<PAGE>
PROSPECTUS
EXCHANGE OFFER -- IMPORTANT
T.M. "Tom" Matthews
Chairman of the Board,
[LOGO]
President and Chief Executive Officer
TO ENSURE TIMELY RECEIPT BY THE EXCHANGE AGENT,
DO NOT MAIL OR PRESENT THE LETTER OF TRANSMITTAL AND/OR STOCK CERTIFICATES TO
THE COMPANY.
Dear Shareholder:
On August 14, 1998, the Board of Directors approved an initiative that will
help position our Company to grow -- a Common Stock dividend restructuring plan.
We believe this change will better position us to pursue our growth strategies
and provide greater value for your investment. To improve financial flexibility
and retain a larger share of earnings in order to fund future growth, the Board
announced a plan to lower the annual dividend paid to you, from $1.24 to $.48
per Common Share. We also announced that we intend to change our corporate name
to Avista Corporation effective January 1, 1999.
Recognizing that some of you may rely on current income from the dividend,
we have created an opportunity for you to exchange your Common Shares for a new
security called RECONS-SM- (Return Enhanced Convertible Securities).
A RECONS is a security that:
- will pay an annual dividend of $1.24 ($.31 each quarter);
- will allow you to participate in future appreciation in the value of the
Common Shares up to $24.00 per share;
- will automatically convert into one Common Share on November 1, 2001,
unless we choose to convert it earlier; and
- we may convert, before its automatic conversion, into one or less than one
Common Share, having a value up to a maximum of $24.00, plus all accrued
and unpaid dividends, and on which, if converted before September 15,
2001, we would also pay a premium, either in cash or Common Shares.
For a more complete description of the terms of the RECONS, see "Description
of RECONS" beginning on page 27. Whether you should participate in the Exchange
Offer depends on many factors. FOR A DESCRIPTION OF RISK FACTORS ASSOCIATED WITH
THE EXCHANGE OFFER, SEE "RISK FACTORS/INVESTMENT CONSIDERATIONS" BEGINNING ON
PAGE 12.
We will accept a maximum of 20,000,000 Common Shares for exchange into
RECONS. You may tender all or part of your Common Shares, but if shareholders
tender more than 20,000,000 shares, we will accept tendered shares on a pro rata
basis. Fractional shares may not be tendered.
This Exchange Offer is also subject to certain other conditions, including a
minimum tender of 6,000,000 Common Shares. THIS EXCHANGE OFFER WILL BE OPEN
UNTIL 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, NOVEMBER 18, 1998,
UNLESS WE EXTEND IT. Until that time, you may tender your Common Shares or, if
you have tendered them and you change your mind, you may withdraw them by
following the procedures described in this document.
To assist you in connection with the Exchange Offer, we have retained:
- Morrow & Co., Inc., as Information Agent. If you are an individual or
institutional shareholder and desire assistance, please call
1-800-566-9061. Banks or brokerage firms may call 1-800-662-5200.
- J.P. Morgan Securities Inc., as Dealer Manager. If you are an
institutional shareholder, you may call (212) 648-1443.
All shareholders should call the Information Agent to request additional
documents and individual shareholders and banks or brokerage firms should
contact the Information Agent to ask any questions. Institutional shareholders
may call either the Information Agent or the Dealer Manager with any questions.
Our Common Shares are listed and traded on the New York Stock Exchange and
the Pacific Exchange, in each case under the symbol WWP. This symbol will change
to "AVA" effective January 1, 1999. WWP has a long history of innovation and
leadership. We trust you will find this Exchange Offer is consistent with that
legacy.
[SIGNATURE]
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE PREFERRED STOCK OR RECONS TO BE
ISSUED IN THE EXCHANGE OFFER OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DEALER MANAGER FOR THIS EXCHANGE OFFER IS:
J.P. MORGAN & CO.
October 21, 1998
<PAGE>
This Prospectus incorporates by reference important business and financial
information about the Company that is not included in or delivered with this
Prospectus. Shareholders may obtain copies of documents containing such
information from us, without charge, by either calling or writing to us at:
The Washington Water Company
Post Office Box 3647
Spokane, Washington 99220
Attention: Shareholder Relations
Telephone: 1-800-222-4931
In order to obtain timely delivery, a shareholder must request documents from us
no later than November 10, 1998, which is five business days before the
expiration date of the Exchange Offer on November 18, 1998.
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Questions and Answers About the Exchange Offer .......................... 1
Summary ................................................................. 2
Risk Factors/Investment Considerations .................................. 12
Forward-Looking Statements .............................................. 13
The Company ............................................................. 14
Recent Operating Results ................................................ 15
Pro Forma Consolidated Statement of Income .............................. 16
Pro Forma Condensed Consolidated Balance Sheet .......................... 17
The Exchange Offer ...................................................... 18
Background and Purpose ............................................. 18
Terms of the Exchange Offer ........................................ 18
Expiration of the Exchange Offer; Extension of the Exchange Offer .. 19
Proration .......................................................... 19
Regulatory Approvals ............................................... 19
Appraisal Rights ................................................... 20
Accounting Treatment ............................................... 20
Procedure for Tender ............................................... 20
Withdrawal of Tendered Common Shares ............................... 22
Acceptance; Delivery of Consideration .............................. 23
Conditions of the Exchange Offer ................................... 23
Commissions and Fees ............................................... 25
Status of Common Shares Acquired Pursuant to the Exchange Offer .... 25
Exchange Agent ..................................................... 25
Information Agent .................................................. 26
Description of RECONS ................................................... 27
General ............................................................ 27
Issuance of Depositary Receipts .................................... 27
Withdrawal of New Preferred Stock .................................. 27
Conversion of RECONS ............................................... 27
Dividends and Other Distributions .................................. 28
Record Date ........................................................ 28
Procedures for Voting .............................................. 28
Amendment and Termination of Deposit Agreement ..................... 29
Charges of Preferred Stock Depositary .............................. 29
Miscellaneous ...................................................... 29
Resignation and Removal of Preferred Stock Depositary .............. 30
Description of Capital Stock ............................................ 30
General ............................................................ 30
Dividend Rights .................................................... 31
Liquidation Rights ................................................. 31
Conversion ......................................................... 31
Voting Rights ...................................................... 33
Classified Board of Directors ...................................... 34
Change in Control .................................................. 34
Preferred Share Purchase Rights .................................... 34
Pre-emptive Rights ................................................. 35
Miscellaneous ...................................................... 35
Certain United States Federal Income Tax Consequences ................... 36
Dealer Manager .......................................................... 41
Miscellaneous ........................................................... 41
Legal Matters ........................................................... 41
Experts ................................................................. 42
Additional Information .................................................. 43
List of Defined Terms ................................................... 45
Annex A Articles of Amendment to Restated Articles of Incorporation
of The Washington Water Power Company ................................... A-1
</TABLE>
-ii-
<PAGE>
Questions and Answers About the Exchange Offer
Q1: Why are we changing the dividend policy now?
A1: The utility and energy industries are rapidly changing and abundant
opportunities are emerging to apply our capabilities to serve new markets and
grow the Company for the benefit of shareholders. Reducing the dividend we
currently pay on Common Shares will allow us to retain more of our earnings
for reinvestment in our Company and to fund our growth plans.
Q2: Why are we making the Exchange Offer?
A2: We recognize that some of you may rely on the income produced by the
dividend we currently pay on Common Shares. Once we made the decision to reduce
the dividend, we decided to create an opportunity for you to retain for a period
of time all or part of the income stream to which you may have been accustomed.
The Exchange Offer is structured to also allow you to benefit from a portion of
the longer term Common Share price growth potential.
Q3: What do I get if I exchange any of my Common Shares for RECONS?
A3: For each Common Share exchanged you will receive one RECONS on which
quarterly dividends of $0.31 will be paid. Each RECONS will automatically be
converted into one Common Share at the end of three years, unless we
choose to convert earlier, in which case there is a substantial likelihood
that you would receive less than one Common Share (see Question 16).
Q4: How do RECONS differ from Preferred Stock?
A4: Each RECONS is a depositary share that constitutes a one-tenth (1/10)
interest in one share of a new series of Preferred Stock of The Washington
Water Power Company ("WWP"), to be designated the $12.40 Preferred Stock,
Convertible Series L, no par value ("New Preferred Stock"). WWP will issue
up to 2,000,000 shares of New Preferred Stock from its total of 10,000,000
authorized shares of Preferred Stock.
Q5: What is a depositary share?
A5: The Bank of New York, acting as a depositary, holds the New Preferred Stock
under a deposit agreement. The depositary shares, which we are calling RECONS,
are interests in the New Preferred Stock.
Q6: Will RECONS be publicly traded?
A6: There is currently no public market for the RECONS. We have applied to list
the RECONS on the New York Stock Exchange ("NYSE"), but if NYSE listing
requirements are not met, we expect that the RECONS will trade in the
over-the-counter market. You should not assume that there will be an active
trading market for the RECONS.
Q7: Will I be taxed on the RECONS that I receive in the Exchange Offer?
A7: The Exchange Offer generally should be tax-free to WWP and its shareholders.
You should consult your tax advisor as to the particular consequences of the
Exchange Offer to you.
Q8: How does the exchange offer work?
A8: You may tender some or all of your Common Shares, on a one-for-one basis,
for RECONS. Only whole shares may be tendered. The specifics of this Exchange
Offer are described in this document.
Q9: What must I do if I want to exchange my Common Shares?
A9: If your Common Shares are held by your broker you should follow the
instructions from your broker on how to participate in the Exchange Offer, or
contact your broker directly. If you hold your Common Shares directly, you
should follow the instructions for tendering Common Shares in this document
under the caption "The Exchange Offer -- Procedure for Tender" beginning on page
20.
Q10: What must I do if I do not want to exchange my Common Shares?
A10: IF YOU WANT TO RETAIN YOUR COMMON SHARES, YOU SHOULD NOT TAKE ANY ACTION.
Note, however, that as a holder of Common Shares your interests will be affected
by this Exchange Offer whether or not you choose to exchange your Common Shares,
as explained in this document.
Q11: Do I need to have held my Common Shares prior to the date of this
Prospectus to participate in the Exchange Offer?
A11: No. You may tender Common Shares you acquired before or after the date of
this Prospectus, provided that you deliver such Common Shares in accordance with
the procedures and within the time frame described under the caption "The
Exchange Offer--Procedure for Tender" beginning on page 20.
Q12: What will I get to represent my ownership of RECONS?
A12: You will not receive a stock certificate, but will instead get:
- if your Common Shares were held by your broker, a statement
confirming your exchange of Common Shares and the number of
your RECONS; or
- if you held your Common Shares directly, a depositary receipt
evidencing your RECONS.
Q13: Will participants in WWP's Dividend Reinvestment Plan be able to
participate in the Exchange Offer?
A13: Yes. Each participant in the Dividend Reinvestment Plan may withdraw and
tender some or all of the whole Common Shares held in his or her plan account.
However, dividend payments on RECONS will be paid in cash and cannot be
automatically reinvested.
Q14: Will participants in the Company's 401(k) Plan be able to participate in
the Exchange Offer?
A14: Participants in the Company's 401(k) Plan may tender Common Shares held in
their 401(k) Company Stock Fund, but not in their 401(k) Company Contribution
Account.
Q15: What happens at the end of three years?
A15: On November 1, 2001, each RECONS will be converted into one Common Share,
unless we choose to convert earlier, in which case there is a substantial
likelihood that you would receive less than one Common Share.
Q16: What happens if the Company converts early?
A16: If we choose to convert before November 1, 2001, for each RECONS you will
receive no more than one Common Share, having a value up to a maximum of
$24.00. This means that there is a substantial likelihood that you will receive
less than one Common Share for each RECONS, depending upon the value of Common
Shares at the time of the conversion. You will also receive accrued and unpaid
dividends, if any, and a premium payable in cash or Common Shares.
Q17: How do I learn more about the Exchange Offer?
A17: This document contains a complete description of the terms of the Exchange
Offer and you are strongly encouraged to read the entire document. If you are an
individual or institutional Shareholder and after reading this document, have
further questions, please contact the Information Agent. If you are an
institutional shareholder, you may also contact the Dealer Manager, referred to
in the letter of the Chairman of the Board, President and Chief Executive
Officer at the beginning of this document.
<PAGE>
Summary
This summary highlights selected information from this Prospectus and does
not contain all the information that you should consider. To understand the
Exchange Offer fully and for a more complete description of the legal terms
of the Exchange Offer, you should read carefully this entire document and the
documents to which we have referred you. See "Questions and Answers About the
Exchange Offer" on page 1 and "Additional Information" on page 43. We have
included page references in parentheses to direct you to a more complete
description of the topics presented in this summary.
The Company (see page 14)
Washington Water Power is an energy services company with utility and
subsidiary operations located throughout the United States. We operate as a
regional utility providing electric and natural gas sales and services and as
a national entity providing both energy and non-energy products and services.
We provide electricity and natural gas in eastern Washington and northern
Idaho and natural gas service in northeast and southwest Oregon and the South
Lake Tahoe region of California. Washington Water Power also operates Avista
Capital ("Avista"), which owns all the Company's non-regulated energy and
non-energy businesses. Avista's subsidiaries include Pentzer Corporation
("Pentzer"), Avista Energy, Avista Advantage and Avista Labs.
Changes now underway in the utility and energy industries are creating new
opportunities to expand the Company's businesses and serve new markets. In
pursuing such opportunities, the Company is shifting to a more growth-oriented
strategy in order to achieve its goal of becoming a diversified North American
energy company. Our principal offices are at 1411 East Mission Avenue, Spokane,
Washington 99202 and the telephone number is (509) 489-0500. Our mailing address
is Post Office Box 3727, Spokane, Washington 99220.
Recent Developments
On August 17, 1998, we announced a dividend restructuring and broad corporate
refocus aimed at strengthening our financial position and providing needed
capital to fund our new growth strategy. As part of that initiative, we
announced that we are reducing the annual dividend on our Common Shares from
$1.24 to $.48 per share, effective with the quarterly dividend expected to be
paid in December 1998. This reduced dividend will permit us to use more of
our operating cash flow for growth initiatives and new investment
opportunities in each of our lines of business. We also announced that we
intend to change our corporate name to Avista Corporation and align our
businesses under this name in order to promote a cohesive brand identity.
Background and Purpose of the Exchange Offer
We chose to make the Exchange Offer because we wanted to give those of you
whose primary objective may be current income the chance to continue
receiving over the next few years the same dividend the Common Shares now
pay. We believe that the Exchange Offer will help our investors adjust to the
Company's transition to a more growth-oriented strategy. In deciding to
pursue the Exchange Offer, we considered, among other things, the advice of
our financial advisors, J.P. Morgan Securities Inc.
To review the reasons for the Exchange Offer in greater detail, see page 18.
The Exchange Offer Generally
Effects of the Exchange Offer
WWP shareholders will be affected by the Exchange Offer whether or not they
tender their Common Shares in the Exchange Offer. If you tender all of your
Common Shares and all such shares are accepted for exchange, you will not
have a voting common equity interest in WWP until such time as your RECONS
are converted. As long as you hold RECONS, you will participate only up to a
certain level of appreciation in the value of Common Shares. If you do not
tender any of your Common Shares, you will continue to have a voting common
equity interest in WWP and your ownership interest in the common equity will
have increased on a percentage basis as a result of the Exchange Offer.
The Position of WWP on the Exchange Offer
Neither WWP nor J.P. Morgan Securities Inc., nor any of their directors or
executive officers, makes any recommendation as to whether you should tender
your Common Shares. Among the factors which you should consider when deciding
whether to tender your Common Shares are (1) your view of the relative value
of a single Common Share and a single RECONS, (2) the relative importance you
place on current income versus potential long-term capital appreciation, (3)
your expectation of what the price of a Common Share will be during the next
three years and (4) your investment strategy, including tax considerations.
You must make your own decision as to whether to tender, and, if so, how many
of your shares to tender after reading this Prospectus and consulting with
your advisors based on your own financial position and requirements. We urge
you to read this document very carefully.
Certain Federal Income Tax Consequences (see page 36)
The Exchange Offer generally should be tax-free to WWP and its shareholders.
You should consult your tax advisor as to the particular consequences of the
Exchange Offer to you.
2
<PAGE>
The Exchange Offer
Terms of the Exchange Offer (see page 18)
WWP is offering to exchange RECONS for up to 20,000,000 Common Shares at an
exchange ratio of one-for-one.
Each Common Share properly tendered and not withdrawn will be exchanged for one
RECONS, on the terms and subject to the conditions of the Exchange Offer,
including the proration provisions. Promptly after the expiration of the
Exchange Offer, the Exchange Agent will return to shareholders any Common Shares
not accepted for exchange.
Expiration Date; Extension; Termination (see page 19)
The Exchange Offer will expire at 12:00 midnight, New York City time, on
November 18, 1998, unless extended. You must tender your Common Shares prior to
such expiration date if you wish to participate in the offer. The Exchange Offer
may also terminate or be terminable in certain circumstances.
Withdrawal Rights (see page 22)
You may withdraw tenders of Common Shares any time before the expiration of the
Exchange Offer. If you change your mind again, you may tender your Common Shares
again by following the tender procedures prior to the expiration of the Exchange
Offer.
Conditions of the Exchange Offer (see pages 23)
The Exchange Offer is subject to certain conditions, including that at least
6,000,000 Common Shares are tendered.
Procedure for Tendering (see page 20)
If your Common Shares are held by your broker, your broker should have sent you
instructions along with the Prospectus on how to participate in the Exchange
Offer. If you have not yet received such instructions, please contact your
broker directly.
If you hold your shares directly, you should complete and sign the Letter of
Transmittal indicating the number of whole Common Shares you wish to tender.
Send it, together with your share certificates and any other documents required
by the Letter of Transmittal, by registered mail, return receipt requested, so
that it is received by the Exchange Agent at one of the addresses set forth on
the back cover of this Prospectus before the expiration of the Exchange Offer.
You may also comply with the procedures for guaranteed delivery. Do not send or
present your certificates to WWP, the Dealer Manager (J.P. Morgan Securities
Inc.) or the Information Agent (Morrow & Co.).
Proration (see page 19)
If more than 20,000,000 Common Shares are tendered, tendered Shares will be
accepted for exchange on a pro rata basis. Announcement of any final proration
factor should occur approximately five NYSE trading days after the expiration
date.
The Exchange Agent (see page 25)
The Bank of New York is serving as the Exchange Agent in connection with the
Exchange Offer.
The Information Agent (see page 26)
Morrow & Co., Inc. is serving as the Information Agent in connection with the
Exchange Offer. If you are an individual or institutional shareholder you may
call Morrow at 1-800-566-9061. Banks or brokerage firms should call
1-800-662-5200.
The Dealer Manager (see page 41)
J.P. Morgan Securities Inc. is serving as the Dealer Manager for the Exchange
Offer. If you are an institutional shareholder you may call J.P. Morgan at
(212) 648-1443.
Comparative Per Share Market Price Information
On August 14, 1998, the last trading day before announcement of the proposed
Exchange Offer, the closing sale price per Common Share on the Consolidated Tape
was $20 7/8. On October 20, 1998, the last trading day before the commencement
of the Exchange Offer, the closing sale price per Common Share was $18 3/4. We
urge you to obtain a current market quotation for the Common Shares.
3
<PAGE>
Comparison of RECONS and Common Shares
Comparison of Rights of Holders
The following table presents certain features of the RECONS and the Common
Shares. This summary, which is based on the current authorized capitalization of
WWP, is not complete, and is subject to the provisions of the Company's Restated
Articles of Incorporation (the "Restated Articles") authorizing the issuance of
the New Preferred Stock and the Articles of Amendment designating the terms of
the New Preferred Stock (the "Articles of Amendment"). You should read this
comparison in conjunction with the more detailed descriptions under "Description
of RECONS" and "Description of Capital Stock." Each RECONS will constitute a
one-tenth interest in a share of New Preferred Stock that we will issue.
<TABLE>
<CAPTION>
RECONS Common Shares
Dividends
<S> <C>
$0.31 per RECONS payable quarterly ($1.24 yearly), Expected to be $0.12 per share, payable
beginning December 15, 1998. quarterly ($0.48 yearly), effective with the
December 15, 1998 dividend payment date. The
Board of Directors may change the dividend
level at its discretion. The December
dividend has not yet been declared.
Liquidation Rights
If WWP is liquidated, holders of RECONS will be If WWP is liquidated, holders of Common Shares
entitled to a liquidation preference after WWP pays will receive a pro rata amount of the proceeds of
all of its debts and on a parity with all other series of liquidation of WWP remaining after WWP pays
Preferred Stock. The liquidation preference per all of its debts and all liquidation preferences on
RECONS will be the average of the high and low sale all series of Preferred Stock, including
prices of the Common Shares on the trading date next the New Preferred Stock represented by the RECONS.
preceding the date the RECONS are issued plus an
amount equal to accrued but unpaid dividends.
Mandatory Conversion
On November 1, 2001 (the "Mandatory Conversion Does not apply.
Date"), the RECONS will be mandatorily converted into
(1) one Common Share per RECONS (subject to certain
antidilution adjustments), and (2) the right to
receive a cash amount equal to all accrued but unpaid
dividends thereon.
Optional Conversion
We will have the option at any time on or after Does not apply.
December 15, 1998 and before November 1, 2001 to
convert all of the outstanding RECONS. On such an
optional conversion date, a holder will receive for
each RECONS (1) the "RECONS Optional Conversion
Price" plus (2) a cash amount equal to all accrued
and unpaid dividends to but excluding the conversion
date plus (3) the "RECONS Optional Conversion
Premium," if any.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
RECONS Common Shares
<S> <C>
The RECONS Optional Conversion Price equals
the number of Common Shares equal to the
lesser of (i) the amount of $24.00 (which is
128% of the closing price of a Common Share
on the Consolidated Tape on October 20,
1998) divided by the Current Market Price
(as defined herein) on the second trading
day immediately preceding the day on which
the Company gives notice of such conversion,
and (ii) one Common Share (subject to
certain antidilution adjustments). The
amount of $24.00 is sometimes called the
"Optional Conversion Price Cap."
The RECONS Optional Conversion Premium means
an amount, in cash, initially equal to
$2.09, declining by $.002111 on each day
following December 15, 1998 to the optional
conversion date (computed on the basis of a
360-day year consisting of twelve 30-day
months) and equal to zero on and after
September 15, 2001; provided, that the
Company may, at its option, deliver a number
of shares of Common Stock equal to the
quotient of such amount divided by the
Current Market Price on the second trading
day immediately preceding the day on which
the Company gives notice of such optional
conversion.
The initial RECONS Optional Conversion
Premium of $2.09 represents the difference
between the annual dividend of $1.24 on each
RECONS and an assumed annual dividend of
$0.48 for each Common Share for the period
after December 15, 1998 through September
15, 2001 (i.e. $0.19 per quarter for eleven
quarters). The premium declines to zero on
September 15, 2001; no premium will be paid
on or after September 15, 2001. Dividends
will accrue on the RECONS up to but
excluding the conversion date.
Voting Rights
Holders of RECONS will not have the right to vote with Holders of Common Shares have one vote for
the holders of Common Shares, but if we fail to pay each share on all matters submitted generally for
quarterly dividend payments for 18 months, then a vote of the shareholders of the Company,
holders of RECONS will be entitled, voting together except that they can vote cumulatively in the
with the holders of other Preferred Stock of WWP, to election of directors.
elect a majority of the Board of Directors of WWP.
In that situation, each RECONS would receive one-tenth
of the vote allotted to one share of Preferred Stock.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
RECONS Common Shares
<S> <C>
Trading and Listing
The RECONS will be newly issued. There is currently The Common Shares are listed and trade on the
no market for RECONS. We have applied to list the NYSE and the Pacific Exchange, in each case
RECONS on the NYSE subject to listing requirements, under the symbol "WWP." Effective January 1,
including the requirement that the shares be broadly 1999, the Company will change its name to
distributed. We anticipate that the RECONS will be Avista Corporation and the Common Shares will
listed and trade under the symbol "WWPPrL" until trade under the symbol "AVA" on the NYSE and
January 1, 1999 when the symbol will be changed to the Pacific Exchange.
"AVAPrL". If the conditions to listing on the NYSE
are not met, we expect that the RECONS will trade in
the over-the-counter market. You should not assume that
there will be an active trading market for the RECONS.
</TABLE>
6
<PAGE>
Comparison of Returns
The center table below illustrates how your investment might change if you
elect to exchange 100 Common Shares for 100 RECONS and the Company exercises
its option to convert those RECONS on September 15, 2001. The table on the
right reflects a continued investment in 100 Common Shares and assumes that
there is no change in the new dividend rate on Common Shares of $0.12 per
quarter ($0.48 per year) and that the dividend on the RECONS of $0.31 per
quarter is paid. Both tables exclude the effect of dividend reinvestment,
assume that the investment is held until September 15, 2001, and further
assume the following:
<TABLE>
<CAPTION>
<S> <C>
Price per Common Share (at commencement of the Exchange Offer) $18.75
Market value of 100 Common Shares (at commencement of the Exchange Offer) $1,857
Annual dividend per Common Share $0.48
Annual dividend per RECONS $1.24
Optional Conversion Price Cap per RECONS $24.00
</TABLE>
And you exchange now for RECONS, on September 15, 2001 your
investment would reflect...
<TABLE>
<CAPTION>
If WWP's common
stock price per
share on Common Total
September 15, Shares you Total market RECONS Total
2001 is. . . will receive value dividends(1) Total value return(%)
- --------------- ------------ ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
$ 14.00 100.00 $1,400 $ 372 $1,772 -5.5%
16.00 100.00 1,600 372 1,972 5.2
18.00 100.00 1,800 372 2,172 15.8
20.00 100.00 2,000 372 2,372 26.5
22.00 100.00 2,200 372 2,572 37.2
24.00 100.00 2,400 372 2,772 47.8
26.00 92.31 2,400 372 2,772 47.8
28.00 85.71 2,400 372 2,772 47.8
30.00 80.00 2,400 372 2,772 47.8
------ ------ ------ ------ ------ ----
</TABLE>
(1) Twelve (12) quarterly dividends of $0.31 per RECONS.
Or you DO NOT exchange for RECONS, on September 15, 2001 your
investment would reflect...
<TABLE>
<CAPTION>
Total
Common Common
Shares you Total market Share Total
will receive value dividends(1) Total value return(%)
- ------------ -------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
100.00 $1,400 $ 144 $1,544 -17.7%
100.00 1,600 144 1,744 -7.0
100.00 1,800 144 1,944 3.7
100.00 2,000 144 2,144 14.3
100.00 2,200 144 2,344 25.0
100.00 2,400 144 2,544 35.7
100.00 2,600 144 2,744 46.3
100.00 2,800 144 2,944 57.0
100.00 3,000 144 3,144 67.7
------ ------ ------ ------ ----
</TABLE>
(2) Twelve (12) quarterly dividends of $0.12 per common shares.
The above tables are presented for illustration only. Total return is
calculated as (i) total market value on September 15, 2001 plus total RECONS
dividends paid, minus total market value at commencement of the Exchange
Offer, divided by (ii) total market value at commencement of the Exchange
Offer. Actual investment results may vary depending on a variety of factors
including but not limited to market conditions, actual dividends paid on
Common Shares, the number of RECONS exchanged for Common Shares, whether the
RECONS are converted into Common Shares earlier than September 15, 2001, how
long Common Shares are actually held and any gain or loss on reinvestment of
dividends by a holder. Shareholders should note that the Optional Conversion
Price will never be more than one Common Share for each RECONS and will be a
decreasing fraction of one Common Share as the Current Market Price per
Common Share increases over the Optional Conversion Price Cap.
7
<PAGE>
Risk Factors/Investment Considerations
You should consider certain risk factors in deciding whether to participate in
the Exchange Offer, including: the limited potential of holders of RECONS to
benefit from gains in the price of Common Shares; the anticipated relative
trading values of the RECONS and the Common Shares; the possible volatility of
the price of Common Shares; the uncertainty of whether there will be a public
market for the RECONS; the loss of voting power if you exchange Common Shares
for RECONS; the reduction in the dividends on Common Shares; the dividend
preference of the RECONS; and the dilution of the Common Shares upon conversion
of the RECONS. See "Risk Factors/Investment Considerations" on page 12.
Summary Historical Consolidated Financial Data
The following table contains certain summary historical consolidated financial
data of WWP. These data have been derived from and should be read in conjunction
with the audited consolidated financial statements (and the related notes) of
WWP for the five years ended December 31, 1997 and the unaudited consolidated
financial statements (and the related notes) of WWP for the six-month periods
ended June 30, 1998 and 1997 incorporated by reference herein and other
information that we have filed with the Securities and Exchange Commission (the
"SEC"). See "Additional Information" on page 43.
<TABLE>
<CAPTION>
At or for the Fiscal year At or for the Six months
ended December 31 ended June 30
1993 1994 1995 1996 1997 1997 1998
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands, except per share and
ratio data
Income Statement Data:
Operating revenues............... $640,599 $670,765 $755,009 $ 944,957 $1,302,172 $520,285 $1,204,664
Income from operations........... 160,850 155,458 189,840 186,921 189,464 98,727 98,642
Net income....................... 82,776 77,197 87,121 83,453 114,797 78,323 47,875
Preferred stock dividend
requirements.................. 8,335 8,656 9,123 7,978 5,392 3,590 1,612
Income available for common
stock......................... 74,441 68,541 77,998 75,475 109,405 74,733 46,263
Earnings per share
Total, basic and diluted...... $1.44 $1.28 $1.41 $1.35 $1.96 $1.34 $0.83
Cash dividends paid per common
share......................... $1.24 $1.24 $1.24 $1.24 $1.24 $0.62 $0.62
Outstanding common stock
Weighted average, basic and
diluted....................... 51,616 53,538 55,173 55,960 55,960 55,960 55,960
Shares outstanding at end of
period........................ 52,758 54,421 55,948 55,960 55,960 55,960 55,960
Ratio of earnings to fixed charges
and preferred dividend
requirements.................. 2.77 2.59 2.61 2.50 3.12 3.06(a) 2.68(a)
Balance Sheet Data:
Total assets..................... $1,837,838 $1,994,253 $2,098,902 $2,177,298 $2,411,785 $2,194,731 $3,069,475
Long term debt................... 647,229 721,146 738,287 764,526 762,185 653,462 788,481
Preferred trust securities....... -- -- -- -- 110,000 110,000 110,000
Preferred stock--cumulative..... 135,000 135,000 135,000 115,000 45,000 95,000 35,000
Common equity.................... 634,379 677,494 717,125 710,736 748,812 755,646 759,358
Book value per share............. $12.02 $12.45 $12.82 $12.70 $13.38 $13.50 $13.57
</TABLE>
(a) For purposes of computing the ratios of earnings to fixed charges plus
preferred dividend requirements, "earnings" consist of net income before
interest charges and cumulative preferred dividend requirements, plus income
taxes, plus the estimated interest component of rentals. "Earnings" also include
allowance for borrowed and other funds used during construction. Fixed charges
consist of interest charges, the estimated interest component of rentals and the
pretax dividend requirements on cumulative preferred stock. The ratio shown for
the June 30 period is based on information for the twelve months ended June 30.
8
<PAGE>
Summary Unaudited Pro Forma Condensed Consolidated Financial Data
The following unaudited pro forma information is provided to you to aid in your
analysis of the financial aspects of the Exchange Offer. This information was
derived from the audited consolidated financial statements of WWP for the fiscal
year ended December 31, 1997 and the unaudited consolidated financial statements
of WWP for the six-month period ended June 30, 1998. This information is only a
summary and you should read it in conjunction with the historical consolidated
financial statements of WWP that are incorporated by reference herein and other
information that we have filed with the SEC. See "Additional Information" on
page 43.
The Unaudited Pro Forma Condensed Consolidated Financial Statements give effect
to the following transactions and events: (1) the planned reduction in the
annualized Common Stock dividend from $1.24 per share ($.31 per share each
quarter) to $.48 per share ($.12 per share each quarter), (2) the proposed
exchange of 20,000,000 Common Shares for 20,000,000 RECONS representing
2,000,000 shares of New Preferred Stock and (3) the planned dividend on New
Preferred Stock of $12.40 per share annually and an assumed stated value of $180
per share. The Pro Forma Consolidated Statement of Income Data assumes that
these transactions occurred on the first day of the respective periods presented
and the Pro Forma Consolidated Balance Sheet Data assumes that these
transactions occurred on June 30, 1998.
This information is presented to show you what WWP might have looked like if the
Exchange Offer had occurred for such amount and at the times outlined above. You
should not rely on the pro forma information as being indicative of the
historical results that would have been achieved, the future results that WWP
will experience after the Exchange Offer or the number of Common Shares that
will be exchanged in the Exchange Offer.
<TABLE>
<CAPTION>
Fiscal year ended Six months ended
December 31 1997 June 30 1998
-------------------------------------------------
<S> <C> <C>
In thousands, except per share data
Pro Forma Consolidated Statement of Income Data:
Operating revenues....................................... $1,302,172 $1,204,664
Income from operations................................... 189,464 98,642
Net income............................................... 114,797 47,875
Preferred stock dividend requirements.................... 30,192(a) 14,012(a)
Income available for common stock....................... 84,605 33,863
Earnings per share
Basic................................................ $2.35(a) $0.94(a)
Diluted.............................................. $1.96(b) $0.83(b)
Dividends paid per common share.......................... $0.48 $0.24
Outstanding common stock
Weighted average basic............................... 35,960(a) 35,960(a)
Weighted average diluted............................. 55,960(b) 55,960(b)
Shares outstanding at end of period.................. 35,960 35,960
Ratio of earnings to fixed charges and
preferred dividend requirements...................... 2.07 1.84
</TABLE>
<TABLE>
<CAPTION>
At June 30
1998
-----------
<S> <C>
Pro Forma Consolidated Balance Sheet Data:
Total assets............................................. $3,061,675
Long term debt........................................... 788,481
Preferred trust securities............................... 110,000
Preferred stock--cumulative.............................. 35,000
Convertible preferred stock.............................. 360,000
Common equity............................................ 391,558
Book value per share..................................... $10.89
</TABLE>
(a) The Series L Preferred Stock is not common stock equivalent for basic
earnings per share purposes. The estimated preferred stock dividend of $24.8
million for 1997 and $12.4 million for the first half of 1998 have been deducted
from net income for purposes of determining basic earnings per common share.
(b) For purposes of determining diluted earnings per share, the Series L
Preferred Stock is common stock equivalent (assumed conversion). The
estimated preferred stock dividends of $24.8 million for 1997 and $12.4
million for the first half of 1998 have been added to income available for
common stock for diluted earnings per common share.
9
<PAGE>
Historical and Pro Forma Capitalization
The following table presents the historical consolidated capitalization of WWP
as of June 30, 1998, and the unaudited pro forma capitalization of WWP after
giving effect to the Exchange Offer. See "Summary Pro Forma Financial Data" for
further discussion of these transactions.
<TABLE>
<CAPTION>
At June 30, 1998
Historical Pro Forma
------------------------------------
<S> <C> <C>
Dollars in thousands
Long-term debt..................................................... $788,481 $788,481
Preferred trust securities......................................... 110,000 110,000
-------- --------
Preferred stock--cumulative:
10,000,000 shares authorized:
Subject to mandatory redemption:
$6.95 Series K; 350,000 shares outstanding ($100 stated
value)...................................................... 35,000 35,000
Not subject to mandatory redemption:
$12.40 Convertible Series L; 2,000,000 shares outstanding
(assumed $180 stated value)................................. -- 360,000(a)
-------- --------
Total................................................ 35,000 395,000
-------- --------
Common equity...................................................... 759,358 391,558(b)
Total capitalization............................................... $1,692,839 $1,685,039
</TABLE>
(a) Reflects the issuance of $360 million, or 2,000,000 shares, of Series L
Preferred Stock assumed to be exchanged for 20,000,000 shares of Common Stock.
Series L Preferred Stock will be issued in exchange for shares of Common Stock
on a one-for-ten basis. Each share of Series L Preferred Stock will be recorded
at its stated value which will be fixed at the market price of the Common Stock
received in exchange therefor (assumed to be $18 per share).
(b) Common Shares received in exchange for the Series L Preferred Stock will be
recorded as a charge against common equity at cost (market value at the time of
the exchange) on the Company's Balance Sheet. This will have the effect of
reducing common equity by $360 million (assuming 20,000,000 shares at $18 per
share). An estimate of $7.8 million of expenses for the Exchange Offer has been
included as a charge to equity.
10
<PAGE>
Price Range of Common Shares and Dividend Information
The Common Shares are listed and principally traded on the NYSE. The high and
low closing prices for the Common Shares (as reported on the Consolidated Tape
maintained by the Consolidated Tape Association) and the quarterly cash dividend
per share declared and paid on all the Common Shares in 1996, 1997 and 1998 are
listed below.
<TABLE>
<CAPTION>
Cash Dividend
Stock Price Declared and Paid
High Low
------------------------------------------------------
<S> <C> <C> <C>
1996
First Quarter............................ $19 1/8 $17 1/4 $.31
Second Quarter.......................... 19 7/8 17 3/4 .31
Third Quarter............................ 19 3/4 17 7/8 .31
Fourth Quarter.......................... 19 3/4 18 .31
1997
First Quarter............................ $19 $17 3/8 $.31
Second Quarter........................... 19 7/8 17 3/8 .31
Third Quarter............................ 21 1/4 18 7/8 .31
Fourth Quarter........................... 24 13/16 18 15/16 .31
1998
First Quarter............................ $24 13/16 $21 3/4 $.31
Second Quarter........................... 24 7/8 20 13/16 .31
Third Quarter............................ 22 13/16 16 1/8 .31
Fourth Quarter (through October 20)..... 20 3/16 18 --
</TABLE>
On October 20, 1998, the last full trading day prior to commencement of the
Exchange Offer, the reported high and low sales prices of the Common Shares
were $18 15/16 and $18 5/8 per share, respectively, and the reported last
sale price was $18 3/4 per share, all as reported on the Consolidated Tape
maintained by the Consolidated Tape Association.
On August 17, 1998, the Company announced that it reduced the quarterly dividend
paid with respect to the Common Shares from $.31 to $.12 per share, effective
with the quarterly dividend payable on December 15, 1998.
11
<PAGE>
Risk Factors/Investment Considerations
In considering whether or not to tender Common Shares pursuant to the Exchange
Offer, you should consider carefully all of the information set forth or
incorporated in this Prospectus and, in particular, the following risk factors
and investment considerations. In addition, for a discussion of certain
additional uncertainties associated with (1) the business of WWP, as well as (2)
forward-looking statements in this Prospectus, please see "Forward-Looking
Statements" on page 13.
Limited Potential to Benefit from Gains in the Common Share Price
We may convert your RECONS before November 1, 2001, in which case you will
receive the number of Common Shares having a value equal to the RECONS Optional
Conversion Price, plus cash equal to accrued and unpaid dividends and the RECONS
Optional Conversion Premium, if any (payable in cash or, at the Company's
option, in Common Shares). If at any time while the RECONS are outstanding the
Common Shares are trading in the marketplace at a market value higher than the
market value of the RECONS Optional Conversion Price plus the Optional
Conversion Premium, you may expect that we would convert your RECONS. This would
limit your potential to profit from any increase in the price of the Common
Shares above the RECONS Optional Conversion Price, since you would receive less
than one Common Share for each RECONS required to be exchanged. On the other
hand, you are not protected from any decrease in the trading price of the Common
Shares.
Trading Value of the Securities
Because the RECONS have a different economic structure than the Common Shares,
we do not expect that the two securities will trade at the same price. Depending
on the circumstances discussed in the next paragraph, the RECONS may trade at a
price higher or lower than the Common Shares.
Possible Volatility of Common Stock Price
When your RECONS are converted, whether on November 1, 2001, or earlier, you
will receive a certain number of Common Shares in return. The price of these
Common Shares will be determined in the marketplace and may be influenced by
many factors, including how we perform as a company, how other investors in the
marketplace perceive us and our prospects, how many people are buying and
selling our Common Shares, and generally how the economy and stock markets are
performing.
No Prior Public Market for RECONS; Possible Withdrawal of Listing on NYSE
At the time of the Exchange Offer, there will be no public market for the
RECONS. We have applied to list the RECONS for trading on the NYSE. Rules of the
NYSE require that the number, total value and number of holders of RECONS meet
certain minimum criteria in order to be listed. If any of these criteria are not
satisfied, the NYSE might not accept the RECONS for listing, in which case we
would withdraw our listing application. We cannot promise that the RECONS will
meet the NYSE's criteria or that, even if they do, the RECONS will be accepted
for listing on the NYSE. If the RECONS are not accepted for listing on the NYSE,
it might be more difficult for you to buy and sell the RECONS, which could lower
their value. In the event that the RECONS cannot be listed on the NYSE, the
Company will use its best efforts to cause them to be listed on another
securities exchange or included in the National Association of Securities
Dealers Automated Quotation System. Again, we cannot promise that we would be
successful in these efforts or that an active trading market for the RECONS will
develop.
12
<PAGE>
Loss of Voting Power
Once you exchange your Common Shares for RECONS, you will not have the same
rights as a holder of Common Shares. In particular, you will no longer be
entitled to vote for directors of the Company, except that if we fail to pay
dividends on the New Preferred Stock (and thus your RECONS) for eighteen months,
the holders of Preferred Stock, as a class, will have the right to elect a
majority of the Board of Directors. The voting power of those holders of Common
Shares who do not tender their shares in the Exchange Offer will be increased
proportionately.
Reduction in Common Share Dividend Payment; Dividend Preference of the New
Preferred Stock and the RECONS
On September 15, 1998, we paid a cash dividend of $0.31 per Common Share to
holders of record as of August 25, 1998. However, we expect that thereafter we
will pay dividends at an annual rate not exceeding $0.48 per share ($0.12 per
quarter), a reduction of approximately 61% compared to the $1.24 annual level
paid in the past. We have already announced the dividend reduction for the
dividend payable on December 15, 1998. We are reducing the dividend in order to
enable us to use a greater portion of our operating cash flow for growth
initiatives and new investment opportunities in every area of our business.
After the Exchange Offer, we may pay a higher or lower dividend on the Common
Shares, depending on our future earnings, our financing needs, our financial
condition and other factors, all as determined by the Board of Directors from
time to time. Holders of RECONS will receive payment of dividends before holders
of Common Shares receive any dividend payments.
Dilution of Common Equity Upon Conversion of the RECONS
When your RECONS are converted back into a number of Common Shares, whether on
the Mandatory Conversion Date or earlier, the total number of Common Shares
outstanding will be increased by the number of Common Shares issued in exchange
for the RECONS. As a result, each Common Share will represent a smaller
percentage of the Company's total equity than it did while the RECONS were
outstanding.
Forward-Looking Statements
Forward-looking statements are all statements other than statements of
historical fact, including without limitation those that are identified by the
use of the words "anticipates," "estimates," "expects," "intends," "plans,"
"predicts," and similar expressions. They appear in a number of places in this
Prospectus and in the documents incorporated herein by reference. Such
statements are inherently subject to a variety of risks and uncertainties that
could cause actual results to differ materially from those expressed. Such risks
and uncertainties include, among others, the specific risk factors described
under the caption "Risk Factors/Investment Considerations" and uncertainties
associated with the business of the Company described in the reports
incorporated by reference herein, including regulatory uncertainties and risks
associated with acquisitions and increasing competition. These forward-looking
statements speak only as of the date of this Prospectus. The Company expressly
undertakes no obligation to update or revise any forward-looking statement
contained herein to reflect any change in the Company's expectations with regard
to thereto or any change in events, conditions, or circumstances on which any
such statement is based.
13
<PAGE>
The Company
Washington Water Power is an energy services company with operations located
throughout the United States. The Company, which was incorporated in the State
of Washington in 1889, primarily operates in the electric and natural gas
utility businesses. WWP owns Avista, which in turn owns all the Company's
non-regulated energy and non-energy businesses. Avista's subsidiaries include
Pentzer, Avista Energy, Avista Advantage and Avista Labs. At December 31, 1997,
the Company's employees included 1,467 people in its utility operations and
approximately 1,751 people in its majority-owned non-regulated businesses
(energy and non-energy). The Company's corporate headquarters are located at
1411 East Mission Avenue, in Spokane, Washington 99202.
The Company's operations are organized into four lines of businesses, two of
which comprise its utility operations. The Energy Delivery business provides
electricity and natural gas in a 26,000 square-mile area in eastern Washington
and northern Idaho, with a combined population of approximately 825,000, as of
December 31, 1997, as well as natural gas services in a 4,000 square-mile area
in northeast and southwest Oregon and South Lake Tahoe region of California,
with a combined population of approximately 495,000, as of such date. The
Generation and Resources business includes the generation and production of
electric energy, and short- and long-term electric and natural gas wholesale
sales and wholesale marketing primarily to, and commodity trading with, other
utilities and power brokers in the Western Systems Coordinating Council. The
National Energy Trading and Marketing business, which is conducted through
subsidiaries, focuses on commodity trading, energy marketing and energy related
products and services on a national basis. The non-energy business primarily
consists of Pentzer, a private investment firm.
Changes underway in the utility and energy industries are creating new
opportunities to expand the Company's businesses and serve new markets. In
pursuing such opportunities, the Company is shifting its strategic direction
to growth in order to achieve its goal of becoming a diversified North
American energy company. The Company's estimates for capital expenditures (as
reported in the Company's Annual Report on Form 10-K for 1997) do not include
expenditures that would be required to fund such strategies. Additional
capital expenditures that would be required during the 1999-2000 period could
range from $400 million to $600 million. Sources of funds would include, but
are not necessarily limited to, cash flows from the reduction in the
Company's common stock dividend that was announced on August 17, 1998,
monetization of certain long-term contracts, an increase in the sale of the
Company's accounts receivable, sales of certain assets, additional long-term
debt, leasing or other equity securities. The Company's strategies are
described below.
Energy
The Company seeks to strengthen its position of leadership in energy delivery
and generation as well as energy trading and marketing on a local, regional and
national basis. The Company will seek to increase its asset and customer base
through a focus on acquisitions and strategic alliances in all parts of its
business. The Company intends to focus on growing its core energy business by
seeking to acquire control of physical assets, specifically power generation
assets and electric and gas transmission and distribution assets. The Company
expects that initial growth will come at a local and regional level, with
national growth to follow. Key strengths of the Company today include its
position as one of the lowest-cost-producers of power in the nation, expertise
in hydroelectric and power system management, plus capabilities in trading and
wholesale and retail marketing of gas and electric energy. The Company is also
continuing to develop a unique approach to commercialization of fuel cell
technology.
Locally. WWP is a long-standing leader in the Northwest region of the United
States, providing some of the lowest cost energy to its customers. The Company's
strategy is to add selectively to its already strong foundation of
state-regulated utility assets to solidify its position as a leading supplier of
a low-cost electric and natural gas energy services.
Regionally. The Company intends to add to its regulated and non-regulated
assets on a regional basis and participate in industry consolidation to
further optimize its assets and create greater economies of scale. In
addition to energy delivery and generation, WWP plans to concentrate on
growing its energy trading and marketing business. The strong growth in this
business is driven by the Company's significant base of knowledge and
experience in the operation of physical
14
<PAGE>
systems -- for both natural gas and electric energy -- in the region, as well
as its relationship-focused approach to the customer.
Nationally. WWP's strong regional energy trading and marketing skills serve as a
platform for the Company's growing national presence. The Company will seek to
expand its customer base through relationships with other energy providers
outside WWP's Northwest stronghold and thereby leverage its existing trading and
marketing skills.
Non-Energy
WWP conducts the majority of its non-energy business through its wholly owned
subsidiary, Pentzer Corporation. Pentzer's business strategy is to acquire
controlling interests in a broad range of middle market companies, facilitate
improved productivity and growth, and ultimately sell such companies to the
public or a strategic buyer.
The Company's growth strategy will expose the Company to risks associated with
rapid expansion, challenges in recruiting and retaining qualified personnel,
risks associated with acquisitions and joint ventures and increasing
competition. In addition, growth in the energy and trading and marketing
business will expose the Company to increased financial and credit risks
associated with commodity trading activities, which risks are described further
in the Company's reports filed with the SEC and incorporated by reference
herein. The Company believes that its extensive experience in the electric and
gas businesses, coupled with its strong management team, will allow WWP to
effectively manage its transition to a diversified North American energy
company.
For a complete description of the Company's business and investment
considerations relevant to an investment in the Company, investors are
encouraged to carefully review the documents incorporated in this Prospectus by
reference. See "Additional Information" on page 43.
Recent Operating Results
The Company's results of operations for 1997 and the 12 month periods
ended June 30 and September 30, 1998 are as follows:
<TABLE>
<CAPTION>
12 Months Ended
--------------------------------------------------------
December 31 June 30 September 30
1997 1998 1998
----------------- ------------- ------------------
(Unaudited) (Unaudited)
Dollars in thousands
<S> <C> <C> <C>
Operating Revenues .................... $1,302,172 $2,005,871 $3,167,500
Net Income ............................ 114,797 84,349 79,820
Preferred Stock Dividend Requirements 5,392 3,414 3,044
Ratio of Earnings to Fixed Charges and
Preferred Dividend Requirements...... 3.12 2.68 2.54
</TABLE>
The increased revenues over the periods presented are primarily the result of
increased energy trading and marketing activities of Avista Energy. Resource
costs for these same periods increased by nearly the same amount. Net income
for the 12 months ended September 30, 1998 did not include the $47.3 million
income tax recovery in June 1997, which was included in the other periods
shown. Preferred dividends decreased over the periods presented due to
redemptions, but have been offset by increased interest expense.
15
<PAGE>
Pro Forma Consolidated Statement Of Income
For The Year Ended December 31, 1997
And Six Months Ended June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
December 31
1997 Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Dollars in thousands, except per share data
Operating revenues ....................................... $ 1,302,172 0 $ 1,302,172
----------- ----------- -----------
Operating expenses:
Resource costs ........................................ 719,905 0 719,905
Operations and maintenance ............................ 176,354 0 176,354
Administrative and general ............................ 96,611 0 96,611
Depreciation and amortization ......................... 69,893 0 69,893
Taxes other than income taxes ......................... 49,945 0 49,945
----------- -----------
Total operating expense ............................. 1,112,708 0 1,112,708
----------- ----------- -----------
Income from operations .................................... 189,464 0 189,464
----------- -----------
Other income (expense):
Interest expense ...................................... (66,275) 0 (66,275)
Interest on income tax recovery ....................... 47,338 0 47,338
Net gain on subsidiary transactions ................... 11,218 0 11,218
Other income (deductions)-net ....................... (5,873) 0 (5,873)
----------- ----------- -----------
Total other income (expense)-net .................. (13,592) 0 (13,592)
----------- ----------- -----------
Income before income taxes ................................. 175,872 0 175,872
Income taxes ............................................... 61,075 0 61,075
----------- -----------
Net income ................................................. 114,797 0 114,797
Deduct Preferred stock dividend
requirements ............................................. 5,392 24,800 30,192
----------- -----------
Income available for common stock .......................... $ 109,405 0 $ 84,605
----------- ----------- -----------
----------- ----------- -----------
Average common shares outstanding (thousands)
Basic ................................................. 55,960 (20,000) 35,960
Diluted ............................................... 55,960 0 55,960
Earnings per share of common stock
Basic and diluted
Basic .................................................. $ 1.96 0 $ 2.35
Diluted ................................................ $ 1.96 0 $ 1.96
Dividends paid per common share ............................ $ 1.24 ($ 0.76) $ 0.48
Retained earnings, January 1 .............................. $ 131,301 0 $ 131,301
Net income ................................................. $ 114,797 0 $ 114,797
Dividend declared:
Preferred stock ........................................ ($ 5,339) ($ 24,800) ($ 30,139)
Common Stock ........................................... ($ 69,390) $ 52,129 ($ 17,261)
ESOP dividend tax savings .................................. $ 407 0 $ 407
----------- ----------- -----------
Retained earnings at end of period ......................... $ 171,776 $ 27,329 $ 199,105
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
June 30
1997 Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Dollars in thousands, except per share data
Operating revenues ........................................ $ 1,204,664 $ 1,204,664
----------- -----------
Operating expenses:
Resource costs ......................................... 885,256 885,256
Operations and maintenance ............................. 97,864 97,864
Administrative and general ............................. 62,418 62,418
Depreciation and amortization .......................... 34,602 34,602
Taxes other than income taxes .......................... 25,882 25,882
----------- ----------- -----------
Total operating expense .............................. 1,106,022 1,106,022
----------- ----------- -----------
Income from operations ..................................... 98,642 98,642
----------- ----------- -----------
Other income (expense):
Interest expense ....................................... (34,060) (34,060)
Interest on income tax recovery ........................ -- --
Net gain on subsidiary transactions .................... 7,611 7,611
Other income (deductions)-net .......................... 4,947 4,947
----------- -----------
Total other income (expense)-net ..................... (21,502) (21,502)
----------- -----------
Income before income taxes ................................. 77,140 77,140
Income taxes ............................................... 29,265 29,265
----------- -----------
Net income ................................................. 47,875 47,875
Deduct Preferred stock dividend
requirements .............................................. 1,612 12,400 14,012
----------- -----------
Income available for common stock .......................... $ 46,263 $ 33,863
----------- -----------
----------- -----------
Average common shares outstanding (thousands)
Basic ................................................... 55,960 (20,000) 35,960
Diluted ................................................. 55,960 55,960
Earnings per share of common stock
Basic and diluted
Basic ................................................... $ 0.83 $ 0.94
Diluted ................................................. $ 0.83 $ 0.83
Dividends paid per common share ............................ $ 0.62 ($ 0.38) $ 0.24
Retained earnings, January 1 ............................... $ 199,105 $ 199,105
Net income ................................................. $ 47,875 $ 47,875
Dividend declared:
Preferred stock ................................... ($ 1,612) ($ 12,400) ($ 14,012)
Common Stock ...................................... ($ 34,695) $ 26,065 ($ 8,630)
ESOP dividend tax savings .................................. $ 195 $ 195
----------- ----------- -----------
Retained earnings at end of period ......................... $ 210,868 $ 13,665 $ 224,533
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
16
<PAGE>
Pro Forma Condensed Consolidated Balance Sheet
At June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
June 30,
1998 Adjustments Pro Forma
----------- ------------ -----------
<S> <C> <C> <C>
Dollars in thousands
Total assets: $ 3,069,475 $ (7,800)(b) $ 3,061,675
----------- ------------ -----------
Liabilities and capitalization
Total current and non current liabilities ........................ 1,376,636 1,376,636
----------- -----------
Long term debt ................................................... 788,481 788,481
----------- -----------
Company obligated mandatorily redeemable
preferred trust securities
7 7/8%, Series A, due 2037 ..................................... 60,000 60,000
Floating Rate, Series B, due 2037 .............................. 50,000 50,000
----------- -----------
Total company obligated mandatorily redeemable
preferred trust securities ............................... 110,000 110,000
----------- -----------
Preferred stock--cumulative:
10,000,000 shares authorized:
Subject to mandatory redemption:
$6.95 Series K; 350,000 shares outstanding ($100
stated value) ............................................. 35,000 35,000
Not subject to mandatory redemption:
$12.40 Convertible Series L; 2,000,000 shares
outstanding (assumed $180 stated value) ................... -- 360,000 360,000
----------- ------------ -----------
Total ................................................... 35,000 360,000 395,000
----------- ------------ -----------
Common equity:
Common stock, no par value; 200,000,000 shares
authorized; 55,960,360 shares outstanding;
35,960,360 outstanding....................................... 594,852 (275,112)(a) 319,740
Note receivable from employee stock ownership plan ............ (9,770) (9,770)
Capital stock expense and other paid in capital ............... (10,173) (7,800)(b) (17,973)
Unrealized investment gain - net .............................. 946 946
Retained earnings ............................................. 183,503 (84,888)(a) 98,615
--------- --------- --------
Total common equity......................................... 759,358 (367,800) 391,558
--------- --------- --------
Total capitalization ............................................ $1,692,839 $(7,800) $1,685,039
--------- --------- --------
--------- --------- --------
Total liabilities and capitalization ............................ $3,069,475 $(7,800) $3,061,675
--------- --------- --------
--------- --------- --------
</TABLE>
(a) The allocation of the assumed $360 million to common equity was performed
on a percentage basis.
(b) The estimated expenses associated with the Exchange Offer.
17
<PAGE>
The Exchange Offer
Background and Purpose
The Company is making the Exchange Offer to provide those shareholders whose
primary objective may be current income with an opportunity, subject to the
terms and conditions of the Exchange Offer, to exchange all or a portion of
their Common Shares for an equal number of RECONS entitled to receive an annual
cash dividend of $1.24 per share. The Exchange Offer provides holders of Common
Shares with the option of exchanging their shares for RECONS and receiving a
stated dividend higher than the dividend expected on Common Shares. However, the
Company may convert the RECONS at any time at the RECONS Optional Conversion
Price (plus the RECONS Optional Conversion Premium, if any, and accrued
dividends), which may, at the time of such conversion, be less than the then
existing market price of the Common Shares. In the event of an optional
conversion, there is a substantial likelihood that a holder of RECONS would
receive less than one Common Share for each RECONS. Thus, an investment in the
RECONS does not provide the holder with the same opportunity for share price
appreciation afforded by an investment in the Common Shares.
Terms of the Exchange Offer
Upon the terms and subject to the conditions described herein and in the related
Letter of Transmittal (which together constitute the Exchange Offer), the
Company is offering to exchange RECONS for up to 20,000,000 Common Shares at a
rate of one RECONS for each Common Share validly tendered prior to the
Expiration Date and not theretofore withdrawn as described under "--Withdrawal
of Tendered Common Shares." The Exchange Offer is being made to all
shareholders, including officers, directors and affiliates of the Company, on
the same terms and conditions, except that participants in the Company's 401(k)
Plan (as defined herein) may not tender Common Shares held in the Company
Contribution Account . If the Exchange Offer is oversubscribed as described
below, only Common Shares validly tendered pursuant to the Exchange Offer and
not withdrawn prior to the Expiration Date will be eligible for proration. All
Common Shares not acquired pursuant to the Exchange Offer, including Common
Shares not purchased because of proration, will be returned to the tendering
shareholders at the Company's expense as promptly as practicable following the
Expiration Date.
The Company's obligation to accept Common Shares for exchange pursuant to the
Exchange Offer is subject to certain conditions set forth under "--Conditions
of the Exchange Offer." Among other conditions, the Exchange Offer is
conditioned upon a minimum of 6,000,000 Common Shares being validly tendered
and not withdrawn prior to the Expiration Date (the "Minimum Condition"). If
the Minimum Condition is not satisfied prior to the Expiration Date, the
Company shall either (i) decline to accept for exchange and exchange any of
the Common Shares tendered and terminate the Exchange Offer or (ii) extend
the Exchange Offer and, subject to the right of shareholders to withdraw
Common Shares until the Expiration Date, retain the Common Shares which have
been tendered during the period or periods for which the Exchange Offer is
extended.
The Company reserves the right at any time or from time to time to amend the
Exchange Offer in any respect by making a public announcement of such amendment
subject to complying with the applicable rules and regulations of the SEC. If
the Company materially changes the terms of the Exchange Offer or the
information concerning the Exchange Offer, the Company will extend the duration
of the Exchange Offer to the extent required by the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Certain rules promulgated under the
Exchange Act provide that the minimum period during which an offer must remain
open following material changes in the terms of the offer or information
concerning the offer (other than a change in price or a change in percentage of
securities sought) will depend on the facts and circumstances, including the
relative materiality of such terms or information. The SEC has stated that, as a
general rule, it is of the view that an offer should remain open for a minimum
of five business days from the date that notice of such material is first
published, sent or given, and that if material changes are made with respect to
information that approaches the significance of price and share levels, a
minimum of ten business days may be required to allow adequate dissemination and
investor response.
18
<PAGE>
The tender of any Common Shares pursuant to the Exchange Offer will include the
tender of the associated Rights (as defined herein) under the Rights Agreement
(as defined herein), as described in "Description of Capital Stock--Preferred
Share Purchase Rights." No separate consideration will be paid for such Rights.
Expiration of the Exchange Offer; Extension of the Exchange Offer
The Exchange Offer will expire on the Expiration Date, unless extended. The
term "Expiration Date" shall mean 12:00 Midnight, New York City time, on
Wednesday, November 18, 1998, unless and until the Company shall have
extended the period of time for which the Exchange Offer is open, in which
event "Expiration Date" shall mean the latest time and date on which the
Exchange Offer, as so extended by the Company, shall expire.
The Company expressly reserves the right, in its sole discretion, at any time or
from time to time, to extend the period of time during which the Exchange Offer
is open by giving oral or written notice of such extension to the Exchange
Agent. There can be no assurance, however, that the Company will exercise its
right to extend the Exchange Offer. If the Company decides, in its sole
discretion, to increase (except for any increase not in excess of 2% of the
outstanding Common Shares) or decrease the number of Common Shares being sought
in the Exchange Offer and, at the time that notice of such increase or decrease
is first published, sent or given to holders of Common Shares in the manner
specified below, the Exchange Offer is scheduled to expire at any time earlier
than the tenth business day from the date that such notice is first so
published, sent or given, the Exchange Offer will be extended until the
expiration of such ten business day period. As used herein, a "business day"
means any day other than a Saturday, Sunday or federal holiday and consists of
the time period from 12:01 a.m. through 12:00 midnight, New York City time.
Proration
Upon the terms and subject to the conditions of the Exchange Offer (including
the Minimum Condition), if 20,000,000 or fewer Common Shares have been validly
tendered pursuant to the Exchange Offer and not withdrawn prior to the
Expiration Date, the Company will accept all such Common Shares for exchange.
Upon the terms and subject to the conditions of the Exchange Offer, if more than
20,000,000 Common Shares have been validly tendered pursuant to the Exchange
Offer and not withdrawn prior to the Expiration Date, the Company will accept
for exchange all Common Shares validly tendered pursuant to the Exchange Offer
and not withdrawn prior to the Expiration Date on a pro rata basis (with
appropriate adjustments to avoid purchases of fractional Common Shares). Shares
validly tendered but not accepted for exchange will be promptly returned
following final determination of the proration factor.
The Company does not expect that it would be able to announce the final
proration factor or to commence delivery of RECONS until approximately five NYSE
trading days after the Expiration Date if proration of tendered Common Shares is
required, because of the difficulty in determining the number of Common Shares
validly tendered (including Common Shares tendered pursuant to the guaranteed
delivery procedure described below) and not withdrawn prior to the Expiration
Date. Preliminary results of proration will be announced by press release as
promptly as practicable after the Expiration Date. Holders of Common Shares may
obtain such preliminary information from the Information Agent and may also be
able to obtain such information from their brokers.
Regulatory Approvals
Prior to commencing the Exchange Offer, the Company will have received all
material federal or state regulatory approvals necessary to consummate the
Exchange Offer or any transactions contemplated in connection therewith.
19
<PAGE>
Appraisal Rights
The Exchange Offer will not give rise to dissenter's rights of appraisal under
Washington law.
Accounting Treatment
Each share of New Preferred Stock will be recorded on the Company's Balance
Sheet at its stated value which will be fixed at the market price of the Common
Stock received in exchange therefor. Common Stock received in exchange for the
New Preferred Stock will be recorded on the Company's Balance Sheet as a charge
against common equity at cost (market value at the time of the exchange).
Procedure for Tender
Registered holders of Common Shares, as well as beneficial owners who are direct
participants in DTC or who are participants in the Company's Dividend
Reinvestment and Stock Purchase Plan, who desire to participate in the Exchange
Offer should follow the instructions set forth below and in the Letter of
Transmittal.
All other beneficial owners of Common Shares should follow the instructions
received from their broker or nominee and should contact their broker or nominee
directly. The instructions set forth below and in the Letter of Transmittal DO
NOT APPLY to such beneficial owners.
To tender Common Shares pursuant to the Exchange Offer, either (a) a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) with any required signature guarantees, or an Agent's Message (as
defined below) in the case of a book-entry transfer of shares, and any other
documents required by the Letter of Transmittal must be received by the Exchange
Agent at one of its addresses set forth on the back cover of this Prospectus and
either (i) certificates for the Common Shares to be tendered must be received by
the Exchange Agent at one of such addresses or (ii) such Common Shares must be
delivered pursuant to the procedures for book-entry transfer described below
(and a timely confirmation of such delivery must be received by the Exchange
Agent), in each case by the Expiration Date, or (b) the guaranteed delivery
procedure described below must be complied with.
The Exchange Agent will establish accounts with respect to the Common Shares at
The Depository Trust Company ("DTC"), for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in DTC's system may make delivery of Common
Shares by causing DTC to transfer such Common Shares into the Exchange Agent's
account in accordance with DTC's procedures. Although delivery of Common Shares
may be effected through book-entry transfer, the Letter of Transmittal (or
manually signed facsimile thereof), or an Agent's Message, and any other
required documents must, in any case, be received by the Exchange Agent at one
of its addresses set forth on the back cover of this Prospectus by the
Expiration Date, or the guaranteed delivery procedure described below must be
complied with. The term "Agent's Message" means a message transmitted through
electronic means by DTC to and received by the Exchange Agent and forming a part
of a book-entry confirmation, which states that DTC has received an express
acknowledgment from the participant tendering the shares that such participant
has received and agrees to be bound by the Letter of Transmittal. Delivery of
the Letter of Transmittal and any other required documents to DTC does not
constitute delivery to the Exchange Agent.
Except as otherwise provided below, all signatures on a Letter of Transmittal
must be guaranteed by a firm that is a participant in the Securities Transfer
Agents Medallion Program, the New York Stock Exchange, Inc. Medallion Signature
Program or the Stock Exchange Medallion Program (each being an "Eligible
Institution"). Signatures on a Letter of Transmittal need not be guaranteed if
(a) the Letter of Transmittal is signed by the registered holder of the Common
Shares tendered therewith and such holder has not completed the boxes entitled
"Special Issue Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (b) such Common Shares are tendered for the account of an
Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal.
20
<PAGE>
If a shareholder desires to tender Common Shares pursuant to the Exchange Offer
and cannot deliver such Common Shares and all other required documents to the
Exchange Agent by the Expiration Date, such Common Shares may nevertheless be
tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by the Company is received by the Exchange
Agent (as provided below) by the Expiration Date; and
(iii) the certificates for such Common Shares (or a confirmation of a book-entry
transfer of such Common Shares into the Exchange Agent's account at DTC),
together with a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof), or an Agent's Message in connection with a
book-entry transfer, and any other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, telex, facsimile transmission or mail to the Exchange Agent and must
include a Guarantee by an Eligible Institution in the form set forth in such
Notice.
Shareholders who are participants in the Company's Dividend Reinvestment and
Stock Purchase Plan may tender some or all of the Common Shares held in their
plan account. However, dividend payments on RECONS received in exchange for
such Common Shares will be paid in cash and cannot be automatically
reinvested under the plan. Holders wishing to tender Common Shares should so
indicate by checking the appropriate box in the section of the Letter of
Transmittal captioned "Description of Common Shares Tendered in the Exchange
Offer" and returning the properly completed and duly executed Letter of
Transmittal or manually signed facsimile thereof with any required signature
guarantees and any other documents required by the Letter of Transmittal to
the Exchange Agent.
Participants in the Company's Investment and Employee Stock Ownership Plan (the
"401(k) Plan") may tender Common Shares held in their 401(k) Company Stock Fund.
Any Common Shares held in the Company Contribution Account in the 401(k) Plan
may not be tendered. Dividend payments on RECONS received in exchange for Common
Shares which were originally held under the 401(k) Plan will automatically be
invested in Common Shares. Shareholders who wish to tender Common Shares held in
their 401(k) Company Stock Fund should complete and return the 401(k) Election
to Tender Shares of Common Stock to the plan record keeper, Howard Johnson &
Company. Any plan account Common Shares tendered but not accepted for exchange
will be returned to the shareholder's applicable plan account.
PARTICIPANTS WHO HOLD COMMON SHARES IN THEIR 401(k) COMPANY STOCK FUND UNDER THE
401(k) PLAN MAY NOT USE THE LETTER OF TRANSMITTAL TO DIRECT THE TENDER OF COMMON
SHARES, BUT MUST USE THE SEPARATE ELECTION FORM SENT TO THEM.
If any certificate representing Common Shares has been mutilated, destroyed,
lost or stolen, the shareholder must (i) furnish to the Exchange Agent evidence,
satisfactory to it in its discretion, of the ownership of and destruction, loss
or theft of such certificate, (ii) furnish to the Exchange Agent indemnity
satisfactory to it in its discretion and (iii) comply with such other reasonable
regulations as the Exchange Agent may proscribe.
The tender of Common Shares pursuant to the Exchange Offer in accordance with
the procedures described above will constitute an agreement between the
tendering shareholder and the Company upon the terms and subject to the
conditions of the Exchange Offer, including the tendering shareholder's
representation and warranty that (i) such shareholder owns the Common Shares
being tendered within the meaning of Rule 14e-4 under the Exchange Act and (ii)
the tender of such Common Shares complies with Rule 14e-4.
It is a violation of Rule 14e-4 under the Exchange Act for a person, directly or
indirectly, to tender Common Shares for his own account unless the person so
tendering (i) has a net long position equal to or greater than the number of (x)
Common Shares tendered or (y) other securities immediately convertible into, or
exercisable or exchangeable for, the number of Common Shares tendered and will
acquire such Common Shares for tender by conversion, exercise or exchange of
such other securities and (ii)
21
<PAGE>
will cause such Common Shares to be delivered in accordance with the terms of
the Exchange Offer. Rule 14e-4 provides a similar restriction applicable to the
tender or guarantee of a tender on behalf of another person. The tender of
Common Shares pursuant to the procedures described above will constitute the
tendering shareholder's representation and warranty that (i) such shareholder
has a net long position in the Common Shares being tendered within the meaning
of Rule 14e-4 under the Exchange Act and (ii) the tender of such Common Shares
complies with Rule 14e-4.
All questions as to the form of documents and the validity, eligibility
(including time of receipt) and acceptance for exchange of any tender of Common
Shares will be determined by the Company, in its sole discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any or all tenders of Common Shares determined by it not to be
in proper form or to reject Common Shares the acceptance of exchange or exchange
of which may, in the opinion of the Company's counsel, be unlawful. The Company
also reserves the absolute right to waive any defect or irregularity in any
tender of Common Shares. None of the Company, the Exchange Agent, the
Information Agent or any other person will be under any duty to give
notification of any defect or irregularity in tenders or incur any liability for
failure to give any such notification.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR COMMON
SHARES, IN CONNECTION WITH TENDERING PURSUANT TO THE EXCHANGE OFFER IS AT THE
ELECTION AND RISK OF THE TENDERING SHAREHOLDER AND, EXCEPT AS OTHERWISE PROVIDED
IN THE LETTER OF TRANSMITTAL, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED, INSURED FOR AT LEAST 2% OF THE MARKET VALUE OF THE
COMMON SHARES, IS RECOMMENDED AND SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY.
Withdrawal of Tendered Common Shares
Tenders of Common Shares made pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. Thereafter, such tenders are irrevocable,
except that they may be withdrawn after December 17, 1998 unless theretofore
accepted for exchange as provided in this Prospectus. If the Company extends the
period of time during which the Exchange Offer is open, is delayed in accepting
for exchange or exchanging Common Shares or is unable to accept for exchange or
to exchange Common Shares pursuant to the Exchange Offer for any reason, then,
without prejudice to the Company's rights under the Exchange Offer, the Exchange
Agent may, on behalf of the Company, retain all Common Shares tendered, and such
Common Shares may not be withdrawn except as otherwise provided herein, subject
to Rule 13e-4(f)(5) under the Exchange Act, which provides that the issuer
making the tender offer shall either pay the consideration offered, or return
the tendered securities, promptly after the termination or withdrawal of the
tender offer.
A Holder whose Common Shares are held through a broker and who has tendered any
or all of such shares pursuant to the Exchange Offer may withdraw such tender
only by directly contacting the broker and following the broker's withdrawal
instructions. Participants in the Company's 401(k) Plan who have tendered Common
Shares held in their 401(k) Company Stock Fund may only withdraw such tender by
contacting the plan record keeper, Howard Johnson & Company, and following the
record keeper's withdrawal instructions. The broker or plan record keeper, as
the case may be, should be contacted as promptly as possible and with sufficient
time to allow such party to withdraw the applicable tender prior to the
Expiration Date.
In order for the withdrawal of a tender of Common Shares held by a registered
holder, or of Common Shares held in the Dividend Reinvestment and Stock Purchase
Plan, to be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at one of its
addresses set forth on the back cover of this Prospectus and must specify the
name of the person who tendered the Common Shares to be withdrawn and the number
of Common Shares to be withdrawn . If the Common Shares to be withdrawn have
been delivered to the Exchange Agent, a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution (except in the case of Common
Shares tendered by an Eligible Institution) must be submitted prior to the
release of such Common Shares. In addition, such notice must specify, in the
case of Common Shares tendered by delivery of certificates, the name of the
registered holder (if different from that of the tendering shareholder) and the
certificate numbers shown on the particular certificates evidencing the Common
Shares to be withdrawn or, in the case of Common Shares tendered by book-entry
transfer, the name and number of the account at DTC to be credited with the
withdrawn Common Shares. Withdrawals may not be rescinded and Common Shares
withdrawn will thereafter be deemed
22
<PAGE>
not validly tendered for purposes of the Exchange Offer. However, withdrawn
Common Shares may be tendered again by following one of the procedures
described in "--Procedure for Tender" at any time prior to the Expiration
Date.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Company, in its sole discretion,
which determination shall be final and binding. None of the Company, the
Exchange Agent, the Information Agent or any other person will be under any duty
to give notification of any defect or irregularity in any notice of withdrawal
or incur any liability for failure to give any such notification.
Acceptance; Delivery of Consideration
Upon the terms and subject to the conditions of the Exchange Offer, and as
promptly as practicable after the Expiration Date, the Company will (subject to
the proration provisions of the Exchange Offer) accept for exchange (and thereby
acquire) and exchange for RECONS the Common Shares validly tendered pursuant to
the Exchange Offer by the Expiration Date and not withdrawn as permitted under
"--Withdrawal of Tendered Common Shares" above. In all cases, delivery of the
RECONS to exchanging holders of Common Shares will be made as soon as
practicable after the Expiration Date (subject to possible delay in the event of
proration) but only after timely receipt by the Exchange Agent of certificates
for Common Shares (or of a confirmation of a book-entry transfer of such Common
Shares into the Exchange Agent's account at DTC), a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof), or an
Agent's Message in the case of a book-entry transfer of Common Shares, and any
other required documents. In addition, the Company reserves the right, in its
sole discretion (subject to Rule 13e-4(f)(5) under the Exchange Act), to delay
the acceptance for exchange or to delay exchange of any Common Shares in order
to comply in whole or in part with applicable law.
For purposes of the Exchange Offer, the Company will be deemed to have accepted
for exchange (and thereby acquired), subject to the proration provisions of the
Exchange Offer, Common Shares that are validly tendered pursuant to the Exchange
Offer prior to the Expiration Date and not withdrawn as, if and when it gives
oral or written notice to the Exchange Agent of its acceptance for exchange of
Common Shares tendered pursuant to the Exchange Offer. The Exchange Agent will
act as agent for tendering shareholders for the purpose of (i) receiving RECONS
from the Company in exchange for Common Shares tendered pursuant to the Exchange
Offer and (ii) delivering RECONS to tendering shareholders. Under no
circumstances will interest be paid on RECONS to be delivered to tendering
shareholders by the Company by reason of any delay in making such delivery.
Certificates for all Common Shares not acquired by the Company pursuant to the
Exchange Offer for any reason will be returned (or, in the case of Common Shares
tendered by book-entry transfer, such Common Shares will be credited to an
account maintained with DTC) as soon as practicable (subject to possible delay
in the event of proration) without expense to the tendering shareholder. The
Company will pay all stock transfer taxes, if any, payable on the transfer to it
of Common Shares purchased pursuant to the Exchange Offer, except as set forth
in Instruction 8 of the Letter of Transmittal.
Delivery of RECONS in exchange for Common Shares may be delayed in the event of
difficulty in determining the number of Common Shares validly tendered or if
proration is required. See "--Proration" above. In addition, if certain
conditions are not satisfied, the Company may not be obligated to exchange
RECONS pursuant to the Exchange Offer. See "--Conditions of the Exchange Offer"
below. As provided in Rules 13e-4(f)(4) and (8)(ii) under the Exchange Act, the
Company will deliver the same consideration per Common Share for each Common
Share accepted pursuant to the Exchange Offer.
Conditions of the Exchange Offer
It is a condition of the Exchange Offer that a minimum of 6,000,000 Common
Shares be validly tendered pursuant to the Exchange Offer by the Expiration Date
and not withdrawn.
In addition, notwithstanding any other provision of the Exchange Offer, the
Company shall not be required to accept for exchange or to exchange any Common
Shares tendered pursuant to the Exchange Offer, and may terminate or amend the
Exchange Offer or may postpone (subject to the requirements of the Exchange Act
for prompt exchange or return of Common
23
<PAGE>
Shares) the acceptance for exchange and exchange of Common Shares tendered, if
at any time on or after October 21, 1998 and before acceptance for exchange or
exchange of any such Common Shares any of the following shall have occurred:
(a) there shall have been threatened, instituted or pending any action or
proceeding by any government or governmental, regulatory or administrative
agency or authority or tribunal or any other person, domestic or foreign, before
any court, authority, agency or tribunal which (i) challenges the making of the
Exchange Offer, the issuance of the New Preferred Stock, the acquisition of some
or all of the Common Shares pursuant to the Exchange Offer or otherwise relates
in any manner to the Exchange Offer, or (ii) in the Company's sole judgment,
could materially affect the business, condition (financial or other), income,
operations or prospects of the Company and its subsidiaries, taken as a whole,
or otherwise materially impair in any way the contemplated future conduct of the
business of the Company or any of its subsidiaries or materially impair the
contemplated benefits of the Exchange Offer to the Company;
(b) there shall have been any action threatened, pending or taken, or approval
withheld, or any statute, rule, regulation, judgment, order or injunction
threatened, proposed, sought, promulgated, enacted, entered, amended, enforced
or deemed to be applicable to the issuance of the New Preferred Stock or the
Exchange Offer or the Company or any of its subsidiaries, by any court or any
authority, agency or tribunal which, in the Company's sole judgment, would or
might directly or indirectly (i) make the issuance of the New Preferred Stock or
the acceptance for exchange or exchange of some or all of the Common Shares
illegal or otherwise restrict or prohibit consummation of the Exchange Offer;
(ii) delay or restrict the ability of the Company, or render the Company unable,
to issue the New Preferred Stock or to accept for exchange or to exchange some
or all of the Common Shares; (iii) materially impair the contemplated benefits
of the Exchange Offer to the Company; or (iv) materially affect the business,
condition (financial or other), income, operations or prospects of the Company
and its subsidiaries, taken as a whole, or otherwise materially impair in any
way the contemplated future conduct of the business of the Company or any of its
subsidiaries;
(c) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange or
in the over-the-counter market, (ii) the declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States, (iii)
the commencement of a war, armed hostilities or other international or
national calamity directly or indirectly involving the United States, (iv)
any limitation (whether or not mandatory) by any governmental, regulatory or
administrative agency or authority on, or any event which, in the Company's
sole judgment, might affect the extension of credit by banks or other lending
institutions in the United States, (v) any significant decrease in the market
price of the Common Shares or any change in the general political, market,
economic or financial conditions in the United States or abroad that could,
in the sole judgment of the Company, have a material adverse effect on the
Company's business, operations or prospects or the trading in the Common
Shares, (vi) in the case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or worsening
thereof or (vii) any decline in either the Dow Jones Industrial Average
(8,505.85 at the close of trading on October 20, 1998) or the Standard and
Poor's 500 Index (1,063.93 at the close of trading on October 20, 1998) by an
amount in excess of 15% measured from the close of trading on October 20,
1998;
(d) any tender or exchange offer with respect to some or all of the Common
Shares (other than the Exchange Offer), or a merger, acquisition or other
business combination proposal for the Company, shall have been proposed,
announced or made by any person or entity;
(e) any change shall occur or be threatened in the business, condition
(financial or other), income, operations, Common Share ownership or prospects of
the Company and its subsidiaries, taken as a whole, which, in the sole judgment
of the Company, is or may be material to the Company; or
(f) (i) any person, entity or "group" (as that term is used in Section
13(d)(3) of the Exchange Act) shall have acquired, or proposed to acquire,
beneficial ownership of more than 5% of the outstanding Common Shares (other
than a person, entity or group which had publicly disclosed such ownership in
a Schedule 13D or 13G (or an amendment thereto) on file with the SEC prior to
October 21, 1998 (date of commencement of the Exchange Offer), (ii) any such
person, entity or group which had publicly disclosed such ownership prior to
such date shall have acquired, or proposed to acquire, beneficial ownership
of additional Common Shares constituting more than 2% of the outstanding
Common Shares (options for and other rights to acquire Common Shares which
are so acquired or proposed to be acquired being deemed for this purpose to
be immediately exercisable) or (iii) any new group shall have been formed
which beneficially owns more than 5% of the outstanding Common Shares;
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and, in the sole opinion of the Company, in any such case and regardless of the
circumstances (including any action or omission to act by the Company) giving
rise to such condition, such event makes it inadvisable to proceed with the
Exchange Offer or with such acceptance for exchange or such exchange.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances (including any action or
inaction by the Company) giving rise to any such condition, and any such
condition may be waived by the Company, in whole or in part, at any time and
from time to time in its sole discretion, with respect to the Exchange Offer.
The Company's failure at any time to exercise any of the foregoing rights shall
not be deemed a waiver of any such right; the waiver of any such right with
respect to particular facts and circumstances shall not be deemed a waiver with
respect to any other facts or circumstances; and each such right shall be deemed
an ongoing right which may be asserted at any time and from time to time. Any
determination by the Company concerning the events described above will be final
and binding on all parties.
Commissions and Fees
Tendering shareholders will not be obligated to pay brokerage commissions,
solicitation fees, or, subject to Instruction 7 of the Letter of Transmittal,
stock transfer taxes on the acquisition of Common Shares by the Company in
connection with the Exchange Offer. The Company will pay reasonable and
customary compensation to, and all reasonable charges and expenses of, The Bank
of New York, as Exchange Agent, and Morrow & Co, Inc., as Information Agent, in
connection with the Exchange Offer and each may be indemnified against certain
liabilities and expenses in connection therewith. The Company will not pay any
commission or other remuneration to any broker, dealer, salesman or other person
for soliciting tenders of Common Shares in connection with the Exchange Offer,
except as discussed under "Dealer Manager." Officers and regular employees of
the Company and its affiliates may solicit tenders of Common Shares in
connection with the Exchange Offer by telecopier, telephone or in person. No
additional compensation will be paid to any such officers and employees who
engage in soliciting tenders.
Status of Common Shares Acquired Pursuant to the Exchange Offer
Any Common Shares acquired by the Company pursuant to the Exchange Offer will
return to the status of authorized but unissued shares. Subject to the receipt
of necessary regulatory approvals, such shares would be available for use by the
Company, without, in most cases, the need for further shareholder authorization,
for general or other corporate purposes, including conversion of RECONS, stock
splits or dividends, acquisitions, employee incentive, savings and compensation
plans, sales to a third party or parties, or issuance of rights or warrants to
purchase Common Shares. Except for use in employee benefit plans and conversion
of RECONS, the Company has no present plan to issue any authorized but unissued
Common Shares.
Exchange Agent
The Bank of New York is the Exchange Agent for the Exchange Offer. All Letters
of Transmittal and other documents required in connection with tenders of Common
Shares pursuant to the Exchange Offer should be transmitted to the Exchange
Agent in the manner specified under "--Procedure for Tender" above and in the
Letter of Transmittal to its address set forth below:
By Mail: By Hand or Overnight Delivery:
The Bank of New York The Bank of New York
P.O. Box 11248 Tender & Exchange Department
Church Street Station 101 Barclay Street
New York, New York 10286-1248 Receive and Deliver Window
New York, New York 10286
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Information Agent
Morrow & Co., Inc. is the Information Agent for the Exchange Offer. The
Information Agent may contact holders of Common Shares by mail, telephone,
facsimile transmission and personal interviews and may request brokers, dealers
and other nominee shareholders to forward materials relating to the Exchange
Offer to beneficial owners. Questions and requests for assistance or for
additional copies of this Prospectus and the Letter of Transmittal and Notice of
Guaranteed Delivery may be directed to the Information Agent at the following
address and telephone number:
Morrow & Co., Inc.
445 Park Avenue, 5th Floor
New York, NY 10022
Individual and Institutional Shareholders please call:
1-800-566-9061
Banks and Brokerage Firms please call:
1-800-662-5200
You may also contact your broker, dealer, commercial bank or trust company or
other nominee for assistance concerning the Exchange Offer.
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Description of RECONS
General
Each RECONS constitutes a one-tenth (1/10) interest in one share of a New
Preferred Stock deposited under the Deposit Agreement (the "Deposit Agreement"),
between the Company and The Bank of New York, as depositary (the "Preferred
Stock Depositary). Subject to the terms of the Deposit Agreement, each owner of
a RECONS is entitled, proportionately, to all the rights, preferences and
privileges of the New Preferred Stock (including dividend, voting and
liquidation rights), and subject, proportionately, to all of the limitations of
the New Preferred Stock, all as set forth in the Articles of Amendment to the
Company's Restated Articles of Incorporation, as amended, summarized under
"Description of Capital Stock."
The RECONS will be evidenced by depositary receipts issued pursuant to the
Deposit Agreement (the "Depositary Receipts"). The following summary of the
terms and provisions of the RECONS does not purport to be complete and is
subject to, and qualified in its entirety by, the Deposit Agreement (which
contains the form of Depositary Receipt). Copies of the Deposit Agreement are
available for inspection at the corporate office of the Preferred Stock
Depositary located at The Bank of New York, 101 Barclay Street, New York, New
York 10286.
Issuance of Depositary Receipts
Upon issuance of the New Preferred Stock by the Company, the Company will
deposit the New Preferred Stock with the Preferred Stock Depositary, which will
execute and deliver the Depositary Receipts to the Company. The Company will, in
turn, deliver the Depositary Receipts to the Exchange Agent which will deliver
the Depositary Receipts to the owners of RECONS evidenced thereby.
Depositary Receipts will be issued evidencing whole RECONS only.
Withdrawal of New Preferred Stock
Upon surrender of Depositary Receipts at the principal office of the
Preferred Stock Depositary, upon payment of a sum sufficient for the payment
of any tax or other governmental charge with respect thereto, and subject to
the terms of the Deposit Agreement, the owner of the RECONS evidenced thereby
is entitled to delivery of the number of whole shares of New Preferred Stock
represented by such RECONS. Fractional shares of New Preferred Stock will not
be issued. If the Depositary Receipts delivered by the holder evidence a
number of RECONS in excess of the number of RECONS representing the number of
whole shares of New Preferred Stock to be withdrawn, the Preferred Stock
Depositary will deliver to such holder at the same time a new Depositary
Receipt evidencing such excess number of RECONS or, in certain events, cash
may be distributed by the Depositary in lieu of any fractional interest in
shares of New Preferred Stock. Holders of New Preferred Stock thus withdrawn
will not thereafter be entitled to deposit such shares under the Deposit
Agreement or to receive Depositary Receipts evidencing RECONS therefor. There
is currently no market for New Preferred Stock and it is not expected that an
active trading market for New Preferred Stock will develop. All trading is
expected to be in RECONS.
Conversion of RECONS
As described under "Description of Capital Stock--Mandatory Conversion" and
"--Optional Conversion," the New Preferred Stock is subject (i) to conversion
into Common Shares on the Mandatory Conversion Date (or in connection with
certain mergers, consolidations or other extraordinary transactions of the
Company), and (ii) to the right of the Company, at its option, to convert the
New Preferred Stock into Common Shares at any time prior to the Mandatory
Conversion Date. Upon any such conversion,
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each RECONS will constitute an interest in Common Shares, with the number of
such Common Shares being equal to one-tenth of the number of Common Shares into
which each share of New Preferred Stock was converted. When the RECONS are
converted into Common Shares and all of such Common Shares cannot be distributed
to the record holders of Depositary Receipts without creating fractional
interests in such shares, the Preferred Stock Depositary may, with the consent
of the Company, adopt such method as it deems equitable and practicable for the
purpose of effecting such distribution, including the public or private sale of
such shares representing in the aggregate such fractional interests at such
places and upon such terms as it may deem proper, and the net proceeds of any
such sale shall be distributed or made available for distribution to such record
holders that would otherwise have received fractional interests in such shares.
The amount distributed in the foregoing cases will be reduced by any amounts
required to be withheld by the Company or the Preferred Stock Depositary on
account of taxes or otherwise required pursuant to law, regulation or court
process.
Dividends and Other Distributions
The Preferred Stock Depositary will distribute all cash dividends or other cash
distributions in respect of the New Preferred Stock represented by the RECONS to
the record holders of Depositary Receipts in proportion to the number of RECONS
owned by such holders on the relevant record date, which will be the same date
as the corresponding record date fixed by the Company for the New Preferred
Stock. In each case where a holder of RECONS would otherwise be entitled to
receive a fraction of a cent, the Preferred Stock Depositary will round the
amount of the distribution up to the next whole cent.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property to the record holders of Depositary Receipts
entitled thereto, in proportion, as nearly as may be practicable, to the number
of RECONS owned by such holders on the relevant record date, unless the Company
determines that it is not feasible to make such distribution, in which case the
Preferred Stock Depositary may adopt any other method for such distribution as
it deems appropriate, including the sale of such property and distribution of
the net proceeds from such sale to such holders.
The amount 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.
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 New Preferred Stock, or (ii) the
Depositary shall receive notice of any meeting at which holders of New Preferred
Stock are entitled to vote or of which holders of New Preferred Stock are
entitled to notice, the Preferred Stock Depositary shall in each such instance
fix a record date (which shall be the same date as the corresponding record date
for the New 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, (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 (z) who shall be
entitled to receive notice of conversion or other events, subject to the
provisions of the Deposit Agreement.
Procedures for Voting
Promptly upon receipt of notice of any meeting at which the holders of New
Preferred Stock are entitled to vote, the Preferred Stock Depositary (unless
another arrangement for allowing holders of RECONS to exercise the voting rights
associated with the New Preferred Stock is agreed to by the Company and the
Preferred Stock Depositary) will cause the information contained in such notice
of meeting to be mailed to the record holders of Depositary Receipts as of the
record date for such meeting. Each such record holder of Depositary Receipts
will be entitled to instruct the Preferred Stock Depositary as to the exercise
of voting rights with respect to the number of shares of New Preferred Stock
represented by such holder's RECONS. The Preferred Stock Depositary, as
registered holder of such shares of New Preferred Stock, will endeavor, insofar
as practicable, to vote with
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respect to the number of shares of New Preferred Stock represented by such
RECONS in accordance with such instructions, and the Company intends to take all
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 with respect to the New Preferred Stock to
the extent that it does not receive specific written instructions from the
holders of Depositary Receipts.
Amendment and Termination of Deposit Agreement
The form of Depositary Receipt evidencing the RECONS and any provision of the
Deposit Agreement may at any time and from time to time be amended by agreement
between the Company and the Preferred Stock Depositary. However, any amendment
which imposes or increases any fees, taxes or charges upon holders of RECONS
(other than taxes and other governmental charges, fees and other expenses
payable by such holders as provided for in the Deposit Agreement or Depositary
Receipt and as stated under "--Charges of Preferred Stock Depositary"), or which
otherwise prejudices any substantial existing right of holders of RECONS, will
not take effect as to outstanding RECONS until the expiration of 30 days after
notice of such amendment has been given to the record holders of outstanding
RECONS. Every holder of an outstanding RECONS at the time any such amendment
becomes effective will be deemed, by continuing to hold such RECONS, to consent
and agree to such amendment and to be bound by the Deposit Agreement as amended
thereby. No such amendment may impair the right, subject to the terms of the
Deposit Agreement, of any owner of any RECONS to surrender the Depositary
Receipt evidencing such RECONS with instructions to the Preferred Stock
Depositary to deliver to the holder the New Preferred Stock or Common Stock, as
applicable, represented thereby, except in order to comply with mandatory
provisions of applicable law.
The Deposit Agreement may be terminated by the Company or the Preferred Stock
Depositary only if (i) the New Preferred Stock has been converted or (ii) there
has been a final distribution in respect of the New Preferred Stock (or the
Common Stock into which the New Preferred Stock shall have been converted) in
connection with any liquidation, dissolution or winding up of the Company and
such distribution has been made to all the holders of RECONS. The Company and
the Preferred Stock Depositary will undertake to terminate the Deposit Agreement
upon such conversion or distribution.
Charges of Preferred Stock Depositary
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Preferred Stock Depositary in connection with the
initial deposit of the New Preferred Stock and the initial issuance of the
RECONS, the conversion of the New Preferred Stock and all withdrawals of the New
Preferred Stock by owners of RECONS. Holders of Depositary Receipts will pay
transfer, income and other taxes and governmental charges and charges incurred
by the Preferred Stock Depositary at the election of a holder, as provided in
the Deposit Agreement. In certain circumstances, the Preferred Stock Depositary
and the Company may refuse to transfer RECONS, may withhold dividends and
distributions and may sell the RECONS evidenced by such Depositary Receipt if
such charges are not paid.
Miscellaneous
Application will be made to list the RECONS on the NYSE upon official notice of
issuance and subject to adequacy of distribution and other listing requirements.
If these conditions are not met, it is expected that the RECONS will trade in
the over-the-counter market.
The Company will deliver to the Preferred Stock Depositary all reports to
shareholders and other communications which the Company is required to furnish
to the holders of New Preferred Stock by law, by the rules of the NYSE or any
other stock exchange or trading market on which the RECONS are listed or by the
Restated Articles of Incorporation of the Company. The Preferred Stock
Depositary will forward to the holders of RECONS and will make available for
inspection by holders of RECONS, at the principal office of the Preferred Stock
Depositary and at such other places as it may from time to time deem advisable,
any such report and communications received from the Company.
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Neither the Preferred Stock Depositary nor the Company will be subject to any
liability under the Deposit Agreement to holders of Depositary Receipts other
than for its negligence, bad faith or willful misconduct. 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 Company and the Preferred Stock
Depositary under the Deposit Agreement will be limited to performance in good
faith of their duties thereunder, and they will not be obligated to prosecute or
defend any legal proceeding in respect of any RECONS or shares of New Preferred
Stock unless satisfactory indemnity is furnished. The Company and the Preferred
Stock Depositary may rely on written advice of counsel or accountants, on
information provided by holders of RECONS or other persons believed in good
faith to be competent to give such information and on documents believed to be
genuine and to have been signed or presented by the proper party or parties.
Resignation and Removal of Preferred Stock Depositary
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so. The Company may at any time, by notice,
remove the Preferred Stock Depositary or may terminate the engagement of the
Preferred Stock Depositary with respect to any or all of its duties and
obligations under the Deposit Agreement. Any such resignation, removal or
termination will take effect upon the appointment of a successor Preferred Stock
Depositary and such successor's acceptance of such appointment with respect to
all the predecessor's duties and obligations so terminated. Such successor
Preferred Stock Depositary must be appointed within 45 days after delivery of
the notice for resignation, removal or termination and, if the predecessor is to
acquire title to New Preferred Stock, must be a bank or trust company having its
principal office in the United States of America and having a combined capital
and surplus of at least $50,000,000.
Description of Capital Stock
General
The authorized capital stock of the Company consists of 10,000,000 shares of
Preferred Stock, cumulative, without par value (the "Preferred Stock"), and
200,000,000 shares of Common Stock without par value (the "Common Stock"). The
New Preferred Stock will constitute a new series of the Preferred Stock. As of
September 30, 1998, the Company had 55,960,360 shares of Common Stock issued and
outstanding. Shares of the Common Stock are sometimes herein called "Common
Shares." For a detailed description of the terms and characteristics of the
capital stock of the Company, reference is made to the Company's Restated
Articles of Incorporation (the "Restated Articles"), the form of the proposed
Articles of Amendment (the "Articles of Amendment") and the Company's Bylaws, as
amended (the "Bylaws"), copies of which are exhibits to the Registration
Statement, and to the laws of the State of Washington. Following is a brief
summary of such terms and characteristics, which does not purport to be complete
and is qualified in its entirety by the foregoing references.
The Restated Articles provide that the Preferred Stock may be divided into and
issued from time to time in one or more series. All shares of Preferred Stock
constitute one and the same class of stock, are of equal rank and will otherwise
be identical except as to the designation thereof, the date or dates from which
dividends on shares thereof will be cumulative, and except that each series may
vary as to (a) the rate or rates of dividend, if any, which may be expressed in
terms of a formula or other method by which such rate or rates will be
calculated from time to time, and the date or dates on which dividends may be
payable, (b) whether shares may be redeemed and, if so, the redemption price and
terms and conditions of redemption, (c) the amount payable on voluntary and
involuntary liquidation, (d) sinking fund provisions, if any, for the redemption
or purchase of shares, and (e) the terms and conditions, if any, on which shares
may be converted. When Preferred Stock is initially issued, the number of shares
constituting such series, its distinguishing serial designation and its
particular characteristics (insofar as there may be variations between series)
may be fixed by resolution of the Board of Directors.
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Dividend Rights
The New Preferred Stock will be a new series of the Preferred Stock which will
be entitled, on a parity with each other series of Preferred Stock and in
preference to the Common Stock, to receive, but only when and as declared by the
Board of Directors, dividends at the rate of $12.40 per share per annum;
provided, however, that the dividend payable on December 15, 1998 will be $3.10
per share. Such dividends will be cumulative from the date of issuance of the
New Preferred Stock and will be payable on the fifteenth day of March, June,
September and December in each year, commencing December 15, 1998.
After full provision for all Preferred Stock dividends declared or in arrears,
the holders of Common Stock of the Company are entitled to receive such
dividends as may be lawfully declared from time to time by the Board of
Directors of the Company.
Liquidation Rights
The New Preferred Stock will be entitled, upon dissolution or liquidation, on a
parity with each other series of Preferred Stock and in preference to the Common
Stock, to a liquidation preference per share plus an amount equivalent to
accrued and unpaid dividends thereon, if any, to the date of such event. The
liquidation preference will be an amount equal to ten (10) times the average of
the high and low sale prices of the Common Shares on the trading date next
preceding the date of issuance of the New Preferred Stock, as reported on the
Consolidated Tape maintained by the Consolidated Tape Association, plus an
amount equal to accrued and unpaid dividends.
In the event of any dissolution or liquidation of the Company, after
satisfaction of the preferential liquidation rights of the Preferred Stock, the
holders of the Common Stock would be entitled to share ratably in all assets of
the Company available for distribution to shareholders.
Conversion
Mandatory Conversion
On the Mandatory Conversion Date (November 1, 2001), each outstanding share of
New Preferred Stock will be mandatorily converted into (i) a number of Common
Shares determined by reference to the Common Equivalent Rate and (ii) the right
to receive a cash amount equal to all accrued and unpaid dividends on such share
of New Preferred Stock to but excluding the Mandatory Conversion Date.
The "Common Equivalent Rate" initially will be ten Common Shares for each share
of New Preferred Stock, subject to adjustment in the event that the Company
shall (i) pay a dividend or make a distribution with respect to its Common Stock
in shares of Common Stock, (ii) subdivide, reclassify or split its outstanding
shares of Common Stock into a greater number of shares, (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller number of
shares, (iv) issue by reclassification of its Common Stock any shares of Common
Stock other than in an Extraordinary Transaction (as defined below), (v) issue
certain rights or warrants to all holders of its Common Stock, (vi) pay a
dividend or make a distribution to all holders of its Common Stock of evidences
of its indebtedness or other assets (including shares of capital stock of the
Company (other than Common Stock) but excluding any distributions and dividends
referred to in clause (i) above or any cash dividends) or issue to all holders
of its Common Stock rights or warrants to subscribe for or purchase any of its
securities other than those described in clause (v) above, (vii) make a
distribution consisting of cash, excluding any quarterly cash dividend on the
Common Stock to the extent that the aggregate cash dividend per Common Share in
any quarter does not exceed $0.18 (as adjusted to reflect any events described
in clauses (ii) and (iii)), and excluding any dividend or distribution in
connection with the liquidation, dissolution or winding up of the Company or
(viii) cause the Rights (as defined below under "--Preferred Share Purchase
Rights") to be separated from the Common Shares in accordance with the
provisions of the Rights Agreement (as defined below) such that holders of New
Preferred Stock would not be entitled to receive any such Rights in respect of
the Common Shares issuable upon conversion of such New Preferred Stock. The
Company will also be entitled to make additional upward adjustments in the
Common Equivalent Rate, as it in its discretion shall determine to be advisable,
so that any stock dividends, subdivision of
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shares, distribution of rights to purchase stock or securities, or distribution
of securities convertible into or exchangeable for stock (or any transaction
which could be treated as any of the foregoing transactions pursuant to Section
305 of the Internal Revenue Code of 1986, as amended) hereafter made by the
Company to its shareholders will not be taxable. See "--Preferred Share Purchase
Rights" for additional information on the Rights.
Upon the effectiveness at any time of a merger, consolidation or similar
extraordinary transaction involving the Company that results in the conversion
or exchange of the Common Shares into, or results in the holders of Common
Shares having the right to receive, other securities or other property (an
"Extraordinary Transaction"), each share of New Preferred Stock will be
automatically converted into, or into the right to receive, as the case may be,
securities and other property (including cash) of the same character and in the
same respective amounts as the holder of such share would have received if such
share had been converted pursuant to the optional conversion provisions
described below under "--Optional Conversion" immediately prior to the
effectiveness of such Extraordinary Transaction.
The term "Current Market Price" on any date of determination means the average
closing price of a Common Share , as reported on the Consolidated Tape
maintained by the Consolidated Tape Association, for the five consecutive
trading days ending on and including such date of determination; provided,
however, that if the closing price of the Common Shares on the NYSE on the
trading day next following such five-day period (the "next-day closing price")
is less than 95% of such average closing price, then the Current Market Price
per Common Share on such date of determination will be the next-day closing
price; and provided, further, that, with respect to any conversion of the New
Preferred Stock, if any adjustment of the Common Equivalent Rate becomes
effective during the period beginning on the first day of such five-day period
and ending on the applicable conversion date, the Current Market Price as
determined pursuant to the foregoing will be appropriately adjusted to reflect
such adjustment.
Optional Conversion
The shares of New Preferred Stock may be converted, at the option of the
Company, at any time on or after December 15, 1998 and prior to the Mandatory
Conversion Date, in whole but not in part, into, for each share so converted (1)
a number of Common Shares equal to the Optional Conversion Price (as defined
below) then in effect plus (2) the right to receive an amount, in cash, equal to
the accrued and unpaid dividends thereon to but excluding the conversion date
plus (3) the right to receive the Optional Conversion Premium (as defined
below).
The "Optional Conversion Price" means, for each share of New Preferred Stock
converted at the option of the Company, a number of shares of Common Stock equal
to the lesser of (a) the amount of $24.00 divided by the Current Market
Price on the second trading day immediately preceding (i) the day on which the
Company gives notice of optional conversion or (ii) in the event of an
Extraordinary Transaction, the effective date of such transaction and (b) the
number of shares of Common Stock determined by reference to the Common
Equivalent Rate as discussed under "--Mandatory Conversion."
The "Optional Conversion Premium" means, for each share of New Preferred Stock
converted at the option of the Company, an amount, in cash, initially equal to
$20.90, declining by $0.02111 for each day following December 15, 1998 to and
including the optional conversion date (computed on the basis of a 360-day year
consisting of twelve 30-day months) and equal to zero on and after September 15,
2001; provided, however, that in lieu of delivering such amount in cash, the
Company may, at its option, deliver a number of Common Shares equal to the
quotient of such amount divided by the Current Market Price on the second
trading day immediately preceding (i) the day on which the Company gives notice
of such optional conversion or (ii) in the event of an Extraordinary
Transaction, the effective date of such transaction.
The initial Optional Conversion Premium of $20.90 represents the difference
between the annual dividend of $12.40 on each share of New Preferred Stock and
an assumed annual dividend of $4.80 for ten Common Shares for the period after
December 15, 1998 through September 15, 2001 (i.e. $1.90 per quarter for eleven
quarters). The premium declines to zero on September 15, 2001; no premium will
be paid in respect of any conversion on or after September 15, 2001. Dividends
will accrue on the Preferred Stock up to but excluding the conversion date.
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Procedures for Conversion
Notice of any conversion will be sent to the holders of the shares of New
Preferred Stock to be converted not less than 15 days nor more than 60 days
prior to the conversion date; provided, however, that the failure to mail any
such notice of mandatory conversion or any defect therein or in the mailing
thereof will not prevent the occurrence of such conversion or impair the
validity thereof.
Shares of New Preferred Stock to be converted will, on the date fixed for
conversion, be deemed to have been converted; from and after such conversion
date dividends will cease to accrue on such shares; and all rights of the
holders of such shares (except only rights as holders of securities into which
such shares have been converted and the right to receive certificates
representing such securities and the right to receive an amount, in cash, equal
to dividends accrued on such shares to the date fixed for such conversion plus
any Optional Conversion Premium not otherwise paid in Common Shares) will
terminate.
Because the price of the Common Shares is subject to market fluctuations, the
value of the Common Shares received by a holder of shares of New Preferred Stock
upon conversion thereof on the Mandatory Conversion Date or upon an
Extraordinary Transaction of the Company may be more or less than the value of
the Common Shares tendered in exchange therefor. The shares of New Preferred
Stock are not convertible into Common Shares or cash at the option of the
holders thereof.
No fractional shares of Common Stock will be issued upon any conversion of
the New Preferred Stock. Instead of any fractional interest in a share of
Common Stock which would otherwise be deliverable upon the conversion of a
share of New Preferred Stock, the Company will pay to the holder of such
share an amount in cash (computed to the nearest cent) equal to the same
fraction of the Current Market Price of the Common Stock determined as of the
second trading day immediately preceding (i) the day on which the Company
gives notice of an optional conversion, (ii) in the event of an Extraordinary
Transaction, the effective date of such transaction or (iii) in the event of
a mandatory conversion, the Mandatory Conversion Date.
Voting Rights
Except for those purposes for which the right to vote is expressly conferred by
law or the Restated Articles, the holders of New Preferred Stock have no power
to vote. The holders of the Common Stock have sole voting power, except as
indicated below or as otherwise provided by law, and each holder of Common Stock
is entitled to vote cumulatively for the election of directors.
Under the Restated Articles, whenever and as often as dividends payable on
shares of Preferred Stock (including the New Preferred Stock) shall be in
arrears in an amount equal to the aggregate amount of dividends accumulated on
such shares over the eighteen (18) month period ended on such date, the holders
of Preferred Stock, voting separately and as a single class, shall be entitled
to elect a majority of the Board of Directors, and the holders of the Common
Stock, voting separately and as a single class, shall be entitled to elect the
remaining directors of the Company until such time as all defaults in the
payment of dividends on the Preferred Stock of any and all series shall have
been cured.
In addition, under the Restated Articles the affirmative vote of the holders of
at least a majority of the shares of the Preferred Stock is required:
(a) for the adoption of any amendment of the Restated Articles which would: (i)
create or authorize any new class of stock ranking prior to or on a parity with
the Preferred Stock as to dividends or upon dissolution, liquidation or winding
up; (ii) increase the authorized number of shares of the Preferred Stock; or
(iii) change any of the rights or preferences of the Preferred Stock at the time
outstanding, provided that if any such change would affect the holders of less
than the Preferred Stock of all series then outstanding, only the affirmative
vote of the holders of at least a majority of the shares of all series so
affected is required; and
(b) for the issuance of Preferred Stock, or of any other class of stock ranking
prior to or on a parity with such Preferred Stock as to dividends or upon
dissolution, liquidation or winding up, unless the net income of the Company
available for the payment of dividends for a period of 12 consecutive calendar
months within the 15 calendar months immediately preceding the issuance of such
shares is at least equal to one and one-half times the annual dividend
requirements on shares of Preferred Stock and on all shares of all other classes
of stock ranking prior to or on a parity with the Preferred Stock as to
dividends or upon dissolution, liquidation or winding up, which will be
outstanding immediately after the issuance of such shares, including the shares
proposed to be issued; provided, however, that if the shares of Preferred Stock
or any such prior or parity stock shall have a variable dividend rate, the
annual dividend requirement of such shares shall be determined by reference to
the weighted average dividend rate on such shares during the 12 month period for
which the net income of the Company available for the payment of dividends
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shall have been determined; and provided, further, that if the shares of the
series to be issued are to have a variable dividend rate, the annual dividend
requirement on such shares shall be determined by reference to the initial
dividend rate upon the issuance of such shares.
Under Washington law, a vote of the holders of a majority of the outstanding
shares of Preferred Stock is required in connection with certain changes in the
capital structure of the Company or in certain rights and preferences of the
Preferred Stock, including certain of the changes described in (a) above. In
addition, Washington law requires the approval of certain mergers, share
exchanges and other major corporate transactions by the holders of two-thirds of
the outstanding Preferred Stock.
For those purposes for which the Preferred Stock has the right to vote, the
holders are entitled to one vote for each share held. In such a situation, each
RECONS would receive one-tenth of the vote allotted to one share of Preferred
Stock. Votes may be cumulated in electing directors.
Classified Board of Directors
Both the Restated Articles and the Bylaws provide for a Board of Directors
divided into three classes, each of which will generally serve for a term of
three years, with only one class of directors being elected in each year. The
Restated Articles and Bylaws also provide that directors may be removed only for
cause and only by the affirmative vote of the holders of a least a majority of
the Common Stock. The Restated Articles and Bylaws further require an
affirmative vote of the holders of at least 80% of the Common Stock to alter,
amend or repeal the provisions relating to the classification of the Board of
Directors and the removal of members from, and the filling of vacancies on, the
Board of Directors.
Change in Control
The Restated Articles contain a "fair price" provision which requires the
affirmative vote of the holders of at least 80% of the Common Stock for the
consummation of certain business combinations, including mergers,
consolidations, recapitalizations, certain dispositions of assets, certain
issuances of securities, liquidations and dissolutions involving the Company and
a person or entity who is or, under certain circumstances, was, a beneficial
owner of 10% or more of the outstanding shares of Common Stock (an "Interested
Shareholder"), unless (a) such business combination shall have been approved by
a majority of the directors unaffiliated with the Interested Shareholder or (b)
certain minimum price and procedural requirements are met. The Restated Articles
provide that the "fair price" provision may be altered, amended or repealed only
by the affirmative vote of the holders of at least 80% of the Common Stock.
Preferred Share Purchase Rights
Reference is made to the Rights Agreement, dated as of February 16, 1990 (the
"Rights Agreement"), between the Company and The Bank of New York, as successor
Rights Agent, filed with the SEC. The following statements are qualified in
their entirety by such reference.
The Company has adopted a shareholder rights plan pursuant to which holders of
Common Stock outstanding on March 2, 1990 or issued thereafter have been granted
one preferred share purchase right ("Right") on each outstanding share of Common
Stock. The description and terms of the Rights are set forth in the Rights
Agreement. Certain of the capitalized terms used in the following description
have the meanings set forth in the Rights Agreement.
Each Right, initially evidenced by and traded with the shares of Common Stock,
entitles the registered holder to purchase one one-hundredth of a share of
Preferred Stock of the Company, without par value (the "Preferred Shares"), at
an exercise price of $80, subject to certain adjustments, regulatory approval
and other specified conditions. The Rights will be exercisable only if a person
or group acquires 10% or more of the outstanding Common Stock or announces a
tender offer, the consummation of which would result in the beneficial ownership
by a person or group of 10% or more of the Common Stock.
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If any person or group acquires 10% or more of the outstanding Common Stock,
each Right will entitle its holder (other than such person or members of such
group), subject to regulatory approval and other specified conditions, to
purchase that number of shares of Common Stock or Preferred Shares having a
market value of twice the Right's exercise price. In addition, in the event that
any person or group has acquired 10% or more of the outstanding Common Stock or
the Company consolidates or merges with or into, or sells 50% or more of its
assets or earning power to, any person or group, or engages in certain
"self-dealing" transactions with any person or group owning 10% or more of the
outstanding Common Stock, proper provision will be made so that each Right would
thereafter entitle its holder to purchase that number of the acquiring company's
common shares having a market value at that time of twice the Right's exercise
price.
At any time after a person or group acquires more than 10% but less than 50% of
the outstanding Common Stock, the Board of Directors of the Company may, subject
to any necessary regulatory approval, require each outstanding Right to be
exchanged for one share of Common Stock or cash, securities or other assets
having a value equal to the market value of one share of Common Stock.
The Rights may be redeemed, at a redemption price of $.01 per Right, by the
Board of Directors of the Company at any time until any person or group has
acquired 10% or more of the Common Stock. Under certain circumstances, the
decision to redeem the Rights will require the concurrence of a majority of the
Continuing Directors. The Rights will expire on February 16, 2000.
The Rights have certain anti-takeover effects. The Rights may cause substantial
dilution to a person or group that attempts to acquire the Company on terms not
approved by the Company's Board of Directors, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights should
not interfere with any merger or other business combination approved by the
Board of Directors of the Company prior to the time that a person or group has
acquired beneficial ownership of 10% or more of the Common Stock since until
such time the Rights may be redeemed as described above.
Pre-emptive Rights
No holder of any stock of the Company has any pre-emptive rights.
Miscellaneous
There is no specific restriction on the repurchase by the Company of the New
Preferred Stock or Common Stock while there is any arrearage in the payment of
dividends on the New Preferred Stock.
Upon issuance and exchange pursuant to the Exchange Offer as herein described,
the New Preferred Stock will be validly issued, fully paid and nonassessable,
and the holders thereof will not be subject to liability for further calls or
assessment by the Company.
The presently outstanding shares of Common Stock of the Company are fully paid
and nonassessable, and the shares of Common Stock to be issued upon conversion
of the Preferred Stock, as herein described, will be fully paid and
nonassessable.
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Certain United States Federal Income Tax Consequences
The following discussion describes certain United States federal income tax
consequences that may be expected to result from (i) an exchange of Common
Shares pursuant to the Exchange Offer, and (ii) the ownership and disposition of
RECONS and New Preferred Stock. The discussion contained in this summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), existing
and proposed Treasury Regulations, judicial decisions and administrative
pronouncements, all of which are subject to change. Any such changes may be
applied retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, with possible adverse
effects.
This summary discusses only Common Shares, RECONS and New Preferred Stock held
by United States Holders (as defined below) as capital assets within the meaning
of Section 1212 of the Code. The tax treatment of a holder may vary depending on
such holder's particular situation. This summary does not deal with all tax
consequences that may be relevant to all categories of holders such as banks,
thrift institutions, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or commodities, tax-exempt
investors, certain U.S. expatriates, holders whose "functional currency" is not
the U.S. dollar, or persons who hold Common Shares, RECONS or New Preferred
Stock as a position in a straddle, as part of a synthetic security or hedge, as
part of a conversion transaction or other integrated investment, or as other
than a capital asset, or holders who are not United States Holders (as defined
below). Moreover, the summary may not be applicable to holders who received
their Common Shares pursuant to the exercise of employee stock options or
otherwise as compensation or to Common Shares held by the Company's employee
benefit plans. Further, the summary does not include any description of any
alternative minimum tax consequences or any state, local or foreign tax
consequences that may be applicable.
The following discussion is based upon the views of Thelen Reid & Priest LLP. No
statutory, administrative or judicial authority directly addresses the tax
treatment of RECONS or New Preferred Stock. As a result, significant aspects of
the United States federal income tax consequences of an investment in the RECONS
are not certain. No ruling is being requested from the Internal Revenue Service
("IRS") with respect to the RECONS, and no assurance can be given that the
Internal Revenue Service will agree with the tax consequences described herein.
HOLDERS OF COMMON SHARES ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE EXCHANGE OFFER AND THE OWNERSHIP AND
DISPOSITION OF THE RECONS OR NEW PREFERRED STOCK IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES, 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.
As used herein, a "United States Holder" means a beneficial owner of Common
Shares, RECONS or New Preferred Stock, as the case may be, that is (i) a citizen
or resident of the United States, (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
State thereof or the District of Columbia, (iii) an estate the income of which
is subject to United States federal income taxation regardless of its source, or
(iv) a trust the administration of which is subject to the primary supervision
of a court within the United States and for which one or more U.S. persons have
the authority to control all substantial decisions. An individual may, subject
to certain exceptions, be deemed to be a resident (as opposed to a non-resident
alien) of the United States by virtue of being present in the United States on
at least 31 days in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year (counting for
such purposes all of the days present in the current year, one-third of the days
present in the immediately preceding year, and one-sixth of the days present in
the second preceding year).
Characterization of the Exchange Offer
The Company has received an opinion of Thelen Reid & Priest LLP, as tax counsel,
that the exchange of Common Shares for RECONS or New Preferred Stock should be
treated as a "recapitalization" pursuant to section 368(a)(1)(E) of the Code. In
that event, the transaction will have the tax consequences to shareholders set
forth below.
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Exchange of Common Shares Pursuant to the Exchange Offer
Exchange of Common Shares for RECONS
Based upon the view that the New Preferred Stock is not classified as
"nonqualified preferred stock" within the meaning of Code section 351(g)(2), as
described below, no gain or loss will be recognized by an exchanging shareholder
on the exchange. A United States Holder's tax basis in the RECONS received in
the exchange will be equal to such holder's tax basis in the Common Shares
exchanged therefor, and the holding period of such RECONS will include the
holding period of such Common Shares.
Classification of New Preferred Stock as "Nonqualified Preferred Stock"
The nonrecognition rule described in the preceding paragraph will not apply, and
gain or loss will be recognized upon the exchange of Common Shares for New
Preferred Shares, if the New Preferred Shares are classified as "nonqualified
preferred stock" within the meaning of Code section 351(g)(2). For these
purposes, the term "nonqualified preferred stock" means preferred stock if (i)
the holder of such stock has the right to require the issuer or a related person
to redeem or purchase the stock, (ii) the issuer or a related person is required
to redeem or purchase such stock, (iii) the issuer or a related person has the
right to redeem or purchase the stock and, as of the issue date, it is more
likely than not that such right will be exercised, or (iv) the dividend rate on
such stock varies in whole or in part (directly or indirectly) with reference to
interest rates, commodity prices, or other similar indices.
Code section 351(g)(2) was added to the Code pursuant to the Taxpayer Relief Act
of 1997 and, to date, little authority has been issued regarding the scope of
this provision. It is unclear whether the New Preferred Stock will be treated as
preferred stock for purposes of Code section 351(g). For this purpose,
"preferred stock" is defined as stock which is limited and preferred as to
dividends and does not participate in corporate growth to any significant
extent. The New Preferred Stock will participate in future appreciation in the
value of Common Shares up to $24.00 per share. Assuming that the New Preferred
Stock is treated as preferred stock for those purposes, certain terms of the New
Preferred Shares raise the concern that such shares would fall within the
definition of "nonqualified preferred stock." However, the legislative history
underlying the enactment of this provision indicates that the nonrecognition
reorganization provisions of the Code are not to apply where a common
shareholder exchanges that stock for a more secure equity investment in the
issuer. Since, inter alia, the holders of the New Preferred Stock will not be
protected from any decrease in the trading price of the Common Shares into which
the New Preferred Stock is convertible, the New Preferred Stock should not be
classified as "nonqualified preferred stock" within the meaning of Code section
351(g)(2).
Ownership and Disposition of RECONS and New Preferred Stock
RECONS
The tax treatment of United States Holders of RECONS will be the same as the tax
treatment of United States Holders of New Preferred Stock as described below. In
addition, a United States Holder will recognize no gain or loss on the
withdrawal of New Preferred Stock in exchange for RECONS pursuant to the Deposit
Agreement; the United States Holder's tax basis in the withdrawn New Preferred
Stock will be the same as such Holder's tax basis in the RECONS surrendered
therefor; and the United States Holder's holding period for the withdrawn New
Preferred Stock will include the period during which such Holder held the
surrendered RECONS.
Dividends
Dividends paid on the New Preferred Stock out of the Company's current or
accumulated earnings and profits will be taxable as ordinary income and will
qualify for the 70% intercorporate dividends-received deduction, subject to the
minimum holding period requirement (generally at least 46 days) and other
applicable requirements. The dividends-received deduction will not be allowed
for purposes of calculating a corporate United States Holder's adjusted current
earnings under the alternative minimum tax rules. To the extent, if any, that
the amount of any dividend paid on the New Preferred Stock exceeds the Company's
current and
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accumulated earnings and profits, it will be treated first as a return of the
United States Holder's tax basis in the New Preferred Stock and thereafter as a
capital gain.
Under certain circumstances, a corporation that receives an "extraordinary
dividend," as defined in Section 1059(c) of the Code, is required to reduce the
tax basis of its stock by the non-taxed portion of such dividend. A corporate
United States Holder must consider its holding period for, its tax basis in, and
the fair market value of, the New Preferred Stock in determining whether
dividends paid on the New Preferred Stock will constitute "extraordinary
dividends." In addition, under Section 1059(f) of the Code, any dividend with
respect to "disqualified preferred stock" is treated as an "extraordinary
dividend." While the issue is not free from doubt due to the lack of authority
directly on point, the New Preferred Stock should not constitute "disqualified
preferred stock."
Constructive Distribution Risks
Under certain circumstances, Section 305(c) of the Code requires that any excess
of the redemption price of preferred stock over its issue price be includible in
income, prior to receipt, as a constructive dividend. However, while the issue
is not free from doubt due to the lack of authority directly on point, since,
inter alia, the New Preferred Stock bears risk with respect to a decline in the
value of Common Shares, and therefore its redemption price is not truly fixed,
Section 305(c) should not currently apply to stock with terms such as those of
the New Preferred Stock.
Certain adjustments to the conversion rate for the New Preferred Stock to
reflect the Company's issuance of stock or warrants to holders of Common Shares
(or similar transactions) may result in constructive distributions taxable as
dividends to the United States Holders of the New Preferred Stock. The
antidilution formula for the New Preferred Stock is intended to adjust the
conversion ratio to reflect these types of distributions in a manner to qualify
under Code section 305(c) and should not result in constructive distributions to
holders of New Preferred Stock.
A constructive distribution may result where preferred stock with dividends in
arrears is exchanged for other stock and, as a result, a holder of the preferred
stock increases his proportionate interest in the assets or earnings and profits
of the corporation. This provision is designed to prevent the capitalization of
dividends into stock on a tax free basis. Since cash will be paid with respect
to accrued unpaid dividends upon a conversion of the New Preferred Stock, this
provision should not apply.
Any constructive dividend may constitute, and may cause other dividends to
constitute, "extraordinary dividends" to corporate United States Holders. See
"--Dividends" above.
Conversion of New Preferred Stock into Common Shares and Cash
Gain or loss generally will not be recognized by a United States Holder upon the
conversion of the New Preferred Stock solely into Common Shares. Gain realized
by a United States Holder upon the conversion of the New Preferred Stock into
Common Shares and cash will be recognized to the extent of the cash received
(including any Option Conversion Premium which is paid in cash and any cash
received in payment of accrued unpaid and undeclared dividends, but excluding
any cash received in lieu of a fractional share). Such taxable gain will be
treated either as capital gain or as a dividend, depending on such Holder's
particular circumstances, as described in the following paragraphs. No loss will
be recognized upon the conversion of the New Preferred Stock into Common Shares
and cash.
In testing whether gain recognized upon the conversion of the New Preferred
Stock into Common Shares and cash (other than cash in lieu of fractional Common
Shares) will be treated as capital gain or as a dividend, the United States
Holder will be treated as if such holder received Common Shares with a value
equal to such cash, and then such deemed Common Shares were redeemed by the
Company for such cash. Such gain will be treated as capital gain if, inter alia,
such deemed redemption would be a "substantially disproportionate" redemption
with respect to such Holder or is "not essentially equivalent to a dividend"
with respect to the Holder. An exchange of Common Shares for cash will be "not
essentially equivalent to a dividend" if it results in a "meaningful reduction"
of the United States Holder's equity interest in the Company. An exchange of
Common Shares for cash that results in a reduction of the proportionate equity
interest in the Company of a United States Holder whose relative equity interest
in the Company is minimal (an interest of less than one percent should satisfy
this requirement) and who exercises
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no control over the Company's corporate affairs should be treated as "not
essentially equivalent to a dividend." If the deemed redemption would be treated
as a dividend under Code section 302, then the gain recognized will be taxed as
a dividend. However, notwithstanding the foregoing, the IRS may take the
position that cash paid with respect to accrued unpaid dividends will be treated
as dividends in all events. United States Holders should consult their own tax
advisors about the application of these rules in their particular circumstances.
Cash received by a United States Holder in lieu of a fractional share will be
treated as if such holder received a fractional Common Share with a value
equal to such cash, and then such deemed fractional Common Share were
redeemed by the Company for such cash. Any resulting gain or loss should be
treated as capital gain or loss.
A United States Holder's tax basis in the Common Shares, including any
fractional share, received on the conversion of the New Preferred Stock will
equal the tax basis of the New Preferred Stock surrendered in exchange therefor,
reduced by the amount of cash received and increased by the amount of income or
gain recognized. The holding period of such Common Shares will include the
holding period of the New Preferred Stock surrendered in exchange therefor.
Other Dispositions of New Preferred Stock
A United States Holder will generally recognize gain or loss on a sale, exchange
or other disposition of New Preferred Stock in an amount equal to the difference
between the amount realized on the sale, exchange or other disposition and such
Holder's tax basis in the New Preferred Stock. Any such gain or loss will be
capital gain or loss and will be long-term capital gain or loss if the holding
period of the New Preferred Stock exceeds one year as of the date of the
disposition.
Under certain circumstances, upon the taxable disposition or taxable redemption
of "section 306 stock," the holder of such stock is required to recognize as
ordinary income, in the case of a disposition, or as dividend income, in the
case of a redemption, all or a portion of the proceeds received by such holder,
without regard to such holder's tax basis in the "section 306 stock," and cannot
recognize any loss. To the extent that a United States Holder that exchanges
Common Shares for New Preferred Stock would have been treated, under the rules
of Section 302 of the Code, as receiving a dividend distribution from the
Company if such Holder had tendered such Common Shares for cash, the New
Preferred Stock owned by such United States Holder may be treated as "section
306 stock." United States Holders should consult their tax advisors concerning
the consequences of the Exchange Offer under Section 306 of the Code.
Non-Participation in the Exchange Offer
Retention of Common Shares
Subject to the discussion in the immediately following paragraphs, United States
Holders of Common Stock who do not participate in the Exchange Offer should not
incur any tax liability as a result of the consummation of the Exchange Offer.
Constructive Distribution Risks
Under section 305(c) of the Code, a recapitalization or a redemption (such as
exchanges pursuant to the Exchange Offer or any future conversion of RECONS or
New Preferred Stock) may, under certain limited circumstances, be deemed to be a
taxable distribution of stock with respect to any other shareholder whose
proportionate interest in the assets or earnings and profits of the corporation
is increased as a result. Exchanges pursuant to the Exchange Offer and any
subsequent conversion of any RECONS or New Preferred Stock may have the effect
of increasing the proportionate interests in the assets or earnings and profits
of the Company of the holders of Common Shares who do not participate in the
Exchange Offer. However, neither an exchange pursuant to the Exchange Offer nor
a subsequent conversion of RECONS or New Preferred Stock should result in any
deemed taxable distribution of stock to the United States Holders of the Common
Shares because such exchange or subsequent conversion should be treated as an
isolated recapitalization and not as part of a plan periodically to increase the
proportionate interest of holders of Common Shares in the Company's assets or
earnings and profits and because there is no certainty that the interest of the
holders of Common Shares would in fact be increased upon the Exchange Offer or
any subsequent conversion of RECONS.
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Under section 305(b)(2) of the Code, a distribution which has the result of the
receipt of property by some shareholders (such as distributions on the New
Preferred Stock) and an increase in the proportionate interests of other
shareholders in the assets or earnings and profits of the corporation may, under
certain limited circumstances, be deemed to be a taxable distribution of stock
with respect to the other shareholders whose interests in the assets or earnings
and profits of the corporation are increased. It is believed that distributions
on the New Preferred Stock should not have the effect of increasing the
proportionate interests of the holders of the Common Shares in the assets or
earnings and profits of the Company because such distributions will only result
in adjustments to the Optional Conversion Premium which is designed to deliver a
specific value to holders of New Preferred Stock in lieu of future dividends and
such premium (payable in cash or Common Shares, at the option of the Company)
will be payable only if the Company exercises its right to effect an optional
conversion. As such, distributions on the New Preferred Stock should not result
in any deemed taxable distribution of stock to the holders of the Common Shares
pursuant to Code section 305(b)(2).
The failure to adjust fully the conversion rate of the New Preferred Stock to
reflect distributions of stock dividends (or rights to acquire stock) with
respect to the Common Shares (or transactions having the effect of such
distributions) may result in a taxable dividend to the holders of the Common
Shares. The antidilution formula for the New Preferred Stock is intended to
adjust the conversion ratio to reflect distributions of stock dividends or
similar transactions in a manner to qualify under Code section 305(c) and should
not result in constructive distributions to holders of Common Shares.
Any constructive dividend may constitute, and may cause other dividends to
constitute, "extraordinary dividends" to corporate United States Holders. See
"--Dividends" above.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments of
dividends and the proceeds of sales of the New Preferred Stock made to United
States Holders other than certain exempt recipients (such as corporations). A
31% backup withholding tax will apply to such payments if the United States
Holder (i) fails to provide a taxpayer identification number ("TIN"), (ii)
furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed to
properly report payments of interest and dividends, or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that it has furnished
a correct TIN and has not been notified by the IRS that it is subject to backup
withholding. In the case of dividends paid after December 31, 1999, a United
States Holder generally will be subject to backup withholding at a 31% rate
unless certain IRS certification procedures are complied with directly or
through an intermediary.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or credit against such United States Holder's U.S. federal income tax
liability provided the required information is furnished to the IRS.
THE DESCRIPTION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION PURPOSES ONLY. THE COMPANY DOES NOT INTEND TO SEEK A RULING
FROM THE INTERNAL REVENUE SERVICE WITH RESPECT TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE EXCHANGE OFFER OR THE OWNERSHIP OR DISPOSITION OF THE NEW
PREFERRED STOCK AND, UPON EXAMINATION OF THE INCOME TAX RETURN OF THE COMPANY OR
A SHAREHOLDER, THE INTERNAL REVENUE SERVICE MAY TAKE POSITIONS CONTRARY TO THOSE
SET FORTH HEREIN. ALL SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE EXCHANGE OFFER AND OF THE
OWNERSHIP AND SUBSEQUENT DISPOSITION OF THE NEW PREFERRED STOCK, INCLUDING THE
APPLICABILITY OF STATE, LOCAL AND FOREIGN TAX LAWS.
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Dealer Manager
J.P. Morgan Securities Inc. (the "Dealer Manager") has agreed to act as a
financial advisor and dealer manager in connection with the transaction. The
Company will pay the Dealer Manager a fee, the amount of which will not be
related to the number of shares exchanged.
The Company has agreed to indemnify the Dealer Manager against certain
liabilities, including liabilities under the federal securities laws, and
contribute to payments that the Dealer Manager may be required to make in
respect thereof.
The Dealer Manager may engage in transactions with, and from time to time may
perform services for, the Company.
Miscellaneous
Except as set forth below, neither the Company nor, to its knowledge, any of
its subsidiaries, executive officers or directors or any associate of any
such officer or director has engaged in any transactions involving the Common
Shares during the 40 business days preceding the date hereof. Neither the
Company nor, to its knowledge, any of its executive officers or directors is
a party to any contract, arrangement, understanding or relationship relating
directly or indirectly to the Exchange Offer with any other person with
respect to the Common Shares. The following Company Common Stock transactions
were effected during the 40 business-day period preceding October 21, 1998:
On August 31, 1998, Bobby Schmidt, a director of the Company, purchased 5,000
shares at a price per share of $16.50 in an open market transaction; on
September 2, 1998, Jon E. Eliassen, Senior Vice President, Chief Financial
Officer and Treasurer of the Company, purchased 1,004 shares at a price per
share of $17.125 through the Company's 401(k) Plan; on September 10, 1998,
Gary G. Ely, Senior Vice President and General Manager of the Company,
purchased 5,714 shares at a price per share of $17.50 through the Company's
401(k) Plan; on September 17, 1998, Eugene W. Meyer, a director of the
Company, purchased 600 shares at a price per share of $18.125 in an open
market transaction; on September 17, 1998, The Bank of New York, as trustee
for the Company's Equity Compensation Trust, purchased 88,398 shares for the
benefit of Thomas M. Matthews, Chairman of the Board, President and Chief
Executive Officer of the Company, at a price per share of $18.4712 in an open
market transaction related to a grant of restricted stock; on September 15
and 16, 1998, The Bank of New York as agent for the Company's Dividend
Reinvestment and Stock Purchase Plan purchased a total of 150,179 shares at a
price per share of $18.3524 in an open market transaction for the benefit of
plan participants; on October 15 and 16, 1998, The Bank of New York as agent
for the Company's Dividend Reinvestment and Stock Purchase Plan purchased
3,572 shares at a price per share of $19.1041 in an open market transaction
for the benefit of plan participants; on October 15, 1998, Bobby Schmidt, a
director of the Company, purchased 314 shares at a price per share of
$19.1041 through the Company's Dividend Reinvestment and Stock Purchase Plan;
on October 15, 1998, R. John Taylor, a director of the Company, purchased 32
shares at a price per share of $19.1041 through the Company's Dividend
Reinvestment and Stock Purchase Plan; on October 9, 1998, The Bank of New
York, as trustee for the Company's Equity Compensation Trust, purchased for
the benefit of David A Meyer, Senior Vice President and General Counsel of
the Company, 10,922 shares at a price per share of $19.1845 in an open market
transaction related to a grant of restricted stock.
Legal Matters
Paine, Hamblen, Coffin, Brooke & Miller LLP, Spokane, Washington, counsel for
the Company, will pass upon certain matters of Washington law including the
validity of the New Preferred Stock and the Common Shares to be issued upon the
conversion thereof and other Washington corporate law matters. Additionally,
Paine, Hamblen, Coffin, Brooke & Miller LLP will pass upon certain matters
relating to public utility regulatory approvals under Washington, Idaho,
Montana, Oregon and California law in connection with the authorization of the
New Preferred Stock and such Common Shares. Thelen Reid & Priest LLP, New York,
New York, counsel to the Company, will pass upon certain matters of New York law
including the validity of the
41
<PAGE>
Depositary Receipts and of federal securities law. Additionally, Thelen Reid &
Priest LLP will pass upon certain United States federal income tax matters.
Davis Polk & Wardwell, New York, New York, will pass upon the validity of the
Depositary Shares for the Dealer Manager. In giving their opinions, Thelen Reid
& Priest LLP and Davis Polk & Wardwell may assume the conclusions of Washington,
California, Idaho, Montana and Oregon law set forth in the opinion of Paine,
Hamblen, Coffin, Brooke & Miller LLP.
Experts
The financial statements and the related financial statement schedules
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K for the year ending December 31, 1997 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
42
<PAGE>
Additional Information
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information filed by us at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http://www.sec.gov."
We have filed a Registration Statement (together with any amendments thereto,
the "Registration Statement") on Form S-4 to register with the SEC the RECONS to
be issued to WWP shareholders who tender their shares in the Exchange Offer and
whose Common Shares are accepted for exchange, the New Preferred Stock and the
Common Shares issuable upon conversion of the New Preferred Stock. We will file
a Schedule 13E-4 Issuer Tender Offer Statement with the SEC with respect to the
Exchange Offer (together with any amendments thereto, the "Schedule 13E-4").
This Prospectus is a part of that Registration Statement. As allowed by SEC
rules, this Prospectus does not contain all the information you can find in the
Registration Statement, the Schedule 13E-4 or the exhibits to the Registration
Statement and the Schedule 13E-4.
The SEC allows us to "incorporate by reference" information into this
Prospectus, which means important information may be disclosed to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this
Prospectus, except for any information superseded by information in (or
incorporated by reference in) this Prospectus. The Prospectus incorporates by
reference the documents set forth below that have been previously filed with
the SEC. These documents contain important information about WWP, its
business and its finances.
<TABLE>
<CAPTION>
SEC Filings (File No. 1-8344) Period
- ----------------------------- ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q Quarters ended March 31, 1998 and June 30, 1998
Current Reports on Form 8-K Dated June 2, August 14 and October 21, 1998
Proxy Statement Dated March 31, 1998
</TABLE>
We are also incorporating by reference additional documents that we may file
with the SEC between the date of this Prospectus and the Expiration Date.
We may have already sent you some of the documents incorporated by reference,
but you can obtain any of them through the SEC or through us, the Dealer Manager
or the Information Agent, without charge, excluding all exhibits unless we have
specifically incorporated by reference an exhibit in this Prospectus.
Shareholders may obtain documents incorporated by reference in this Prospectus
by requesting in writing or by telephone from the Information Agent at its
address or from us at the following address:
The Washington Water Power Company
Post Office Box 3647
Spokane, Washington 99220
Attention: Shareholder Relations
Telephone: 1-800-222-4931
If you would like to request documents from us, please do so no later than five
business days before the Expiration Date, and preferably sooner, to receive them
in time.
43
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS OR IN THE LETTER OF TRANSMITTAL IN CONNECTION WITH THE
EXCHANGE OFFER . WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS
DATED OCTOBER 21, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED OR
INCORPORATED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE,
AND NEITHER THE MAILING OF THIS PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF
RECONS SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE RECONS IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. WE ARE NOT
AWARE OF ANY JURISDICTION WHERE THE MAKING OF THE EXCHANGE OFFER OR THE
ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH APPLICABLE LAW. IF WE BECOME
AWARE OF ANY JURISDICTION WHERE THE MAKING OF THE EXCHANGE OFFER OR ACCEPTANCE
THEREOF WOULD NOT BE IN COMPLIANCE WITH ANY VALID APPLICABLE LAW, WE WILL MAKE A
GOOD FAITH EFFORT TO COMPLY WITH SUCH LAW. IF, AFTER SUCH GOOD FAITH EFFORT, WE
CANNOT COMPLY WITH SUCH LAW, THE EXCHANGE OFFER WILL NOT BE MADE TO, NOR WILL
TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF SHARES OF COMMON SHARES IN
ANY SUCH JURISDICTION.
44
<PAGE>
List of Defined Terms
<TABLE>
<CAPTION>
Defined Term Page
<S> <C>
Agent's Message 20
Articles of Amendment 4
Avista 2
business day 19
Bylaws 30
Code 36
Common Equivalent Rate 31
Common Shares 30
Common Stock 30
Current Market Price 32
Dealer Manager 41
Deposit Agreement 27
Depositary Receipts 27
DTC 20
Eligible Institution 20
Exchange Act 18
Expiration Date 19
Extraordinary Transaction 32
401(k) Plan 21
Interested Shareholder 34
IRS 36
Mandatory Conversion Date 4
Minimum Condition 18
New Preferred Stock 1
next-day closing price 32
NYSE 1
Optional Conversion Premium 32
Optional Conversion Price 32
Optional Conversion Price Cap 5
Pentzer 2
Preferred Shares 35
Preferred Stock 30
Preferred Stock Depositary 27
RECONS Optional Conversion Premium 5
RECONS Optional Conversion Price 5
Registration Statement 43
Restated Articles 4
Right 34
Rights Agreement 34
Schedule 13E-4 43
SEC 8
TIN 40
United States Holder 36
WWP 1
</TABLE>
45
<PAGE>
Annex A
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
THE WASHINGTON WATER POWER COMPANY
Articles of Amendment to the Restated Articles of Incorporation of The
Washington Water Power Company are herein executed by said corporation pursuant
to Section 23B.06.020 of the Washington business corporation act as follows:
FIRST: The name of the corporation is The Washington Water Power Company
(the "Corporation").
SECOND: The following amendment to the Restated Articles of Incorporation
of the Corporation, establishing and designating a series of shares and fixing
and determining certain of the relative rights and preferences thereof, was duly
adopted by the Board of Directors of the Corporation at a meeting held on August
14, 1998 and by the Board Governance Committee of the Board of Directors at a
meeting held on October 20, 1998. No approval or consent of shareholders was
required.
THIRD: The Restated Articles of Incorporation are hereby amended by the
addition of a paragraph (2) to be inserted at the end of subdivision (o) of
Article THIRD, which shall be and read as follows:
(2) Series L. There is hereby established a twelfth series of the
Preferred Stock of the Corporation which shall have, in addition to the
general terms and characteristics of all of the authorized shares of
Preferred Stock of the Corporation, the following distinctive terms and
characteristics:
(a) The twelfth series of Preferred Stock of the Corporation shall
consist of _____ shares and be designated as "$12.40 Preferred Stock,
Convertible Series L".
(b) Said twelfth series shall have a dividend rate of $12.40 per share
per annum; provided, however, that the amount of the dividend per share
payable on December 15, 1998 shall be $3.10.
(c) The shares of said twelfth series shall not, by their terms, be
redeemable.
(d) The amount payable upon the shares of said twelfth series in the
event of dissolution, liquidation or winding up of the Corporation shall be
$______* per share plus an amount equivalent to accumulated and unpaid
dividends thereon, if any, to the date of such dissolution, liquidation or
winding up.
(e) There shall be no sinking fund for the redemption or purchase of
shares of said twelfth series.
(f)(i)(A) Each share of said twelfth series shall be mandatorily
converted on November 1, 2001 (the "Mandatory Conversion Date") into (1) a
number of shares of Common Stock determined by reference to the Common
Equivalent Rate (as hereinafter defined) then in effect plus (2) the right
to receive an amount, in cash,
- --------
* Such amount will be equal to ten (10) times the average of the high and low
sales prices per share of the Common Stock on the trading date next preceding
the date of issuance of the shares of the twelfth series, as reported on the
Consolidated Tape maintained by the Consolidated Tape Association.
A-1
<PAGE>
equivalent to the accumulated and unpaid
dividends on such share of said twelfth series, if any, to but excluding
the Mandatory Conversion Date.
(B) Each share of said twelfth series shall be convertible, at the
option of the Company, at any time on or after December 15, 1998 and prior
to the Mandatory Conversion Date, into (1) a number of shares of Common
Stock equal to the Optional Conversion Price then in effect, (2) the right
to receive an amount, in cash, equivalent to the accumulated and unpaid
dividends on the share of said twelfth series to be converted to but
excluding the date fixed for conversion plus (3) the right to receive the
Optional Conversion Premium; it being understood that the Company may not
so convert less than all shares of said twelfth series.
(C) Each share of said twelfth series shall be mandatorily converted,
at the time of effectiveness of any Extraordinary Transaction, into, or
into the right to receive, as the case may be, securities and other
property (including cash) of the same character and in the same respective
amounts as the holder of such share would have received if such share had
been converted pursuant to clause (B) above immediately prior to such time
of effectiveness.
(ii)(A) The "Common Equivalent Rate" shall be initially ten shares of
Common Stock for each share of said twelfth series; provided, however, that
the Common Equivalent Rate shall be subject to adjustment from time to time
as provided below. All adjustments to the Common Equivalent Rate shall be
calculated to the nearest 1/100th of a share of Common Stock. Such rate, as
adjusted and in effect at any time, is herein called the "Common Equivalent
Rate."
(B) If the Corporation shall do any of the following (each, an
"Adjustment Event"):
(1) pay a dividend or make a distribution with respect to Common
Stock in shares of Common Stock,
(2) subdivide, reclassify or split its outstanding shares of
Common Stock into a greater number of shares,
(3) combine or reclassify its outstanding shares of Common Stock
into a smaller number of shares, or
(4) issue by reclassification of its shares of Common Stock any
shares of Common Stock other than in an Extraordinary Transaction (as
hereinafter defined),
then the Common Equivalent Rate in effect immediately prior to such
Adjustment Event shall be adjusted so that on the Mandatory Conversion Date
each share of said twelfth series shall be converted into the number of
shares of Common Stock that the holder of such share would have owned or
been entitled to receive after the happening of the Adjustment Event had
such share been mandatorily converted immediately prior to the record date,
if any, for such Adjustment Event or, if there is no record date,
immediately prior to the effectiveness of such Adjustment Event. In case
the Adjustment Event is a dividend or distribution, the adjustment to the
Common Equivalent Rate shall become effective as of the close of business
on the record date for determination of shareholders entitled to receive
such dividend or distribution and any shares of Common Stock issuable in
payment of a dividend shall be deemed to have been issued immediately prior
to the close of business on the record date for such dividend for purposes
of calculating the number of outstanding shares of Common Stock under
clauses (C) and (D) below; and, in case the Adjustment Event is a
subdivision, split, combination or reclassification, the adjustment to the
Common Equivalent Rate shall become effective immediately after the
effective date of such subdivision, split, combination or reclassification.
Such adjustment shall be made successively.
In the event that Rights are separated from the outstanding shares of
the Common Stock in accordance with the provisions of the Rights Agreement
such that holders of shares of said twelfth series would not be entitled to
receive any Rights in respect of the shares of Common Stock issuable upon
conversion of the shares of said twelfth series, the Common Equivalent Rate
shall be adjusted by multiplying the Common Equivalent Rate in effect on
the Distribution Date (as defined in the Rights Agreement) by a fraction
(1) the numerator of which shall be the Current
A-2
<PAGE>
Market Price per share of the outstanding shares of Common Stock on the
Trading Date next preceding the Distribution Date and (2) the denominator
of which shall be such Current Market Price less the fair market value (as
determined by the Board of Directors of the Company, whose determination
shall be conclusive, final and binding on the Corporation and all
shareholders of the Corporation) as of such Distribution Date of the
portion of the Rights allocable to one share of Common Stock. Such
adjustment shall become effective on the opening of business on the
business day next following the Distribution Date and will remain in effect
unless and until (A) the Company (i) amends the Rights Agreement to provide
that upon conversion of the shares of said twelfth series the holders
thereof will receive, in addition to the shares of Common Stock issuable
upon such conversion, the Rights which would have attached to such shares
of Common Stock if the Rights had not become separated from the Common
Stock pursuant to the Rights Agreement and (ii) converts the Preferred
Stock into shares of Common Stock with such Rights or (B) the Rights
expire, terminate or are redeemed, in which case appropriate adjustments,
if any, shall be made to the Common Equivalent Rate consistent with the
provisions of this subparagraph (f)(i). Notwithstanding the foregoing, in
the event the aforesaid fair market value of the portion of the Rights
allocable to one share of Common Stock is equal to or greater than the
Current Market Price per share of Common Stock on the Trading Date
mentioned above, in lieu of the foregoing adjustment, adequate provision
shall be made so that each holder of shares of said twelfth series shall
have the right to receive upon conversion the number of shares of Common
Stock such holder would have received had the shares of said twelfth series
been mandatorily converted immediately prior to the Distribution Date.
(C) If the Corporation shall, after the date of the initial issuance
of shares of said twelfth series, issue rights or warrants to all holders
of the Common Stock entitling them for a period not exceeding 45 days from
the date of such issuance to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Market Price of the Common
Stock (as hereinafter defined), on the record date for the determination of
shareholders entitled to receive such rights or warrants, then in each case
the Common Equivalent Rate shall be adjusted by multiplying the Common
Equivalent Rate in effect immediately prior to the date of issuance of such
rights or warrants by a fraction (1) the numerator of which shall be the
number of shares of Common Stock outstanding on the date of issuance of
such rights or warrants, immediately prior to such issuance, plus the
number of additional shares of Common Stock offered for subscription or
purchase pursuant to such rights or warrants and (2) the denominator of
which shall be the number of shares of Common Stock outstanding on the date
of issuance of such rights or warrants, immediately prior to such issuance,
plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so offered for
subscription or purchase pursuant to such rights or warrants would purchase
at such Current Market Price (determined by multiplying such total number
of shares by the exercise price of such rights or warrants and dividing the
product so obtained by such Current Market Price). Such adjustment shall
become effective as of the close of business on the record date for the
determination of shareholders entitled to exercise such rights or warrants.
To the extent that shares of Common Stock are not delivered after the
expiration of such rights or warrants, the Common Equivalent Rate shall be
readjusted to the Common Equivalent Rate which would then be in effect had
the adjustments made upon the issuance of such rights or warrants been made
upon the basis of delivery of only the number of shares of Common Stock
actually delivered. Such adjustment shall be made successively.
(D) If the Corporation shall pay a dividend or make any other
distribution to all holders of its Common Stock of evidences of its
indebtedness or other assets (including shares of capital stock of the
Corporation (other than Common Stock) but excluding any distributions and
dividends referred to in clause (B) above or any cash dividends), or shall
issue to all holders of its Common Stock rights or warrants to subscribe
for or purchase any of its securities (other than those referred to in
clause (C) above), then, in each such case, the Common Equivalent Rate
shall be adjusted by multiplying the Common Equivalent Rate in effect on
the record date for the determination of shareholders entitled to receive
such dividend or distribution mentioned below by a fraction (1) the
numerator of which shall be the Current Market Price of the Common Stock on
such record date and (2) the denominator of which shall be such Current
Market Price per share of Common Stock less the fair market value (as
determined by the Board of Directors of the Corporation, whose
determination shall be conclusive, as final and binding upon the
Corporation and all shareholders of the Corporation) as of such record date
of the portion of the assets or evidences of indebtedness so distributed,
or of such subscription rights or warrants, allocable to one share of
Common Stock. Such adjustment shall become effective on the opening of
business on the business day next following the record date
A-3
<PAGE>
for the determination of the shareholders entitled to receive such dividend
or distribution. Notwithstanding the foregoing, in the event the portion of
the assets or other evidences of indebtedness so distributed allocable to
one share of Common Stock has a value equal to or greater than the Current
Market Price per share of Common Stock on the record date mentioned above,
in lieu of the foregoing adjustment, adequate provision shall be made so
that each holder of shares of said twelfth series shall have the right to
receive upon conversion assets or other evidences of indebtedness having a
value in the amount such holder would have received had the shares of said
twelfth series been mandatorily converted immediately prior to the record
date for such dividend or distribution.
(E) If the Corporation shall pay a dividend or make any other
distribution to all holders of its Common Stock exclusively in cash
(excluding any quarterly cash dividend on Common Stock in any quarter to
the extent it does not exceed $.18 per share (as adjusted to reflect
subdivisions or combinations of Common Stock)) the Common Equivalent Rate
shall be adjusted by multiplying the Common Equivalent Rate in effect on
the record date for the determination of the shareholders entitled to
receive such dividend or distribution by a fraction (1) the numerator of
which shall be such Current Market Price per share of the Common Stock on
such record date and (2) the denominator of which shall be such Current
Market Price less the amount of cash so distributed (and not excluded as
provided above) allocable to one share of Common Stock. Such adjustment
shall become effective immediately prior to the opening of business on the
business day next following record date. Notwithstanding the foregoing, in
the event the portion of the cash so distributed allocable to one share of
Common Stock is equal to or greater than the Current Market Price per share
of Common Stock on the record date mentioned above, in lieu of the
foregoing adjustment, adequate provision shall be made so that each holder
of shares of said twelfth series shall have the right to receive upon
conversion the amount of cash such holder would have received had the
shares of said twelfth series been mandatorily converted immediately prior
to the record date for such dividend or distribution. If an adjustment is
required to be made pursuant to this clause (E) as a result of a
distribution that is a quarterly dividend, such adjustment shall be based
upon the amount by which such distribution exceeds the amount of the
quarterly cash dividend permitted to be excluded as provided above; and an
adjustment is required to be made pursuant to this clause (E) as a result
of a distribution that is not a quarterly dividend, such adjustment shall
be based upon the full amount of the distribution.
(F) Anything herein to the contrary notwithstanding, the Corporation
may, at its option, make such upward adjustment in the Common Equivalent
Rate, in addition to the adjustments specified above, as the Corporation in
its sole discretion may determine to be advisable, in order that any stock
dividends, subdivision of shares, distribution of rights to purchase stock
or securities, or a distribution of securities convertible into or
exchangeable for stock (or any transaction that could be treated as any of
the foregoing transactions pursuant to Section 305 of the Internal Revenue
Code of 1986, as amended) hereafter made by the Corporation to its
shareholders shall not be taxable. Any such adjustment shall be made
effective as of such date as the Board of Directors of the Corporation
shall determine. The determination of the Board of Directors of the
Corporation as to whether or not such an adjustment to the Common
Equivalent Rate should be made and, if so, as to what adjustment should be
made and when, shall be conclusive, final and binding on the Corporation
and all shareholders of the Corporation.
(G) As used herein, the "Current Market Price" of a share of Common
Stock on any date shall be, except as otherwise specifically provided, the
average of the daily Closing Prices (as hereinafter defined) for the five
consecutive Trading Dates (as hereinafter defined) ending on and including
the date of determination of the Current Market Price; provided, however,
that if the Closing Price of the Common Stock on the Trading Date next
following such five-day period (the "next-day closing price") is less than
95% of such average Closing Price, then the Current Market Price per share
of Common Stock on such date of determination will be the next-day Closing
Price; and provided, further, that with respect to any conversion or
antidilution adjustment, if any event that results in an adjustment of the
Common Equivalent Rate occurs during the period beginning on the first date
of the applicable determination period and ending on the applicable
conversion date, the Current Market Price as determined pursuant to the
foregoing will be appropriately adjusted to reflect the occurrence of such
event.
(H) In any case in which an adjustment as a result of any event is
required to become effective as of the close of business on the record date
for such event and the Mandatory Conversion Date occurs after such record
date but
A-4
<PAGE>
before the occurrence of such event, the Corporation may in its
sole discretion elect to defer the following until after the occurrence of
such event (but shall be under no obligation to do so): (1) issuing to the
holder of any converted shares of said twelfth series the additional shares
of Common Stock issuable upon such conversion as a result of such
adjustment and (2) paying to such holder any amount in cash in lieu of a
fractional share of Common Stock as hereinafter provided.
(iii) Whenever the Common Equivalent Rate is adjusted as herein
provided, the Corporation shall:
(A) forthwith compute the adjusted Common Equivalent Rate in
accordance herewith and prepare a certificate signed by the President, any
Vice President or the Treasurer of the Corporation setting forth the
adjusted Common Equivalent Rate, the method of calculation thereof in
reasonable detail and the facts requiring such adjustment and upon which
such adjustment is based, which certificate shall be conclusive, final and
binding evidence of the correctness of the adjustment, and file such
certificate forthwith with the transfer agent or agents for the shares of
said twelfth series and for the Common Stock; and
(B) mail a notice stating that the Common Equivalent Rate has been
adjusted, the facts requiring such adjustment and upon which such
adjustment is based and setting forth the adjusted Common Equivalent Rate
to the holders of record of the outstanding shares of said twelfth series
at or prior to the time the Corporation mails an interim statement to its
shareholders covering the fiscal quarter during which the facts requiring
such adjustment occurred, but in any event within 45 days of the end of
such fiscal quarter.
(iv) No fractional shares or scrip representing fractional shares of
Common Stock shall be issued upon the conversion of any shares of said
twelfth series. Instead of any fractional interest in a share of Common
Stock which would otherwise be deliverable upon the conversion of a share
of said twelfth series, the Corporation shall pay to the holder of such
share an amount in cash (computed to the nearest cent) equal to the same
fraction of the Current Market Price of the Common Stock determined as of
the second Trading Date immediately preceding (i) the day on which the
Company gives notice of an optional conversion, (ii) in the event of an
Extraordinary Transaction, the effective date of such transaction or (iii)
in the event of a mandatory conversion, the Mandatory Conversion Date. If
more than one share of any holder shall be converted at the same time, the
number of full shares of Common Stock into which such shares shall be
converted shall be computed on the basis of the aggregate number of shares
so converted.
(v) Definitions. As used with respect to the shares of said
twelfth series:
(A) the term "business day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State of
Washington or the State of New York are authorized or obligated by law
or executive order to remain closed or are closed because of a banking
moratorium or otherwise;
(B) the term "Closing Price" on any day shall mean the
reported last sale price on such day, or, in case no such sale takes
place on such day, the average of the reported last bid and asked
prices on such day, in either case as reported on the Consolidated Tape
maintained by the Consolidated Tape Association, or, if the Common
Stock is not listed or admitted to trading on any securities exchange
which participates in the Consolidated Tape Association, the average of
the reported last bid and asked prices regular way (with any relevant
due bills attached) of the Common Stock on the over-the-counter market
on the day in question as reported by the National Association of
Securities Dealers Automated Quotation System, or a similar generally
accepted reporting service, or if no information of such character
shall be available, as determined in good faith by the Board of
Directors on the basis of such relevant factors as the Board of
Directors in good faith considers appropriate, (such determination to
be conclusive, final and binding upon the Corporation and all
shareholders of the Corporation);
(C) the term "Extraordinary Transaction" shall mean a merger
or consolidation of the Corporation, a share exchange, division or
conversion of the Corporation's capital stock or an amendment of the
Restated Articles of Incorporation of the Corporation that results in
the conversion or exchange of Common Stock into, or the right of the
holders thereof to receive, in lieu of or in addition to their shares
of Common Stock, other securities or other property (whether of the
Corporation or any other entity);
A-5
<PAGE>
(D) the term "Notice Date" with respect to any notice given by the
Corporation in connection with a conversion of any of the Shares of said
twelfth series shall be the date of the commencement of the mailing of such
notice to the holders of such shares as specified herein;
(E) the term "Optional Conversion Premium" shall mean, in respect of
each share of said twelfth series converted at the option of the Company,
an amount, in cash, initially equal to $20.90, declining by $.02111 for
each day following December 15, 1998 to and including the optional
conversion date (computed on the basis of a 360-day year consisting of
twelve 30-day months) and equal to $0 on and after September 15, 2001;
provided, however, that in lieu of delivering such amount in cash, the
Company may, at its option, deliver a number of shares of Common Stock
equal to the quotient of such amount divided by the Current Market Price
on the second Trading Date immediately preceding (1) the date on which
the Company gives notice of such conversion or (2) in the event of an
Extraordinary Transaction, the effective date of such transaction;
(F) the term "Optional Conversion Price" shall mean, in respect of
each share of said twelfth series converted at the option of the Company, a
number of shares of Common Stock equal to the lesser of (1) the amount of
$24.00 divided by the Current Market Price as of the second Trading Date
immediately preceding (a) the date on which the Company gives notice of
such conversion or (b) in the event of an Extraordinary Transaction, the
effective date of such transaction and (2) the number of shares of Common
Stock determined by reference to the Common Equivalent Rate;
(G) the term "Rights Agreement" shall mean the Rights Agreement, dated
as of February 16, 1990, between the Company and The Bank of New York,
successor Rights Agent, as amended; and the term "Rights" shall mean the
"Preferred Share Purchase Rights" established under the Rights Agreement;
and
(H) the term "Trading Date" shall mean a date on which the New York
Stock Exchange (or any successor to such Exchange) is open for the
transaction of business.
(vi)(A) Unless otherwise required by applicable law, notice of any
conversion shall be sent to the holders of the shares of said twelfth
series to be converted at the addresses shown on the books of the
Corporation by mailing a copy of such notice not less than fifteen (15)
days nor more than sixty (60) days prior to the conversion date. Each such
notice shall state (1) the conversion date, (2) the total number of shares
of said twelfth series to be converted (being the total number of shares
outstanding), (3) the conversion price, (4) the place or places where
certificates for such shares are to be surrendered in exchange for
certificates and/or cash representing the conversion price and (5) that
dividends on the shares to be converted will cease to accrue on such
conversion date. Notwithstanding the foregoing, the failure so to mail any
such notice of mandatory conversion or any defect therein or in the mailing
thereof shall not prevent the occurrence of such conversion or impair the
validity thereof.
(B) The shares of said twelfth series shall, on the date fixed for
conversion, be deemed to have been converted; from and after such
conversion date dividends shall cease to accrue on such shares; and all
rights of the holders of such shares (except only rights as holders of
securities into which such shares shall have been converted and the right
to receive certificates representing such securities and the right to
receive an amount equal to dividends accrued on such shares to the date
fixed for such conversion) shall terminate.
(vii) Upon the surrender by a holder of converted shares of said
twelfth series of certificates representing such shares in accordance with
the notice of conversion on or after the conversion date, the Corporation
shall deliver to or upon the order of such holder:
(A) certificates representing whole units of the securities into which
such shares of said twelfth series have been converted, such certificates
to be registered in such name or names, and to be issued in such
denominations, as such holder shall have specified;
(B) an amount, in cash, in lieu of fractional shares, as hereinbefore
provided;
A-6
<PAGE>
(C) an amount, in cash, equivalent to accumulated and unpaid dividends
on such shares of Series A Preferred Stock to the conversion date;
(D) an amount, in cash, securities or other property, representing any
other consideration to be delivered upon such conversion; and
(E) a certificate representing any shares of said twelfth series which
had been represented by the certificate or certificates delivered to the
Corporation in connection with such conversion but which were not
converted.
(viii) The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes payable in respect of the issue or delivery
of shares of Common Stock or other securities on the conversion of shares
of said twelfth series; provided, however, that the Corporation shall not
be required to pay any tax which may be payable in respect of any
registration of transfer involved in the issue or delivery of shares of
Common Stock or other securities in a name other than that of the
registered holder of the shares converted, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
A-7
<PAGE>
A Letter of Transmittal, certificates for Common Shares and any other required
documents should be sent or delivered by each holder of Common Shares or his or
her broker, dealer, commercial bank, trust company or other nominee to the
Exchange Agent at one of the addresses set forth below.
To ensure timely receipt by the Exchange Agent, DO NOT mail or present the
Letter of Transmittal and/or stock certificates to the Company.
The Exchange Agent for the Exchange Offer is:
The Bank of New York
By Mail: By Hand or Overnight Delivery:
The Bank of New York The Bank of New York
P.O. Box 11248 Tender & Exchange Department
Church Street Station 101 Barclay Street
New York, New York 10286-1248 Receive and Deliver Window
New York, New York 10286-1248
By Facsimile:
(Eligible Institutions Only)
(212) 815-6213
Confirm Receipt of Documents by Telephone:
(800) 507-9357
Any questions or requests for assistance may be directed to the Information
Agent at its address and telephone number set forth below. Requests for
additional copies of this Prospectus, the Letter of Transmittal, the Notice of
Guaranteed Delivery and other Exchange Offer material may also be directed to
the Information Agent. Beneficial owners may also contact their broker, dealer,
commercial bank or trust company for assistance concerning the Exchange Offer.
The Information Agent for the Exchange Offer is:
Morrow & Co., Inc.
445 Park Avenue, 5th Floor
New York, New York 10022
Individual and Institutional Shareholders, Please Call:
(800) 566-9061
Banks and Brokerage Firms, Please Call:
(800) 662-5200
The Dealer Manager for the Exchange Offer is:
J.P. Morgan & Co.
60 Wall Street
New York, New York 10260
Institutional Shareholders, Please Call:
(212) 648-1443
Dealer Prospectus Delivery Obligation
Until 40 days after date of this Prospectus, all dealers that effect
transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus.
<PAGE>
Part II
Item 21. Exhibits.
Reference is made to the Exhibit Index on page II-5 hereof.
II-1
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Spokane, State of Washington, on the 20th day of October, 1998.
THE WASHINGTON WATER POWER COMPANY
By/s/ T.M. Matthews
-----------------------------------------------
T.M. Matthews
Chairman of the Board, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ T.M. Matthews Principal Executive Officer October 20, 1998
and Director
T.M. Matthews
(Chairman of the Board, President and
Chief Executive Officer)
Principal Financial and October 20, 1998
/s/ J.E. Eliassen Accounting Officer
J.E. Eliassen
(Senior Vice President, Chief Financial
Officer and Treasurer)
David A. Clack, Sarah M.R. Jewell, Director October 20, 1998
John F. Kelly, Eugene W. Meyer,
Bobby Schmidt, Larry A. Stanley,
R. John Taylor
By/s/ J.E. Eliassen
---------------------------------------
J.E. Eliassen (Attorney-in-Fact)
</TABLE>
II-2
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
1(a)+ Form of Dealer Manager Agreement.
4(a)+ Restated Articles of Incorporation of the Company.
4(b) Form of Articles of Amendment to Restated Articles of Incorporation of the Company.
4(c)+ Bylaws of the Company, as amended, October 1, 1998.
4(d)+ Form of Deposit Agreement between the Company and The Bank of New York, as Depositary.
4(e)* Rights Agreement, dated as of February 16, 1990, between the Company and The Bank of New York as successor
Rights Agent (filed as Exhibit 4(n) to Form 8-K dated
February 16, 1990).
4(f) Form of Depositary Receipt
5(a)+ Opinion and Consent of Paine, Hamblen, Coffin, Brooke & Miller LLP.
5(b)+ Opinion and Consent of Thelen Reid & Priest LLP.
8+ Opinion and Consent of Thelen Reid & Priest LLP as to tax matters (contained in Exhibit 5(b)).
12(a)* Statement re computation of ratio of earnings to fixed charges and preferred stock dividends (filed as Exhibit 12 to
Form 10-Q for the quarter ended June 30, 1998 in File No. 1-3701).
23(a)+ Consent of Deloitte & Touche LLP.
23(b)+ Consents of Paine, Hamblen, Coffin, Brooke & Miller LLP and Thelen Reid & Priest LLP are contained in
Exhibits 5(a) and 5(b) respectively.
24+ Power of Attorney.
99(a)+ Form of Letter of Transmittal
99(b)+ Form of Notice of Guaranteed Delivery
99(c)+ Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
99(d)+ Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees
99(e)+ Form of 401(k) Election to Tender Shares of Common Stock
</TABLE>
- -------------------
* Incorporated by reference herein.
+ Previously filed.
II-3
<PAGE>
EXHIBIT 4(b)
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
THE WASHINGTON WATER POWER COMPANY
Articles of Amendment to the Restated Articles of Incorporation of The
Washington Water Power Company are herein executed by said corporation pursuant
to Section 23B.06.020 of the Washington business corporation act as follows:
FIRST: The name of the corporation is The Washington Water Power Company
(the "Corporation").
SECOND: The following amendment to the Restated Articles of Incorporation
of the Corporation, establishing and designating a series of shares and fixing
and determining certain of the relative rights and preferences thereof, was duly
adopted by the Board of Directors of the Corporation at a meeting held on August
14, 1998 and by the Board Governance Committee of the Board of Directors at a
meeting held on October 20, 1998. No approval or consent of shareholders was
required.
THIRD: The Restated Articles of Incorporation are hereby amended by the
addition of a paragraph (2) to be inserted at the end of subdivision (o) of
Article THIRD, which shall be and read as follows:
(2) Series L. There is hereby established a twelfth series of the
Preferred Stock of the Corporation which shall have, in addition to the
general terms and characteristics of all of the authorized shares of
Preferred Stock of the Corporation, the following distinctive terms and
characteristics:
(a) The twelfth series of Preferred Stock of the Corporation shall
consist of _____ shares and be designated as "$12.40 Preferred Stock,
Convertible Series L".
(b) Said twelfth series shall have a dividend rate of $12.40 per
share per annum; provided, however, that the amount of the dividend per
share payable on December 15, 1998 shall be $3.10.
(c) The shares of said twelfth series shall not, by their terms, be
redeemable.
(d) The amount payable upon the shares of said twelfth series in the
event of dissolution, liquidation or winding up of the Corporation
shall be $______* per share plus an amount equivalent to accumulated
and unpaid dividends thereon, if any, to the date of such dissolution,
liquidation or winding up.
- -----------
* Such amount will be equal to ten (10) times the average of the high
and low sales prices per share of the Common Stock on the trading date
next preceding the date of issuance of the shares of the twelfth series, as
reported on the Consolidated Tape maintained by the Consolidated Tape
Association.
<PAGE>
(e) There shall be no sinking fund for the redemption or purchase of
shares of said twelfth series.
(f)(i)(A) Each share of said twelfth series shall be mandatorily
converted on November 1, 2001 (the "Mandatory Conversion Date") into
(1) a number of shares of Common Stock determined by reference to the
Common Equivalent Rate (as hereinafter defined) then in effect plus (2)
the right to receive an amount, in cash, equivalent to the accumulated
and unpaid dividends on such share of said twelfth series, if any, to
but excluding the Mandatory Conversion Date.
(B) Each share of said twelfth series shall be convertible, at the option
of the Company, at any time on or after December 15, 1998 and prior to the
Mandatory Conversion Date, into (1) a number of shares of Common Stock equal to
the Optional Conversion Price then in effect, (2) the right to receive an
amount, in cash, equivalent to the accumulated and unpaid dividends on the share
of said twelfth series to be converted to but excluding the date fixed for
conversion plus (3) the right to receive the Optional Conversion Premium; it
being understood that the Company may not so convert less than all shares of
said twelfth series.
(C) Each share of said twelfth series shall be mandatorily converted, at
the time of effectiveness of any Extraordinary Transaction, into, or into the
right to receive, as the case may be, securities and other property (including
cash) of the same character and in the same respective amounts as the holder of
such share would have received if such share had been converted pursuant to
clause (B) above immediately prior to such time of effectiveness.
(ii)(A) The "Common Equivalent Rate" shall be initially ten shares of
Common Stock for each share of said twelfth series; provided, however, that the
Common Equivalent Rate shall be subject to adjustment from time to time as
provided below. All adjustments to the Common Equivalent Rate shall be
calculated to the nearest 1/100th of a share of Common Stock. Such rate, as
adjusted and in effect at any time, is herein called the "Common Equivalent
Rate."
(B) If the Corporation shall do any of the following (each, an "Adjustment
Event"):
(1) pay a dividend or make a distribution with respect to Common
Stock in shares of Common Stock,
(2) subdivide, reclassify or split its outstanding shares of Common
Stock into a greater number of shares,
(3) combine or reclassify its outstanding shares of Common Stock
into a smaller number of shares, or
(4) issue by reclassification of its shares of Common Stock any
shares of Common Stock other than in an Extraordinary Transaction (as
hereinafter defined),
then the Common Equivalent Rate in effect immediately prior to such Adjustment
Event shall be adjusted so that on the Mandatory Conversion Date each share of
said twelfth series shall be converted into the number of shares of Common Stock
that the holder of such share would have owned or been entitled to receive after
the happening of the Adjustment Event had such share been mandatorily converted
immediately prior to the record date, if any, for such Adjustment Event or, if
there is no record date, immediately prior to the effectiveness of such
Adjustment Event. In case the Adjustment Event is a dividend or distribution,
the adjustment to the Common Equivalent Rate shall become
-2-
<PAGE>
effective as of the close of business on the record date for determination of
shareholders entitled to receive such dividend or distribution and any shares of
Common Stock issuable in payment of a dividend shall be deemed to have been
issued immediately prior to the close of business on the record date for such
dividend for purposes of calculating the number of outstanding shares of Common
Stock under clauses (C) and (D) below; and, in case the Adjustment Event is a
subdivision, split, combination or reclassification, the adjustment to the
Common Equivalent Rate shall become effective immediately after the effective
date of such subdivision, split, combination or reclassification. Such
adjustment shall be made successively.
In the event that Rights are separated from the outstanding shares of the
Common Stock in accordance with the provisions of the Rights Agreement such that
holders of shares of said twelfth series would not be entitled to receive any
Rights in respect of the shares of Common Stock issuable upon conversion of the
shares of said twelfth series, the Common Equivalent Rate shall be adjusted by
multiplying the Common Equivalent Rate in effect on the Distribution Date (as
defined in the Rights Agreement) by a fraction (1) the numerator of which shall
be the Current Market Price per share of the outstanding shares of Common Stock
on the Trading Date next preceding the Distribution Date and (2) the denominator
of which shall be such Current Market Price less the fair market value (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive, final and binding on the Corporation and all shareholders of the
Corporation) as of such Distribution Date of the portion of the Rights allocable
to one share of Common Stock. Such adjustment shall become effective on the
opening of business on the business day next following the Distribution Date and
will remain in effect unless and until (A) the Company (i) amends the Rights
Agreement to provide that upon conversion of the shares of said twelfth series
the holders thereof will receive, in addition to the shares of Common Stock
issuable upon such conversion, the Rights which would have attached to such
shares of Common Stock if the Rights had not become separated from the Common
Stock pursuant to the Rights Agreement and (ii) converts the Preferred Stock
into shares of Common Stock with such Rights or (B) the Rights expire, terminate
or are redeemed, in which case appropriate adjustments, if any, shall be made to
the Common Equivalent Rate consistent with the provisions of this subparagraph
(f)(i). Notwithstanding the foregoing, in the event the aforesaid fair market
value of the portion of the Rights allocable to one share of Common Stock is
equal to or greater than the Current Market Price per share of Common Stock on
the Trading Date mentioned above, in lieu of the foregoing adjustment, adequate
provision shall be made so that each holder of shares of said twelfth series
shall have the right to receive upon conversion the number of shares of Common
Stock such holder would have received had the shares of said twelfth series been
mandatorily converted immediately prior to the Distribution Date.
(C) If the Corporation shall, after the date of the initial issuance of
shares of said twelfth series, issue rights or warrants to all holders of the
Common Stock entitling them for a period not exceeding 45 days from the date of
such issuance to subscribe for or purchase shares of Common Stock at a price per
share less than the Current Market Price of the Common Stock (as hereinafter
defined), on the record date for the determination of shareholders entitled to
receive such rights or warrants, then in each case the Common Equivalent Rate
shall be adjusted by multiplying the Common Equivalent Rate in effect
immediately prior to the date of issuance of such rights or warrants by a
fraction (1) the numerator of which shall be the number of shares of Common
Stock outstanding on the date of issuance of such rights or warrants,
immediately prior to such issuance, plus the number of additional shares of
Common Stock offered for subscription or purchase pursuant to such rights or
warrants and (2) the denominator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights or warrants,
immediately prior to such issuance, plus
-3-
<PAGE>
the number of shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered for subscription or purchase
pursuant to such rights or warrants would purchase at such Current Market Price
(determined by multiplying such total number of shares by the exercise price of
such rights or warrants and dividing the product so obtained by such Current
Market Price). Such adjustment shall become effective as of the close of
business on the record date for the determination of shareholders entitled to
exercise such rights or warrants. To the extent that shares of Common Stock are
not delivered after the expiration of such rights or warrants, the Common
Equivalent Rate shall be readjusted to the Common Equivalent Rate which would
then be in effect had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock actually delivered. Such adjustment shall be made successively.
(D) If the Corporation shall pay a dividend or make any other distribution
to all holders of its Common Stock of evidences of its indebtedness or other
assets (including shares of capital stock of the Corporation (other than Common
Stock) but excluding any distributions and dividends referred to in clause (B)
above or any cash dividends), or shall issue to all holders of its Common Stock
rights or warrants to subscribe for or purchase any of its securities (other
than those referred to in clause (C) above), then, in each such case, the Common
Equivalent Rate shall be adjusted by multiplying the Common Equivalent Rate in
effect on the record date for the determination of shareholders entitled to
receive such dividend or distribution mentioned below by a fraction (1) the
numerator of which shall be the Current Market Price of the Common Stock on such
record date and (2) the denominator of which shall be such Current Market Price
per share of Common Stock less the fair market value (as determined by the Board
of Directors of the Corporation, whose determination shall be conclusive, as
final and binding upon the Corporation and all shareholders of the Corporation)
as of such record date of the portion of the assets or evidences of indebtedness
so distributed, or of such subscription rights or warrants, allocable to one
share of Common Stock. Such adjustment shall become effective on the opening of
business on the business day next following the record date for the
determination of the shareholders entitled to receive such dividend or
distribution. Notwithstanding the foregoing, in the event the portion of the
assets or other evidences of indebtedness so distributed allocable to one share
of Common Stock has a value equal to or greater than the Current Market Price
per share of Common Stock on the record date mentioned above, in lieu of the
foregoing adjustment, adequate provision shall be made so that each holder of
shares of said twelfth series shall have the right to receive upon conversion
assets or other evidences of indebtedness having a value in the amount such
holder would have received had the shares of said twelfth series been
mandatorily converted immediately prior to the record date for such dividend or
distribution.
(E) If the Corporation shall pay a dividend or make any other distribution
to all holders of its Common Stock exclusively in cash (excluding any quarterly
cash dividend on Common Stock in any quarter to the extent it does not exceed
$.18 per share (as adjusted to reflect subdivisions or combinations of Common
Stock)) the Common Equivalent Rate shall be adjusted by multiplying the Common
Equivalent Rate in effect on the record date for the determination of the
shareholders entitled to receive such dividend or distribution by a fraction (1)
the numerator of which shall be such Current Market Price per share of the
Common Stock on such record date and (2) the denominator of which shall be such
Current Market Price less the amount of cash so distributed (and not excluded as
provided above) allocable to one share of Common Stock. Such adjustment shall
become effective immediately prior to the opening of business on the business
day next following record date. Notwithstanding the foregoing, in the event the
portion of the cash so distributed allocable to one share of Common Stock is
equal to or greater than the Current Market Price per share of Common Stock
-4-
<PAGE>
on the record date mentioned above, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder of shares of said twelfth
series shall have the right to receive upon conversion the amount of cash such
holder would have received had the shares of said twelfth series been
mandatorily converted immediately prior to the record date for such dividend or
distribution. If an adjustment is required to be made pursuant to this clause
(E) as a result of a distribution that is a quarterly dividend, such adjustment
shall be based upon the amount by which such distribution exceeds the amount of
the quarterly cash dividend permitted to be excluded as provided above; and an
adjustment is required to be made pursuant to this clause (E) as a result of a
distribution that is not a quarterly dividend, such adjustment shall be based
upon the full amount of the distribution.
(F) Anything herein to the contrary notwithstanding, the Corporation may,
at its option, make such upward adjustment in the Common Equivalent Rate, in
addition to the adjustments specified above, as the Corporation in its sole
discretion may determine to be advisable, in order that any stock dividends,
subdivision of shares, distribution of rights to purchase stock or securities,
or a distribution of securities convertible into or exchangeable for stock (or
any transaction that could be treated as any of the foregoing transactions
pursuant to Section 305 of the Internal Revenue Code of 1986, as amended)
hereafter made by the Corporation to its shareholders shall not be taxable. Any
such adjustment shall be made effective as of such date as the Board of
Directors of the Corporation shall determine. The determination of the Board of
Directors of the Corporation as to whether or not such an adjustment to the
Common Equivalent Rate should be made and, if so, as to what adjustment should
be made and when, shall be conclusive, final and binding on the Corporation and
all shareholders of the Corporation.
(G) As used herein, the "Current Market Price" of a share of Common Stock
on any date shall be, except as otherwise specifically provided, the average of
the daily Closing Prices (as hereinafter defined) for the five consecutive
Trading Dates (as hereinafter defined) ending on and including the date of
determination of the Current Market Price; provided, however, that if the
Closing Price of the Common Stock on the Trading Date next following such
five-day period (the "next-day closing price") is less than 95% of such average
Closing Price, then the Current Market Price per share of Common Stock on such
date of determination will be the next-day Closing Price; and provided, further,
that with respect to any conversion or antidilution adjustment, if any event
that results in an adjustment of the Common Equivalent Rate occurs during the
period beginning on the first date of the applicable determination period and
ending on the applicable conversion date, the Current Market Price as determined
pursuant to the foregoing will be appropriately adjusted to reflect the
occurrence of such event.
(H) In any case in which an adjustment as a result of any event is required
to become effective as of the close of business on the record date for such
event and the Mandatory Conversion Date occurs after such record date but before
the occurrence of such event, the Corporation may in its sole discretion elect
to defer the following until after the occurrence of such event (but shall be
under no obligation to do so): (1) issuing to the holder of any converted shares
of said twelfth series the additional shares of Common Stock issuable upon such
conversion as a result of such adjustment and (2) paying to such holder any
amount in cash in lieu of a fractional share of Common Stock as hereinafter
provided.
(iii) Whenever the Common Equivalent Rate is adjusted as herein provided,
the Corporation shall:
-5-
<PAGE>
(A) forthwith compute the adjusted Common Equivalent Rate in accordance
herewith and prepare a certificate signed by the President, any Vice President
or the Treasurer of the Corporation setting forth the adjusted Common Equivalent
Rate, the method of calculation thereof in reasonable detail and the facts
requiring such adjustment and upon which such adjustment is based, which
certificate shall be conclusive, final and binding evidence of the correctness
of the adjustment, and file such certificate forthwith with the transfer agent
or agents for the shares of said twelfth series and for the Common Stock; and
(B) mail a notice stating that the Common Equivalent Rate has been
adjusted, the facts requiring such adjustment and upon which such adjustment is
based and setting forth the adjusted Common Equivalent Rate to the holders of
record of the outstanding shares of said twelfth series at or prior to the time
the Corporation mails an interim statement to its shareholders covering the
fiscal quarter during which the facts requiring such adjustment occurred, but in
any event within 45 days of the end of such fiscal quarter.
(iv) No fractional shares or scrip representing fractional shares of
Common Stock shall be issued upon the conversion of any shares of said
twelfth series. Instead of any fractional interest in a share of Common Stock
which would otherwise be deliverable upon the conversion of a share of said
twelfth series, the Corporation shall pay to the holder of such share an
amount in cash (computed to the nearest cent) equal to the same fraction of
the Current Market Price of the Common Stock determined as of the second
Trading Date immediately preceding (i) the day on which the Company gives
notice of an optional conversion, (ii) in the event of an Extraordinary
Transaction, the effective date of such transaction or (iii) in the event of
a mandatory conversion, the Mandatory Conversion Date. If more than one share
of any holder shall be converted at the same time, the number of full shares
of Common Stock into which such shares shall be converted shall be computed
on the basis of the aggregate number of shares so converted.
(v) Definitions. As used with respect to the shares of said twelfth series:
(A) the term "business day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of Washington or the
State of New York are authorized or obligated by law or executive order to
remain closed or are closed because of a banking moratorium or otherwise;
(B) the term "Closing Price" on any day shall mean the reported last sale
price on such day, or, in case no such sale takes place on such day, the average
of the reported last bid and asked prices on such day, in either case as
reported on the Consolidated Tape maintained by the Consolidated Tape
Association, or, if the Common Stock is not listed or admitted to trading on any
securities exchange which participates in the Consolidated Tape Association, the
average of the reported last bid and asked prices regular way (with any relevant
due bills attached) of the Common Stock on the over-the-counter market on the
day in question as reported by the National Association of Securities Dealers
Automated Quotation System, or a similar generally accepted reporting service,
or if no information of such character shall be available, as determined in good
faith by the Board of Directors on the basis of such relevant factors as the
Board of Directors in good faith considers appropriate, (such determination to
be conclusive, final and binding upon the Corporation and all shareholders of
the Corporation);
(C) the term "Extraordinary Transaction" shall mean a merger or
consolidation of the Corporation, a share exchange, division or conversion of
the Corporation's capital stock or an amendment of the Restated Articles of
Incorporation of the Corporation that results in the conversion
-6-
<PAGE>
or exchange of Common Stock into, or the right of the holders thereof to
receive, in lieu of or in addition to their shares of Common Stock, other
securities or other property (whether of the Corporation or any other entity);
(D) the term "Notice Date" with respect to any notice given by the
Corporation in connection with a conversion of any of the Shares of said twelfth
series shall be the date of the commencement of the mailing of such notice to
the holders of such shares as specified herein;
(E) the term "Optional Conversion Premium" shall mean, in respect of
each share of said twelfth series converted at the option of the Company, an
amount, in cash, initially equal to $20.90, declining by $.02111 for each day
following December 15, 1998 to and including the optional conversion date
(computed on the basis of a 360-day year consisting of twelve 30-day months)
and equal to $0 on and after September 15, 2001; provided, however, that in
lieu of delivering such amount in cash, the Company may, at its option,
deliver a number of shares of Common Stock equal to the quotient of such
amount divided by the Current Market Price on the second Trading Date
immediately preceding (1) the date on which the Company gives notice of such
conversion or (2) in the event of an Extraordinary Transaction, the effective
date of such transaction;
(F) the term "Optional Conversion Price" shall mean, in respect of each
share of said twelfth series converted at the option of the Company, a number of
shares of Common Stock equal to the lesser of (1) the amount of $24.00
divided by the Current Market Price as of the second Trading Date immediately
preceding (a) the date on which the Company gives notice of such conversion or
(b) in the event of an Extraordinary Transaction, the effective date of such
transaction and (2) the number of shares of Common Stock determined by reference
to the Common Equivalent Rate;
(G) the term "Rights Agreement" shall mean the Rights Agreement, dated as
of February 16, 1990, between the Company and The Bank of New York, successor
Rights Agent, as amended; and the term "Rights" shall mean the "Preferred Share
Purchase Rights" established under the Rights Agreement; and
(H) the term "Trading Date" shall mean a date on which the New York Stock
Exchange (or any successor to such Exchange) is open for the transaction of
business.
(vi)(A) Unless otherwise required by applicable law, notice of any
conversion shall be sent to the holders of the shares of said twelfth series to
be converted at the addresses shown on the books of the Corporation by mailing a
copy of such notice not less than fifteen (15) days nor more than sixty (60)
days prior to the conversion date. Each such notice shall state (1) the
conversion date, (2) the total number of shares of said twelfth series to be
converted (being the total number of shares outstanding), (3) the conversion
price, (4) the place or places where certificates for such shares are to be
surrendered in exchange for certificates and/or cash representing the conversion
price and (5) that dividends on the shares to be converted will cease to accrue
on such conversion date. Notwithstanding the foregoing, the failure so to mail
any such notice of mandatory conversion or any defect therein or in the mailing
thereof shall not prevent the occurrence of such conversion or impair the
validity thereof.
(B) The shares of said twelfth series shall, on the date fixed for
conversion, be deemed to have been converted; from and after such conversion
date dividends shall cease to accrue on such
-7-
<PAGE>
shares; and all rights of the holders of such shares (except only rights as
holders of securities into which such shares shall have been converted and the
right to receive certificates representing such securities and the right to
receive an amount equal to dividends accrued on such shares to the date fixed
for such conversion) shall terminate.
(vii) Upon the surrender by a holder of converted shares of said twelfth
series of certificates representing such shares in accordance with the notice of
conversion on or after the conversion date, the Corporation shall deliver to or
upon the order of such holder:
(A) certificates representing whole units of the securities into which such
shares of said twelfth series have been converted, such certificates to be
registered in such name or names, and to be issued in such denominations, as
such holder shall have specified;
(B) an amount, in cash, in lieu of fractional shares, as hereinbefore
provided;
(C) an amount, in cash, equivalent to accumulated and unpaid dividends on
such shares of Series A Preferred Stock to the conversion date;
(D) an amount, in cash, securities or other property, representing any
other consideration to be delivered upon such conversion; and
(E) a certificate representing any shares of said twelfth series which had
been represented by the certificate or certificates delivered to the Corporation
in connection with such conversion but which were not converted.
(viii) The Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock or other securities on the conversion of shares of said twelfth
series; provided, however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any registration of transfer involved in
the issue or delivery of shares of Common Stock or other securities in a name
other than that of the
-8-
<PAGE>
registered holder of the shares converted, and no such issue or delivery shall
be made unless and until the person requesting such issue has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid.
Dated: , 1998 THE WASHINGTON WATER POWER COMPANY
-----------
By
--------------------------------------
JON E. ELIASSEN, Senior Vice President,
Chief Financial Officer and Treasurer
By
--------------------------------------
TERRY L. SYMS, Vice President and
Corporate Secretary
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<PAGE>
EXHIBIT 4(f)
[FACE OF DEPOSITARY RECEIPT]
DEPOSITARY RECEIPT
FOR DEPOSITARY SHARES,
EACH CONSTITUTING A ONE-TENTH OWNERSHIP INTEREST IN
ONE SHARE OF $12.40 PREFERRED STOCK,
CONVERTIBLE SERIES L, NO PAR VALUE
OF
THE WASHINGTON WATER POWER COMPANY
Effective January 1, 1999, to be known as
AVISTA CORPORATION
(Incorporated under the Laws of the State of Washington)
NUMBER DEPOSITARY SHARES
-------- -----------------
(Each Depositary Share
constitutes a one-tenth
ownership interest in one
share of $12.40 Preferred
Stock, Convertible Series L,
no par value)
CUSIP 940688 __ _
The Bank of New York, a New York State trust company, as Depositary (the
"Depositary"), hereby certifies that
is the registered owner of
Depositary Shares (the "Depositary Shares"), each Depositary Share constituting
a one-tenth ownership interest in one share of $12.40 Preferred Stock,
Convertible Series L, no par value (the "New Preferred Stock"), of The
Washington Water Power Company, a corporation duly organized and existing under
the laws of the State of Washington (effective January 1, 1999, to be known as
Avista Corporation) (the "Company"), deposited with the Depositary, and the same
proportionate interest in any and all other property received by the Depositary
in respect of such share of New Preferred Stock and held by the Depositary under
the Deposit Agreement (as defined below). Subject to the terms of the Deposit
Agreement, each owner of a Depositary Share is entitled, proportionately, to all
the rights, preferences and privileges of the New Preferred Stock represented
thereby, including the dividend, voting, liquidation and other rights contained
in the Articles of Amendment to the Company's Restated Articles of
Incorporation, as amended, establishing the rights, preferences, privileges and
limitations of the New Preferred Stock (the "Articles of Amendment"), copies of
which are on file at the Depositary's office
<PAGE>
located at the time of the execution of the Deposit Agreement at 101 Barclay
Street, New York, New York 10286 (such office or the corporate trust office of
the Depositary at which its business in respect of matters governed by the
Deposit Agreement is administered at any later time, being at the relevant time,
the "Corporate Office").
This Depositary Receipt shall not be entitled to any benefits under the
Deposit Agreement or be valid or obligatory for any purpose unless this
Depositary Receipt shall have been executed manually or, if a Registrar for the
Depositary Receipts (other than the Depositary) shall have been appointed, by
facsimile by the Depositary by the signature of a duly authorized signatory and,
if executed by facsimile signature of the Depositary, shall have been
countersigned manually by such Registrar by the signature of a duly authorized
signatory.
The Depositary is not responsible for the validity of any deposited New
Preferred Stock. The Depositary assumes no responsibility for the correctness of
the foregoing description which can be taken as a statement of the Company
summarizing certain provisions of the Deposit Agreement. Unless expressly set
forth in the Deposit Agreement, the Depositary makes no warranties or
representations as to the validity, genuineness or sufficiency of any New
Preferred Stock at any time deposited with the Depositary under the Deposit
Agreement or of the Depositary shares or the Depositary Receipts (except for its
countersignature thereon), as to the validity or sufficiency of the Deposit
Agreement, as to the value of the Depositary Shares or as to any right, title or
interest of the record holders of the Depositary Receipts in and to the
Depositary Shares.
A full statement of the designations, preferences, limitations and relative
rights of the shares of each class of stock which the Company is authorized to
issue, and of the variations in the relative rights, limitations and preferences
between the shares of each series of preferred stock so far as the same have
been fixed and determined and of the authority of the Board of Directors to fix
and determine the relative rights, limitations and preferences of subsequent
series, will be furnished to any shareholder without charge upon request in
writing to the Corporate Secretary of the Company.
This Depositary Receipt is continued on the reverse hereof and the
additional provisions herein set forth for all purposes have the same effect as
if set forth at this place.
Dated: THE BANK OF NEW YORK
By
---------------------------------
Authorized Signatory
2
<PAGE>
[REVERSE OF DEPOSITARY RECEIPT]
1. The Deposit Agreement. Depositary Receipts (the "Depositary Receipts"),
of which this Depositary Receipt is one, are made available upon the terms and
conditions set forth in the Deposit Agreement, dated as of _______, 1998 (the
"Deposit Agreement"), among the Company, the Depositary and all holders from
time to time of Depositary Receipts issued thereunder, each of whom by accepting
a Depositary Receipt agrees to be bound by all the terms and conditions thereof.
The Deposit Agreement (copies of which are on file at the Corporate Office and
at the office of any Depositary's Agent) sets forth the rights of holders of
Depositary Receipts and the rights and duties of the Depositary.
The statements made on the face and reverse of this Depositary Receipt are
summaries of certain provisions of the Deposit Agreement and are qualified by
and subject to the detailed provisions thereof, to which reference is hereby
made. In the event of any conflict between the provisions of this Depositary
Receipt and the provisions of the Deposit Agreement, the provisions of the
Deposit Agreement will govern. Unless otherwise expressly herein provided, all
defined terms used herein shall have the meanings ascribed thereto in the
Deposit Agreement.
2. Conversions of New Preferred Stock. Whenever the Company shall convert
New Preferred Stock into Common Stock in accordance with the Articles of
Amendment, it shall (unless otherwise agreed in writing with the Depositary)
give the Depositary in its capacity as Depositary not less than five business
days prior notice of the proposed date of the mailing of the notice of
conversion to be effected in connection with such conversion.
The Depositary shall, as directed by the Company, mail, first class postage
prepaid, the notice of the conversion of New Preferred Stock not less than 15
and not more than 60 days prior to the date fixed for conversion (the
"conversion date") of such New Preferred Stock. Such notice shall be mailed to
each holder of record as provided in paragraph 13 below of the Depositary
Receipts.
Notice having been mailed by the Depositary as aforesaid, from and after
the conversion date, the Depositary Shares shall be deemed no longer to be
outstanding and all rights of the holders of Depositary Receipts evidencing such
Depositary Shares (except the right to receive the shares of Common Stock and
any cash upon conversion) shall cease and terminate. Upon surrender in
accordance with said notices of each Depositary Receipt evidencing Depositary
Shares (properly endorsed or assigned for transfer, if the Depositary shall so
require), each such Depositary Share shall be exchanged for shares of Common
Stock at a rate equal to one-tenth of the number of shares of Common Stock into
which each share of New Preferred Stock shall have been converted; provided,
however, that no fractional shares of Common Stock shall be distributed.
3. Surrender of Depositary Receipts and Withdrawal of New Preferred Stock
or Common Stock. Upon surrender of this Depositary Receipt to the Depositary at
the Corporate Office, or at such other office as the Depositary may designate,
and subject to the provisions of the Deposit Agreement, the holder hereof is
entitled to withdraw, and to obtain delivery, to or
3
<PAGE>
upon the order of such holder, of any or all of the New Preferred Stock (but
only whole shares) and all money and other property, if any, at the time
represented by the Depositary Shares evidenced by this Depositary Receipt, but
holders of any such shares of New Preferred Stock will not thereafter be
entitled to deposit such shares of New Preferred Stock thereunder or to receive
Depositary Shares therefor. If, prior to a conversion, the Depositary Receipt or
Depositary Receipts delivered by the holder to the Depositary in connection with
such withdrawal shall evidence a number of Depositary Shares in excess of the
number of Depositary Shares representing the whole number of shares of New
Preferred Stock to be withdrawn, the Depositary shall at the same time, in
addition to such whole number of shares of New Preferred Stock and such money
and other property, if any, to be withdrawn, deliver, to or upon the order of
such holder, a new Depositary Receipt or Depositary Receipts evidencing such
excess number of Depositary Shares.
4. Transfers, Split-ups, Combinations. Subject to paragraphs 5, 6 and 7
below, this Depositary Receipt is transferable on the books of the Depositary
upon surrender of this Depositary Receipt to the Depositary, properly endorsed
or accompanied by a properly executed instrument of transfer or endorsement, and
upon such transfer the Depositary shall sign and deliver a Depositary Receipt to
or upon the order of the person entitled thereto, all as provided in and subject
to the Deposit Agreement. This Depositary Receipt may be split into other
Depositary Receipts or combined with other Depositary Receipts into one
Depositary Receipt evidencing the same aggregate number of Depositary Shares
evidenced by the Depositary Receipt or Depositary Receipts surrendered;
provided, however, that the Depositary shall not issue any Depositary Receipt
evidencing a fractional Depositary Share.
5. Conditions to Signing and Delivery, Transfer, etc., of Depositary
Receipts. Prior to the execution and delivery, transfer, split-up, combination,
surrender or exchange of this Depositary Receipt, the Depositary, any of the
Depositary's Agents or the Company may require any or all of the following: (i)
payment to it of a sum sufficient for the payment (or, in the event that the
Depositary or the Company shall have made such payment, the reimbursement to it)
of any tax or other governmental charge with respect thereto (including any such
tax or charge with respect to New Preferred Stock being withdrawn or with
respect to Common Stock of the Company being issued upon conversion); (ii) the
production of proof satisfactory to it as to the identity and genuineness of any
signature; and (iii) compliance with such regulations, if any, as the Depositary
or the Company may establish not inconsistent with the Deposit Agreement. Any
holder of this Depositary Receipt may be required to file such proof of
information, to execute such certificates and to make such representations and
warranties as the Depositary or the Company may reasonably deem necessary or
proper. The Depositary or the Company may withhold or delay the delivery of this
Depositary Receipt, the transfer or exchange of this Depositary Receipt, the
withdrawal of the New Preferred Stock or the Common Stock, as applicable,
represented by the Depositary Shares evidenced by this Depositary Receipt or the
distribution of any dividend or other distribution until such proof or other
information is filed, such certificates are executed or such representations and
warranties are made.
6. Suspension of Delivery, Transfer, etc. The transfer, split-up,
combination, surrender or exchange of this Depositary Receipt may be suspended
(i) during any period when
4
<PAGE>
the register of shareholders of the Company is closed, (ii) if any such action
is deemed necessary or advisable by the Depositary, any of the Depositary's
Agents or the Company at any time or from time to time because of any
requirement of law or of any government or governmental body or commission, or
under any provision of the Deposit Agreement, or (iii) with the approval of the
Company, for any other reason. The Depositary shall not be required to issue,
transfer or exchange any Depositary Receipts for a period beginning at the
opening of business 15 days next preceding the date of the selection of New
Preferred Stock to be converted and ending at the close of business on the day
of the mailing of notice of conversion of New Preferred Stock.
7. Payment of Taxes or Other Governmental Charges. If any tax or other
governmental charge shall become payable by or on behalf of the Depositary with
respect to this Depositary Receipt, the Depositary Shares evidenced by this
Depositary Receipt, the New Preferred Stock (or any fractional interest therein)
represented by such Depositary Shares or any transaction referred to in Section
4.06 of the Deposit Agreement, such tax (including transfer, issuance or
acquisition taxes, if any) or governmental charge shall be payable by the holder
hereof. Until such payment is made, transfer of this Depositary Receipt or any
withdrawal of the New Preferred Stock represented by the Depositary Shares
evidenced by this Depositary Receipt may be refused and any dividend or other
distribution may be withheld. Any dividend or other distribution so withheld may
be applied to any payment of such tax or other governmental charge, the holder
of this Depositary Receipt remaining liable for any deficiency.
8. Amendment. The form of the Depositary Receipts and any provision of the
Deposit Agreement may at any time and from time to time be amended by agreement
between the Company and the Depositary in any respect that they may deem
necessary or desirable. Any amendment that shall impose or increase any fees,
taxes or charges upon holders of Depositary Receipts (other than fees and
charges provided for herein or in the Deposit Agreement), or that shall
otherwise prejudice any substantial existing right of holders of Depositary
Receipts, shall not become effective as to outstanding Depositary Receipts until
the expiration of 30 days after notice of such amendment shall have been given
to the record holders of outstanding Depositary Receipts. The holder of this
Depositary Receipt at the time any such amendment becomes effective shall be
deemed, by continuing to hold this Depositary Receipt, to consent and agree to
such amendment and to be bound by the Deposit Agreement as amended thereby. In
no event shall any amendment impair the right, subject to the provisions of
paragraphs 2, 3, 6 and 7 hereof and of Sections 2.03, 2.06, 2.07 and Article III
of the Deposit Agreement, of the owner of the Depositary Shares evidenced by
this Depositary Receipt to surrender this Depositary Receipt with instructions
to the Depositary to deliver to the holder the New Preferred Stock or Common
Stock, as applicable, and all money and other property, if any, represented
thereby, except in order to comply with mandatory provisions of applicable law.
9. Fees, Charges and Expenses. The Company will pay all fees, charges and
expenses of the Depositary, except for taxes (including transfer taxes, if any)
and other governmental charges and such charges as are expressly provided in the
Deposit Agreement to be at the expense of persons depositing New Preferred
Stock, holders of Depositary Receipts or other persons.
5
<PAGE>
10. Title to Depositary Receipts. It is a condition of this Depositary
Receipt, and every successive holder hereof by accepting or holding the same,
consents and agrees, that title to this Depositary Receipt (and to the
Depositary Shares evidenced hereby), when properly endorsed or accompanied by a
properly executed instrument of transfer or endorsement, is transferable by
delivery with the same effect as in the case of a negotiable instrument;
provided, however, that until this Depositary Receipt shall be transferred on
the books of the Depositary as provided in Section 2.04 of the Deposit
Agreement, the Depositary and the Company may, notwithstanding any notice to the
contrary, treat the record holder hereof at such time as the absolute owner
hereof for the purpose of determining the person entitled to distribution of
dividends or other distributions or to any notice provided for in the Deposit
Agreement and for all other purposes.
11. Cash Dividends and Distributions. Whenever any cash dividend or other
cash distribution shall be paid on the New Preferred Stock, the Company, on
behalf of the Depositary, (or, if the Company determines otherwise, the
Depositary) will, subject to the provisions of the Deposit Agreement, make such
distribution to record holders of Depositary Receipts as nearly as practicable
in proportion to the respective numbers of Depositary Shares evidenced by the
Depositary Receipts held by such holders; provided, however, that in the event
the Company or the Depositary shall be required to withhold and does withhold
from any cash dividend or other cash distribution in respect of the New
Preferred Stock an amount on account of taxes or as otherwise required by law,
regulation or court process, the amount made available for distribution or
distributed in respect of Depositary Shares shall be reduced accordingly. The
Company, on behalf of the Depositary, (or, if the Company determines otherwise,
the Depositary) shall distribute or make available for distribution, as the case
may be, only such amount, however, as can be distributed without attributing to
any owner of Depositary Shares a fraction of one cent. In the event that the
calculation of any such cash dividend or other cash distribution to be paid to
any record holder on the aggregate number of Depositary Shares held by such
holder results in an amount which is a fraction of a cent, the amount the
Depositary shall distribute to such record holder shall be rounded to the next
highest whole cent; and upon request of the Depositary, the Company shall pay
the additional amount to the Depositary for distribution.
12. Subscription Rights, Preferences or Privileges. If the Company shall at
any time offer or cause to be offered to the persons in whose name New Preferred
Stock is registered on the books of the Company any rights, preferences or
privileges to subscribe for or to purchase any securities or any rights,
preferences or privileges of any other nature, such rights, preferences or
privileges shall in each such instance, subject to the provisions of the Deposit
Agreement, be made available by the Depositary or the Company to the record
holders of Depositary Receipts if the Company so directs in such manner as the
Company shall instruct.
13. Notice of Dividends, Fixing of 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 at any
time be offered with respect to the New Preferred Stock, or (ii) the Depositary
shall receive notice of any meeting at which holders of New Preferred Stock are
entitled to vote or of which holders of New Preferred Stock are entitled to
notice or any solicitation of consents in respect of the New Preferred Stock, or
any
6
<PAGE>
event of which holders of New Preferred Stock are entitled to notice in
accordance with the Articles of Amendment, the Depositary shall in each such
instance fix a record date (which shall be the same date as the record date
fixed by the Company with respect to the New 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, (y) who shall be entitled to receive notice
of, and to give instructions for the exercise of voting rights at, or the
delivery of consents with respect to, any such meeting or consent solicitation,
as the case may be, or (z) who shall be entitled to receive notice of any
conversion or other event.
14. Voting Rights. Promptly upon receipt of notice of any meeting at which
the holders of New Preferred Stock are entitled to vote, the Depositary (unless
another arrangement for allowing holders of Depositary Shares to exercise the
voting rights associated with the Depositary Shares is agreed by the Company and
the Depositary), shall mail to the record holders of Depositary Receipts a
notice, which shall contain (i) such information as is contained in such notice
of meeting, (ii) a statement that the holders of Depositary Receipts at the
close of business on a specified record date determined as provided in paragraph
13 will be entitled, subject to any applicable provision of law, the Restated
Articles of Incorporation or the Articles of Amendment, to instruct the
Depositary as to the exercise of the voting rights with respect to the number of
shares of New Preferred Stock represented by their respective Depositary Shares
and (iii) a brief statement as to the manner in which such instructions may be
given. Upon the written request of a holder of a Depositary Receipt on such
record date, the Depositary shall endeavor insofar as practicable to vote or
cause to be voted with respect to the amount of New Preferred Stock represented
by the Depositary Shares evidenced by such Depositary Receipt in accordance with
the instructions set forth in such request. The Depositary will abstain from
voting with respect to the New Preferred Stock to the extent that it does not
receive specific instructions from the holders of Depositary Receipts.
15. Reports, Inspection of Transfer Books. The Depositary shall make
available for inspection by holders of Depositary Receipts at the Corporate
Office and at such other places as it may from time to time deem advisable
during normal business hours any reports and communications received from the
Company that are both received by the Depositary as the holders of New Preferred
Stock and made generally available to the holders of New Preferred Stock by the
Company. The Depositary shall keep books at the Corporate Office for the
registration and transfer of Depositary Receipts, which books at all reasonable
times during normal business hours will be opened for inspection by the record
holders of the Depositary Receipts as and to the extent provided by applicable
law.
16. Liability of the Depositary, the Depositary's Agent and the Company.
Neither the Depositary nor any Depositary's Agent nor the Company shall incur
any liability to any holder of any Depositary Receipt, if by reason of any
provision of any present or future law or regulation thereunder of any
governmental authority or, in the case of the Depositary or the Depositary's
Agent, by reason of any provision, present or future, of the Restated Articles
of Incorporation or the Articles of Amendment or, in the case of the Company,
the Depositary or the Depositary's Agent, by reason of any act of God or war
other circumstances beyond the control of the relevant party, the Depositary,
any Depositary's Agent or the Company shall be
7
<PAGE>
prevented or forbidden from doing or performing any act or thing that the terms
of the Deposit Agreement provide shall be done or performed; nor shall the
Depositary, any Depositary's Agent or the Company incur any liability to any
holder of a Depositary Receipt by reason of any nonperformance or delay, caused
as aforesaid, in the performance of any act or thing that the terms of the
Deposit Agreement provide shall or may be done or performed, or by reasons of
any exercise of, or failure to exercise, any discretion provided for in the
Deposit Agreement except, in case of any such exercise or failure to exercise
discretion not caused as aforesaid, if caused by the negligence, bad faith or
willful misconduct of the party charged with such exercise or failure to
exercise.
17. Obligations of the Depositary, the Depositary's Agents and the Company.
Neither the Depositary nor any Depositary's Agent nor the Company nor the
Registrar assumes any obligation or shall be subject to any liability under this
Deposit Agreement or any Depositary Receipt to holders of Depositary Receipts
other than that each of them agrees to use good faith in the performance of such
duties as are specifically set forth in this Deposit Agreement and other than
for its negligence, bad faith or willful misconduct.
Neither the Depositary nor any Depositary's Agent nor the Company shall be
under any obligation to appear in, prosecute or defend any action, suit or other
proceeding with respect to New Preferred Stock, Depositary Shares or Depositary
Receipts or Common Stock or other securities or property that in its opinion may
involve it in expense or liability, unless indemnity satisfactory to it against
all expense and liability be furnished as often as may be required.
Neither the Depositary nor any Depositary's Agent nor the Company nor the
Registrar shall be liable for any action or any failure to act by it in reliance
upon the advice of or information from legal counsel, accountants, any holder of
a Depositary Receipt or any other person believed by it in good faith to be
competent to give such advice or information.
18. Termination of Deposit Agreement. The Deposit Agreement may be
terminated by the Company or the Depositary only after (i) all outstanding New
Preferred Stock shall have been converted as contemplated in Section 2.03 of the
Deposit Agreement or (ii) there shall have been made a final distribution in
respect of the New Preferred Stock (or the Common Stock into which the New
Preferred Stock shall have been converted) in connection with any liquidation,
dissolution or winding up of the Company and such distribution shall have been
made to the holders of Depositary Shares pursuant to Section 4.01 or 4.02 of the
Deposit Agreement, as applicable. The Company and the Depositary will undertake
to terminate the Deposit Agreement as soon as reasonable practicable after any
such conversion or distribution. Upon the termination of the Deposit Agreement,
the Company shall be discharged from all obligations thereunder except for its
obligations to the Depositary, any Depositary's Agent and any Registrar under
Sections 5.07 and 5.08 of the Deposit Agreement.
If any Depositary Receipts remain outstanding after the date of
termination, the Depositary thereafter shall discontinue all functions and be
discharged from all obligations as provided in the Deposit Agreement, except as
specifically provided therein.
8
<PAGE>
19. Governing Law. The Deposit Agreement and this Depositary Receipt and
all rights thereunder and hereunder and provisions thereof and hereof shall be
governed by, and construed in accordance with, the law of the State of New York
without giving effect to principles of conflict of laws.
9
<PAGE>
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the ______________within Depositary Receipt and all rights and interests
represented by the Depositary Shares evidenced thereby, and hereby irrevocably
constitutes and appoints _______________his attorney, to transfer the same on
the books of the within named Depositary, with full power of substitution in the
premises.
Dated: Signature:
------------------------------------------
NOTE: The signature to
this assignment
must correspond
with the name as
written upon the
face of the
Depositary
Receipt in every
particular,
without
alteration or
enlargement, or
any change
whatever.
Signature Guarantee:
- -----------------------------
10
