<PAGE> 1
Filed pursuant to Rule 424 (b) (5)
Registration Nos. 333-52813
333-52813-01
PROSPECTUS SUPPLEMENT
[COMPANY LOGO] 8,000,000 SECURITIES
NATIONWIDE FINANCIAL SERVICES
CAPITAL TRUST II
7.10% TRUST PREFERRED SECURITIES (TRUPS(R))
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
NATIONWIDE FINANCIAL SERVICES, INC.
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A brief description of the preferred securities can be found under
"Summary" in this prospectus supplement.
We plan to list the preferred securities on the New York Stock Exchange
under the trading symbol NFSPrA. We expect that the preferred securities will
begin trading on the New York Stock Exchange within 30 days after they are first
issued.
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WE URGE YOU TO CAREFULLY READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE
S-6, WHERE WE DESCRIBE SPECIFIC RISKS ASSOCIATED WITH THESE PREFERRED
SECURITIES, ALONG WITH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, BEFORE YOU
MAKE YOUR INVESTMENT DECISION.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
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<TABLE>
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PER PREFERRED
SECURITY TOTAL
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Public Offering Price....................................... $25.00 $200,000,000
Underwriting Discounts...................................... (1) (1)
Proceeds to the Trust (before expenses)..................... $25.00 $200,000,000
</TABLE>
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(1) Underwriting commissions of $0.7875 per preferred security (or $6,300,000
for all preferred securities) will be paid by Nationwide Financial Services,
Inc.
We expect that the preferred securities will be ready for delivery in
book-entry form only through The Depository Trust Company on or about October
19, 1998.
"TRUPS" is a registered service mark of Salomon Smith Barney Inc.
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SALOMON SMITH BARNEY
A.G. EDWARDS & SONS, INC.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
CREDIT SUISSE FIRST BOSTON J.P. MORGAN & CO.
October 14, 1998
<PAGE> 2
You should rely only on the information contained or incorporated by
reference in this prospectus supplement or the prospectus. We have not, and the
underwriters have not, authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not, and the underwriters are not, making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus supplement or the prospectus, as well as information we previously
filed with the Securities and Exchange Commission and incorporated by reference,
is accurate as of the date on the front cover of this prospectus supplement
only. Our business, financial condition, results of operations and prospects may
have changed since that date.
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUPPLEMENT
Forward-Looking Statements.............. S-2
Summary................................. S-3
Risk Factors............................ S-6
The Company............................. S-9
Nationwide Financial Services Capital
Trust II.............................. S-10
Use of Proceeds......................... S-11
Capitalization.......................... S-11
Consolidated Ratios of Earnings to Fixed
Charges and Earnings to Combined Fixed
Charges and Preferred Stock
Dividends............................. S-12
Accounting Treatment.................... S-12
Description of the Preferred
Securities............................ S-12
Description of the Junior Subordinated
Debt Securities....................... S-23
Description of Guarantee................ S-29
Relationship Among the Preferred
Securities, the Junior Subordinated
Debt Securities and the Guarantee..... S-31
Certain Federal Income Tax
Considerations........................ S-33
ERISA Considerations.................... S-37
Underwriting............................ S-39
Legal Matters........................... S-41
Experts................................. S-41
</TABLE>
<TABLE>
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PAGE
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PROSPECTUS
Available Information................... 2
Incorporation of Certain Documents by
Reference............................. 2
The Company............................. 4
The Nationwide Trusts................... 4
Use of Proceeds......................... 5
Consolidated Ratios of Earnings to Fixed
Charges and Earnings to Combined Fixed
Charges and Preferred Stock
Dividends............................. 6
Description of the Debt Securities...... 6
Description of Capital Stock............ 14
Description of Depositary Shares........ 19
Description of the Trust Preferred
Securities............................ 22
Description of the Preferred Securities
Guarantees............................ 23
Plan of Distribution.................... 25
Legal Matters........................... 26
Experts................................. 26
ERISA Matters........................... 27
</TABLE>
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FORWARD-LOOKING STATEMENTS
This Prospectus Supplement, the accompanying Prospectus, and the
information incorporated by reference herein, contain and incorporate by
reference certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the results of
operations and businesses of the Company. These forward-looking statements
involve certain risks and uncertainties. Factors that may cause actual results
to differ materially from those contemplated, projected, forecast, estimated or
budgeted in such forward-looking statements include, among others, the following
possibilities: (i) Nationwide Corporation's control of the Company through its
beneficial ownership of approximately 97.8% of the combined voting power of all
the outstanding common stock and approximately 81.5% of the economic interest in
the Company; (ii) the Company's primary reliance, as a holding company, on
dividends from its subsidiaries to meet debt payment obligations and the
applicable regulatory restrictions on the ability of the Company's subsidiaries
to pay such dividends; (iii) the potential impact on the Company's reported net
income that could result from the adoption of certain accounting standards by
the Financial Accounting Standards Board; (iv) tax law changes impacting the tax
treatment of life insurance and investment products; (v) heightened competition,
including specifically the intensification of price competition, the entry of
new competitors and the development of new products by new and existing
competitors; (vi) adverse state and federal legislation and regulation,
including limitations on premium levels, increases in minimum capital and
reserves, and other financial viability requirements; (vii) failure to expand
distribution channels in order to obtain new customers or failure to retain
existing customers; (viii) inability to carry out marketing and sales plans,
including, among others, changes to certain products and acceptance of the
revised products in the market; (ix) changes in interest rates or the capital
markets causing a reduction of investment income or asset fees or reduction in
the value of the Company's investment portfolio or in the demand for the
Company's products; (x) general economic and business conditions which are less
favorable than expected; (xi) unanticipated changes in industry trends and
ratings assigned by nationally recognized statistical rating organizations or
A.M. Best Company, Inc.; and (xii) inaccuracies in assumptions regarding future
persistency, mortality, interest rates and morbidity used in calculating reserve
amounts.
S-2
<PAGE> 3
The following information concerning the Company, the Trust, the Preferred
Securities, the Guarantee and the Junior Subordinated Debt Securities
supplements, and should be read in conjunction with, the information contained
in the accompanying Prospectus.
SUMMARY
NATIONWIDE FINANCIAL SERVICES, INC.
Nationwide Financial Services, Inc., also referred to as the "Company," is
located at One Nationwide Plaza, Columbus, Ohio 43215, and its telephone number
is (614) 249-7111.
DISTRIBUTIONS
Nationwide Financial Services Capital Trust II (the "Trust") will sell its
preferred securities (the "Preferred Securities") to the public and its common
securities (the "Common Securities") to the Company. The Trust will use the
proceeds from these sales to buy a series of 7.10% Junior Subordinated
Deferrable Interest Debentures due October 31, 2028 (the "Junior Subordinated
Debt Securities") of the Company, which will have the same payment terms as the
Preferred Securities.
If you purchase the Preferred Securities, you are entitled to receive
cumulative cash distributions at an annual rate of 7.10% of the liquidation
amount of $25 per Preferred Security. Distributions will accumulate from the
date the Trust issues the Preferred Securities and will be paid quarterly in
arrears on January 31, April 30, July 31, and October 31 of each year, beginning
January 31, 1999.
DEFERRAL OF DISTRIBUTIONS
So long as no event of default under the Junior Subordinated Debt
Securities has occurred and is continuing, the Company has the right, at one or
more times, to defer interest payments on the Junior Subordinated Debt
Securities for up to 20 consecutive quarters, but not beyond the maturity date
of the Junior Subordinated Debt Securities. See "Description of the Junior
Subordinated Debt Securities -- Option to Extend Interest Payment Period." If
the Company defers interest payments on the Junior Subordinated Debt Securities,
the Trust will also defer distributions on the Preferred Securities. During this
deferral period, you will still accumulate distributions at an annual rate of
7.10% of the liquidation amount of $25 per Preferred Security, plus you will
accumulate additional distributions at the same rate, compounded quarterly, on
any unpaid distributions (to the extent permitted by law). You will also be
required to accrue interest income and include it in your gross income for
United States federal income tax purposes, even if you are a cash basis
taxpayer.
REDEMPTION
The Trust must redeem the Preferred Securities when the Junior Subordinated
Debt Securities are paid at maturity or upon any earlier redemption by the
Company.
The Company has the option to redeem the Junior Subordinated Debt
Securities, in whole or in part, on or after October 19, 2003 at a redemption
price equal to the principal amount to be redeemed plus any accrued and unpaid
interest. In addition, the Company has the option to redeem the Junior
Subordinated Debt Securities at any time, in whole but not in part, at the same
redemption price described above, if certain tax events occur or if there is a
change in the Investment Company Act of 1940 that requires the Trust to register
under that law.
S-3
<PAGE> 4
THE COMPANY'S GUARANTEE OF THE PREFERRED SECURITIES
The Company will guarantee the Preferred Securities based on:
- its obligations to make payments on the Junior Subordinated Debt
Securities;
- its obligations under the Preferred Securities guarantee (the
"Guarantee"); and
- its obligations under the Amended and Restated Declaration of Trust of
Nationwide Financial Services Capital Trust II (the "Declaration"), which
sets forth the terms of the Trust.
For discussion of the Company's obligations listed above, see "Description
of Guarantee" and "Relationship Among the Preferred Securities, the Junior
Subordinated Debt Securities and the Guarantee" in this Prospectus Supplement
and "Description of the Preferred Securities Guarantees" in the accompanying
Prospectus.
If the Company does not make a payment on the Junior Subordinated Debt
Securities, the Trust will not have sufficient funds to make payments on the
Preferred Securities. The Guarantee does not cover payments when the Trust does
not have sufficient funds.
The Company's obligations under the Junior Subordinated Debt Securities are
subject to payment on its Senior Indebtedness (as defined herein) and will be
effectively subordinated to all existing and future liabilities and obligations
of the Company and its subsidiaries, including liabilities and obligations to
policyholders, except that the Company's obligations under its outstanding
7.899% Junior Subordinated Debentures due 2037 are equal in rank with the
Company's obligations under the Junior Subordinated Debt Securities. As of June
30, 1998, the aggregate amount of Senior Indebtedness and liabilities and
obligations of the Company and its subsidiaries that would have effectively
ranked senior to the Junior Subordinated Debt Securities was approximately $66
billion.
DISSOLUTION OF THE TRUST AND DISTRIBUTION OF THE PREFERRED SECURITIES
At any time, the Company will have the right to dissolve the Trust and
cause the Junior Subordinated Debt Securities to be distributed to the holders
of the Preferred Securities and the holders of the Common Securities.
In the event of the involuntary or voluntary liquidation, dissolution,
winding up or termination of the Trust, the holders of the Preferred Securities
will be entitled to receive for each Preferred Security a liquidation amount of
$25 plus accrued and unpaid distributions thereon to the date of payment,
unless, in connection with such dissolution, the Junior Subordinated Debt
Securities are distributed to the holders of the Preferred Securities.
If the Junior Subordinated Debt Securities are distributed, the Company
will use its best efforts to list them on the New York Stock Exchange in place
of the Preferred Securities.
VOTING RIGHTS
Holders of Preferred Securities have limited voting rights. In general,
only the Company can replace or remove any of the trustees of the Trust.
However, if any event of default under the Declaration occurs and is continuing,
the holders of at least a majority in aggregate liquidation amount of the
Preferred Securities may replace the Property Trustee (as defined herein) and
the Delaware Trustee (as defined herein).
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities will be used by the
Trust to purchase the Junior Subordinated Debt Securities issued by the Company.
The Company expects to use such proceeds for general corporate purposes, which
may include possible acquisitions of financial services companies or their
assets, investments in or loans to subsidiaries, working capital, retirement of
obligations of the Company or other corporate purposes. Pending such use, the
net proceeds may be temporarily invested.
S-4
<PAGE> 5
On September 29, 1998, the Company issued a news release confirming its
involvement in discussions with United Asset Management Corporation regarding
the possible acquisition of United Asset Management Corporation's investment
management affiliate, Pilgrim Baxter & Associates. There can be no assurance as
to the outcome of the discussions or that an acquisition will be consummated.
However, if the acquisition is consummated, all or a portion of such proceeds
may be used to finance the acquisition.
LISTING
We have applied to list the Preferred Securities on the New York Stock
Exchange.
BOOK-ENTRY ONLY ISSUANCE
The Preferred Securities will be represented by a global security that will
be deposited with and registered in the name of The Depository Trust Company,
New York, New York ("DTC") or its nominee. This means that you will not receive
a certificate for the Preferred Securities.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to fixed charges and
the ratio of earnings to combined fixed charges and preferred stock dividends
for the Company and its subsidiaries on a consolidated basis for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993, and for the six months ended June
30, 1998. The Company has authority to issue up to 50,000,000 shares of
Preferred Stock; however, there are currently no shares outstanding and the
Company currently does not have a Preferred Stock dividend obligation.
Therefore, the ratio of earnings to combined fixed charges and preferred stock
dividends is equal to the ratio of earnings to fixed charges and is not
disclosed separately. The Company had no debt outstanding prior to 1997.
<TABLE>
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SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994 1993
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Ratio of Earnings to Fixed
Charges...................... 17.2x 16.6x N/A N/A N/A N/A
</TABLE>
The ratio of earnings to fixed charges is calculated by dividing earnings
(income from continuing operations before income taxes plus fixed charges) by
fixed charges (interest expense on debt of the Company and on capital and
preferred securities of subsidiary trusts of the Company). Fixed charges do not
include interest credited to policyholder account balances of $1,016.6 million
for the year ended December 31, 1997 and $526.6 million for the six months ended
June 30, 1998. Interest credited to policyholder account balances totaled $982.3
million, $950.3 million, $844.6 million and $824.0 million for the years ended
December 31, 1996, 1995, 1994 and 1993, respectively.
S-5
<PAGE> 6
RISK FACTORS
You should read carefully the following risk factors and the other sections
of this Prospectus Supplement and the accompanying Prospectus before purchasing
any Preferred Securities.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND JUNIOR SUBORDINATED
DEBT SECURITIES
The Company's obligations under the Guarantee are unsecured and will rank
in priority of payment:
- junior to all of the Company's general liabilities, except those
liabilities that, by their terms, are junior or equal to the Company's
obligations under the Guarantee;
- equal with the Company's most senior preferred and preference stock and
equal with the Company's obligations under other similar trust guarantees;
and
- senior to the Company's common stock.
The Company's obligations under the Junior Subordinated Debt Securities are
unsecured and will rank junior in priority of payment to the Company's Senior
Indebtedness (as defined in "Description of the Junior Subordinated Debt
Securities -- Subordination") and effectively will rank junior to all existing
and future liabilities and obligations of the Company and its subsidiaries,
including liabilities and obligations to policyholders, except that the
Company's obligations under its outstanding 7.899% Junior Subordinated
Debentures due 2037 are equal in rank with the Company's obligations under the
Junior Subordinated Debt Securities. At June 30, 1998, the aggregate amount of
Senior Indebtedness and liabilities and obligations of the Company and its
subsidiaries that would have effectively ranked senior to the Junior
Subordinated Debt Securities was approximately $66 billion. The Preferred
Securities, the Junior Subordinated Debt Securities and the Guarantee do not
limit the ability of the Company or any of its subsidiaries to incur additional
indebtedness, including indebtedness that ranks senior to the Junior
Subordinated Debt Securities and the Guarantee. For more information please
refer to "Description of the Junior Subordinated Debt Securities --
Subordination" and "Description of Guarantee -- Status of the Guarantee."
PAYMENTS ON PREFERRED SECURITIES DEPENDENT ON COMPANY'S PAYMENTS ON JUNIOR
SUBORDINATED DEBT SECURITIES; RIGHTS UNDER THE GUARANTEE
The ability of the Trust to timely pay distributions on the Preferred
Securities and the liquidation amount of $25 per Preferred Security is solely
dependent upon the Company making the related payments on the Junior
Subordinated Debt Securities when due.
If the Company defaults on its obligation to pay principal of or interest
on the Junior Subordinated Debt Securities, the Trust will not have sufficient
funds to pay distributions or the $25 per Preferred Security liquidation amount.
As a result, you will not be able to rely upon the Guarantee for payment of
these amounts. Instead, you or the Property Trustee may enforce the rights of
the Trust under the Junior Subordinated Debt Securities directly against the
Company.
For more information please refer to "Description of the Junior
Subordinated Debt Securities -- Subordination" and "Description of
Guarantee -- Status of the Guarantee."
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If an event of default under the Junior Subordinated Debt Securities occurs
and is continuing, such event will be an event of default under the Preferred
Securities. In that case, the holders of the Preferred Securities would rely on
the enforcement by the Property Trustee of its rights as holder of the Junior
Subordinated Debt Securities against the Company. The holders of a majority in
liquidation amount of the Preferred Securities will have the right to direct the
Property Trustee to exercise its remedies, and if the Property Trustee does not
enforce its rights any record holder may take action directly against the
Company to enforce the Property Trustee's rights. If an event of default under
the Preferred Securities occurs that is attributable to the Company's failure to
pay interest or principal on the Junior Subordinated Debt Securities, a record
holder of the Preferred Securities may proceed directly against the Company. The
record holder of the Preferred
S-6
<PAGE> 7
Securities will be DTC, acting at the direction of the beneficial holders of the
Preferred Securities. The holders of Preferred Securities will not be able to
exercise directly any other remedies available to the holders of the Junior
Subordinated Debt Securities unless the Property Trustee fails to do so. See
"Description of the Preferred Securities -- Declaration Events of Default" and
"Description of the Junior Subordinated Debt Securities -- Indenture Events of
Default."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TRADING CHARACTERISTICS; TAX
CONSEQUENCES
So long as no event of default under the Junior Subordinated Debt
Securities has occurred and is continuing, the Company has the right, at one or
more times, to defer interest payments on the Junior Subordinated Debt
Securities for up to 20 consecutive quarters, but not beyond the maturity date
of the Junior Subordinated Debt Securities.
As a consequence, the Trust would defer distributions on the Preferred
Securities during any deferral period. However, you would still accumulate
distributions at the rate of 7.10% per annum, compounded quarterly, to the
extent permitted by law. During a deferral period, the Preferred Securities may
trade at a price that does not fully reflect the value of accrued but unpaid
interest on the Junior Subordinated Debt Securities.
During a deferral period, you will be required to accrue interest income
for United States federal income tax purposes in respect of your pro-rata share
of the Junior Subordinated Debt Securities held by the Trust. As a result, you
must include the accrued interest in your gross income for United States federal
income tax purposes before you receive a cash distribution. You will also not
receive the cash distribution related to any accrued and unpaid interest from
the Trust if you sell the Preferred Securities before the end of any deferral
period.
During a deferral period, accrued but unpaid distributions will increase
your tax basis in the Preferred Securities. If you sell the Preferred Securities
during a deferral period, your increased tax basis will decrease the amount of
any capital gain or increase the amount of any capital loss that you may have
otherwise realized on the sale. A capital loss, except in certain limited
circumstances, cannot be applied to offset ordinary income.
The Company has no current intention of exercising its right to defer
interest payments on the Junior Subordinated Debt Securities. However, if the
Company exercises its right in the future, the market price of the Preferred
Securities is likely to be affected. If you sell the Preferred Securities during
an interest deferral period, you may not receive the same return on investment
as someone else who continues to hold the Preferred Securities.
See "Certain Federal Income Tax Considerations" for more information
regarding the tax consequences of purchasing the Preferred Securities.
SPECIAL EVENT REDEMPTION
At any time a Special Event (as that term is defined under "Description of
the Preferred Securities -- Special Event Redemption" and which generally means
the occurrence of certain tax events or a change in the Investment Company Act
of 1940, as amended, that requires the Trust to register under that law) occurs
and is continuing, the Company has the right to redeem the Junior Subordinated
Debt Securities, in whole (but not in part). The redemption of the Junior
Subordinated Debt Securities will cause a mandatory redemption of the Preferred
Securities and the Common Securities within 90 days of the event at a redemption
price equal to the liquidation amount of $25 per security plus any unpaid
distributions. See "Description of the Preferred Securities -- Special Event
Redemption" for more information.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBT SECURITIES; POSSIBLE ADVERSE EFFECT ON
MARKET PRICE
The Trust may be terminated before its expiration on May 8, 2053, if
certain events occur and at any time at the Company's option. As a result, and
subject to the terms of the Declaration, the trustees may distribute the Junior
Subordinated Debt Securities to the holders of the Preferred Securities and the
holders of the
S-7
<PAGE> 8
Common Securities. Although the Company has agreed to use its best efforts to
list the Junior Subordinated Debt Securities on the New York Stock Exchange if
this occurs, there can be no assurance that the Junior Subordinated Debt
Securities will be approved for listing or that a trading market will exist for
the Junior Subordinated Debt Securities.
The Company cannot predict the market prices for the Junior Subordinated
Debt Securities that may be distributed. Accordingly, the Junior Subordinated
Debt Securities that you receive upon a distribution, or the Preferred
Securities you hold pending such a distribution, may trade at a discount to the
price that you paid to purchase the Preferred Securities.
Because you may receive Junior Subordinated Debt Securities, you must also
make an investment decision with regard to the Junior Subordinated Debt
Securities. You should carefully review all the information regarding the Junior
Subordinated Debt Securities contained in this Prospectus Supplement and the
accompanying Prospectus.
See "Certain Federal Income Tax Considerations" where we discuss applicable
United States federal income tax consequences.
OPTIONAL REDEMPTION
At the option of the Company, the Junior Subordinated Debt Securities may
be redeemed, in whole or in part, on or after October 19, 2003, at a redemption
price equal to the principal amount to be redeemed plus any accrued and unpaid
interest to the redemption date. See "Description of the Junior Subordinated
Debt Securities -- Optional Redemption." You should assume that the Company will
exercise its redemption option if the Company is able to refinance at a lower
interest rate or it is otherwise in the interest of the Company to redeem the
Junior Subordinated Debt Securities. If Junior Subordinated Debt Securities are
redeemed, the Trust must redeem the Preferred Securities and the Common
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of Junior Subordinated Debt Securities so redeemed. See
"Description of the Preferred Securities -- Mandatory Redemption of Trust
Securities."
LIMITED VOTING RIGHTS
Holders of Preferred Securities have limited voting rights. In general,
only the Company can replace or remove any of the trustees of the Trust.
However, if any event of default under the Declaration occurs and is continuing,
the holders of at least a majority in aggregate liquidation amount of the
Preferred Securities may replace the Property Trustee and the Delaware Trustee.
See "Description of the Preferred Securities -- Voting Rights" for more
information.
S-8
<PAGE> 9
THE COMPANY
Nationwide Financial Services, Inc. was formed in November 1996 and is a
holding company for Nationwide Life Insurance Company and the other companies
within the Nationwide Insurance Enterprise that offer or distribute long-term
savings and retirement products. The Nationwide Insurance Enterprise refers to
Nationwide Mutual Insurance Company and its subsidiaries and affiliates, which
include over 100 companies that offer a wide range of insurance and investment
products and services.
The Company and its subsidiaries are leading providers of long-term savings
and retirement products, including variable annuities, fixed annuities and life
insurance, as well as mutual funds and pension products and administrative
services. The Company believes that it has positioned itself to compete
effectively in many stock market and interest rate environments by developing
and offering this wide variety of products. The Company markets these products
through a broad spectrum of wholesale and retail distribution channels,
including financial planners, pension plan administrators, securities firms,
banks, and Nationwide Mutual Insurance Company agents.
The Company had an initial public offering of its Class A Common Stock, par
value $0.01 per share, on March 11, 1997, pursuant to which it sold
approximately 23.6 million shares, for aggregate net proceeds of approximately
$524.2 million. Also in March of 1997, the Company had two companion public
offerings, pursuant to which it sold $300 million aggregate principal amount of
8% Senior Notes, and Nationwide Financial Services Capital Trust, its subsidiary
trust, sold $100 million aggregate liquidation amount of 7.899% Capital
Securities. The net proceeds of these three transactions totaled approximately
$917 million. The Company contributed approximately $836.8 million of the
proceeds to the capital of Nationwide Life Insurance Company, and kept
approximately $80.2 million for general corporate purposes.
All of the Company's Class B Common Stock, par value $0.01 per share, is
owned by Nationwide Corporation, a subsidiary of Nationwide Mutual Insurance
Company. The Class A Common Stock and the Class B Common Stock make up the
Company's outstanding common stock. The Class B Common Stock represents
approximately 81.5% of the total number of shares of this common stock, and
97.8% of the combined voting power of all of the Company's stockholders.
The Company's mailing address is One Nationwide Plaza, Columbus, Ohio
43215, and the Company's telephone number is (614) 249-7111.
S-9
<PAGE> 10
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST II
GENERAL
Nationwide Financial Services Capital Trust II (the "Trust") is a statutory
business trust created under Delaware law pursuant to (i) a declaration of
trust, dated as of May 7, 1998, executed by the Company, as sponsor (the
"Sponsor"), and the trustees of the Trust named therein (as described below) and
(ii) the filing of a certificate of trust with the Secretary of State of the
State of Delaware on May 8, 1998. Such declaration of trust will be amended and
restated in its entirety (as so amended and restated, the "Declaration")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus Supplement and the accompanying Prospectus form a part.
The Declaration will be qualified as an indenture under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities. See
"Description of the Preferred Securities -- Book-Entry Only Issuance -- The
Depository Trust Company." The Company will directly or indirectly acquire the
Common Securities (together with the Preferred Securities, the "Trust
Securities") in an aggregate liquidation amount equal to 3% or more of the total
capital of the Trust. The Trust exists for the exclusive purposes of (i) issuing
the Trust Securities representing undivided beneficial interests in the assets
of the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Junior Subordinated Debt Securities and (iii) engaging in only those other
activities necessary or incidental thereto.
The term of the Trust will expire on May 8, 2053, but the Trust may
dissolve earlier as provided in the Declaration. The Trust's business and
affairs are conducted by its trustees, each appointed by the Company as holder
of the Common Securities. Pursuant to the Declaration, the number of trustees of
the Trust will initially be four: Wilmington Trust Company, a Delaware banking
corporation with its principal place of business in the State of Delaware, as
the Delaware trustee (the "Delaware Trustee") and as institutional trustee (the
"Property Trustee"), and two individual trustees (the "Regular Trustees" and,
together with the Property Trustee and the Delaware Trustee, the "Trustees")
will be persons who are employees or officers of, or who are affiliated with,
the Company. The Property Trustee will act as the sole indenture trustee under
the Declaration for purposes of compliance with the Trust Indenture Act until
removed or replaced by the holder of the Common Securities. Wilmington Trust
Company will also act as Trust Indenture Act indenture trustee (the "Guarantee
Trustee") under the Guarantee, and as Trust Indenture Act indenture trustee (the
"Subordinated Indenture Trustee") under the Subordinated Indenture pursuant to
which the Junior Subordinated Debt Securities are issued. See "Description of
the Junior Subordinated Debt Securities" and "Description of Guarantee."
The Property Trustee will hold title to the Junior Subordinated Debt
Securities for the benefit of the holders of the Trust Securities and, in its
capacity as the holder, the Property Trustee will have the power to exercise all
rights, powers and privileges under the Subordinated Indenture (as defined
herein) pursuant to which the Junior Subordinated Debt Securities are issued. In
addition, the Property Trustee will maintain exclusive control of a segregated
non-interest bearing trust account (the "Property Account") to hold all payments
made in respect of the Junior Subordinated Debt Securities for the benefit of
the holders of the Trust Securities. The Property Trustee will make payments of
distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities out of funds from the Property Account. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities. The Company, as the direct or indirect holder of all the
Common Securities, will have the right, subject to certain restrictions
contained in the Declaration, to appoint, remove or replace any Trustee and to
increase or decrease the number of Trustees. The Company will pay all fees and
expenses related to the Trust and the offering of the Trust Securities. See
"Description of the Junior Subordinated Debt Securities -- Certain Fees and
Expenses."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. The Declaration, the Indenture and the Guarantee also incorporate
by reference the terms of the Trust Indenture Act. See "Description of the
Preferred Securities."
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<PAGE> 11
The principal place of business of the Delaware Trustee is c/o Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890, Attention: Corporate Trust Administration. The principal place
of business of the Trust shall be c/o Nationwide Financial Services, Inc., One
Nationwide Plaza, Columbus, Ohio 43215, and its telephone number is (614)
249-7111.
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities offered hereby will
be used by the Trust to purchase the Junior Subordinated Debt Securities issued
by the Company. The Company expects to use such proceeds for general corporate
purposes, which may include possible acquisitions of financial services
companies or their assets, investments in or loans to subsidiaries, working
capital, retirement of obligations of the Company or other corporate purposes.
Pending such use, the net proceeds may be temporarily invested.
On September 29, 1998, the Company issued a news release confirming its
involvement in discussions with United Asset Management Corporation regarding
the possible acquisition of United Asset Management Corporation's investment
management affiliate, Pilgrim Baxter & Associates. There can be no assurance as
to the outcome of the discussions or that an acquisition will be consummated.
However, if the acquisition is consummated, all or a portion of such proceeds
may be used to finance the acquisition.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of June 30, 1998 and as adjusted to give effect
to the issuance of the Preferred Securities offered hereby and the use of
proceeds therefrom. The following data should be read in conjunction with the
consolidated financial statements and notes thereto of the Company and its
subsidiaries incorporated herein by reference.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
Long-term debt.............................................. $ 298.4 $ 298.4
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely junior
subordinated debt securities of the Company(1)............ 100.0 300.0
Shareholders' equity excluding accumulated other
comprehensive income...................................... 2,029.1 2,029.1
Accumulated other comprehensive income...................... 250.0 250.0
-------- --------
Total Capitalization.............................. $2,677.5 $2,877.5
======== ========
</TABLE>
- ---------------
(1) As described herein, the sole assets of the Trust will be $206,185,600 of
7.10% Junior Subordinated Debt Securities, issued by the Company to the
Trust. The Junior Subordinated Debt Securities will mature on October 31,
2028. The Company owns all of the Common Securities of the Trust. It is
anticipated that the Trust will not be subject to the reporting requirements
under the Securities and Exchange Act of 1934, as amended. The sole assets
of Nationwide Financial Services Capital Trust (the "Nationwide Capital
Trust") are $103,093,000 of 7.899% junior subordinated deferrable interest
debentures due March 1, 2037, issued by the Company to the Nationwide
Capital Trust.
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<PAGE> 12
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to fixed charges and
the ratio of earnings to combined fixed charges and preferred stock dividends
for the Company and its subsidiaries on a consolidated basis for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993, and for the six months ended June
30, 1998. The Company had no debt outstanding prior to 1997.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994 1993
---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(1)(2)................ 17.2x 16.6x N/A N/A N/A N/A
</TABLE>
- ---------------
(1) The Company has authority to issue up to 50,000,000 shares of Preferred
Stock; however, there are currently no shares outstanding and the Company
currently does not have a Preferred Stock dividend obligation. Therefore,
the ratio of earnings to combined fixed charges and preferred stock
dividends is equal to the ratio of earnings to fixed charges and is not
disclosed separately.
(2) The ratio of earnings to fixed charges is calculated by dividing earnings
(income from continuing operations before income taxes plus fixed charges)
by fixed charges (interest expense on debt of the Company and on capital and
preferred securities of subsidiary trusts of the Company). Fixed charges do
not include interest credited to policyholder account balances of $1,016.6
million for the year ended December 31, 1997 and $526.6 million for the six
months ended June 30, 1998. Interest credited to policyholder account
balances totaled $982.3 million, $950.3 million, $844.6 million and $824.0
million for the years ended December 31, 1996, 1995, 1994 and 1993,
respectively.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a subsidiary
of the Company and, accordingly, the accounts of the Trust will be included in
the consolidated financial statements of the Company. The Preferred Securities
will be presented as a separate line item in the balance sheet of the Company
and disclosures concerning the Preferred Securities, the Guarantee and the
Junior Subordinated Debt Securities will be included in the notes to the
consolidated financial statements. For financial reporting purposes, the Company
will record distributions payable on the Preferred Securities as an expense.
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, Wilmington Trust Company, will act as
indenture trustee under the Declaration for purposes of compliance with the
provisions of the Trust Indenture Act. The terms of the Preferred Securities
will include those stated in the Declaration and those made part of the
Declaration by the Trust Indenture Act. This description supplements the
description of the general terms and provisions of the Preferred Securities set
forth in the accompanying Prospectus under the caption "Description of the Trust
Preferred Securities." The following summary of the material terms and
provisions of the Preferred Securities does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the description in
the accompanying Prospectus, the Declaration (a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus Supplement is a
part), the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Trust to issue the Trust Securities, which
represent undivided beneficial interests in the assets of the Trust. All of the
Common Securities will be owned, directly or indirectly, by the Company. The
Common Securities rank pari passu, and payments will be made thereon on a pro
rata basis,
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<PAGE> 13
with the Preferred Securities, except that upon the occurrence and during the
continuance of a Declaration Event of Default (as defined herein), the rights of
the holders of the Common Securities to receive payment of periodic
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Preferred Securities. The
Declaration does not permit the issuance by the Trust of any securities other
than the Trust Securities or the incurrence of any indebtedness by the Trust.
Pursuant to the Declaration, the Property Trustee will hold title to the Junior
Subordinated Debt Securities purchased by the Trust for the benefit of the
holders of the Trust Securities. The payment of distributions out of money held
by the Trust, and payments upon redemption of the Preferred Securities or
liquidation of the Trust out of money held by the Trust, are guaranteed by the
Company to the extent described under "Description of Guarantee." The Guarantee
will be held by Wilmington Trust Company, the Guarantee Trustee, for the benefit
of the holders of the Preferred Securities. The Guarantee does not cover payment
of distributions when the Trust does not have sufficient available funds to pay
such distributions. In such event, the remedy of a holder of Preferred
Securities is to (i) vote to direct the Property Trustee to enforce the Property
Trustee's rights under the Junior Subordinated Debt Securities or (ii) if the
failure of the Trust to pay distributions is attributable to the failure of the
Company to pay interest or principal on the Junior Subordinated Debt Securities,
institute a proceeding directly against the Company for enforcement of payment
to such holder of the principal or interest on the Junior Subordinated Debt
Securities having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder on or after the respective due date
specified in the Junior Subordinated Debt Securities. See "-- Voting Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of 7.10% of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears beyond the first date such distributions are payable
(or would be payable, if not for any Extension Period or default by the Company
on the Junior Subordinated Debt Securities) will bear interest thereon at the
rate per annum of 7.10% thereof compounded quarterly. The term "distribution" as
used herein includes any such interest payable unless otherwise stated. The
amount of distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative, will accrue
from and including October 19, 1998, and will be payable quarterly in arrears on
January 31, April 30, July 31 and October 31 of each year (each a "Distribution
Payment Date"), commencing January 31, 1999.
The distribution rate and the Distribution Payment Dates and other payment
dates for the Preferred Securities will correspond to the interest rate and
Interest Payment Dates (as defined herein) and other payment dates on the Junior
Subordinated Debt Securities.
The Company has the right under the Subordinated Indenture to defer
payments of interest on the Junior Subordinated Debt Securities by extending the
interest payment period from time to time on the Junior Subordinated Debt
Securities for an Extension Period not exceeding 20 consecutive quarterly
interest periods during which no interest shall be due and payable; provided,
that no Extension Period may extend beyond the maturity of the Junior
Subordinated Debt Securities. If the Company extends the interest payment
period, quarterly distributions on the Preferred Securities would be deferred
(though such distributions would continue to accrue with interest thereon
compounded quarterly, since interest would continue to accrue on the Junior
Subordinated Debt Securities) during any such extended interest payment period.
If the Company exercises its right to extend the interest payment period,
then (a) the Company shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock or make any
guarantee payment with respect thereto (other than (i) repurchases, redemptions
or other acquisitions of shares of capital stock of the Company in connection
with any employment contract, benefit plan or other similar arrangement with or
for the benefit of employees, officers, directors or consultants, (ii) as a
result of an exchange or conversion of any class or series of the Company's
capital stock for any other class or series of the Company's capital stock,
(iii) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or
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<PAGE> 14
exchange provisions of such capital stock or the security being converted or
exchanged or (iv) distributions of rights under any shareholders rights plan
adopted by the Company), and (b) the Company shall not make any payment of
interest on or principal of (or premium, if any, on), or repay, repurchase or
redeem, any debt securities issued by the Company or its subsidiaries which rank
pari passu with or junior to the Junior Subordinated Debt Securities. The
foregoing, however, will not apply to any stock dividends paid by the Company
where the dividend stock is the same stock as that on which the dividend is
being paid. Prior to the termination of any Extension Period, the Company may
further extend such Extension Period; provided, that such Extension Period,
together with all such previous and further extensions thereof, may not exceed
20 consecutive quarterly interest periods; provided further, that no Extension
Period may extend beyond the maturity of the Junior Subordinated Debt
Securities. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may commence a new Extension Period, subject to
the above requirements. Consequently, there could be numerous Extension Periods
of varying lengths throughout the term of the Junior Subordinated Debt
Securities. See "Description of the Junior Subordinated Debt
Securities -- Interest" and "-- Option to Extend Interest Payment Period." The
Regular Trustees shall give the holders of the Preferred Securities notice of
any Extension Period upon their receipt of notice thereof from the Company. See
"Description of the Junior Subordinated Debt Securities -- Option To Extend
Interest Payment Period." If distributions are deferred, the deferred
distributions and accrued interest thereon shall be paid to holders of record of
the Preferred Securities as they appear on the books and records of the Trust on
the record date next following the termination of such deferral period. If the
Company elects to defer payments of interest on the Junior Subordinated Debt
Securities, the market price of the Preferred Securities is likely to be
affected. Distributions on the Preferred Securities will be made on the dates
payable to the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received from the Company on the Junior Subordinated Debt Securities.
See "Description of the Junior Subordinated Debt Securities." The payment of
distributions out of monies held by the Trust is guaranteed by the Company to
the extent set forth under "Description of Guarantee."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust at the close of
business on the relevant record dates, which, as long as the Preferred
Securities remain in book-entry only form, will be one Business Day prior to the
relevant payment dates. Such distributions will be paid through the Property
Trustee who will hold amounts received in respect of the Junior Subordinated
Debt Securities in the Property Account for the benefit of the holders of the
Trust Securities. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment will be made as described under
"-- Book-Entry Only Issuance -- The Depository Trust Company" below. In the
event that the Preferred Securities do not continue to remain in book-entry only
form, the relevant record dates shall conform to the rules of any securities
exchange on which the Preferred Securities are listed and, if none, the Regular
Trustees shall have the right to select relevant record dates, which shall be
more than 14 days but less than 60 days prior to the relevant Distribution
Payment Dates. In the event that any date on which distributions are to be made
on the Preferred Securities is not a Business Day, then payment of the
distributions payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on the relevant
Distribution Payment Date. A "Business Day" shall mean any day other than
Saturday, Sunday or any other day on which banking institutions in New York, New
York or Wilmington, Delaware are permitted or required by any applicable law to
close.
MANDATORY REDEMPTION OF TRUST SECURITIES
The Preferred Securities have no stated maturity date but will be redeemed
upon the maturity of the Junior Subordinated Debt Securities or to the extent
the Junior Subordinated Debt Securities are redeemed. The Junior Subordinated
Debt Securities will mature on October 31, 2028, and may be redeemed, (i) in
whole at any time, or in part from time to time, on or after October 19, 2003,
or (ii) at any time, in whole but not in part, in certain circumstances upon the
occurrence of a Special Event (as defined herein), in either
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<PAGE> 15
case, at a redemption price equal to accrued and unpaid interest on the Junior
Subordinated Debt Securities so redeemed to the date fixed for redemption plus
the principal amount thereof. See "Description of the Junior Subordinated Debt
Securities -- Optional Redemption." Upon the maturity of the Junior Subordinated
Debt Securities, the proceeds of the repayment thereof shall simultaneously be
applied to redeem all outstanding Trust Securities at the Redemption Price. Upon
the redemption of the Junior Subordinated Debt Securities, whether in whole or
in part (either at the option of the Company or pursuant to a Special Event),
the proceeds from such redemption shall simultaneously be applied to redeem
Trust Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Junior Subordinated Debt Securities so redeemed at the
Redemption Price; provided, that holders of Trust Securities shall be given not
less than 30 nor more than 60 days' notice of such redemption. In the event that
fewer than all of the outstanding Junior Subordinated Debt Securities are to be
redeemed, the Trust Securities will be redeemed pro rata as described under
"-- Book-Entry Only Issuance -- The Depository Trust Company" below.
SPECIAL EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of a nationally recognized independent tax counsel experienced in such matters
to the effect that, as a result of (a) any amendment to, or change (including
any announced prospective change) in, the laws (or any regulations thereunder)
of the United States or any political subdivision or taxing authority thereof or
therein or (b) any interpretation or application of, or pronouncement with
respect to, such laws or regulations by any legislative body, court,
governmental agency or regulatory authority (including the enactment of any
legislation and the publication of any judicial decision or regulatory
determination), which amendment or change is effective or which interpretation,
application or pronouncement is announced on or after the date of this
Prospectus Supplement, there is more than an insubstantial risk that (i) the
Trust would be subject to United States federal income tax with respect to
income accrued or received on the Junior Subordinated Debt Securities, (ii)
interest payable to the Trust on the Junior Subordinated Debt Securities would
not be deductible, in whole or in part, by the Company for United States federal
income tax purposes or (iii) the Trust would be subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of a nationally recognized independent counsel experienced
in practicing under the 1940 Act (as defined herein) to the effect that, as a
result of the occurrence of a change in law or regulation or a written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), which Change in 1940 Act Law
becomes effective on or after the date of this Prospectus Supplement.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, the Company
shall have the right, upon not less than 30 nor more than 60 days' notice, to
redeem the Junior Subordinated Debt Securities, in whole but not in part, for
cash within 90 days following the occurrence of such Special Event, and,
following such redemption, Trust Securities with an aggregate liquidation amount
equal to the aggregate principal amount of the Junior Subordinated Debt
Securities so redeemed shall be redeemed by the Trust at the Redemption Price.
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBT SECURITIES
The Company will have the right at any time to dissolve the Trust and after
satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the Junior Subordinated Debt Securities to be distributed
to the holders of the Trust Securities.
If the Junior Subordinated Debt Securities are distributed to the holders
of the Preferred Securities, the Company will use its best efforts to cause the
Junior Subordinated Debt Securities to be listed on the New York Stock Exchange
or on such other exchange as the Preferred Securities are then listed.
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<PAGE> 16
After the date for any distribution of Junior Subordinated Debt Securities
upon dissolution of the Trust, (i) the Preferred Securities will no longer be
deemed to be outstanding, (ii) the securities depositary or its nominee, as the
record holder of the Preferred Securities, will receive a registered global
certificate or certificates representing the Junior Subordinated Debt Securities
to be delivered upon such distribution, and (iii) any certificates representing
Preferred Securities not held by the depositary or its nominee will be deemed to
represent Junior Subordinated Debt Securities having an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and with accrued and unpaid interest
equal to accrued and unpaid distributions on, such Preferred Securities until
such certificates are presented to the Company or its agent for transfer or
reissuance.
If a dissolution and liquidation of the Trust were to occur, there can be
no assurance as to the market prices for either the Preferred Securities or the
Junior Subordinated Debt Securities that may be distributed in exchange for the
Preferred Securities. Accordingly, the Preferred Securities that an investor may
purchase, whether pursuant to the offer made hereby or in the secondary market,
or the Junior Subordinated Debt Securities that an investor may receive if a
dissolution and liquidation of the Trust were to occur, may trade at a discount
to the price that the investor paid to purchase the Preferred Securities offered
hereby.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of the Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, and if the Company has paid to the Property
Trustee a sufficient amount of cash in connection with the related redemption or
maturity of the Junior Subordinated Debt Securities, the Property Trustee will
irrevocably deposit with the securities depositary for the Preferred Securities
funds sufficient to pay the applicable Redemption Price and will give the
securities depositary for the Preferred Securities irrevocable instructions and
authority to pay the Redemption Price to the holders of the Preferred
Securities. See "-- Book-Entry Only Issuance -- The Depository Trust Company."
If notice of redemption shall have been given and funds deposited as required,
then, immediately prior to the close of business on the date of such deposit,
distributions will cease to accrue and all rights of holders of Preferred
Securities so called for redemption will cease, except the right of the holders
of such Preferred Securities to receive the Redemption Price without interest on
such Redemption Price.
In the event that any date fixed for redemption of Preferred Securities is
not a Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day that is a Business Day (without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the Redemption
Price in respect of Preferred Securities is improperly withheld or refused and
not paid either by the Trust, or by the Company pursuant to the Guarantee,
distributions on such Preferred Securities will continue to accrue at the then
applicable rate from the original redemption date to the date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed in accordance with
the depositary's standard procedures. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), any of the Company, its subsidiaries or
its affiliates may, at any time and from time to time, purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
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<PAGE> 17
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Trust (each a "Liquidation"), the holders of the Preferred
Securities will be entitled to receive out of the assets of the Trust, after
satisfaction of liabilities to creditors, distributions in an amount equal to
the aggregate of the stated liquidation amount of $25 per Preferred Security
plus accrued and unpaid distributions thereon to the date of payment (the
"Liquidation Distribution"), unless, in connection with such Liquidation, Junior
Subordinated Debt Securities in an aggregate stated principal amount equal to
the aggregate stated liquidation amount of, with an interest rate identical to
the distribution rate of, and with accrued and unpaid interest equal to accrued
and unpaid distributions on, the Preferred Securities outstanding at such time
have been distributed on a pro rata basis to the holders of such Preferred
Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
Liquidation pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing the Preferred
Securities shall have a preference over the Common Securities with regard to
such distributions.
Pursuant to the Declaration, the Trust shall dissolve (i) on May 8, 2053,
the expiration of the term of the Trust, (ii) upon the bankruptcy of the Company
or the holder of the Common Securities, (iii) upon the filing of a certificate
of dissolution or its equivalent with respect to the holder of the Common
Securities or the Company, or the revocation of the charter of the holder of the
Common Securities or the Company and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iv) upon the distribution of Junior
Subordinated Debt Securities to the holders of Preferred Securities, (v) upon
the entry of a decree of a judicial dissolution of the holder of the Common
Securities, the Company or the Trust, or (vi) upon the redemption of all the
Trust Securities.
DECLARATION EVENTS OF DEFAULT
An event of default under the Subordinated Indenture (an "Indenture Event
of Default") constitutes an event of default under the Declaration with respect
to the Trust Securities (a "Declaration Event of Default"); provided, that
pursuant to the Declaration the holder of the Common Securities will be deemed
to have waived any Declaration Event of Default with respect to the Common
Securities until all Declaration Events of Default with respect to the Preferred
Securities have been cured, waived or otherwise eliminated. Until such
Declaration Events of Default with respect to the Preferred Securities have been
so cured, waived or otherwise eliminated, the Property Trustee will be deemed to
be acting solely on behalf of the holders of the Preferred Securities and only
the holders of the Preferred Securities will have the right to direct the
Property Trustee with respect to certain matters under the Declaration and
therefore the Subordinated Indenture. In the event that any Declaration Event of
Default with respect to the Preferred Securities is waived by the holders of the
Preferred Securities as provided in the Declaration, the holders of Common
Securities pursuant to the Declaration have agreed that such waiver also
constitutes a waiver of such Declaration Event of Default with respect to the
Common Securities for all purposes under the Declaration without any further
act, vote or consent of the holders of Common Securities. See "-- Voting
Rights."
If the Property Trustee fails to enforce its rights under the Junior
Subordinated Debt Securities, any holder of Preferred Securities may, to the
fullest extent permitted by law, directly institute a legal proceeding against
the Company to enforce the Property Trustee's rights under the Junior
Subordinated Debt Securities without first instituting any legal proceeding
against the Property Trustee or any other person or entity. If a Declaration
Event of Default has occurred and is continuing and such event is attributable
to the failure of the Company to pay interest or principal on the Junior
Subordinated Debt Securities on the date such interest or principal is otherwise
payable (or in the case of redemption, the redemption date), then a holder of
Preferred Securities may also directly institute a proceeding for enforcement of
payment to such holder of the principal of or interest on the Junior
Subordinated Debt Securities having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such holder (a "Direct
Action") on or after the respective
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<PAGE> 18
due date specified in the Junior Subordinated Debt Securities without first (i)
directing the Property Trustee to enforce the terms of the Junior Subordinated
Debt Securities or (ii) instituting a legal proceeding against the Company to
enforce the Property Trustee's rights under the Junior Subordinated Debt
Securities. In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made by the Company to such holder of
Preferred Securities in such Direct Action. Consequently, the Company will be
entitled to payment of amounts that a holder of Preferred Securities receives in
respect of an unpaid distribution that resulted in the bringing of a Direct
Action to the extent that such holder receives or has already received full
payment with respect to such unpaid distribution from the Trust. The holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Junior Subordinated Debt Securities.
Upon the occurrence of an Indenture Event of Default, the Property Trustee
as the sole holder of the Junior Subordinated Debt Securities will have the
right under the Subordinated Indenture to declare the principal of and interest
on the Junior Subordinated Debt Securities to be immediately due and payable.
The Company and the Trust are each required to file annually with the Property
Trustee an officers' certificate as to its compliance with all conditions and
covenants under the Declaration.
VOTING RIGHTS
Except as described in this Prospectus Supplement and in the accompanying
Prospectus under "Description of Preferred Securities Guarantees -- Amendments
and Assignment," and except as provided under the Trust Act, the Trust Indenture
Act and as otherwise required by law and the Declaration, the holders of the
Preferred Securities will have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration including the right to direct the Property Trustee, as holder of the
Junior Subordinated Debt Securities, to (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Subordinated Indenture
Trustee, or exercising any trust or power conferred on the Subordinated
Indenture Trustee with respect to the Junior Subordinated Debt Securities, (ii)
waive any past Indenture Event of Default that is waivable under Section 5.13 of
the Subordinated Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debt Securities
shall be due and payable, or (iv) consent to any amendment, modification or
termination of the Subordinated Indenture or the Junior Subordinated Debt
Securities where such consent shall be required; provided, however, that, where
a consent or action under the Subordinated Indenture would require the consent
or act of holders of more than a majority in principal amount of the Junior
Subordinated Debt Securities (a "Super Majority") affected thereby, only the
holders of at least such Super Majority in aggregate liquidation amount of the
Preferred Securities may direct the Property Trustee to give such consent or
take such action. If the Property Trustee fails to enforce its rights under the
Junior Subordinated Debt Securities (other than by reason of the failure to
obtain the opinion set forth in the last sentence of this paragraph), any record
holder of Preferred Securities may, to the fullest extent permitted by law,
directly institute a legal proceeding against the Company to enforce the
Property Trustee's rights under the Junior Subordinated Debt Securities without
first instituting any legal proceeding against the Property Trustee or any other
person or entity. The Property Trustee shall notify all holders of the Preferred
Securities of any notice of default received from the Subordinated Indenture
Trustee with respect to the Junior Subordinated Debt Securities. Such notice
shall state that such Indenture Event of Default also constitutes a Declaration
Event of Default. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy available to the Property Trustee, the
Property Trustee, as holder of the Junior Subordinated Debentures, shall not
take any of the actions described in clauses (i), (ii), (iii) or (iv) above
unless the Property Trustee has obtained an opinion of a nationally recognized
independent tax counsel experienced in such matters to the effect that, as a
result of such action, the Trust will not fail to be classified as a grantor
trust for United States federal income tax purposes.
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In the event the consent of the Property Trustee, as the holder of the
Junior Subordinated Debt Securities, is required under the Subordinated
Indenture with respect to any amendment, modification or termination of the
Subordinated Indenture, the Property Trustee shall request the written direction
of the holders of the Trust Securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in liquidation amount of
the Trust Securities voting together as a single class; provided, however, that
where any amendment, modification or termination under the Subordinated
Indenture would require the consent of a Super Majority, the Property Trustee
may only give such consent at the direction of the holders of at least the
proportion in aggregate liquidation amount of the Trust Securities which the
relevant Super Majority represents of the aggregate principal amount of the
Junior Subordinated Debt Securities outstanding. The Property Trustee shall be
under no obligation to take any such action in accordance with the directions of
the holders of the Trust Securities unless the Property Trustee has obtained an
opinion of a nationally recognized independent tax counsel experienced in such
matters to the effect that for United States federal income tax purposes the
Trust will not be classified as other than a grantor trust.
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of the holders of the Preferred Securities will constitute a waiver of
the corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken; (ii) a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Preferred Securities will be required for the Trust to redeem
and cancel Preferred Securities or distribute Junior Subordinated Debt
Securities in accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
Except in certain circumstances as set forth in the Declaration, holders of
the Preferred Securities will have no rights to appoint or remove the Trustees,
who may be appointed, removed or replaced solely by the Company as the indirect
or direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Property Trustee and the Delaware
Trustee); provided, that, if any proposed amendment provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Trust Securities, whether by
way of amendment to the Declaration or otherwise, or (ii) the dissolution,
winding-up or termination of the Trust, other than pursuant to the terms of the
Declaration, then the holders of the Trust Securities voting together as a
single class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of holders
of at least a majority in liquidation amount of the Trust Securities affected
thereby; provided, that, if any amendment or proposal referred to in clause (i)
above would adversely affect only the Preferred Securities or the Common
Securities, then only holders of the affected class will be entitled to vote
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on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of holders of a majority in liquidation
amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for United States federal income tax purposes as other than a
grantor trust, (ii) reduce or otherwise adversely affect the powers of the
Property Trustee or (iii) cause the Trust to be deemed an "investment company"
which is required to be registered under the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body except as
described below or under "-- Liquidation Distribution Upon Dissolution." The
Trust may, with the consent of the Regular Trustees and without the consent of
the holders of the Trust Securities, consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State;
provided, that (i) such successor entity either (x) expressly assumes all of the
obligations of the Trust under the Trust Securities or (y) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Trust Securities (the "Successor Securities"), so long as the Successor
Securities rank the same as the Trust Securities rank with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Company expressly acknowledges a trustee of such successor entity possessing the
same powers and duties as the Property Trustee, in its capacity as the holder of
the Junior Subordinated Debt Securities, (iii) the Preferred Securities or any
Successor Securities are listed or quoted, or any Successor Securities will be
listed or quoted upon notification of issuance, on any national securities
exchange or with another organization on which the Preferred Securities are then
listed or quoted, (iv) such merger, consolidation, amalgamation or replacement
does not cause the Preferred Securities (including any Successor Securities) to
be downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation or replacement does not adversely
affect the rights, preferences and privileges of the holders of the Trust
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interest in the new entity),
(vi) such successor entity has a purpose substantially identical to that of the
Trust, (vii) prior to such merger, consolidation, amalgamation or replacement,
the Trust has received an opinion of a nationally recognized independent counsel
to the Trust experienced in such matters to the effect that, (A) such merger,
consolidation, amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities (including any
Successor Securities) in any material respect (other than with respect to any
dilution of the holders' interest in the new entity), (B) following such merger,
consolidation, amalgamation or replacement, neither the Trust nor such successor
entity will be required to register as an "investment company" under the 1940
Act and (C) following such merger, consolidation, amalgamation or replacement,
the Trust (or such successor entity) will continue to be classified as a grantor
trust for United States federal income tax purposes; and (viii) the Company
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee. Notwithstanding the
foregoing, the Trust shall not, except with the consent of holders of 100% in
liquidation amount of the Trust Securities, consolidate, amalgamate, merge with
or into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it, if in the opinion of
a nationally recognized independent tax counsel experienced in such matters,
such consolidation, amalgamation, merger or replacement would cause the Trust or
the Successor Entity to be classified as other than a grantor trust for United
States federal income tax purposes. See "-- Special Event Redemption " and
"-- Liquidation Distribution upon Dissolution."
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
the Preferred Securities. The Preferred Securities will be issued only as fully
registered securities registered in the name of Cede & Co. (DTC's nominee). One
or more fully registered global Preferred Securities certificates, representing
the total aggregate number of Preferred Securities, will be issued and will be
deposited with DTC.
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The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Preferred
Securities as represented by a global certificate.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). 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, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. (the
"NASD"). Access to the DTC system is also available to others, such as
securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect 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 (the "Commission").
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in the Preferred Securities, except in the event that
use of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce the amount of the
interest of each Direct Participant in such Preferred Securities in accordance
with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
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Distribution payments on the Preferred Securities will be made by transfer
of immediately available funds to DTC. DTC's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the account of customers in
bearer form or registered in "street name," and such payments will be the
responsibility of such Participant and not of DTC, the Trust or the Company,
subject to any statutory or regulatory requirements to the contrary that may be
in effect from time to time.
Payment of distributions to DTC is the responsibility of the Trust,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
Except as described herein, a Beneficial Owner in a global Preferred
Security certificate will not be entitled to receive physical delivery of
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, Preferred Securities certificates are required to be
printed and delivered. Additionally, the Regular Trustees (with the consent of
the Company) may decide to discontinue use of the system of book-entry transfers
through DTC (or any successor depositary) with respect to the Preferred
Securities. In that event, certificates for the Preferred Securities will be
printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and the Trust believe to be
reliable, but none of the Company, the Trust or any Underwriter (as defined
herein) takes responsibility for the accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Declaration and, after such a default, shall exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs. Subject to such provisions, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the Declaration at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. Notwithstanding the foregoing, the holders of Preferred
Securities will not be required to offer such indemnity in the event such
holders, by exercising their voting rights, direct the Property Trustee to take
any action following a Declaration Event of Default.
PAYING AGENT; TRANSFER AGENT AND REGISTRAR
In the event that the Preferred Securities do not remain in book-entry only
form, the following provisions will apply: The Property Trustee will act as
paying agent and may designate an additional or substitute paying agent at any
time. The Trust and the Property Trustee shall be entitled to treat the holders
of the Preferred Securities, as their names appear in the registration books
kept by the Property Trustee at its corporate office, as the owners of those
Preferred Securities for all purposes under the Declaration. Registration of
transfers of Preferred Securities will be effected without charge by or on
behalf of the Trust, but upon payment (with the giving of such indemnity as the
Trust or the Company may require) in respect of any tax or other government
charges that may be imposed in relation to it. The Trust will not be required to
register or cause to be registered the transfer of Preferred Securities after
such Preferred Securities have been called for redemption, or on or after the
liquidation date.
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GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or be characterized as other than a grantor trust
for United States federal income tax purposes. The Company is authorized and
directed to conduct its affairs so that the Junior Subordinated Debt Securities
will be treated as indebtedness of the Company for United States federal income
tax purposes. In this connection, the Company and the Regular Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the certificate of incorporation of the
Company, that each of the Company and the Regular Trustees determine in their
discretion to be necessary or desirable to achieve such end, as long as such
action does not adversely affect the interests of the holders of the Preferred
Securities or vary the terms thereof.
Holders of the Preferred Securities have no preemptive or similar rights.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBT SECURITIES
Set forth below is a description of the specific terms of the Junior
Subordinated Debt Securities in which the Trust will invest the proceeds from
the issuance and sale of the Trust Securities. This description supplements the
description of the general terms and provisions of the Junior Subordinated Debt
Securities set forth in the accompanying Prospectus under the caption
"Description of Debt Securities". The following description does not purport to
be complete and is subject to, and is qualified in its entirety by reference to:
(i) the description of the Subordinated Debt Securities in the accompanying
Prospectus; (ii) the Subordinated Indenture dated as of October 19, 1998 (the
"Base Indenture") and the First Supplemental Indenture dated as of October 19,
1998 (together with the Base Indenture, the "Subordinated Indenture"), between
the Company and Wilmington Trust Company, as Trustee (the "Subordinated
Indenture Trustee"), the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus Supplement and the accompanying
Prospectus form a part; and (iii) the Trust Indenture Act. Certain capitalized
terms used herein are defined in the Subordinated Indenture.
The Company will have the right at any time to dissolve the Trust and cause
the Junior Subordinated Debt Securities to be distributed to the holders of the
Trust Securities.
If the Junior Subordinated Debt Securities are distributed to the holders
of the Preferred Securities, the Company will use its best efforts to have the
Junior Subordinated Debt Securities listed on the New York Stock Exchange or on
such other national securities exchange or similar organization on which the
Preferred Securities are then listed or quoted.
GENERAL
The Junior Subordinated Debt Securities will be issued as unsecured debt
under the Subordinated Indenture. The Junior Subordinated Debt Securities will
be limited in aggregate principal amount to approximately $206,185,600, such
amount being the sum of the aggregate stated liquidation amount of the Preferred
Securities and the capital contributed by the Company to the Trust in exchange
for the Common Securities (the "Common Subscription Payment").
The Junior Subordinated Debt Securities are not subject to a sinking fund
provision. The entire principal amount of the Junior Subordinated Debt
Securities will mature and become due and payable, together with any accrued and
unpaid interest thereon including Compound Interest (as defined herein) and
Additional Interest (as defined herein), if any, on October 31, 2028.
If Junior Subordinated Debt Securities are distributed to holders of
Preferred Securities in liquidation of such holders' interests in the Trust,
such Junior Subordinated Debt Securities will initially be issued in the
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form of one or more Global Securities (as defined under "Book-Entry and
Settlement" below). As described herein, under certain limited circumstances,
Junior Subordinated Debt Securities may be issued in certificated form in
exchange for a Global Security. See "Book-Entry and Settlement" below. In the
event that Junior Subordinated Debt Securities are issued in certificated form,
such Junior Subordinated Debt Securities will be in denominations of $25 and
integral multiples thereof and may be transferred or exchanged at the offices
described below. Payments on Junior Subordinated Debt Securities issued as a
Global Security will be made to DTC, to a successor depositary or, in the event
that no depositary is used, to a Paying Agent for the Junior Subordinated Debt
Securities. In the event Junior Subordinated Debt Securities are issued in
certificated form, principal and interest will be payable, the transfer of the
Junior Subordinated Debt Securities will be registrable and Junior Subordinated
Debt Securities will be exchangeable for Junior Subordinated Debt Securities of
other denominations of a like aggregate principal amount at the corporate trust
office of the Subordinated Indenture Trustee in New York, New York; provided,
that payment of interest may be made at the option of the Company by check
mailed to the address of the persons entitled thereto.
The Company does not intend to issue and sell the Junior Subordinated Debt
Securities to any purchasers other than the Trust.
There are no covenants or provisions in the Subordinated Indenture that
would afford the holders of the Junior Subordinated Debt Securities protection
in the event of a highly leveraged transaction, reorganization, restructuring,
merger or similar transaction involving the Company that may adversely affect
such holders, nor does the Subordinated Indenture limit the amount of
indebtedness that may be incurred by the Company or its subsidiaries, including
indebtedness that ranks senior to the Junior Subordinated Debt Securities.
SUBORDINATION
The Subordinated Indenture provides that the Junior Subordinated Debt
Securities are subordinated and junior in right of payment to all present or
future Senior Indebtedness of the Company. No payment of principal (including
redemption payments), premium, if any, or interest on the Junior Subordinated
Debt Securities may be made if (i) any Senior Indebtedness of the Company has
not been paid when due and any applicable grace period with respect to such
default has ended and such default has not been cured or waived or ceased to
exist, or (ii) the maturity of any Senior Indebtedness of the Company has been
accelerated because of a default, until such Senior Indebtedness is paid in full
or such acceleration has been rescinded. Upon any distribution of assets of the
Company to creditors upon any dissolution, winding-up, liquidation or
reorganization, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all principal, premium, if any, and interest
due or to become due on all Senior Indebtedness of the Company must be paid in
full before the holders of Junior Subordinated Debt Securities are entitled to
receive or retain any payment. Upon satisfaction of all claims related to all
Senior Indebtedness of the Company then outstanding, the rights of the holders
of the Junior Subordinated Debt Securities will be subrogated to the rights of
the holders of Senior Indebtedness of the Company to receive payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Junior Subordinated Debt Securities are paid in full.
The term "Senior Indebtedness" means, with respect to the Company, the
principal of and premium, if any, and interest on (a) all indebtedness of the
Company, whether outstanding on the date of the Subordinated Indenture or
thereafter created, (i) for money borrowed by the Company, (ii) for money
borrowed by, or obligations of, others and either assumed or guaranteed,
directly or indirectly, by the Company, (iii) in respect of letters of credit
and acceptances issued or made by banks, or (iv) constituting purchase money
indebtedness, or indebtedness secured by property included in the property,
plant and equipment accounts of the Company at the time of the acquisition of
such property by the Company, for the payment of which the Company is directly
liable, and (b) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any such indebtedness. As used in
the preceding sentence, the term "purchase money indebtedness" means
indebtedness evidenced by a note, debenture, bond or other instrument (whether
or not secured by any lien or other security interest) issued or assumed as all
or a part of the consideration for the acquisition of property, whether by
purchase, merger, consolidation or otherwise, unless by its terms such
indebtedness is subordinate to other indebtedness of the Company.
Notwithstanding anything to the contrary in the Subordinated Indenture or the
Junior Subordinated Debt
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<PAGE> 25
Securities, Senior Indebtedness shall not include, (i) any indebtedness of the
Company which, by its terms or the terms of the instrument creating or
evidencing it, is subordinate in right of payment to or pari passu with the
Junior Subordinated Debt Securities (which shall include the Company's
outstanding 7.899% Junior Subordinated Debentures due 2037 in the aggregate
principal amount of $100,000,000) or (ii) any indebtedness of the Company to a
subsidiary of the Company. Such Senior Indebtedness shall continue to be Senior
Indebtedness and be entitled to the benefits of the subordination provisions
irrespective of any amendment, modification or waiver of any term of such Senior
Indebtedness. The Company is a non-operating holding company with no significant
business operations of its own, and most of the assets of the Company are owned
by its subsidiaries. Accordingly, the Junior Subordinated Debt Securities will
be effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, including liabilities under contracts of insurance and
annuities written by the Company's insurance subsidiaries. Holders of Junior
Subordinated Debt Securities should look only to the assets of the Company for
payments of interest and principal and premium, if any.
The Subordinated Indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued by the Company.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Junior Subordinated Debt
Securities, (i) in whole at any time, or in part from time to time, on or after
October 19, 2003, or (ii) at any time, in whole but not in part, in certain
circumstances upon the occurrence of a Special Event as described under
"Description of the Preferred Securities -- Special Event Redemption," upon not
less than 30 nor more than 60 days' notice, in either case at a redemption price
equal to the principal amount to be redeemed plus any accrued and unpaid
interest, including Additional Interest (as defined herein), if any, to the
redemption date. If a partial redemption of the Preferred Securities resulting
from a partial redemption of the Junior Subordinated Debt Securities would
result in the delisting of the Preferred Securities, the Company may only redeem
the Junior Subordinated Debt Securities in whole. See "Description of the
Preferred Securities -- Mandatory Redemption of Trust Securities" and
"-- Special Event Redemption."
INTEREST
Each Junior Subordinated Debt Security shall bear interest at the rate of
7.10% per annum, from and including the original date of issuance, payable
quarterly in arrears on January 31, April 30, July 31 and October 31 of each
year (each an "Interest Payment Date"), commencing January 31, 1999 to the
person in whose name such Junior Subordinated Debt Security is registered,
subject to certain exceptions, at the close of business on the Business Day next
preceding such Interest Payment Date. In the event the Junior Subordinated Debt
Securities shall cease to be held in book-entry only form, the Company shall
have the right to select record dates, which shall be more than 14 days but less
than 60 days prior to the Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. Except as described in the following
sentence, the amount of interest payable for any period shorter than a full
quarterly period for which interest is computed will be computed on the basis of
the actual number of days elapsed during such period in relation to the deemed
90 days in such quarterly period. In the event that any date on which interest
is payable on the Junior Subordinated Debt Securities is not a Business Day,
then payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, then such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the relevant Interest Payment Date.
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OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time, and from time to time, during
the term of the Junior Subordinated Debt Securities, to defer payments of
interest by extending the interest payment period for a period not exceeding 20
consecutive quarters; provided, that no Extension Period may extend beyond the
maturity of the Junior Subordinated Debt Securities, at the end of which
Extension Period, the Company shall pay all interest then accrued and unpaid
(including any Additional Interest) together with interest thereon compounded
quarterly at the rate specified for the Junior Subordinated Debt Securities to
the extent permitted by applicable law ("Compound Interest"); provided further,
that during any such Extension Period, (a) the Company shall not declare or pay
any dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
or make any guarantee payment with respect thereto (other than (i) repurchases,
redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of employees, officers, directors or
consultants, (ii) as a result of an exchange or conversion of any class or
series of the Company's capital stock for any other class or series of the
Company's capital stock, (iii) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, or (iv)
distributions of rights under any shareholders rights plan adopted by the
Company), and (b) the Company shall not make any payment of interest on or
principal of (or premium, if any, on), or repay, repurchase or redeem, any debt
securities issued by the Company or its subsidiaries which rank pari passu with
or junior to the Junior Subordinated Debt Securities. The foregoing, however,
will not apply to any stock dividends paid by the Company where the dividend
stock is the same stock as that on which the dividend is being paid. Prior to
the termination of any Extension Period, the Company may further defer payments
of interest by extending such Extension Period; provided, however, that such
Extension Period, including all such previous and further extensions, may not
exceed 20 consecutive quarterly interest periods (including the quarterly
interest period in which notice of such Extension Period (as described below) is
given); provided further, that no Extension Period may extend beyond the
maturity of the Junior Subordinated Debt Securities. Upon the termination of any
Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the terms set forth in this section.
No interest during an Extension Period, except at the end thereof, shall be due
and payable. The Company has no present intention of exercising its right to
defer payments of interest by extending the interest payment period on the
Junior Subordinated Debt Securities. If the Property Trustee shall be the sole
holder of the Junior Subordinated Debt Securities, the Company shall give the
Regular Trustees and the Property Trustee notice of its selection of such
Extension Period one Business Day prior to the earlier of (i) the date
distributions on the Preferred Securities would be payable, if not for such
Extension Period, or (ii) the date the Regular Trustees are required to give
notice to the New York Stock Exchange (or other applicable self-regulatory
organization) or to holders of the Preferred Securities of the record date or
the date such distribution would be payable, if not for such Extension Period,
but in any event one Business Day prior to such record date. The Regular
Trustees shall give notice of the Company's selection of such Extension Period
to the holders of the Preferred Securities. If the Property Trustee shall not be
the sole holder of the Junior Subordinated Debt Securities, the Company shall
give the holders of the Junior Subordinated Debt Securities notice of its
selection of such Extension Period ten Business Days prior to the earlier of (i)
the next succeeding Interest Payment Date or (ii) the date upon which the
Company is required to give notice to the New York Stock Exchange (or other
applicable self-regulatory organization) or to holders of the Junior
Subordinated Debt Securities of the record or payment date of such related
interest payment.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, the Company will pay as additional interest ("Additional Interest")
on the Junior Subordinated Debt Securities such additional amounts as shall be
required so that the net amounts received and retained by the Trust after paying
any such taxes, duties, assessments or other governmental charges will
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be not less than the amounts the Trust would have received had no such taxes,
duties, assessments or other governmental charges been imposed.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Junior Subordinated Debt Securities, will
have the right to declare the principal of and the interest on the Junior
Subordinated Debt Securities (including any Compound Interest and Additional
Interest, if any) and any other amounts payable under the Subordinated Indenture
to be forthwith due and payable and to enforce its other rights as a creditor
with respect to the Junior Subordinated Debt Securities. See "Description of the
Debt Securities -- Events of Default" in the accompanying Prospectus for a
description of the Indenture Events of Default. An Indenture Event of Default
also constitutes a Declaration Event of Default. The holders of Preferred
Securities in certain circumstances have the right to direct the Property
Trustee to exercise its rights as the holder of the Junior Subordinated Debt
Securities. See "Description of the Preferred Securities -- Declaration Events
of Default" and "-- Voting Rights."
Notwithstanding the foregoing, if a Declaration Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Junior Subordinated Debt Securities
on the date such interest or principal is otherwise payable, the Company
acknowledges that, in such event, a holder of Preferred Securities may institute
a Direct Action for payment on or after the respective due date specified in the
Junior Subordinated Debt Securities. The Company may not amend the Subordinated
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of all of the holders of Preferred Securities of the
Trust. Notwithstanding any payment made to such holder of Preferred Securities
by the Company in connection with a Direct Action, the Company shall remain
obligated to pay the principal of or interest on the Junior Subordinated Debt
Securities held by the Trust or the Property Trustee of the Trust, and the
Company shall be subrogated to the rights of the holder of such Preferred
Securities with respect to payments on the Preferred Securities to the extent of
any payments made by the Company to such holder in any Direct Action. The
holders of Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Junior Subordinated Debt Securities.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust,
the Junior Subordinated Debt Securities will be issued in the form of one or
more global certificates (each a "Global Security") registered in the name of
the depositary or its nominee. Except under the limited circumstances described
below, Junior Subordinated Debt Securities represented by a Global Security will
not be exchangeable for, and will not otherwise be issuable as, Junior
Subordinated Debt Securities in definitive form. The Global Securities described
above may not be transferred except by the depositary to a nominee of the
depositary or by a nominee of the depositary to the depositary or another
nominee of the depositary or to a successor depositary or its nominee.
The laws of some jurisdictions 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 such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Junior
Subordinated Debt Securities in definitive form and will not be considered the
Holders (as defined in the Subordinated Indenture) thereof for any purpose under
the Subordinated Indenture, and no Global Security representing Junior
Subordinated Debt Securities shall be exchangeable, except for another Global
Security of like denomination and tenor to be registered in the name of the
depositary or its nominee or to a successor depositary or its nominee.
Accordingly, each Beneficial Owner must rely on the procedures of the depositary
or if such person is not a Participant, on the procedures of the Participant
through which such person owns its interest to exercise any rights of a holder
under the Subordinated Indenture.
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THE DEPOSITARY
If Junior Subordinated Debt Securities are distributed to holders of
Preferred Securities in liquidation of such holders' interests in the Trust, DTC
will act as securities depositary for the Junior Subordinated Debt Securities.
For a description of DTC and the specific terms of the depositary arrangements,
see "Description of the Preferred Securities -- Book-Entry Only Issuance -- The
Depository Trust Company." As of the date of this Prospectus Supplement, the
description therein of DTC's book-entry system and DTC's practices as they
relate to purchases, transfers, notices and payments with respect to the
Preferred Securities apply in all material respects to any debt obligations
represented by one or more Global Securities held by DTC. The Company may
appoint a successor to DTC or any successor depositary in the event DTC or such
successor depositary is unable or unwilling to continue as a depositary for the
Global Securities.
None of the Company, the Trust, the Subordinated Indenture Trustee, any
paying agent and any other agent of the Company or the Subordinated Indenture
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Global Security for such Junior Subordinated Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Security shall be exchangeable for Junior Subordinated Debt
Securities registered in the names of persons other than the depositary or its
nominee only if (i) the depositary notifies the Company that it is unwilling or
unable to continue as a depositary for such Global Security and no successor
depositary shall have been appointed, (ii) the depositary, at any time, ceases
to be a clearing agency registered under the Exchange Act at which time the
depositary is required to be so registered to act as such depositary and no
successor depositary shall have been appointed, (iii) the Company, in its sole
discretion, determines that such Global Security shall be so exchangeable or
(iv) there shall have occurred an Indenture Event of Default with respect to
such Junior Subordinated Debt Securities. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for Junior
Subordinated Debt Securities registered in such names as the depositary shall
direct. It is expected that such instructions will be based upon directions
received by the depositary from its Participants with respect to ownership of
beneficial interests in such Global Security.
CERTAIN FEES AND EXPENSES
The Subordinated Indenture will provide that the Company will pay all fees
and expenses related to (i) the offering of the Trust Securities and the Junior
Subordinated Debt Securities, (ii) the organization, maintenance and dissolution
of the Trust, (iii) the retention of the Trustees and (iv) the enforcement by
the Property Trustee of the rights of the holders of the Preferred Securities.
GOVERNING LAW
The Subordinated Indenture and the Junior Subordinated Debt Securities will
be governed by, and construed in accordance with, the internal laws of the State
of New York.
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DESCRIPTION OF GUARANTEE
Set forth below is a summary of information concerning the Guarantee that
will be executed and delivered by the Company for the benefit of the holders of
Preferred Securities. The Guarantee will be qualified as an indenture under the
Trust Indenture Act. Wilmington Trust Company will act as indenture trustee
under the Guarantee (the "Guarantee Trustee"). The terms of the Guarantee will
be those set forth in the Guarantee and those made part of the Guarantee by the
Trust Indenture Act. This description supplements the description of the general
terms and provisions of the Guarantee set forth in the accompanying Prospectus
under the caption "Description of Preferred Securities Guarantees." The summary
does not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by reference to, the form of Guarantee,
which is filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part, and the Trust Indenture Act. The Guarantee
will be held by the Guarantee Trustee for the benefit of the holders of the
Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, the Company will
irrevocably and unconditionally agree to pay in full to the holders of the
Preferred Securities (except to the extent paid by the Trust), as and when due,
regardless of any defense, right of set-off or counterclaim which the Trust may
have or assert, the following payments (the "Guarantee Payments"), without
duplication: (i) any accrued and unpaid distributions that are required to be
paid on the Preferred Securities, to the extent the Trust has funds available
therefor, and (ii) the redemption price of $25 per Preferred Security, plus all
accrued and unpaid distributions (the "Redemption Price"), to the extent the
Trust has funds available therefor, with respect to any Preferred Securities
called for redemption by the Trust, and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Junior Subordinated Debt Securities to the holders of
Preferred Securities or the redemption of all of the Preferred Securities) the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Preferred Securities to the date of payment or (b) the
amount of assets of the Trust remaining for distribution to holders of the
Preferred Securities in liquidation of the Trust. The Company's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of Preferred Securities or by causing the
Trust to pay such amounts to such holders.
The Guarantee will be a guarantee on a subordinated basis with respect to
the Preferred Securities from the time of issuance of the Preferred Securities
but will not apply to any payment of distributions or Redemption Price, or to
payments upon the dissolution, winding-up or termination of the Trust, except to
the extent the Trust shall have funds available therefor. If the Company does
not make interest payments on the Junior Subordinated Debt Securities, the Trust
will not pay distributions on the Preferred Securities and will not have funds
available therefor. See "Description of the Junior Subordinated Debt
Securities." The Company has through the Guarantee, the Junior Subordinated Debt
Securities, the Subordinated Indenture and the Declaration, taken together,
fully, irrevocably and unconditionally guaranteed the obligations of the Company
under the Preferred Securities.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company will covenant that, so long as any Preferred
Securities remain outstanding, if there shall have occurred any event that would
constitute an Event of Default under such Guarantee or the Declaration or an
exercise by the Company of its right to defer payment of interest as provided in
the Subordinated Indenture and such deferral period, or any extension thereof,
shall be continuing, then (a) the Company shall not declare or pay any dividend
on, make any distributions with respect to, or redeem, purchase, acquire or make
a liquidation payment with respect to, any of its capital stock or make any
guarantee payment with respect thereto (other than (i) repurchases, redemptions
or other acquisitions of shares of capital stock of the Company in connection
with any employment contract, benefit plan or other similar arrangement with or
for the benefit of employees, officers, directors or consultants, (ii) as a
result of an exchange or conversion of any class or series of the Company's
capital stock for any other class or series of the Company's capital stock,
(iii) the purchase of fractional interests in shares of the Company's capital
stock
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pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged or (iv) distributions of rights under any
shareholders rights plan adopted by the Company) and (b) the Company shall not
make any payment of interest on, or principal of (or premium, if any, on), or
repay, repurchase or redeem, any debt securities issued by the Company which
rank pari passu with or junior to the Junior Subordinated Debt Securities. The
Guarantee, however, will except from the foregoing any stock dividends paid by
the Company where the dividend stock is the same stock as that on which the
dividend is being paid.
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required), the
Guarantee may be amended only with the prior approval of the holders of not less
than 66 2/3% in aggregate stated liquidation amount of the outstanding Preferred
Securities. All guarantees and agreements contained in the Guarantee shall bind
the successors, assignees, receivers, trustees and representatives of the
Company and shall inure to the benefit of the holders of the Preferred
Securities then outstanding.
EVENTS OF DEFAULT
An Event of Default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce
the Guarantee Trustee's rights under the Guarantee, any holder of related
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the Guarantee Trustee's rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee or
any other person or entity. A holder of Preferred Securities may also directly
institute a legal proceeding against the Company to enforce such holder's right
to receive payment under the Guarantee without first (i) directing the Guarantee
Trustee to enforce the terms of the Guarantee or (ii) instituting a legal
proceeding against the Trust or any other person or entity.
The Company will be required to provide annually to the Guarantee Trustee a
statement as to the performance by the Company of certain of its obligations
under the Guarantee and as to any default in such performance.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after default with respect to the Guarantee, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to the Preferred Securities upon full
payment of the Redemption Price of all Preferred Securities, upon distribution
of the Junior Subordinated Debt Securities to the holders of the Preferred
Securities or upon full payment of the amounts payable in accordance with the
Declaration upon liquidation of the Trust. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Preferred Securities must restore payment of any sums paid under the
Preferred Securities or the Guarantee.
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STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, including the Junior Subordinated Debt Securities,
excluding those made pari passu or subordinate by their terms, (ii) pari passu
with the most senior preferred or preference stock now or hereafter issued by
the Company and with any guarantee now or hereafter entered into by the Company
in respect of any preferred or preference stock or preferred securities of any
affiliate of the Company and (iii) senior to all capital stock now or hereafter
issued by the Company and to any guarantee now or hereafter entered into by the
Company in respect of any of its capital stock. The terms of the Preferred
Securities provide that each holder of Preferred Securities by acceptance
thereof agrees to the subordination provisions and other terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
the guarantor to enforce its rights under the Guarantee without instituting a
legal proceeding against any other person or entity).
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR SUBORDINATED DEBT
SECURITIES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the Junior
Subordinated Debt Securities.
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debt Securities, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the following
factors: (i) the aggregate principal amount of Junior Subordinated Debt
Securities will be equal to the sum of the aggregate stated liquidation amount
of the Trust Securities; (ii) the interest rate and the interest and other
payment dates on the Junior Subordinated Debt Securities will match the
distribution rate and distribution and other payment dates for the Preferred
Securities; (iii) pursuant to the Subordinated Indenture, the Company shall pay,
and the Trust shall not be obligated to pay, directly or indirectly, all costs,
expenses, debt and obligations of the Trust other than with respect to the Trust
Securities; and (iv) the Declaration further provides that the Trustees shall
not cause or permit the Trust to, among other things, engage in any activity
that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are irrevocably guaranteed by the Company as and to the extent
described in this Prospectus Supplement under "Description of Guarantee" and as
set forth under "Description of Preferred Securities Guarantees" in the
accompanying Prospectus. If the Company does not make interest payments on the
Junior Subordinated Debt Securities purchased by the Trust, it is expected that
the Trust will not have sufficient funds to pay distributions on the Preferred
Securities. The Guarantee is a guarantee on a subordinated basis with respect to
the Preferred Securities from the time of its issuance but does not apply to any
payment of distributions unless and until the Trust has sufficient funds for the
payment of such distributions.
The Company has through the Guarantee, Junior Subordinated Debt Securities,
the Subordinated Indenture and the Declaration, taken together, fully,
irrevocably and unconditionally guaranteed the obligations of the Company under
the Preferred Securities.
If the Company fails to make interest or other payments on the Junior
Subordinated Debt Securities when due (taking account of any Extension Period),
the Declaration provides a mechanism whereby the holders of the Preferred
Securities, using the procedures described in "Description of the Preferred
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<PAGE> 32
Securities -- Book-Entry Only Issuance -- The Depository Trust Company" and
"-- Voting Rights," may direct the Property Trustee to enforce its rights under
the Junior Subordinated Debt Securities. If the Property Trustee fails to
enforce its rights under the Junior Subordinated Debt Securities, any holder of
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the Property Trustee's rights under the Junior Subordinated
Debt Securities without first instituting any legal proceeding against the
Property Trustee or any other person or entity. If a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Junior Subordinated
Debt Securities on the date such interest or principal is otherwise payable (or
in the case of redemption, on the redemption date), then a holder of Preferred
Securities may also institute a Direct Action for payment on or after the
respective due date specified in the Junior Subordinated Debt Securities without
first (i) directing the Property Trustee to enforce the terms of the Junior
Subordinated Debt Securities or (ii) instituting a legal proceeding against the
Company to enforce the Property Trustee's rights under the Junior Subordinated
Debt Securities. In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made by the Company to such holder of
Preferred Securities in such Direct Action. Consequently, the Company will be
entitled to payment of amounts that a holder of Preferred Securities receives in
respect of an unpaid distribution that resulted in the bringing of a Direct
Action to the extent that such holder receives or has already received full
payment with respect to such unpaid distribution from the Trust. The Company,
under the Guarantee, acknowledges that the Guarantee Trustee shall enforce the
Guarantee on behalf of the holders of the Preferred Securities. If the Company
fails to make payments under the Guarantee, the Guarantee provides a mechanism
whereby the holders of the Preferred Securities may direct the Guarantee Trustee
to enforce its rights thereunder. If the Guarantee Trustee fails to enforce the
Guarantee, any holder of Preferred Securities may directly institute a legal
proceeding against the Company to enforce the Guarantee Trustee's rights under
the Guarantee without first instituting a legal proceeding against the Trust,
the Guarantee Trustee, or any other person or entity. A holder of Preferred
Securities may also directly institute a legal proceeding against the Company to
enforce such holder's right to receive payment under the Guarantee without first
(i) directing the Guarantee Trustee to enforce the terms of the Guarantee or
(ii) instituting a legal proceeding against the Trust or any other person or
entity.
The Company and the Trust believe that the above mechanisms and
obligations, taken together, are equivalent to a full and unconditional
guarantee by the Company of payments due on the Preferred Securities. See
"Description of Guarantee -- General."
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. The authorities on which this summary
is based are subject to various interpretations, and the opinions expressed
herein are not binding on the Internal Revenue Service (the "IRS") or the
courts, either of which could take a contrary position. Moreover, no rulings
have been or will be sought from the IRS with respect to the transactions
described herein. Accordingly, there can be no assurance that the IRS will not
challenge the opinions expressed herein or that a court would not sustain such a
challenge.
Except as otherwise stated, this summary deals only with Preferred
Securities held as a capital asset (within the meaning of section 1221 of the
Code) by a holder who or which (i) purchased the Preferred Securities upon
original issuance at their original offering price and (ii) is a U.S. Holder (as
defined below). This summary does not address all the tax consequences that may
be relevant to a U.S. Holder, nor does it address the tax consequences to
holders that are not U.S. Holders or to holders that may be subject to special
tax treatment (such as banks, thrift institutions, real estate investment
trusts, regulated investment companies, insurance companies, brokers and dealers
in securities or currencies, other financial institutions, tax-exempt
organizations, persons holding the Preferred Securities as a position in a
"straddle," or as part of a "synthetic security," "hedging," as part of a
"conversion" transaction or other integrated investment, persons having a
functional currency other than the U.S. Dollar and certain United States
expatriates). Further, this summary does not address (a) the income tax
consequences to shareholders in, or partners or beneficiaries of, a holder of
the Preferred Securities, (b) the United States federal alternative minimum tax
consequences of the purchase, ownership or disposition of the Preferred
Securities, or (c) any state, local or foreign tax consequences of the purchase,
ownership and disposition of Preferred Securities.
A "U.S. Holder" is a holder of the Preferred Securities who or which is (i)
a citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for income tax purposes, (ii) a corporation or
partnership created or organized (or treated as created or organized for federal
income tax purposes) in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for United States federal income tax purposes without regard to its
source, or (iv) a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and (b) one or
more United States persons have the authority to control all substantial
decisions of the trust.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBT SECURITIES
LeBoeuf, Lamb, Greene & MacRae, L.L.P., special counsel to the Company and
the Trust, will render its opinion generally to the effect that, under then
current law and assuming full compliance with the terms of the Subordinated
Indenture (and certain other documents), the Junior Subordinated Debt Securities
will be classified for all United States federal income tax purposes as
indebtedness of the Company.
CLASSIFICATION OF THE TRUST
LeBoeuf, Lamb, Greene & MacRae, L.L.P., will render its opinion generally
to the effect that, under then current law and assuming full compliance with the
terms of the Declaration, the Trust will be classified for United States federal
income tax purposes as a grantor trust and not as an association taxable as a
corporation. Accordingly, for United States federal income tax purposes, each
holder of Preferred Securities
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generally will be considered the owner of an undivided interest in the Junior
Subordinated Debt Securities and each U.S. Holder will be required to include in
gross income all interest on (including original issue discount ("OID") accrued,
if any) or gain recognized for United States federal income tax purposes with
respect to its allocable share of the Junior Subordinated Debt Securities.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under applicable Treasury regulations (the "Regulations"), remote
contingencies that stated interest will not be timely paid are ignored in
determining whether a debt instrument is issued with OID. If the Junior
Subordinated Debt Securities are treated as issued with OID, such OID must be
included in income by all holders as it accrues economically on a daily basis,
without regard to when it is paid in cash or whether a particular holder
generally uses the cash method of accounting. The Company has concluded that the
likelihood of its exercising its option to defer payments of interest is remote.
This conclusion is based on the Company's analysis, as of the date of issue of
the Junior Subordinated Debt Securities, of various facts and circumstances
deemed relevant to exercising such deferral option, including, among other
things, the inability of the Company to declare or pay a dividend, or engage in
certain other capital transactions, with respect to its capital stock, or to
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt of the Company that ranks pari passu with or
junior to the Junior Subordinated Debt Securities if the deferral option is
exercised. Based upon this conclusion and in the absence of any specific
definition of "remote" in the applicable Regulations, the Company intends to
take the position that the Junior Subordinated Debt Securities should not be
subject to the OID rules unless the Company exercises its option to extend the
interest payment period. As a consequence, holders of Preferred Securities
should report interest under their own methods of accounting (e.g., cash or
accrual) instead of under the daily economic accrual rules for OID instruments.
Under the Regulations, if the Company exercises its option to defer
payments of interest, the Junior Subordinated Debt Securities would be treated
as redeemed and reissued for OID purposes and the sum of the remaining interest
payments on the Junior Subordinated Debt Securities would thereafter be treated
as OID, which would accrue, and be includible in a U.S. Holder's taxable income,
on an economic accrual basis (regardless of the U.S. Holder's method of
accounting for income tax purposes) over the remaining term of the Junior
Subordinated Debt Securities (including any period of interest deferral),
without regard to the timing of payments under the Junior Subordinated Debt
Securities.
The IRS could take the position that the likelihood the Company would
exercise its right to defer payments of interest is not a "remote" contingency
for purposes of the OID rules, in which case, the Junior Subordinated Debt
Securities would be treated as initially issued with OID in an amount equal to
the aggregate stated interest over the term of the Junior Subordinated Debt
Securities. That OID would generally be includible in a U.S. Holder's taxable
income, over the term of the Junior Subordinated Debt Securities on an economic
accrual basis.
CHARACTERIZATION OF INCOME
Because the income underlying the Preferred Securities will not be
characterized as dividends for income tax purposes, corporate U.S. Holders of
the Preferred Securities will not be entitled to a dividends-received deduction
for any income recognized with respect to the Preferred Securities.
SALES OF PREFERRED SECURITIES
A U.S. Holder that sells Preferred Securities will recognize gain or loss
equal to the difference between the amount realized on the sale of the Preferred
Securities and such holder's adjusted tax basis in such Preferred Securities. To
the extent of any accrued but unpaid interest, the amount realized on the sale
of such Preferred Securities will be treated as ordinary income. Assuming the
Company does not defer interest on the Junior Subordinated Debt Securities by
extending the interest payment period, a U.S. Holder's "adjusted tax basis" in
the Preferred Securities generally will equal its initial purchase price. If the
Company elects to defer interest payments, a U.S. Holder's adjusted tax basis in
the Preferred Securities generally will be its initial
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<PAGE> 35
purchase price increased by any OID previously included in such holder's gross
income to the date of disposition and decreased by payments received on the
Preferred Securities to the date of disposition. Any gain or loss recognized
generally will be a capital gain or loss. The highest marginal individual
federal income tax rate (which applies to ordinary income and gain from sales or
exchanges of capital assets held for one year or less) is 39.6%. The maximum
regular federal income tax rate on capital gains derived by individual taxpayers
is 20% for sales and exchanges of capital assets held for more than one year.
All net capital gain of a corporate taxpayer is subject to tax at ordinary
corporate income tax rates of up to 35%.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debt Securities. A holder who disposes of his Preferred
Securities between record dates for payments or distributions thereon will be
required to include in income (to the extent not previously included in income)
as ordinary income amounts attributable to accrued and unpaid interest on the
Junior Subordinated Debt Securities through the date of disposition and the
amount realized on disposition excludes the portion of the sales price treated
as interest.
If the Company elects to defer payments of interest, the market value of
the Preferred Securities will likely fall. Furthermore, the market value of the
Preferred Securities may not reflect the accumulated distribution that will be
paid at the end of the Extension Period. A U.S. Holder who disposes of Preferred
Securities during a Extension Period will be required to include as ordinary
income the accrued OID on the Junior Subordinated Debt Securities through the
date of disposition as ordinary income and add such amount to the U.S. Holder's
adjusted tax basis in the Preferred Securities disposed of.
To the extent the selling price of the Preferred Securities is less than
the U.S. Holder's adjusted tax basis, the U.S. Holder will recognize capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
RECEIPT OF JUNIOR SUBORDINATED DEBT SECURITIES OR CASH UPON LIQUIDATION OF THE
TRUST
Under certain circumstances described herein (see "Description of the
Preferred Securities -- Liquidation Distribution Upon Dissolution" in the
accompanying Prospectus), the Trust may distribute the Junior Subordinated Debt
Securities to holders in exchange for the Preferred Securities and in
liquidation of the Trust. Except as discussed below, such a distribution would
not be a taxable event for United States federal income tax purposes, and each
U.S. Holder would have an aggregate adjusted basis in its Junior Subordinated
Debt Securities for United States federal income tax purposes equal to such
holder's aggregate adjusted basis in its Preferred Securities. (For a
description of adjusted basis in the Preferred Securities, see discussion above
in "-- Sales of Preferred Securities.") For United States federal income tax
purposes, a U.S. Holder's holding period in the Junior Subordinated Debt
Securities received in such a liquidation of the Trust would include the period
during which the Preferred Securities were held by the holder. If, however, the
relevant event is a Tax Event which results in the Trust being treated as an
association taxable as a corporation, the distribution could constitute a
taxable event to both the Trust and U.S. Holders of the Preferred Securities for
United States federal income tax purposes. In such case, a U.S. Holder's holding
period in Junior Subordinated Debt Securities would not include the period
during which the Junior Subordinated Debt Securities were held by the Trust.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Junior Subordinated Debt Securities may be redeemed
for cash and the proceeds of such redemption distributed to holders in
redemption of their Preferred Securities. Such a redemption would be taxable for
United States federal income tax purposes, and a U.S. Holder would recognize
gain or loss as if it had sold the Preferred Securities for cash. See "-- Sales
of Preferred Securities" above.
POTENTIAL TAX LAW CHANGES
From time to time, the Clinton Administration has proposed certain tax law
changes that would, among other things, generally deny interest deductions to a
corporate issuer if the debt instrument has a term exceeding 15 years (earlier
proposed tax law changes would have denied interest deductions if the debt
instrument had a term exceeding 20 years) and if such debt instrument is not
reflected as indebtedness on
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<PAGE> 36
such issuer's consolidated balance sheet. Because the term of the Junior
Subordinated Debt Securities exceeds 15 years, if a proposal of this sort were
to become effective retroactively, the Company would be precluded from deducting
interest on the Junior Subordinated Debt Securities. Enactment of any such
proposal might in turn give rise to a Tax Event (as defined in "Description of
the Preferred Securities -- Special Event Redemption") which, if the Company
were to exercise its optional right to redeem the Junior Subordinated Debt
Securities, would thereby result in a mandatory redemption of the Preferred
Securities, as described under "Description of the Preferred
Securities -- Mandatory Redemption of Trust Securities" herein.
BACKUP WITHHOLDING
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of the Preferred Securities to registered
owners who are not "exempt recipients" and who fail to provide certain
identifying information (such as the registered owner's taxpayer identification
number) in the required manner. Generally, individuals are not exempt
recipients, whereas corporations and certain other entities generally are exempt
recipients. Payments made in respect of the Preferred Securities to a U.S.
Holder must be reported to the IRS, unless the U.S. Holder is an exempt
recipient or establishes an exemption.
In addition, upon the sale of the Preferred Securities to (or through) a
broker, the broker must withhold 31% of the entire purchase price, unless either
(i) the broker determines that the seller is a corporation or other exempt
recipient or (ii) the seller provides, in the required manner, certain
identifying information. Such a sale must also be reported by the broker to the
IRS, unless either (i) the broker determines that the seller is an exempt
recipient or (ii) the seller certifies its Non-U.S. status (and certain other
conditions are met). Certification of the registered owner's Non-U.S. status
would be made normally on an IRS Form W-8 under penalties of perjury, although
in certain cases it may be possible to submit other documentary evidence.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
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<PAGE> 37
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (an "ERISA Plan"), should consider the fiduciary standards of ERISA in
the context of the ERISA Plan's particular circumstances before authorizing an
investment in the Preferred Securities of the Trust. Among other factors, the
fiduciary should consider whether such an investment is in accordance with the
documents governing the ERISA Plan and whether the investment is appropriate for
the ERISA Plan in view of its overall investment policy and diversification of
its portfolio.
Certain provisions of ERISA and the Code prohibit ERISA Plans, as well as
individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (collectively, "Plans"), from engaging in certain transactions involving
"plan assets" with parties that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to the Plan. The U.S.
Department of Labor has issued a final regulation (the "Regulation") with regard
to whether the underlying assets of an entity in which employee benefit plans
acquire equity interests are deemed to be plan assets.
Under such Regulation, for purposes of ERISA and Section 4975 of the Code,
the assets of the Trust would be deemed to be "plan assets" of a Plan whose
assets were used to purchase Preferred Securities of the Trust if the Preferred
Securities of the Trust were considered to be equity interests in the Trust and
no exception to plan asset status was applicable under the Regulation. An
"equity interest" is defined under the Regulation as any interest in an entity
other than an instrument which is treated as indebtedness under applicable local
law and which has no substantial equity features and specifically includes a
beneficial interest in a trust.
Pursuant to an exception contained in the Regulation, the assets of the
Trust would not be deemed to be "plan assets" of investing Plans if, immediately
after the most recent acquisition of any equity interest in the Trust, less than
25% of the value of each class of equity interests in the Trust were held by
Plans, other employee benefit plans not subject to ERISA or Section 4975 of the
Code (such as governmental, church and foreign plans), and entities holding
assets deemed to be "plan assets" of any Plan (collectively, "Benefit Plan
Investors"). No assurance can be given that the value of the Preferred
Securities held by Benefit Plan Investors will be less than 25% of the total
value of such Preferred Securities at the completion of the initial offering or
thereafter, and no monitoring or other measures will be taken with respect to
the satisfaction of the conditions of this exception.
An exception from the above rules may be available under the Regulation for
investments by Plans in certain publicly-registered securities. In order to
qualify for this exception, the securities in question must be: (i) freely
transferable; (ii) owned by at least 100 investors independent of the issuer and
of one another; and (iii) either (a) part of a class of securities registered
under Section 12(b) or 12(g) of the Exchange Act, or (b) sold as part of a
public offering pursuant to an effective registration statement under the
Securities Act and registered under the Exchange Act within 120 days (or such
later time as may be allowed by the Commission) after the end of the issuer's
fiscal year during which the offering occurred.
It is currently anticipated that the Preferred Securities will be "freely
transferable" for purposes of the above-referred exception, and will be owned by
at least 100 investors independent of the issuer and of one another. Finally, no
Preferred Securities will be sold except pursuant to an effective registration
statement under the Securities Act, and it is intended that the required filings
under the Exchange Act will be made for purposes of the above-referred
exception. Therefore, the Trust should qualify for the exception, so that the
Trust assets should not be "plan assets" of any Plan, and the Trust's underlying
assets should not be treated as "plan assets" of Plan investors for purposes of
determining whether any prohibited transaction has occurred, although there can
be no assurance in this regard.
If the assets of the Trust were determined under ERISA or the Code to be
"plan assets" of Plans holding Preferred Securities, fiduciaries of such Plans
might under certain circumstances be subject to liability for actions taken by
the Trust. Moreover, fiduciaries with responsibilities to Plans (other than
IRAs) might be deemed to have improperly delegated their fiduciary
responsibilities to the Trustees of the Trust in violation of
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<PAGE> 38
ERISA. In addition, the Company might, in connection with the operation of the
Trust, be considered a "party in interest" or "disqualified person" with respect
to Plans holding Preferred Securities. If this were the case, an investment in
Preferred Securities of the Trust by a Plan might constitute, or in the course
of the operation of the Trust give rise to, a prohibited transaction under ERISA
or the Code. In particular, it is likely that under such circumstances a
prohibited extension of credit to the Company would be considered to have
occurred under ERISA and the Code.
In addition, the Company might be considered a "party in interest" or
"disqualified person" with respect to certain Plans for reasons unrelated to the
operation of the Trust, e.g., because of the provision of services by the
Company or an affiliate to the Plan. A purchase of Preferred Securities of the
Trust by any such Plan would be likely to result in a prohibited transaction, as
a prohibited extension of credit to the Company by the Plan, without regard to
whether the assets of the Trust constitute plan assets of any Plan.
Because of the possibility that a prohibited transaction could occur as a
result of the purchase or holding of the Preferred Securities of the Trust by a
Plan, the Preferred Securities of the Trust may not be purchased or held by any
Plan or any person investing "plan assets" of any Plan, in either case, with
respect to which the Company is a "party in interest" or "disqualified person,"
unless such purchase or holding is eligible for the exemptive relief available
under Prohibited Transaction Class Exemption ("PTCE") 96-23 (for certain
transactions determined by in-house asset managers), PTCE 95-60 (for certain
transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment funds), PTCE 90-1 (for
certain transactions involving insurance company separate accounts), or PTCE
84-14 (for certain transactions determined by independent qualified asset
managers), or pursuant to any other available applicable exemptive relief. Any
purchaser of the Preferred Securities of the Trust or any interest therein, in
either case, with respect to which the Company is a "party in interest" or
"disqualified person," will be deemed to have represented to the Trust and the
Company that either (a) it is not a Plan and is not purchasing such securities
(or interest therein) on behalf of or with "plan assets" of any Plan or (b) its
purchase and holding of the Preferred Securities of the Trust (or interest
therein) is eligible for the exemptive relief available under PTCE 96-23, 95-60,
91-38, 90-1 or 84-14 or pursuant to any other available applicable exemptive
relief.
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is important that any person considering
the purchase of Preferred Securities of the Trust with Plan assets consult with
its counsel regarding the consequences under ERISA and the Code of the
acquisition and ownership of Preferred Securities of the Trust and the
availability of exemptive relief under the class exemptions listed above. In
John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 114
S.Ct. 517 (1993), the Supreme Court ruled that assets held in an insurance
company's general account may be deemed to be "plan assets" for ERISA purposes
under certain circumstances. The issues raised in Harris Trust have also been
the subject of legislative action, and have been addressed in proposed
regulations issued by the U.S. Department of Labor in December 1997.
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<PAGE> 39
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement
dated October 14, 1998 (the "Underwriting Agreement"), each Underwriter named
below (the "Underwriters"), for whom Salomon Smith Barney Inc., A.G. Edwards &
Sons, Inc., Morgan Stanley & Co. Incorporated, PaineWebber Incorporated,
Prudential Securities Incorporated, Credit Suisse First Boston Corporation and
J.P. Morgan Securities Inc., are acting as Representatives (the
"Representatives"), has severally agreed to purchase from the Trust, and the
Trust has agreed to sell to such Underwriter, the number of Preferred Securities
set forth opposite the name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
NAME SECURITIES
---- ----------
<S> <C>
Salomon Smith Barney Inc. .................................. 1,158,000
A.G. Edwards & Sons, Inc. .................................. 1,135,000
Morgan Stanley & Co. Incorporated........................... 1,135,000
PaineWebber Incorporated.................................... 1,135,000
Prudential Securities Incorporated.......................... 1,135,000
Credit Suisse First Boston Corporation...................... 200,000
J.P. Morgan Securities Inc. ................................ 200,000
BT Alex. Brown Incorporated................................. 93,000
Bear, Stearns & Co. Inc. ................................... 93,000
J.C. Bradford & Co. ........................................ 93,000
CIBC Oppenheimer Corp. ..................................... 93,000
Dain Rauscher Incorporated.................................. 93,000
EVEREN Securities, Inc. .................................... 93,000
Goldman, Sachs & Co. ....................................... 93,000
Legg Mason Wood Walker, Incorporated........................ 93,000
Piper Jaffray Inc. ......................................... 93,000
Raymond James & Associates, Inc. ........................... 93,000
The Robinson-Humphrey Company, LLC.......................... 93,000
SG Cowen Securities Corporation ............................ 93,000
Wheat First Securities, Inc. ............................... 93,000
Craigie Incorporated........................................ 33,000
Fahenstock & Co. Inc........................................ 33,000
Fidelity Capital Markets, A Division of National Financial
Services Corporation...................................... 33,000
Fifth Third/The Ohio Company................................ 33,000
First Albany Corporation.................................... 33,000
First of Michigan Corporation............................... 33,000
Gibraltar Securities Co. ................................... 33,000
Gruntal & Co., L.L.C. ...................................... 33,000
J.J.B. Hillard, W.L. Lyons, Inc. ........................... 33,000
Interstate/Johnson Lane Corporation......................... 33,000
Janney Montgomery Scott Inc. ............................... 33,000
McDonald & Company Securities, Inc. ........................ 33,000
Mesirow Financial, Inc. .................................... 33,000
Morgan Keegan & Company, Inc. .............................. 33,000
Olde Discount Corporation................................... 33,000
Roney Capital Markets....................................... 33,000
Stephens Inc. .............................................. 33,000
TD Securities (USA) Inc. ................................... 33,000
Tucker Anthony Incorporated................................. 33,000
Utendahl Capital Partners, L.P. ............................ 33,000
Wedbush Morgan Securities................................... 33,000
----------
Total............................................. 8,000,000
==========
</TABLE>
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<PAGE> 40
The Underwriters are obligated to take and pay for the total number of
Preferred Securities offered hereby if any such Preferred Securities are
purchased. In the event of default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
The Underwriting Agreement provides that the Trust and the Company will
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, and to make certain
contributions in respect thereof.
The Trust and the Company have agreed, during the period beginning on the
date of the Underwriting Agreement and continuing to and including the date that
is 30 days after the closing date for the purchase of the Preferred Securities,
not to offer, sell, contract to sell or otherwise dispose of (or enter into any
transaction which is designed to, or might reasonably be expected to, result in
the disposition (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise) by either of the Trust or the Company or
any affiliate of the Trust or the Company or any person in privity and either of
the Trust or the Company or any affiliate thereof) directly or indirectly, or
announce the offering of, any preferred securities, any preferred stock or any
other securities (including any backup undertakings of such preferred stock or
other securities) of the Company or of the Trust, in each case that are
substantially similar to the Preferred Securities, or any securities convertible
into or exchangeable for the Preferred Securities or such substantially similar
securities of either the Trust or the Company, except preferred securities
offered pursuant to the accompanying Prospectus, without the prior written
consent of Salomon Smith Barney Inc.
In view of the fact that the proceeds of the sale of the Preferred
Securities will ultimately be used to purchase the Junior Subordinated Debt
Securities of the Company, the Underwriting Agreement provides that the Company
will pay as compensation to the Underwriters $0.7875 per Preferred Security for
the accounts of the several Underwriters ($6,300,000 in the aggregate).
The Underwriters propose to offer the Preferred Securities, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession of $0.50 per Preferred Security. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $0.35 per Preferred
Security to certain brokers and dealers. After the Preferred Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representatives of the Underwriters.
Application for listing of the Preferred Securities on the New York Stock
Exchange has been made. If approved for listing, trading of the Preferred
Securities on the New York Stock Exchange is expected to commence within a
30-day period after the initial delivery of the Preferred Securities.
In order to facilitate the offering of the Preferred Securities, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Preferred Securities. Specifically, the Underwriters may
overallot in connection with the offering, creating a short position in the
Preferred Securities for their own account. In addition, to cover overallotments
or to stabilize the price of the Preferred Securities, the Underwriters may bid
for, and purchase, the Preferred Securities in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an underwriter
or a dealer for distributing the Preferred Securities in the offering, if the
syndicate repurchases previously distributed Preferred Securities in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market price
of the Preferred Securities above independent market levels. The Underwriters
are not required to engage in those activities, and if commenced, may end any of
these activities at any time.
Certain of the Underwriters and their affiliates have in the past provided,
and may in the future provide, investment and/or commercial banking services to
the Company and its subsidiaries in the ordinary course of business.
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<PAGE> 41
LEGAL MATTERS
The validity of the Preferred Securities, the Junior Subordinated Debt
Securities, the Guarantee and certain matters relating thereto and certain
United States federal income tax matters will be passed upon for the Company by
LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability partnership
including professional corporations, New York, New York. Certain other legal
matters in connection with the sale of the Preferred Securities offered hereby
will be passed upon for the Company by W. Sidney Druen, Senior Vice President
and General Counsel of the Company. Mr. Druen currently owns approximately 1,506
shares of Class A Common Stock and holds options to purchase 10,000 shares of
Class A Common Stock. Certain legal matters will be passed upon for the
Underwriters by Dewey Ballantine LLP, New York, New York. Dewey Ballantine LLP
is currently representing Nationwide Mutual Insurance Company on another legal
matter. Certain matters of Delaware law relating to the validity of the
Preferred Securities will be passed upon on behalf of the Trust and the Company
by Richards, Layton & Finger, P.A., Special Delaware Counsel.
EXPERTS
The consolidated financial statements and financial statement schedules of
the Company and its subsidiaries incorporated by reference in the accompanying
Prospectus by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference in the accompanying Prospectus in
reliance upon the authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1997
consolidated financial statements contains an explanatory paragraph regarding
the formation of the Company in November 1996 as a holding company for
Nationwide Life Insurance Company and other companies within the Nationwide
Insurance Enterprise that offer or distribute long-term savings and retirement
products and the presentation of the consolidated financial statements as if
these companies were consolidated for all periods presented, discussed in note 1
to such consolidated financial statements.
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<PAGE> 42
PROSPECTUS
$1,000,000,000
NATIONWIDE FINANCIAL SERVICES, INC.
Debt Securities
Preferred Stock
Depositary Shares
Class A Common Stock
------------------------
Nationwide Financial Services Capital Trust II
Nationwide Financial Services Capital Trust III
Preferred Securities
Guaranteed to the extent set forth herein By
Nationwide Financial Services, Inc.
------------------------
Nationwide Financial Services, Inc. (the "Company") may offer and sell from
time to time (i) its unsecured senior debt securities ("Senior Debt Securities")
and unsecured subordinated debt securities ("Subordinated Debt Securities"),
consisting of debentures, notes or other evidences of indebtedness, (ii) shares
of its Preferred Stock, par value $0.01 per share (the "Preferred Stock"), which
may be represented by depositary shares (the "Depositary Shares") as described
herein or (iii) shares of its Class A Common Stock, par value $0.01 per share
(the "Class A Common Stock"). Such securities may be offered in one or more
separate classes or series, in amounts, at prices and on terms to be determined
by market conditions at the time of sale and to be set forth in a supplement or
supplements to this Prospectus (a "Prospectus Supplement"). Such securities may
be sold for U.S. dollars, foreign denominated currency or currency units;
amounts payable with respect to any such securities may likewise be payable in
U.S. dollars, foreign denominated currency or currency units, in each case as
the Company specifically designates.
Nationwide Financial Services Capital Trust II ("Nationwide Capital Trust
II") and Nationwide Financial Services Capital Trust III ("Nationwide Capital
Trust III" and collectively, the "Nationwide Trusts"), each a statutory business
trust formed under the laws of the State of Delaware, may offer and sell, from
time to time, preferred securities representing undivided beneficial interests
in the assets of the respective Nationwide Trust ("Preferred Securities"). The
payment of periodic cash distributions ("distributions") with respect to
Preferred Securities out of monies held by the Property Trustee (as defined
herein) of each of the Nationwide Trusts and payments on liquidation of each
Nationwide Trust and on redemption of Preferred Securities of such Nationwide
Trust, will be guaranteed by the Company as and to the extent described herein
(each, a "Preferred Securities Guarantee"). See "Description of the Preferred
Securities Guarantees." The Company's obligation under each Preferred Securities
Guarantee is an unsecured obligation of the Company and will rank (i)
subordinate and junior in right of payment to all other liabilities of the
Company, including the Senior Debt Securities and the Subordinated Debt
Securities, except those made pari passu or subordinate by their terms, and (ii)
senior to all capital stock now or hereafter issued by the Company and to any
guarantee now or hereafter entered into by the Company in respect of any of its
capital stock. Subordinated Debt Securities may be issued and sold from time to
time in one or more series to a Nationwide Trust, or a trustee of such
Nationwide Trust, in connection with the investment of the proceeds from the
offering of Preferred Securities and Common Securities (as defined herein) of
such Nationwide Trust. The Subordinated Debt Securities purchased by a
Nationwide Trust may be subsequently distributed pro rata to holders of
Preferred Securities and Common Securities in connection with the dissolution of
such Nationwide Trust upon the occurrence of certain events as may be described
in an accompanying Prospectus Supplement.
Specific terms of the particular Senior Debt Securities, Subordinated Debt
Securities, Preferred Stock, Depositary Shares, Class A Common Stock, Preferred
Securities and the related Preferred Securities Guarantee, in respect of which
this Prospectus is being delivered (the "Offered Securities") will be set forth
in an accompanying Prospectus Supplement or Supplements, together with the terms
of the offering of the Offered Securities, the initial price thereof and the net
proceeds from the sale thereof. The Prospectus Supplement will set forth with
regard to the particular Offered Securities, certain terms thereof, including,
where applicable, (i) in the case of Senior Debt Securities and Subordinated
Debt Securities, the ranking as senior or subordinated Debt Securities, the
specific designation, aggregate principal amount, purchase price, maturity,
interest rate (which may be fixed or variable), if any, the time and method of
calculating interest payments, if any, time of payment of interest, if any, any
listing on a securities exchange, authorized denomination, any exchangeability,
conversion, redemption, prepayment or sinking fund provisions, the currency or
currencies or currency unit or units in which principal, premium, if any, or
interest, if any, is payable, public offering price, the right of the Company,
if any, to defer payment or interest on the Subordinated Debt Securities and the
maximum length of any such deferral period, and any other specific terms of the
Debt Securities; (ii) in the case of Preferred Stock, the specific designation,
number of shares, purchase price and the rights, preferences and privileges
thereof and any qualifications or restrictions thereon (including dividends,
liquidation value, voting rights, terms for the redemption, conversion or
exchange thereof and any other specific terms of the Preferred Stock), listing,
if any, on a securities exchange and whether the Company has elected to offer
the Preferred Stock in the form of Depositary Shares and the terms thereof;
(iii) in the case of Class A Common Stock, the number of shares offered, the
initial offering price, market price and dividend information; and (iv) in the
case of Preferred Securities of a Nationwide Trust, the specific designation,
number of securities, liquidation amount per security, initial public offering
price, and any listing on a securities exchange, distribution rate (or method of
calculation thereof), dates on which distributions shall be payable and dates
from which distributions shall accrue, voting rights, if any, terms for any
conversion or exchange into other securities, any redemption or sinking fund
provisions and any other rights, preferences, privileges, limitations or
restrictions relating to the Preferred Securities.
The Offered Securities may be offered in amounts, at prices and on terms to
be determined at the time of offering; provided, however, that the aggregate
offering price to the public of the Offered Securities will be limited to
$1,000,000,000. Any Prospectus Supplement relating to any Offered Securities
will contain information concerning certain United States federal income tax
considerations, if applicable, to the Offered Securities.
The Company's Class A Common Stock is traded on the New York Stock Exchange
("NYSE") under the symbol "NFS".
The Company and/or each of the Nationwide Trusts may sell the Offered
Securities directly, through agents designated from time to time or through
underwriters or dealers. See "Plan of Distribution" below. If any agents of the
Company and/or any of the Nationwide Trusts or any underwriters or dealers are
involved in the sale of the Offered Securities, the names of such agents,
underwriters or dealers and any applicable commissions and discounts will be set
forth in the related Prospectus Supplement. See "Plan of Distribution" for
possible indemnification arrangements for dealers, underwriters and 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 MAY 29, 1998.
<PAGE> 43
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549, or at the public reference facilities of the regional offices in
Chicago and New York. The addresses of these regional offices are as follows:
500 West Madison Street, Chicago, Illinois 60661, and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material also can be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington D.C. 20549, upon payment of the fees prescribed by the rules
and regulations of the Commission. Reports, proxy statements, and other
information concerning the Company may also be inspected at the offices of the
NYSE at 20 Broad Street, New York, New York 10005. Such material may also be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov.
The Company and the Nationwide Trusts have filed with the Commission a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities offered by this
Prospectus. This Prospectus does not contain all the information set forth in
the Registration Statement and exhibits thereto. In addition, certain documents
filed by the Company with the Commission have been incorporated in this
Prospectus by reference. See "Incorporation of Certain Documents by Reference."
Statements contained herein concerning the provisions of any document do not
purport to be complete and, in each instance, are qualified in all respects by
reference to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is subject
to and qualified in its entirety by such reference. For further information with
respect to the Company, the Nationwide Trusts and the securities offered hereby,
reference is made to the Registration Statement, including the exhibits thereto,
and the documents incorporated herein by reference.
No separate financial statements of any of the Nationwide Trusts have been
included or incorporated by reference herein. The Company and the Nationwide
Trusts do not consider that such financial statements would be material to
holders of the Preferred Securities because (i) all of the voting securities of
each of the Nationwide Trusts will be owned, directly or indirectly, by the
Company, a reporting company under the 1934 Act, (ii) each of the Nationwide
Trusts is a special purpose entity, has no operating history, has no independent
operations and is not engaged in, and does not propose to engage in, any
activity other than issuing Trust Securities (as defined herein) representing
undivided beneficial interests in the assets of such Nationwide Trust and (iii)
the Company's obligations described herein and in any accompanying Prospectus
Supplement under the Declaration (as defined herein) of each of the Nationwide
Trusts, the Preferred Securities Guarantee with respect to the Preferred
Securities issued by each of the Nationwide Trusts, the Subordinated Debt
Securities purchased by the Nationwide Trusts and the related Indenture, taken
together, constitute a full and unconditional guarantee of payments due on the
Preferred Securities of each of the Nationwide Trusts. See "The Nationwide
Trusts," "Description of the Preferred Securities," "Description of the
Preferred Securities Guarantees" and "Description of the Debt Securities."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are hereby incorporated by reference in the Prospectus the following
documents previously filed by the Company (File No. 1-12785) with the Commission
pursuant to the 1934 Act:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (including that portion of the Annual Report to Shareholders
incorporated by reference therein);
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
and
3. Current Report on Form 8-K dated April 29, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the securities offered
2
<PAGE> 44
hereby shall be deemed to be incorporated by reference in the Prospectus and to
be 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.
The Company will provide without charge to each person, including any
beneficial owner to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any and all of the information that has been
incorporated by reference in the Prospectus (not including exhibits to the
information that are incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Requests for such documents shall be directed to Nationwide
Financial Services, Inc., One Nationwide Plaza, Columbus, Ohio 43215, Attention:
Roger A. Craig, Counsel (telephone (614) 249-7111).
FOR NORTH CAROLINA INVESTORS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING NOR HAS SUCH
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY NATIONWIDE TRUST OR ANY UNDERWRITER, DEALER OR AGENT. THIS
PROSPECTUS DOES 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
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY OR ANY NATIONWIDE TRUST SINCE THE DATE HEREOF.
------------------------
Unless otherwise indicated, currency amounts in this Prospectus and any
Prospectus Supplement are stated in United States dollars ("$," "dollars" or
"U.S.$").
3
<PAGE> 45
THE COMPANY
The Company, a Delaware corporation, was formed in November 1996 as a
holding company for Nationwide Life Insurance Company ("NLIC") and the other
companies within the Nationwide Insurance Enterprise (as defined below) that
offer or distribute long-term savings and retirement products. The Nationwide
Insurance Enterprise refers to Nationwide Mutual Insurance Company ("Nationwide
Mutual") and its subsidiaries and affiliates, which includes over 100 companies
that offer a wide range of insurance and investment products and services.
On March 11, 1997, the Company sold, in an initial public offering,
approximately 23.6 million shares of its newly issued Class A Common Stock for
net proceeds of approximately $524.2 million (the "Equity Offering"). In March
1997, the Company also sold in a companion public offering, $300 million
aggregate principal amount of 8% Senior Notes (the "Notes Offering"), and
Nationwide Financial Services Capital Trust, a subsidiary trust of the Company,
sold in a companion public offering $100 million aggregate liquidation amount of
7.899% Capital Securities (the "Capital Securities Offering"). Aggregate net
proceeds from the Equity Offering, the Notes Offering and the Capital Securities
Offering totaled approximately $917 million. The Company contributed
approximately $836.8 million of the proceeds to the capital of NLIC and retained
approximately $80.2 million of the proceeds for general corporate purposes.
Prior to the Equity Offering, the Company was a wholly owned subsidiary of
Nationwide Corporation ("Nationwide Corp."). Nationwide Corp. continues to own
all of the outstanding shares of Class B common stock, par value $0.01 per share
(the "Class B Common Stock," together with the Class A Common Stock, the "Common
Stock"), of the Company, which represents approximately 81.6% of the total
number of shares of Common Stock outstanding and approximately 97.8% of the
combined voting power of the stockholders of the Company. Nationwide Corp. is a
subsidiary of Nationwide Mutual Insurance Company ("Nationwide Mutual"), one of
the controlling entities of the Nationwide Insurance Enterprise.
During 1996 and 1997, Nationwide Corp. and the Company completed
restructuring transactions in anticipation of the Equity Offering to focus the
business of the Company on long-term savings and retirement products. On
September 24, 1996, NLIC declared a dividend payable to Nationwide Corp. on
January 1, 1997 consisting of the outstanding shares of common stock of certain
subsidiaries that do not offer or distribute long-term savings or retirement
products. In addition, during 1996, NLIC entered into two reinsurance agreements
whereby all of NLIC's accident and health and group life insurance business was
ceded to two affiliates effective January 1, 1996. On January 27, 1997,
Nationwide Corp. contributed the common stock of NLIC and three marketing and
distribution companies to the Company.
In addition to the transactions discussed above, the Company paid, as part
of the restructuring, $900 million of dividends to Nationwide Corp., $50 million
on December 31, 1996 and $850 million on February 24, 1997.
The Company is a leading provider of long-term savings and retirement
products. The Company offers variable annuities, fixed annuities and life
insurance as well as mutual funds and pension products and administrative
services. By developing and offering a wide variety of products, the Company
believes that it has positioned itself to compete effectively in various stock
market and interest rate environments. The Company markets its products through
a broad spectrum of wholesale and retail distribution channels, including
financial planners, pension plan administrators, securities firms, banks and
Nationwide Mutual insurance agents.
The mailing address of the Company's principal executive office is One
Nationwide Plaza, Columbus, Ohio 43215 and its telephone number is (614)
249-7111.
THE NATIONWIDE TRUSTS
Each of Nationwide Capital Trust II and Nationwide Capital Trust III is a
statutory business trust formed on May 8, 1998 under the Delaware Business Trust
Act (the "Business Trust Act") pursuant to a separate declaration of trust among
the trustees named therein of each of the Nationwide Trusts and the Company and
the filing of a certificate of trust with the Secretary of State of the State of
Delaware. Each such declaration will be amended and restated in its entirety by
the Company, as sponsor of the Nationwide Trusts, and the Nationwide
4
<PAGE> 46
Trustees (as defined below) of each of the Nationwide Trusts (as so amended and
restated, the "Declaration") as of or prior to the date each of the Nationwide
Trusts issues any Trust Securities. The Company will acquire securities
representing common undivided beneficial interests in the assets of each of the
Nationwide Trusts (the "Common Securities" and, together with the Preferred
Securities, the "Trust Securities") in an aggregate liquidation amount equal to
3% or more of the total capital of each of the Nationwide Trusts.
The Common Securities of each of the Nationwide Trusts will rank pari
passu, and payment will be made thereon pro rata, with the Preferred Securities
of each of the Nationwide Trusts, except that, upon the occurrence and during
the continuance of an event of default under the Declaration of a Nationwide
Trust, the rights of the holders of the Common Securities of such Nationwide
Trust to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities of such Nationwide Trust. Each of the Nationwide Trusts
exists for the exclusive purposes of (i) issuing the Trust Securities
representing undivided beneficial interests in the assets of the Trust, (ii)
investing the gross proceeds of the Trust Securities in Subordinated Debt
Securities and (iii) engaging in only those other activities necessary or
incidental thereto. The term of each of the Trusts will expire on May 8, 2053,
but may be terminated earlier as provided in the applicable Declaration.
Each Nationwide Trust's business and affairs will be conducted by the
trustees (the "Nationwide Trustees") appointed by the Company as direct or
indirect holder of all of the Common Securities. The holder of Common Securities
will be entitled to appoint, remove or replace any of, or increase or reduce the
number of, the Nationwide Trustees of a Nationwide Trust. The duties and
obligations of the Nationwide Trustees shall be governed by the Declaration of
such Nationwide Trust. A majority of the Nationwide Trustees (the "Regular
Trustees") of each Nationwide Trust will be persons who are employees or
officers of or affiliated with the Company. One Nationwide Trustee of each
Nationwide Trust will be a financial institution which will be unaffiliated with
the Company and which shall act as property trustee and as indenture trustee for
purposes of the Trust Indenture Act of 1939 (the "Trust Indenture Act"),
pursuant to the terms set forth in a Prospectus Supplement (the "Property
Trustee"). In addition, unless the Property Trustee maintains a principal place
of business in the State of Delaware, and otherwise meets the requirements of
applicable law, one Nationwide Trustee of each Nationwide Trust will have its
principal place of business or reside in the State of Delaware (the "Delaware
Trustee"). The Company will pay all fees and expenses related to the Nationwide
Trusts and the offering of the Trust Securities. The Company will guarantee
payment of distributions and payments on redemption or liquidation with respect
to the Preferred Securities of each Nationwide Trust to the extent the
applicable Nationwide Trust has funds available therefor.
The place of business and the telephone number of each of the Nationwide
Trusts are the principal executive offices and telephone number of the Company.
USE OF PROCEEDS
Each Nationwide Trust will use all proceeds received from the sale of its
Trust Securities to purchase Subordinated Debt Securities of the Company. Unless
otherwise set forth in a Prospectus Supplement with respect to the proceeds from
the sale of the particular Offered Securities to which such Prospectus
Supplement relates, the net proceeds from the sale of the Offered Securities are
expected to be used by the Company for general corporate purposes, which may
include investments in or advances to subsidiaries, possible acquisitions of
financial services companies or assets thereof, working capital, repayment or
redemption of outstanding debt, and other corporate purposes. Pending such use,
the net proceeds may be temporarily invested.
5
<PAGE> 47
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to fixed charges and
the ratio of earnings to combined fixed charges and preferred stock dividends
for the Company and its subsidiaries on a consolidated basis for the year ended
December 31, 1997, and for the three months ended March 31, 1998.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Ratio of Earnings to Fixed Charges(1)(2).................... 17.5x 16.6x
</TABLE>
- ---------------
(1) The Company has authority to issue up to 50,000,000 shares of Preferred
Stock; however, there are currently no shares outstanding and the Company
currently does not have a Preferred Stock dividend obligation. Therefore,
the ratio of earnings to combined fixed charges and preferred stock
dividends is equal to the ratio of earnings to fixed charges and is not
disclosed separately.
(2) The ratio of earnings to fixed charges is calculated by dividing earnings
(income from continuing operations before income taxes plus fixed charges)
by fixed charges (interest expense on debt). Fixed charges do not include
interest credited to policyholder account balances of $1,016.6 million for
the year ended December 31, 1997 and $261.9 million for the three months
ended March 31, 1998.
DESCRIPTION OF THE DEBT SECURITIES
The Company's Senior Debt Securities and Subordinated Debt Securities
(collectively, for purposes of this Section only, the "Debt Securities"),
consisting of notes, debentures or other evidences of indebtedness, may be
issued from time to time in one or more series, in the case of Senior Debt
Securities, under a Senior Indenture (the "Senior Debt Indenture") to be entered
into between the Company and Wilmington Trust Company, as Trustee, and in the
case of Subordinated Debt Securities, under a Subordinated Indenture (the
"Subordinated Debt Indenture") to be entered into between the Company and
Wilmington Trust Company, as Trustee. The Senior Debt Indenture and the
Subordinated Debt Indenture are sometimes hereinafter referred to individually
as an "Indenture" and collectively as the "Indentures." Wilmington Trust
Company, in its capacity as trustee under either or both of the Indentures, is
referred to hereinafter as the "Indenture Trustee." The Indentures are included
as exhibits to the Registration Statement of which this Prospectus is a part.
The following description summarizes the material terms of the Indentures and
the Debt Securities and is qualified in its entirety by reference to the
detailed provisions of the applicable Indenture, which contains the full text of
such provisions, including the definition of certain terms used herein, and
other information regarding the Debt Securities. Numerical references in
parentheses below are to sections in the applicable Indenture. Wherever
particular sections or defined terms of the applicable Indenture are referred
to, such sections or defined terms are incorporated herein by reference as part
of the statement made, and the statement is qualified in its entirety by such
reference. The Indentures are substantially identical except for provisions
relating to subordination and the Company's negative pledge and restrictions on
certain dispositions. Any Debt Securities offered by this Prospectus and the
accompanying Prospectus Supplement are referred to herein as the "Offered Debt
Securities."
GENERAL
The Debt Securities will be unsecured senior or subordinated obligations of
the Company. The Indentures do not limit the aggregate principal amount of
indebtedness that may be issued and provide that Debt Securities may be issued
from time to time in one or more series and may be denominated and payable in
foreign currencies or units based on or related to foreign currencies, including
European Currency Units. Special United States federal income tax considerations
applicable to any Debt Securities so denominated will be described in the
relevant Prospectus Supplement.
Reference is made to the applicable Prospectus Supplement which will
accompany this Prospectus for the following terms of and information relating to
the Offered Debt Securities offered thereby (to the extent such terms are
applicable to such Debt Securities): (i) classification as senior or
subordinated Debt Securities, the
6
<PAGE> 48
specific designation, aggregate principal amount, purchase price and
denomination; (ii) currency or units based on or relating to currencies in which
the Offered Debt Securities are denominated and/or in which principal, premium,
if any, and/or any interest will or may be payable; (iii) any date or dates upon
which the principal of the Offered Debt Securities is payable; (iv) interest
rate or rates (which may be fixed or variable) or the method by which such rate
will be determined, if any; (v) the dates on which any such interest will be
payable; (vi) the place or places where the principal of, premium, if any, and
interest, if any, on the Offered Debt Securities will be payable; (vii) any
mandatory or optional redemption, repayment or sinking fund provisions; (viii)
whether the Offered Debt Securities will be issuable in registered form
("Registered Debt Securities") or bearer form ("Bearer Debt Securities") or both
and, if Bearer Debt Securities are issuable, any restrictions applicable to the
place of payment of any principal of, premium, if any, and interest, if any, on
such Bearer Debt Securities, the exchange of one form for another and the offer,
sale and delivery of such Bearer Debt Securities (except that Registered Debt
Securities will not be exchangeable into Bearer Debt Securities except in
certain circumstances); (ix) whether the Debt Securities will be issuable in
whole or in part in global form and, if so, the identity of the Depositary for
such Securities and the terms and conditions, if any, upon which such Securities
may be exchanged in whole or in part for other definitive securities; (x) any
applicable United States federal income tax consequences; (xi) the proposed
listing, if any, of the Offered Debt Securities on any securities exchange;
(xii) any variation to the provisions of the Indenture with respect to the
satisfaction and discharge of the Company's indebtedness and obligations, or
termination of certain covenants and Events of Default under the Indenture, with
respect to the Debt Securities by deposit of money or Government Obligations;
(xiii) any trustee (other than Wilmington Trust Company), depositary,
authenticating or paying agent, transfer agent, registrar or other agent with
respect to the Debt Securities; (xiv) the right of the Company, if any, to defer
payments of interest on the Subordinated Debt Securities and (xv) any other
specific terms of the Offered Debt Securities, including any modifications of or
additions to the events of default or covenants provided for with respect to
such Debt Securities, and any terms which may be required by or advisable under
applicable laws or regulations not inconsistent with the applicable Indenture.
Debt Securities may be presented for exchange and Registered Debt
Securities may be presented for transfer in the manner, at the places and
subject to the restrictions set forth in the applicable Indenture. Such services
will be provided without charge, other than any tax or other governmental charge
payable in connection therewith, but subject to the limitations provided in the
applicable Indenture. Bearer Debt Securities and the coupons, if any,
appertaining thereto will be transferable by delivery.
Debt Securities may bear interest at a fixed rate or a floating rate. Debt
Securities bearing no interest or interest at a rate that at the time of
issuance is below the prevailing market rate will be sold at a discount below
their stated principal amount. Special United States federal income tax
considerations applicable to any such discounted Debt Securities or to certain
Debt Securities issued at par which are treated as having been issued at a
discount for United States federal income tax purposes will be described in the
relevant Prospectus Supplement.
Debt Securities may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on any
interest payment date, to be determined by reference to one or more currency
exchange rates, commodity prices, equity indices or other factors. Holders of
such Debt Securities may receive a principal amount on any principal payment
date, or a payment of interest on any interest payment date, that is greater or
less than the amount of principal or interest otherwise payable on such dates,
depending upon the value on such dates of applicable currency, commodity, equity
index or other factors. Information as to the methods for determining the amount
of principal or interest payable on any date, the currencies, commodities,
equity indices or other factors to which the amount payable on such date is
linked and certain additional tax considerations will be set forth in the
applicable Prospectus Supplement.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in global form. Registered
Debt Securities issued in global form (each a "Registered Global Security") will
be deposited with a depositary (a "Depositary") or with a nominee for a
Depositary identified in the Prospectus Supplement relating to such series and
registered in the name of the Depositary or a nominee thereof. In such case, one
or more Registered Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of
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<PAGE> 49
outstanding Registered Debt Securities of the series to be represented by such
Registered Global Security or Securities. Unless and until it is exchanged in
whole for Debt Securities in definitive registered form, a Registered Global
Security may not be transferred except as a whole by the Depositary for such
Registered 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
such Depositary or any such nominee to a successor of such Depositary or a
nominee of such successor.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Registered Global
Security will be described in the Prospectus Supplement relating to such series.
The Company anticipates that the following provisions will apply to all such
depositary arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the Depositary
for such Registered Global Security will credit, on its book-entry registration
and transfer system, the participants' accounts with the respective principal
amounts of the Debt Securities represented by such Registered Global Security
beneficially owned by such participants. Initially, the accounts to be credited
shall be designated by any dealers, underwriters or agents participating in the
distribution of such Debt Securities. Ownership of beneficial interests in such
Registered Global Security will be shown on, and the transfer of such ownership
interests will be effected only through, records maintained by the Depositary
for such Registered Global Security (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such laws may impair the ability to own, transfer or pledge beneficial
interests in Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented by such Registered Global Security for all
purposes under the applicable Indenture. Except as set forth below, owners of
beneficial interests in a Registered Global Security will not be entitled to
have the Debt Securities represented by such Registered Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of such Debt Securities in definitive form and will not be considered
the owners or holders thereof under the applicable Indenture. Accordingly, each
person owning a beneficial interest in a Registered Global Security must rely on
the procedures of the Depositary for such Registered Global Security and, if
such person owns through a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a holder
under the applicable Indenture. The Company understands that under existing
securities industry practices, if the Company requests any action of holders or
if an owner of a beneficial interest in a Registered Global Security desires to
give or take any action which a holder is entitled to give or take under the
applicable Indenture, the Depositary for such Registered Global Security would
authorize the participants holding the relevant beneficial interests to give or
take such action, and such participants would authorize beneficial owners owning
through such participants to give or take such action or would otherwise act
upon the instructions of beneficial owners owning through them.
Payments of principal of and premium, if any, and interest, if any, on a
Registered Global Security will be made to such Depositary or its nominee, as
the case may be. None of the Company, the Trustee or any other agent of the
Company or agent of the Trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in such Registered Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for any Registered Global Security,
upon receipt of any payment of principal, premium or interest in respect of such
Registered Global Security, will immediately credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
such registered Global Security as shown on the records of such Depositary.
The Company also expects that payments by participants to owners of
beneficial interests in such registered Global Security owned through such
participants will be governed by standing customer instructions and
8
<PAGE> 50
customary practices, as is now the case with the securities held for the
accounts of customers in bearer form or registered in "street name", and will be
the responsibility of such participants.
If the Depositary for any Registered Global Security is at any time
unwilling or unable to continue as Depositary or ceases to be a clearing agency
registered under the 1934 Act, and a successor depositary registered as a
clearing agency under the 1934 Act is not appointed by the Company within 90
days, the Company will issue such Debt Securities in definitive form in exchange
for such Registered Global Security. In addition, the Company may at any time
and in its sole discretion determine not to have any of the Debt Securities of a
series represented by one or more registered Global Securities and, in such
event, will issue Debt Securities of such series in a definitive form in
exchange for all of the Registered Global Security or Securities representing
such Debt Securities. Any Debt Securities issued in definitive form in exchange
for a registered Global Security will be registered in such name or names as the
Depositary shall instruct the Trustee. It is expected that such instructions
will be based upon directions received by the Depositary from participants with
respect to ownership of beneficial interests in such Registered Global Security.
Bearer Debt Securities of a series may also be issued in global form (each
a "Bearer Global Security") that will be deposited with a common depositary for
Euro-clear and CEDEL, or with a nominee for such depositary identified in the
Prospectus Supplement relating to such series. The specific terms and
procedures, including the specific terms of the depositary arrangement and any
specific procedures for the issuance of Debt Securities in definitive form in
exchange for a Bearer Global Security, with respect to any portion of a series
of Debt Securities to be represented by a Bearer Global Security will be
described in the Prospectus Supplement relating to such series.
CERTAIN COVENANTS OF THE COMPANY
LIMITATIONS ON LIENS. The Senior Debt Indenture provides that the Company
and its Restricted Subsidiaries (as defined below) may not issue, assume, incur
or guarantee any indebtedness for borrowed money secured by a mortgage, pledge,
lien or other encumbrance (except for certain liens specifically permitted by
the Senior Debt Indenture), directly or indirectly, upon any shares of the
Voting Stock (as defined in the Senior Debt Indenture) of a Restricted
Subsidiary without effectively providing such Senior Debt Securities issued
under the Senior Debt Indenture shall be secured equally and ratably with, or
prior to, any such secured indebtedness so long as such indebtedness remains
outstanding. The foregoing restrictions, however, do not apply to liens upon any
shares of Voting Stock of any corporation existing at the time such corporation
becomes a Restricted Subsidiary and extensions, renewals or replacements
thereof. (Senior Debt Indenture Section 3.9)
The term "Restricted Subsidiary" means (a) so long as they are Subsidiaries
of the Company, NLIC and Nationwide Life and Annuity Insurance Company; (b) any
other present or future Insurance Subsidiary the Consolidated Total Assets (as
defined in the Senior Debt Indenture) of which constitute 20% or more of the
Consolidated Total Assets of the Company; and (c) any Subsidiary which is a
successor, by merger or otherwise, to substantially all of the business or
properties of any Insurance Subsidiary referred to or described in the foregoing
clauses (a) or (b). The term "Subsidiary" means any corporation or other entity
more than 50% of the outstanding shares of Voting Stock of which is at the time
of determination owned or controlled, directly or indirectly, by the Company.
The term "Insurance Subsidiary" means a Subsidiary registered in the state of
its domicile under the insurance laws of such state and qualified to sell
insurance products. (Senior Debt Indenture, Section 1.1)
CONSOLIDATION, MERGER AND SALE OF ASSETS. The Senior Debt Indenture and the
Subordinated Debt both provide that the Company shall not consolidate or merge
with or into, or transfer or lease its assets substantially as an entirety to
any person unless the Company shall be the continuing corporation, or the
successor corporation or person to which such assets are transferred or leased
shall be organized under the laws of the United States or any state thereof or
the District of Columbia and shall expressly assume the Company's obligations on
the Debt Securities and under such Indenture, and after giving effect to such
transaction no Event of Default (as defined in such Indenture) shall have
occurred and be continuing, and certain other conditions are met. (Senior and
Subordinated Debt Indentures Section 9.1)
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This covenant would not apply to any recapitalization transaction, a change
of control of the Company or a highly leveraged transaction unless such
transactions or change of control were structured to include a merger or
consolidation or transfer or lease of the Company's assets substantially as an
entirety. Except as may be described in a Prospectus Supplement applicable to a
particular series of Debt Securities, there are no covenants or other provisions
in the Indentures providing for a put or increased interest or that would
otherwise afford holders of Debt Securities additional protection in the event
of a recapitalization transaction, a change of control of the Company or a
highly leveraged transaction.
RESTRICTIONS ON CERTAIN DISPOSITIONS. The Senior Debt Indenture provides
that as long as any of the Senior Debt Securities remain outstanding, the
Company will not, and will not permit any Restricted Subsidiary to, issue, sell,
assign, transfer or otherwise dispose of, directly or indirectly, any of the
Voting Stock of any Restricted Subsidiary, unless (a) the issuance, sale,
assignment, transfer or other disposition is required to comply with the order
of a court or regulatory authority of competent jurisdiction, other than an
order issued at the request of the Company or of one of its Restricted
Subsidiaries; (b) the shares of Voting Stock issued, sold, assigned, transferred
or otherwise disposed of constitute directors' qualifying shares; (c) all of the
Voting Stock of a Restricted Subsidiary then owned by the Company or by its
Restricted Subsidiaries is disposed of, in a single transaction or in a series
of related transactions, for a consideration consisting of cash or other
property the fair market value of which (as determined in good faith by the
Board of Directors) is at least equal to the Fair Value (as defined below) of
such Voting Stock; or (d) after giving effect to the issuance, sale, assignment,
transfer or other disposition, the Company and its Restricted Subsidiaries would
own directly or indirectly at least 80% of the issued and outstanding Voting
Stock of such Restricted Subsidiary and such issuance, sale, assignment,
transfer or other disposition is made for a consideration consisting of cash or
other property which is at least equal to the Fair Value of such Voting Stock.
(Senior Debt Indenture Section 9.3) The term "Fair Value" when used with respect
to any Voting Stock means the fair value as determined in good faith by the
Board of Directors of the Company. (Senior Debt Indenture, Section 1.1) The
Senior Debt Indenture does not restrict the transfer of assets from a Restricted
Subsidiary to any person, including the Company or another subsidiary of the
Company.
EVENTS OF DEFAULT
An Event of Default is defined under both The Senior Debt Indenture and the
Subordinated Debt Indenture with respect to Debt securities of any series issued
under such Indenture as being: (a) default in payment of all or any part of the
principal of the Debt Securities of such series when due, either at maturity (or
upon any redemption), by declaration or otherwise; (b) default for 30 days in
payment of any interest on any Debt Securities of such series; (c) default in
payment of any sinking fund installment when due; (d) failure to observe or
perform any other covenant or agreement in the Debt Securities of such series or
such Indenture other than a covenant included in such Indenture solely for the
benefit of a series of Debt Securities other than such series after 60 days
written notice as provided in such Indenture; (e) certain events of bankruptcy,
insolvency or reorganization; or (f) an event of default with respect to any
other indebtedness for borrowed money (other than non-recourse obligations) of
the Company or any of its Restricted Subsidiaries, in an aggregate principal
amount exceeding $50,000,000, if such event of default shall result in the
acceleration of such other indebtedness under the terms of the instrument under
which such indebtedness is issued or secured, so long as such acceleration is
not cured, waived, rescinded or annulled, or such indebtedness is not
discharged, within 10 days after written notice thereof as provided in such
Indenture; provided that if any such acceleration shall cease or be cured,
waived, rescinded or annulled, then the Event of Default by reason thereof shall
be deemed likewise to have been thereupon cured. (Senior and Subordinated Debt
Indentures, Section 5.1)
The Senior Debt Indenture and the Subordinated Debt Indenture both provide
that (a) if an Event of Default due to the default in payment of principal of,
premium, if any, or interest on, any series of Debt Securities issued under such
Indenture or due to the default in the performance or breach of any other
covenant or agreement of the Company applicable to the Debt Securities of such
series but not applicable to all outstanding Debt Securities issued under such
Indenture shall have occurred and be continuing, either the Trustee or the
holders of not less than 25% in principal amount of the Debt Securities of each
affected series (treated as one class) issued under such Indenture and then
outstanding may then declare the principal of all Debt Securities of each such
affected series and interest accrued thereon to be due and payable immediately
and (b) if any Event of Default due to a
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default in the performance of any of the covenants or agreements in such
Indenture applicable to all outstanding Debt Securities issued thereunder and
then outstanding or due to certain events of bankruptcy, insolvency and
reorganization of the Company shall have occurred and be continuing, either the
Indenture Trustee or the holders of not less than 25% in principal amount of all
Debt Securities issued under such Indenture then outstanding (treated as one
class) may declare the principal of all such Debt Securities and interest
accrued thereon to be due and payable immediately. However, upon certain
conditions such declarations may be annulled and past defaults may be waived
(except a continuing default in payment of principal of (or premium, if any) or
interest on such Debt Securities) by the holders of a majority in principal
amount of the Debt Securities of all such affected series then outstanding.
(Senior and Subordinated Debt Indenture, Sections 5.1 and 5.10)
The Senior Debt Indenture and the Subordinated Debt Indenture both contain
a provision entitling the Indenture Trustee, subject to the duty of the Trustee
during the event of default to act with the required standard of care, to be
assured of reasonable indemnity or security by the holders of Debt Securities
issued under either such Indenture requesting the Indenture Trustee to exercise
any right or power under either such Indenture before proceeding to exercise any
such right or power at the request of such holders. (Senior and Subordinated
Debt Indentures, Section 6.2) Subject to such provisions in each such Indenture
for the indemnification of the Indenture Trustee and certain other limitations,
the holders of a majority in aggregate principal amount of the outstanding Debt
Securities of each affected series (treated as one class) issued under such
Indenture may direct the time, method and place of conducting any proceedings
for any remedy available to the Indenture Trustee, or exercising any trust or
power conferred on the Indenture Trustee. (Senior and Subordinated Debt
Indentures, Section 5.9)
The Senior Debt Indenture and the Subordinated Debt Indenture both provide
that no holder of Debt Securities issued under either such Indenture may
institute any action against the Company under either such Indenture (except as
set forth above and actions for payment of overdue principal, premium, if any,
or interest) unless such holder previously shall have given to the Indenture
Trustee written notice of default and continuance thereof and unless the holders
of not less than 25% in principal amount of the Debt Securities of each affected
series (treated as one class) issued under either such Indenture and then
outstanding shall have requested the Indenture Trustee to institute such action
and shall have offered the Indenture Trustee reasonable indemnity, the Indenture
Trustee shall not have instituted such action within 60 days of such request and
the Indenture Trustee shall not have received direction inconsistent with such
written request by the holders of a majority in aggregate principal amount of
the Debt Securities of each affected series (treated as one class) issued under
either such Indenture and then outstanding. (Senior and Subordinated Debt
Indentures Sections 5.6 and 5.9)
If the Subordinated Debt Securities of any series are then held by a
statutory trust created by the Company for the purpose of issuing preferred
securities and common securities and purchasing a series of Subordinated Debt
Securities with the proceeds thereof, each holder of the preferred securities of
the trust may bring suit directly against the Company for the enforcement of
payment to such holder in respect of the Subordinated Debt Securities of such
series held by the trust in a principal amount equal to the aggregate
liquidation amount of the preferred securities held by such holder. At least a
majority of such holders of preferred securities of the trust must consent to
any waiver of an Event of Default with respect to the series of Subordinated
Debt Securities held by the trust and each such holder must consent to any
supplemental indenture that would adversely affect the interests of such
holders. (Subordinated Indenture Sections 5.7, 5.10 and 8.2)
The Senior Debt Indenture and the Subordinated Debt Indenture both contain
a covenant that the Company will file annually with the Indenture Trustee a
certificate of no default or a certificate specifying any default that exists.
(Senior and Subordinated Debt Indentures Section 3.4)
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
If indicated in the applicable Prospectus Supplement, the Company can
discharge or defease its obligations under each Indenture as set forth below.
(Senior and Subordinated Debt Indentures Article X and Section 3.2)
Under terms satisfactory to the Indenture Trustee, the Company may
discharge certain obligations to holders of any series of Debt Securities issued
under either the Senior Debt Indenture or the Subordinated Debt Indenture which
have not already been delivered to the Trustee for cancellation and which have
either become due and
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payable or are by their terms due and payable within one year (or scheduled for
redemption within one year) by irrevocably depositing with the Trustee cash or,
in the case of Debt Securities payable only in U.S. dollars, U.S. Government
Obligations (as defined in either such Indenture), as trust funds in an amount
certified to be sufficient to pay when due, whether at maturity, upon redemption
or otherwise, the principal of, premium, if any, and interest on such Debt
Securities.
If indicated in the applicable Prospectus Supplement, the Company may elect
either (i) to defease and be discharged from any and all obligations with
respect to the Debt Securities of or within any series (except as otherwise
provided in the relevant Indenture) ("defeasance") or (ii) to be released from
its obligations with respect to certain covenants applicable to the Debt
Securities of or within any series ("covenant defeasance"), upon the deposit
with the relevant Indenture Trustee, in trust for such purpose, of money and/or
government obligations which through the payment of principal and interest in
accordance with their terms will provide money in an amount sufficient, without
reinvestment, to pay the principal of and any premium or interest on such Debt
Securities to maturity or redemption, as the case may be, and any mandatory
sinking fund or analogous payments thereon. As a condition to defeasance or
covenant defeasance, the Company must deliver to the Trustee an opinion of
counsel to the effect that the holders of such Debt Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance or covenant defeasance and will be subject to federal income tax
on the same amounts and in the same manner and at the same times as would have
been the case if such defeasance or covenant defeasance had not occurred. Such
opinion of counsel, in the case of defeasance under clause (i) above, must refer
to and be based upon a ruling of the Internal Revenue Service or a change in
applicable federal income tax law occurring after the date of the relevant
Indenture. (Senior and Subordinated Debt Indentures Section 10.6)
The Company may exercise its defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its defeasance option, payment of such Debt Securities
may not be accelerated because of an Event of Default. (Senior and Subordinated
Debt Indentures Section 10.6) If the Company exercises its covenant defeasance
option, payment of such Debt Securities may not be accelerated by reason of a
Default or an Event of Default with respect to the covenants to which such
covenant defeasance is applicable. However, if such acceleration were to occur
by reason of another Event of Default, the realizable value at the acceleration
date of the money and Government Obligations in the defeasance trust could be
less than the principal and interest then due on such Debt Securities, in that
the required deposit in the defeasance trust is based upon scheduled cash flow
rather than market value, which will vary depending upon interest rates and
other factors.
MODIFICATION OF THE INDENTURES
The Senior Debt Indenture and the Subordinated Debt Indenture both provide
that the Company and the Trustee may enter into supplemental indentures without
the consent of the holders of Debt Securities to: (a) secure any Debt
Securities, (b) evidence the assumption by a successor corporation of the
obligations of the Company, (c) add covenants for the protection of the holders
of Debt Securities, (d) cure any ambiguity or correct any inconsistency in such
Indenture, provided that such cure or correction does not adversely affect the
holders of such Debt Securities, (e) establish the forms or terms of Debt
Securities of any series and (f) evidence the acceptance of appointment by a
successor trustee. (Senior and Subordinated Debt Indentures Section 8.1)
The Senior Debt Indenture and the Subordinated Debt Indenture both also
contain provisions permitting the Company and the Indenture Trustee, with the
consent of the holders of not less than a majority in aggregate principal amount
of Debt Securities of all series issued under such Indenture then outstanding
and affected (voting as one class), to add any provisions to, or change in any
manner or eliminate any of the provisions of, any Indenture or modify in any
manner the rights of the holders of the Debt Securities of each series so
affected; provided that the Company and the Indenture Trustee may not, without
the consent of the holder of each outstanding Debt Security affected thereby,
(a) extend the stated maturity of the principal of any Debt Security, 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 redemption thereof or change
the currency in which the principal thereof (including any amount in respect of
original issue discount), premium, if any, or interest thereon is payable or
reduce the amount of any original issue discount Debt Security that is payable
upon acceleration or provable in bankruptcy or alter
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certain provisions of either such Indenture relating to the Debt Securities
issued thereunder not denominated in U.S. dollars or impair the right to
institute suit for the enforcement of any payment on any Debt Security when due
or (b) reduce the aforesaid percentage in aggregate principal amount of Debt
Securities of any series issued under either such Indenture, the consent of the
holders of which is required for any such modification. (Senior and Subordinated
Debt Indentures Section 8.2)
The Subordinated Debt Indenture may not be amended to alter the
subordination of any outstanding Subordinated Debt Securities without the
consent of each holder of Senior Indebtedness then outstanding that would be
adversely affected thereby. (Subordinated Debt Indenture Section 8.6)
SUBORDINATION
Payment of the principal of, premium, if any, and interest on Debt
Securities issued under the Subordinated Debt Indenture will be subordinate and
junior in right of payment, to the extent and in the manner set forth in the
Subordinated Debt Indenture, to all "Senior Indebtedness" of the Company. The
Subordinated Debt Indenture defines "Senior Indebtedness" as the principal of
and premium, if any, and interest on (a) all indebtedness of the Company,
whether outstanding on the date of the Subordinated Debt Indenture or thereafter
created, (i) for money borrowed by the Company, (ii) for money borrowed by, or
obligations of, others and either assumed or guaranteed, directly or indirectly,
by the Company, (iii) in respect of letters of credit and acceptances issued or
made by banks, or (iv) constituting purchase money indebtedness, or indebtedness
secured by property included in the property, plant and equipment accounts of
the Company at the time of the acquisition of such property by the Company, for
the payment of which the Company is directly liable, and (b) all deferrals,
renewals, extensions and refundings of, and amendments, modifications and
supplements to, any such indebtedness. As used in the preceding sentence, the
term "purchase money indebtedness" means indebtedness evidenced by a note,
debenture, bond or other instrument (whether or not secured by any lien or other
security interest) issued or assumed as all or a part of the consideration for
the acquisition of property, whether by purchase, merger, consolidation or
otherwise, unless by its terms such indebtedness is subordinate to other
indebtedness of the Company. Notwithstanding anything to the contrary in the
Subordinated Debt Indenture or the Subordinated Debt Securities, Senior
Indebtedness shall not include, (i) any indebtedness of the Company which, by
its terms or the terms of the instrument creating or evidencing it, is
subordinate in right of payment to or pari passu with the Subordinated Debt
Securities or (ii) any indebtedness of the Company to a Subsidiary of the
Company. (Subordinated Debt Indenture Section 1.1) The Subordinated Debt
Indenture does not contain any limitation on the amount of Senior Indebtedness
that can be incurred by the Company.
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
respect of the Company or its property, or (b) that Subordinated Debt Securities
of any series are declared due and payable before their expressed maturity
because of the occurrence of an Event of Default pursuant to Section 5.1 of the
Subordinated Debt Indenture (under circumstances other than as set forth in
clause (a) above), then the holders of all Senior Indebtedness shall first be
entitled to receive payment of the full amount due thereon in money or money's
worth, before the holders of any of such Subordinated Debt Securities or coupons
appertaining thereto are entitled to receive a payment on account of the
principal of, premium, if any, or interest on the indebtedness evidenced by such
Subordinated Debt Securities or of such coupons appertaining thereto. In the
event and during the continuation of any default in payment of any Senior
Indebtedness or if any Event of Default shall exist under any Senior
Indebtedness, as "Event of Default" is defined therein or in the agreement under
which the same is outstanding, no payment of the principal or interest on the
Subordinated Debt Securities or coupons shall be made. (Subordinated Debt
Indenture, Article XIII) If this Prospectus is being delivered in connection
with a series of Subordinated Debt Securities, the accompanying Prospectus
Supplement will set forth the approximate amount of Senior Indebtedness
outstanding as of the end of the most recent fiscal quarter.
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the laws of the State of New York, except to the extent the
Trust Indenture Act shall be applicable. (Senior and Subordinated Debt
Indentures Section 11.8)
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CONCERNING THE TRUSTEE
Wilmington Trust Company is one of a number of banks with which the Company
and its subsidiaries maintain ordinary banking and trust relationships.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The following statements are subject to and qualified in their entirety by
reference to detailed provisions of the Company's Restated Certificate of
Incorporation (the "Certificate") and Restated Bylaws (copies of which have been
incorporated by reference as exhibits to the Registration Statement of which
this Prospectus forms a part).
The Company is currently authorized to issue 750 million shares of Class A
Common Stock, 750 million shares of Class B Common Stock and 50 million shares
of Preferred Stock. The shares of Class A Common Stock and Class B Common Stock
are identical in all respects except for voting rights and certain conversion
rights and transfer restrictions regarding the shares of Class B Common Stock as
described below.
COMMON STOCK
VOTING. All outstanding shares of Common Stock are fully paid and
nonassessable. Except for the Equity Purchase Rights (as defined below), holders
of Common Stock do not have any preemptive rights to subscribe for or purchase
any additional securities issued by the Company. No redemption or sinking fund
provisions are associated with the Common Stock. Cumulative voting is not
permitted by holders of Common Stock.
The Company has agreed that, to the extent permitted by the NYSE and so
long as Nationwide Mutual controls at least 50% of the combined voting power of
the outstanding voting stock of the Company, Nationwide Corp. may purchase its
pro rata share (based on its then current percentage voting interest in the
Company) of any voting equity securities to be issued by the Company (excluding
any such securities offered pursuant to employee stock options or other benefit
plans, divided reinvestment plans and other offerings other than for cash) (the
"Equity Purchase Rights").
The holders of Class B Common Stock are entitled to ten votes per share.
The holders of Class A Common Stock are entitled to one vote per share.
Proposals submitted to a vote of stockholders will be voted on by holders of
Class A Common Stock and Class B Common Stock voting together as a single class.
At all meetings of the stockholders of the Company, the presence of holders of
record entitled to exercise at least a majority of the voting power of the
Company, represented in person or by proxy, shall constitute a quorum for the
transaction of business; and the affirmative vote of the holders, represented in
person or by proxy, of a majority of the Common Stock present at a meeting at
which a quorum is in existence shall be the act of the stockholders of the
Company. The superior voting rights of the Class B Common Stock might discourage
unsolicited merger proposals and unfriendly tender offers.
TRANSFER. The Certificate does not contain any restrictions on the transfer
of shares of Class A Common Stock. Upon any sale or other transfer of shares of
Class B Common Stock to any person or persons other than a member of the
Nationwide Insurance Enterprise, such shares of Class B Common Stock will be
converted into an equal number of shares of Class A Common Stock.
CONVERSION. Class A Common Stock has no conversion rights. Class B Common
Stock is convertible into Class A Common Stock, in whole or in part, at any time
and from time to time at the option of the holder, on the basis of one share of
Class A Common Stock for each share of Class B Common Stock converted. If at any
time after the initial issuance of shares of Class A Common Stock the number of
outstanding shares of Class B Common Stock falls below 5% of the aggregate
number of issued and outstanding shares of Common Stock, then each outstanding
share of Class B Common Stock shall automatically convert into one share of
Class A Common Stock. In the event of any sale or transfer of shares of Class B
Common Stock to any person or persons other than a member of the Nationwide
Insurance Enterprise shares of Class B Common Stock so transferred shall be
automatically converted into an equal number of shares of Class A Common Stock.
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DIVIDENDS. Holders of Common Stock are entitled to receive cash dividends
pro rata on a per share basis if and when such dividends are declared by the
Board of Directors of the Company from funds legally available therefor. In the
case of any dividend paid other than in cash or Common Stock (or securities
convertible into or exchangeable for Common Stock), holders of Class A Common
Stock and Class B Common Stock are entitled to receive such dividend pro rata on
a per share basis. Dividends paid in Common Stock (or securities convertible
into or exchangeable for Common Stock) may be paid in shares of Class A Common
Stock (or securities convertible into or exchangeable for Class A Common Stock)
on the Class A Common Stock and in shares of Class B Common Stock or securities
convertible into or exchangeable for Class B Common Stock) on the Class B Common
Stock.
LIQUIDATION, MERGER OR CONSOLIDATION. Holders of Class A Common Stock and
Class B Common Stock share with each other on a ratable basis as a single class
in the net assets of the Company available for distribution in respect of the
Common Stock in the event of liquidation or any payments made on the Common
Stock in the event of a merger or consolidation of the Company.
PREFERRED STOCK
The following summary contains a description of certain general terms of
the Preferred Stock to which any Prospectus Supplement may relate. Certain terms
of Preferred Stock offered by any Prospectus Supplement will be described in the
Prospectus Supplement relating thereto. If so specified in the Prospectus
Supplement, the terms of any series differ from the terms set forth below. As
described under "Description of Depositary Shares", the Company may, at its
option, elect to offer Depositary Shares evidenced by depositary receipts
("Depositary Receipts"), each representing an interest (to be specified in the
Prospectus Supplement relating to the particular series of the Preferred Stock)
in a share of the particular series of the Preferred Stock issued and deposited
with a Preferred Stock Depositary (as defined herein).
The description of certain provisions of the Preferred Stock does not
purport to be complete and is subject to and qualified in its entirety by
reference to the provisions of the Certificate and the amendment thereto
relating to each particular series of Preferred Stock (the "Series Amendment")
which will be filed or incorporated by reference, as the case may be, as an
exhibit to the Registration Statement of which this Prospectus is a part at or
prior to the time of the issuance of such Preferred Stock.
GENERAL. Under the Certificate, the Board of Directors is authorized,
without further stockholder action, to provide for the issuance of up to 50
million shares of Preferred Stock. As of the date hereof, no shares of Preferred
Stock were outstanding. The Board of Directors may from time to time authorize
issuance of shares of Preferred Stock in series, and each such series shall have
such dividend and liquidation preferences, redemption pries, conversion rights,
and other terms and provisions as may be contained in the resolutions of the
Board of Directors providing for their issuance. All shares of Preferred Stock
offered hereby will be, when issued, fully paid and non-assessable and holders
thereof will have no preemptive rights in connection therewith.
RANK. Any series of Preferred Stock will, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank (i) senior to all
classes of Common Stock and to all equity securities issued by the Company, the
terms of which specifically provide that such equity securities will rank junior
to such series of Preferred Stock; (ii) pari passu with all equity securities
issued by the Company, the terms of which specifically provide that such equity
securities will rank on a parity with such series of Preferred Stock; and (iii)
junior to all equity securities issued by the Company, the terms of which
specifically provide that such equity securities will rank senior to such series
of Preferred Stock. As used in any Series Amendment for these purposes, the term
"equity securities" will not include any debt securities convertible or
exchangeable for equity securities.
DIVIDENDS. Holders of each series of Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available therefor, cash dividends at such rates and on such dates as are set
forth in the Prospectus Supplement relating to such series of Preferred Stock.
Such rate may be fixed or variable or both. Dividends will be payable to holders
of record of Preferred Stock as they appear on the books of the Company on such
record dates as shall be fixed by the Board of Directors. Dividends on any
series of Preferred Stock may be cumulative or noncumulative.
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No full dividends may be declared or paid or funds set apart for the
payment of dividends on any series of Preferred Stock unless dividends shall
have been paid or funds set apart for such payment on the equity securities
ranking on a parity with respect to dividends with such series of Preferred
Stock. If full dividends are not so paid, such series of Preferred Stock shall
share dividends pro rata with such other equity securities.
CONVERSION AND EXCHANGE. The Prospectus Supplement for any series of
Preferred stock will state the terms, if any, on which shares of that series are
convertible into shares of another series of Preferred Stock or Class A Common
Stock or exchangeable for another series of Preferred Stock, Class A Common
Stock or Debt Securities of the Company. The Class A Common Stock of the Company
is described under "--Common Stock."
REDEMPTION. A series of Preferred Stock may be redeemable at any time, in
whole or in part, at the option of the Company or the holder thereof and may be
subject to mandatory redemption pursuant to a sinking fund or otherwise upon
terms and at the redemption prices set forth in the Prospectus Supplement
relating to such series.
In the event of partial redemptions of Preferred Stock, whether by
mandatory or optional redemption, the shares to be redeemed will be determined
by lot or pro rata, as may be determined by the Board of Directors, or by any
other method determined to be equitable by the Board of Directors.
On and after a redemption date, unless the Company defaults in the payment
of the redemption price, dividends will cease to accrue on shares of Preferred
Stock called for redemption and all rights of holders of such shares will
terminate except for the right to receive the redemption price.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, holders of each series of Preferred
Stock will be entitled to receive out of assets of the Company available for
distribution to stockholders, before any distribution is made on any securities
ranking junior with respect to liquidation, including Common Stock,
distributions upon liquidation in the amount set forth in the Prospectus
Supplement relating to such series of Preferred Stock, plus an amount equal to
any accrued and unpaid dividends. If, upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the amounts payable with
respect to the Preferred Stock of any series and any other securities of the
Company ranking on a parity with respect to liquidation rights are not paid in
full, the holders of the Preferred Stock of such series and such other
securities will share ratably in any such distribution of assets of the Company
in proportion to the full liquidation preferences to which each is entitled.
After payment of the full amount of the liquidation preference to which they are
entitled, the holders of Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Company.
VOTING RIGHTS. Except as set forth in the Prospectus Supplement relating to
a particular series of Preferred Stock or except as expressly required by
applicable law, the holders of shares of Preferred Stock will have no voting
rights.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for each
series of Preferred Stock will be described in the applicable Prospectus
Supplement.
CERTAIN CERTIFICATE AND BYLAW PROVISIONS
Certain provisions of the Company's Certificate and Bylaws, summarized in
the following paragraphs, may be considered to have an anti-takeover effect and
may delay, deter or prevent a tender offer, proxy contest or other takeover
attempt that a stockholder might consider to be in such stockholder's best
interest, including such an attempt as might result in payment of a premium over
the market price for shares held by stockholders.
CLASSIFIED BOARD OF DIRECTORS. The Certificate provides for the Board of
Directors of the Company to be divided into three classes of directors, with
each class as nearly equal in number as possible, serving staggered three-year
terms. As a result, approximately one-third of the Board of Directors will be
elected each year at the annual meeting of stockholders. The Board of Directors
believes that a classified board of directors will help to assure the continuity
and stability of the Board of Directors and the business strategies and policies
of the Company as determined by the Board of Directors because continuity and
stability in the composition of the Board of Directors and in the policies
formulated by it will be enhanced by the staggered three-year terms.
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The classified board provisions could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of the Company, even though such an attempt might be beneficial to the Company
and its stockholders. In addition, the classified board provisions could delay
stockholders who do not like the policies of the Board of Directors from
removing a majority of the Board of Directors for two years.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES. The Certificate provides
that the Board of Directors will consist of one to fifteen members, the exact
number to be fixed from time to time by resolution adopted by a majority of the
entire Board of Directors assuming no vacancies. The Board of Directors
currently consists of eleven directors. Further, subject to the rights of the
holders of any series of Preferred Stock then outstanding, the Certificate
authorizes the Board of Directors to fill newly created directorships.
Accordingly, this provision could prevent a stockholder from obtaining majority
representation on the Board of Directors by remitting the Board of Directors to
enlarge the Board of Directors and fill the new directorships with its own
nominees. A director so elected by the Board of Directors holds office until the
next election of the class for which such director has been chosen and until his
successor is elected and qualified. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, the Certificate also provides that
directors may be removed only for cause and only by the affirmative vote of
holders of a majority of the outstanding voting power of the Company. The effect
of these provisions is to preclude a stockholder from removing incumbent
directors without cause and simultaneously gaining control of the Board of
Directors by filling the vacancies created by such removal with its own
nominees.
SPECIAL MEETINGS OF STOCKHOLDERS. The Bylaws provide that special meetings
of stockholders may be called by the Chairman of the Board of Directors, the
Chairman and Chief Executive Officer-Nationwide Insurance Enterprise or the
President and Chief Operating Officer and shall be called by the Secretary at
the request in writing of a majority of the Board of Directors. Stockholders are
not permitted to call special meetings of stockholders.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Company's Bylaws provide in order to properly submit any
business to, or to nominate any person for election to the Board of Directors at
an annual meeting of stockholders, a stockholder must provide timely notice
thereof in writing to the Secretary of the Company. To be considered timely, a
stockholder's notice must be delivered to, or mailed and received at, the
principal executive offices of the Company (i) not less than 60 days nor more
than 90 days before the first anniversary date of the Company's proxy statement
in connection with the last annual meeting of stockholders or (ii) if no annual
meeting was held in the previous year or the date of the applicable annual
meeting has been changed by more than 30 days from the date contemplated at the
time of the previous year's proxy statement, not less than a reasonable time, as
determined by the Board of Directors, prior to the date of the applicable annual
meeting. The Bylaws also specify certain requirements pertaining to the form and
substance of a stockholder's notice. These provisions may preclude some
stockholders from making nominations for directors at an annual or special
meeting or from bringing other matters before the stockholders at a meeting.
CLASS B COMMON STOCK. The superior voting rights of the Class B Common
Stock might discourage unsolicited merger proposals and unfriendly tender
offers.
NO ACTION BY WRITTEN CONSENT OF THE STOCKHOLDERS. The Certificate does not
allow the stockholders of the Company to take action by written consent in lieu
of a meeting.
DELAWARE TAKEOVER STATUTE. The Company is subject to the provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL"). Section 203
prohibits a Delaware corporation from engaging in any "business combination'
with any "interested stockholder" for a period of three years following the time
that such stockholder became an interested stockholder unless (i) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; or (ii) upon the consummation of the transaction which
resulted in the stockholder becoming an interested stockholder owned at least
85% of the voting stock of the corporation, as defined in Section 203 of the
DGCL; or (iii) at or subsequent to such time, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 % of the outstanding voting stock which is not owned by the
interested stockholder. For these purposes, the term "business combination'
includes but is not limited to
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mergers, asset or stock sales and other similar transactions with an "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within the prior three years, did own) 15%
or more of the corporation's voting stock.
LIMITATION ON LIABILITY. The Company's Certificate contains a provision
that is designed to limit the directors' liability to the extent permitted by
the DGCL and any amendments thereto. Specifically, directors will not be held
liable to the Company or its stockholders for an act or omission in such
capacity as a director, except for liability as a result of (i) a breach of the
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) payment of an improper dividend or improper repurchase of the
Company's stock under Section 174 of the DGCL, or (iv) actions or omissions
pursuant to which the director received an improper personal benefit. The
principal effect of the limitation on liability provision is that a stockholder
is unable to prosecute an action for monetary damages against a director of the
Company unless the stockholder can demonstrate one of the specified bases for
liability. This provision, however, does not eliminate or limit director
liability arising in connection with causes of action brought under the federal
securities laws. The Company's Certificate does not eliminate its directors'
duty of care. The inclusion of this provision in the Company's Certificate may,
however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. This provision should not affect the availability of equitable
remedies such as injunction or rescission based upon a director's breach of the
duty of care.
INDEMNIFICATION. The Company's Bylaws also provide that the Company will
indemnify its directors and officers to the fullest extent permitted by Delaware
law. The Company is generally required to indemnify its directors and officers
for all judgments, fines, settlements, legal fees and other expenses incurred in
connection with pending or threatened legal proceedings because of the
director's or officer's position with the Company or another entity that the
director or officer serves at the Company's request, subject to certain
conditions, and to advance funds to its directors and officers to enable them to
defend against such proceedings. To receive indemnification, the director or
officer must have been successful in the legal proceeding or acted in good faith
and in what was reasonably believed to be a lawful manner in the Company's best
interest.
CERTIFICATE PROVISION RELATING TO CORPORATE OPPORTUNITIES. The Certificate
provides that except as Nationwide Mutual (or its successors or assigns) may
otherwise agree in writing and except as set forth in the Intercompany Agreement
among Nationwide Mutual, Nationwide Corp. and the Company (the "Intercompany
Agreement"):
(i) no member of the Nationwide Insurance Enterprise shall have a duty
to refrain from engaging directly or indirectly in the same or similar
business activities or lines of business as the Company; and
(ii) no member of the Nationwide Insurance Enterprise, nor any
director, officer, employee or agent or any member of Nationwide Mutual
(except as provided below), will be liable to the Company or to its
stockholders for breach of any fiduciary duty by reason of any such
activities of such member's or of such person's participation thereon.
The Certificate also provides that if in the event any member of the
Nationwide Insurance Enterprise (other than the Company) acquires knowledge of a
potential transaction or matter which may be a corporate opportunity both for a
member of the Nationwide Insurance Enterprise and the Company, no member of the
Nationwide Insurance Enterprise shall have any duty to communicate or offer such
corporate opportunity to the Company nor shall any such member be liable to the
Company or its stockholders for breach of any fiduciary duty as a stockholder of
the Company or controlling person of a stockholder by reason of the fact that
any such member of the Nationwide Insurance Enterprise pursues or acquires such
opportunity for itself, directs such corporate opportunity to another person or
entity or does not communicate information regarding, or offer such corporate
opportunity to the Company.
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Further, the Certificate provides that in the event that a director,
officer, employee or agent of the Company who is also a director, officer,
employee or agent of any member of the Nationwide Insurance Enterprise acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for the Company or any member of the Nationwide Insurance Enterprise
(whether such potential transaction or matter is proposed by a third party or is
conceived of by such director, officer, employee or agent of the Company), such
director, officer, employee or agent shall be entitled to offer such corporate
opportunity to the Company or such member of the Nationwide Insurance Enterprise
as such director, officer, employee or agent deems appropriate under the
circumstances in his or her sole discretion, and no such director, officer or
agent shall be liable to the Company or its stockholders for breach of any
fiduciary duty or duty of loyalty or failure to act in (or not opposed to) the
best interests of the Company or the derivation of any improper personal benefit
by reason of the fact that (i) such director, officer, employee or agent offered
such corporate opportunity to such member of the Nationwide Insurance Enterprise
(rather than the Company) or did not communicate information regarding such
corporate opportunity to the Company or (ii) such member of the Nationwide
Insurance Enterprise pursues or acquires such corporate opportunity for itself
or directs such corporate opportunity to another person or does not communicate
information regarding such corporate opportunity to the Company. The
enforceability of the provisions discussed above under the DGCL has not been
established and counsel to the Company has not delivered an opinion as to the
enforceability of such provisions. These provisions of the Certificate may
eliminate certain rights that might have been available to stockholders under
the DGCL had such provisions not been included in the Certificate.
The Company's Board of Directors currently consists of 11 members, 7 of
whom serve concurrently on the boards of directors of other companies within the
Nationwide Insurance Enterprise. In addition, a significant number of officers
of the Company will also be officers of other companies within the Nationwide
Insurance Enterprise.
The foregoing provisions of the Certificate shall expire on the date that
the members of the Nationwide Insurance Enterprise cease to beneficially own
(directly or indirectly) in the aggregate Common Stock representing at least 50%
of the voting power of the outstanding shares of Common Stock.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined below) and of the Depositary
Shares and Depositary Receipts summarizes the material terms of the Deposit
Agreement and of the Depositary Shares and Depositary Receipts, and is qualified
in its entirety by reference to, the form of Deposit Agreement and form of
Depositary Receipts relating to each series of the Preferred Stock.
GENERAL
The Company may, at its option, elect to have shares of Preferred Stock be
represented by Depositary Shares. The shares of any series of the Preferred
Stock underlying the Depositary Shares will be deposited under a separate
deposit agreement (the "Deposit Agreement") between the Company and a bank or
trust company selected by the Company (the "Preferred Stock Depositary"). The
Prospectus Supplement relating to a series of Depositary Shares will set forth
the name and address of the Preferred Stock Depositary. Subject to the terms of
the Deposit Agreement, each owner of a Depositary Share will be entitled,
proportionately, to all the rights, preferences and privileges of the Preferred
Stock represented thereby (including dividend, voting, redemption, conversion,
exchange and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement, each of which will represent the applicable
interest in a number of shares of a particular series of the Preferred Stock
described in the applicable Prospectus Supplement.
A holder of Depositary Shares will be entitled to receive the shares of
Preferred Stock (but only in whole shares of Preferred Stock) underlying such
Depositary Shares. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the whole number of shares of Preferred
Stock to be withdrawn, the Depositary will deliver to such holder at the same
time a new Depositary Receipt evidencing such excess number of Depositary
Shares.
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DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions in respect to the Preferred Stock to the record holders of
Depositary Receipts in proportion, insofar as possible, to the number of
Depositary Shares owned by such holders.
In the event of a distribution other than in cash in respect to the
Preferred Stock, the Preferred Stock Depositary will distribute property
received by it to the record holders of Depositary Receipts in proportion,
insofar as possible, to the number of Depositary Shares owned by such holders,
unless the Preferred Stock Depositary determines that it is not feasible to make
such distribution, in which case the Preferred Stock Depositary may, with the
approval of the Company, adopt such method as it deems equitable and practicable
for the purpose of effecting such distribution, including sale (at public or
private sale) of such property and distribution of the net proceeds from such
sale to such holders.
The amount so distributed in any of the foregoing cases will be reduced by
any amount required to be withheld by the Company or the Preferred Stock
Depositary on account of taxes.
CONVERSION AND EXCHANGE
If any Preferred Stock underlying the Depositary Shares is subject to
provisions relating to its conversion or exchange as set forth in the Prospectus
Supplement relating thereto, each record holder of Depositary Shares will have
the right or obligation to convert or exchange such Depositary Shares pursuant
to the terms thereof.
REDEMPTION OF DEPOSITARY SHARES
If Preferred Stock underlying the Depositary Shares is subject to
redemption, the Depositary Shares will be redeemed from the proceeds received by
the Preferred Stock Depositary resulting from the redemption, in whole or in
part, of the Preferred Stock held by the Preferred Stock Depositary. The
redemption price per Depositary Share will be equal to the aggregate redemption
price payable with respect to the number of shares of Preferred Stock underlying
the Depositary Shares. Whenever the Company redeems Preferred Stock from the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date a proportionate number of Depositary Shares representing
the shares of Preferred Stock that were redeemed. If less than all the
Depositary Shares are to be redeemed, the Depositary Shares to be redeemed will
be selected by lot or pro rata as may be determined by the Company.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
redemption price upon such redemption. Any funds deposited by the Company with
the Preferred Stock Depositary for any Depositary Shares which the holders
thereof fail to redeem shall be returned to the Company after a period of two
years from the date such funds are so deposited.
VOTING
Upon receipt of notice of any meeting at which the holders of any shares of
Preferred Stock underlying the Depositary Shares are entitled to vote, the
Preferred Stock Depositary will mail the information contained in such notice to
the record holders of the Depositary Receipts. Each record holder of such
Depositary Receipts on the record date (which will be the same date as the
record date for the Preferred Stock) will be entitled to instruct the Preferred
Stock Depositary as to the exercise of the voting rights pertaining to the
number of shares of Preferred Stock underlying such holder's Depositary Shares.
The Preferred Stock Depositary will endeavor, insofar as practicable, to vote
the number of shares of Preferred Stock underlying such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the Preferred Stock to the
extent it does not receive specific written instructions from holders of
Depositary Receipts representing such Preferred Stock.
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RECORD DATE
Whenever (i) any cash dividend or other cash distribution shall become
payable, any distribution other than cash shall be made, or any rights,
preferences or privileges shall be offered with respect to the Preferred Stock,
or (ii) the Preferred Stock Depositary shall receive notice of any meeting at
which holders of Preferred Stock are entitled to vote or of which holders of
Preferred Stock are entitled to notice, or of the mandatory conversion of or any
election on the part of the Company to call for the redemption of any Preferred
Stock, the Preferred Stock Depositary shall in each such instance fix a record
date (which shall be the same as the record date for the Preferred Stock) for
the determination of the holders of Depositary Receipts (x) who shall be
entitled to receive such dividend, distribution, rights, preferences or
privileges or the net proceeds of the sale thereof or (y) who shall be entitled
to give instructions for the exercise of voting rights at any such meeting or to
receive notice of such meeting or of such redemption or conversion, subject to
the provisions of the Deposit Agreement.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt and any provision of the Deposit Agreement
may at any time be amended by agreement between the Company and the Preferred
Stock Depositary. However, any amendment which imposes or increases any fees,
taxes or other charges payable by the holders of Depositary Receipts (other than
taxes and other governmental charges, fees and other expenses payable by such
holders as stated under "Charges of Preferred Stock Depositary"), or which
otherwise prejudices any substantial existing right of holders of Depositary
Receipts, will not take effect as to outstanding Depositary Receipts until the
expiration of 90 days after notice of such amendment has been mailed to the
record holders of outstanding Depositary Receipts.
Whenever so directed by the Company, the Preferred Stock Depositary will
terminate the Deposit Agreement by mailing notice of such termination to the
record holders of all Depositary Receipts then outstanding at least 30 days
prior to the date fixed in such notice for such termination. The Preferred Stock
Depositary may likewise terminate the Deposit Agreement if at any time 45 days
shall have expired after the Preferred Stock Depositary shall have delivered to
the Company a written notice of its election to resign and a successor
depositary shall not have been appointed and accepted its appointment. If any
Depositary Receipts remain outstanding after the date of termination, the
Preferred Stock Depositary thereafter will discontinue the transfer of
Depositary Receipts, will suspend the distribution of dividends to the holders
thereof, and will not give any further notices (other than notice of such
termination) or perform any further acts under the Deposit Agreement except as
provided below and except that the Preferred Stock Depositary will continue (i)
to collect dividends on the Preferred Stock and any other distributions with
respect thereto and (ii) to deliver the Preferred Stock together with such
dividends and distributions and the net proceeds of any sales of rights,
preferences, privileges or other property, without liability for interest
thereon, in exchange for Depositary Receipts surrendered. At any time after the
expiration of two years from the date of termination, the Preferred Stock
Depositary may sell the Preferred Stock then held by it at public or private
sales, at such place or places and upon such terms as it deems proper and may
thereafter hold the net proceeds of any such sale, together with any money and
other property then held by it, without liability for interest thereon, for the
pro rata benefit of the holders of Depositary Receipts which have not been
surrendered.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all charges of the Preferred Stock Depositary
including charges in connection with the initial deposit of the Preferred Stock,
the initial issuance of the Depositary Receipts, the distribution of information
to the holders of Depositary Receipts with respect to matters on which Preferred
Stock is entitled to vote, withdrawals of the Preferred Stock by the holders of
Depositary Receipts or redemption or conversion of the Preferred Stock, except
for taxes (including transfer taxes, if any) and other governmental charges and
such other charges as are expressly provided in the Deposit Agreement to be at
the expense of holders of Depositary Receipts or persons depositing Preferred
Stock.
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MISCELLANEOUS
The Preferred Stock Depositary will make available for inspection by
holders of Depositary Receipts at its corporate office and its New York office,
all reports and communications from the Company which are delivered to the
Preferred Stock Depositary as the holder of Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented or delayed by law or any circumstance beyond its control in
performing its obligations under the Deposit Agreement. The obligations of the
Preferred Stock Depositary under the Deposit Agreement are limited to performing
its duties thereunder without negligence or bad faith. The obligations of the
Company under the Deposit Agreement are limited to performing its duties
thereunder in good faith. Neither the Company nor the Preferred Stock Depositary
is obligated to prosecute or defend any legal proceeding in respect of any
Depositary Shares or Preferred Stock unless satisfactory indemnity is furnished.
The Company and the Preferred Stock Depositary are entitled to rely upon advice
of or information from counsel, accountants or other persons believed to be
competent and on documents believed to be genuine.
The Preferred Stock Depositary may resign at any time or be removed by the
Company, effective upon the acceptance by its successor of its appointment;
provided, that if a successor Preferred Stock Depositary has not been appointed
or accepted such appointment within 45 days after the Preferred Stock Depositary
has delivered a notice of election to resign to the Company, the Preferred Stock
Depositary may terminate the Deposit Agreement. See "--Amendment and Termination
of Deposit Agreement" above.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
Each of the Nationwide Trusts may issue, from time to time, only one series
of Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration of each of the Nationwide Trusts authorizes
the Regular Trustees of each such Nationwide Trust to issue on behalf of each
such Nationwide Trust one series of Preferred Securities. Each Declaration will
be qualified as an indenture under the Trust Indenture Act. The Preferred
Securities will have such terms, including distributions, redemption, voting,
liquidation rights and such other preferred, deferred or other special rights or
such restrictions as shall be set forth in the related Declaration or made part
of such Declaration by the Trust Indenture Act or the Business Trust Act.
Reference is made to any Prospectus Supplement relating to the Preferred
Securities of each of the Nationwide Trusts for specific terms, including (i)
the specific designation of such Preferred Securities, (ii) the number of
Preferred Securities issued by each such Nationwide Trust, (iii) the annual
distribution rate (or method of calculation thereof) for Preferred Securities
issued by each such Nationwide Trust, the date or dates upon which such
distributions shall be payable and the record date or dates for the payment of
such distributions, (iv) whether distributions on Preferred Securities issued by
each such Nationwide Trust shall be cumulative, and, in the case of Preferred
Securities having such cumulative distribution rights, the date or dates or
method of determining the date or dates from which distributions on Preferred
Securities issued by each such Nationwide Trust shall be cumulative, (v) the
amount or amounts which shall be paid out of the assets of each such Nationwide
Trust to the holders of Preferred Securities of each such Nationwide Trust upon
voluntary or involuntary dissolution, winding-up or termination of each such
Nationwide Trust, (vi) the obligation or right, if any, of each such Nationwide
Trust to purchase or redeem Preferred Securities issued by each such Nationwide
Trust and the price or prices at which, the period or periods within which and
the terms and conditions upon which Preferred Securities issued by each such
Nationwide Trust shall or may be purchased or redeemed, in whole or in part,
pursuant to such obligation or right, (vii) the voting rights, if any, of
Preferred Securities issued by each such Nationwide Trust in addition to those
required by law, including the number of votes per Preferred Security and any
requirement for the approval by the holders of Preferred Securities, or of
Preferred Securities issued by one or more Nationwide Trusts, or of both, as a
condition to specified actions or amendments to the Declaration of each such
Nationwide Trust, (viii) the terms and conditions, if any, upon which Preferred
Securities issued by such Nationwide Trust may be converted into Class A Common
Stock of the Company, including the conversion price per share and the
circumstances, if any, under which such conversion right will expire, (ix) the
terms and conditions, if any, upon which the Subordinated Debt Securities
purchased by such Nationwide Trust may be distributed to holders of Trust
Preferred Securities, (x) if applicable, any securities exchange upon which the
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Preferred Securities shall be listed, and (xi) any other relevant rights,
preferences, privileges, limitations or restrictions of Preferred Securities
issued by each such Nationwide Trust consistent with the Declaration of each
such Nationwide Trust or with applicable law. All Preferred Securities offered
hereby will be guaranteed by the Company as and to the extent set forth below
under "Description of the Preferred Securities Guarantees." Certain United
States federal income tax considerations applicable to any offering of Preferred
Securities will be described in the Prospectus Supplement relating thereto.
In connection with the issuance of Preferred Securities, each of the
Nationwide Trusts will issue one series of Common Securities. The Declaration of
each of the Nationwide Trusts authorizes the Regular Trustees of each such trust
to issue on behalf of each such Nationwide Trust one series of Common Securities
having such terms including distributions, redemption, voting, liquidation
rights or such restrictions as shall be set forth therein. The terms of the
Common Securities issued by each such Nationwide Trust will be substantially
identical to the terms of the Preferred Securities issued by each such
Nationwide Trust and the Common Securities will rank pari passu, and payments
will be made thereon on a pro rata basis with the Preferred Securities except
that if a Declaration Event of Default occurs and is continuing, the rights of
the holders of such Common Securities to payments in respect of distributions
and payments upon liquidation, redemption and maturity will be subordinated to
the rights of the holders of such Preferred Securities. Except in certain
limited circumstances, the Common Securities issued by each of the Nationwide
Trusts will also carry the right to vote and to appoint, remove or replace any
of the Trustees of each such Nationwide Trust. All of the Common Securities of
each of the Nationwide Trusts will be directly or indirectly owned by the
Company.
POTENTIAL TAX LAW CHANGES
From time to time, the Clinton Administration has proposed certain tax law
changes that would, among other things, generally deny interest deductions to a
corporate issuer if the debt instrument has a term exceeding 15 years (earlier
proposed tax law changes would have denied interest deductions if the debt
instrument had a term exceeding 20 years) and is not reflected as indebtedness
on such issuer's consolidated balance sheet. The term of any series of
Subordinated Debentures that may be purchased by a Nationwide Trust with
proceeds from the offering of Trust Securities may vary and may exceed 15 years.
The Company cannot predict what effect, if any, a proposal of the sort discussed
above will have on any series of Subordinated Debentures held by to a Nationwide
Trust; however, if any such proposal were to become effective retroactively, the
Company would be precluded from deducting interest paid on such series of
Subordinated Debentures which might give rise to a mandatory redemption of the
Preferred Securities of the applicable Nationwide Trust.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
Set forth below is a summary of information concerning the Preferred
Securities Guarantees that will be executed and delivered by the Company for the
benefit of the holders from time to time of Preferred Securities of each of the
Nationwide Trusts. Each Preferred Security Guarantee will be separately
qualified under the Trust Indenture Act and will be held by Wilmington Trust
Company, acting in its capacity as indenture trustee with respect thereto, for
the benefit of holders of the Preferred Securities of the applicable Nationwide
Trust. The terms of each Preferred Securities Guarantee will be those set forth
in such Preferred Securities Guarantee and those made part of such Guarantee by
the Trust Indenture Act. This description summarizes the material terms of each
of the Preferred Securities Guarantees and is qualified in its entirety by
reference to, the form of Preferred Securities Guarantee, which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part, and
the Trust Indenture Act.
GENERAL
Pursuant to each Preferred Securities Guarantee, the Company will
irrevocably agree, to the extent set forth herein, to pay in full on a
subordinated basis, to the holder of the Preferred Securities issued by a
Nationwide Trust, the Guarantee Payments (as defined herein), as and when due,
regardless of any defense, right of set off or counterclaim that such Nationwide
Trust may have or assert. The following payments with respect to the Preferred
Securities issued by a Nationwide Trust, to the extent not paid by or on behalf
of such Nationwide Trust
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(the "Guarantee Payments"), will be subject to the applicable Preferred
Securities Guarantee (without duplication): (i) any accrued and unpaid
distributions which are required to be paid on the Preferred Securities to the
extent of funds held by such Nationwide Trust, (ii) the amount payable upon
redemption of the Preferred Securities, to the extent of funds held by such
Nationwide Trust, with respect to any Preferred Securities called for redemption
by such Nationwide Trust and (iii) upon a Liquidation (other than in connection
with the distribution of Subordinated Debentures to the holders of the Preferred
Securities of such Nationwide Trust in exchange for Preferred Securities as
provided in the applicable Declaration), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid distributions on the Preferred
Securities to the date of payment, to the extent of funds held by such
Nationwide Trust, and (b) the amount of assets of such Nationwide Trust
remaining available for distribution to holders of Preferred Securities upon the
Liquidation. The Company's obligation to make any Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of such Preferred Securities or by causing such Trust to pay such
amounts to such holders.
Because each of the Guarantees is a guarantee of payment and not of
collection, holders of Preferred Securities of a Nationwide Trust may proceed
directly against the Company as guarantor, rather than having to proceed against
such Trust before attempting to collect from the Company, and the Company waives
any right or remedy to require that any action be brought against a Nationwide
Trust or any other person or entity before proceeding against the Company. Such
obligations will not be discharged except by payment of the Guarantee Payments
in full.
If the Company fails to make interest payments on the Subordinated
Debentures or pay amounts payable upon the redemption, acceleration or maturity
of the Subordinated Debentures, each of the Nationwide Trusts will have
insufficient funds to pay distributions on or to pay amounts payable upon the
redemption or repayment of such Preferred Securities. Each of the Guarantees
does not cover payment of distributions or the amount payable upon redemption or
repayment in respect of Preferred Securities when a Nationwide Trust does not
have sufficient funds to pay such distributions or such amount. The Company has
through each of the Guarantees, and certain back-up obligations, consisting of
obligations of the Company to provide certain indemnities in respect of, and pay
and be responsible for, certain expenses, costs, liabilities and debts of each
of the Trusts as set forth in the applicable Declaration, Indenture and
Subordinated Debentures, taken together, fully and unconditionally guaranteed
all of each of the Trust's obligations under the Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes any such guarantee. It is only the combined
operation of these documents that has the effect of providing full and
unconditional guarantees of each of the Trust's obligations under the Preferred
Securities.
CERTAIN COVENANTS OF THE COMPANY
In each of the Guarantees, the Company will covenant that so long as any
Preferred Securities remain outstanding, if at such time (i) the Company has
exercised its option to defer interest payments on the Subordinated Debentures
and such deferral is continuing, (ii) the Company shall be in default with
respect to its payment or other obligations under each of the Guarantees or
(iii) there shall have occurred any event that, with the giving of notice or the
lapse of time or both, would constitute an Event of Default under the applicable
Indenture, then the Company (a) shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to any of its Preferred Stock (other than stock
dividends paid by the Company which consist of the stock of the same class as
that on which the dividend is being paid), (b) shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank pari passu with or junior to the
Subordinated Debentures, and (c) shall not make any guarantee payments with
respect to the foregoing (other than pursuant to the Guarantee).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities of a Nationwide Trust (in which case no
consent of the holders of such Preferred Securities will be required), the
applicable Guarantee may be amended only with the prior approval of the holders
not less than
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66 2/3% in aggregate stated liquidation amount of the outstanding Preferred
Securities. The manner of obtaining any such approval of holders of such
Preferred Securities will be as set forth in the Prospectus Supplement. All
guarantees and agreements contained in each of the Guarantees shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of such Preferred Securities then
outstanding.
TERMINATION OF THE GUARANTEES
Each of the Guarantees will terminate and be of no further force and effect
as to the Preferred Securities issued by the applicable Nationwide Trust upon
(i) full payment of the applicable Redemption Price of each Preferred Security
of such Nationwide Trust, (ii) the distribution of the Subordinated Debentures
to all holders of the Preferred Securities of such Nationwide Trust, or (iii)
full payment of the amounts payable upon a Liquidation of such Nationwide Trust.
Each of the Guarantees will continue to be effective or will be reinstated, as
the case may be, if at any time any holder of Preferred Securities of the
applicable Nationwide Trust must restore payment of any sums paid under such
Preferred Securities or such Guarantee.
STATUS OF THE GUARANTEES; SUBORDINATION
Each of the Guarantees will constitute an unsecured obligation of the
Company and will rank (i) subordinate and junior in right of payment to all
liabilities of the Company, except any liabilities that may be made pari passu
expressly by their terms, (ii) pari passu with the most senior preferred or
preference stock now or hereafter issued by the Company and with any guarantee
now or hereafter entered into by the Company in respect of any preferred or
preference stock or preferred securities of any affiliate of the Company and
(iii) senior to the Common Stock. Upon the bankruptcy, liquidation or winding up
of the Company, its obligations under each of the Guarantees will rank junior to
all its other liabilities (except as aforesaid) and, therefore, funds may not be
available for payment under the Guarantees.
The Declaration provides that each holder of Preferred Securities by
acceptance thereof agrees to the subordination provisions and other terms of the
applicable Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default under the
Guarantee, undertakes to perform only such duties as are specifically set forth
in the Guarantee and, after such a default, shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provision, the Guarantee Trustee is under no obligation
to exercise any of the powers vested in it by the Guarantee at the request of
any holder of Preferred Securities unless it is offered reasonable security and
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
PLAN OF DISTRIBUTION
The Company and/or a Nationwide Trust may sell the Securities directly or
through agents, underwriters or dealers.
Offers to purchase Offered Securities may be solicited by agents designated
by the Company and/or a Nationwide Trust 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 Offered Securities in respect of which
this Prospectus is delivered will be named, and any commissions payable by the
Company and/or a Nationwide Trust to such agent 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.
The Company and/or a Nationwide Trust may also sell Offered Securities to an
agent as principal. Agents may be entitled to, under agreements which may be
entered into with the Company and/or a Nationwide Trust, indemnification by the
Company against certain liabilities, including liabilities under the Securities
Act, and may be customers of, engage in transactions with or perform services
for the Company in the ordinary course of business.
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If any underwriters are utilized in the sale of Offered Securities in
respect of which this Prospectus is delivered, the Company and/or a Nationwide
Trust will enter into an underwriting agreement with such underwriters and the
names of the underwriters and the terms of the transaction will be set forth in
the Prospectus Supplement, which will be used by the underwriters to make
resales of the Offered Securities in respect of which this Prospectus is
delivered to the public. Underwriters may offer and sell the Offered Securities
at a fixed price or prices, which may be changed, or from time to time at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The underwriters may be entitled, under
the relevant underwriting agreement, to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for the Company in
the ordinary course of business.
If a dealer is utilized in the sale of the Offered Securities in respect of
which this Prospectus is delivered, the Company and/or a Nationwide Trust will
sell such Offered Securities to the dealer, as principal. The dealer may then
resell such Offered Securities to the public at varying prices to be determined
by such dealer at the time of resale. Dealers may be entitled to indemnification
by the Company against certain liabilities, including liabilities under the
Securities Act, and may be customers of, engage in transactions with or perform
services for the Company in the ordinary course of business.
Offered Securities may also be offered and sold, if so indicated in the
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("marketing firms"), acting as principals for their own
accounts or as agents for the Company and/or a Nationwide Trust. Any remarketing
firm will be identified and the terms of its agreement, if any, with the Company
and/or a Nationwide Trust and its compensation will be described in the
Prospectus Supplement. Remarketing firms may be deemed to be underwriters in
connection with the Offered Securities remarketing thereby. Remarketing firms
may be entitled under agreements which may be entered into with the Company
and/or a Nationwide Trust to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for the Company in
the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company and/or a
Nationwide Trust will authorize agents and underwriters or dealers to solicit
offers by certain purchasers to purchase Offered Securities from the Company at
the public offering price set forth in the Prospectus Supplement pursuant to
delayed delivery contracts providing for payment and delivery on a specified
date in the future. Such contracts will be subject to only those conditions set
forth in the Prospectus Supplement, and the Prospectus Supplement will set forth
the commission payable for solicitation of such offers.
LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of the Offered Securities of Nationwide Financial Services, Inc. will
be passed upon for the Company by LeBoeuf, Lamb, Greene & MacRae, L.L.P., New
York, New York, special counsel to the Company and the Nationwide Trusts. Unless
otherwise indicated in a Prospectus Supplement certain matters of Delaware law
relating to the validity of the Preferred Securities of a Nationwide Trust will
be passed upon for the Nationwide Trusts by Richards, Layton & Finger, P.A.,
Wilmington, Delaware, special Delaware counsel to the Nationwide Trusts.
LeBoeuf, Lamb, Greene & MacRae, L.L.P. will rely as to matters of Delaware law
on Richards, Layton & Finger, P.A.
EXPERTS
The consolidated financial statements and financial statement schedules of
the Company and its subsidiaries incorporated in this Prospectus by reference to
the Company's Annual Report on Form 10-K for the year ended December 31, 1997,
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference in this Prospectus in reliance upon such reports and
upon the authority of said firm as experts in accounting and auditing.
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ERISA MATTERS
THE COMPANY AND CERTAIN AFFILIATES OF THE COMPANY MAY EACH BE CONSIDERED A
"PARTY IN INTEREST" WITHIN THE MEANING OF THE EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR A "DISQUALIFIED PERSON" WITHIN
THE MEANING OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") WITH
RESPECT TO MANY EMPLOYEE BENEFIT PLANS. PROHIBITED TRANSACTIONS WITHIN THE
MEANING OF ERISA OR THE CODE MAY ARISE, FOR EXAMPLE, IF THE OFFERED SECURITIES
ARE ACQUIRED BY A PENSION OR OTHER EMPLOYEE BENEFIT PLAN WITH RESPECT TO WHICH
THE COMPANY OR ANY OF ITS AFFILIATES IS A SERVICE PROVIDER (OR OTHERWISE IS A
"PARTY IN INTEREST" OR A "DISQUALIFIED PERSON"), UNLESS SUCH OFFERED SECURITIES
ARE ACQUIRED PURSUANT TO AN EXEMPTION FOR TRANSACTIONS EFFECTED ON BEHALF OF
SUCH PLAN BY A "QUALIFIED PROFESSIONAL ASSET MANAGER" OR PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION. ANY SUCH PENSION OR EMPLOYEE BENEFIT PLAN PROPOSING TO
INVEST IN THE OFFERED SECURITIES SHOULD CONSULT WITH ITS LEGAL COUNSEL.
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8,000,000 SECURITIES
NATIONWIDE FINANCIAL SERVICES
CAPITAL TRUST II
7.10% TRUST PREFERRED SECURITIES (TRUPS(R))
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
NATIONWIDE FINANCIAL SERVICES, INC.
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PROSPECTUS SUPPLEMENT
OCTOBER 14, 1998
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SALOMON SMITH BARNEY
A.G. EDWARDS & SONS, INC.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN & CO.
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