the standards of Section 7(c)(1) except for certain criteria set forth in the Statements of Policy governing First Mortgage Bonds and Preferred Stock. However, the Commission has stated, " . . .[T]he SEC has found that the Statements of Policy have become anachronistic and hinder the ability of registered companies to raise capital. As a result, the SEC has permitted more and more deviations on a case-by-case basis from the requirements of the Statements of Policy." Conectiv hereby requests authority to deviate from 46 PAGE 45 the Statements of Policy to the extent that any preferred stock which may be issued by the Utility Subsidiaries pursuant to Rule 52 and the long-term debt to be issued by Conectiv pursuant to authority sought herein and the Utility Subsidiaries pursuant to Rule 52 do not comply with such statements. As discussed in Item 1 above, the issuance of long-term notes by Conectiv is "for necessary and urgent corporate purposes where the requirements of the provisions of paragraph (1) would impose an unreasonable financial burden upon the declarant and are not necessary or appropriate in the public interest or for the protection of investors or consumers." Section 7(d) sets forth specific findings that, if made, preclude the SEC from permitting the application to go effective: 1. the security is not reasonably adapted to the security structure of the declarant and other companies in the same holding company system; As shown on the pro-forma financial statements, Conectiv's consolidated debt-equity ratio will be consistent with that of an investment grade utility system. 2. the security is not reasonably adapted to the earning power of the declarant; The ability of Conectiv to meet its interest obligations hinges on the earnings of its subsidiaries. Conectiv will have the financial capacity to discharge all of its payment obligations without adversely affecting the operating companies. 47 PAGE 46 3. financing by the issue and sale of the particular security is not necessary or appropriate to the economical and efficient operation of a business in which the applicant is engaged or has an interest; As discussed above, financing with long-term debt offers advantages over alternative means of obtaining funding. 4. the fees, commission, or other remuneration, to whomsoever paid, directly or indirectly, in connection with the issue, sale or distribution of the security are not reasonable; The fees, commissions, expenses and margins referenced in Item 2 are reasonable. 5. in the case of a . . .guaranty of . . a security of another company, the circumstances are such as to constitute the making of such guaranty . .. an improper risk . . ; or The guarantees to be issued by Conectiv in favor of the Subsidiaries are discussed below. 6. the terms and conditions of the issue or sale of the security are detrimental to the public interest or the interest of investors or consumers. The investor and public interest issues are discussed above. The acquisition by Conectiv and the Utility Subsidiaries of hedging instruments that represent interests in securities is subject to Sections 9 and 10 of the Act. Subsidiary Financing: Except as exempt pursuant to Rule 52 discussed below, the issuance of common stock or debt securities by a Subsidiary is subject to Sections 6, 7 and 12 and Rule 43 and the acquisition by an affiliate is subject to Sections 9, 10 and 12 of the Act and Rule 45. 48 PAGE 47 Applicability of Rule 52: The issuance of common or preferred stock and long-term debt by Delmarva will have been approved by the VSCC and will qualify for exemption from the approval requirements of Sections 6 and 7 of the Act pursuant to the terms of Rule 52. The issuance of such securities and short-term debt by Atlantic Electric will have been approved by the NJBPU and will qualify for exemption from the approval requirements of Sections 6 and 7 of the Act pursuant to the terms of Rule 52. The issuance by Delmarva of commercial paper and short-term notes, including the issuance of short-term notes in connection with money-pool borrowing will have been approved by the VSCC but not by the DPSC. Since Delmarva is incorporated in both Delaware and Virginia, a question exists as to whether Rule 52 would apply in the absence of orders from both states. If Rule 52 does not apply, Sections 6 and 7 apply to require Commission approval prior to the issuance of such notes and, to the extent that short-term notes are acquired by Conectiv or an affiliate, Sections 9 and 10 apply. Guarantees: The issuance by Conectiv and/or Non-Utility Subsidiaries of guarantees on behalf of their subsidiaries or other Non-Utility Subsidiaries is subject to Section 12(b) and Rule 45 thereunder. 49 PAGE 48 Subsidiary Changes in Par Value and Non-Utility Subsidiary Dividends out of Capital or Unearned Surplus: To the extent that a change in par value may result in the effective exchange of one security for another, Sections 6, 7, 9, and 10 and Rule 52 may be deemed applicable. Section 12(c) and Rule 46 are applicable to the proposed issuance by a Non-Utility Subsidiary of dividends out of capital or unearned surplus including surplus created by a change in par value. Upon the issuance of an order permitting this application to become effective, the terms of Rule 46 will have been complied with. General: To the extent that the transactions which are the subject matter of this Application are considered by the Commission to require authorization, approval or exemption under any section of the Act or provision of the rules and regulations other than those specifically referred to herein, request for such authorization, approval or exemption is hereby made. ITEM 4. REGULATORY APPROVAL (a) State the nature and extent of the jurisdiction of any State commission or any Federal commission (other than the U. S. Securities and Exchange Commission) over the proposed transaction. The DPSC and VSCC exercise jurisdiction over the issuance of common stock, preferred stock, and long-term debt securities by Delmarva. The VSCC also approves Delmarva's issuance of short-term debt. In addition, the VSCC has jurisdiction over Delmarva's sale of common stock, preferred stock, and both long- and short-term debt 50 PAGE 49 securities to Conectiv. The DPSC has no similar authority. The NJBPU will also have approved the issuance by Atlantic Electric of preferred stock and short-term and long-term debt securities. (b) Describe the action taken or proposed to be taken before any commission named in answer to paragraph (1) of this item in connection with the proposed transaction. An application will be made by the aforementioned subsidiary companies to their respective state regulatory commissions as set forth in answer to Item 3(a) above. ITEM 5. PROCEDURE (a) State the date when Commission action is requested. If the date is less than 40 days from the date of the original filing, set forth the reasons for acceleration. The Applicants hereby request that there be no hearing on this Application and that the Commission issue its order as soon as practicable after the filing hereof. The Commission is respectfully requested to issue and publish the requisite notice under Rule 23 with respect to the filing of this Application not later than September 9, 1997, such notice to specify a date not later than October 3, 1997, by which comments may be entered and a date not later than the date of the Commission's order for the Merger U-1, as the date which an order of the Commission granting and permitting the Application to become effective may be entered by the Commission. (b) State (i) whether there should be a recommended decision by a hearing officer, (ii) whether there should be a recommended decision by any other responsible officer of the Commission, (iii) whether the Division of Investment Management may assist in the preparation of the Commission's decision, and (iv) whether there should be a 30-day waiting period between the issuance of the Commission's order and the date on which it is to become effective. 51 PAGE 50 Applicants hereby (i) waive a recommended decision by a hearing officer, (ii) waive a recommended decision by any other responsible officer or the Commission, (iii) consent that the Division of Investment Management may assist in the preparation of the Commission's decision, and (iv) waive a 30-day waiting period between the issuance of the Commission's order and the date on which it is to become effective. ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS (a) Exhibits A-1 Restated Certificate of Incorporation of Conectiv (filed as Annex IV to the Registration Statement on Form S-4 on December 26, 1996 (Registration No. 333-18843), and incorporated herein by reference) A-2 Form of Conectiv Indenture including Form of Debenture (to be filed by amendment) A-3 Form of Conectiv Common Stock Certificate (to be filed by amendment) A-4 Form of Conectiv Commercial Paper Note A-5 Form of Bid Note (to be filed by amendment) A-6 Form of System Money Pool Evidence of Deposit A-7 Form of System Money Pool Short-Term Grid Note A-8 Draft Investment Guidelines B-1 Form of Standard Conectiv Underwriting Agreement (Common Stock) (to be filed by amendment) B-2 Form of Standard Conectiv Underwriting Agreement (Debt) (to be filed by amendment) 52 PAGE 51 B-3 Form of Standard Conectiv Master Distribution Agreement (Medium-Term Notes) (to be filed by amendment) B-4 Summary of Terms of Conectiv Benefit Plans (to be filed by amendment) B-5 Form of Conectiv Dividend Reinvestment Plan (to be filed by amendment) C-1 Registration Statement (to be filed by amendment via incorporation by reference) D-1 Order of the Virginia State Corporation Commission related to nonexempt financing (to be filed by amendment). F-1 Opinion of Counsel (to be filed by amendment) H-1 Proposed Notice H-2 Financial Data Schedules I-1 Summary of existing financing arrangements for Delmarva and subsidiaries. I-2 Summary of existing financing arrangements for Atlantic and subsidiaries. (b) Financial Statements A. Balance Sheets as of June 30, 1997 1. Delmarva Power & Light Company and Subsidiaries 2. Atlantic Energy, Inc. and Subsidiaries 3. Conectiv, Inc. and Subsidiaries 4. Conectiv, Inc. and Subsidiaries (pro forma for financing authorization requested in this Application) 5. Conectiv, Inc. 53 PAGE 52 6. Conectiv Inc. (pro forma for financing authorization requested in this Application) B. Income Statements for the Twelve Months Ended 1. Delmarva Power & Light Company and Subsidiaries 2. Atlantic Energy, Inc. and Subsidiaries 3. Conectiv, Inc. and Subsidiaries 4. ProForma Conectiv, Inc. and Subsidiaries (pro forma for financing authorization requested in this Application) 5. Conectiv, Inc. 6. Conectiv Inc. (pro forma for financing authorization requested in this Application) ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS (a) Describe briefly the environmental effects of the proposed transaction in terms of the standards set forth in Section 102(2) (C) of the National Environmental Policy Act [42 U.S.C. 4232(2)(C)]. If the response to this term is a negative statement as to the applicability of Section 102(2)(C) in connection with the proposed transaction, also briefly state the reasons for that response. As more fully described in Item 1, the proposed transactions subject to the jurisdiction of this Commission relate only to the means of financing activities. The proposed transactions subject to the jurisdiction of this Commission have no environmental impact in and of themselves. 54 PAGE 53 (b) State whether any other federal agency has prepared or is preparing an environmental impact statement ("EIS") with respect to the proposed transaction. If any other federal agency has prepared or is preparing an EIS, state which agency or agencies and indicate the status of that EIS preparation. No federal agency has prepared or, to Conectiv's knowledge, is preparing an EIS with respect to the proposed transaction. 55 PAGE 54 SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned companies have duly caused this filing on Form U-1 to be signed on their behalf by the undersigned thereunto duly authorized. DATE: CONECTIV, INC. August 27, 1997 /s/ Barbara S. Graham - ----------------------------- --------------------------------------- Barbara S. Graham President & Secretary 56 CONSOLIDATED CONECTIV, INC. PRO FORMA COMBINED BALANCE SHEETS JUNE 30, 1997 (DOLLARS IN THOUSANDS) (UNAUDITED) ASSETS
CONSOLIDATED CONSOLIDATED MERGER DELMARVA ATLANTIC PRO FORMA AS ADJUSTED AS ADJUSTED ADJUSTMENTS ------------ ------------ ------------ Utility Plant, At Cost Electric 2,960,183 2,546,102 -- Gas 233,414 -- -- Common 148,143 -- -- ------------ ------------ ------------ 3,341,740 2,546,102 -- Less: Accumulated depreciation 1,314,643 894,176 -- ------------ ------------ ------------ Net utility plant in service 2,027,097 1,651,926 -- Construction work-in-progress 118,622 102,360 -- Leased property, net 31,159 36,795 -- Cost in excess of net assets acquired, net 74,870 -- 229,166(f) ------------ ------------ ------------ 2,251,748 1,791,081 229,166 ------------ ------------ ------------ Investments and Nonutility Property Nonutility property, net 88,757 73,252 -- Investment in leveraged leases 46,281 80,080 -- Funds held by trustee 36,954 89,304 -- Other investments 5,461 40,500 -- ------------ ------------ ------------ 177,453 283,136 -- ------------ ------------ ------------ Current Assets Cash and cash equivalents 36,882 17,994 -- Accounts receivable 162,811 139,294 -- Deferred energy costs 17,351 35,512 -- Inventories, at average cost: Fuel (coal, oil, and gas) 34,040 27,887 -- Materials and supplies 43,164 38,120 -- Prepayments 5,835 54,221 -- Other -- 5,961 -- ------------ ------------ ------------ 300,083 318,989 -- ------------ ------------ ------------ Deferred Charges and Other Assets Unrecovered purchased power costs -- 74,837 -- Deferred recoverable income taxes 130,716 85,858 -- Unrecovered state excise taxes -- 49,703 -- Deferred debt refinancing costs 20,063 28,946 -- Other regulatory assets 31,002 55,019 -- Prepaid employee benefit costs 38,898 6,934 21,726(g) Unamortized debt expense 13,664 14,536 -- Other 28,179 47,592 (11,272)(i) ------------ ------------ ------------ 262,522 363,425 10,454 ------------ ------------ ------------ Total Assets 2,991,806 2,756,631 239,620 ============ ============ ============
PRO FORMA MERGED FINANCING PRO FORMA CONSOLIDATED PRO FORMA CONSOLIDATED CONECTIV, INC. ADJUSTMENTS CONECTIV, INC. -------------- ------------ -------------- Utility Plant, At Cost Electric 5,506,285 -- 5,506,285 Gas 233,414 -- 233,414 Common 148,143 -- 148,143 -------------- ------------ -------------- 5,887,842 -- 5,887,842 Less: Accumulated depreciation 2,208,819 -- 2,208,819 -------------- ------------ -------------- Net utility plant in service 3,679,023 -- 3,679,023 Construction work-in-progress 220,982 -- 220,982 Leased property, net 67,954 -- 67,954 Cost in excess of net assets acquired, net 304,036 -- 304,036 -------------- ------------ -------------- 4,271,995 -- 4,271,995 -------------- ------------ -------------- Investments and Nonutility Property Nonutility property, net 162,009 -- 162,009 Investment in leveraged leases 126,361 -- 126,361 Funds held by trustee 126,258 -- 126,258 Other investments 45,961 -- 45,961 -------------- ------------ -------------- 460,589 -- 460,589 -------------- ------------ -------------- Current Assets Cash and cash equivalents 54,876 849,567 (q)(r)(s) 904,443 Accounts receivable 302,105 -- 302,105 Deferred energy costs 52,863 -- 52,863 Inventories, at average cost: Fuel (coal, oil, and gas) 61,927 -- 61,927 Materials and supplies 81,284 -- 81,284 Prepayments 60,056 -- 60,056 Other 5,961 -- 5,961 -------------- ------------ -------------- 619,072 849,567 1,468,639 -------------- ------------ -------------- Deferred Charges and Other Assets Unrecovered purchased power costs 74,837 -- 74,837 Deferred recoverable income taxes 216,574 -- 216,574 Unrecovered state excise taxes 49,703 -- 49,703 Deferred debt refinancing costs 49,009 -- 49,009 Other regulatory assets 86,021 -- 86,021 Prepaid employee benefit costs 67,558 -- 67,558 Unamortized debt expense 28,200 -- 28,200 Other 64,499 -- 64,499 -------------- ------------ -------------- 636,401 -- 636,401 -------------- ------------ -------------- Total Assets 5,988,057 849,567 6,837,624 ============== ============ ==============
The accompanying notes to the unaudited pro forma combined balance sheet and statements of income are an integral part of this statement. 57 CONSOLIDATED CONECTIV, INC. PRO FORMA COMBINED BALANCE SHEETS JUNE 30, 1997 (DOLLARS IN THOUSANDS) (UNAUDITED) CAPITALIZATION AND LIABILITIES
CONSOLIDATED CONSOLIDATED MERGER DELMARVA ATLANTIC PRO FORMA AS ADJUSTED AS ADJUSTED ADJUSTMENTS ------------ ------------ ----------- Capitalization Common stock 138,399 562,686 (700,078)(a) Class A common stock - - 66 (a) Additional paid-in capital - common stock 520,572 - 940,142 (b)(k) Additional paid-in capital - Class A common stock - - 136,774 (b) Retained earnings 288,125 222,678 (244,173)(d) ------------ ------------ ----------- 947,096 785,364 132,731 Treasury shares, at cost (4,434) - 4,434 (e) Unearned compensation (340) (2,676) 3,016 (k) ------------ ------------ ----------- Total common stockholders' equity 942,322 782,688 140,181 Preferred stock not subject to mandatory redemption 89,703 - (89,703)(p) Preferred stock of subsidiaries: Not subject to mandatory redemption - 30,000 89,703 (p) Subject to mandatory redemption 70,000 113,950 - Long-term debt 923,710 786,187 - ------------ ------------ ----------- 2,025,735 1,712,825 140,181 ------------ ------------ ----------- Current Liabilities Short-term debt 49,533 100,900 - Preferred stock redemption requirement - 10,000 - Long-term debt due within one year 52,792 197,675 - Variable rate demand bonds 84,300 - - Accounts payable 75,186 51,354 - Taxes accrued 1,798 30,593 (1,361)(k) Interest accrued 20,249 21,133 - Dividends declared 24,475 21,624 - Current capital lease obligation 12,708 729 - Deferred income taxes, net 2,305 3,013 - Other 32,057 29,141 87,643 (h)(i) ------------ ------------ ----------- 355,403 466,162 86,282 ------------ ------------ ----------- Deferred Credits and Other Liabilities Deferred income taxes, net 518,989 433,494 (40,339)(l) Deferred investment tax credits 41,221 45,310 - Long-term capital lease obligations 18,819 36,066 - Postretirement obligations - 35,609 53,496 (g) Other 31,639 27,165 - ------------ ------------ ----------- 610,668 577,644 13,157 ------------ ------------ ----------- Total Capitalization and Liabilities 2,991,806 2,756,631 239,620 ============ ============ ===========
PRO FORMA MERGED FINANCING PRO FORMA CONSOLIDATED PRO FORMA CONSOLIDATED CONECTIV, INC. ADJUSTMENTS CONECTIV, INC. -------------- ----------- -------------- Capitalization Common stock 1,007 139 (q) 1,146 Class A common stock 66 - 66 Additional paid-in capital - common stock 1,460,714 249,861 (q) 1,710,575 Additional paid-in capital - Class A common stock 136,774 - 136,774 Retained earnings 266,630 - 266,630 -------------- ----------- -------------- 1,865,191 250,000 2,115,191 Treasury shares, at cost - - - Unearned compensation - - - -------------- ----------- -------------- Total common stockholders' equity 1,865,191 250,000 2,115,191 Preferred stock not subject to mandatory redemption - - - Preferred stock of subsidiaries: Not subject to mandatory redemption 119,703 - 119,703 Subject to mandatory redemption 183,950 - 183,950 Long-term debt 1,709,897 250,000 (r) 1,959,897 -------------- ----------- -------------- 3,878,741 500,000 4,378,741 -------------- ----------- -------------- Current Liabilities Short-term debt 150,433 349,567 (s) 500,000 Preferred stock redemption requirement 10,000 - 10,000 Long-term debt due within one year 250,467 - 250,467 Variable rate demand bonds 84,300 - 84,300 Accounts payable 126,540 - 126,540 Taxes accrued 31,030 - 31,030 Interest accrued 41,382 - 41,382 Dividends declared 46,099 - 46,099 Current capital lease obligation 13,437 - 13,437 Deferred income taxes, net 5,318 - 5,318 Other 148,841 - 148,841 -------------- ----------- -------------- 907,847 349,567 1,257,414 -------------- ----------- -------------- Deferred Credits and Other Liabilities Deferred income taxes, net 912,144 - 912,144 Deferred investment tax credits 86,531 - 86,531 Long-term capital lease obligations 54,885 - 54,885 Postretirement obligations 89,105 - 89,105 Other 58,804 - 58,804 -------------- ----------- -------------- 1,201,469 - 1,201,469 -------------- ----------- -------------- Total Capitalization and Liabilities 5,988,057 849,567 6,837,624 ============== =========== ==============
The accompanying notes to the unaudited pro forma combined balance sheet and statements of income are an integral part of this statement. 58 CONSOLIDATED CONECTIV INC. PRO FORMA COMBINED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
CONSOLIDATED CONSOLIDATED MERGER DELMARVA ATLANTIC PRO FORMA AS ADJUSTED AS ADJUSTED ADJUSTMENTS ------------ ------------ ----------- Operating Revenues Electric $1,018,358 $970,220 - Gas 134,388 - - Other services 103,474 16,325 - ------------ ------------ ----------- 1,256,220 986,545 - ------------ ------------ ----------- Operating Expenses Electric fuel and purchased energy 362,579 220,309 - Gas purchased 82,828 - - Purchased electric capacity 29,129 195,787 - Operation and maintenance 368,507 195,503 - Depreciation and amortization 132,779 82,640 5,767 (j) State excise taxes - 102,842 - Other taxes 36,508 9,744 - ------------ ------------ ----------- 1,012,330 806,825 5,767 ------------ ------------ ----------- Operating Income 243,890 179,720 (5,767) ------------ ------------ ----------- Other Income Allowance for equity funds used during construction 857 931 - Other income 7,630 4,616 - ------------ ------------ ----------- 8,487 5,547 - ------------ ------------ ----------- Interest Expense Interest charges 78,980 69,668 - Allowance for borrowed funds used during construction and capitalized interest (4,713) (897) - ------------ ------------ ----------- 74,267 68,771 - ------------ ------------ ----------- Preferred Stock Dividend Requirements of Subsidiaries 4,234 11,021 6,372 (p) ------------ ------------ ----------- Income Before Income Taxes 173,876 105,475 (12,139) Income Taxes 71,367 37,017 - ------------ ------------ ----------- Net Income 102,509 68,458 (12,139) Dividends on Preferred Stock 6,372 - (6,372)(p) ------------ ------------ ----------- Earnings Applicable to Common Stock: Common stock 96,137 68,458 (16,368) Class A common stock - - 10,601 (m) ------------ ------------ ----------- $96,137 $68,458 ($5,767) ============ ============ =========== Average common shares outstanding (000): Common stock 60,841 52,603 (13,225)(n) Class A common stock - - 6,563 (n) Earnings per average share outstanding of: Common stock $1.58 $1.30 - Class A common stock - - - Dividends declared per share of: Common stock $1.54 $1.54 - Class A common stock - - -
PRO FORMA MERGED FINANCING PRO FORMA CONSOLIDATED PRO FORMA CONSOLIDATED CONECTIV INC. ADJUSTMENTS CONECTIV INC. ------------- ----------- ------------- Operating Revenues Electric $1,988,578 - $1,988,578 Gas 134,388 - 134,388 Other services 119,799 - 119,799 ------------- ----------- ------------- 2,242,765 - 2,242,765 ------------- ----------- ------------- Operating Expenses Electric fuel and purchased energy 582,888 - 582,888 Gas purchased 82,828 - 82,828 Purchased electric capacity 224,916 - 224,916 Operation and maintenance 564,010 - 564,010 Depreciation and amortization 221,186 - 221,186 State excise taxes 102,842 - 102,842 Other taxes 46,252 - 46,252 ------------- ----------- ------------- 1,824,922 - 1,824,922 ------------- ----------- ------------- Operating Income 417,843 - 417,843 ------------- ----------- ------------- Other Income Allowance for equity funds used during construction 1,788 - 1,788 Other income 12,246 - 12,246 ------------- ----------- ------------- 14,034 - 14,034 ------------- ----------- ------------- Interest Expense Interest charges 148,648 37,600 (r)(s) 186,248 Allowance for borrowed funds used during construction and capitalized interest (5,610) - (5,610) ------------- ----------- ------------- 143,038 37,600 180,638 ------------- ----------- ------------- Preferred Stock Dividend Requirements of Subsidiaries 21,627 - 21,627 ------------- ----------- ------------- Income Before Income Taxes 267,212 (37,600) 229,612 Income Taxes 108,384 (13,160)(r)(s) 95,224 ------------- ----------- ------------- Net Income 158,828 (24,440) 134,388 Dividends on Preferred Stock - - - ------------- ----------- ------------- Earnings Applicable to Common Stock: Common stock 148,227 (24,440) 123,787 Class A common stock 10,601 - 10,601 ------------- ----------- ------------- $158,828 ($24,440) $134,388 ============= =========== ============= Average common shares outstanding (000): Common stock 100,219 13,889 (q) 114,108 Class A common stock 6,563 - 6,563 Earnings per average share outstanding of: Common stock $1.48 $1.08 Class A common stock $1.62 $1.62 Dividends declared per share of: Common stock $1.54 $1.54 Class A common stock $3.20 $3.20
The accompanying notes to the unaudited pro forma combined balance sheet and statements of income are an integral part of this statement. 59 NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (a) Adjustments to record the estimated par value at $0.01 per share of Conectiv Common Stock and Conectiv Class A Common Stock to be issued and outstanding. The number of shares of Conectiv stock was estimated using the number of Delmarva and Atlantic Common Stock shares outstanding as of June 30, 1997. Each outstanding share of Delmarva Common Stock was converted into one share of Conectiv Common Stock and each outstanding share of Atlantic Common Stock was converted into 0.75 of one share of Conectiv Common Stock plus 0.125 of one share of Conectiv Class A Common Stock. The adjustments are summarized below.
As of June 30, 1997 ------------------- Common Stock: Number of Atlantic Common Stock shares outstanding 52,504,479 Conversion Ratio 0.75 ------------- Number of Common Stock shares to be issued to Atlantic Common Stockholders 39,378,359 Number of Common Stock shares to be issued to Delmarva Common Stockholders (Equal to the number of Delmarva Common Stock shares outstanding) 61,296,320 ------------- Total number of Common Stock shares to be issued 100,674,679 Par value per share $ 0.01 ------------- (In Thousands of Dollars) Adjusted par value of total number of Common Stock shares to be issued $ 1,007 Delmarva's Common Stock, as previously reported (138,399) Atlantic's Common Stock, as previously reported (562,686) ------------- Adjustment to Common Stock $ (700,078) ============= Class A Common Stock: Number of Atlantic Common Stock shares outstanding 52,504,479 Conversion Ratio 0.125 ------------- Number of Class A Common Stock shares to be issued to Atlantic Common Stockholders 6,563,060 Par value per share $ 0.01 ------------- Par value (In Thousands of Dollars) $ 66 =============
60 (b) Adjustments to record additional paid-in-capital to reflect the following:
As of June 30, 1997 ---------------------- (Dollars in Thousands) Additional Paid-In-Capital--Common Stock: Cancellation of the Delmarva Treasury Stock cost in excess of par value $ (3,952) Adjustment to par value of Delmarva Common Stock outstanding 137,304 Consideration to be paid to Atlantic's Common Stockholders in the form of the Company Common Stock in excess of par value 807,847 Estimated registration and issuance costs (1,750) --------- $ 939,449 ========= Additional Paid-In-Capital--Class A Common Stock: Consideration to be paid to Atlantic's Common Stockholders in the form of the Company Class A Common Stock in excess of par value $ 136,774 =========
(c) The total consideration to be paid to the Atlantic Common Stockholders was measured by the average daily closing market price of Atlantic's Common Stock for the ten trading days following the public announcement of the Merger Agreement on August 12, 1996. Delmarva's Common Stockholders will receive one share of Conectiv Common Stock for each share of Delmarva Common Stock. Therefore, the average daily market price of Delmarva's Common Stock for the same ten day period following the public announcement of the Merger Agreement was used to measure the market value of Conectiv Common Stock to be paid to Atlantic's Common Stockholders. Delmarva's average market price per share was multiplied by the Atlantic conversion ratio for Conectiv Common Stock to determine the estimated market value per share of Atlantic Common Stock attributed to Conectiv Common Stock. This market value per share was multiplied by the number of Atlantic Common Stock shares outstanding at June 30, 1997 to estimate the consideration to be paid to Atlantic Common Stockholders in the form of Conectiv Common Stock. The difference between the total compensation to be paid to Atlantic's Common Stockholders and the portion attributed to Conectiv Common Stock was attributed to Conectiv Class A Common Stock. The schedules below show the calculation of the total consideration to be paid to Atlantic's Common Stockholders and the allocation of the total consideration to be paid between Conectiv Common Stock and Conectiv Class A Common Stock:
Amounts ------- Average market price per share of Atlantic Common Stock used to determine consideration to be paid $18.00 Number of Atlantic Common Stock shares outstanding as of June 30, 1997 52,504,479 ---------- Total consideration to be paid to Atlantic Common Stockholders (In Thousands of Dollars) $945,081 ==========
61
Amounts ------- Average market price per share of Delmarva Common Stock for the ten trading days following the public announcement of the Merger Agreement $20.525 Conversion ratio of Conectiv Common Stock for each share of Atlantic Common Stock 0.75 ---------- Estimated market value per share of Atlantic Common Stock attributed to Conectiv Common Stock $15.39375 Number of Atlantic Common Stock shares outstanding as of June 30, 1997 52,504,479 ---------- Consideration to be paid to Atlantic's Common Stockholders in the form of Conectiv Common Stock (In Thousands of Dollars) $808,241 ========== (In Thousands of Dollars) Total consideration to be paid to Atlantic Common Stockholders $945,081 Portion of total consideration attributed to Conectiv Common Stock 808,241 ---------- Portion of total consideration attributed to Conectiv Class A Common Stock $136,840 ==========
(d) Adjustments to retained earnings as follows:
Amounts ---------------------- (Dollars in Thousands) Eliminate retained earnings of Atlantic $(220,939) Charges to expense of $35.4 million ($20.9 million after tax) for nonrecurring employee separation costs related to Delmarva employees and employee retraining costs [see note (h)] (20,886) Charge to expense to eliminate unearned income [see Note (k)] (2,348) ---------- Total adjustment $(244,173) ==========
Prior to elimination, the retained earnings of Atlantic, as reported in its Form 10-Q for the quarter ended June 30, 1997, of $222,678,000 was reduced by $1,739,000, which is Atlantic's after tax portion of the expense recognized that was related to employee incentive plans [see Note (k)]. 62 (e) Adjustment to reflect the cancellation of the Delmarva treasury stock as a condition of the Mergers. (f) The schedule below shows the calculation of the cost of acquiring Atlantic and the allocation of the total acquisition cost to identifiable tangible and intangible assets and liabilities.
Cost of Acquiring Atlantic Amounts -------------------------- ---------------------- (Dollars in Thousands) Consideration to be paid to Atlantic's Common Stockholders [see Note (c)] $945,081 Add: Estimated direct costs of acquisition to be incurred by Delmarva 25,015 Less: Registration and issuance costs (1,750) ---------- Total acquisition cost $968,346 ========== Less assets acquired: Electric utility plant - net $1,791,081 Investments and nonutility property 283,136 Current assets 318,989 Deferred debits 363,425 ---------- Total assets acquired $2,756,631 ========== Add liabilities acquired: Preferred stock of subsidiaries $143,950 Long-term debt 786,187 Current liabilities 465,225 Deferred credits and other liabilities 577,644 ---------- Total liabilities acquired $1,973,006 ---------- Costs incurred and liabilities assumed in connection with the Mergers $ 44,445 Cost in excess of net assets acquired $229,166 ==========
The current liabilities of Atlantic as of June 30, 1997 included in net assets acquired was adjusted to reflect transactions to be recorded by Atlantic prior to the Mergers as shown below:
As of June 30, 1997 ---------------------- (Dollars in Thousands) Current liabilities of Atlantic as adjusted [see Note (p)] $466,162 Accrued tax benefit [see Note (k)] (937) --------- Current liabilities acquired $465,225 =========
The fair value of the utility assets of Atlantic is their book value due to the ratemaking process. Utility assets are recognized for ratemaking purposes at their book values in determining utility revenue requirements. Accordingly, the economic substance is that fair value of the utility assets is their book value. (g) Adjustments to record additional pension prepayment ($21.7 million) and postretirement benefit liabilities ($53.5 million), assumed in the acquisition of Atlantic in accordance with Statements of Financial Accounting Standards (SFAS) Nos. 87 and 106. 63 (h) Adjustment to record an estimated liability of $38.5 million, which is included in the acquisition cost, for employee separation and relocation costs, and facilities integration costs related to Atlantic's employees and facilities. The adjustment also includes a liability of $35.4 million, which will be expensed, for employee separation costs related to Delmarva's employees and employee retraining costs. The Unaudited Pro Forma Combined Statement of Income for the twelve months ended June 30, 1997 does not reflect the nonrecurring estimated expenses of $35.4 million before taxes ($20.9 million after taxes) for employee separation costs related to Delmarva's employees and employee retraining costs. (i) Adjustment to record the estimated direct costs of the Mergers of $25.0 million. These costs are included in the cost to acquire Atlantic.
As of June 30, 1997 ---------------------- (Dollars in Thousands) Other current liabilities $13,743 -------- Deferred debits ($11,272) --------
(j) Adjustment to reflect the amortization of goodwill acquired over forty (40) years. (k) Adjustment to recognize a pretax expense of $4.0 million to satisfy unearned and deferred compensation costs payable under employee incentive plans at the time of the Mergers. The adjustment is summarized below:
As of June 30, 1997 ---------------------- (Dollars in Thousands) Decrease in retained earnings: Atlantic $(1,739) Delmarva (609) -------------------- Total decrease in retained earnings $(2,348) ==================== Accrued tax benefit: Atlantic $(937) Delmarva (424) -------------------- Total decrease in accrued taxes $(1,361) ==================== Eliminate unearned and deferred compensation $3,016 -------------------- Additional paid-in capital - common stock $693 ====================
The Unaudited Pro Forma Combined Statement of Income for the twelve months ended June 30, 1997 does not reflect the nonrecurring estimated expense of $3.7 million before taxes ($2.3 million after taxes). 64 (l) Adjustment to record additional deferred income taxes for the following temporary differences:
(Dollars in Thousands) Temporary Deferred Differences Income Taxes ----------- ------------ Additional pension prepayment [see Note (g)] $ 21,726 ($ 7,604) Additional postretirement benefit liabilities [see Note (g)] 53,496 18,724 Liabilities for employee separation, relocation, and retraining costs and facilities integration costs [see Note (h)] 73,900 27,989 Liability for a portion of DP&L direct acquisition costs that are deemed to be tax deductible [see Note (i)] 3,000 1,230 -------- Total deferred income taxes $ 40,339 ========
In accordance with SFAS No. 109, deferred income taxes were not recorded on goodwill and the amortization is not deductible for tax purposes. (m) Adjustment to present earnings applicable to the Class A Common Stock. The Class A Common Stock is intended to reflect the growth prospects and regulatory environment of Atlantic's regulated electric utility business. When the Mergers are consummated, the shares of Class A Common Stock received by holders of Atlantic Common Stockholders will represent, in aggregate, a 30% interest in any earnings of Atlantic's regulated electric utility business in excess of $40 million per year. The calculation of the pro forma earnings applicable to the Class A Common Stock for the twelve months ended June 30, 1997 is shown below (in thousands): Atlantic City Electric Company (ACE) and Subsidiary Income Available for Common Stockholders $ 74,578 Add: Net Losses of Nonutility Activities Specifically Excluded 760 Less: Fixed Amount of $40 million per year (40,000) -------- Subtotal 35,338 Percentage Applicable to Class A Common Stock 30% -------- Earnings Applicable to Class A Common Stock $ 10,601 ========
65 (n) Adjustments to decrease the weighted average number of Common Stock shares outstanding based on the conversion ratio of 0.75 to 1 of Conectiv Common Stock to be issued to holders of Atlantic Common Stock and reflect the issuance of Class A Common Stock shares to holders of Atlantic Common Stock. The number of shares of Conectiv Common Stock and Class A Common Stock estimated to be issued to holders of Atlantic Common Stock for the acquisition were deemed to be issued and outstanding for the entire period. (o) The Merger Agreement provides, subject to certain conditions, that the dividends declared and paid on the Class A Common Stock will be maintained at a level of $3.20 per share per annum from the Effective Date until the earlier of July 1, 2001 or the end of the twelfth calendar quarter following the calendar quarter in which the Effective Date occurs. Thereafter, it is the intention of Conectiv, subject to certain conditions, to pay annual dividends on the Class A Common Stock in an aggregate amount (including the amount credited to the Intergroup Interest as provided in the Conectiv Charter) equal to 90% of Conectiv Net Income Attributable to the Atlantic Utility Group. The Merger Agreement further provides that if and to the extent that the annual dividends paid on the Class A Common Stock during the Initial Period (including the aforesaid amount) shall have exceeded 100% of Conectiv Net Income Attributable to the Atlantic Utility Group during such period, the Conectiv Board may consider such fact in determining the appropriate annual dividend rate on the Class A Common Stock following the Initial Period. The pro forma Class A Common Stock dividends per share exceed the pro forma Class A Common Stock earnings per share for the twelve months ended June 30, 1997. (p) Adjustment to reflect Delmarva's preferred stock as preferred stock of a subsidiary. (q) Adjustment to record the issuance of 13,888,889 shares of common stock, par value $0.01, at $18 a share (for pro forma purposes it is assumed that 50% of the $500 million of long-term financing requested is in the form of common stock equity) (r) Adjustment to record the issuance of $250 million of long-term debt at 7% (for pro forma purposes it is assumed that 50% of the $500 million of long-term financing requested is in the form of long-term debt) (s) Adjustment to record the issuance of $350 million of additional short-term debt at 5.75% to bring the Conectiv System total short-term debt up to the maximum $500 million requested. (t) Since it is anticipated that the issuance of common stock under the Conectiv benefit plans will have little impact on the Conectiv System financial statements in the first year it would be inappropriate to prepare pro forma adjustments at this time. (u) As necessary for fair presentation of the pro forma financial statements, amounts previously reported by Atlantic and Delmarva have been reclassified for consistency of presentation. The following schedules show the amounts reclassified. 66 DELMARVA POWER & LIGHT COMPANY CONSOLIDATED BALANCE SHEET JUNE 30, 1997 (DOLLARS IN THOUSANDS) (UNAUDITED)
ASSETS REPORTED RECLASS ADJUSTED AMOUNT ADJUSTMENTS AMOUNT --------- ----------- --------- UTILITY PLANT, AT COST Electric 3,036,671 (76,488)(1)(2) 2,960,183 Gas 233,414 - 233,414 Common 150,791 (2,648)(2) 148,143 --------- ----------- --------- 3,420,876 (79,136) 3,341,740 Less: Accumulated depreciation 1,317,651 (3,008)(2) 1,314,643 --------- ----------- --------- Net utility plant in service 2,103,225 (76,128) 2,027,097 Construction work-in-progress 118,622 - 118,622 Leased property, net 29,901 1,258 (2) 31,159 Cost in excess of net assets acquired, net - 74,870 (1) 74,870 --------- ----------- --------- 2,251,748 - 2,251,748 --------- ----------- --------- INVESTMENTS AND NONUTILITY PROPERTY Nonutility property, net 88,757 - 88,757 Investment in leveraged leases 46,281 - 46,281 Funds held by trustee 36,954 - 36,954 Other investments 5,461 - 5,461 --------- ----------- --------- 177,453 - 177,453 --------- ----------- --------- CURRENT ASSETS Cash and cash equivalents 36,882 - 36,882 Accounts receivable 162,811 - 162,811 Deferred energy costs 17,351 - 17,351 Inventories, at average cost: Fuel (coal, oil, and gas) 34,040 - 34,040 Materials and supplies 43,164 - 43,164 Prepayments 5,835 - 5,835 --------- ----------- --------- 300,083 - 300,083 --------- ----------- --------- DEFERRED CHARGES AND OTHER ASSETS Deferred recoverable income taxes 130,716 - 130,716 Deferred debt refinancing costs 20,063 - 20,063 Other regulatory assets - 31,002 (3) 31,002 Prepaid employee benefit costs 38,898 - 38,898 Unamortized debt expense 13,664 - 13,664 Other 59,181 (31,002)(3) 28,179 --------- ----------- --------- 262,522 - 262,522 --------- ----------- --------- TOTAL ASSETS 2,991,806 - 2,991,806 ========= =========== =========
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 67 DELMARVA POWER & LIGHT COMPANY CONSOLIDATED BALANCE SHEET JUNE 30, 1997 (DOLLARS IN THOUSANDS) (UNAUDITED)
CAPITALIZATION AND LIABILITIES REPORTED RECLASS ADJUSTED AMOUNT ADJUSTMENTS AMOUNT ---------- ----------- ---------- CAPITALIZATION Common stock 138,399 - 138,399 Additional paid-in capital - common stock 520,572 - 520,572 Retained earnings 288,125 - 288,125 ---------- ----------- ---------- 947,096 - 947,096 TREASURY SHARES, AT COST (4,434) - (4,434) Unearned compensation (340) - (340) ---------- ----------- ---------- Total common stockholders' equity 942,322 - 942,322 Preferred stock not subject to mandatory redemption 89,703 - 89,703 Preferred stock of subsidiaries: Subject to mandatory redemption 70,000 - 70,000 Long-term debt 923,710 - 923,710 ---------- ----------- ---------- 2,025,735 - 2,025,735 ---------- ----------- ---------- CURRENT LIABILITIES Short-term debt 49,533 - 49,533 Long-term debt due within one year 52,792 - 52,792 Variable rate demand bonds 84,300 - 84,300 Accounts payable 75,186 - 75,186 Taxes accrued 1,798 - 1,798 Interest accrued 20,249 - 20,249 Dividends declared 24,475 - 24,475 Current capital lease obligation 12,708 - 12,708 Deferred income taxes, net 2,305 - 2,305 Other 32,057 - 32,057 ---------- ----------- ---------- 355,403 - 355,403 ---------- ----------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes, net 518,989 - 518,989 Deferred investment tax credits 41,221 - 41,221 Long-term capital lease obligations 18,819 - 18,819 Other 31,639 - 31,639 ---------- ----------- ---------- 610,668 - 610,668 ---------- ----------- ---------- TOTAL CAPITALIZATION AND LIABILITIES 2,991,806 - 2,991,806 ========== =========== ==========
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 68 ATLANTIC ENERGY, INC. CONSOLIDATED BALANCE SHEET JUNE 30, 1997 (DOLLARS IN THOUSANDS) (UNAUDITED)
ASSETS REPORTED RECLASS ADJUSTED AMOUNT ADJUSTMENTS AMOUNT --------- ----------- --------- Electric utility plant In service 2,540,498 5,604 (4) 2,546,102 --------- ----------- --------- 2,540,498 5,604 2,546,102 Less: Accumulated depreciation 894,176 - 894,176 --------- ----------- --------- Net utility plant in service 1,646,322 5,604 1,651,926 Construction work-in-progress 102,360 - 102,360 Land Held for Future Use 5,604 (5,604)(4) - Leased property, net 36,795 - 36,795 --------- ----------- --------- 1,791,081 - 1,791,081 --------- ----------- --------- Investments and Nonutility Property Nonutility property, net 73,252 - 73,252 Investment in leveraged leases 80,080 - 80,080 Funds held by trustee 76,528 12,776 (5) 89,304 Other investments 53,276 (12,776)(5) 40,500 --------- ----------- --------- 283,136 - 283,136 --------- ----------- --------- Current Assets Cash and cash equivalents 17,566 428 (6) 17,994 Accounts receivable 98,005 41,289 (7) 139,294 Unbilled revenues 41,289 (41,289)(7) - Deferred energy costs 35,512 - 35,512 Inventories, at average cost: Fuel (coal, oil, and gas) 27,887 - 27,887 Materials and supplies 23,477 14,643 (6) 38,120 Working funds 15,071 (15,071)(6) - Prepayments 54,221 - 54,221 Other 14,545 (8,584)(8) 5,961 --------- ----------- --------- 327,573 (8,584) 318,989 --------- ----------- --------- Deferred Charges and Other Assets Unrecovered purchased power costs 74,837 - 74,837 Deferred recoverable income taxes 85,858 - 85,858 Unrecovered state excise taxes 49,703 - 49,703 Deferred debt refinancing costs 43,482 (14,536)(9) 28,946 Other regulatory assets 55,019 - 55,019 Prepaid employee benefit costs - 6,934 (8) 6,934 Unamortized debt expense - 14,536 (9) 14,536 Other 47,592 - 47,592 --------- ----------- --------- 356,491 6,934 363,425 --------- ----------- --------- Total Assets 2,758,281 (1,650) 2,756,631 ========= =========== =========
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 69 ATLANTIC ENERGY, INC. CONSOLIDATED BALANCE SHEET JUNE 30, 1997 (DOLLARS IN THOUSANDS) (UNAUDITED) CAPITALIZATION AND LIABILITIES
REPORTED RECLASS ADJUSTED AMOUNT ADJUSTMENTS AMOUNT ------------ ------------- ------------ CAPITALIZATION Common stock 562,686 - 562,686 Retained earnings 222,678 - 222,678 ------------ ------------- ------------ 785,364 - 785,364 Unearned compensation (2,676) - (2,676) ------------ ------------- ------------ Total common stockholders' equity 782,688 - 782,688 Preferred stock of subsidiaries: Not subject to mandatory redemption 30,000 - 30,000 Subject to mandatory redemption 113,950 - 113,950 Long-term debt 786,187 - 786,187 ------------ ------------- ------------ 1,712,825 - 1,712,825 ------------ ------------- ------------ CURRENT LIABILITIES Short-term debt 100,900 - 100,900 Preferred stock redemption requirement 10,000 - 10,000 Long-term debt due within one year 197,675 - 197,675 Accounts payable 51,354 - 51,354 Taxes accrued 30,593 - 30,593 Interest accrued 21,133 - 21,133 Dividends declared 21,624 - 21,624 Current capital lease obligation 729 - 729 Deferred income taxes, net 3,013 - 3,013 Other 30,791 (1,650)(8) 29,141 ------------ ------------- ------------ 467,812 (1,650) 466,162 ------------ ------------- ------------ DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes, net 433,494 - 433,494 Deferred investment tax credits 45,310 - 45,310 Long-term capital lease obligations 36,066 - 36,066 Postretirement obligations - 35,609 (10) 35,609 Other 62,774 (35,609)(10) 27,165 ------------ ------------- ------------ 577,644 - 577,644 ------------ ------------- ------------ TOTAL CAPITALIZATION AND LIABILITIES 2,758,281 (1,650) 2,756,631 ============ ============= ============
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 70 DELMARVA POWER AND LIGHT COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
REPORTED RECLASS ADJUSTED AMOUNT ADJUSTMENTS AMOUNT ----------- ----------- ----------- OPERATING REVENUES Electric $ 1,018,358 $ -- $ 1,018,358 Gas 134,388 -- 134,388 Other services 103,474 -- 103,474 ----------- ----------- ----------- 1,256,220 -- 1,256,220 ----------- ----------- ----------- OPERATING EXPENSES Electric fuel and purchase energy 362,579 -- 362,579 Gas purchased 82,828 -- 82,828 Purchased electric capacity 29,129 -- 29,129 Operation and maintenance 368,507 -- 368,507 Depreciation and amortization 132,779 -- 132,779 Other taxes 36,508 -- 36,508 ----------- ----------- ----------- 1,012,330 -- 1,012,330 ----------- ----------- ----------- OPERATING INCOME 243,890 -- 243,890 ----------- ----------- ----------- OTHER INCOME Allowance for equity funds used during construction 857 -- 857 Other income 7,630 -- 7,630 ----------- ----------- ----------- 8,487 -- 8,487 ----------- ----------- ----------- INTEREST EXPENSE Interest charges 78,980 -- 78,980 Allowance for borrowed funds used during construction and capitalized interest (4,713) -- (4,713) ----------- ----------- ----------- 74,267 -- 74,267 ----------- ----------- ----------- PREFERRED STOCK DIVIDEND REQUIREMENTS OF SUBSIDIARIES 4,234 -- 4,234 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 173,876 -- 173,876 INCOME TAXES 71,367 -- 71,367 ----------- ----------- ----------- NET INCOME 102,509 -- 102,509 DIVIDENDS ON PREFERRED STOCK 6,372 -- 6,372 ----------- ----------- ----------- EARNINGS APPLICABLE TO COMMON STOCK $ 96,137 $ -- $ 96,137 =========== =========== =========== Average shares outstanding (000): 60,841 -- 60,841 Earnings per average share $ 1.58 $ -- $ 1.58 Dividends declared $ 1.54 $ -- $ 1.54
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 71 ATLANTIC ENERGY, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
REPORTED RECLASS ADJUSTED AMOUNT ADJUSTMENTS AMOUNT --------- ----------- --------- OPERATING REVENUES Electric $ 970,220 $ -- $ 970,220 Other services -- 16,325(11) 16,325 --------- ----------- --------- 970,220 16,325 986,545 --------- ----------- --------- OPERATING EXPENSES Electric fuel and purchase energy 220,309 -- 220,309 Purchased electric capacity 195,787 -- 195,787 Operation and maintenance 179,754 15,749(11) 195,503 Depreciation and amortization 81,920 720(11) 82,640 State excise taxes 102,842 -- 102,842 Other taxes 9,744 -- 9,744 --------- ----------- --------- 790,356 16,469 806,825 --------- ----------- --------- OPERATING INCOME 179,864 (144) 179,720 --------- ----------- --------- OTHER INCOME Allowance for equity funds used during construction 931 -- 931 Other income 2,946 1,670(11) 4,616 --------- ----------- --------- 3,877 1,670 5,547 --------- ----------- --------- INTEREST EXPENSE Interest charges 64,564 5,104(11) 69,668 Allowance for borrowed funds used during construction and capitalized interest (897) -- (897) --------- ----------- --------- 63,667 5,104 68,771 --------- ----------- --------- PREFERRED STOCK DIVIDEND REQUIREMENTS OF SUBSIDIARIES 11,021 -- 11,021 --------- ----------- --------- INCOME BEFORE INCOME TAXES 109,053 (3,578) 105,475 INCOME TAXES 40,595 (3,578)(11) 37,017 --------- ----------- --------- NET INCOME $ 68,458 $ -- 68,458 ========= =========== ========= Average shares outstanding (000) 52,603 -- 52,603 Earnings per average share $ 1.30 $ -- $ 1.30 Dividends declared $ 1.54 $ -- $ 1.54
The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 72 CONECTIV, INC. PRO FORMA BALANCE SHEET JUNE 30, 1997 (DOLLARS IN THOUSANDS) (UNAUDITED)
PRO FORMA CONECTIV, INC. PRO FORMA FINANCING AFTER MERGED PRO FORMA FINANCING ASSETS CONECTIV, INC. ADJUSTMENTS ADJUSTMENTS ------------ ----------- -------------- INVESTMENTS AND NONUTILITY PROPERTY Investment in subsidiary companies $ 1,930,918(1) $ -- $ 1,930,918 Other investments 16(2) -- 16 ------------ ----------- -------------- 1,930,934 -- 1,930,934 ------------ ----------- -------------- CURRENT ASSETS Cash and cash equivalents 762(2) 849,567(9) 850,329 Accounts receivable 8,493(2) -- 8,493 Dividends receivable 43,896(3) -- 43,896 Intercompany receivable 26,376(2) -- 26,376 Prepayments 28(2) -- 28 ------------ ----------- -------------- 79,555 849,567 929,122 ------------ ----------- -------------- DEFERRED CHARGES AND OTHER ASSETS Other 101(2) -- 101 ------------ ----------- -------------- ------------ ----------- -------------- TOTAL ASSETS $ 2,010,590 $ 849,567 $ 2,860,157 ============ =========== ============== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock $ 1,007(4) $ 139(9) $ 1,146 Class A common stock 66(4) -- 66 Additional paid-in capital - common stock 1,460,714(4) 249,861(9) 1,710,575 Additional paid-in capital - Class A common stock 136,774(4) -- 136,774 Retained earnings 266,630(4) -- 266,630 ------------ ----------- -------------- Total common stockholders' equity 1,865,191 250,000 2,115,191 Long-term debt -- 250,000(9) 250,000 ------------ ----------- -------------- 1,865,191 500,000 2,365,191 ------------ ----------- -------------- CURRENT LIABILITIES Short-term debt -- 349,567(9) 349,567 Long-term debt due within one year 51,500(2) -- 51,500 Intercompany accounts payable 12,770(5) -- 12,770 Taxes accrued 22,968(6) -- 22,968 Interest accrued 199(2) -- 199 Dividends declared 43,896(3) -- 43,896 Other 15,296(7) -- 15,296 ------------ ----------- -------------- 146,629 349,567 496,196 ------------ ----------- -------------- DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes, net (1,230)(8) -- (1,230) ------------ ----------- -------------- TOTAL CAPITALIZATION AND LIABILITIES $ 2,010,590 $ 849,567 $ 2,860,157 ============ =========== ==============
The accompanying notes to the unaudited pro forma balance sheet and statement of income are an integral part of this statement. 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Transfer goodwill for assets acquired after June 30, 1997 from Electric plant to "Cost in excess of net assets acquired, net." (2) Transfer capital leases, net to "Leased property, net." (3) Transfer regulatory assets from "Other" to "Other regulatory assets." (4) Transfer "Land held for future use" to "Electric utility plant in service." (5) Transfer $12,776 for Investment in Bond Escrow Trust from "Other investments" to "Funds held by trustee." (6) Transfer "Working funds" to "Cash" and to "Materials and supplies", as appropriate. (7) Transfer "Unbilled revenues" to "Accounts receivable." (8) Transfer prepaid pension cost to a separate line. (9) Transfer unamortized debt costs from "Deferred debt refinancing costs" to "Unamortized debt expense." (10) Transfer other postretirement benefits from "Other" to a separate line. (11) Transfer net earnings of nonutility subsidiaries from "Other income" to appropriate lines. 74 CONECTIV, INC. PRO FORMA BALANCE SHEET JUNE 30, 1997 (DOLLARS IN THOUSANDS) (UNAUDITED)
PRO FORMA CONECTIV, INC. PRO FORMA FINANCING AFTER MERGED PRO FORMA FINANCING ASSETS CONECTIV, INC. ADJUSTMENTS ADJUSTMENTS ------------ ----------- -------------- INVESTMENTS AND NONUTILITY PROPERTY Investment in subsidiary companies $ 1,930,918(1) $ -- $ 1,930,918 Other investments 16(2) -- 16 ------------ ----------- -------------- 1,930,934 -- 1,930,934 ------------ ----------- -------------- CURRENT ASSETS Cash and cash equivalents 762(2) 849,567(9) 850,329 Accounts receivable 8,493(2) -- 8,493 Dividends receivable 43,896(3) -- 43,896 Intercompany receivable 26,376(2) -- 26,376 Prepayments 28(2) -- 28 ------------ ----------- -------------- 79,555 849,567 929,122 ------------ ----------- -------------- DEFERRED CHARGES AND OTHER ASSETS Other 101(2) -- 101 ------------ ----------- -------------- ------------ ----------- -------------- TOTAL ASSETS $ 2,010,590 $ 849,567 $ 2,860,157 ============ =========== ============== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock $ 1,007(4) $ 139(9) $ 1,146 Class A common stock 66(4) -- 66 Additional paid-in capital - common stock 1,460,714(4) 249,861(9) 1,710,575 Additional paid-in capital - Class A common stock 136,774(4) -- 136,774 Retained earnings 266,630(4) -- 266,630 ------------ ----------- -------------- Total common stockholders' equity 1,865,191 250,000 2,115,191 Long-term debt -- 250,000(9) 250,000 ------------ ----------- -------------- 1,865,191 500,000 2,365,191 ------------ ----------- -------------- CURRENT LIABILITIES Short-term debt -- 349,567(9) 349,567 Long-term debt due within one year 51,500(2) -- 51,500 Intercompany accounts payable 12,770(5) -- 12,770 Taxes accrued 22,968(6) -- 22,968 Interest accrued 199(2) -- 199 Dividends declared 43,896(3) -- 43,896 Other 15,296(7) -- 15,296 ------------ ----------- -------------- 146,629 349,567 496,196 ------------ ----------- -------------- DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes, net (1,230)(8) -- (1,230) ------------ ----------- -------------- TOTAL CAPITALIZATION AND LIABILITIES $ 2,010,590 $ 849,567 $ 2,860,157 ============ =========== ==============
The accompanying notes to the unaudited pro forma balance sheet and statement of income are an integral part of this statement. 75 CONECTIV, INC. PRO FORMA STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS) (UNAUDITED)
PRO FORMA CONECTIV, INC. PRO FORMA FINANCING AFTER MERGED PRO FORMA FINANCING CONECTIV, INC. ADJUSTMENTS ADJUSTMENTS ------------- ------------ ------------ OPERATING EXPENSES Operation and maintenance $ 3,457(10) $ -- $ 3,457 Depreciation and amortization 5(10) -- 5 ------------ ------------ ------------ 3,462 -- 3,462 ------------ ------------ ------------ OTHER INCOME Equity in earnings of subsidiaries 175,514(11) -- 175,514 Other income 54(10) -- 54 ------------ ------------ ------------ 175,568 -- 175,568 ------------ ------------ ------------ INTEREST CHARGES 2,215(10) 37,600(9) 39,815 PREFERRED STOCK DIVIDEND Requirements of Subsidiaries 13,078(12) -- 13,078 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 156,813 (37,600) 119,213 INCOME TAXES (2,015)(10) (13,160)(9) (15,175) ------------ ------------ ------------ NET INCOME $ 158,828 $ (24,440) $ 134,388 ============ ============ ============ EARNINGS APPLICABLE TO COMMON STOCK: Common stock $ 148,227 $ (24,440) $ 123,787 Class A common stock 10,601 -- 10,601 ------------ ------------ ------------ $ 158,828 $ (24,440) $ 134,388 ============ ============ ============ Average common shares outstanding (000) Common stock 100,219 13,889 114,108 Class A common stock 6,563 -- 6,563 Earnings per average share outstanding of: Common stock $ 1.48 $ 1.08 Class A common stock $ 1.62 $ 1.62
The accompanying notes to the unaudited pro forma balance sheet and statement of income are an integral part of this statement. 76 NOTES TO PRO FORMA CONECTIV, INC. FINANCIAL STATEMENTS The following notes should be read in conjunction with the notes to the pro forma combined financial statements of consolidated Conectiv Inc. (1) The details of Conectiv, Inc.'s initial investment in its subsidiary companies are shown below, with dollar amounts shown in thousands. Delmarva common stockholders' equity before pro forma adjustments $ 942,322 Pro forma adjustment for Delmarva employee separation costs (20,886) Pro forma adjustment to eliminate unearned and deferred compensation payable under employee incentive plans at the time of the merger 424 ------------ Adjusted Delmarva common stockholders' equity $ 921,860 Estimated direct acquisition costs of $25.015 million less registration and issuance costs of $1.750 million (charged to paid-in-capital) and less a deferred tax benefit of $1.230 million for the tax deductible portion of the direct acquisition costs. 22,035 Net liabilities of Atlantic Energy, Inc. transferred to Conectiv, Inc. at time of the merger (See note 2 below) 41,942 Consideration paid to Atlantic common shareholders 945,081 ------------ Total investment in subsidiaries $ 1,930,918 ------------
(2) The amounts on the balance sheet of Atlantic Energy, Inc., which is dissolved into Conectiv, Inc. at the time of the merger, are transferred to Conectiv, Inc. (3) On pro forma basis, common dividends of $20.214 million and $23.682 million are receivable from Atlantic City Electric and Delmarva, respectively. Common dividends declared payable to holders of Conectiv common stock and Class A common stock are equal to the total common dividend receivable of $43.896 million. (4) The details of Conectiv, Inc.'s common equity are shown below, with dollar amounts shown in thousands. For additional information, refer to the notes to the pro forma combined balance sheets of consolidated Conectiv,Inc.
Conectiv, Inc. Common Stock and Class A Common Stock issued to: --------------------------- Registration Delmarva Atlantic and issuance Shareholders Shareholders costs Consolidated ------------ ------------ ------------ ------------ Common stock $ 613 $ 394 $ 1,007 Class A common stock 66 66 Additional paid-in capital: Common stock 654,617 807,847 (1,750) 1,460,714 Class A common stock 136,774 136,774 Retained earnings 266,630 266,630 ------------ ------------ ------------ ------------ Total common stockholders' equity $ 921,860 $ 945,081 $ (1,750) $ 1,865,191 ============ ============ ============ ============
(5) The intercompany accounts payable balance includes $11.272 million payable to Delmarva for direct acquisi- 77 tion costs paid by Delmarva on behalf of Conectiv, Inc. and also includes Atlantic Energy, Inc.'s intercompany accounts payable balance ($1.498 million) to be transferred to Conectiv, Inc. at the time of the merger. (6) Taxes accrued includes Atlantic Energy, Inc.'s balance ($23.905 million) to be transferred to Conectiv, Inc. at the time of the merger, partly offset by the tax benefit ($0.937 million) of the pro forma expense recognized to eliminate unearned and deferred compensation costs payable under Atlantic's employee compensation plans at the time of the merger. (7) Other current liabilities include $13.743 million for direct acquisition costs and $1.553 million of Atlantic Energy, Inc.'s balances to be transferred to Conectiv, Inc. (8) The $1.230 million reduction in deferred income taxes represents the tax benefit of the tax deductible portion of the direct merger costs. (9) For information concerning the financing pro forma adjustments refer to the notes to the pro forma combined balance sheets of consolidated Conectiv, Inc. (10) On a pro forma basis, the earnings and expenses of Atlantic Energy, Inc. for the twelve months ended June 30, 1997 are reflected in the Conectiv, Inc. statement of income because Atlantic Energy, Inc. is dissolved into Conectiv, Inc. at the time of the merger. (11) Equity in earnings of subsidiaries is comprised of the following items, with dollar amounts shown in thousands. Net income of consolidated Atlantic as adjusted $ 68,458 Remove the net loss of Atlantic Energy, Inc. which is reflected in the pro forma Conectiv, Inc. statement of income (see note 10 above) 3,608 Add back preferred dividend requirements of preferred stockholders of Atlantic City Electric which are reflected as preferred dividend requirements of subsidiaries of Conectiv, Inc. (see note 12 below) 6,706 Subtract the amortization of goodwill 5,767 -------------- Adjusted equity in earnings of Atlantic $ 73,005 Net income of Delmarva as adjusted 102,509 -------------- $ 175,514 ==============
(12) Preferred dividend requirements of subsidiaries include the preferred dividends payable to preferred shareholders of Atlantic City Electric ($6.706 million) and Delmarva ($6.372 million). 78 Page 1 EXHIBIT INDEX A-4 Form of Conectiv Commercial Paper Note A-6 Form of System Money Pool Evidence of Deposit A-7 Form of System Money Pool Short-Term Grid Note A-8 Draft Investment Guidelines H-1 Proposed Notice H-2 Financial Data Schedules I-1 Summary of existing financing arrangements for Delmarva and subsidiaries I-2 Summary of existing financing arrangements for Atlantic and subsidiaries EX-99.A(4) 2 FORM OF CONECTIV COMMERCIAL PAPER NOTE 1 PAGE 1 EXHIBIT A-4 CONECTIV, INC. (Issuer) COMMERCIAL PAPER MASTER NOTE - ------------------------------------ (Date of Issuance) Conectiv, Inc. (Issuer), a corporation organized and existing under the laws of the State of Delaware, for value received hereby promises to pay to Cede & Co. (Owner) or registered assigns on the maturity date of each commercial paper note identified on the records of the Issuer (which records are maintained by (the "Paying Agent")) the principal amount of each such commercial paper note. Payment shall be made by wire transfer to the registered owner from the Paying Agent without the necessity of presentation and surrender of this Master Note. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS MASTER NOTE SET FORTH ON THE REVERSE HEREOF. The Master Note is a valid and binding obligation of the Issuer. CONECTIV, INC. By:______________________________________ Authorized Signatory 2 PAGE 2 [REVERSE] At the request of the registered owner, Conectiv, Inc. (Issuer) shall promptly issue and deliver one or more separate note certificates evidencing each commercial paper note evidenced by this Master Note. As of the date any such note certificate or certificates are issued, the commercial paper notes which are evidenced thereby shall no longer be evidenced by this Master Note. FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _________________________________________(Name, Address and Taxpayer Identification Number of Assignee) the Master Note and all rights thereunder, hereby irrevocably constituting and appointing ________________ _______________Attorney to transfer said Master Note on the books of the Issuer with full power of substitution in the premises. Date: _________________________________________ Signature Signature(s) Guaranteed: NOTICE: The signature on this assignment must correspond with the name as written upon the face of this Master Note, in every particular, without alteration or enlargement or any change whatsoever. (The following shall appear as a legend) UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OR CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. EX-99.A(6) 3 FORM OF SYSTEM MONEY POOL EVIDENCE OF DEPOSIT 1 PAGE 1 EXHIBIT A-6 CONECTIV SYSTEM INTRASYSTEM MONEY POOL EVIDENCE OF DEPOSIT $ (see attached schedule) Wilmington, Delaware - ------------------------- -------------------- The undersigned, Support Conectiv, Inc., a Delaware corporation, in its capacity as Agent of the funds invested in the Conectiv System's Intrasystem Money Pool (the "Money Pool"), hereby acknowledges receipt of the aggregate unpaid principal amount of all investments deposited in the Money Pool (that are posted on the schedule annexed hereto and made a part hereof) made by the investor to the undersigned pursuant to the short-term financing authorization approved by the U.S. Securities and Exchange Commission. Under the terms of Money Pool borrowing, the borrowing subsidiaries pay interest on the unpaid principal amount of borrowings from time to time from the date hereof at the rate per annum equal to the Money Pool's monthly borrowing rate. All such interest earned will be allocated to any investing company based on the ratio of each investing company's deposits to all deposits. IN WITNESS WHEREOF Support Conectiv, Inc., pursuant to due authorization, has caused this Evidence of Deposit to be executed on behalf of the Money Pool by its duly authorized officers, all as of the date noted above. (Conectiv Intrasystem Money Pool) By:______________________________________ Title:___________________________________ EX-99.A(7) 4 FORM OF SYSTEM MONEY POOL SHORT-TERM GRID NOTE 1 PAGE 1 EXHIBIT A-7 CONECTIV SYSTEM INTRASYSTEM MONEY POOL ADVANCES Wilmington, Delaware -------------------- FOR VALUE RECEIVED, the undersigned, __________________________________, a __________________ corporation, (the "Company"), hereby unconditionally promises to pay on demand or in any event by _______________ to the order of Support Conectiv, Inc.("Support Conectiv"), in its capacity as Agent of the Conectiv System Intrasystem Money Pool (the "Money Pool") and for the benefit of the Money Pool depositors, at the Office of Support Conectiv located at 800 King Street, Wilmington, Delaware 19899, in lawful money of the United States of America and in immediately available funds, the principal amount of the aggregate unpaid principal amount of all Loans (that are posted on the schedule annexed hereto and made a part hereof) made by the Money Pool to the undersigned pursuant to the financing authorization approved by the U.S. Securities and Exchange Commission. The undersigned further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the date hereof at the rate per annum equal to the Money Pool's monthly borrowing rate. This rate is calculated by dividing the Money Pool's net monthly interest expense (interest expense less interest income) by the Money Pool's average net daily borrowing/investment position during the month. In the event that there are no external borrowings or investments, the borrowing rate will be the prior month's Federal Funds rate as published in the Federal Reserve Statistical Release, Publication H.15 (519). Interest shall be payable monthly in arrears and upon payment (including prepayment) in full of the unpaid principal amount hereof. If applicable, a default rate equal to 2% per annum above the pre-default rate on the unpaid principal amount will be assessed if any interest or principal payment becomes past due. This Note shall be governed by, and construed and interpreted in accordance with, the Laws of the State of Delaware without regard to conflicts of laws principles, except as preempted by Federal law. IN WITNESS WHEREOF ______________________________, pursuant to due authorization, has caused this Note to be executed in its name and on its behalf by its duly authorized officers, all as of the date noted above. _________________________________________ Company By:______________________________________ Title:___________________________________ EX-99.A(8) 5 DRAFT INVESTMENT GUIDELINES 1 PAGE 3 EXHIBIT A-8 SUPPORT CONECTIV, INC. Short-Term Investment Guidelines Adopted ______, 1997 AUTHORITY The officers of Support Conectiv, Inc. ("Support Conectiv") received authorization from its Board of Directors and the Board of Directors of Conectiv, Inc. (the "Corporation") to execute any and all instruments and agreements relating to the acquisition of securities in accordance with Short-Term Investment Guidelines ("Guidelines"), for its own account and/or in its capacity as administrator of the System Money Pool. The investment portfolio is under the direction of the Chief Financial Officer of the Corporation. Investments may be made by any of the following employees of Support Conectiv, designated by name in writing by the Chief Financial Officer or Treasurer of the Corporation: Assistant Treasurer in charge of Treasury Operations or any Treasury Operations manager, supervisor or analyst. GENERAL ASSUMPTIONS These Guidelines have been established to insure that short-term investments are made under the premises that safety of principal and liquidity take precedence over return on investment. In order to recognize the evolutionary nature of the money markets, the Guidelines will be submitted to the Corporation's Chief Financial Officer for review and approval on an annual basis or at any other time that the Chief Financial Officer deems that the size or risk characteristics of the portfolio have changed significantly, that money markets in general have changed or that the credit quality specified in the Guidelines requires modification. Further, any exception to these Guidelines must be approved by the Corporation's Chief Financial Officer in advance of any such exceptional transaction. Any investments in foreign entities will be U.S. dollar denominated and delivered in U.S. dollars. Investments will be made for maturities of 270 days or less, unless specifically authorized by the Chief Financial Officer in writing. CUSTODY Support Conectiv may maintain custody accounts with banks approved by its Treasurer. All securities (except book-entry securities) will be delivered to or accounted for by one of these institutions. 2 PAGE 2 INVESTMENTS A. Support Conectiv may purchase bills, notes and bonds issued by the United States Government or its sponsored agencies or instruments supported by such securities, with maturities of up to one year. B. Repurchase Agreements Support Conectiv will only enter into repurchase agreements with A-rated or higher commercial banks or with principal domestic securities dealers. Repurchase agreements will be supported by securities which are direct obligations of the United States Government, or its sponsored agencies or instruments supported by such securities. Securities supporting repurchase agreements will be "marked to market" at least monthly and the market value of such securities will not be permitted to fall to less than 97% of the dollar amount of the investment. C. Commercial Paper/Bank Securities - Domestic Issuers Support Conectiv may invest up to $10 million each, for periods of up to 270 days, in commercial paper issued by domestic corporations maintaining commercial paper ratings of A-1 and/or P-1 with senior long-term debt ratings of "A" or higher. Further, commercial paper issued with a support agreement from an "A" rated affiliate or with "direct pay" letter of credit from domestic commercial banks with "A" rated long-term debt may be purchased in amounts not to exceed $10 million per support entity for periods of 270 days or less. Support Conectiv may invest for up to 270 days, either directly or in the secondary market, in time deposits, certificates of deposit, notes, bankers acceptances or commercial paper issued by domestic banks or bank holding companies which maintain a long-term debt rating of "A" or higher on senior debt and, if commercial paper is purchased, a rating of A-1 and/or P-1. No more than $10 million will be invested directly in any one bank name. D. Commercial Paper/Bank Securities - Foreign Issuers Support Conectiv may invest up to $10 million per issuer ($U.S. denominated), up to a maximum aggregate amount of the greater 40% of the portfolio or $50 million at any time, for 270 days or less in commercial paper and or bank securities. The Corporation may invest in commercial paper issued by foreign corporations or governments maintaining commercial paper ratings of A-1 and /or P-1 with senior long-term debt ratings of "AA" and/or "Aa" rated affiliate or with "direct pay" letters of credit from foreign commercial banks with "AA" and "Aa" long-term debt may be purchased in amounts not to exceed $10 million per supported entity. 3 PAGE 3 Support Conectiv may invest either directly or in the secondary market, in time deposits, certificates of deposit, notes, bankers acceptance or commercial paper issued by foreign banks or bank holding companies which maintain a long-term debt rating of "AA" and/or "Aa" or higher on senior debt and, if commercial paper purchased, a rating of A-1 and/or P-1. No more than $10 million will be invested directly in any one bank name. E. Mutual Funds Support Conectiv may invest in professionally managed Money Market Funds whose portfolio of short-term or money market securities have daily withdrawal privileges. Support Conectiv's ownership of any mutual fund shall not exceed 5% of total mutual fund assets. Further, fund assets must fall substantially within the guidelines set forth in items A-E above. NOTE: "Commercial Paper" includes commercial paper programs exempt under the Securities Act by either Section 3(a)(3) or 4(2), project notes or other special purpose instruments so long as they carry the same ratings and have the same market attributes as conventional commercial paper. Approved by:________________________________________ ______________________ Treasurer - Support Conectiv Date Approved by:________________________________________ ______________________ Chief Financial Officer - Conectiv, Inc. Date EX-99.H(1) 6 PROPOSED NOTICE 1 PAGE 1 EXHIBIT H-1 SECURITIES AND EXCHANGE COMMISSION Release No. 35- Notice is hereby given that the following filing has been made with the Commission pursuant to provisions of the Act and rules promulgated thereunder. All interested persons are referred to the application(s) and/or declaration(s) for complete statements of the proposed transaction(s) summarized below. The application(s) and/or declaration(s) and any amendments thereto is/are available for public inspection through the Commission's Office of Public Reference. Interested persons wishing to comment or request a hearing on the application(s) and/or declaration(s) should submit their views in writing by ____________, 1997 to the Secretary, Securities and Exchange Commission, Washington D.C. 20549, and serve a copy on the relevant applicant(s) and/or declarant(s) at the address(es) specified below. Proof of service (by affidavit or, in case of an attorney at law, by certificate) should be filed with the request. Any request for hearing shall identify specifically the issues of fact or law that are disputed. A person who so requests will be notified or any hearing, if ordered, and will receive a copy of any notice or in order issued in the matter. After said date, the Application/Declaration, as filed or as amended, may be granted and/or permitted to become effective. Conectiv, Inc., a Delaware Corporation has previously filed an Application-Declaration on Form U-1 with the U.S. Securities and Exchange Commission (the "Commission") under Section 9(a)(2) of the Public Utility Holding Company Act of 1935, as amended (the "Act"), seeking approvals relating to the proposed acquisition by Conectiv of securities of Delmarva Power & Light Company ("Delmarva"), a Delaware and Virginia utility corporation, and merger into Conectiv of Atlantic Energy, Inc. ("Atlantic"), a New Jersey Corporation and parent of Atlantic City Electric Company ("Atlantic Electric"), a New Jersey utility corporation, (collectively, referred to as the "Merger") and for other related transactions including the formation of Support Conectiv as a subsidiary service company in accordance with the provisions of Rule 88 under the Act (File No. 70-9069)(the "Merger U-1").1 Conectiv, Delmarva, Atlantic Electric (Delmarva and Atlantic Electric are hereinafter referred to as the "Utility Subsidiaries"), Support Conectiv and various direct and indirect Non-Utility Subsidiaries2 of Conectiv (hereinafter referred to collectively as "Applicants"), have filed an application-declaration ("Application") under sections 6(a), 7, 9(a), 10, 12(b), and 12(c) of the Act and Rules 42, 43, 45, 46, 52, 53 and 54 under the Act. The Applicants seek authorization to engage in various financing and related transactions through December 31, 2000 (the "Authorization Period"), unless otherwise noted. - ---------- (1) Upon consummation of the transactions described in the Merger U-1, Conectiv will register as a holding company under the Act. (2) Excluding the Utility Subsidiaries, Conectiv's direct and indirect subsidiaries are "Non-Utility Subsidiaries." The Utility Subsidiaries, together with Non-Utility Subsidiaries, are "Subsidiaries." Non-Utility Subsidiaries include future subsidiaries formed pursuant to Commission order or pursuant to Rule 58 and future exempt telecommunication companies, but do not include future exempt wholesale generators or foreign utility companies. 2 PAGE 2 As described more fully below, the Applicants seek authority for: (i) external issuances by Conectiv of common stock (for cash and in exchange for securities being acquired directly or through a Non-Utility Subsidiary) and long term and short-term debt and other securities subject to a reservation of jurisdiction over the terms of such other securities; (ii) the establishment of an intrasystem money pool and guarantees between Conectiv and its Subsidiaries and between Non-Utility Subsidiaries; (iii) issuance by the Subsidiaries of types of securities not exempt under Rules 45 and 52; (iv) Conectiv and the Utility Subsidiaries to enter into interest rate swaps and other risk management instruments; (v) the Subsidiaries to alter their capital stock and Non-Utility Subsidiaries to pay dividends out of capital or unearned surplus; (vi) the Utility Subsidiaries' retention of two existing financing entities and the formation of new financing entities and the issuance of securities by the new financing entities and related guarantees. Jurisdiction is reserved over the issuance of securities by the Subsidiaries to the extent Rule 52 does not exempt the issue of the securities from prior Commission approval. The proceeds from the financings will be used for general corporate purposes, including (i) capital expenditures of Conectiv and the Subsidiaries, (ii) the repayment, redemption, refunding or purchases of debt and capital stock of Conectiv or the Subsidiaries without the need for prior Commission approval pursuant to Rule 42 or a successor rule, (iii) working capital requirements of the Conectiv system, (iv) investments in exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs"), as defined in sections 32 and 33 of the Act, respectively, and (v) other lawful corporate purposes including investments in companies authorized under the Merger U-1 and in exempt telecommunications companies pursuant to Section 34 of the Act. The Applicants also represent that proceeds from the proposed financings will be used only in connection with their respective existing businesses or to make an acquisition that has been authorized by the Commission or is exempt from the requirement of prior Commission approval. 1. External Financings by Conectiv a. Common Stock Conectiv proposes during the Authorization Period to issue and sell shares of its common stock, par value $0.01 per share, in an amount, when combined with long-term debt securities issued pursuant to this Application, not to exceed $500 million. In addition, Conectiv proposes to issue up to an additional 10 million shares of its common stock (and awards or options for the common stock) to fund benefit and dividend reinvestment plans (collectively, "Stock Plans"), described below, for a period of ten years from the date of the Commission's order. Securities may be sold through underwriters or dealers, through agents, directly to a limited number of purchasers or a single purchaser, or directly to employees (or to trusts established for their benefit) and other shareholders through Conectiv's Stock Plans. 3 PAGE 3 Conectiv common stock may be issued and sold pursuant to underwriting agreements of a type generally standard in the industry. Public distributions may be pursuant to negotiation with underwriters, dealers or agents or effected through competitive bidding among underwriters. In addition, sales may be made through private placements or other non-public offerings to one or more persons. All such common stock sales will be at rates or prices and under conditions negotiated or based upon, or otherwise determined by, competitive markets. Delmarva and Atlantic currently have separate employee benefit plans under which they issue and/or sell common stock to their employees. Following the Merger, these plans will be replaced by the Conectiv Incentive Compensation Plan. In addition, in the future, Conectiv may adopt other plans that may provide for the issuance by Conectiv and/or sale of Conectiv common stock. Conectiv may fund such plans with newly issued common stock, treasury shares or shares purchased in the open market, and may engage in sales of treasury shares for general business purposes. In addition, Conectiv proposes to adopt a dividend reinvestment plan, pursuant to which shares of common stock may be issued to stockholders reinvesting in the plan or to any individual making optional cash investments. Shares of common stock for use under the dividend reinvestment plan may either be newly issued shares, treasury shares or shares purchased in the open market. Conectiv requests authorization to issue common stock with an aggregate market value of up to $100 million (this amount is included in authorization for common stock above) in consideration for the acquisition by Conectiv or a Non-Utility Subsidiary of the securities of a business, the acquisition of which is exempt under Rule 58 or Section 34 of the Act or which has been authorized in the Merger U-1. The Conectiv common stock would be valued at market value based upon the closing price on the day before closing of the sale or based upon the average high and low prices for a period prior to the closing of the sale as negotiated by the parties. b. Long-Term Debt Conectiv proposes from time to time during the Authorization Period to issue long-term debt securities in an amount, when combined with the proceeds of issuances of common stock (other than for Stock Plans) pursuant to this Application, not to exceed $500 million. Examples of such long-term debt securities would include debentures, medium-term notes and notes issued under the Conectiv Indenture or borrowings from banks or other financial institutions. c. Short-Term Debt Conectiv proposes from time to time through the Authorization Period to issue short-term debt aggregating not more than $500 million outstanding an any one time. Conectiv may sell commercial paper, from time to time, in established domestic or European commercial paper markets. The commercial paper would be sold to dealers at the discount rate prevailing at the date of issuance by Conectiv for commercial paper of comparable quality and maturities sold to commercial paper dealers generally. It is expected that the dealers acquiring Conectiv's 4 PAGE 4 commercial paper will reoffer it at a discount to corporate and institutional investors, such as commercial banks, insurance companies, pension funds, investment trusts, foundations, colleges and universities and finance companies, and, with respect to European commercial paper, individual investors. Conectiv anticipates entering into a revolving credit facility (the "Credit Facility") with a group of banks on or before the effective date of the Merger. A portion of the Credit Facility may be used to support letters of credit issued by Conectiv or the Subsidiaries in the ordinary course of business. The Credit Facility also may serve as backup for Conectiv's and the Utility Subsidiary commercial paper programs. Conectiv also proposes to enter into individual agreements ("Bid Note Agreement") with one or more commercial banks which may or may not be lenders under the Credit Facility. The maturity of the Bid Notes would not exceed 270 days and the total with all other forms of short-term debt will not exceed the $500 million during the Authorization Period. d. Interest Rate Risk Management Instruments Conectiv requests authority to enter into, perform, purchase and sell financial instruments intended to manage the volatility of interest rates, including but not limited to interest rate swaps, caps, floors, collars and forward agreements or any other similar agreements. Conectiv proposes to employ interest rate swaps as a means of prudently managing the risk associated with outstanding debt issued pursuant to this Application or an applicable exemption by, in effect (i) converting variable rate debt to fixed rate debt, (ii) converting fixed rate debt to variable rate debt and/or (iv) providing an option to enter into interest rate swap transactions in future periods for planned issuances of debt securities. In no case will the notional principal amount of any interest rate swap exceed that of the underlying debt instrument related interest rate exposure, i.e. Conectiv will not engage in "leveraged" or "speculative" transactions. The underlying interest rate indices of such interest rate swaps will closely correspond to the underlying interest rate indices of each Utility Subsidiary's debt to which the interest rate swap relates. Conectiv will only enter into interest rate swap agreements with counterparties whose senior secured debt ratings, as published by Standard & Poor's Corporation, are greater than or equal to "BBB+", or an equivalent rating from Moody's Investor Service, Inc., Fitch Investor Service or Duff & Phelps. 2. Utility Subsidiary Financings a. Securities Delmarva has previously issued and there are currently outstanding preferred stock, commercial paper notes, first mortgage bonds issued under a Mortgage and Deed of Trust dated October 1, 1943, medium-term notes issued under an Indenture dated November 1, 1988, unsecured subordinated debt securities issued in connection with certain securities issued by a subsidiary trust and various exempt revenue bonds and pollution control notes. Any future issue of such securities would qualify for issuance without prior approval by this Commission pursuant to Rule 52, except short-term debt securities which will have been approved by the Virginia State 5 PAGE 5 Corporation Commission ("VSCC")but not the Delaware Public Service Commission ("DPSC") and except for unsecured unsubordinated debt securities issued in connection with securities issued by a subsidiary trust which involves guarantees. Atlantic Electric has previously issued and there are currently outstanding preferred stock, first mortgage bonds issued under a Mortgage and Deed of Trust dated January 15, 1937, medium-term notes issued under an Indenture dated March 1, 1997, junior funded debt issued under an Indenture dated February 1, 1966, pollution control notes, and notes under bank credit lines and unsecured subordinated debt securities issued in connection with certain securities issued by a subsidiary trust. Any future issue of similar securities would be issued with the approval of the New Jersey Board of Public Utilities ("NJBPU") and thus the issue would be exempt under the terms of Rule 52, except for the unsecured subordinated debt securities. Delmarva and Atlantic Electric request authorization to retain the existing financing entities (Delmarva Power Financing I and Atlantic Capital I) and to establish new financing entities for the purpose of issuing similar securities. Delmarva requests authorization to issue up to $275 million of short-term debt securities consisting of commercial paper, unsecured bank loans and borrowings from the System Money Pool (as described below). Any short-term borrowings by Delmarva, when combined with short-term borrowings by Conectiv under this Application, will not exceed $500 million during the Authorization Period. b. Interest Rate Risk Management Instruments The Utility Subsidiaries request authorization to enter into interest rate risk management transactions of the same type and under the same conditions requested by Conectiv above to the extent such transactions are not exempt pursuant to Rule 52. 3. Non-Utility Subsidiary External Financings The Non-Utility Subsidiaries expect to continue, as part of the Conectiv system, to engage in the development and expansion of their businesses and to finance authorized activities. The Applicants anticipate that the majority of such financings will be exempt from prior Commission authorization under Rule 52(b). 4. Intrasystem Money Pool and Guarantees Applicants seek to establish an intrasystem money pool (the "System Money Pool") in which all Subsidiaries, including future subsidiaries acquired pursuant to Commission Order, Rule 58 or Section 34 of the Act, may participate as both borrowers and lenders. Interest expense (income) will be charged (credited) monthly to all participants in the System Money Pool based on each participant's daily average cash position. The cost of money for all advances from the System Money Pool and the investment rate for moneys invested in the System Money Pool will be the same. To derive this rate, the System Money Pool's net monthly interest expense (expense less any income) generated by 6 PAGE 6 external borrowings will be divided by the System Money Pool's average net daily investment/borrowing position. In the event that, on a consolidated basis, investments in the System Money Pool are exactly offset by borrowings from the System Money Pool such that there are no external borrowings or investments, the cost of money and the investment rate will be the prior month's average Federal Funds Rate as published in the Federal Reserve Statistical Release, Publication H.15 (519). Conectiv also requests authorization to enter into guarantees, obtain letters of credit, enter into expense agreements or otherwise provide credit support for the obligations of its system companies, in an aggregate principal amount not to exceed $350 million outstanding at any one time during the Authorization Period. Guarantees that are exempt pursuant to rules under the Act are not included in the limit. The Non-Utility Subsidiaries propose to enter into guarantees and other credit support arrangements with each other, similar to those described with respect to Conectiv, in an aggregate principal amount that will not exceed $100 million outstanding at any one time during the Authorization Period. The Applicants state that the aggregate limit for guarantees and other credit support arrangements excludes such arrangements that are exempt pursuant to rules under the Act. The Applicants also propose that the aggregate limits for intrasystem guarantees and other credit support obligations not be included in the aggregate limits applicable to the external financings. 5. Other Securities Conectiv, the Utility Subsidiaries and the Non-Utility Subsidiaries state that it may become necessary or desirable during the Authorization Period to issue and sell, to associate and non-associate companies, other types of securities ("Other Securities") that are not exempt under Rules 45 and 52 to minimize financing costs or to obtain new capital under changing market conditions. The Applicants request that the Commission reserve jurisdiction over the issuance and amount of such Other Securities pending completion of the record. 6. Changes in Capital Stock of Subsidiaries and Non-Utility Dividends Out of Capital or Unearned Surplus The Applicants state that they cannot ascertain at this time the portion of an individual Subsidiary's aggregate financing to be effected through the sale of capital stock to Conectiv or other immediate parent company during the Authorization Period. They assert that circumstances may arise where the proposed sale of capital stock would exceed the then authorized capital stock of such Subsidiary. They also note that the Subsidiary may choose to use other forms of capital stock or to decrease par value to lessen franchise taxes. As needed to accommodate such proposed transactions and to provide for future issues, the Applicants propose that each Subsidiary be authorized to increase the amount of its authorized capital stock by an amount that it deems appropriate and to change the par value, or change between par and no-par stock, without additional Commission approval. 7 PAGE 7 The Non-Utility Subsidiaries also request authorization to issue dividends to a parent company (Conectiv or, in the case of an indirect subsidiary, the intermediate parent) out of capital to the extent permitted by state law of the state where the Non-Utility Subsidiary is incorporated. 7. Financing Entities The Subsidiaries also propose to organize new corporations, trusts, partnerships or other entities created to facilitate financings through the issuance, to third parties, of authorized or otherwise exempt income preferred securities or other securities. To the extent not exempt under Rule 52, the Subsidiaries request authority for the financing entities to issue securities to third parties. Additionally, the Subsidiaries request authorization to (i) issue debentures or other evidences of indebtedness to a financing entity in return for the proceeds of the financing, (ii) acquire voting interest or equity securities issued by the financing entity to establish the Subsidiary's ownership of the financing entity (the equity portion of the entity generally being created through a capital contribution or the purchase of equity securities, ranging from 1 to 3 percent of the capitalization of the financing entity) and (iii) guarantee the financing entity's obligations in connection with the financing activities. Each Subsidiary also requests authorization to enter into expense agreements with its respective financing entity, pursuant to which it would agree to pay all expenses of such entity. 8. Financing EWGs and FUCOs Conectiv proposes, to the extent internally generated funds are not available, to invest proceeds from financings in EWGs and FUCOs and to guarantee the obligations of EWGs and FUCOs. Conectiv states that, unless otherwise authorized by the Commission, its aggregate investment in EWGs and FUCOs will not exceed 50% of its consolidated retained earnings, as defined in Rule 53, and that at the time of each issuance, the proceeds of which will be used to invest in EWGs or FUCOs, Conectiv will be in compliance with Rule 53. 9. Financing Parameters The authorizations requested by the Applicants would be subject to the following conditions: (1) the effective cost of money on long-term debt issuance may not exceed at issuance 300 basis points over comparable term U.S. Treasury securities and the effective cost of money on short-term debt financings may not exceed at issuance 300 basis points over the London Interbank Offered Rate; (2) maturities for long-term debt securities may not exceed 50 years(3); (3) issuance expenses in connection with an offering of securities, including any underwriting fees, commissions, or other similar compensation, may not exceed 5% of the total amount of the - ---------- (3) Any Security issued by a foreign subsidiary formed to invest in a FUCO or EWG that is guaranteed by Conectiv or a Non-Utility Subsidiary will mature within 30 years and will bear interest at a rate that would not exceed (a) the greater of 250 basis points above the lending bank's or other recognized prime rate and 50 basis points above the federal funds rate; (b) 400 basis points above the specified LIBOR rate plus any applicable reserve rate; or, (c) 500 basis points above the 30 year current coupon U. S. treasury bond; or, if foreign denominated, the interest rate will not exceed a fixed or floating rate on a U. S. dollar denominated borrowing of identical average life of 10% over the highest rate applicable U. S. dollar rate as determined above. 8 PAGE 8 securities being issued; (4) the aggregate amount of external financing, not including existing financing arrangements, will not exceed (i) $500 million from any combination of Conectiv's issuance of common stock, excluding amounts from the issuance of up to 10 million shares of common stock to fund the Stock Plans, and long-term debt securities, and (ii) $500 million from Conectiv's issuance and sale of short-term debt, and; (6) the aggregate amount of guarantees will not exceed (i) $350 million for Conectiv to guarantee or provide credit support for obligations of its Subsidiaries, and (ii) $100 million for Non-Utility Subsidiaries to guarantee or provide credit support to other Subsidiaries. 10. Statements of Policy The Applicants request authorization to deviate from the Commission's Statement of Policy Regarding First Mortgage Bonds, HCAR No. 13105 (Feb. 16, 1956), as amended by HCAR No. 16369 (May 8, 1969), and Statement of Policy Regarding Preferred Stock, HCAR No. 13106 (Feb. 16, 1956), as amended by HCAR No. 16758 (June 22, 1970), as applicable, with respect to the proposed financings. EX-99.I(1) 7 SUMMARY OF EXISTING FINANCING ARRANGE.FOR DELMARVA 1 SUMMARY OF FINANCING ARRANGEMENTS DELMARVA AND SUBSIDIARIES EXHIBIT I-1
CONTROLLING AGENT/ COMPANY DOCUMENT(S) TRUSTEE/LENDER(S) ------- ----------- ----------------- Delmarva Power & Light Restated Certificate and Articles of Not applicable. Company Incorporation Credit Agreement dated as of March 14, Chase Manhattan Bank, as 1995, as amended agent for a group of banks First Chicago, Issuing and Paying Agent Bid Note Agreements Various Banks Mortgage and Deed of Trust dated Chase Manhattan Bank, October 1, 1943, as amended and Trustee supplemented Indenture dated as of November 1, 1988, Chase Manhattan Bank, as supplemented and amended Trustee Indenture (For Unsecured Subordinated Wilmington Trust Company, Debt Securities relating to Trust Trustee Securities) dated as of October 1, 1996 Participation Agreement dated as of June 1, 1988 (Merrill Creek) Various Loan/Financing Agreements Various Trustees Various Loan/Financing Agreements Various Trustees
TYPE OF SECURITIES/ OUTSTANDING COMPANY ARRANGEMENT 6/30/97 ------- ----------- ------- ($ MILLIONS) Delmarva Power & Light Preferred Stock and Preferred 89.7 Company Stock--$25 Par Unsecured Notes 0.0 ($200 available) Commercial Paper Notes 35.2 Bid Notes 10.5 First Mortgage Bonds 574.3 Unsecured Notes/MTNs 329.2 Unsecured Subordinated Debt 70.0 Securities Operating Lease N/A Pollution Control Notes 9.1 Exempt Facilities Revenue Bonds 54.5
2
CONTROLLING AGENT/ COMPANY DOCUMENT(S) TRUSTEE/LENDER(S) ------- ----------- ----------------- Delmarva Services Note Agreement Dated 10/12/87 Massachusetts Mutual Life Pine Grove Hauling Loan & Security PA National Bank Company (Delcap is Agreement dated 12/29/92 guarantor) Pine Grove Hauling Co. Credit Agreement Dated 12/1/94 CoreStates Bank Pine Grove Reimbursement Agreement Dated 12/2/94. CoreStates Bank Landfill/Delcap, DCI I, DCI II, Pine Grove, Credit Agreement Dated 12/1/94 Inc. (non-recourse guarantor), Pine Grove Hauling (limited guarantor) Pine Grove Landfill Surety for Post-Closure Bonding USF&G Requirement Christiana Capital Business Loan Agreement Dated 9/13/94 CoreStates Bank (Delcap is guarantor) DCTC-Burney, Inc. Tri-Counties Bank
TYPE OF SECURITIES/ OUTSTANDING COMPANY ARRANGEMENT 6/30/97 ------- ----------- ------- ($ MILLIONS) Delmarva Services ISD Building Mortgage 5.8 Pine Grove Hauling Financing and LOCs for Coldren 0.6 Company (Delcap is and Knepper Acquisitions guarantor) Pine Grove Hauling Co. LOC for muni-hauling contracts 1.1 Pine Grove LOCs backing up tax-exempt bonds 13.0 Landfill/Delcap, DCI I, DCI II, Pine Grove, Revolving line of credit: Inc. (non-recourse 3.6 guarantor), Pine Grove (additional 4.7 Hauling (limited available) guarantor) Pine Grove Landfill Surety Bond 5.5 Christiana Capital Term loan secured by mortgage on 3.8 (Delcap is guarantor) Christiana Building, UOP DCTC-Burney, Inc. Support Agreement - pledge of 2.1 equity distributions from Burney project, if any
3
CONTROLLING AGENT/ COMPANY DOCUMENT(S) TRUSTEE/LENDER(S) ------- ----------- ----------------- Burney Forest Third Amended and Restated Fleet Bank Products, a Joint Credit & Reimbursement Venture Agreement Dated 10/24/91 Third Amended and Restated Fleet Bank Credit & Reimbursement Agreement Dated 10/24/91 Amended and Restated Senior DCTC-Burney Subordinated Loan Agreement Among DCI, DCTC-Burney and MetLife Capital dated 12/30/92 Bayshore Fuel Company Credit Agreement / Nuclear Fuel First Chicago Contract
TYPE OF SECURITIES/ OUTSTANDING COMPANY ARRANGEMENT 6/30/97 ------- ----------- ------- ($ MILLIONS) Burney Forest Construction loan. Non-recourse 2.4 Products, a Joint to partners. Secured by all Venture assets. LOC backup for tax-exempt bonds. 30.7 Non-recourse to partners. Senior Subordinated Debt. Second 8.0 lien on all assets. Bayshore Fuel Company Revolving Credit Agreement for 30.7 financing nuclear fuel through issuance of commercial paper.
EX-99.I(2) 8 SUMMARY EXISTING FINANCING ARRANGE. FOR ATLANTIC 1 ATLANTIC ENERGY AND SUBSIDIARIES EXHIBIT I-2
CONTROLLING AGENT/ COMPANY DOCUMENT(S) TRUSTEE/LENDER(S) ------- ----------- ----------------- Atlantic Energy, Inc. Revolving Credit Agreement dated as Bank of New York, Agent of September 28, 1995 Atlantic City Electric Agreement of Merger dated as of May Not applicable. Company 24, 1949, as amended through May 3, 1991 Mortgage and Deed of Trust dated Bank of New York, Trustee January 15, 1937, as amended and supplemented Chemical Bank, Issuing Agent and Paying Agent Indenture dated March 1, 1997 Bank of New York, Trustee Indenture dated February 1, 1966 First Union Bank, Trustee Indentures dated 7/15/84 and 3/1/91 Summit Bank Various Agreements Various Banks
TYPE OF SECURITIES/ OUTSTANDING COMPANY ARRANGEMENT 6/30/97 ------- ----------- ------- ($ MILLIONS) Atlantic Energy, Inc. Unsecured Notes/Letters of Credit 62.9 (1) (75 Available) Atlantic City Electric Preferred Stock 84.0 Company First Mortgage Bonds 680.0 Commercial Paper Notes 0.0 Unsecured Notes/MTNs 15.0 Debentures (Junior Funded Debt) 2.6 Pollution Control Notes 122.6 (Secured by FMBs) Committed lines of credit (for CP 12.5 backup) (100 Available)
(1) Includes borrowings of $51.5 million and LOCs of $11.4 million 2
CONTROLLING AGENT/ COMPANY DOCUMENT(S) TRUSTEE/LENDER(S) ------- ----------- ----------------- Atlantic City Electric Various Agreements Various Banks Company (continued) Indenture (For Unsecured Bank of New York, Trustee Subordinated Debt Securities relating to Trust Securities) dated as of October 1, 1996. Atlantic City Electric Scrubber Sale Leaseback dated ABN Amro Bank NV Company (lessee) December 22, 1994 Atlantic Energy Guarantee Agreements Not applicable. Enterprises Not applicable. ATE Investment Revolving Credit Agreement dated as Bank of New York (with support of May 24, 1988 agreement from AEI) Note Agreement dated October 15, 1992 Teachers ATE Investment Guarantee Agreements Various (Guaranteed by AEI) Atlantic Generation, Guarantee Agreement Not applicable. Inc.
TYPE OF SECURITIES/ OUTSTANDING COMPANY ARRANGEMENT 6/30/97 ------- ----------- ------- ($ MILLIONS) Atlantic City Electric Uncommitted lines of credit 88.4 Company (continued) (150 Available) Unsecured Subordinated Debt 70.0 Securities Atlantic City Electric Fully defeased cross border lease 0.0 Company (lessee) Atlantic Energy Guarantee of payment to gas 4.0 Enterprises suppliers for Enerval Pledge of assets to gas supplier 1.2 for Enerval ATE Investment Revolving credit and term loan 9.5 (with support agreement (25 Available) agreement from AEI) Senior Notes 15.0 ATE Investment AEI guarantees performance of ATE N/A (Guaranteed by AEI) Investments under airplane leases Atlantic Generation, Guarantee of Vineland 9.0 Inc. Cogeneration Project expenses
3
CONTROLLING AGENT/ COMPANY DOCUMENT(S) TRUSTEE/LENDER(S) ------- ----------- ----------------- Atlantic Generation, Contracts Not applicable. Inc. (continued) Guarantee Agreement Not applicable. Atlantic Generation, First Chicago Inc. Re: Binghampton Atlantic Thermal Credit Agreement First Chicago, Agent Systems (with support agreement from AEI) Pearl Fuel Company Nuclear Fuel Agreement dated as of First Chicago and February 1, 1990 Bank of New York
TYPE OF SECURITIES/ OUTSTANDING COMPANY ARRANGEMENT 6/30/97 ------- ----------- ------- ($ MILLIONS) Atlantic Generation, Guarantee of Vineland 1.4 Inc. (continued) Cogeneration Project take or pay Binghamton Cogen take or pay 0.7 Atlantic Generation, Letter of Credit (expires 1/9/98) 6.0 Inc. Re: Binghampton Atlantic Thermal Unsecured Notes/ Letters of Credit 78.5 (1) Systems (175 Available) (with support agreement from AEI) Pearl Fuel Company Revolving loan agreement 35.5 financing nuclear fuel through issuance of commercial paper.
(1) Includes LOCs of $0.5 million 4 LETTERS OF CREDIT UNDER AEI FACILITY (AS OF 6/30/97)
COMPANY BENEFICIARY ISSUING BANK AMOUNT EXPIRATION - ------- ----------- ------------ ------ ---------- ($ THOUSANDS) Atlantic Energy Vietnamese Government Bank of New York 62 7/15/97 International Atlantic Energy Vietnamese Government Bank of New York 20 7/30/97 International Atlantic Generation Fuji Bank Bank of New York 5,250 4/8/98 RE: Pedricktown Atlantic Generation City of Vineland Bank of New York 4,200 6/1/98 Enerval Phillips Production Bank of New York 250 1/31/98 Enerval North Penn Gas Bank of New York 1,600 6/30/98 ----- 11,382 LETTERS OF CREDIT UNDER ATS FACILITY (AS OF 6/30/97) COMPANY BENEFICIARY ISSUING BANK AMOUNT EXPIRATION - ------- ----------- ------------ ------ ---------- ($ THOUSANDS) Atlantic Thermal City of Atlantic City First Chicago 107 11/4/97 Atlantic Thermal Liberty Mutual First Chicago 400 1/3/98 Atlantic Thermal Atlantic City Sewage Co. First Chicago 20 4/30/98 -- 527
EX-27.1 9 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
OPUR1 DELMARVA 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 PRO-FORMA 2,027,097 177,453 300,083 262,522 224,651 2,991,806 138,399 520,572 288,125 947,096 70,000 89,703 923,710 49,533 0 0 52,792 0 18,819 12,708 827,445 2,991,806 1,256,220 71,367 1,012,330 1,083,697 172,523 8,487 181,010 78,501 102,509 6,372 96,137 93,695 0 0 1.58 1.58
EX-27.2 10 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
OPUR1 ATLANTIC ENERGY 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 PRO-FORMA 1,651,926 283,136 318,989 363,425 139,155 2,756,631 562,686 0 222,678 785,364 113,950 30,000 786,187 100,900 0 0 197,675 10,000 36,066 729 695,760 2,756,631 986,545 37,017 806,825 843,842 142,703 5,547 148,250 79,792 68,458 0 68,458 81,009 0 0 1.30 1.30
EX-27.3 11 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
OPUR1 CONNECTIV, INC. 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 PRO-FORMA 0 1,930,934 929,122 101 0 2,860,157 1,212 1,847,349 266,630 2,115,191 0 0 250,000 349,567 0 0 51,500 0 0 0 93,899 2,860,157 0 (15,175) 3,462 (11,713) 11,713 175,568 187,281 52,893 134,388 0 134,388 196,728 0 0 1.08 1.08
EX-27.4 12 FINANCIAL DATA SCHEDULE
OPUR1 CONNECTIV CONSOLIDATED 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 PRO-FORMA 3,679,023 460,589 1,468,639 636,401 592,972 6,837,624 1,212 1,847,349 266,630 2,115,191 183,950 119,703 1,959,897 500,000 0 0 250,467 10,000 54,885 13,437 1,630,094 6,837,624 2,242,765 95,224 1,824,922 1,920,146 322,619 14,034 336,653 202,265 134,388 0 134,388 196,728 0 0 1.08 1.08
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