-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, RaHRvnBjhu/Vpg3YoP0+6xHpHFBgxLmeUmuSHZHEsLCWV8XZPZ0FqsNrRma1bDqU 4ugW7aTdHGrz6xLGsGW7og== 0000950131-94-000226.txt : 19940218 0000950131-94-000226.hdr.sgml : 19940218 ACCESSION NUMBER: 0000950131-94-000226 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSI ENERGY INC CENTRAL INDEX KEY: 0000081020 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 350594457 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B5 SEC ACT: 33 SEC FILE NUMBER: 033-48612 FILM NUMBER: 94510489 BUSINESS ADDRESS: STREET 1: 1000 E MAIN ST CITY: PLAINFIELD STATE: IN ZIP: 46168 BUSINESS PHONE: 3178399611 FORMER COMPANY: FORMER CONFORMED NAME: PUBLIC SERVICE CO OF INDIANA INC DATE OF NAME CHANGE: 19900509 424B5 1 PRO SUP'L Filed Pursuant to Rule 424(b)(5) Registration No. 33-48612 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +--------------------------------------------- + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS SUPPLEMENT (To Prospectus Dated July 10, 1992) $50,000,000 PSI ENERGY, INC. FIRST MORTGAGE BONDS, SERIES AAA, 7 1/8%, DUE FEBRUARY 1, 2024 Interest on the First Mortgage Bonds, Series AAA, 7 1/8% (the "Bonds") is payable semi-annually on February 1 and August 1, beginning August 1, 1994. The Bonds are not redeemable prior to February 1, 2004. On or after that date, the Bonds are redeemable, in whole or in part, at any time or from time to time at the option of the Company as set forth herein. The Bonds are not subject to any sinking fund or analogous provision. The Bonds will be issued in denominations of $1,000 and integral multiples thereof. See "Description of Bonds". The Bonds may be issued in definitive form or may be represented by a permanent global Bond or Bonds registered in the name of The Depository Trust Company, as depositary ("DTC" or "Depositary"), or a nominee of the Depositary (each such Bond represented by a permanent global Bond being referred to herein as a "Book-Entry Bond"). Beneficial interests in Book-Entry Bonds will only be evidenced by, and transfers thereof will only be effected through, records maintained by the Depositary's participants. Except as described under "Description of Bonds--Book Entry Bonds," owners of beneficial interests in a permanent global Bond will not be entitled to receive physical delivery of Bonds in definitive form and will not be considered the holders thereof. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT COMPANY(1)(2) Per Bond................................. 98.031% .330% 97.701% Total.................................... $49,015,500 $165,000 $48,850,500
- -------------------------------------------------------------------------------- (1) Plus accrued interest from February 1, 1994 to date of delivery. (2) Before deducting estimated expenses of $90,000, payable by the Company. The Bonds are offered subject to receipt and acceptance by the Underwriter, to prior sale and to the Underwriter's right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of the Bonds in book-entry form will be made through the facilities of DTC, on or about February 23, 1994. SALOMON BROTHERS INC - -------------------------------------------------------------------------------- The date of this Prospectus Supplement is February 16, 1994. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. PROSPECTUS SUMMARY The following is a summary of certain pertinent facts, and is qualified in its entirety by detailed information and financial statements appearing in the documents incorporated by reference in the Prospectus to which this Prospectus Supplement relates. THE COMPANY Company............... PSI Energy, Inc. Business and Service The Company is an electric utility serving a population Area................. of approximately 1.9 million people located in 69 of the 92 counties in Indiana. THE OFFERING Amount and Type of Securities Offered... $50,000,000 First Mortgage Bonds, Series AAA Interest Rate......... 7 1/8% per annum Interest Payment February 1 and August 1, commencing August 1, 1994 Dates................ Maturity Date......... February 1, 2024 Redemption............ The Bonds may not be redeemed prior to February 1, 2004. On or after that date, the Bonds may be redeemed prior to maturity, in whole or in part, at the option of the Company at any time as set forth herein. See "Description of Bonds--General". Sinking Fund.......... None Security.............. Secured, together with all other outstanding First Mortgage Bonds, by a mortgage on substantially all of the Company's properties. Use of Proceeds....... To reduce short-term debt incurred to finance construction. THE PROPOSED MERGER Reference is made to the caption "Recent Developments--Merger Agreement with CG&E" in this Prospectus Supplement for a discussion of the proposed merger of PSI Resources, Inc., the corporate parent of the Company ("Resources"), into a Delaware corporation organized to participate in the merger named CINergy Corp. ("CINergy") and the merger of a subsidiary of CINergy into The Cincinnati Gas & Electric Company ("CG&E"). If such mergers are consummated, the Company and CG&E will become wholly-owned subsidiaries of CINergy and the Bonds will remain the sole obligation of the Company. The shareholders of Resources and CG&E have approved such mergers. Completion of such mergers is contingent on a number of conditions, including regulatory approvals. S-2 SELECTED FINANCIAL INFORMATION
TWELVE MONTHS YEAR ENDED DECEMBER 31 ENDED ---------------------------------- SEPTEMBER 30, 1988 1989 1990 1991 1992 1993 ------ ------ ------ ------ ------ ------------- (DOLLARS IN MILLIONS) (UNAUDITED) Operating Revenues(1)(2)......... $1,099 $1,139 $1,106 $1,120 $1,072 $1,071 Net Income(2)(3)........ 117 138 128 30 107 118 Total Assets............ 2,157 1,971 2,044 2,098 2,304 2,577 Cumulative Preferred Stock Not Subject to Mandatory Redemption.. 124 87 87 87 87 187 Subject to Mandatory Redemption(4)......... 39 33 29 26 -- -- Long-Term Debt(5)....... 757 665 650 732 777 910 Notes Payable........... 111 8 17 -- 121 24 Common Stock Equity..... 472 559 635 611 655 699 Ratio of Earnings to Fixed Charges(2)....... 2.4 3.7 4.2 1.5 3.3 3.4
- -------- (1) Non-firm power transaction sales, recorded as credits to purchased and exchanged power expenses in periods prior to 1991, have been reclassified as operating revenues to conform to the 1991 presentation. (2) In 1991, the Company recorded a pre-tax loss of $135 million ($139 million including interest accrued in 1992), as a result of the Indiana Supreme Court's decision to overturn the Indiana Utility Regulatory Commission's ("Indiana Commission") June 1987 order ("June 1987 Order") regarding the effect on the Company of the July 1, 1987 reduction in the Federal income tax rate. In April 1993, the Indiana Commission's April 1990 rate order ("April 1990 Order") was remanded to the Indiana Commission by the Indiana Court of Appeals for further proceedings, including a redetermination of the cost of equity and its components. In August 1993, the Company entered into a settlement agreement which resolved the outstanding issues related to the June 1987 Order and April 1990 Order. As a result of the settlement agreement, in the second quarter of 1993, the Company reduced the pre-tax loss related to the June 1987 Order to $119 million and reduced operating revenues by $31 million for a refund associated with the April 1990 Order. See "Recent Developments--Regulatory Matters--Settlement Agreement". (3) In January 1993, the Company received authority from the Indiana Commission to continue accrual of the debt component of the allowance for funds used during construction and to defer depreciation expense on its planned combustion turbine generating units and major environmental compliance projects from the respective in-service dates until the effective date of an order in its current retail rate proceeding. See "Recent Developments-- Regulatory Matters--Rate Case". (4) Includes cumulative preferred stock to be redeemed within one year. In March 1992, the Company optionally redeemed all of the outstanding cumulative preferred stock subject to mandatory redemption. (5) Includes long-term debt due within one year. S-3 RECENT DEVELOPMENTS MERGER AGREEMENT WITH CG&E General. Resources, the Company, and CG&E entered into an Agreement and Plan of Reorganization dated as of December 11, 1992, which was subsequently amended and restated on July 2, 1993, and as of September 10, 1993 (as amended and restated, the "Merger Agreement"). Under the Merger Agreement, Resources will be merged (the "Resources Merger") with and into a Delaware corporation named CINergy Corp. ("CINergy"), organized to participate in the transaction and a subsidiary of CINergy will be merged with and into CG&E (the "CG&E Merger"; the Resources Merger and the CG&E Merger are herein collectively referred to as the "Mergers"). Following the Mergers, CINergy will be the parent holding company of the Company and CG&E. The outstanding debt securities of the Company, including the Bonds offered hereby, will remain the obligation of the Company after the Mergers. Shareholder and Regulatory Approvals. In November 1993, the Mergers were approved by the shareholders of Resources and CG&E. In August 1993, the Federal Energy Regulatory Commission ("FERC") conditionally approved the Mergers. This conditional approval was made by the FERC without a formal hearing and, according to public statements by the FERC Commissioners, was done in reliance, in part, on the FERC's belief that the regulatory commissions of the affected states would have authority to approve or disapprove the Mergers. The companies accepted the FERC's conditions and indicated their belief that none of the conditions would have a material adverse effect on the operations, financial condition, or business prospects of CINergy. Certain parties petitioned for rehearing of the FERC's conditional approval. On September 15, 1993, the Company and CG&E filed a statement with the FERC clarifying their conclusions at that time that the Mergers would not require any prior approval of a state commission under state law. Given the issues raised on the requests for rehearing and the lack of certainty in the record regarding state regulatory powers, the FERC on January 12, 1994 issued an order withdrawing its prior conditional approval of the Mergers and initiating a 60-day FERC sponsored settlement procedure. The settlement procedure is expected to be concluded prior to the end of March 1994. The FERC has indicated that, if the settlement procedure is not successful, it intends to issue a further order setting appropriate issues for hearing. The companies are currently participating in a collaborative process with representatives from the Indiana Commission, the Public Utility Commission of Ohio, the Kentucky Public Service Commission ("KPSC"), various consumer groups, and other parties to settle all merger-related issues. In conjunction with the FERC sponsored settlement procedure, on February 11, 1994, the Company filed a petition with the Indiana Commission requesting approval of various proposals regarding state regulation after consummation of the Mergers. These proposals do not address the allocation between shareholders and customers of projected revenue requirement savings as a result of the Mergers. This allocation will be the subject of a subsequent Indiana Commission proceeding. Hearings on the current petition are expected to conclude prior to the end of the 60-day settlement period established by the FERC. In addition, CG&E had originally intended to file, in January 1994, an application with the KPSC for approval of the CG&E Merger. However, given the initiation of the FERC settlement procedure, CG&E notified the KPSC, and the KPSC agreed, that CG&E would temporarily defer such filing. The Mergers are also subject to the approval of the Securities and Exchange Commission (the "Commission") under the Public Utility Holding Company Act of 1935 (the "1935 Act"). An application requesting such Commission approval is expected to be filed during the first quarter or early second quarter of 1994. Upon consummation of the Mergers, CINergy must register as a holding company under the 1935 Act. The 1935 Act imposes restrictions on the operations of registered holding companies and their subsidiaries. As a result, the Company would become subject to regulation by the Commission under the 1935 Act. These regulations include requirements that securities issuances, sales and acquisitions of utility assets or of securities of utility companies and acquisitions of interests in any other business be approved by the Commission. S-4 The companies' goal is to consummate the Mergers during the third quarter of 1994. However, if the settlement procedure is not successful and a hearing is convened by the FERC, the Mergers consummation date would likely be further extended. There can be no assurance that the Mergers will be consummated. REGULATORY MATTERS Rate Case. The Company filed testimony with the Indiana Commission in support of a $103 million, 11.6% retail rate increase. This rate proceeding addresses the financial and operating requirements of the Company on a "stand-alone" basis without consideration of the anticipated effects of the Mergers. Approximately 3.7% of the rate increase is needed to meet new environmental requirements, 6.6% is primarily needed to meet the Company's growing electric needs, including construction and operation of one combustion turbine generating unit and implementation of demand-side management programs, and 1.3% of the increase is necessary for the recognition of postretirement benefits other than pensions on an accrual basis. The Company's petition for an increase in retail rates includes a "performance efficiency plan" which would allow the Company to retain all earnings up to a 12.5% common equity return and provide for sharing of common equity returns from 12.5% to 14.5% between shareholders and ratepayers depending upon the Company's performance on measures of customer prices, customer satisfaction, customer service reliability, equivalent availability of its generating units, and employee safety. All earnings above a 14.5% return on common equity would be returned to ratepayers. In addition, the Company is requesting approval of various ratemaking mechanisms to address regulatory lag on specific environmental and new resource projects to ensure that the interests of customers and shareholders are properly aligned. One such mechanism includes capital costs associated with major environmental compliance projects and the applicable portion of the Company's clean-coal project in rate base while the projects are under construction, as permitted by state law, thus allowing the Company to earn a cash return on these costs prior to the projects' in-service dates. Hearings are expected to begin in April 1994, and a final rate order is anticipated in late 1994 or early 1995. The Company cannot predict what action the Indiana Commission may take with respect to this proposed rate increase. Settlement Agreement. In December 1993, the Indiana Commission issued an order ("December 1993 Order") approving a settlement agreement entered into by the Company, the appellants, and certain other intervenors which resolved the outstanding issues related to the appeals of the Indiana Commission's April 1990 Order and June 1987 Order. At issue with respect to the April 1990 Order was whether the level of return on common equity allowed the Company was adequately supported by factual findings. The April 1990 Order was on remand from the Indiana Court of Appeals to the Indiana Commission for further proceedings, including a redetermination of the cost of equity and its components. The June 1987 Order, which related to the effect on the Company of the 1987 reduction in the Federal income tax rate, had been remanded to the Indiana Commission by the Indiana Supreme Court and was awaiting a final order from the Indiana Commission. The December 1993 Order provides for the Company to refund $150 million to its retail customers ($119 million applicable to the June 1987 Order and $31 million applicable to the April 1990 Order). The December 1993 Order further provides for the Company to reduce its retail rates by 1.5% (approximately $13.5 million on an annual basis) to reflect a return on common equity of 14.25%. The refunds and rate reduction commenced in December 1993. The Company had previously recognized a loss of $139 million for the June 1987 Order. The difference between the $139 million and the $119 million portion of the refund applicable to the June 1987 Order is reflected in the Company's financial statements as a reduction of the loss. The $31 million portion of the refund applicable to the April 1990 Order is reflected in the Company's financial statements as a reduction in operating revenues. ENERGY POLICY ACT The Energy Policy Act (the "Energy Act") is expected to significantly increase competition in the wholesale power market. Wholesale power transactions are power sales between two utilities or between S-5 utilities and independent power producers. Competition in the wholesale power market has been limited due to difficulties in obtaining access to the transmission systems of utilities that are geographically situated between potential buyers and sellers. Under the provisions of the Energy Act, the FERC has the authority to order "wholesale" transmission access if the two parties involved in the transaction are unable to obtain voluntary access to the transmission system(s) of third parties in order to complete the sale. The Energy Act also creates a new class of power providers, exempt wholesale generators ("EWGs"), which are exempt from certain aspects of the Commission's public utility holding company regulation. Under the Energy Act, independent power producers and utility companies can own and operate one or more EWG power projects without subjecting the companies to the restrictive requirements under the 1935 Act or without the ownership restrictions of the Public Utility Regulatory Policies Act. Additionally, to provide opportunities and increase competition in the global market, EWGs are not restricted from investing in foreign utilities. Although the effects of the Energy Act on the industry and the Company cannot be predicted with certainty, the Company expects increased competition and downward price pressure in the wholesale power market. The Company expects the Energy Act to result in a greater number of, and thus more competitive, bids to supply generation requirements in future years. In the near term, increased competition will adversely affect the ability of the higher cost wholesale power producers to maintain their customer base. In particular, cities and towns who are currently customers of a high-cost utility may be expected to form municipal utilities and attempt to obtain wholesale power at a lower cost from other sources. A utility could also be adversely affected if the FERC's authority to order transmission access requires the utility to upgrade or increase the capacity of its transmission system to provide the access. The Company has been operating an open-access transmission system under a FERC approved tariff since October 1990 and has jointly owned its transmission system for several years. Consequently, the Company's municipal and cooperative wholesale customers have already had the opportunity to transmit power from sources other than the Company, and the Energy Act is not expected to have any significant effect on sales to those entities. The Company believes its efforts to sell wholesale power outside the Company's system will be enhanced with greater access to transmission systems of competing sellers. An issue to be resolved is the FERC's position with respect to the consideration of "loop flows" in the pricing of transmission service. That is, utilities not geographically located between the buyer and seller who nonetheless experience power flows across their systems may require or demand compensation which could make some power sales and transmission agreements uneconomical. The Company will urge the FERC to establish reasonable pricing policies that preserve the intent of the Energy Act. LITIGATION The Company is currently involved in litigation with Exxon Coal USA, Inc. and Exxon Corporation (Exxon) regarding, among other things, coal quality and pricing disputes, including whether the price for coal delivered under a coal supply contract should be $23.266 or $30 per ton. Additionally, Exxon is seeking $17 million to $63 million in damages for the Company's failure to take coal after the Company terminated the contract pursuant to a court decision, which was subsequently reversed. The Company believes the damages, if any, will be substantially less than $17 million. Exxon has also alleged anticipatory breach of the contract; however, after reversal of the court decision and reinstatement of the contract, the Company resumed acceptance of deliveries and has moved for summary judgement on this issue. At this time, the Company cannot predict the outcome of this litigation, but no material adverse effect on the Company's financial condition is expected. USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the Bonds will be used to reduce short-term debt incurred to finance construction. S-6 DESCRIPTION OF BONDS The following description of the particular terms of the Bonds offered hereby supplements the description of the general terms and conditions set forth under the heading "Description of Debt Securities" in the accompanying Prospectus, to which description reference is hereby made. GENERAL The Bonds offered hereby shall consist of First Mortgage Bonds, Series AAA. Such Bonds will be issued pursuant to and secured by the indenture of mortgage or deed of trust dated September 1, 1939, as now or hereafter supplemented and amended (the "First Mortgage"), between the Company and LaSalle National Bank, as successor trustee (the "First Mortgage Trustee"). The Bonds constitute a single series of first mortgage bonds, limited in principal amount to $50,000,000. The Bonds, together with all other outstanding First Mortgage Bonds, will be secured by a mortgage on substantially all of the Company's properties. The Bonds will mature on February 1, 2024. The Bonds will be issuable only in fully registered form in denominations of $1,000 and integral multiples of $1,000 in excess thereof. Bonds may be issued in definitive form or may be represented by a permanent global Bond or Bonds, registered in the name of the Depositary or its nominee. See "Book-Entry Bonds" below. The Bonds are not redeemable prior to February 1, 2004. On or after that date, the Bonds are redeemable prior to maturity at the option of the Company, in whole or in part, at any time or from time to time upon at least thirty days' notice by mail, upon payment of the percentages of the principal amount thereof set forth in the table below under the heading "Optional Redemption Price" during the respective twelve months' period beginning February 1 in each of the years mentioned in such table:
OPTIONAL BEGINNING REDEMPTION FEBRUARY 1 PRICE - ---------- ---------- 2004.................... 102.58% 2005.................... 102.32% 2006.................... 102.06% 2007.................... 101.80% 2008.................... 101.55% 2009.................... 101.29%
OPTIONAL BEGINNING REDEMPTION FEBRUARY 1 PRICE - ---------- ---------- 2010.................... 101.03% 2011.................... 100.77% 2012.................... 100.52% 2013.................... 100.26% 2014 and thereafter..... 100.00%
together in any case with interest accrued thereon to the redemption date. The Bonds are not subject to any sinking fund or analogous provision. Payments of principal of and any premium and interest on the Bonds will be made at the office or agency of the Company in Plainfield, Indiana or, at the option of the registered owner thereof, at the office or agency of the Company in the Borough of Manhattan, The City of New York, except that interest on the Bonds may be paid, at the option of the Company, by check mailed to the address of the person entitled thereto. With respect to payments of Book-Entry Bonds at maturity or, if applicable, upon redemption, see "Book-Entry Bonds" below. The Bonds, other than Book-Entry Bonds, may be presented for registration of transfer or exchange at the Corporate Trust Office of the First Mortgage Trustee or, at the option of the registered owner thereof, at the office or agency of the Company in the Borough of Manhattan, The City of New York. With respect to transfers of Book-Entry Bonds and exchanges of permanent global Bonds representing Book-Entry Bonds, see "Book-Entry Bonds" below. INTEREST The Bonds will bear interest at the rate of 7 1/8% per annum, payable semi- annually on February 1 and August 1 of each year (each an "Interest Payment Date"), commencing on August 1, 1994. Except as S-7 hereinafter set forth, each Bond will bear interest from and including its date of issuance or from and including the most recent Interest Payment Date with respect to which interest on such Bond (or any predecessor Bond) has been paid or duly made available for payment at the fixed rate per annum until the principal thereof is paid or made available for payment. Interest will be payable on each Interest Payment Date and at maturity or, if applicable, on redemption. Each payment of interest payable at maturity, or, if applicable, upon redemption shall include interest accrued to, but excluding, the date of maturity or redemption. Interest will be payable generally to the person (which, in the case of a permanent global Bond representing Book-Entry Bonds, shall be the Depositary) in whose name a Bond (or any predecessor Bond) is registered at the close of business on the record date next preceding each Interest Payment Date; provided, however, that interest payable at maturity or, if applicable, on redemption, will be payable to the person (which, in the case of a permanent global Bond representing Book-Entry Bonds, shall be the Depositary or its nominee) to whom principal shall be payable. With respect to payments of interest on Book-Entry Bonds, see "Book-Entry Bonds" below. BOOK-ENTRY BONDS Upon issuance, all Book-Entry Bonds will be represented by a single permanent global Bond. Each permanent global Bond representing Book-Entry Bonds will be deposited with, or on behalf of, the Depositary and registered in the name of the Depositary or its nominee. Book-Entry Bonds will not be exchangeable for Bonds in definitive form ("Definitive Bonds") at the option of the holder and, except as set forth below, will not otherwise be issuable in definitive form. DTC will be the Depositary. DTC has advised the Company and the Underwriter as follows: DTC is a limited- purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. "Direct Participants" include securities brokers and dealers (including the Underwriter), banks, and trust companies, clearing corporations, and certain other organizations. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Book-Entry Bonds under the DTC system must be made by or through Direct Participants. Upon the issuance by the Company of Book-Entry Bonds represented by a permanent global Bond, the Depositary will credit, on its book-entry system, the respective principal amounts of the Book-Entry Bonds represented by such permanent global Bonds to the accounts of Participants. The accounts to be credited shall be designated by the Underwriter of such Book- Entry Bonds. The ownership interest of each actual purchaser of each Bond (a "Beneficial Owner") will be recorded on the Direct and Indirect Participants' records. Beneficial Owners will receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are expected to be effected by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except as set forth below. To facilitate subsequent transfers, all Bonds deposited by Participants with DTC will be registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Bonds with DTC and their registration in the name of Cede & Co. will not effect any changes in beneficial ownership. The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability to transfer beneficial interests in Book-Entry Bonds represented by a permanent global Bond. S-8 So long as the Depositary for a permanent global Bond, or its nominee, is the registered owner of such permanent global Bond, the Depositary or its nominee, as the case may be, will be considered the sole owner or holder of the Book- Entry Bonds represented by such permanent global Bonds for all purposes under the First Mortgage. Except as provided below, owners of beneficial interests in Book-Entry Bonds represented by a permanent global Bond will not be entitled to have Book-Entry Bonds represented by such permanent global Bond registered in their names, will not receive or be entitled to receive physical delivery of Book-Entry Bonds in definitive form and will not be considered the owners or holders thereof under the First Mortgage. Unless and until it is exchanged in whole or in part for Definitive Bonds evidencing the Book-Entry Bonds represented thereby, a permanent global Bond may not be transferred except as a whole by the Depositary for such permanent global Bond to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by the Depositary or any nominee to a successor Depositary or any nominee of such successor. The Company expects that conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. In addition, neither DTC nor Cede & Co. will consent or vote with respect to Bonds. The Company has been advised that DTC's usual procedure is to mail an omnibus proxy to the Company as soon as possible after the record date with respect to such consent or vote. The omnibus proxy would assign Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on such record date (identified in a listing attached to the omnibus proxy). Payments of principal and interest, if any, on the Book-Entry Bonds represented by a permanent global Bond registered in the name of the Depositary or its nominee will be made to the Depositary or its nominee, as the case may be, as the registered owner of such permanent global Bond. None of the Company, the Trustee, any agent of the Company or First Mortgage Trustee or the registrar for the Bonds will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a permanent global Bond or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company has been advised that DTC will credit the accounts of Direct Participants with payment in amounts proportionate to their respective holdings in principal amount of interest in any permanent global Bond as shown on the records of DTC. The Company has been advised that DTC's practice is to credit Direct Participants' accounts on the applicable payment date unless DTC has reason to believe that it will not receive payment on such date. The Company expects that payments by Participants to Beneficial Owners will be governed by standing customer instructions and customary practices, as is now the case with securities held for the accounts of customers. Such payments will be the responsibility of such Participants. If the Depositary with respect to any permanent global Bond is at any time unwilling or unable to continue as Depositary and a successor Depositary is not appointed by the Company within 90 days, the Company will issue Definitive Bonds in exchange for the Book-Entry Bonds represented by such permanent global Bond. In addition, the Company may at any time and in its sole discretion determine not to use the Depositary's book-entry system, and, in such event, will issue Definitive Bonds in exchange for the Book-Entry Bonds represented by such permanent global Bond. S-9 UNDERWRITING Subject to the terms and conditions contained in the Underwriting Agreement, the Company has agreed to sell to Salomon Brothers Inc, and such Underwriter has agreed to purchase, the entire principal amount of Bonds offered hereby. Under the terms and conditions of the Underwriting Agreement, the Underwriter is committed to take and pay for all of the Bonds, if any are taken. The Underwriter proposes to offer the Bonds in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus Supplement, and in part to certain securities dealers at such price less a concession of .250% of the principal amount of the Bonds. The Underwriter may allow, and such dealers may reallow, a concession not in excess of .125% of the principal amount of the Bonds to certain brokers and dealers. After the Bonds are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Underwriter. The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended. The Company has not applied for listing of the Bonds on any securities exchange. The Company has been advised by the Underwriter that it currently intends to make a market in the Bonds but is not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the development or the liquidity of the trading market for the Bonds. LEGAL OPINIONS The legality of the Bonds will be passed upon for the Company by Frank T. Lewis, Esq., Associate General Counsel of the Company, and for the Underwriter by Sidley & Austin, Chicago, Illinois. Sidley & Austin has represented the Company, from time to time, in connection with certain pending litigation and other matters. S-10 $545,000,000 PSI ENERGY, INC. DEBT SECURITIES DUE FROM 9 MONTHS TO 35 YEARS FROM DATE OF ISSUE ---------------- PSI Energy, Inc. (the "Company") may from time to time offer up to $545,000,000 aggregate principal amount of its Debt Securities (the "Debt Securities"), consisting of one or more series of its first mortgage bonds (the "Bonds") and one or more series of its notes secured by a collateral series of first mortgage bonds (the "Secured Notes"). The Debt Securities may be offered with maturities ranging from 9 months to 35 years from the date of issue and in amounts, at prices and on terms to be determined at the time of sale. The accompanying Prospectus Supplement (the "Prospectus Supplement") sets forth with regard to the series of Debt Securities in respect of which this Prospectus is being delivered (the "Offered Securities") the specific designation, aggregate principal amount, maturity or maturities, interest rate or rates (which may be fixed or, in the case of Secured Notes, variable), interest payment dates, if any, any terms for redemption at the option of the Company or the holder, any sinking fund provisions, any listing on a securities exchange, the initial public offering price or prices and any other special terms in connection with the offering and sale of such Offered Securities. The Debt Securities may be issued in registered form, in bearer form with coupons attached or both. In addition, all or a portion of the Debt Securities of any series may be issuable in the form of a global security which will be exchangeable only under certain conditions into definitive Debt Securities. See "Description of Debt Securities--Global Securities." The Company may sell Debt Securities to or through underwriters, and also may sell Debt Securities to other purchasers directly or through agents. The accompanying Prospectus Supplement sets forth the names of any underwriters or agents involved in the sale of the Debt Securities, the principal amounts, if any, to be purchased by underwriters and the compensation of such underwriters or agents. ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------- The date of this Prospectus is July 10, 1992. NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY SUCH PERSON. NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE OFFERED SECURITIES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY THEREOF TO ANY PERSON OR IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO SUCH DATE. ---------------- AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Debt Securities. This Prospectus does not contain all the information set forth in such registration statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Debt Securities, reference is made to such registration statement, which may be inspected at the offices of the Commission at the address indicated below. Each statement made in this Prospectus referring to a document which has been or may be filed as an exhibit to such registration statement is qualified by reference to the complete text of such document. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Commission. Reports and other information filed with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D. C. 20549 and at its regional offices located at 500 West Madison Street, Chicago, Illinois 60661 and 75 Park Place, New York, New York 10007. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N. W., Washington, D.C. 20549 at prescribed rates. In addition, reports and other information concerning the Company may be inspected at the office of the New York Stock Exchange, 20 Broad Street, New York, New York, the exchange on which certain of the Company's securities are listed. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission are incorporated herein by reference and made a part hereof: (a) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991; (b) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992; and (c) The Company's Current Report on Form 8-K dated May 26, 1992. All documents filed with the Commission by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the filing of a post-effective amendment which indicates that all securities offered hereby have been sold, or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. 2 The Company hereby undertakes to provide without charge to each person, including any beneficial owner of Debt Securities, to whom a copy of this Prospectus has been delivered, on the written or oral request of any such person, a copy of any or all of the documents referred to above which have been or may be incorporated in this Prospectus by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into the information that this Prospectus incorporates). Requests should be directed to PSI Energy, Inc., Investor Relations, 1000 East Main Street, Plainfield, Indiana 46168, telephone number (317) 839-9611. THE COMPANY The Company is an Indiana corporation engaged in the production, transmission, distribution and sale of electric energy in north central, central and southern Indiana. It serves areas located in 69 of the 92 counties in Indiana having an estimated population of 1.9 million, including the cities of Terre Haute, Kokomo, Columbus, Lafayette, Bloomington and New Albany. The corporate offices of the Company are located at 1000 East Main Street, Plainfield, Indiana 46168, and its telephone number is (317) 839-9611. The Company is a wholly-owned subsidiary of PSI Resources, Inc. The Company is a public utility under the laws of Indiana, and is regulated by the Indiana Utility Regulatory Commission ("Indiana Commission") as to its retail rates, services, accounts, depreciation, issuance of securities, acquisitions and sales of utility properties, and in other respects as provided by Indiana law. The Company is also subject to regulation by the Federal Energy Regulatory Commission ("FERC") with respect to borrowings and the issuance of securities not regulated by the Indiana Commission, the classification of accounts, rates to wholesale customers, interconnection agreements, and acquisitions and sales of certain utility properties as provided by Federal law. The Company operates six steam electric generating stations, one hydroelectric generating station and fifteen rapid-start internal combustion generation units, all within the State of Indiana. The Company owns all of the above, except for 49.95% of Gibson Unit 5 which is jointly owned by Wabash Valley Power Association, Inc. ("WVPA") (25%) and Indiana Municipal Power Agency ("IMPA") (24.95%). Company-owned system generating capability as of December 31, 1991, was 5,687 megawatts ("MW"). Substantially all of the Company's electric utility plant is subject to a first mortgage lien. See "Description of Debt Securities--Description of First Mortgage and the Bonds." Additionally, in 1991, the Company filed requests with the Indiana Commission to issue "certificates of need" for the construction of two 100 MW combustion turbine generating units at its Cayuga Generating Station, and for the construction of a 265 MW clean-coal power generating facility at its Wabash River Generating Station, which will be a joint project between the Company and Destec Energy. See "Recent Developments--Capital Needs--New Generation." For the 12 months ended December 31, 1991, 99% of the Company's electrical power production was obtained from coal-fired generation and 1% from hydroelectric generation. The Company has both long- and short-term coal supply agreements which are subject to price revision, including several with extension options, to supply the major portion of the coal requirements for its generating stations from mines located principally in Indiana and Illinois. The Company monitors alternative sources to assure a continuing availability of economical fuel supplies. See "Recent Developments--Litigation." The area served by the Company is a residential, agricultural and widely diversified industrial territory. Approximately 98% of the Company's operating revenues are derived from sales of electricity. As of December 31, 1991, the Company supplied electric service to 602,975 customers in approximately 700 cities, towns, unincorporated communities and adjacent rural areas, including municipal utilities and rural electric cooperatives. No one customer accounts for more than five percent of electric operating revenues. Sales of electricity by the Company are affected by the various seasonal patterns throughout the year and, therefore, its operating revenues and associated operating expenses are not generated evenly during the year. 3 SELECTED FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31 ---------------------------------- QUARTER ENDED 1987 1988 1989 1990 1991 MARCH 31, 1992 ------ ------ ------ ------ ------ -------------- (DOLLARS IN MILLIONS) (UNAUDITED) Operating Revenues(1)(2)..... $1,151 $1,099 $1,139 $1,106 $1,120 $ 272 Income before extraordinary gain and cumulative effect of change in accounting principle................... 145 117 138 128 30 28 Net Income(1)(3)(4).......... 240 117 138 128 30 28 Total Assets................. 2,207 2,157 1,971 2,044 2,098 2,119 Cumulative Preferred Stock Not Subject to Mandatory Redemption................. 128 124 87 87 87 87 Subject to Mandatory Redemption(5).............. 45 39 33 29 26 -- Long-term debt(6)............ 922 757 665 650 732 660 Notes payable................ 159 111 8 17 -- 84 Common Stock Equity.......... 355 472 559 635 611 622 Ratio of Earnings to Fixed Charges(3).................. 3.4 2.4 3.7 4.2 1.5 3.3
- -------- (1) Prior to January 1987, the Company recorded revenues as billed to its customers on a cycle billing basis. To more closely match revenues with expenses, the Company changed its method of accounting beginning in 1987 and records revenues in each period for energy delivered during the period. The cumulative effect at January 1, 1987, of this change in accounting was $42 million. (2) Non-firm power transaction sales, recorded as credits to purchased and exchanged power expenses in periods prior to 1991 have been reclassified as operating revenues to conform to the 1991 presentation. (3) In 1991, the Company recorded a pre-tax loss of $135 million, including interest through December, 1991, as a result of the Indiana Supreme Court's decision to overturn the Indiana Commission's June 1987 order regarding the effect on the Company of the July 1, 1987, reduction in the Federal income tax rate. (4) In 1987, the Company paid $115 million in settlement of litigation related to a nuclear fuel contract. The discounted value of the contractual amount had previously been included in the write-off of Marble Hill costs. As a result of the settlement, the Company reported an extraordinary gain of $52 million after deducting applicable income tax effects of $11 million. (5) Includes $3 million in 1991, 1990, 1989, 1988 and 1987 to be redeemed within one year. On March 2, 1992, the Company optionally redeemed all of the outstanding preferred shares subject to mandatory redemption. (6) Includes long-term debt due within one year of $90 million at March 31, 1992 and December 31, 1991, $39 million at December 31, 1989, $37 million at December 31, 1988 and $278 million at December 31, 1987. See Item 7 of the Company's 1991 Annual Report on Form 10-K for a discussion of material uncertainties. RECENT DEVELOPMENTS CAPITAL NEEDS Environmental In April 1992, the Company filed with the Indiana Commission its plan to comply with Phase I of the Clean Air Act Amendments of 1990 ("Clean Air Act"). The plan consists of constructing a sulfur dioxide scrubber for Unit 4 at Gibson Generating Station and modifying other generating units to provide for the use of lower-sulfur coal. For Phase I, the Company does not plan to depend upon the purchase or sale of emission allowances created under the Clean Air Act. The filing, pursuant to a state law enacted in 1991, allows the Company to seek pre-approval of its compliance plan. The Company has also requested authorization to defer certain costs required to implement its compliance plan. The Indiana Commission is expected to rule on this plan in late 1992 or early 1993. 4 New Generation On May 13, 1992, the Indiana Commission issued a "certificates of need" order for the construction of two 100 MW combustion turbine generating units with the first unit scheduled to be in-service by mid-1993 and the second unit in 1994 at an estimated total cost of $100 million. CAPITAL RESOURCES The Company is currently projecting the cost of complying with Phase I and Phase II of the Clean Air Act to be $1.2 billion over the 1992-2000 period. Rate increases attributable to compliance with Phase I of the Clean Air Act (through 1995) are expected to be 7-8 percent. The preliminary Phase II plan indicates that rate increases between 1996 and 2000 for environmental compliance costs could be in the range of 8-10 percent. In April 1992, the Company filed a petition with the Indiana Commission seeking authority to issue up to $650 million in long-term debt securities with the option of issuing up to $200 million of preferred stock in lieu of an equal amount of long-term debt. In addition, the Company has petitioned the Indiana Commission for authority to increase its short-term credit arrangements from $100 million to $200 million. The Company expects the Indiana Commission to issue orders in response to these petitions in the third quarter of 1992. LITIGATION On May 13, 1992, the Company filed a lawsuit for a declaratory judgement in the U.S. District Court for the Southern District of Indiana against Exxon Coal. The Company requested the court to determine (a) if an offer to supply coal from a competing coal company is valid and (b) if Exxon fails to match such offer under a reopener provision to renegotiate the price under an existing agreement, such contract will terminate in December 1992, or at the Company's election, at the end of the temporary continuance of deliveries by Exxon as provided in the agreement. On May 26, 1992, the Court of Appeals of Indiana ("Court of Appeals") issued an opinion holding that the Indiana Commission erred by not conducting a formal hearing with respect to the 1988 formation of the Company's holding company, PSI Holdings, Inc., now PSI Resources, Inc. The Court of Appeals determined that the exchange of the common stock of the Company for holding company common stock required approval, after a hearing, by the Indiana Commission. The Company may further appeal the decision or may petition the Indiana Commission for an order approving the formation of the holding company. The Company cannot predict the outcome but believes the formation of the holding company will be ultimately upheld. USE OF PROCEEDS Except as otherwise provided in the Prospectus Supplement, the net proceeds to be received by the Company from the sale of Debt Securities will be used for general corporate purposes, including approximately $370.7 million for construction financing, $84.3 million for the payment at maturity of outstanding short-term notes payable, $40 million for the payment at maturity of the Company's Series SS First Mortgage Bonds, 10%, due September 15, 1993 and $50 million for the payment at maturity of the Company's Series RR First Mortgage Bonds, 9 3/4%, due August 1, 1996. The interest rates applicable to such short-term notes are reset periodically and ranged from 4.09% to 4.38% per annum on June 1, 1992. DESCRIPTION OF DEBT SECURITIES GENERAL. The Debt Securities may consist of one or more series of Bonds and one or more series of Secured Notes. Any such Bonds will be issued pursuant to and secured by the indenture of mortgage or deed of trust dated September 1, 1939, as now or hereafter supplemented and amended (the "First Mortgage"), between the Company and LaSalle National Bank, as successor trustee (the "First Mortgage Trustee"). Any such Secured Notes will be issued pursuant to the indenture dated as of July 15, 1992 (the "Note Indenture") between the Company and The First National Bank of Chicago, as trustee (the "Note Trustee"), and will be secured by one or more First Mortgage Bonds, Series WW, Due August 15, 2027 (the "Collateral Bonds"), to be issued by the Company pursuant to the First Mortgage and pledged to the Note Trustee. 5 Included in this Prospectus are descriptions of the First Mortgage, the Note Indenture, the Bonds and the Secured Notes. Such descriptions are brief summaries of the provisions referred to and do not purport to be complete. The respective forms of the First Mortgage and the Note Indenture are filed as exhibits to the Registration Statement of which this Prospectus is a part, and reference is made thereto for the definitive provisions of such documents. The descriptions herein are qualified in their entirety by such reference. Certain capitalized terms used herein shall have the meanings respectively set forth in the First Mortgage and the Note Indenture. Subject to the limitations contained herein, the Prospectus Supplement will set forth the following terms relating to the Offered Securities: (1) the specific designation of the Offered Securities and whether the Offered Securities constitute Secured Notes or Bonds; (2) any limit on the aggregate principal amount of the Offered Securities; (3) the date or dates, if any, on which the Offered Securities will mature; (4) the rate or rates per annum (which may be fixed or, in the case of Secured Notes, variable) at which the Offered Securities will bear interest, if any, the date or dates on which any such interest will be payable and the Record Dates for any interest payable on the Offered Securities which are Registered Securities; (5) any mandatory or optional redemption or sinking fund provisions, including the period or periods within which, the price or prices at which and the terms and conditions upon which the Offered Securities may be redeemed or purchased at the option of the Company or otherwise; (6) whether the Offered Securities will be issuable in registered form or bearer form or both, and, if issuable in bearer form, the restrictions as to the offer, sale and delivery of the Offered Securities in bearer form and as to exchanges between registered and bearer form; (7) whether the Offered Securities will be issuable in the form of one or more temporary or permanent Global Securities and, if so, the identity of the Depositary for such Global Securities; (8) each office or agency where the principal of and any premium and interest on the Offered Securities will be payable, and each office or agency where the Offered Securities may be presented for registration of transfer or exchange; (9) any applicable United States Federal income tax consequences, including whether and under what circumstances the Company will pay additional amounts with respect to the Offered Securities to a non-United States Person (as defined in such Prospectus Supplement) on account of any tax, assessment or governmental charge withheld or deducted and, if so, whether the Company will have the option to redeem such Offered Securities rather than pay such additional amounts; and (10) any other terms of the Offered Securities not inconsistent with the First Mortgage or the Note Indenture, as the case may be, including covenants and events of default relating solely to the Offered Securities. Offered Securities may be issued bearing no interest or interest at a rate below the prevailing market rate at the time of issuance, to be offered and sold at a discount below their stated principal amount. United States Federal income tax consequences and other special considerations applicable thereto or to other Offered Securities offered and sold at par which are treated as having been issued at a discount for United States Federal income tax purposes will be described in the Prospectus Supplement relating thereto. Except to the extent described under "Description of the First Mortgage and the Bonds--Issue of Additional First Mortgage Bonds" below, there are no covenants or provisions in either the Note Indenture or the First Mortgage to protect debt holders from highly leveraged transactions or from a leveraged buyout by management or any other party or entity. A leveraged buyout initiated or supported by management would be treated no differently from any other highly leveraged transaction. GLOBAL SECURITIES The Debt Securities of a series may be issued in the form of a global security which is deposited with and registered in the name of the depositary (or a nominee of the depositary) specified in the accompanying Prospectus Supplement. So long as the depositary for a global security, or its nominee, is the registered owner of the global security, the depositary or its nominee, as the case may be, will be considered the sole owner or holder of the Debt Securities represented by such global security for all purposes under the Indenture. Except as provided in the Note Indenture, owners of beneficial interests in Debt Securities represented by a global security will not (a) be entitled to have such Debt Securities registered in their names, (b) receive or be entitled to receive physical delivery of certificates representing such Debt Securities in definitive form, (c) be considered the owners or holders thereof under the Note Indenture and (d) have any rights under the 6 Indenture with respect to such global security. Unless and until it is exchanged in whole or in part for individual certificates evidencing the Debt Securities represented thereby, a global security may not be transferred except as a whole by the depositary for such global security to a nominee of such depositary or by a nominee of such depositary to such depositary or another nominee of such depositary or by the depositary or any nominee to a successor depositary or any nominee of such successor. The Company, in its sole discretion, may at any time determine that any series of Debt Securities issued or issuable in the form of a global security shall no longer be represented by such global security and such global security shall be exchanged for securities in definitive form pursuant to the Note Indenture. Upon the issuance of a global security, the depositary will credit, on its book-entry registration and transfer system, the respective principal amounts of such global security to the accounts of participants. Ownership of interests in a global security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the depositary (with respect to interests of participants in the depositary), or by participants in the depositary or persons that may hold interests through such participants (with respect to persons other than participants in the depositary). Ownership of beneficial interests in a global security will be limited to participants or persons that hold interests through participants. DESCRIPTION OF THE FIRST MORTGAGE AND THE BONDS. General. Each series of Bonds shall be a new series of first mortgage bonds issued under and secured by the First Mortgage. The Bonds shall mature on a date not more than 35 years after the date of issuance. The Bonds will be delivered only as registered bonds without coupons in denominations of $1,000 and any multiple thereof. A brief description of the First Mortgage follows. Transfer of Bonds. Bonds may be presented for registration of transfer at the offices and subject to the restrictions set forth therein and in the applicable Prospectus Supplement without service charge, but upon payment of any taxes or other governmental charges due in connection therewith, subject to any applicable limitations contained in the First Mortgage. Bonds are issuable in fully registered form only. Maintenance and Renewal. The First Mortgage provides that during each calendar year, so long as any bonds shall be outstanding thereunder, the Company shall expend sums equal to the greater of (a) 15% of the gross operating revenues (which, as defined in the First Mortgage, excludes revenues received after January 1, 1976 which are attributable to increases in the unit cost of fuel over the average unit cost of fuel used in 1975) of the Company for such calendar year or (b) 2.25% of the depreciable property of the Company on January 1 of such year for (i) the maintenance and repair of the mortgaged properties, (ii) the construction or acquisition of bondable property, or (iii) the retirement of bonds issued under the First Mortgage; that the Company shall deposit annually with the First Mortgage Trustee cash to the extent that such aggregate amount is not so expended, less any credits for excess expenditures for such purposes in prior years; that any cash so deposited may be withdrawn by the Company or applied by the First Mortgage Trustee as provided in the First Mortgage (including the redemption at the optional redemption price of bonds which are then redeemable at the option of the Company); that excess expenditures may be used to comply with the requirements of any subsequent year or years; and that gross expenditures (as defined and limited in the First Mortgage) for bondable property may be certified to comply with the provisions of the foregoing clause (ii). Expenditures so used, and bonds retired through expenditures so used, cannot be used for other purposes under the First Mortgage; and expenditures used or bonds retired for other purposes under the First Mortgage cannot be used for the purpose of complying with said maintenance and renewal provisions. The First Mortgage does not require that any notice be given to bondholders in connection with such maintenance and renewal requirements, unless and until an event of default under the First Mortgage occurs by reason of the Company's failure to meet such requirements. The maintenance and renewal provisions of the First Mortgage do not require the retirement annually of any specific amount of outstanding first mortgage bonds. The First Mortgage also provides that the Company will maintain the mortgaged properties in good repair and working order and contains provisions for inspection of the mortgaged property and report of its condition. 7 Security. The Bonds will rank pari passu, except as to any sinking fund or similar fund provided for a particular series of bonds, with all bonds now or hereafter issued and outstanding under the First Mortgage. The First Mortgage constitutes a first mortgage lien, subject only to permitted liens (as defined in the First Mortgage), on all or substantially all the permanent fixed properties of the Company, except properties specifically excepted or excluded, and except certain properties in service which at December 31, 1991 had an aggregate estimated book cost of approximately $2,000,000 and are subject to certain defects or encumbrances. All permanent fixed property, other than property of the character excluded by the First Mortgage from its lien, hereinafter acquired by the Company will, upon acquisition, become subject to such lien, subject to permitted liens and to any liens existing or placed thereon upon acquisition. Issue of Additional First Mortgage Bonds. Additional bonds of any series may, without limitation as to aggregate principal amount and in the manner and subject to the limitations, conditions and restrictions contained in the First Mortgage, be issued under the First Mortgage from time to time on any one or more of the following bases: 1. For or on account of the "retirement" (as defined in the First Mortgage) of an equal principal amount of bonds of any one or more other series theretofore authenticated under the First Mortgage; but the Company has covenanted in the First Mortgage that so long as any bonds issued thereunder remain outstanding, bonds issued for or on account of such "retirement" shall be issued only in respect of bonds issued under the First Mortgage after August 31, 1945. 2. In principal amount not greater than 60% of "net expenditures" (as defined in the First Mortgage) made by the Company (after September 26, 1945, in case of bonds issued on or after January 1, 1949) for the construction or acquisition of "bondable property" (which, as defined in the First Mortgage, includes construction work in progress to the extent actually constructed or erected) which has become subject to the lien of the First Mortgage and is not subject to any lien or mortgage equal or prior in lien to the First Mortgage, except "permitted liens" (as defined in the First Mortgage) and any lien or mortgage securing obligations for the payment or redemption of which the necessary funds shall have been deposited irrevocably in trust with instructions to apply such funds to the payment or redemption of such obligations. 3. To an aggregate principal amount of bonds equal to the amount of cash deposited with the First Mortgage Trustee under the First Mortgage, which cash, designated as "deposited cash," may be applied to the redemption or purchase of bonds of any series issued under the First Mortgage or may be withdrawn by the Company to an amount equal to the principal amounts of any bonds which could be authenticated for the purposes and under the conditions stated in 1 and 2 above. No additional bonds may be authenticated for or on account of "net expenditures" for "bondable property" or for "deposited cash", and no additional bonds bearing a higher rate of interest than the bonds for or on account of the "retirement" of which they are issued, shall be authenticated more than five years prior to the stated maturity of the bonds for or on account of the "retirement" of which they are issued, unless "net earnings" requirements (i.e., net earnings for the twelve months ended prior to such issuance must be two times the interest on all bonds outstanding after giving effect to such issuance) are satisfied. For purposes of the First Mortgage, the "net earnings" of the Company for any period shall mean an amount, computed in accordance with accepted principles of accounting, determined by deducting from the total gross earnings and income of the Company derived from all sources for such period all operating expenses of the Company for such period, the remainder being adjusted, if necessary, so that not more than ten per centum (10%) thereof shall consist of the aggregate of (a) net non-operating income, (b) net operating revenues derived from the operation by the Company of any properties other than electric, gas or water properties, and (c) net earnings from any properties not owned by the Company. The Collateral Bonds and any Bonds will be issued pursuant to clause 1 above on account of the "retirement" of bonds issued under the First Mortgage and accordingly the net earnings test is not applicable to the issuance of the Collateral Bonds or any such Bonds. 8 Acquisition of Property Subject to Prior Lien. The First Mortgage provides that after having acquired properties, other than the properties acquired on April 9, 1941 from Dresser Power Corporation, of a value in the aggregate of $500,000, without regard to the limitations referred to in this paragraph, the Company will not, so long as any bonds are outstanding under the First Mortgage, acquire any properties which at the time of the acquisition thereof are subject to a lien or liens equal or prior to the lien of the First Mortgage (other than "permitted liens") if at the date of such acquisition the debt secured by such liens shall exceed 60% of the "value" of "bondable property" so acquired, or if the "net earnings" of such property for twelve consecutive months ending within 90 days next preceding the date of acquisition, shall have been less than two times the interest charges for one year on all outstanding obligations secured by such lien at the time of such acquisition, except obligations for the payment or redemption of which the necessary funds have been deposited irrevocably in trust with instructions to apply such funds to the payment or redemption of such obligations. The First Mortgage further provides that upon the acquisition of any property subject to a lien or liens equal or prior to the lien of the First Mortgage, the Company will cause all such mortgages then existing on such property to be closed and, after such acquisition, will permit no additional bonds to be issued thereunder. Modification of First Mortgage. In general, modifications or alterations of the First Mortgage, and of the rights or obligations of the Company and of the bondholders, as well as waivers of compliance with the First Mortgage, may with the approval of the Board of Directors of the Company be made at bondholders' meetings with the affirmative vote of 75% of the bonds entitled to vote at the meeting with respect to matters involved; provided, however, that no modification or alteration may be made which will permit (1) the extension of the time or times of payment of the principal of, or the interest or the premium (if any) on, any bond, or the reduction in the principal amount thereof or in the rate of interest or the amount of any premium thereon, or any other modification in terms of payment of such principal, interest or premium, which terms shall always be unconditional, or (2) the creation of any lien ranking prior to or on a parity with the lien of the First Mortgage with respect to any of the mortgaged properties, or (3) the depriving of any bondholder of a lien upon the mortgaged properties, or (4) the reduction of the percentage of bonds required for the taking of action with respect to any such modification or alteration. Dividend Restrictions. The First Mortgage provides that, so long as any bonds shall be outstanding under the First Mortgage, the Company shall not declare or pay any dividends or make any distributions on shares of any class of its capital stock (other than on preferred stock or dividends payable in shares of its Common Stock or dividends which are applied to the purchase of shares of its Common Stock by the shareholder receiving such dividends) or purchase, retire or otherwise acquire for a consideration any shares of its Common Stock, except out of the earned surplus or net profits of the Company determined in accordance with generally accepted principles of accounting and lawfully available for that purpose; provided, however, that for the purpose of such covenant only, in computing the amount of such earned surplus or net profits, there shall have been, subsequent to September 1, 1939, and up to the date as of which the computation is made, charged to operating expenses for maintenance or as a reserve for depreciation or retirements, the aggregate amounts required to be expended or deposited with the First Mortgage Trustee under the provisions described under the subcaption "Maintenance and Renewal" for such period. The First Mortgage does not require that any notice be given to bondholders in connection with the foregoing restrictions on dividends, unless and until an event of default under the First Mortgage occurs by reason of the Company's violation of such dividend restriction. Concerning the First Mortgage Trustee. The First Mortgage provides that the holders of a majority in principal amount of the outstanding bonds shall have the right to require the First Mortgage Trustee to take action on behalf of the bondholders, but under certain circumstances the First Mortgage Trustee may decline to follow such directions or to exercise certain of its powers. Prior to taking such action, the First Mortgage Trustee is entitled to indemnity satisfactory to it against costs, expenses and liabilities that may be incurred in the course of such action. Such right to indemnification does not impair the absolute right of any bondholder to enforce payment of the principal of and interest on his bonds when due. 9 Defaults, Notices and Certificates. The First Mortgage provides generally that failure for 30 days to pay interest on any bond, failure to pay the principal of any bond, whether at maturity or upon redemption or declaration, failure to pay principal or interest on any prior lien obligations, failure for 60 days after notice to perform or observe other covenants of the First Mortgage, default under any mortgage or other instrument securing any prior lien obligations and the occurrence of insolvency, bankruptcy or similar proceedings constitute events of default. The First Mortgage Trustee is required to give notice to the bondholders of the occurrence of any event which constitutes, or which, with the giving of notice or the lapse of time or both, would constitute, an event of default, except that the First Mortgage Trustee may withhold such notice if the First Mortgage Trustee determines that to do so is in the interests of the bondholders unless such event relates to the payment of principal of or interest on or any sinking fund obligation for the benefit of any of the bonds. Upon the occurrence of an event of default, the First Mortgage Trustee may, and upon written request of the holders of a majority in principal amount of all bonds then outstanding under the First Mortgage shall, declare the payment of all bonds outstanding under the First Mortgage due and payable, enforce the lien of the First Mortgage by foreclosure or exercise such other remedies as are provided in the First Mortgage. Compliance with certain provisions of the First Mortgage is required to be evidenced by various written statements or certificates filed with the First Mortgage Trustee, and various certificates and other papers are required to be filed with the First Mortgage Trustee annually and upon the happening of various events. However, no periodic evidence is required to be furnished as to the absence of events of default or compliance with the terms of the First Mortgage. DESCRIPTION OF THE NOTE INDENTURE AND THE SECURED NOTES. General. The Secured Notes will be issuable under the Note Indenture and secured by the Collateral Bonds to be issued by the Company and pledged to the Note Trustee. The Note Indenture does not limit the aggregate principal amount of Secured Notes which may be issued thereunder, except that no Secured Notes shall be issued if, after giving effect to such issuance, the aggregate principal amount of the outstanding Secured Notes would exceed the aggregate Stated Principal Amount (as defined below) of the outstanding Collateral Bonds. Subject to the foregoing limitation, Secured Notes may be issued under the Note Indenture from time to time in one or more series. Each series of Secured Notes shall be denominated and bear interest in United States currency and shall mature on a date not less than 9 months nor more than 30 years after the date of issuance (but in no event shall any Secured Note mature after August 15, 2027, the date of maturity of the Collateral Bonds). Security; the Collateral Bonds. The payment of the principal of and premium (if any) and interest on the Secured Notes will be secured by a pledge to the Note Trustee of the Collateral Bonds. The Collateral Bonds will be issued under and secured by the First Mortgage, equally and ratably with all other bonds now or hereafter issued and outstanding thereunder. The aggregate principal amount of the Collateral Bonds will be limited to the lesser of (a) the dollar amount set forth therein (the "Stated Principal Amount") or (b) the aggregate principal amount of the Secured Notes. The interest payable on the Collateral Bonds shall be equal to the aggregate interest payable with respect to the Secured Notes, but such interest shall not exceed an amount computed using a fixed interest rate of 25% per annum. Both principal and interest with respect to the Collateral Bonds will be payable to the Note Trustee. Interest will be payable on the Collateral Bonds semi-annually on February 15 and August 15 of each year during which Secured Notes are Outstanding. Principal and interest payments with respect to the Secured Notes shall be deemed to be payments of the principal and interest due with respect to the Collateral Bonds. For a description of the First Mortgage, the bonds issued thereunder and the rights of the holders of such bonds, see "Description of Debt Securities--Description of the First Mortgage and the Bonds" herein. The Collateral Bonds will not be entitled to the benefit of any sinking fund. The Collateral Bonds are subject to redemption upon the demand of the Note Trustee on the occurrence of an Event of Default under the Note Indenture and the resulting acceleration of the maturity of the Secured 10 Notes. The redemption price shall be equal to 100% of the aggregate principal amount of the Outstanding Secured Notes of all series plus accrued interest thereon to the date fixed for redemption. At any time after any such acceleration of the Secured Notes, but before a judgment or decree for the immediate payment of the Secured Notes has been obtained, and so long as the Collateral Bonds have not been accelerated, the Holders of at least a majority in principal amount of the Outstanding Secured Notes may, under certain circumstances, rescind the acceleration of the Secured Notes and the demand for redemption of the Collateral Bonds. Exchange and Transfer. Secured Notes may be presented for exchange and registered Secured Notes may be presented for registration of transfer at the offices and subject to the restrictions set forth therein and in the applicable Prospectus Supplement without service charge, but upon payment of any taxes or other governmental charges due in connection therewith, subject to any applicable limitations contained in the Note Indenture. Secured Notes in bearer form and the coupons appertaining thereto, if any, will be transferable by delivery. Payment. Unless otherwise indicated in the applicable Prospectus Supplement, payment of the principal of and the premium and interest, if any, on all Secured Notes (other than a Registered Global Security) in registered form will be made at the office or agency of the Note Trustee in the Borough of Manhattan, The City of New York or in Chicago, Illinois, except that, at the option of the Company, payment of any interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Note Register or (ii) by wire transfer to an account maintained by the Person entitled thereto as specified in the Note Register. Unless otherwise indicated in the applicable Prospectus Supplement, payment of any interest due on Secured Notes in registered form will be made to the Persons in whose name such Secured Notes are registered at the close of business on the Record Date for such interest payments. Events of Default. The occurrence of any of the following events with respect to the Secured Notes of any series will constitute an "Event of Default" with respect to the Secured Notes of such series: (a) default for 30 days in the payment of any interest on any of the Secured Notes of such series; (b) default in the payment of any of the principal of or the premium, if any, on any of the Secured Notes of such series, whether at maturity, upon redemption, by declaration or otherwise; (c) default in the deposit of any sinking fund payment in respect of any Secured Notes of such series; (d) default for 60 days by the Company in the observance or performance of any other covenant or agreement contained in the Note Indenture relating to the Secured Notes of such series after written notice thereof as provided in the Note Indenture; (e) the occurrence of an event of default under the First Mortgage and the First Mortgage Trustee, the Company or the Holders of at least 25% of in aggregate principal amount of the outstanding Secured Notes of such series shall have given written notice thereof to the Note Trustee; or (f) certain events of bankruptcy, insolvency or reorganization relating to the Company. Additional Events of Default may be prescribed for the benefit of the Holders of a particular series of Secured Notes and will be described in the Prospectus Supplement relating thereto. If an Event of Default due to a default in the payment of the principal of or the premium or interest, if any, on any series of Secured Notes shall have occurred and be continuing, either the Note Trustee or the Holders of not less than 25% in aggregate principal amount of the Secured Notes of such series then Outstanding may declare the principal of all Secured Notes of such series and the interest, if any, accrued thereon to be due and payable immediately. If an Event of Default due to a default in the observance or performance of any other covenant or agreement of the Company contained in the Note Indenture and applicable to the Secured Notes of one or more (but less than all) series then Outstanding shall have occurred and be continuing, either the Note Trustee or the Holders of not less than 25% in aggregate principal amount of the Secured Notes of the affected series then Outstanding (voting as one class) may declare the principal of all Secured Notes of each such affected series and the interest, if any, accrued thereon to be due and payable immediately. If an Event of Default due to a default in the observance or performance of any other covenant or agreement of the Company contained in the Note Indenture applicable to all Secured Notes then Outstanding or due to certain events of bankruptcy, insolvency or reorganization relating to the Company 11 shall have occurred and be continuing, either the Note Trustee or the Holders of not less than 25% in aggregate principal amount of all Secured Notes then Outstanding (voting as one class) may declare the principal of all Secured Notes and the interest, if any, accrued thereon to be due and payable immediately. Upon any such acceleration of the Secured Notes, the Note Trustee is empowered to cause the mandatory redemption of the Collateral Bonds. At any time after an acceleration of the Secured Notes has been declared, but before a judgment or decree for the immediate payment of the principal amount of the Secured Notes has been obtained and so long as the Collateral Bonds have not been accelerated, the holders of a majority in principal amount of the outstanding Secured Notes may, under certain circumstances, rescind and annul such acceleration and its consequences. Upon certain conditions, any such declarations may be rescinded and annulled if all Events of Default, other than the nonpayment of accelerated principal, with respect to the Secured Notes of all such affected series then Outstanding shall have been cured or waived as provided in the Note Indenture by the Holders of a majority in aggregate principal amount of the Secured Notes of the affected series then Outstanding (voting as one class, except in the case of Events of Default described in clauses (a), (b) and (c) above as to which each series so affected will vote as a separate class). See "Modification of the Note Indenture" below. Reference is made to the Prospectus Supplement relating to any series of Original Issue Discount Securities for the particular provisions relating to the acceleration of a portion of the principal amount thereof upon the occurrence and continuance of an Event of Default with respect thereto. The Note Indenture provides that, subject to the duty of the Trustee to act with the requisite standard of care in case a default with respect to a series of Secured Notes shall have occurred and be continuing, the Note Trustee will be under no obligation to exercise any of its rights or powers under the Note Indenture at the request, order or direction of the Holders of the Secured Notes, unless such Holders shall have offered to the Note Trustee reasonable indemnity. Subject to such provisions for indemnity and certain other limitations contained in the Note Indenture, the Holders of a majority in aggregate principal amount of the Secured Notes of each affected series then Outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Note Trustee, or exercising any trust or power conferred on the Note Trustee, with respect to the Secured Notes of such affected series. The Note Indenture provides that no Holder of Secured Notes may institute any action against the Company under the Note Indenture (except actions for payment of overdue principal, premium or interest) unless such Holder previously shall have given to the Note Trustee written notice of default and continuance thereof and unless the Holders of not less than 25% in aggregate principal amount of the Secured Notes of the affected series then Outstanding (voting as one class) shall have requested the Note Trustee to institute such action and shall have offered the Note Trustee reasonable indemnity, the Note Trustee shall not have instituted such action within 60 days of such request and the Note Trustee shall not have received direction inconsistent with such request by the Holders of a majority in aggregate principal amount of the Secured Notes of the affected series then Outstanding (voting as one class). The Note Indenture requires the Company to furnish to the Note Trustee annually a statement as to the Company's compliance with all conditions and covenants under the Note Indenture. The Note Indenture provides that the Note Trustee may withhold notice to the Holders of the Secured Notes of any series of any default affecting such series (except defaults as to payment of principal, premium or interest on the Secured Notes of such series) if it considers such withholding to be in the interests of the Holders of the Secured Notes of such series. Consolidation, Merger or Sale of Assets. The Note Indenture provides that the Company may consolidate with or merge into, or sell, lease or convey its property as an entirety or substantially as an entirety to, any other corporation if (a) such corporation assumes the obligations of the Company under the Secured Notes and the Note Indenture and is organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, (b) immediately after such consolidation, merger, sale, lease or 12 conveyance, such other corporation shall have assumed and become liable for all of the obligations of the Company under and with respect to the First Mortgage and the Collateral Bonds and the Note Indenture and (c) no such consolidation, merger or sale shall have impaired the lien of the First Mortgage or any of the rights and powers of the holder of the Collateral Bonds. The term "impaired" is not defined in the First Mortgage, but the Company believes that an impairment would occur thereunder if any such transaction had the effect of releasing any property from the first mortgage lien created by the First Mortgage or subjecting any property subject to such lien to any prior lien. Modification of the Note Indenture. The Note Indenture permits the Company and the Note Trustee to enter into supplemental indentures thereto without the consent of the Holders of the Secured Notes to: (a) additionally secure the Secured Notes of one or more series, (b) evidence the assumption by a successor corporation of the obligations of the Company under the Note Indenture and the Secured Notes then Outstanding, (c) add covenants for the protection of the Holders of the Secured Notes, (d) cure any ambiguity or correct any inconsistency in the Note Indenture, (e) establish the form and terms of the Secured Notes of any series and (f) evidence the acceptance of appointment by a successor Note Trustee. The Note Indenture also permits the Company and the Note Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Secured Notes of each series then Outstanding and affected, to add any provisions to, or change in any manner or eliminate any of the provisions of, the Note Indenture or modify in any manner the rights of the Holders of the Secured Notes of each such affected series; provided, however, that the Company and the Note Trustee may not, without the consent of the Holder of each Secured Note then Outstanding and affected thereby: (a) extend the time of payment of the principal (or any installment) of any Secured Note, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on the redemption thereof, or impair the security interest of the Note Trustee in the Collateral Bonds, or reduce the amount payable on any Original Issue Discount Notes upon acceleration or provable in bankruptcy, or impair the right to institute suit for the enforcement of any payment on any Secured Note when due; or (b) reduce the percentage in principal amount of the Secured Notes of the affected series, the consent of whose Holders is required for any such modification or for any waiver provided for in the Note Indenture. Prior to the acceleration of the maturity of any Secured Notes, the Holders of a majority in aggregate principal amount of the Secured Notes of all series at the time Outstanding with respect to which a default or an Event of Default shall have occurred and be continuing (voting as one class) may on behalf of the Holders of all such affected Secured Notes waive any past default or Event of Default and its consequences, except a default or an Event of Default in respect of a covenant or provision of the Note Indenture or of any Secured Note which cannot be modified or amended without the consent of the Holder of each Secured Note affected. Defeasance and Discharge. The Note Indenture provides that, at the option of the Company: (a) the Company will be discharged from any and all obligations in respect of the Secured Notes of a particular series then Outstanding (except for certain obligations to register the transfer of or exchange the Secured Notes of such series, to replace stolen, lost or mutilated Secured Notes of such series, to maintain paying agencies and to maintain the trust described below), or (b) the Company need not comply with and shall have no liability in respect of certain restrictive covenants of the Note Indenture (including those described under "Consolidation, Merger or Sale of Assets"), and the failure to comply with such covenants shall not be an Event of Default, in each case if the Company irrevocably deposits in trust with the Note Trustee money, and/or securities backed by the full faith and credit of the United States which, through the payment of the principal thereof and the interest thereon in accordance with their terms, will provide money in an amount sufficient to pay all the principal of (and premium, if any) and interest on the Secured Notes of such series on the stated maturity of such Secured Notes and any mandatory sinking fund or analogous payment on the dates on which such payments are due and payable in accordance with the terms thereof. To exercise such option, the Company is required, among other things, to deliver to the Note Trustee an opinion of independent counsel to the effect that the exercise of such option would not cause the Holders of the Secured Notes of such series to recognize income, gain or loss for United States Federal income tax purposes as a 13 result of such defeasance, and such Holders will be subject to United States Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred, and, in the case of a discharge as described in clause (a) of the preceding sentence, such opinion is to be accompanied by a private letter ruling to the same effect received from the Internal Revenue Service, a revenue ruling to such effect pertaining to a comparable form of transaction published by the Internal Revenue Service or appropriate evidence that since the date of the Note Indenture there has been a change in the applicable Federal income tax law. In addition, such option may not be exercised by the Company if (i) any Event of Default, or event which with notice or lapse of time or both, would become an Event of Default, has occurred or is continuing, (ii) any such deposit of money and/or securities would result in a breach or violation of, or constitute a default under, the Note Indenture or any other agreement to which the Company is a party or by which it is bound, or (iii) any such deposit would cause any Secured Note or the affected series then listed on any national securities exchange to be delisted. In the event the Company exercises its option to effect a covenant defeasance with respect to the Secured Notes of any series as described in the preceding paragraph and the Secured Notes of such series are thereafter declared due and payable because of the occurrence of any Event of Default other than an Event of Default caused by failing to comply with the covenants which are defeased, and the amount of money and securities on deposit with the Trustee would be insufficient to pay amounts due on the Secured Notes of such series at the time of their accelerated maturity, the Company would remain liable for such amounts. The Company may also obtain a discharge of the Note Indenture with respect to all Secured Notes then Outstanding (except for the rights of Noteholders in the property deposited and to receive payments of principal and interest when due, the rights of the Note Trustee and certain obligations to register the transfer of or exchange such Secured Notes, to replace stolen, lost or mutilated Secured Notes, to maintain paying agencies and to maintain the trust described below) by irrevocably depositing in trust with the Note Trustee money, and/or securities backed by the full faith and credit of the United States which, through the payment of the principal thereof or the interest thereon in accordance with their terms, will provide money in an amount sufficient to pay all the principal of (and premium, if any) and interest on the Secured Notes on the stated maturities thereof and any mandatory sinking fund or analogous payments on the dates on which such payments are due and payable, provided that such Secured Notes are by their terms due and payable, or are to be called for redemption, within one year. CONCERNING THE NOTE TRUSTEE. The First National Bank of Chicago, the trustee under the Note Indenture, is one of a number of banks with which the Company, its parent company and their respective subsidiaries maintain ordinary banking relationships, including, in certain cases, credit facilities. PLAN OF DISTRIBUTION The Company may sell the Debt Securities being offered hereby in four ways: (i) directly to purchasers, (ii) through agents, (iii) through underwriters and (iv) through dealers. Offers to purchase Debt Securities may be solicited by agents designated by the Company from time to time. Any such agent, who may be deemed to be an underwriter as that term is defined in the Securities Act, involved in the offer or sale of the Debt Securities in respect of which this Prospectus is delivered will be named, and any commissions payable by the Company to such agent will be set forth, in the Prospectus Supplement. Unless otherwise indicated in the Prospectus Supplement, any such agent will be acting on a best efforts basis for the period of its appointment. If underwriters are utilized in the sale, the Company will execute an underwriting agreement with such underwriters at the time of sale to them and the names of the underwriters and the terms of the transaction 14 will be set forth in the Prospectus Supplement, which will be used by the underwriters to make resales of the Debt Securities in respect of which this Prospectus is delivered to the public. Any underwriters will acquire Debt Securities for their own account and may resell such Debt Securities from time to time in one or more transactions, including negotiated transactions, at fixed public offering prices or at varying prices determined at the time of sale. Debt Securities may be offered to the public either through underwriting syndicates represented by managing underwriters, or directly by the managing underwriters. Lehman Brothers (a division of Shearson Lehman Brothers Inc.), Merrill Lynch & Co, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Salomon Brothers Inc may act as managing underwriter with respect to an offering of Debt Securities through underwriters. Only underwriters named in the Prospectus Supplement are deemed to be underwriters in connection with the Debt Securities offered thereby, and any of the above-named firms not named in the Prospectus Supplement will not be parties to the underwriting agreement relating to such Debt Securities, will not be purchasing any such Debt Securities from the Company in connection with such offering, and will have no direct or indirect participation in the underwriting of such Debt Securities, although they may participate in the distribution of such Debt Securities under circumstances where they may be entitled to a dealer's commission. If any underwriters are utilized in the sale of the Debt Securities, the underwriting agreement will provide that the obligations of the underwriters are subject to certain conditions precedent and that the underwriters with respect to a sale of Debt Securities will be obligated to purchase all such Debt Securities, if any are purchased. If a dealer is utilized in the sale of the Debt Securities in respect of which this Prospectus is delivered, the Company will sell such Debt Securities to the dealer, as principal. The dealer may then resell such Debt Securities to the public at varying prices to be determined by such dealer at the time of resale. Agents, underwriters and dealers may be entitled under agreements entered into with the Company to indemnification by the Company against certain civil liabilities (including liabilities under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise) or to contribution with respect to payments which the agents, underwriters, or dealers may be required to make in respect thereof. Agents, underwriters and dealers may be customers of, engage in transactions with, or perform services for the Company in the ordinary course of business. Offers to purchase Debt Securities may be solicited directly by the Company and sales thereof may be made by the Company directly to institutional investors or others. The terms of any such sales will be described in the Prospectus Supplement relating thereto. If so indicated in the Prospectus Supplement, the Company will authorize agents and underwriters to solicit offers by certain institutions to purchase Debt Securities from the Company at the public offering price set forth in the Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and delivery on the date stated in the Prospectus Supplement. Each Contract will be for an amount not less than, and unless the Company otherwise agrees the aggregate principal amount of Debt Securities sold pursuant to Contracts shall be not less nor more than, the respective amounts stated in the Prospectus Supplement. Institutions with whom Contracts, when authorized, may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and other institutions, but shall in all cases be subject to the approval of the Company. Contracts will not be subject to any conditions except that the purchase by an institution of the Debt Securities covered by its Contract shall not at the time of delivery be prohibited under the laws of any jurisdiction in the United States to which such institution is subject. A commission indicated in the Prospectus Supplement will be paid to underwriters and agents soliciting purchases of Debt Securities pursuant to Contracts accepted by the Company. The place and time of delivery for the Debt Securities in respect of which this Prospectus is delivered are set forth in the Prospectus Supplement. 15 LEGAL MATTERS The legality of the Debt Securities offered hereby will be passed upon for the Company by Frank T. Lewis, Associate General Counsel of the Company, and for any underwriters, dealers or agents by Sidley & Austin, Chicago, Illinois. EXPERTS The financial statements and schedules of the Company incorporated by reference in this Prospectus and elsewhere in the Registration Statement to the extent and for the periods indicated in their reports have been audited by Arthur Andersen & Co., independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. Reference is made to said report which includes explanatory paragraphs that describe the litigation and rate appeals described in Notes 3 and 4 to the financial statements, respectively. 16 NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HERETO OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------- TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUPPLEMENT Prospectus Summary......................................................... S-2 Selected Financial Information............................................. S-3 Recent Developments........................................................ S-4 Use of Proceeds............................................................ S-6 Description of Bonds....................................................... S-7 Underwriting............................................................... S-10 Legal Opinions............................................................. S-10
PROSPECTUS Available Information....................................................... 2 Incorporation of Certain Documents by Reference............................................................... 2 The Company................................................................. 3 Selected Financial Information.............................................. 4 Recent Developments......................................................... 4 Use of Proceeds............................................................. 5 Description of Debt Securities.............................................. 5 Plan of Distribution........................................................ 14 Legal Matters............................................................... 16 Experts..................................................................... 16
$50,000,000 PSI ENERGY, INC. FIRST MORTGAGE BONDS, SERIES AAA, 7 1/8%, DUE FEBRUARY 1, 2024 LOGO - ------------------------------------ SALOMON BROTHERS INC - ------------------------------------------------ PROSPECTUS SUPPLEMENT DATED FEBRUARY 16, 1994 -----END PRIVACY-ENHANCED MESSAGE-----