As filed with the Securities and Exchange Commission
on November 5, 1998
Registration No. 333-64473
Registration No. 333-64473-01
=================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
GREAT-WEST LIFE & ANNUITY
INSURANCE CAPITAL I GWL&A FINANCIAL INC.
(Exact name of registrant as (Exact name of registrant as
specified in charter) specified in charter)
Delaware Delaware
(State or other jurisdiction (State or other jurisdiction
of incorporation or of incorporation or
organization) organization)
6733 6719
(Primary Standard Industrial (Primary Standard Industrial
Classification Code Number) Classification Code Number)
applied for 84-1474245
(IRS Employer (IRS Employer
Identification No.) Identification No.)
8515 East Orchard Road
Englewood, Colorado 80111
(303) 689-3000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
Mitchell T.G. Graye
Senior Vice President and Chief Financial Officer
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado, 80111
(303) 689-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
Copies To:
David W. Hirsch Lee Meyerson
Cleary, Gottlieb, Steen Simpson Thacher
& Hamilton & Bartlett
One Liberty Plaza 425 Lexington Avenue
New York, NY 10006 New York, New York 10017-3954
(212) 225-2000 (212) 455-2000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
SALE TO THE PUBLIC:
As soon as practicable after the effective date of this
Registration Statement.
If the only securities being registered on this form are
being offered pursuant to dividend or interest reinvestment
plans, please check the following box. [ ]
If any of the securities being registered on this form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment
plans, check the following box. [ ]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of earlier effective registration statement for
the same offering. [ ]
If this Form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number
of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
EACH OF THE REGISTRANTS HEREBY AMENDS THIS REGISTRATION
STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL EACH OF THE REGISTRANTS SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
=================================================================
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR +
+ AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE +
+ SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE +
+ COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS +
+ TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION +
+ STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT +
+ CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER +
+ TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY +
+ STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+ SECURITIES LAWS OF ANY SUCH STATE. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated November 5, 1998
PROSPECTUS
[GREAT-WEST LOGO]
$150,000,000
GREAT-WEST LIFE & ANNUITY INSURANCE CAPITAL I
SKIS SM*
% Subordinated Capital Income Securities
(Liquidation Amount $25 per Capital Security)
fully and unconditionally guaranteed,
as described herein, by
GWL&A FINANCIAL INC.
--------------
The % Subordinated Capital Income Securities ("SKIS" or
the "Capital Securities") offered hereby represent undivided
beneficial ownership interests in the assets of Great-West Life &
Annuity Insurance Capital I, a Delaware statutory business trust
(the "Trust"). GWL&A Financial Inc., a Delaware corporation
("GWL&A Financial" or the "Company"), will be the owner of all of
the beneficial ownership interests represented by common
securities of the Trust (the "Common Securities"; together with
the Capital Securities, the "Trust Securities"). The Trust exists
for the sole purpose of issuing the Capital Securities and the
Common Securities and investing the proceeds thereof in %
Junior Subordinated Debentures due 2028 (the "Junior Subordinated
Debentures") to be issued by the Company.
Application has been made to have the Capital Securities
approved for listing on the New York Stock Exchange, Inc. (the
"New York Stock Exchange"). Trading of the Capital Securities on
the New York Stock Exchange is expected to commence within a
30-day period after the initial delivery of the Capital
Securities. See "Underwriting."
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR CERTAIN
INFORMATION RELEVANT TO AN INVESTMENT IN THE CAPITAL SECURITIES.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
=================================================================
Initial Public Underwriting Proceeds to
Offering Price (1) Commissions (2) Trust (3)(4)
- -----------------------------------------------------------------
Per
Capital
Security... $ (3) $
- -----------------------------------------------------------------
Total...... $ (3) $
=================================================================
(1) Plus accrued distributions, if any, from , 1998.
(2) The Trust and the Company have each agreed to indemnify the
several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the
Capital Securities will be invested in the Junior
Subordinated Debentures, the Company has agreed to pay to the
Underwriters, as compensation for their arranging the
investment therein of such proceeds, per Capital Security (or
$ in the aggregate). See "Underwriting."
(4) Before deducting expenses payable by the Company, estimated
at $635,000.
--------------
The Capital Securities are offered, subject to prior sale,
when, as and if issued to and accepted by the several
Underwriters and subject to certain conditions. It is expected
that delivery of the Capital Securities will be made in
book-entry form through the facilities of The Depository Trust
Company on or about , 1998 at the offices of Lehman Brothers
Inc., New York, New York against payment therefor in immediately
available funds.
--------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
, 1998
* SKIS is a servicemark of Lehman Brothers Inc.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE
PRICE OF THE CAPITAL SECURITIES OFFERED HEREBY, INCLUDING
OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
--------------
(Continued from previous page)
The Junior Subordinated Debentures will mature on ,
2028 (the "Stated Maturity"). The Capital Securities will have a
preference under certain circumstances with respect to cash
distributions and amounts payable on liquidation, redemption or
otherwise over the Common Securities. See "Description of Capital
Securities--Subordination of Common Securities."
Holders of the Capital Securities will be entitled to
receive cumulative cash distributions accruing from the date of
original issuance and payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing
March 31, 1999, at the annual rate of % of the liquidation
amount of $25 per Capital Security (the "Distributions"). The
distribution rate and the distribution payment dates and other
payment dates of the Capital Securities will correspond to the
interest rate and interest payment dates and other payment dates
of the Junior Subordinated Debentures, which will be the sole
assets of the Trust. The Company will guarantee the payment of
Distributions and payments on liquidation of the Trust or
redemption of the Capital Securities, but only in each case to
the extent of funds held by the Trust, as described herein (the
"Guarantee"). See "Description of Guarantee." If the Company does
not make interest payments on the Junior Subordinated Debentures
held by the Trust, the Trust will have insufficient funds to pay
Distributions on the Capital Securities. The Company's
obligations under the Guarantee, taken together with its
obligations under the Junior Subordinated Debentures and the
Indenture (as defined herein), including its obligation to pay
all costs, expenses and liabilities of the Trust (other than with
respect to the Capital Securities), constitute a full and
unconditional guarantee of all of the Trust's obligations under
the Capital Securities. The obligations of the Company under the
Guarantee and the Junior Subordinated Debentures are subordinate
and junior in right of payment to all Senior Indebtedness (as
defined in "Description of Junior Subordinated Debentures--
Subordination") of the Company and will be structurally
subordinated to all liabilities and obligations of the Company's
subsidiaries. As of June 30, 1998, the Company had no Senior
Indebtedness outstanding, and the Company's consolidated
subsidiaries had indebtedness and other liabilities (excluding
obligations to policyholders under outstanding insurance
policies) of approximately $123.7 million to which the Guarantee
and the Junior Subordinated Debentures would be effectively
subordinated.
The Company has the right to defer payment of interest on
the Junior Subordinated Debentures at any time or from time to
time for a period not exceeding 20 consecutive quarters with
respect to each deferral period (each, an "Extension Period"),
provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures or end on a day
other than an Interest Payment Date (as defined herein). Upon the
termination of any such Extension Period and the payment of all
amounts then due on any Interest Payment Date, the Company may
elect to begin a new Extension Period subject to the requirements
set forth herein. Accordingly, there could be multiple Extension
Periods of varying lengths throughout the term of the Junior
Subordinated Debentures. If interest payments on the Junior
Subordinated Debentures are so deferred, distributions on the
Capital Securities will also be deferred and the Company may not,
and may not permit any subsidiary of the Company to, (i) declare
or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, the
Company's capital stock, (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem
any debt securities that rank pari passu with or junior to the
Junior Subordinated Debentures or (iii) make any guarantee
payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the
2
<PAGE>
Company if such guarantee ranks pari passu in all respects with
or junior to the Junior Subordinated Debentures (other than (a)
dividends or distributions in the form of stock, warrants,
options or other rights where the dividend stock or the stocks
issuable upon exercise of such warrants, options or other right
is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock, (b) payments under
the Guarantee, (c) any declaration of a dividend in connection
with the implementation of a shareholders' rights plan, or the
issuance of rights, stock or other property under any such plan
in the future, or the redemption or repurchase of any such rights
pursuant thereto, (d) as a result of reclassification of the
Company's capital stock into one or more other classes or series
of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock (or any
capital stock of a subsidiary of the Company) for another class
or series of the Company's capital stock, or of any class or
series of the Company's indebtedness for any class or series of
the Company's capital stock, (e) the purchase of fractional
interests in the shares of the Company's capital stock pursuant
to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged and (f) repurchases,
redemptions or other acquisitions of common stock related to the
issuance of common stock or rights under any of the Company's
employment contracts, benefit plans or other similar arrangement
with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to
the applicable Extension Period). During an Extension Period,
interest on the Junior Subordinated Debentures will continue to
accrue (and the amount of Distributions to which holders of the
Capital Securities are entitled will accumulate) at the rate of
% per annum to the extent permitted by applicable law,
compounded quarterly, and holders of the Capital Securities will
be required to include the stated interest on their pro rata
share of the Capital Securities in their gross income as original
issue discount ("OID") even though the cash payments attributable
thereto have not been made. See "Description of Junior
Subordinated Debentures--Option to Extend Interest Payment
Period" and "U.S. Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
The Junior Subordinated Debentures are not redeemable prior
to , 2003 unless a Special Event (as defined herein) has
occurred. The Junior Subordinated Debentures are redeemable prior
to maturity at the option of the Company (i) on or after
, 2003, at any time, in whole or in part, at a redemption
price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to, but excluding, the date
fixed for redemption, plus 100% of the principal amount thereof,
or (ii) at any time, in whole but not in part, within 90 days of
the occurrence and continuation of a Special Event at a
redemption price equal to the accrued and unpaid interest on the
Junior Subordinated Debentures so redeemed to, but excluding, the
date fixed for redemption, plus 100% of the principal amount
thereof. The Capital Securities are subject to mandatory
redemption, in whole or in part, upon repayment of the Junior
Subordinated Debentures at maturity or their earlier redemption,
in an amount equal to the aggregate principal amount of related
Junior Subordinated Debentures maturing or being redeemed and at
a redemption price equal to the aggregate principal amount of
such Junior Subordinated Debentures, in each case plus
accumulated and unpaid Distributions on such Capital Securities
to the date of redemption.
The Company will have the right, at any time, to terminate
the Trust and cause the Junior Subordinated Debentures to be
distributed to the holders of the Capital Securities and the
Common Securities in liquidation of the Trust. If the Junior
Subordinated Debentures are distributed to the holders of Capital
Securities upon the liquidation of the Trust, the Company will
use its best efforts to list the Junior Subordinated Debentures
on the New York Stock Exchange or such other stock exchanges or
inter-dealer quotation system, if any, on which the Capital
Securities are then listed or quoted. See "Description of Capital
Securities--Redemption --Special Event Redemption or Distribution
of Junior Subordinated Debentures" and "Description of Junior
Subordinated Debentures--Distribution of Junior Subordinated
Debentures; Book-Entry Issuance."
3
<PAGE>
In the event of the liquidation of the Trust, after
satisfaction of the claims of creditors of the Trust, if any, as
provided by applicable law, the holders of the Capital Securities
will be entitled to receive a liquidation amount of $25 per
Capital Security plus accumulated and unpaid Distributions
thereon to the date of payment, which may be in the form of a
distribution of such amount in Junior Subordinated Debentures as
described above. If such liquidation amount can be paid only in
part because the Trust has insufficient assets available to pay
in full the aggregate liquidation amount, then the amounts
payable directly by the Trust on the Capital Securities shall be
paid on a pro rata basis. The holder of the Common Securities
will be entitled to receive distributions upon any such
liquidation pro rata with the holders of the Capital Securities,
except that if an Indenture Event of Default (as defined herein)
has occurred and is continuing, the Capital Securities will have
a priority over the Common Securities. See "Description of
Capital Securities--Liquidation Distribution Upon Dissolution."
--------------
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements.
Forward-looking statements are statements not based on historical
information and which relate to future operations, strategies,
financial results or other developments. In particular,
statements using verbs such as "expect," "anticipate," "believe"
or words of similar import generally involve forward-looking
statements. Without limiting the foregoing, forward-looking
statements include statements which represent the Company's
beliefs concerning future or projected levels of sales of the
Company's products, investment spreads or yields, or the earnings
or profitability of the Company's activities. Forward-looking
statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are
beyond the Company's control and many of which, with respect to
future business decisions, are subject to change. These
uncertainties and contingencies can affect actual results and
could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf
of, the Company. Whether or not actual results differ materially
from forward-looking statements may depend on numerous
foreseeable and unforeseeable events or developments, some of
which may be national in scope, such as general economic
conditions and interest rates, some of which may be related to
the insurance industry generally, such as pricing competition,
regulatory developments and industry consolidation, and others of
which may relate to the Company specifically, such as credit,
volatility and other risks associated with the Company's
investment portfolio, and other factors. Readers are also
directed to consider other risks and uncertainties discussed in
documents filed by Great-West Life & Annuity Insurance Company
and the Company and certain of its subsidiaries with the
Securities and Exchange Commission (the "SEC" or "Commission").
See "Available Information."
4
<PAGE>
SUMMARY
This summary is qualified by the more detailed information
and financial statements appearing elsewhere, or incorporated by
reference, in this Prospectus. Prospective investors are urged to
read this Prospectus in its entirety.
The Company was formed on September 16, 1998 to act as a
holding company for Great-West Life & Annuity Insurance Company,
a Colorado life insurance company ("GWL&A"), and its
subsidiaries. Following the completion of the reorganization
described below (the "Reorganization"), the Company will hold all
of the outstanding common shares of GWL&A, and the assets and
liabilities of the Company immediately after the Reorganization
will be substantially the same as the assets and liabilities of
GWL&A immediately prior to the Reorganization. Accordingly,
unless the context otherwise requires, all financial and other
information in this Prospectus is presented as if the
Reorganization has been completed for all periods discussed.
The Trust
The Trust is a statutory business trust created under the
Delaware Business Trust Act, as amended (the "Trust Act"),
pursuant to a declaration of trust (as amended and restated, the
"Declaration") and the filing of a certificate of trust with the
Secretary of State of the State of Delaware. The Company will
acquire Common Securities in an aggregate liquidation preference
equal to at least 3% of the total capital of the Trust. All of
the Common Securities will be owned directly by the Company. The
Trust will use all of the proceeds derived from the issuance of
the Capital Securities and the Common Securities to purchase the
Junior Subordinated Debentures and, accordingly, the assets of
the Trust will consist solely of the Junior Subordinated
Debentures and payments made thereunder will be the sole revenue
of the Trust. The Trust exists for the exclusive purpose of (i)
issuing the Trust Securities representing undivided beneficial
ownership interests in the assets of the Trust, (ii) investing
the gross proceeds of the Trust Securities in the Junior
Subordinated Debentures and (iii) engaging in only those other
activities necessary or incidental thereto.
The Company
The Company is an indirect wholly-owned subsidiary of The
Great-West Life Assurance Company ("Great-West Life"), a Canadian
life insurance company. Great-West Life is a subsidiary of
Great-West Lifeco Inc. ("Great-West Lifeco"), a Canadian holding
company. Great-West Lifeco is in turn a subsidiary of Power
Financial Corporation ("Power Financial"), a Canadian holding
company with substantial interests in the financial services
industry. Power Corporation of Canada ("Power Corporation"), a
Canadian holding and management company, has voting control of
Power Financial. Mr. Paul Desmarais, through a group of private
holding companies, which he controls, has voting control of Power
Corporation. Common and preferred shares of Great-West Life,
Great-West Lifeco, Power Financial and Power Corporation are
traded publicly in Canada. The Company is incorporated in
Delaware and maintains its principal executive offices in
Englewood, Colorado.
GWL&A
GWL&A is a stock life insurance company originally
organized in 1907. GWL&A is authorized to engage in the sale of
life insurance, accident and health insurance and annuities. It
is qualified to do business in all states in the United States
except New York, and in the District of Columbia, Puerto Rico and
Guam. GWL&A conducts business in New York through First
Great-West Life & Annuity Insurance Company, a wholly-owned
subsidiary New York life insurance company. As of December 31,
1997, GWL&A ranked among the top 25 of all U.S. life insurance
companies in terms of total admitted assets.
5
<PAGE>
GWL&A operates in one business segment as a provider of
life, health and annuity products. Its major business units are:
Employee Benefits: Life, health, disability income and
401(k) products for group clients; and
Financial Services: Accumulation and payout
annuity products for both group and
individual clients, primarily in the
public/non-profit sector, as well as
insurance products for individual
clients.
Reorganization
Prior to the closing of the Offering, Great-West Life (the
current parent corporation of GWL&A) will cause all of the
outstanding shares of GWL&A's common stock to be contributed to
the Company. The consolidated assets and liabilities of the
Company immediately after the Reorganization will be
substantially the same as the assets and liabilities of GWL&A
immediately prior to the Reorganization.
The Offering is conditioned upon, among other things, the
consummation of the Reorganization. The accounting for the
Reorganization is similar to the accounting for a pooling of
interest as it represents a combination of entities under common
control.
Recent Developments
On July 8, 1998, GWL&A completed its purchase of all of the
outstanding shares of Anthem Health & Life Insurance Company
("AH&L") of Piscataway, New Jersey. The purchase price of $87.8
million was based on AH&L's adjusted book value, and is subject
to further adjustments. GWL&A will operate AH&L as a wholly-owned
subsidiary with a separate sales organization.
On September 30, 1998, GWL&A and Great-West Life entered
into an Indemnity Reinsurance Agreement pursuant to which (i)
GWL&A reinsured by coinsurance certain Great-West Life individual
non-participating life insurance policies and (ii) Great-West
Life transferred to GWL&A assets with a value of approximately
$430 million in support of the reinsured liability.
Also on September 30, 1998, GWL&A repurchased for cash all
of its outstanding shares of preferred stock, which were held by
Great-West Life, at their face value of $121.8 million.
6
<PAGE>
The Offering
The Trust ............... Great-West Life & Annuity Insurance
Capital I, a Delaware statutory
business trust. The sole assets of the
Trust will be the Junior Subordinated
Debentures.
Securities Offered ...... % Capital Securities evidencing
undivided beneficial ownership
interests in the assets of the Trust.
The holders thereof will be entitled to
a preference in certain circumstances
with respect to Distributions and
amounts payable on redemption or
liquidation over the Common Securities.
Distributions ........... Holders of the Capital Securities will
be entitled to receive cumulative cash
distributions accruing from the date of
original issuance and payable quarterly
in arrears on March 31, June 30,
September 30 and December 31 of each
year, commencing March 31, 1999, at the
annual rate of % of the liquidation
amount of $25 per Capital Security. The
distribution rate and the distribution
payment date and other payment dates
for the Capital Securities will
correspond to the interest rate and
interest payment date and other payment
dates on the Junior Subordinated
Debentures. See "Description of Capital
Securities."
Junior Subordinated
Debentures .............. The Trust will invest the proceeds from
the issuance of the Capital Securities
and Common Securities in an equivalent
amount of % Junior Subordinated
Debentures of the Company. The Junior
Subordinated Debentures will mature on
, 2028. The Junior Subordinated
Debentures will rank subordinate and
junior in right of payment to all
Senior Indebtedness of the Company. In
addition, the Company's obligations
under the Junior Subordinated
Debentures will be structurally
subordinated to all existing and future
liabilities and obligations of its
subsidiaries. See "Risk
Factors--Ranking of Subordinate
Obligations Under the Guarantee and the
Junior Subordinated Debentures" and
"Description of Junior Subordinated
Debentures--Subordination."
Guarantee ............... Payment of distributions out of moneys
held by the Trust, and payments on
liquidation of the Trust or the
redemption of Capital Securities, are
guaranteed by the Company to the extent
the Trust has funds available therefor.
If the Company does not make principal
or interest payments on the Junior
Subordinated Debentures, the Trust will
not have sufficient funds to make
Distributions (as defined herein) on
the Capital Securities, in which event
the Guarantee shall not apply to such
Distributions until the Trust has
sufficient funds available therefor.
The Company's obligations under the
Guarantee, taken together with its
obligations under the Junior
Subordinated Debentures and the
Indenture, including its obligation to
pay all costs, expenses and liabilities
of the Trust (other than with respect
to the Capital Securities), constitute
a full and unconditional guarantee of
all of the Trust's obligations under
the Capital Securities. See
7
<PAGE>
"Description of Guarantee" and
"Relationship Among the Capital
Securities, the Junior Subordinated
Debentures and the Guarantee." The
obligations of the Company under the
Guarantee are subordinate and junior in
right of payment to all Senior
Indebtedness of the Company. See "Risk
Factors--Ranking of Subordinated
Obligations Under the Guarantee and the
Junior Subordinated Debentures" and
"Description of Guarantee."
Right to Defer
Interest ................ The Company has the right to defer
payment of interest on the Junior
Subordinated Debentures at any time or
from time to time for a period not
exceeding 20 consecutive quarters with
respect to each Extension Period,
provided that no Extension Period may
extend beyond the Stated Maturity of
the Junior Subordinated Debentures or
end on a day other than an Interest
Payment Date. Upon the termination of
any such Extension Period and the
payment of all amounts then due on any
Interest Payment Date, the Company may
elect to begin a new Extension Period
subject to the requirements set forth
herein. If interest payments on the
Junior Subordinated Debentures are so
deferred, distributions on the Capital
Securities will also be deferred for an
equivalent period and the Company may
not, and may not permit any subsidiary
of the Company to, (i) declare or pay
any dividends or distributions on, or
redeem, purchase, acquire, or make a
liquidation payment with respect to,
the Company's capital stock, (ii) make
any payment of principal, interest or
premium, if any, on or repay,
repurchase or redeem any debt
securities that rank pari passu with or
junior to the Junior Subordinated
Debentures or (iii) make any guarantee
payments with respect to any guarantee
by the Company of the debt securities
of any subsidiary of the Company if
such guarantee ranks pari passu with or
junior to the Junior Subordinated
Debentures (other than (a) dividends or
distributions in the form of stock,
warrants, options or other rights where
the dividend stock or the stocks
issuable upon exercise of such
warrants, options or other right is the
same stock as that on which the
dividend is being paid or ranks pari
passu with or junior to such stock, (b)
payments under the Guarantee, (c) any
declaration of a dividend in connection
with the implementation of a
shareholders' rights plan, or the
issuance of rights, stock or other
property under any such plan in the
future, or the redemption or repurchase
of any such rights pursuant thereto,
(d) as a result of reclassification of
the Company's capital stock into one or
more other classes or series of the
Company's capital stock or the exchange
or conversion of one class or series of
the Company's capital stock (or any
capital stock of a subsidiary of the
Company) for another class or series of
the Company's capital stock, or of any
class or series of the Company's
indebtedness for any class or series of
the Company's capital stock, (e) the
purchase of fractional interests in the
shares of the Company's capital stock
pursuant to the conversion or exchange
provisions of such capital stock or the
security being converted or exchanged
and (f) repurchases, redemptions or
other acquisitions of common stock
related to the issuance of common stock
or rights
8
<PAGE>
under any of the Company's employment
contracts, benefit plans or other
similar arrangement with or for the
benefit of one or more employees,
officers, directors or consultants, in
connection with a dividend reinvestment
or stockholder stock purchase plan or
in connection with the issuance of
capital stock of the Company (or
securities convertible into or
exercisable for such capital stock) as
consideration in an acquisition
transaction entered into prior to the
applicable Extension Period). During an
Extension Period, interest on the
Junior Subordinated Debentures will
continue to accrue (and the amount of
Distributions to which holders of the
Capital Securities are entitled will
accumulate) at the rate of % per
annum, compounded quarterly, and
holders of Capital Securities will be
required to include the stated interest
on their pro rata share of the Capital
Securities in their gross income as OID
even though the cash payments
attributable thereto have not been
made. See "Description of Junior
Subordinated Debentures--Option to
Extend Interest Payment Period" and
"U.S. Federal Income Tax Consequences--
Interest Income and Original Issue
Discount."
Redemption .............. The Junior Subordinated Debentures are
redeemable by the Company in whole or
in part on or after , 2003, or
at any time, in whole but not in part,
upon the occurrence of a Special Event.
If the Junior Subordinated Debentures
are redeemed, the Trust will redeem
Trust Securities having an aggregate
liquidation amount equal to the
aggregate principal amount of the
Junior Subordinated Debentures so
redeemed. The Trust Securities will be
redeemed upon maturity of the Junior
Subordinated Debentures. See
"Description of Capital
Securities--Redemption--Mandatory
Redemption" and "--Special Event
Redemption or Distribution of Junior
Subordinated Debentures."
Liquidation of the
Trust ................... The Company will have the right, at any
time, to dissolve the Trust and after
satisfaction of claims of creditors of
the Trust, if any, as required by
applicable law, cause the Junior
Subordinated Debentures to be
distributed to the holders of the
Capital Securities and the Common
Securities in liquidation of the Trust.
If the Junior Subordinated Debentures
are distributed to the holders of
Capital Securities upon the liquidation
of the Trust, the Company will use its
best efforts to list the Junior
Subordinated Debentures on the New York
Stock Exchange or on such other stock
exchanges or inter-dealer quotation
system, if any, on which the Capital
Securities are then listed or quoted.
See "Description of Junior Subordinated
Debentures--Distribution of Junior
Subordinated Debentures; Book-Entry
Issuance."
In the event of the liquidation of the
Trust, after satisfaction of the claims
of creditors of the Trust, if any, as
provided by applicable law, the holders
of the Capital Securities will be
entitled to receive a liquidation
amount of $25 per Capital Security plus
accumulated and unpaid Distributions
thereon to, but excluding, the date of
payment,
9
<PAGE>
which may be in the form of a
distribution of such amount in Junior
Subordinated Debentures as described
above. If such Liquidation Distribution
(as defined herein) can be paid only in
part because the Trust has insufficient
assets available to pay in full the
aggregate Liquidation Distribution,
then the amounts payable directly by
the Trust on the Capital Securities
shall be paid on a pro rata basis. The
holder of the Common Securities will be
entitled to receive distributions upon
any such liquidation pro rata with the
holders of the Capital Securities,
except that if an Indenture Event of
Default has occurred and is continuing,
the Capital Securities shall have a
priority over the Common Securities.
See "Description of Capital
Securities--Liquidation Distribution
Upon Dissolution."
Use of Proceeds ......... The proceeds from the sale of the
Capital Securities will be used to
purchase the Junior Subordinated
Debentures. The Company plans to
contribute the proceeds from the sale
of the Junior Subordinated Debentures
to GWL&A as regulatory capital for
general corporate purposes. See "Use of
Proceeds."
Ratings ................. The Company expects the Capital
Securities to be rated "a1" by Moody's
Investors Services, Inc. and "A" by
Standard & Poor's Ratings Services. A
security rating is not a recommendation
to buy, sell or hold securities and may
be subject to revision or withdrawal at
any time by the assigning rating
organization.
10
<PAGE>
Summary Pro Forma Consolidated Financial Data
The following table sets forth summary pro forma
consolidated financial information of the Company. The pro forma
consolidated financial data as of and for the years ended
December 31, 1997, 1996, and 1995 has been derived from audited
financial statements of GWL&A and of the Company, adjusted and
restated for all periods presented to reflect the Reorganization,
consisting of the formation and capitalization of the Company and
the effect of the contribution of all of the outstanding shares
of GWL&A's common stock to the Company. The pro forma
consolidated financial data as of and for the six months ended
June 30, 1998 and 1997 has been derived from the unaudited
financial statements of GWL&A, adjusted and restated for the
Reorganization, and includes all adjustments (consisting of
normal recurring accruals) that management considers necessary
for a fair presentation of the Company's results of operations
and financial position for the periods presented. The following
pro forma information should be read in conjunction with the
consolidated financial statements of GWL&A, together with the
related notes thereto, incorporated herein by reference. The pro
forma information as of and for the six-month periods ended June
30, 1998 and 1997 is not necessarily indicative of the financial
condition and operating results for the entire year.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA INCOME Six Months Ended June 30, Year Ended December 31,
STATEMENT DATA ------------------------- -----------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(dollars in thousands)
REVENUES:
Premium and fee income ................ $ 595,577 $ 718,749 $ 1,301,659 $ 1,199,248 $ 1,067,427
Net investment income ................. 447,425 430,395 881,673 836,642 835,046
Net realized gains (losses) on
investment ....................... 19,315 (7,160) 9,800 (21,078) 7,465
----------- ----------- ----------- ----------- -----------
1,062,317 1,141,984 2,193,132 2,014,812 1,909,938
----------- ----------- ----------- ----------- -----------
BENEFITS AND EXPENSES:
Life and other policy benefits ........ 292,468 251,842 543,903 515,750 557,469
Increase in reserves .................. 48,163 183,374 245,811 229,198 98,797
Interest paid or credited to ..........
contractholders .................. 246,995 270,596 527,784 561,786 562,263
Provision for policyholders' share of
earnings (losses) on participating
business ......................... 3,359 4,514 3,753 (7) 2,027
Dividends to policyholders ............ 34,125 34,013 63,799 49,237 48,150
----------- ----------- ----------- ----------- -----------
625,110 744,339 1,385,050 1,355,964 1,268,706
Commissions ........................... 56,836 50,031 102,150 106,561 122,926
Operating expenses .................... 231,823 205,329 425,422 336,719 314,810
Premium taxes ......................... 13,184 9,297 24,153 25,021 26,884
----------- ----------- ----------- ----------- -----------
926,953 1,008,996 1,936,775 1,824,265 1,733,326
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES ............ 135,364 132,988 256,357 190,547 176,612
----------- ----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES:
Current .......................... 41,289 32,105 103,794 77,134 88,366
Deferred ......................... 3,746 22,932 (6,197) (21,162) (39,434)
----------- ----------- ----------- ----------- -----------
45,035 55,037 97,597 55,972 48,932
----------- ----------- ----------- ----------- -----------
NET INCOME ............................ $ 90,329 $ 77,951 $ 158,760 $ 134,575 $ 127,680
=========== =========== =========== =========== ===========
11
<PAGE>
PRO FORMA BALANCE As of Ended June 30, As of December 31,
SHEET DATA ------------------------- -----------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(dollars in thousands)
ASSETS:
Fixed Maturities:
Held-to-maturity, at amortized cost .. $ 2,068,487 $ 2,056,111 $ 2,082,716 $ 1,992,681 $ 2,054,204
Available-for-sale, at fair value .... 6,665,040 6,339,975 6,698,629 6,206,478 6,263,187
Common stock ......................... 42,401 49,808 39,021 19,715 9,440
Mortgage loans on real estate, net ... 1,135,750 1,385,760 1,235,594 1,487,575 1,713,195
Real estate, net ..................... 72,700 55,951 93,775 67,967 60,454
Policy loans ......................... 2,784,178 2,590,483 2,657,116 2,523,477 2,237,745
Short-term investments, available-for-
sale (cost approximates fair value) .. 368,698 422,556 399,131 419,008 134,835
----------- ----------- ----------- ----------- -----------
Total Investments ...................... 13,137,254 12,900,644 13,205,982 12,716,901 12,473,060
Cash ...................................... 89,757 118,466 126,528 125,432 91,189
Deferred policy acquisition costs ......... 238,390 272,418 255,442 282,780 278,526
Other assets .............................. 678,044 667,692 642,562 741,740 840,815
Separate account assets ................... 9,087,909 6,832,172 7,847,451 5,484,631 3,998,878
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS .............................. $23,231,354 $20,791,392 $22,077,965 $19,351,484 $17,682,468
=========== =========== =========== =========== ===========
POLICY BENEFIT LIABILITIES:
Policy reserves ........................... $11,150,948 $10,988,788 $11,102,719 $11,022,595 $10,845,935
Policy and contract claims ................ 378,084 392,089 375,499 372,327 359,791
Policyholders' funds ...................... 184,887 172,552 165,106 153,867 154,872
Other liabilities ......................... 131,235 134,191 147,872 138,678 131,322
GENERAL LIABILITIES:
Due to Parent Corporation ................. 123,663 150,129 126,656 151,431 149,974
Other general liabilities ................. 783,598 871,376 984,628 860,236 911,708
Undistributed earnings on
participating business ............... 145,215 141,949 141,865 133,255 136,617
Separate account liabilities .............. 9,087,909 6,832,172 7,847,451 5,484,631 3,998,878
----------- ----------- ----------- ----------- -----------
Total Liabilities ...................... $21,985,539 $19,683,246 $20,891,796 $18,317,020 $16,689,097
----------- ----------- ----------- ----------- -----------
STOCKHOLDER'S EQUITY:
Preferred stock ........................... 121,800 121,800 121,800 121,800 121,800
Common stock .............................. 250 250 250 250 250
Additional paid-in capital ................ 697,780 697,780 697,780 671,297 664,297
Accumulated other comprehensive
income ............................... 58,899 18,868 52,807 14,951 58,763
Retained earnings ......................... 367,086 269,448 313,532 226,166 148,261
----------- ----------- ----------- ----------- -----------
Total Stockholder's Equity .......... 1,245,815 1,108,146 1,186,169 1,034,464 993,371
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY ...................... $23,231,354 $20,791,392 $22,077,965 $19,351,484 $17,682,468
=========== =========== =========== =========== ===========
</TABLE>
12
<PAGE>
RISK FACTORS
Prospective investors should carefully review the following
factors, as well as the other information contained in this
Prospectus, before deciding to make an investment in Capital
Securities.
Ranking of Subordinated Obligations Under the Guarantee and the
Junior Subordinated Debentures
The obligations of the Company under the Guarantee issued
by the Company for the benefit of the holders of Capital
Securities and under the Junior Subordinated Debentures are
unsecured and rank subordinate and junior in right of payment to
all Senior Indebtedness of the Company and will be structurally
subordinated to all liabilities and obligations of the Company's
subsidiaries. At June 30, 1998, the Company had no Senior
Indebtedness outstanding, and the Company's consolidated
subsidiaries had indebtedness and other liabilities (exclusive of
obligations to policyholders) of approximately $123.7 million to
which the obligations of the Company would be effectively
subordinated. None of the Indenture, the Guarantee or the
Declaration places any limitation on the amount of secured or
unsecured Senior Indebtedness that may be incurred by the
Company. See "Description of Guarantee--Status of the Guarantee"
and "Description of Junior Subordinated
Debentures--Subordination."
Status as a Holding Company
As a holding company, the ability of the Company to pay
interest and principal on the Junior Subordinated Debentures will
depend significantly on the receipt of dividends or other
distributions from the Company's subsidiaries. The Company's
principal subsidiary is GWL&A. The ability of GWL&A to pay
dividends or make other distributions to the Company generally is
dependent on GWL&A's compliance with applicable regulatory
restrictions. Under Colorado law, GWL&A cannot, without the
approval of the Colorado Commissioner of Insurance, pay a
dividend if, as a result of such payment, the total of all
dividends paid in the preceding twelve months would exceed the
greater of (i) 10% of GWL&A's surplus as regards policyholders as
of the preceding December 31 or (ii) GWL&A's net gain from
operations for the 12-month period ending as of the preceding
December 31.
In addition, the right of the Company to participate in any
distribution of assets of any subsidiary, including GWL&A, upon
such subsidiary's liquidation or reorganization or otherwise (and
thus the ability of holders of the Capital Securities to benefit
indirectly from such distribution), will be subject to the prior
claims of creditors of that subsidiary (including policyholders),
except to the extent that any claims of the Company as a creditor
of such subsidiary may be recognized as such. Accordingly, the
Capital Securities will effectively be subordinated to all
existing and future liabilities of the Company's subsidiaries,
and holders of the Capital Securities should look only to the
assets of the Company for payments on the Capital Securities. The
Company plans to contribute the proceeds from the sale of the
Junior Subordinated Debentures to GWL&A as regulatory capital for
general corporate purposes.
Limitation on Enforcement of Certain Rights by Holders of Capital
Securities
If a Trust Enforcement Event (as defined herein) occurs and
is continuing, then the holders of Capital Securities would rely
on the enforcement by the Property Trustee (as defined herein) of
its rights as a holder of the Junior Subordinated Debentures
against the Company. The holders of a majority in liquidation
preference of the Capital Securities will have the right to
direct the time, method and place of conducting any proceeding
for any remedy available to the Property Trustee or to direct the
exercise of any trust or power conferred upon the Property
Trustee under the Declaration, including the right to direct the
Property Trustee to exercise the remedies available to it as a
holder of the Junior Subordinated Debentures. If the Property
Trustee fails to enforce its rights with respect to the Junior
Subordinated Debentures held by the Trust, any record holder of
13
<PAGE>
Capital Securities may institute legal proceedings directly
against the Company to enforce the Property Trustee's rights
under such Junior Subordinated Debentures without first
instituting any legal proceedings against such Property Trustee
or any other person or entity.
If the Company were to default on its obligation to pay
amounts payable under the Junior Subordinated Debentures, the
Trust would lack funds for the payment of Distributions or
amounts payable on redemption of the Capital Securities or
otherwise. In such event, holders of the Capital Securities would
not be able to rely upon the Guarantee for payment of such
amounts. However, if the Company failed to pay interest on or
principal of the Junior Subordinated Debentures when such payment
is due and payable, then a holder of Capital Securities may
directly institute a proceeding against the Company under the
Indenture for enforcement of payment to such holder of the
interest on or principal of such Junior Subordinated Debentures
having a principal amount equal to the aggregate liquidation
amount of the Capital Securities of such holder (a "Direct
Action"). In connection with such Direct Action, the Company will
be subrogated to the rights of such holder of Capital Securities
under the Declaration to the extent of any payment made by the
Company to such holder of Capital Securities in such Direct
Action. Except as set forth herein, holders of Capital Securities
will not be able to exercise directly any other remedy available
to the holders of Junior Subordinated Debentures or assert
directly any other rights in respect of the Junior Subordinated
Debentures. See "Description of Capital Securities--Trust
Enforcement Events," "Description of Guarantee," "Description of
Junior Subordinated Debentures--Indenture Events of Default" and
"--Enforcement of Certain Rights by Holders of Capital
Securities."
Option to Extend Interest Payment Period; Tax Consequences
The Company has the right under the Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any
time or from time to time for a period not exceeding 20
consecutive quarters provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures.
As a consequence of any such deferral, quarterly Distributions on
the Capital Securities by the Trust will be deferred during any
such Extension Period but would continue to accumulate at the
rate of % per annum to the extent permitted by applicable law,
compounded quarterly during any Extension Period. During any such
Extension Period, the Company may not, and may not permit any
subsidiary of the Company to (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital
stock, (ii) make any payment of principal, interest or premium,
if any, on or repay, repurchase or redeem any debt securities of
the Company that rank pari passu with or junior to the Junior
Subordinated Debentures or (iii) make any guarantee payments with
respect to any guarantee by the Company of the debt securities of
any subsidiary of the Company if such guarantee ranks pari passu
with or junior to the Junior Subordinated Debentures (other than
(a) dividends or distributions in the form of stock, warrants,
options or other rights where the dividend stock or the stocks
issuable upon exercise of such warrants, options or other right
is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock, (b) payments under
the Guarantee, (c) any declaration of a dividend in connection
with the implementation of a shareholders' rights plan, or the
issuance of rights, stock or other property under any such plan
in the future, or the redemption or repurchase of any such rights
pursuant thereto, (d) as a result of reclassification of the
Company's capital stock into one or more other classes or series
of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock (or any
capital stock of a subsidiary of the Company) for another class
or series of the Company's capital stock, or of any class or
series of the Company's indebtedness for any class or series of
the Company's capital stock, (e) the purchase of fractional
interests in the shares of the Company's capital stock pursuant
to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged and (f) repurchases,
redemptions or other acquisitions of common stock related to the
issuance of common stock or rights under any of the Company's
employment contracts, benefit plans or other similar arrangement
with or for the benefit of one or more employees, officers,
directors or consultants, in connection
14
<PAGE>
with a dividend reinvestment or stockholder stock purchase plan
or in connection with the issuance of capital stock of the
Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction
entered into prior to the applicable Extension Period). Prior to
the termination of any such Extension Period, the Company may
further extend the Extension Period, provided that no Extension
Period may exceed 20 consecutive quarters or extend beyond the
Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any Extension Period and the payment
of all amounts then due on any Interest Payment Date, the
Company may elect to begin a new Extension Period subject to
the above requirements. See "Description of Capital
Securities--Distributions" and "Description of Junior
Subordinated Debentures--Option to Extend Interest Payment
Period."
If the Company defers payment of interest on the Junior
Subordinated Debentures, a holder of Capital Securities will
continue to accrue income (in the form of OID) for United States
federal income tax purposes in respect of its pro rata share of
the Junior Subordinated Debentures held by the Trust. As a
result, a holder of Capital Securities will include such interest
income in gross income for United States federal income tax
purposes in advance of the receipt of cash attributable to such
interest income, and will not receive the cash related to such
income from the Trust if the holder disposes of the Capital
Securities prior to the record date for the payment of
Distributions with respect to such Extension Period. See "U.S.
Federal Income Tax Consequences--Interest Income and Original
Issue Discount" and "--Sale or Redemption of Capital Securities."
The Company has no current intention of exercising its
right to defer payments of interest by extending the interest
payment period on the Junior Subordinated Debentures. However,
should the Company elect to exercise such right in the future,
the market price of the Capital Securities is likely to be
adversely affected. A holder that disposes of its Capital
Securities during an Extension Period, therefore, might not
receive the same return on its investment as a holder that
continues to hold its Capital Securities. In addition, as a
result of the existence of the Company's right to defer interest
payments, the market price of the Capital Securities (which
represent preferred undivided beneficial interests in the Junior
Subordinated Debentures) may be more volatile than the market
prices of other similar securities on which the Company does not
have such right to defer interest payments.
Special Event Redemption
Upon the occurrence and continuation of a Special Event,
the Company has the right, subject to any necessary regulatory
approval, to redeem the Junior Subordinated Debentures in whole
(but not in part) at a redemption price equal to 100% of the
principal amount of such Junior Subordinated Debentures (together
with accrued and unpaid payments of interest thereon to, but
excluding, the date of redemption) within 90 days following the
occurrence of such Special Event and thereby cause a mandatory
redemption of the Capital Securities and Common Securities. See
"U.S. Federal Income Tax Consequences--Possible Tax Law Changes."
A "Special Event" means a Tax Event or an Investment
Company Event. A "Tax Event" means the receipt by the Trust of an
opinion of counsel experienced in such matters to the effect
that, as a result of (a) any amendment to or change (including
any announced prospective change) in the laws or any regulations
thereunder of the United States or any political subdivision or
taxing authority thereof or therein or (b) any judicial decision
or any official administrative pronouncement (including any
private letter ruling, technical advice memorandum or Chief
Counsel advice, as defined by the Code) or regulatory procedure
(an "Administrative Action"), regardless of whether such judicial
decision or Administrative Action is issued to or in connection
with a proceeding involving the Company or the Trust and whether
or not subject to review or appeal, which amendment, change,
decision or Administrative Action is enacted, released by the
Internal Revenue Service, promulgated or announced, in each case,
on or after the date of this Prospectus, there is
15
<PAGE>
more than an insubstantial risk that (i) the Trust is, or will be
within 90 days of the date of such opinion, subject to United
States federal income tax with respect to income received or
accrued on the Junior Subordinated Debentures, (ii) interest
payable by the Company or OID accruing on the Junior Subordinated
Debentures is not, or within 90 days of the date of such opinion,
will not be, deductible by the Company, in whole or in part, for
United States federal income tax purposes or (iii) the Trust is,
or will be within 90 days of the date of such opinion, subject to
more than a de minimis amount of other taxes, duties or other
governmental charges. An "Investment Company Event" means the
receipt by the Trust of an opinion of counsel, rendered by a law
firm having a recognized securities practice, to the effect that,
as a result of the occurrence of a Change in Investment Company
Act Law (as defined herein), the Trust is or will be considered
an "investment company" that is required to be registered under
the Investment Company Act of 1940, as amended (the "Investment
Company Act"), which Change in Investment Company Act Law becomes
effective on or after the date of original issuance of the
Capital Securities.
Liquidation Distribution of Junior Subordinated Debentures
The Company will have the right, at any time, to terminate
the Trust and cause the Junior Subordinated Debentures to be
distributed to the holders of the Capital Securities and the
Common Securities in liquidation of the Trust. Under current
United States federal income tax law and interpretations thereof
and assuming, as expected, the Trust is treated as a grantor
trust for United States federal income tax purposes, a
distribution by the Trust of the Junior Subordinated Debentures
pursuant to a liquidation of the Trust will not be a taxable
event to the Trust or to holders of the Capital Securities and
will result in a holder of the Capital Securities receiving
directly such holder's pro rata share of the Junior Subordinated
Debentures (previously held indirectly through the Trust). If,
however, the liquidation of the Trust were to occur because the
Trust is subject to United States federal income tax with respect
to income accrued or received on the Junior Subordinated
Debentures as a result of any event described in clauses (a) and
(b) of the definition of "Tax Event" above, or otherwise, the
distribution of Junior Subordinated Debentures to holders of the
Capital Securities by the Trust could be a taxable event to the
Trust and each holder, and holders of the Capital Securities may
be required to recognize gain or loss as if they had exchanged
their Capital Securities for the Junior Subordinated Debentures
they received upon the liquidation of the Trust. See "U.S.
Federal Income Tax Consequences--Distribution of Junior
Subordinated Debentures to Holders of Capital Securities Upon
Liquidation of the Trust."
There can be no assurance as to the market prices for
Capital Securities or Junior Subordinated Debentures that may be
distributed in exchange for Capital Securities if a liquidation
of the Trust occurs. Accordingly, the Capital Securities that an
investor may purchase, whether pursuant to the offer made hereby
or in the secondary market, or the Junior Subordinated Debentures
that a holder of Capital Securities may receive on liquidation of
the Trust, may trade at a discount to the price that the investor
paid to purchase the Capital Securities offered hereby. Because
holders of Capital Securities may receive Junior Subordinated
Debentures on termination of the Trust, prospective purchasers of
Capital Securities are also making an investment decision with
regard to the Junior Subordinated Debentures and should carefully
review all the information regarding the Junior Subordinated
Debentures contained herein. See "Description of Capital
Securities--Redemption--Special Event Redemption or Distribution
of Junior Subordinated Debentures" and "Description of Junior
Subordinated Debentures--General."
Limited Voting Rights
Holders of Capital Securities generally will have limited
voting rights relating only to the modification of the Capital
Securities and certain other matters described herein. Except
upon the occurrence and continuation of an Event of Default,
holders of Capital Securities will not be entitled to vote to
appoint, remove or replace any of the Trustees (as defined
below), which voting rights are vested exclusively in the
16
<PAGE>
holder of the Common Securities. The Trustees and the Company may
amend the Declaration without the consent of holders of Capital
Securities to ensure that the Trust will be classified as a
grantor trust for United States federal income tax purposes, to
ensure that the Junior Subordinated Debentures will be treated as
indebtedness of the Company or to ensure that the Trust will not
be required to register as an "investment company" under the
Investment Company Act, provided, however, that in each case such
action shall not adversely affect in any material respect the
interests of any holder of Capital Securities or Common
Securities. See "Description of Capital Securities--Voting
Rights; Amendment of the Declaration."
Trading Characteristics of Capital Securities
The Capital Securities may trade at prices that do not
fully reflect the value of accrued but unpaid interest with
respect to the underlying Junior Subordinated Debentures. See
"U.S. Federal Income Tax Consequences--Sale or Redemption of
Capital Securities."
No Prior Market; Liquidity
Prior to this offering, there has been no public market for
the Capital Securities. Although the Company has applied for
listing of the Capital Securities on the New York Stock Exchange,
there can be no assurance that such listing will be approved or,
if approved, that an active market for the Capital Securities
will develop or be sustained in the future on such exchange.
Although the Underwriters have advised the Company that they
intend to make a market in the Capital Securities as permitted by
applicable laws and regulations prior to the commencement of
trading on the New York Stock Exchange, they are not obligated to
do so and may discontinue any such market-making at any time
without notice. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Capital Securities.
17
<PAGE>
REORGANIZATION
GWL&A Financial Inc. was formed on September 16, 1998 to
act as a holding company for GWL&A and its subsidiaries. The
Company is incorporated in Delaware and maintains its principal
executive offices in Englewood, Colorado.
Prior to the closing of the Offering, Great-West Life (the
current parent corporation of GWL&A) will cause all of the
outstanding shares of GWL&A's common stock to be contributed to
the Company. The consolidated assets and liabilities of the
Company immediately after the Reorganization will be
substantially the same as the assets and liabilities of GWL&A
immediately prior to the Reorganization.
The Offering is conditioned upon, among other things, the
consummation of the Reorganization. The accounting for the
Reorganization is similar to the accounting for a pooling of
interest as it represents a combination of entities under common
control.
RECENT DEVELOPMENTS
On July 8, 1998, GWL&A completed its purchase of all of the
outstanding shares of Anthem Health & Life Insurance Company
("AH&L") of Piscataway, New Jersey. The purchase price of $87.8
million was based on AH&L's adjusted book value, and is subject
to further adjustments. GWL&A will operate AH&L as a wholly-owned
subsidiary with a separate sales organization.
On September 30, 1998, GWL&A and Great-West Life entered
into an Indemnity Reinsurance Agreement pursuant to which (i)
GWL&A reinsured by coinsurance certain Great-West Life individual
non-participating life insurance policies and (ii) Great-West
Life transferred to GWL&A assets with a value of approximately
$430 million in support of the reinsured liability.
Also on September 30, 1998, GWL&A repurchased for cash all
of its outstanding shares of preferred stock, which were held by
Great-West Life, at their face value of $121.8 million.
18
<PAGE>
CAPITALIZATION
The Company was formed on September 16, 1998 to act as a
holding company for GWL&A and its subsidiaries. Following the
completion of the Reorganization, the Company will hold all of
the outstanding common shares of GWL&A, and the assets and
liabilities of the Company immediately after the Reorganization
will be substantially the same as the assets and liabilities of
GWL&A immediately prior to the Reorganization. The following
table sets forth the pro forma consolidated capitalization of the
Company as of June 30, 1998 (after giving effect to the
Reorganization), and as adjusted to give effect to (i) the
repurchase by the Company on September 30, 1998 of all of its
outstanding shares of preferred stock which were held by its
parent, Great-West Life, at their face value of $121.8 million,
and (ii) the consummation of the offering of the Capital
Securities.
As of
June 30, 1998
-----------------------
Pro Forma Pro Forma
Actual As Adjusted
--------- -----------
(dollars in thousands)
Long-term debt................... $ 116,717 $
--------- -------
Guaranteed Preferred Beneficial
Interests in the Company's --
Junior Subordinated Debentures(1) --------- -------
Stockholders' equity:
Preferred stock............... 121,800
Common stock.................. 250
Additional paid-in capital.... 697,780
Accumulated other
comprehensive income.......... 58,899
Retained earnings............. 367,086
--------- -------
Total stockholders' equity. 1,245,815 -------
---------
Total capitalization............. $1,362,532 $
========= =======
- ---------------------
(1) As described herein, the sole asset of the Trust will be
$154,639,200 aggregate principal amount of % Junior
Subordinated Debentures, issued by the Company to the Trust.
The Junior Subordinated Debentures will mature on ,
2028. The Company owns all of the Common Securities of the
Trust.
19
<PAGE>
USE OF PROCEEDS
The proceeds to the Trust from the offering of the Capital
Securities will be $ million. All of the proceeds from the sale
of the Capital Securities will be invested by the Trust in the
Junior Subordinated Debentures. The Company plans to contribute
the net proceeds from the sale of the Junior Subordinated
Debentures ($ before expenses of the offering) to GWL&A as
regulatory capital for general corporate purposes. Pending such
use, the net proceeds may be temporarily invested in short-term
obligations. The precise amounts and timing of the application of
proceeds will depend upon the funding requirements of the Company
and its subsidiaries and the availability of other funds.
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's pro forma consolidated ratios of earnings to
fixed charges and pro forma consolidated ratios of earnings to
combined fixed charges and preferred stock dividend requirements
for each of the periods indicated are set forth below:
Six Months Ended Year Ended December 31,
-------------------------------------
June 30, 1998 1997 1996 1995 1994 1993
---------------- ------ ------ ------ ------ ------
Earnings to Fixed
Charges:............... 21x 19x 13x 12x 8x 14x
Earnings to Combined
Fixed Charges and
Preferred Stock Dividend
Requirements:.......... 11x 9x 7x 7x 5x 5x
For purposes of computing the ratios, earnings represent
net income before deduction for interest expense on debt and
income taxes, and fixed charges represent interest on debt.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated
as a subsidiary of the Company and, accordingly, the accounts of
the Trust will be included in the consolidated financial
statements of the Company. The sole asset of the Trust will
be $154,639,200 aggregate principal amount of % Junior
Subordinated Debentures due 2028, issued by the Company to the
Trust. The Capital Securities will be presented in the
consolidated balance sheet of the Company in a line entitled
"Guaranteed Preferred Beneficial Interests in the Company's
Junior Subordinated Debentures," and appropriate disclosures
about the Capital Securities, the Guarantee and the Junior
Subordinated Debentures will be included in the notes to the
consolidated financial statements. For financial reporting
purposes, the Company will record Distributions payable on the
Capital Securities as an expense in its consolidated statements
of income.
The Company has agreed that future financial reports of the
Company will: (i) include in a footnote to the financial
statements disclosure that the sole assets of the Trust are the
Junior Subordinated Debentures; and (ii) if Staff Accounting
Bulletin 53 treatment is sought, include, in an audited footnote
to the financial statements, disclosure that (a) the Trust is
wholly-owned, (b) the sole assets of the Trust are the Junior
Subordinated Debentures and (c) taken together, the Company's
obligations under the Junior Subordinated Debentures, the
Indenture and the Guarantee provide, in the aggregate, a full and
unconditional guarantee by the Company of the Trust's obligations
under the Capital Securities.
20
<PAGE>
THE TRUST
The Trust is a statutory business trust formed under the
Delaware Business Trust Act, as amended (the "Trust Act"),
pursuant to a declaration of trust and the filing of a
certificate of trust with the Secretary of State of the State of
Delaware (as amended and restated, the "Declaration")
substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Declaration
will be qualified as an indenture under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). The Company will
acquire Common Securities in an aggregate liquidation amount
equal to at least 3% of the total capital of the Trust. The Trust
will use all the proceeds derived from the issuance of the
Capital Securities and the Common Securities to purchase the
Junior Subordinated Debentures and, accordingly, the assets of
the Trust will consist solely of the Junior Subordinated
Debentures. The Trust exists for the exclusive purpose of (i)
issuing the Trust Securities representing undivided beneficial
ownership interests in the assets of the Trust, (ii) investing
the gross proceeds of the Trust Securities in the Junior
Subordinated Debentures and (iii) engaging in only those other
activities necessary or incidental thereto.
Pursuant to the Declaration, there will initially be five
trustees (the "Trustees") for the Trust. Three of the Trustees
(the "Regular Trustees") will be individuals who are employees or
officers of or who are affiliated with the Company. The fourth
trustee will be a financial institution that is unaffiliated with
the Company and is indenture trustee for purposes of compliance
with the provisions of the Trust Indenture Act (the "Property
Trustee"). The fifth trustee will be an entity that maintains its
principal place of business in the State of Delaware (the
"Delaware Trustee"). Initially, The Bank of New York, a New York
banking corporation, will act as Property Trustee, and its
affiliate, The Bank of New York (Delaware), a Delaware
corporation, will act as Delaware Trustee until, in each case,
removed or replaced by the holder of the Common Securities. For
purposes of compliance with the Trust Indenture Act, The Bank of
New York will also act as trustee under the Trust Guarantee (the
"Guarantee Trustee").
The Property Trustee will hold title to the Junior
Subordinated Debentures for the benefit of the holders of the
Trust Securities, and the Property Trustee will have the power to
exercise all rights, powers and privileges with respect to the
Junior Subordinated Debentures under the Indenture (as defined
herein) as the holder of the Junior Subordinated Debentures. In
addition, the Property Trustee will maintain exclusive control of
a segregated non-interest bearing bank account (the "Property
Account") to hold all payments made in respect of the Junior
Subordinated Debentures for the benefit of the holders of the
Trust Securities. The Guarantee Trustee will hold the Guarantee
for the benefit of the holders of the Capital Securities. The
Company, as the holder of all the Common Securities, will have
the right to appoint, remove or replace any of the Trustees and
to increase or decrease the number of Trustees; provided that the
number of Trustees shall be at least three; and provided,
further, that at least one Trustee shall be a Delaware Trustee,
at least one Trustee shall be the Property Trustee and at least
one Trustee shall be a Regular Trustee. The Company will pay all
fees and expenses related to the organization and operations of
the Trust (including any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding
taxes) imposed by the United States or any other domestic taxing
authority upon the Trust) and the offering of the Capital
Securities and be responsible for all debts and obligations of
the Trust (other than with respect to the Capital Securities).
For so long as the Capital Securities remain outstanding,
the Company will covenant (i) to maintain directly or indirectly
100% ownership of the Common Securities, (ii) to cause the Trust
to remain a statutory business trust and not to voluntarily
dissolve, wind-up, liquidate or be terminated, except as
permitted by the Declaration, (iii) to use its commercially
reasonable efforts to ensure that the Trust will not be an
"investment company" for purposes of the Investment Company Act,
and (iv) to take no action that would be reasonably likely to
cause the Trust to be classified as an association or a publicly
traded partnership taxable as a corporation for United States
federal income tax purposes.
21
<PAGE>
The rights of the holders of the Capital Securities,
including economic rights, rights to information and voting
rights, are set forth in the Declaration and the Trust Act. See
"Description of Capital Securities." The Declaration and the
Guarantee also incorporate by reference the terms of the Trust
Indenture Act.
The location of the principal executive office of the Trust
is c/o GWL&A Financial Inc., 8515 East Orchard Road, Englewood,
Colorado 80111, and its telephone number is 303-689-3000.
22
<PAGE>
THE COMPANY
GWL&A Financial was formed on September 16, 1998 to act as
a holding company for GWL&A, a Colorado life insurance company,
and its subsidiaries. The Company is incorporated in Delaware and
maintains its principal executive offices in Englewood, Colorado.
The Company is an indirect wholly-owned subsidiary of
Great-West Life, a Canadian life insurance company. Great-West
Life is a subsidiary of Great-West Lifeco, a Canadian holding
company. Great-West Lifeco is in turn a subsidiary of Power
Financial, a Canadian holding company with substantial interests
in the financial services industry. Power Corporation, a Canadian
holding and management company, has voting control of Power
Financial. Mr. Paul Desmarais, through a group of private holding
companies, which he controls, has voting control of Power
Corporation. Common and preferred shares of Great-West Life,
Great-West Lifeco, Power Financial and Power Corporation are
traded publicly in Canada.
GWL&A
GWL&A is a stock life insurance company originally
organized in 1907. GWL&A is authorized to engage in the sale of
life insurance, accident and health insurance and annuities. It
is qualified to do business in all states in the United States
except New York, and in the District of Columbia, Puerto Rico and
Guam. GWL&A conducts business in New York through First
Great-West Life & Annuity Insurance Company, a wholly-owned
subsidiary New York life insurance company. As of December 31,
1997, GWL&A ranked among the top 25 of all U.S. life insurance
companies in terms of total admitted assets.
Business of the Company
The Company operates, through GWL&A, in one business
segment as a provider of life, health and annuity products. Its
major business units are:
Employee Benefits: Life, health, disability income and
401(k) products for group clients; and
Financial Services: Accumulation and payout annuity
products for both group and individual
clients, primarily in the
public/non-profit sector, as well as
insurance products for individual
clients.
Employee Benefits
The Employee Benefits division is responsible for marketing
group life and health and 401(k) products to employers. The
Company offers employers a fully integrated employee benefits
package with a single service contact for multiple products.
Through integrated pricing, administration and funding, the
Company helps employers provide cost-effective benefits aimed at
attracting and retaining quality employees. For the six months
ended June 30, 1998, this business unit contributed approximately
58% of the net income of the Company.
The Company offers customers a variety of health plan
options to help them maximize the value of their employee
benefits investment. These range from fully-insured products,
whereby the Company assumes all or a significant portion of the
health care cost and utilization risk, to self-funded, whereby
the employer assumes all or a significant portion of costs and
risk. Employee Benefits also provides administration and claims
services and, in many cases, stop-loss insurance protection.
The Company offers a full range of managed care products
and services. These products include Health Maintenance
Organization ("HMO") and Point-of-Service ("POS") plans, which
provide a high degree
23
<PAGE>
of managed care, and Preferred Provider Organization ("PPO")
plans, which offer more flexibility in provider choice. Because
many employers want to offer employees a choice in health plans
while containing costs, the Company offers PPO/POS/HMO option
packages. In addition, the Company maintains a fully insured
product to meet customer demand for traditional health care
products.
The Company's 401(k) product is offered by way of a group
fixed and variable deferred annuity contract. The product
provides a variety of funding and distribution options for
employer-approved retirement plans that qualify under Internal
Revenue Code Section 401(k).
Variable investment options utilize separate accounts
("Separate Accounts") to provide contractholders with a vehicle
to assume the investment risks. Assets held under these options
are invested, as designated by the participant, in Separate
Accounts which in turn invest in shares of underlying funds
managed by a subsidiary of the Company or by selected external
fund managers. The participant currently has up to 32 different
variable investment options.
Financial Services
The Financial Services division markets and administers
savings and life insurance products. For the six months ended
June 30, 1998, this business unit contributed approximately 42%
of the net income of the Company.
Savings products include (i) individual and group annuity
contracts which offer a variety of funding and distribution
options for personal and employer-sponsored retirement plans that
qualify under Internal Revenue Code Sections 401, 403, 408, and
457, and (ii) individual and group non-qualified annuity
contracts. These contracts may be immediate or deferred and are
offered primarily to individuals and employers of public and
non-profit sector employees. The Company also provides pension
plan administrative services through a subsidiary company,
Financial Administrative Services Corporation ("FASCorp"). The
Company provides marketing and communication services through
another subsidiary company, Benefits Communication Corporation,
and BenefitsCorp Equities, Inc., a broker-dealer subsidiary of
Benefits Communication Corporation.
The primary marketing emphasis for the Company's savings
products is the public/non-profit market for defined contribution
retirement savings plans. Defined contribution plans provide for
participant accounts with benefits based upon the value of
contributions to, and investment returns on, the individual's
account. These plans have been the fastest growing portion of the
pension marketplace in recent years.
The Company's variable annuity products provide the
opportunity for contractholders to assume the risks of, and
receive all the benefits from, the investment of retirement
assets. The variable product assets are invested, as designated
by the participant, in Separate Accounts which in turn invest in
shares of underlying funds managed by a subsidiary of the Company
or by selected external fund managers.
Investment Operations
The Company's investment operations division manages the
Company's general and Separate Account funds in support of cash
and liquidity requirements of the Company's insurance and
investment products in accordance with regulatory requirements.
Investments under management at year-end 1997 totaled $21.0
billion, comprised of corporate and insurance-related investment
assets of $13.2 billion and Separate Account assets of $7.8
billion.
24
<PAGE>
The Company invests in a broad range of asset classes,
including domestic and international fixed maturity investments
and common stocks, mortgage loans, real estate, and short-term
investments. Fixed maturity investments include publicly traded
and private placement corporate bonds, government bonds, publicly
traded and private placement structured assets and redeemable
preferred stocks. The Company's portfolio of structured assets is
primarily invested in mortgage-backed securities and secondarily
in other asset-backed securities. Mortgage-backed securities
include collateralized mortgage obligations ("CMOs"). CMO
holdings are concentrated in securities with limited prepayment,
extension and default risk, such as planned amortization class
bonds.
Regulation
The business of the Company is subject to comprehensive
state and federal regulation and supervision throughout the
United States, which primarily provides safeguards for policy
holders rather than investors. The laws of the various state
jurisdictions establish supervisory agencies with broad
administrative powers with respect to such matters as admittance
of assets, regulating premium rating methodology, approving
policy forms, establishing reserve requirements and solvency
standards, fixing maximum interest rates on life insurance policy
loans and minimum rates for accumulation of surrender values,
regulating the type, amounts and valuation of investments
permitted, and HMO operations.
The Company's operations and accounts are subject to
examination by the Colorado Insurance Division and other
regulators at specified intervals. The latest financial
examination by the Colorado Insurance Division was completed in
1997, and covered the five year period ending December 31, 1995.
This examination produced no significant adverse findings
regarding the Company.
The National Association of Insurance Commissioners has
adopted risk-based capital rules and other financial ratios for
life insurance companies. Based on the Company's December 31,
1997 statutory financial reports, the Company had risk-based
capital in excess of that required and was within the usual
ranges of all ratios.
Because the Company is a subsidiary of Great-West Life,
which is a Canadian company, the Office of the Superintendent of
Financial Institutions Canada conducts periodic examinations of
the Company and approves certain investments in subsidiary
companies.
United States legislation and administrative developments
in various areas, including pension regulation, financial
services regulation, health care legislation and the insurance
industry could significantly and adversely affect the Company in
the future. For example, Congress is currently considering
legislation relating to health care reform and managed care
issues, including patients' rights, provider contracting and
reimbursement, privacy of medical records, and managed care plan
or enterprise liability. Congress has from time to time also
considered the deferral of taxation on the accretion of value
within certain annuities and life insurance products, financial
services reform legislation establishing frameworks for banks
engaging in the insurance business, changes in regulations for
ERISA, the alteration of the federal income tax structure and the
availability of Section 401(k) for individual retirement
accounts.
It is not possible to predict whether future legislation or
regulation adversely affecting the business of the Company will
be enacted and, if enacted, the extent to which such legislation
or regulation will have an effect on the Company and its
competitors.
25
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth selected pro forma
consolidated financial information of the Company. The pro forma
consolidated financial data as of and for the years ended
December 31, 1997, 1996, and 1995 has been derived from audited
financial statements of GWL&A and of the Company, adjusted and
restated for all periods presented to reflect the Reorganization,
consisting of the formation of the Company and the effect of the
contribution of all of the outstanding shares of GWL&A's common
stock to the Company. The pro forma consolidated financial data
as of and for the six months ended June 30, 1998 and 1997 has
been derived from the unaudited financial statements of GWL&A,
adjusted and restated for the Reorganization, and includes all
adjustments (consisting of normal recurring accruals) that
management considers necessary for a fair presentation of the
Company's results of operations and financial position for the
periods presented. The following pro forma information should be
read in conjunction with the consolidated financial statements of
GWL&A, together with the related notes thereto, incorporated
herein by reference. The pro forma information as of and for the
six-month periods ended June 30, 1998 and 1997 is not necessarily
indicative of the financial condition and operating results for
the entire year.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA INCOME Six Months Ended June 30, Year Ended December 31,
------------------------- ------------------------------------------
STATEMENT DATA 1998 1997 1997 1996 1995
---------- ------------ ----------- ----------- ------------
(dollars in thousands)
REVENUES:
Premium and fee income .............. $ 595,577 $ 718,749 $ 1,301,659 $ 1,199,248 $ 1,067,427
Net investment income ............... 447,425 430,395 881,673 836,642 835,046
Net realized gains (losses) on
investment ........................ 19,315 (7,160) 9,800 (21,078) 7,465
----------- ----------- ----------- ----------- -----------
1,062,317 1,141,984 2,193,132 2,014,812 1,909,938
----------- ----------- ----------- ----------- -----------
BENEFITS AND EXPENSES:
Life and other policy benefits ...... 292,468 251,842 543,903 515,750 557,469
Increase in reserves ................ 48,163 183,374 245,811 229,198 98,797
Interest paid or credited to
contractholders ................... 246,995 270,596 527,784 561,786 562,263
Provision for policyholders' share of
earnings (losses) on participating
business .......................... 3,359 4,514 3,753 (7) 2,027
Dividends to policyholders .......... 34,125 34,013 63,799 49,237 48,150
----------- ----------- ----------- ----------- -----------
625,110 744,339 1,385,050 1,355,964 1,268,706
Commissions.......................... 56,836 50,031 102,150 106,561 122,926
Operating expenses .................. 231,823 205,329 425,422 336,719 314,810
Premium taxes ....................... 13,184 9,297 24,153 25,021 26,884
----------- ----------- ----------- ----------- -----------
926,953 1,008,996 1,936,775 1,824,265 1,733,326
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES .......... 135,364 132,988 256,357 190,547 176,612
----------- ----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES:
Current ........................... 41,289 32,105 103,794 77,134 88,366
Deferred .......................... 3,746 22,932 (6,197) (21,162) (39,434)
----------- ----------- ----------- ----------- -----------
45,035 55,037 97,597 55,972 48,932
----------- ----------- ----------- ----------- -----------
NET INCOME .......................... $ 90,329 $ 77,951 $ 158,760 $ 134,575 $ 127,680
=========== =========== =========== =========== ===========
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA BALANCE As of June 30, As of December 31,
------------------------- ---------------------------------------
SHEET DATA 1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- ------------
(dollars in thousands)
ASSETS:
Fixed Maturities:
Held-to-maturity, at amortized cost $ 2,068,487 $ 2,056,111 $ 2,082,716 $ 1,992,681 $ 2,054,204
Available-for-sale, at fair value.. 6,665,040 6,339,975 6,698,629 6,206,478 6,263,187
Common stock ........................ 42,401 49,808 39,021 19,715 9,440
Mortgage loans on real estate, net .. 1,135,750 1,385,760 1,235,594 1,487,575 1,713,195
Real estate, net .................... 72,700 55,951 93,775 67,967 60,454
Policy loans ........................ 2,784,178 2,590,483 2,657,116 2,523,477 2,237,745
Short-term investments, available-
for-sale (cost approximates fair
value) .............................. 368,698 422,556 399,131 419,008 134,835
----------- ----------- ----------- ----------- -----------
Total Investments ............... 13,137,254 12,900,644 13,205,982 12,716,901 12,473,060
Cash ................................ 89,757 118,466 126,528 125,432 91,189
Deferred policy acquisition costs ... 238,390 272,418 255,442 282,780 278,526
Other assets ........................ 678,044 667,692 642,562 741,740 840,815
Separate account assets ............. 9,087,909 6,832,172 7,847,451 5,484,631 3,998,878
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS ........................ $23,231,354 $20,791,392 $22,077,965 $19,351,484 $17,682,468
=========== =========== =========== =========== ===========
POLICY BENEFIT LIABILITIES:
Policy reserves ..................... $11,150,948 $10,988,788 $11,102,719 $11,022,595 $10,845,935
Policy and contract claims .......... 378,084 392,089 375,499 372,327 359,791
Policyholders' funds ................ 184,887 172,552 165,106 153,867 154,872
Other liabilities ................... 131,235 134,191 147,872 138,678 131,322
GENERAL LIABILITIES:
Due to Parent Corporation ........... 123,663 150,129 126,656 151,431 149,974
Other general liabilities ........... 783,598 871,376 984,628 860,236 911,708
Undistributed earnings on
participating business ........... 145,215 141,949 141,865 133,255 136,617
Separate account liabilities ........ 9,087,909 6,832,172 7,847,451 5,484,631 3,998,878
----------- ----------- ----------- ----------- -----------
Total Liabilities ............... $21,985,539 $19,683,246 $20,891,796 $18,317,020 $16,689,097
----------- ----------- ----------- ----------- -----------
STOCKHOLDER'S EQUITY:
Preferred stock ..................... 121,800 121,800 121,800 121,800 121,800
Common stock ........................ 250 250 250 250 250
Additional paid-in capital .......... 697,780 697,780 697,780 671,297 664,297
Accumulated other comprehensive
income ........................... 58,899 18,868 52,807 14,951 58,763
Retained earnings ................... 367,086 269,448 313,532 226,166 148,261
----------- ----------- ----------- ----------- -----------
Total Stockholder's Equity ...... 1,245,815 1,108,146 1,186,169 1,034,464 993,371
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY ................ $23,231,354 $20,791,392 $22,077,965 $19,351,484 $17,682,468
=========== =========== =========== =========== ===========
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
The Company was formed on September 16, 1998 to act as a
holding company of GWL&A and its subsidiaries. The Company has no
operations to date. Prior to the closing of the Offering,
Great-West Life will contribute all of the outstanding shares of
GWL&A's common stock to the Company. As such, the following
discussion reflects the financial condition and results of
GWL&A's operations as if consolidated with the Company for all
periods presented.
Results of Operations
Company Consolidated Results
First Six Months 1998 v. First Six Months 1997
Net income increased 16% from $78 million in the first six
months of 1997 to $90 million in the first six months of 1998.
During the second quarter of 1997, the Company's results of
operations included a release of $48 million from the tax
contingency liability to reflect the resolution of certain tax
matters with the IRS related to the 1990 and 1991 audit years.
The $48 million liability release in 1997 included $15 million
which was attributable to the participating policyholders and is
reflected as a liability on the balance sheet, thus, only $33
million of the release directly impacts net income. In addition
to the contingent liability release, the Company also in the
normal course of business reviewed its deferred tax assets and
liabilities and increased its liability by $21 million (of which
$10 million is attributable to participating policyholders),
which resulted in an $11 million impact to net income during the
first six months of 1997. The net impact of these transactions is
an increase in net income of $22 million in the first six months
of 1997. Excluding the effect of these transactions, the growth
in net income for the first six months of 1998 was 60%, which
reflected realized capital gains on investments (versus losses in
1997), higher fee income from assets under management, higher
margins on investment products and better mortality.
Premiums and fee income decreased 17% for the first six
months of 1998. On June 30, 1997, the Company recaptured from
Great-West Life an individual participating insurance block of
business previously ceded in December 1992. In recording the
recapture, both life insurance premiums and increases in reserves
were increased by the amount of the policy reserves recaptured
($156 million). The 17% decrease was also affected by the
contingent tax provision release in 1997 discussed above.
Excluding these items from 1997, the increase would have been 16%
for the first six months of 1998 which primarily reflects higher
fee income from assets under management and group health premiums
where case sales for the six months ended June 30, 1998 are 797
versus 656 for the same period in 1997.
Net investment income increased 4% during the first six
months of 1998. This growth in net investment income is a result
of improved performance on the mortgage portfolio.
Realized investment gains (losses) changed from a net
realized capital loss of $7 million in the first six months of
1997 to a net realized capital gain of $19 million in the first
six months of 1998. The decrease in interest rates in the second
quarter of 1998 resulted in realized gains totaling $20 million
on the sale of fixed maturities for the first six months of 1998,
while higher interest rates in the second quarter of 1997
contributed to $4 million of fixed maturity losses for the same
period in 1997. Provisions for asset losses were $1 million in
the first six months of 1998 versus $4 million in the first six
months of 1997.
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Total benefits and expenses decreased 8% for the first six
months of 1998. Excluding the impact of the insurance recapture
discussed previously, the growth for these periods is 9%.
Operating expenses increased 13% for the first six months of 1998
from the first six months of 1997 as a result of costs associated
with systems development, development of HMOs, and the
internalization of managed care.
The effective income tax rate in the first six months of
1998 was lower than the rate for the first six months of 1997 due
to the recognition of net operating loss carryforwards of
subsidiaries in 1998 and the tax strengthening in 1997 previously
discussed.
Investment assets decreased $68 million to $13.1 billion
from December 31, 1997 to June 30, 1998. At the same time
separate account assets increased $1.3 billion, bringing the
total to $9.1 billion. This reflects the continued trend of
contractholders moving away from the more traditional guaranteed
products to variable options.
1997 v. 1996
The Company's consolidated net income for the year ended
December 31, 1997 increased $24 million or 18% to $159 million,
when compared to the year ended December 31, 1996.
Premiums and fee income increased 8% from $1.2 billion in
1996 to $1.3 billion in 1997. The increase was primarily due to
growth in individual participating insurance premiums and an
increase in fee income from assets under management.
Net investment income increased $61 million from $837
million in 1996 to $898 million in 1997. This change reflected
improved interest income on investments and additional investment
management fees.
The Company's realized investment gains (losses) changed
from a net realized loss of $21 million in 1996 to a net realized
gain of $10 million in 1997. The decrease in interest rates in
1997 resulted in realized gains on the sale of fixed maturities
totaling $16 million, while higher interest rates contributed to
$12 million of fixed maturity losses recorded in 1996. There was
also a 28% improvement in the provision for asset losses as the
change in the provision was reduced from $11 million in 1996 to
$8 million in 1997.
Total benefits and expenses includes life and other policy
benefits, increases in reserves, interest paid or credited to
contractholders, expenses and dividends to policyholders. The
increase of 6% from $1.8 billion in 1996 to $1.9 billion in 1997
was primarily the result of increased operating expenses
associated with the cost of developing HMOs, system enhancements
and FASCorp's business.
In October 1996, the Company recaptured certain pieces of
an individual participating block of business previously
reinsured to Great-West Life. In June 1997, the Company
recaptured all remaining pieces of that block of business. The
Company recorded various assets and liabilities related to the
recaptures as discussed in Note 2 to the 1997 Consolidated
Financial Statements of GWL&A. In recording the recaptures, both
life insurance premiums and benefits were increased by the
amounts recaptured ($156 million and $165 million in 1997 and
1996, respectively). Consequently, the net financial results of
the Company were not impacted by recording the reinsurance
transactions.
Included in the 1997 and 1996 results of operations was the
effect of a release of $48 million and $26 million for 1997 and
1996, respectively, from a previously recorded contingent tax
liability that the Company assumed from Great-West Life in 1993
(see Note 10 to the 1997 Consolidated Financial Statements of
GWL&A). Of the $48 million released in 1997, $15 million was
attributable to participating policyholders and reflected as a
liability on the balance sheet.
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In addition to the contingent tax liability release, the
Company also in the normal course of business reviewed its
deferred tax assets and liabilities and increased its deferred
tax liability by $22 million in 1997 (of which $10 million was
attributable to participating policyholders), which resulted in a
$12 million reduction in net income.
The effect of the non-recurring transactions described
above was to decrease net income by $4 million from 1996 to 1997.
Excluding the effect of these transactions, the growth in net
income reflected higher variable fee income from assets under
management, improved investment income, increased realized
capital gains and favorable mortality.
The effective income tax rates were affected by the release
of the contingent tax liability discussed above in 1997 and 1996
as these amounts were not taxable, although the increase in the
deferred tax liability discussed above negated the impact of the
1997 release.
Major Business Unit Results
Employee Benefits
First Six Months 1998 v. First Six Months 1997
Total revenue premium (including premium equivalents) for
group life and health increased 13% for the first six months of
1998 from 1997 levels. Case sales in the Company's group life and
health business increased 22% for the first six months of 1998
over the same period in 1997 resulting in a net case growth of
232 cases.
Of the total 401(k) cash flow received during the first six
months of 1998, 94% was allocated to variable funds. Total assets
under administration (including third-party administration) grew
from $5.4 billion at December 31, 1997 to $6.1 billion at June
30, 1998. The number of contributing participants increased from
430,000 at December 31, 1997 to 458,000 at June 30, 1998.
1997 v. 1996
The financial results for the year ended December 31, 1997
improved with 401(k) premiums and deposits increasing 25%. Assets
under administration (including third-party administration) in
401(k) increased 38% over 1996, to $5.4 billion from $3.9 billion
in 1996.
Equivalent revenue premium income for group life and health
increased 4% in the year ended December 31, 1997 from 1996 levels
as the result of improved sales. Employee Benefits' operating
income increased in 1997 and 1996 due to favorable mortality and
strong 401(k) asset growth.
Group Life and Health. The Company experienced strong sales
growth during 1997 with 1,473 new group medical customers (versus
1,125 in 1996), which added 121,622 new individual members. Much
of the medical growth can be attributed to the introduction of
new One Health Plan HMOs in markets with high sales potential,
and the Company's ability to offer a choice of managed care
products.
To position itself for the future, the Company is focused
on putting in place the products, strategies and processes that
will strengthen its competitive position in the evolving managed
care environment. During 1997, the U.S. insurance industry
continued a pattern of consolidation. The Company demonstrated
its long-term commitment to the group life and health business by
acquiring an additional 150 self-funded group customers (75,000
new members) from a Minneapolis third-party administrator.
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With a heightened sensitivity to price comes the demand for
more tightly managed health plans, which is why HMO development
remains Employee Benefits' most important product development
initiative. In 1997, the Company licensed HMOs in Massachusetts,
Ohio, Oregon, Tennessee and Washington and applied for licenses
in Florida, Indiana, New Jersey and North Carolina. The Company
also entered into agreements with other companies, which will
exclusively market the One Health Plan HMO product in various
states. These types of agreements will augment growth in the
Company's HMO programs in the future.
The Company experienced an 8% increase in total medical
membership, from 1,554,142 at the end of 1996 to 1,675,764 at
year-end 1997. Gatekeeper (i.e., POS and HMO) members grew 18%
from 350,185 in 1996 to 414,519 in 1997. The Company expects this
segment of the business to grow as additional HMO licenses are
obtained.
401(k). The number of new 401(k) case sales, including
third-party administration business generated through the
Company's marketing and administration arrangement with New
England Life Insurance Company, increased to 1,235 in 1997. This
brought the total 401(k) block of business under administration
to 5,695 employer groups and more than 430,000 individual
participants, at year-end 1997.
During 1997, the in-force block of 401(k) business
continued to perform well, with persistency of 93.8%. This
performance, combined with strong equity markets, resulted in a
39% increase in assets under management during 1997.
Pension Plan Specialist services, which include drafting of
plan documents, compliance testing and completion of annual tax
forms, were elected in an additional 900 cases in 1997. This
brought the total in-force case count serviced by this in-house
unit to over 2,000. In addition to offering employers the
advantages of one-stop shopping, this program enables the Company
and the employer to reduce costs associated with these services.
During 1997, the Company also introduced a Non-Qualified
Deferred Compensation supplement to its 401(k) product, which
allows highly compensated employees to defer compensation on a
pre-tax basis beyond 401(k) limits until retirement.
Financial Services
Savings
First Six Months 1998 v. First Six Months 1997. Assets
under administration in the public non-profit (P/NP) business,
including Separate Accounts but excluding Guaranteed Investment
Contracts ("GICs"), increased 3% during the first six months of
1998 to $7.4 billion. New contributions to variable business
represented 58% of the total deposits received in the first six
months of 1998 compared to 70% for the first six months of 1997.
The higher percentage in 1997 was due to a large rollover on one
particular case.
1997 v. 1996. The Company's core savings business is the
public/non-profit pension market. The assets of the
public/non-profit business, including Separate Accounts but
excluding GICs, increased 8% in 1997 to $7.2 billion. Much of the
increase came from the variable annuity business which was driven
by excellent sales results and strong investment returns in the
equity markets.
The Company's public/non-profit business experienced strong
growth in 1997. The number of lives under administration
increased by 181,700 in 1997. BenefitsCorp sold 13 new large
employer cases and increased the penetration of existing cases by
enrolling new employees. The Company again experienced a
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very high retention rate in public/non-profit contract renewals
in 1997. Part of this customer loyalty comes from initiatives to
provide high-quality service while controlling expenses.
The Company continued to limit sales of GICs and allow this
block of business to contract in response to the highly
competitive GIC market. As a result, GIC assets decreased 22% in
1997, to $409 million.
Customer demand for investment diversification grew during
1997. New contributions to variable business represented 69% of
the total 1997 premiums. The Company continued to expand the
investment products available through Maxim Series Fund, Inc.,
and arrangements with external fund managers. Externally-managed
funds offered to participants in 1997 included American Century,
Ariel, Fidelity, Founders, INVESCO, Janus, Loomis Sayles,
Templeton, T. Rowe Price and Vista. In 1997, the Company
introduced Profile portfolios for its public/non-profit variable
annuity products. The Profiles provide the convenience of
pre-selected investment mixes based on varying degrees of risk
tolerance. The Profile options allow customers to diversify their
investments across a wide range of investment products, including
fixed income, stock and international equity fund offerings.
Customer participation in guaranteed Separate Accounts
increased during 1997 as many customers prefer the security of
fixed income securities and Separate Account assets. Assets under
management for guaranteed Separate Account funds exceeded $466
million in 1997, compared to $393 million in 1996.
FASCorp administered records for approximately 9,200 groups
at year-end 1997 (versus 7,700 at year-end 1996), representing
more than 1,000,000 participants (800,000 in 1996).
The Company offers fixed and variable non-qualified
deferred annuities under its marketing agreement with Charles
Schwab & Co., Inc. Virtually all of the Company's premium income
has been generated from sales of variable non-qualified deferred
annuities, totaling $231 million in 1997, compared to the $9
million sold late in 1996.
Life Insurance
First Six Months 1998 v. First Six Months 1997. Excluding
the effect of the insurance recapture, individual life insurance
premiums and deposits increased 77% in the first six months of
1998 to $424 million which is primarily due to sales of the
Company's Bank-Owned Life Insurance ("BOLI") product ($229
million in 1998 versus $64 million in 1997).
1997 v. 1996. In 1997, the Company continued its
conservative approach to the manufacture and distribution of
traditional life insurance products, while focusing on customer
retention and expense management. Aggressive expense management
and favorable individual life insurance persistency helped
decrease unit costs.
Individual life insurance revenue premiums and deposits of
$799 million in 1997 decreased 12% from 1996, due to the
reduction of Corporate-Owned Life Insurance ("COLI") premiums
associated with legislative changes enacted in 1996. These
legislative changes phased out the interest deductions on COLI
policy loans over a two-year period ending in 1998.
During 1997, the Company has continued to shift its
emphasis from COLI business to new sales in the BOLI market
because of the 1996 legislative changes. Although COLI sales were
discontinued in 1996, renewal premiums and deposits totaled $244
million in 1997 compared to $384 million in 1996. BOLI revenue
premiums and deposits were $235 million during 1997, compared to
$191 million in 1996.
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General Account Investments
The Company's primary investment objective is to acquire
assets whose durations and cash flows reflect the characteristics
of the Company's liabilities, while meeting industry, size,
issuer and geographic diversification standards and maintaining a
competitive rate of return. Formal liquidity and credit quality
parameters have also been established. The fixed maturities in
the Company's portfolio are generally rated by external rating
agencies, and if not externally rated, are rated by the Company
on a basis believed to be similar to that used by rating
agencies.
The Company follows rigorous procedures to control interest
rate risk and observes strict asset and liability matching
guidelines. These guidelines are designed to ensure that even in
changing interest rate environments, the Company's assets will
always be able to meet the cash flow and income requirements of
its liabilities. Through dynamic modeling, using state-of-the-art
software to analyze the effects of a wide range of possible
market changes upon investments and policyholder benefits, the
Company seeks to ensure that its investment portfolio is
appropriately structured to fulfill financial obligations to its
policyholders.
Fixed Maturities
Fixed maturity investments include publicly traded bonds,
privately placed bonds and public and private structured assets.
This latter category contains both asset-backed and
mortgage-backed securities, including CMOs. The Company's
strategy related to structured assets is to focus on those with
lower volatility and minimal credit risk. The Company does not
invest in higher risk CMOs such as interest-only and
principal-only strips, and currently has no plans to invest in
such securities.
Private placement investments, which are primarily in the
held-to-maturity category, are generally less marketable than
publicly traded assets, yet they typically offer covenant
protection which allows the Company, if necessary, to take
appropriate action to protect its investment. The Company
believes that the cost of the additional monitoring and analysis
required by private placements is more than offset by their
enhanced yield.
The distribution of the fixed maturity portfolio by credit
rating is summarized as follows:
June 30, December 31, December 31,
Credit Rating 1998 1997 1996
- ------------- ------------ ------------ ------------
AAA 44.8% 45.7% 45.9%
AA 9.4% 8.8% 8.1%
A 24.3% 23.8% 23.7%
BBB 21.0% 20.7% 20.9%
BB and below
(non-investment grade) .5% 1.0% 1.4%
------ ----- -----
100.0% 100.0% 100.0%
During the first six months of 1998, net unrealized gains
(losses) on fixed maturities included in stockholders' equity,
which is net of policyholder-related amounts and deferred income
taxes, increased surplus by $6 million resulting in accumulated
other comprehensive income of $59 million.
At December 31, 1997, the Company had no bonds in default.
At December 31, 1996, there was one bond in default in its
portfolio with a carrying value of $8 million.
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Mortgage Loans
During 1997, the mortgage portfolio declined 17% to $1.2
billion, net of impairment reserves. The Company has not actively
sought new loan opportunities since 1989 and, as such, has
experienced an ongoing reduction in this portfolio's balance.
The Company follows a comprehensive approach to the
management of mortgage loans which includes ongoing analysis of
key mortgage characteristics such as debt service coverage, net
collateral cash flow, property condition, loan to value ratios
and market conditions. Collateral valuations are performed for
those mortgages which, after review, are determined by management
to present possible risks and exposures. These valuations are
then incorporated into the determination of the Company's
allowance for credit losses.
The average balance of impaired loans continued to remain
low at $38 million in 1997 compared with $39 million in 1996, and
foreclosures totaled $14 million and $13 million in 1997 and
1996, respectively. The low levels of problematic mortgages
relative to the Company's overall balance sheet are due to the
ongoing decrease in the size of the mortgage portfolio, the
Company's active loan management program and improvement in
market conditions.
Occasionally, the Company elects to restructure certain
loans if the economic benefits to the Company are believed to be
more advantageous than those achieved by acquiring the collateral
through foreclosure. At December 31, 1997 and 1996, the Company's
loan portfolio included $64 million and $68 million,
respectively, of non-impaired restructured loans.
Real Estate and Common Stock
The Company's real estate portfolio is composed primarily
of the Home Office property ($57 million) and properties acquired
through the foreclosure of troubled mortgages. The Company
operates a wholly owned real estate subsidiary which attempts to
maximize the value of these properties through rehabilitation,
leasing and sale. The Company anticipates limited, if any,
investments in real estate assets during 1998.
The common stock portfolio is composed of mutual fund seed
money and some private equity investments.
Derivatives
The Company uses certain derivatives, such as futures,
options, and swaps, for purposes of hedging interest rate and
foreign exchange risk. These derivatives, when taken alone, may
subject the Company to varying degrees of market and credit risk;
however, when used for hedging, these instruments typically
reduce risk. The Company controls the credit risk of its
financial contracts through credit approvals, limits and
monitoring procedures. The Company has also developed controls
within its operations to ensure that only Board authorized
transactions are executed.
Liquidity and Capital Resources
The Company's operations have liquidity requirements that
vary among the principal product lines. Life insurance and
pension plan reserves are primarily long-term liabilities.
Accident and health reserves, including long-term disability,
consist of both short-term and long-term liabilities. Life
insurance and pension plan reserve requirements are usually
stable and predictable, and are supported primarily by long-term,
fixed income investments. Accident and health claim demands are
stable and predictable but generally shorter term,
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<PAGE>
requiring greater liquidity. The Company currently does not have
any material commitments for capital expenditures.
Generally, the Company has met its operating requirements
by maintaining appropriate levels of liquidity in its investment
portfolio and through utilization of overall positive cash flows
from operations. Liquidity for the Company has remained strong,
as evidenced by significant amounts of short-term investments and
cash, which totaled $459 million, $526 million and $544 million
as of June 30, 1998, December 31, 1997 and December 31 1996,
respectively.
Funds provided from premiums and fees, investment income
and maturities of investment assets are reasonably predictable
and normally exceed liquidity requirements for payment of claims,
benefits and expenses. However, since the timing of available
funds cannot always be matched precisely to commitments,
imbalances may arise when demands for funds exceed those on hand.
Also, a demand for funds may arise as a result of the Company
taking advantage of current investment opportunities. The
Company's capital resources represent funds available for
long-term business commitments and primarily consist of retained
earnings and proceeds from the issuance of commercial paper and
equity securities. Capital resources provide protection for
policyholders and the financial strength to support the
underwriting of insurance risks, and allow for continued business
growth. The amount of capital resources that may be needed is
determined by the Company's senior management and Board of
Directors as well as by regulatory requirements. The allocation
of resources to new long-term business commitments is designed to
achieve an attractive return, tempered by considerations of risk
and the need to support the Company's existing business.
The Company's financial strength provides the capacity and
flexibility to enable it to raise funds in the capital markets
through the issuance of commercial paper. The Company continues
to be well capitalized, with sufficient borrowing capacity to
meet the anticipated needs of its business. The Company continues
to conduct strategic and financial reviews of its businesses to
deploy its capital resources most efficiently. The Company's
outstanding commercial paper totaled $60 million, $54 million and
$85 million at June 30, 1998, December 31, 1997 and December 31,
1996, respectively. The Company's commercial paper has been given
a rating of A-1+ by Standard & Poor's Corporation and a rating of
P-1 by Moody's Investors Service, each being the highest rating
available.
Year 2000 Issue
The year 2000 ("Y2K") problem arises when a computer
performing date-based computations or operations produces
erroneous results due to the historical practice of using two
digit years within computer hardware and software. This causes
errors or misinterpretations of the century in date calculations.
Virtually all businesses, including the Company, are required to
determine the extent of their Y2K problems. Systems that have a
Y2K problem must then be converted or replaced by systems that
will operate correctly with respect to the year 2000 and beyond.
The Company has a written plan that encompasses all
computer hardware, software, networks, facilities (embedded
systems) and telephone systems. The plan also includes provisions
for identifying and verifying that major vendors and business
partners are Y2K compliant. The Company is developing contingency
plans to address the possibility of both internal and external
failures as well. The plan calls for full Y2K compliance for core
systems by March 31, 1999 and full Y2K compliance for all Company
systems by October 31, 1999.
The Company's plan establishes five phases for becoming Y2K
compliant. Phase 1 is "impact analysis" which includes initial
inventory and preliminary assessment of Y2K impact. Phase 2 is
"solution planning" which includes system by system planning to
outline the approach and timing for reaching
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<PAGE>
compliance. Phase 3 is "conversion/renovation" which means the
actual process of replacing or repairing non-compliant systems.
Phase 4 is "testing" to ensure that the systems function
correctly under a variety of different date scenarios including
current dates, year 2000 and leap year dates. Phase 5 is
"implementation" which means putting Y2K compliant systems back
into production.
As of September 1, 1998, the Company had completed impact
analysis (phase 1) and solution planning (phase 2) for all of its
core systems and was more than 93% complete for phase 1 and 2
with respect to its systems as a whole. In addition, the Company
was approximately 58% complete with respect to conversion and
renovation (phase 3), 42% complete with respect to testing (phase
4) and 38% complete with respect to implementation (phase 5).
In addition to ensuring that the Company's own systems are
Y2K compliant, the Company has identified third parties with
which the Company has significant business relationships in order
to assess the potential impact on the Company of the third
parties' Y2K issues and plans. The Company expects to complete
this process during the first quarter of 1999 and will conduct
system testing with third parties throughout 1999. The Company
does not have control over these third parties and cannot make
any representations as to what extent the Company's future
operating results may be adversely affected by the failure of any
third party to address successfully its own Y2K issues.
On the basis of currently available information, the
expense incurred by the Company, including anticipated future
expenses, related to the Y2K issue has not and is not expected to
be material to the Company's financial condition or results of
operations. The Company has spent approximately $7.5 million on
its Y2K project through the end of August 1998 and expects to
spend up to approximately $15.3 million on its Y2K project by the
end of 2000. All of these funds will come from the Company's cash
flow from operations. The Company has continued other scheduled
non-Y2K information systems changes and upgrades. Although work
on Y2K issues may have resulted in minor delays on the other
projects, the delays are not expected to have a material adverse
effect on the Company's consolidated financial condition or
results of operations.
The most reasonably likely worst case Y2K scenario is that
the Company will experience isolated internal or third party
computer failures and will be temporarily unable to process
insurance and annuity benefit transactions. All of the Company's
Y2K efforts have been designed to prevent such an occurrence.
However, if the Company identifies internal or third party Y2K
issues which cannot be timely corrected, there can be no
assurance that the Company can avoid Y2K problems or that the
cost of curing the problem will not be material.
In an effort to mitigate risks associated with Y2K
failures, the Company is in the process of developing contingency
plans to address its core functions, including relations with
third parties. It is the Company's expectation that contingency
plans will address possible failures generated internally, by
vendors or business partners and by customers. Possible general
approaches include manual processing, payments on an estimated
basis and use of disaster recovery facilities.
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<PAGE>
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Declaration, the Regular
Trustees on behalf of the Trust will issue the Capital Securities
and the Common Securities. The Capital Securities will represent
undivided beneficial ownership interests in the assets of the
Trust and the holders thereof will be entitled to a preference in
certain circumstances with respect to Distributions and amounts
payable on redemption or liquidation over the Common Securities,
as well as other benefits as described in the Declaration. This
summary of certain provisions of the Capital Securities and the
Declaration, which summarizes all of the material terms thereof,
does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of
the Declaration, including the definitions therein of certain
terms, and the Trust Indenture Act. Wherever particular defined
terms of the Declaration (as supplemented or amended from time to
time) are referred to herein, the definitions of such defined
terms are incorporated herein by reference.
General
The Capital Securities will rank pari passu, and payments
will be made thereon on a pro rata basis, with the Common
Securities except as described under "--Subordination of Common
Securities." Legal title to the Junior Subordinated Debentures
will be held by the Property Trustee in trust for the benefit of
the holders of the Capital Securities and the Common Securities.
The Guarantee executed by the Company for the benefit of the
holders of the Capital Securities will be a guarantee on a
subordinated basis with respect to the Capital Securities but
will not guarantee payment of Distributions or amounts payable on
redemption or liquidation of the Capital Securities when the
Trust does not have sufficient funds available to make such
payments. See "Description of Guarantee." In such event, a holder
of Capital Securities may vote to direct the Property Trustee to
enforce the Property Trustee's rights under the Junior
Subordinated Debentures. See "--Voting Rights; Amendment of the
Declaration" below. In addition, the holder of Capital Securities
may, in certain circumstances, institute a Direct Action against
the Company for payment. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Capital
Securities." The Company's obligations under the Guarantee, taken
together with its obligations under the Junior Subordinated
Debentures and the Indenture, including its obligation to pay all
costs, expenses and liabilities of the Trust (other than with
respect to the Capital Securities and the Common Securities) and
the Declaration, constitute a full and unconditional guarantee of
all of the Trust's obligations under the Capital Securities.
Holders of the Capital Securities have no preemptive or
similar rights.
Distributions
Distributions on each Capital Security will be payable at
the annual rate of % of the stated liquidation amount of $25,
payable quarterly in arrears on March 31, June 30, September 30
and December 31 of each year. Distributions will accumulate from
, 1998, the date of original issuance, and commence on
March 31, 1999. The amount of Distributions payable for any
period will be computed on the basis of a 360-day year of twelve
30-day months.
Distributions on the Capital Securities must be paid on the
dates payable to the extent that the Trust has funds available
for the payment of such Distributions. The revenue of the Trust
available for distribution to holders of its Capital Securities
will be limited to payments under the Junior Subordinated
Debentures in which the Trust will invest the proceeds from the
issuance and sale of the Capital Securities and the Common
Securities. See "Description of Junior Subordinated Debentures."
If the Company does not make interest payments on the Junior
Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Capital Securities.
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<PAGE>
So long as no Indenture Event of Default shall have
occurred and be continuing, the Company will have the right under
the Indenture to defer the payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarters (each, an "Extension
Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures or end on a
day other than an Interest Payment Date. As a consequence of any
such extension, quarterly Distributions on the Capital Securities
will be deferred by the Trust during any such Extension Period.
Accordingly, there could be multiple Extension Periods of varying
lengths throughout the term of the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior
Subordinated Debentures will continue to accrue and as a result,
distributions to which holders of the Capital Securities are
entitled will accumulate and compound quarterly at the rate (to
the extent permitted by applicable law) per annum of % thereof
from the relevant payment date for such Distributions. The term
"Distributions" as used herein shall include any such compounded
amounts unless the context otherwise requires. During any such
Extension Period, the Company may not, and may not permit any
subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital
stock, (ii) make any payment of principal, interest or premium,
if any, on or repay, repurchase or redeem any debt securities of
the Company that rank pari passu in all respects with or junior
to the Junior Subordinated Debentures or (iii) make any guarantee
payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee
ranks pari passu with or junior in interest to the Junior
Subordinated Debentures (other than (a) dividends or
distributions in the form of stock, warrants, options or other
rights where the dividend stock or the stocks issuable upon
exercise of such warrants, options or other right is the same
stock as that on which the dividend is being paid or ranks pari
passu with or junior to such stock, (b) payments under the
Guarantee, (c) any declaration of a dividend in connection with
the implementation of a shareholders' rights plan, or the
issuance of rights, stock or other property under any such plan
in the future, or the redemption or repurchase of any such rights
pursuant thereto, (d) as a result of reclassification of the
Company's capital stock into one or more other classes or series
of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock (or any
capital stock of a subsidiary of the Company) for another class
or series of the Company's capital stock, or of any class or
series of the Company's indebtedness for any class or series of
the Company's capital stock, (e) the purchase of fractional
interests in the shares of the Company's capital stock pursuant
to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged and (f) repurchases,
redemptions or other acquisitions of common stock related to the
issuance of common stock or rights under any of the Company's
employment contracts, benefit plans or other similar arrangement
with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to
the applicable Extension Period).
Prior to the termination of any such Extension Period, the
Company may further extend the Extension Period, provided that no
Extension Period may exceed 20 consecutive quarters or extend
beyond the Stated Maturity of the Junior Subordinated Debentures.
Upon the termination of any such Extension Period and the payment
of all amounts then due on any Interest Payment Date, the Company
may elect to begin a new Extension Period, subject to the
foregoing requirements. See "Description of the Junior
Subordinated Debentures--Option to Extend Interest Payment
Period" and "U.S. Federal Income Tax Consequences--Interest
Income and Original Issue Discount." The Company has no current
intention of exercising its right to defer payments of interest
by extending the interest payment period of the Junior
Subordinated Debentures.
In the event that any date on which Distributions are
payable on the Capital Securities is not a Business Day, then
payment of the Distributions payable on such date will be made on
the next succeeding day that is a Business Day (and without any
additional Distributions or other payment in respect of any such
delay), except that if such next succeeding Business Day falls in
the next calendar year, then such payment
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shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on the date such
payment was originally payable (each date on which Distributions
are payable in accordance with the foregoing, a "Distribution
Date"). A "Business Day" shall mean any day other than a Saturday
or a Sunday, or a day on which banking institutions in The City
of New York are authorized or required by law or executive order
to remain closed or a day on which the corporate trust office of
the Property Trustee or the Indenture Trustee (as defined herein)
is closed for business.
Distributions on the Capital Securities (other than
distributions on a Redemption Date) will be payable to the
holders thereof as they appear on the register of the Trust on
the relevant record dates, which shall be the day of the
month (whether or not a Business Day) prior to the relevant
Distribution Date. Distributions payable on any Capital
Securities that are not punctually paid on any Distribution Date
will cease to be payable to the person in whose name such Capital
Securities are registered on the relevant record date, and such
defaulted Distribution will instead be payable to the person in
whose name such Capital Securities are registered on the special
record date or other specified date determined in accordance with
the Declaration.
Redemption
Mandatory Redemption. Unless a Special Event has occurred,
the Capital Securities will not be redeemable prior to ,
2003. Upon the repayment or redemption, in whole or in part, of
the Junior Subordinated Debentures, whether at Stated Maturity or
upon earlier redemption as provided in the Indenture, the
proceeds from such repayment or redemption shall be applied by
the Property Trustee to redeem Capital Securities and Common
Securities on a pro rata basis, upon not less than 30 but not
more than 60 days notice prior to the date fixed for repayment or
redemption. If less than all of the Junior Subordinated
Debentures are to be repaid or redeemed on a Redemption Date,
then the proceeds from such repayment or redemption shall be
allocated to the redemption pro rata of the Capital Securities
and the Common Securities.
Special Event Redemption or Distribution of Junior
Subordinated Debentures. If a Special Event shall occur and be
continuing, the Company will have the right either (i) to redeem
within 90 days following the occurrence of such Special Event the
Junior Subordinated Debentures outstanding on the date of
redemption (the "Redemption Date") in whole (but not in part) and
thereby cause a mandatory redemption of the Capital Securities in
whole (but not in part) at a redemption price with respect to the
Capital Securities equal to 100% of the liquidation amount
thereof plus accrued and unpaid distributions if any, to, but
excluding, the date of redemption or (ii) to dissolve the Trust
within 90 days following the occurrence and continuation of such
Special Event and, after satisfaction of the claims of creditors
of the Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the
Capital Securities in liquidation of the Trust. Under current
United States federal income tax law and interpretations thereof
and assuming, as expected, the Trust is treated as a grantor
trust, a distribution of the Junior Subordinated Debentures will
not be a taxable event to holders of the Capital Securities.
Should there be a change in law, a change in legal
interpretation, certain events described in clauses (a) and (b)
of the definition of "Tax Event" below or other circumstances,
however, the distribution could be a taxable event to holders of
the Capital Securities. See "U.S. Federal Income Tax
Consequences--Distribution of Junior Subordinated Debentures to
Holders of Capital Securities Upon Liquidation of the Trust."
If the Company does not elect to redeem the Junior
Subordinated Debentures as described above, the Capital
Securities will remain outstanding until the repayment of the
Junior Subordinated Debentures whether at Stated Maturity or
their earlier redemption, and if certain events described in
clauses (a) and (b) of the definition of "Tax Event" below have
occurred and are continuing, the Company will be obligated to pay
any additional taxes, duties, assessments and other governmental
charges (other than withholding taxes) to which the Trust has
become subject as a result of such events.
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The term "Special Event" means a Tax Event or an Investment
Company Event. The term "Tax Event" means the receipt by the
Trust of an opinion of counsel experienced in such matters to the
effect that, as a result of (a) any amendment to or change
(including any announced prospective change) in the laws or any
regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein, or (b) any
judicial decision or any official administrative pronouncement
(including any private letter ruling, technical advice memorandum
or Chief Counsel advice, as defined by the Code) or regulatory
procedure (an "Administrative Action"), regardless of whether
such judicial decision or Administrative Action is issued to or
in connection with a proceeding involving the Company or the
Trust and whether or not subject to review or appeal, which
amendment, change, decision or Administrative Action is enacted,
released by the Internal Revenue Service, promulgated or
announced, in each case, on or after the date of this Prospectus,
there is more than an insubstantial risk that (i) the Trust is,
or will be within 90 days of the date of such opinion, subject to
United States federal income tax with respect to income received
or accrued on the Junior Subordinated Debentures, (ii) interest
payable by the Company or OID accruing on such Junior
Subordinated Debentures is not, or within 90 days of the date of
such opinion, will not be, deductible by the Company, in whole or
in part, for United States federal income tax purposes, or (iii)
the Trust is, or will be within 90 days of the date of such
opinion, subject to more than a de minimis amount of other taxes,
duties or other governmental charges. An "Investment Company
Event" means the receipt by the Trust of an opinion of counsel,
rendered by a law firm experienced in such matters to the effect
that, as a result of the occurrence of a change in law or
regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in Investment Company Act Law"),
the Trust is or will be considered an "investment company" that
is required to be registered under the Investment Company Act of
1940, as amended ("Investment Company Act"), which Change in
Investment Company Act Law becomes effective on or after the date
of original issuance of the Capital Securities.
Redemption Procedures
Capital Securities redeemed on each Redemption Date shall
be redeemed at the redemption price in respect of the Junior
Subordinated Debentures (the "Redemption Price") with the
applicable proceeds from the contemporaneous redemption or
payment at Stated Maturity of the Junior Subordinated Debentures.
Redemptions of the Capital Securities shall be made and the
Redemption Price shall be payable on each Redemption Date only to
the extent that the Trust has sufficient funds available for the
payment of such Redemption Price. See also "--Subordination of
Common Securities."
Notice of any redemption will be mailed at least 30 days
but not more than 60 days before the Redemption Date to each
holder of Capital Securities to be redeemed at its registered
address. If the Trust gives a notice of redemption in respect of
the Capital Securities, then, by 12:00 noon, New York City time,
on the Redemption Date, to the extent funds are available, the
Property Trustee will deposit irrevocably with The Depository
Trust Company ("DTC") or its nominee funds sufficient to pay the
applicable Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the
holders of the Capital Securities. See "--Book-Entry Issuance."
If any Capital Securities are no longer in book-entry form, the
Trust, to the extent funds are available, will irrevocably
deposit with the paying agent for the Capital Securities funds
sufficient to pay the applicable Redemption Price and will give
the paying agent irrevocable instructions and authority to pay
the Redemption Price to the holders thereof upon surrender of
their certificates evidencing the Capital Securities.
Notwithstanding the foregoing, Distributions payable on or prior
to the Redemption Date for any Capital Security called for
redemption shall be payable to the holders of such Capital
Security on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given
and funds deposited as required, then upon the date of such
deposit, all rights of the holders of such Capital Securities so
called for redemption will cease, except the right of the holders
of such Capital Securities to receive the Redemption Price, but
without interest on such Redemption Price, and such Capital
Securities will cease to be outstanding. In the event that any
date fixed for redemption of Capital Securities is
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not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day
falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the same
force and effect as if made on the date such payment was
originally payable. In the event that payment of the Redemption
Price in respect of Capital Securities called for redemption is
improperly withheld or refused and not paid either by the Trust
or by the Company pursuant to the Guarantee as described under
"Description of Guarantee," Distributions on such Capital
Securities will continue to accrue at the then applicable rate,
from the Redemption Date originally established by the Trust for
the Capital Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the
date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation,
United States federal securities law), the Company or its
subsidiaries may at any time and from time to time purchase
outstanding Capital Securities by tender, in the open market or
by private agreement.
The Trust may not redeem fewer than all of the outstanding
Capital Securities unless all accrued and unpaid Distributions
have been paid on all Capital Securities for all quarterly
distribution periods terminating on or prior to the date of
redemption. If less than all of the Capital Securities and the
Common Securities issued by the Trust are to be redeemed on a
Redemption Date, then the aggregate amount of such Capital
Securities and Common Securities to be redeemed shall be
allocated pro rata among the Capital Securities and the Common
Securities. If the Capital Securities are in book-entry form,
they will be redeemed as described below under "--Book-Entry
Issuance." If not, the particular Capital Securities to be
redeemed shall be selected on a pro rata basis not more than 60
days prior to the Redemption Date by the Property Trustee from
the outstanding Capital Securities not previously called for
redemption and which may provide for the selection for redemption
of portions (equal to $25 or an integral multiple of $25 in
excess thereof) of the liquidation amount of Capital Securities
of a denomination larger than $25. In any such proration, the
Property Trustee may make such adjustments as may be appropriate
in order that only Capital Securities in authorized denominations
shall be redeemed. The Property Trustee shall promptly notify the
Trust registrar in writing of the Capital Securities selected for
redemption and, in the case of any Capital Security selected for
partial redemption, the liquidation amount thereof to be
redeemed. For all purposes of the Declaration, unless the context
otherwise requires, all provisions relating to the redemption of
Capital Securities shall relate, in the case of any Capital
Security redeemed or to be redeemed only in part, to the portion
of the aggregate liquidation amount of Capital Securities which
has been or is to be redeemed.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of,
the Capital Securities and the Common Securities, as applicable,
shall be made pro rata based on the liquidation amount of such
Capital Securities and Common Securities; provided, however, that
if on any Distribution Date or Redemption Date an Indenture Event
of Default (as defined herein) shall have occurred and be
continuing, no payment of any Distribution on, or Redemption
Price of, any of the Common Securities, and no other payment on
account of the redemption, liquidation or other acquisition of
such Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions on all of the
outstanding Capital Securities for all Distribution periods
terminating on or prior thereto, or in the case of payment of the
Redemption Price the full amount of such Redemption Price on all
of the outstanding Capital Securities then called for redemption,
shall have been made or provided for, and all funds available to
the Property Trustee shall first be applied to the payment in
full in cash of all Distributions on, or Redemption Price of, the
Capital Securities then due and payable.
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Liquidation Distribution Upon Dissolution
The Company will have the right at any time to terminate
the Trust and, after satisfaction of the liabilities of creditors
of the Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the
Capital Securities and Common Securities in liquidation of the
Trust.
Pursuant to the Declaration, the Trust shall automatically
dissolve upon expiration of its term and shall dissolve on the
first to occur of: (i) certain events of bankruptcy, dissolution
or liquidation of the Company; (ii) the distribution of the
Junior Subordinated Debentures to the holders of the Capital
Securities and Common Securities; (iii) the redemption of all of
the Capital Securities in connection with the maturity or
redemption of all of the Junior Subordinated Debentures; and (iv)
the entry by a court of competent jurisdiction of an order for
the dissolution of the Trust.
If an early dissolution occurs as described in clause (i),
(ii) or (iv) above, the Trust shall be liquidated by the Trustees
as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of or the making of reasonable
provisions for liabilities to creditors of the Trust as provided
by applicable law, to the holders of the Capital Securities and
Common Securities their pro rata interest in the Junior
Subordinated Debentures, unless such distribution is determined
by the Property Trustee not to be practicable, in which event
such holders will be entitled to receive out of the assets of the
Trust available for distribution to holders, after satisfaction
of liabilities to creditors of the Trust as provided by
applicable law, an amount equal to, in the case of holders of
Capital Securities, the aggregate of the liquidation amount plus
accrued and unpaid Distributions thereon to the date of payment
(such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the
Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable by
the Trust on the Capital Securities shall be paid on a pro rata
basis. The holder(s) of the Common Securities will be entitled to
receive distributions upon any such liquidation pro rata with the
holders of the Capital Securities, except that if an Indenture
Event of Default has occurred and is continuing, the Capital
Securities shall have a priority over the Common Securities.
After the liquidation date is fixed for any distribution of
Junior Subordinated Debentures to holders of the Capital
Securities, (i) the Capital Securities will no longer be deemed
to be outstanding, (ii) DTC or its nominee, as a record holder of
Capital Securities, will receive a registered global certificate
or certificates representing the Junior Subordinated Debentures
to be delivered upon such distribution and (iii) any certificates
representing Capital Securities held in certificated form will be
deemed to represent Junior Subordinated Debentures having a
principal amount equal to the liquidation amount of such Capital
Securities, and bearing accrued and unpaid interest in an amount
equal to the accrued and unpaid Distributions on such Capital
Securities, until such certificates are presented for
cancellation, whereupon the Company will issue to such holder,
and the Indenture Trustee will authenticate, a certificate
representing such Junior Subordinated Debentures.
Trust Enforcement Events
An Indenture Event of Default constitutes a Trust
Enforcement Event under the Declaration with respect to the Trust
Securities, provided that pursuant to the Declaration, the holder
of the Common Securities will be deemed to have waived any Trust
Enforcement Event with respect to the Common Securities until all
Trust Enforcement Events with respect to the Capital Securities
have been cured, waived or otherwise eliminated. Until such Trust
Enforcement Event with respect to the Capital Securities has been
so cured, waived or otherwise eliminated, the Property Trustee
will be deemed to be acting solely on behalf of the holders of
the Capital Securities and only the holders of the Capital
Securities will have the right to direct the Property Trustee
with respect to certain matters under the Declaration, and
therefore the Indenture.
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Upon the occurrence of a Trust Enforcement Event, the
Indenture Trustee (as defined herein) or the Property Trustee as
the holder of the Junior Subordinated Debentures will have the
right under the Indenture to declare the principal of and
interest on the Junior Subordinated Debentures to be immediately
due and payable. Each of the Company and the Trust is required to
file annually with the Property Trustee an officer's certificate
as to its compliance with all conditions and covenants under the
Declaration. If the Property Trustee fails to enforce its rights
with respect to the Junior Subordinated Debentures held by the
Trust, any record holder of Capital Securities may institute
legal proceedings directly against the Company to enforce the
Property Trustee's rights under such Junior Subordinated
Debentures without first instituting any legal proceedings
against such Property Trustee or any other person or entity. In
addition, if a Trust Enforcement Event has occurred and is
continuing and such event is attributable to the failure of the
Company to pay interest, principal or other required payments on
the Junior Subordinated Debentures issued to the Trust on the
date such interest, principal or other payment is otherwise
payable, then a record holder of Capital Securities may, on or
after the respective due dates specified in the Junior
Subordinated Debentures, institute a proceeding directly against
the Company for enforcement of payment on Junior Subordinated
Debentures having a principal amount equal to the aggregate
liquidation amount of the Capital Securities held by such holder
(a "Direct Action"). In connection with such Direct Action, the
Company will be subrogated to the rights of such record holder of
Capital Securities to the extent of any payment made by the
Company to such record holder of Capital Securities.
Voting Rights; Amendment of the Declaration
Except as provided below and under "Description of
Guarantee--Amendments and Assignment" and as otherwise required
by law and the Declaration, the holders of the Capital Securities
will have no voting rights.
So long as any Junior Subordinated Debentures are held by
the Property Trustee, the Trustees shall not (i) direct the time,
method or place of conducting any proceeding for any remedy
available to the Indenture Trustee or executing any trust or
power conferred on the Property Trustee with respect to such
Junior Subordinated Debentures, (ii) waive any past default that
is waivable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the
Junior Subordinated Debentures shall be due and payable or (iv)
consent to any amendment, modification or termination of the
Indenture or such Junior Subordinated Debentures, where such
consent shall be required, without, in each case, obtaining the
prior approval of the holders of a majority in aggregate
liquidation amount of all outstanding Capital Securities;
provided, however, that where a consent under the Indenture would
require the consent of each holder of Junior Subordinated
Debentures affected thereby, no such consent shall be given by
the Property Trustee without the prior consent of each holder of
Capital Securities. The Trustees shall not revoke any action
previously authorized or approved by a vote of the holders of the
Capital Securities except pursuant to a subsequent vote of the
holders of the Capital Securities. The Property Trustee shall
notify each holder of record of the Capital Securities of any
notice of default which it receives with respect to the Junior
Subordinated Debentures. In addition to obtaining the foregoing
approvals of the holders of the Capital Securities, prior to
taking any of the foregoing actions, the Property Trustee shall
receive an opinion of counsel experienced in such matters to the
effect that the Trust will not be classified as other than a
grantor trust for United States federal income tax purposes on
account of such action.
The Declaration may be amended from time to time by a
written instrument approved and executed by a majority of the
Regular Trustees (and in certain circumstances the Property
Trustee and the Delaware Trustee), without the consent of the
holders of the Capital Securities, (i) to cure any ambiguity,
correct or supplement any provisions in the Declaration that may
be defective or inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising
under the Declaration that shall not be inconsistent with the
other provisions of the Declaration, (ii) to add to the
covenants, restrictions or
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obligations of the Company or (iii) to modify, eliminate or add
to any provisions of the Declaration to such extent as shall be
necessary to ensure that the Trust will be classified as a
grantor trust for United States federal income tax purposes at
all times that any Capital Securities and Common Securities are
outstanding or to ensure that the Junior Subordinated Debentures
are treated as indebtedness of the Company or to ensure that the
Trust will not be required to register as an "investment company"
under the Investment Company Act, provided, however, that such
action shall not adversely affect in any material respect the
interests of any holder of Capital Securities or Common
Securities, and any amendments of the Declaration shall become
effective when notice thereof is given to the holders of Capital
Securities and Common Securities. The Declaration may be amended
by the Company and a majority of the Regular Trustees with (i)
the consent of holders representing not less than a majority
(based upon liquidation amounts) of the outstanding Capital
Securities and Common Securities and (ii) receipt by the Regular
Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the Regular
Trustees in accordance with such amendment will not affect the
Trust's status as a grantor trust for United States federal
income tax purposes or the Trust's exemption from status of an
"investment company" under the Investment Company Act, provided,
further, that without the consent of each holder of Capital
Securities and Common Securities affected thereby, the
Declaration may not be amended to (i) change the amount or timing
of any Distribution on the Capital Securities and Common
Securities or otherwise adversely affect the amount of any
Distribution required to be made in respect of the Capital
Securities and Common Securities as of a specified date or (ii)
restrict the right of a holder of Capital Securities or Common
Securities to institute suit for the enforcement of any such
payment on or after such date.
Any required approval of holders of Capital Securities may
be given at a meeting of holders of Capital Securities convened
for such purpose or pursuant to written consent. The Regular
Trustees will cause a notice of any meeting at which holders of
Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken,
to be given to each holder of record of Capital Securities in the
manner set forth in the Declaration.
No vote or consent of the holders of Capital Securities
will be required for the Trust to redeem and cancel its Capital
Securities in accordance with the Declaration.
Notwithstanding that holders of Capital Securities are
entitled to vote or consent under any of the circumstances
described above, any of the Capital Securities that are owned by
the Company, the Trustees or any affiliate of the Company or any
Trustees, shall, for purposes of such vote or consent, be treated
as if they were not outstanding.
Expenses and Taxes
In the Indenture (as defined herein), the Company has
agreed to pay all debts and other obligations (other than with
respect to the Capital Securities) and all costs and expenses of
the Trust (including, but not limited to, costs and expenses
relating to the organization of the Trust, the fees and expenses
of the Trustees and the costs and expenses relating to the
operation of the Trust) and to pay any and all taxes and all
costs and expenses with respect thereto (other than withholding
taxes) to which the Trust might become subject. The foregoing
obligations of the Company under the Indenture are for the
benefit of, and shall be enforceable by, any person to whom any
such debts, obligations, costs, expenses and taxes are owed (a
"Creditor") whether or not such Creditor has received notice
thereof. Any such Creditor may enforce such obligations of the
Company directly against the Company, and the Company has
irrevocably waived any right or remedy to require that any such
Creditor take any action against the Trust or any other person
before proceeding against the Company. The Company has also
agreed in the Indenture to execute such additional agreements as
may be necessary or desirable to give full effect to the
foregoing.
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Book-Entry Issuance
DTC will act as securities depositary for all of the
Capital Securities. The Capital Securities will be issued only as
fully-registered securities registered in the name of Cede & Co.
(DTC's nominee). One or more fully-registered global certificates
will be issued for the Capital Securities, representing in the
aggregate the total number of Capital Securities, and will be
deposited with DTC.
DTC is a limited purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning
of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act.
DTC holds securities that its participants ("Participants")
deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations
("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also
available to others, such as securities brokers and dealers,
banks and trust companies that clear through or maintain
custodial relationships with Direct Participants, either directly
or indirectly ("Indirect Participants"). The rules applicable to
DTC and its Participants are on file with the Commission.
Purchases of Capital Securities within the DTC system must
be made by or through Direct Participants, which will receive a
credit for the Capital Securities on DTC's records. The ownership
interest of each actual purchaser of each Capital Security
("Beneficial Owner") is in turn to be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations
providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased
Capital Securities. Transfers of ownership interests in the
Capital Securities are to be accomplished by entries made on the
books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing
their ownership interests in Capital Securities, except in the
event that use of the book-entry system for the Capital
Securities of the Trust is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the
Capital Securities; DTC's records reflect only the identity of
the Direct Participants to whose accounts such Capital Securities
are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Redemption notices shall be sent to Cede & Co. as the
registered holder of the Capital Securities.
Although voting with respect to the Capital Securities is
limited to the holders of record of the Capital Securities, in
those instances in which a vote is required, neither DTC nor Cede
& Co. will itself consent or vote with respect to Capital
Securities. Under its usual procedures, DTC would mail an omnibus
proxy (the "Omnibus Proxy") to the Property Trustee as soon as
possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to
whose accounts such Capital Securities are credited on the record
date (identified in a listing attached to the Omnibus Proxy).
Conveyance of notices and other communications by DTC to
Direct Participants, by Direct Participants to Indirect
Participants, and by Direct Participants and Indirect
Participants to Beneficial Owners and the
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voting rights of Direct Participants, Indirect Participants and
Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Distribution payments on the Capital Securities will be
made by the Property Trustee to DTC. DTC's practice is to credit
Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive
payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such
Participant and not of DTC, the Property Trustee, the Trust or
the Company, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of Distributions
to DTC is the responsibility of the Property Trustee,
disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursements of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as securities
depositary with respect to any of the Capital Securities at any
time by giving reasonable notice to the Property Trustee and the
Company. In the event that a successor securities depositary is
not obtained, definitive Capital Securities certificates
representing such Capital Securities are required to be printed
and delivered. The Company, at its option, may decide to
discontinue use of the system of book-entry transfers through DTC
(or a successor depositary). After an Indenture Event of Default,
the holders of a majority in liquidation amount of Capital
Securities may determine to discontinue the system of book-entry
transfers through DTC. In any such event, definitive certificates
for the Capital Securities will be printed and delivered.
The information in this section concerning DTC and DTC's
book-entry system has been obtained from sources that the Trust
or the Company believe to be accurate, but the Trust and the
Company assume no responsibility for the accuracy thereof. None
of the Trustees, the Trust or the Company has any responsibility
for the performance by DTC or its Participants of their
respective obligations as described herein or under the rules and
procedures governing their respective operations.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer
agent for the Capital Securities.
Registration of transfers of Capital Securities will be
effected without charge by or on behalf of the Trust, but upon
payment of any tax or other governmental charges that may be
imposed in connection with any transfer or exchange. The Trust
will not be required (i) to register or cause to be registered
the transfer or exchange of the Capital Securities during a
period beginning at the opening of business 15 days before the
day of the mailing of the relevant notice of redemption and
ending at the close of business on the day of mailing of such
notice of redemption or (ii) to register or cause to be
registered the transfer or exchange of any Capital Securities so
selected for redemption, except in the case of any Capital
Securities being redeemed in part, any portion thereof not to be
redeemed.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and
continuance of a Trust Enforcement Event, undertakes to perform
only such duties as are specifically set forth in the Declaration
and, after such Trust Enforcement Event, must exercise the same
degree of care and skill as a prudent person would exercise or
use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to
exercise any of the rights or powers vested in it by the
Declaration at the request of any holder of Capital Securities
unless such holder has provided the Property Trustee a reasonable
indemnity against the
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costs, expenses and liabilities that might be incurred thereby.
If no Trust Enforcement Event has occurred and is continuing and
the Property Trustee is required to decide between alternative
causes of action, construe ambiguous provisions in the
Declaration or is unsure of the application of any provision of
the Declaration, and the matter is not one on which holders of
Capital Securities are entitled under the Declaration to vote,
then the Property Trustee may, but shall be under no duty to,
take such action as is directed by the Company and the Common
Securities and will have no liability except for its own bad
faith, negligence or willful misconduct.
Payment and Paying Agency
Payments in respect of the Capital Securities shall be made
to DTC, which shall credit the relevant accounts at DTC on the
applicable Distribution Dates or, if the Capital Securities are
not held by DTC, such payments shall be made by check mailed to
the address of the holder entitled thereto as such address shall
appear on the Register. The paying agent (the "Paying Agent")
shall initially be the Property Trustee and any co-paying agent
chosen by the Property Trustee and acceptable to the Regular
Trustees and the Company. The Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the
Property Trustee and the Company. In the event that the Property
Trustee shall no longer be the Paying Agent, the Regular Trustees
shall appoint a successor (which shall be a bank or trust company
acceptable to the Regular Trustees and the Company) to act as
Paying Agent.
Mergers, Consolidations, Amalgamations or Replacements of the
Trust
The Trust may not merge with or into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to any
corporation or other Person, except as described below or as
otherwise described under "--Liquidation Distribution Upon
Dissolution." The Trust may, at the request of the Company, with
the consent of the Regular Trustees and without the consent of
the holders of the Capital Securities, the Delaware Trustee or
the Property Trustee merge with or into, consolidate, amalgamate,
be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to a trust organized as such
under the laws of any State; provided that (i) such successor
entity (if not the Trust) either (a) expressly assumes all of the
obligations of the Trust with respect to the Capital Securities
or (b) substitutes for the Capital Securities other securities
having substantially the same terms as the Capital Securities
(the "Successor Securities") so long as the Successor Securities
rank the same as the Capital Securities rank in priority with
respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) if the Trust is not the Successor
Entity, the Company expressly appoints a trustee of such
successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Junior Subordinated
Debentures, (iii) the Capital Securities or the Successor
Securities are listed, or any Successor Securities will be listed
upon notification of issuance, on any national securities
exchange or any inter-dealer quotation system on which the
Capital Securities are then listed or quoted, if any, (iv) such
merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the Capital Securities
(including any Successor Securities) to be downgraded by any
nationally-recognized statistical rating organization, (v) such
merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any material
respect, (vi) such successor entity has a purpose substantially
identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer,
or lease, the Company has received an opinion from independent
counsel to the Trust experienced in such matters to the effect
that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any material
respect and (b) following such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, (1)
neither the Trust nor such successor entity will be required to
register as an investment company under the Investment Company
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Act and (2) the Trust or the successor entity will continue to be
classified as a grantor trust for United States federal income
tax purposes, (viii) the Company or any permitted successor or
assignee owns all of the common securities of such successor
entity and guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by
the Guarantee and (ix) such successor entity (if not the Trust)
expressly assumes all of the obligations of the Trust with
respect to the Trustees. Notwithstanding the foregoing, the Trust
shall not, except with the consent of holders of 100% in
aggregate liquidation amount of the Capital Securities,
consolidate, amalgamate, merge with or into, be replaced by or
convey, transfer or lease its properties and assets substantially
as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if
such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Trust or the
successor entity to be classified as an association taxable as a
corporation or as other than a grantor trust for United States
federal income tax purposes and each holder of the Capital
Securities not be treated as owning an undivided interest in the
Junior Subordinated Debentures.
Merger or Consolidation of Trustees
Any entity into which the Property Trustee, the Delaware
Trustee or any Regular Trustee that is not a natural person may
be merged or converted or with which it may be consolidated, or
any entity resulting from any merger, conversion or consolidation
to which such Trustee shall be a party, or any entity succeeding
to all or substantially all the corporate trust business of such
Trustee, shall be the successor of such Trustee under the
Declaration, provided such entity shall be otherwise qualified
and eligible.
Miscellaneous
The Regular Trustees are authorized and directed to conduct
the affairs of and to operate the Trust in such a way that the
Trust will not be deemed to be an "investment company" required
to be registered under the Investment Company Act or classified
as other than a grantor trust for United States federal income
tax purposes and so that the Junior Subordinated Debentures will
be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Company and
the Regular Trustees are authorized to take any action, not
inconsistent with applicable law, the Certificate of Trust or the
Declaration, that the Company and the Regular Trustees determine
in their discretion to be necessary or desirable for such
purposes, as long as such action does not materially and
adversely affect the interests of the holders of the Capital
Securities.
The Trust may not borrow money, issue debt nor mortgage or
pledge any of its assets.
Governing Law
The Declaration and the Capital Securities will be governed
by, and construed in accordance with, the laws of the State of
Delaware.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under
an Indenture (the "Indenture") between the Company and The Bank
of New York, as trustee (the "Indenture Trustee"). This summary
of certain terms and provisions of the Junior Subordinated
Debentures and the Indenture, which summarizes all of the
material terms thereof, does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the
Indenture, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and
to the Trust Indenture Act. Whenever particular defined terms of
the Indenture are referred to herein, such defined terms are
incorporated herein by reference.
General
Concurrently with the issuance of the Capital Securities,
the Trust will invest the proceeds thereof and the consideration
paid by the Company for the Common Securities in the Junior
Subordinated Debentures issued by the Company. The Junior
Subordinated Debentures will be in a principal amount equal to
the aggregate liquidation amount of the Capital Securities plus
the Company's concurrent investment in the Common Securities. The
Junior Subordinated Debentures will bear interest at the annual
rate of % of the principal amount thereof, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of
each year (each, an "Interest Payment Date"), commencing March
31, 1999, to the person in whose name each Junior Subordinated
Debenture is registered, subject to certain exceptions, at the
close of business on the th day of the month preceding the
relevant Interest Payment Date. It is anticipated that, until the
liquidation, if any, of the Trust, each Junior Subordinated
Debenture will be held in the name of the Property Trustee in
trust for the benefit of the holders of the Capital Securities
and the Common Securities. The amount of interest payable for any
period will be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which interest is
payable on the Junior Subordinated Debentures is not a Business
Day, then payment of the interest payable on such date will be
made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such
delay), except that if such next succeeding Business Day falls in
the next calendar year, then such payment shall be made on the
immediately preceding Business Day, in each case with the same
force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on
the amount thereof (to the extent permitted by law) at the rate
per annum of % thereof, compounded quarterly. The term "interest"
as used herein shall include quarterly interest payments and
interest on quarterly interest payments not paid on the
applicable Interest Payment Date, as applicable.
The Junior Subordinated Debentures will mature on ,
2028.
The Junior Subordinated Debentures will be unsecured and
will rank junior and be subordinate in right of payment to all
Senior Indebtedness (as defined below) of the Company and will be
structurally subordinated to all liabilities and obligations of
the Company's subsidiaries. See "--Subordination."
Option to Extend Interest Payment Period
So long as no Indenture Event of Default has occurred and
is continuing, the Company has the right under the Indenture to
defer the payment of interest at any time or from time to time
for a period not exceeding 20 consecutive quarters with respect
to each Extension Period, provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated
Debentures or end on a day other than an Interest Payment Date.
At the end of such Extension Period, the Company must pay all
interest then accrued and unpaid (together with interest thereon
at the annual rate of %, compounded quarterly, to the extent
permitted by applicable law). During an Extension Period,
interest will continue to accrue and holders of
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Junior Subordinated Debentures (or holders of Capital Securities
while the Capital Securities are outstanding) will be required to
accrue interest income (as OID) for United States federal income
tax purposes. See "U.S. Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
During any such Extension Period, the Company may not, and
may not permit any subsidiary of the Company to, (i) declare or
pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of
the Company's capital stock, (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank pari passu with or
junior in interest to the Junior Subordinated Debentures or (iii)
make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company
if such guarantee ranks pari passu or junior in interest to the
Junior Subordinated Debentures (other than (a) dividends or
distributions in the form of stock, warrants, options or other
rights where the dividend stock or the stocks issuable upon
exercise of such warrants, options or other right is the same
stock as that on which the dividend is being paid or ranks pari
passu with or junior to such stock, (b) payments under the
Guarantee, (c) any declaration of a dividend in connection with
the implementation of a shareholders' rights plan, or the
issuance of rights, stock or other property under any such plan
in the future, or the redemption or repurchase of any such rights
pursuant thereto, (d) as a result of reclassification of the
Company's capital stock into one or more other classes or series
of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock (or any
capital stock of a subsidiary of the Company) for another class
or series of the Company's capital stock, or of any class or
series of the Company's indebtedness for any class or series of
the Company's capital stock, (e) the purchase of fractional
interests in the shares of the Company's capital stock pursuant
to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged and (f) repurchases,
redemptions or other acquisitions of common stock related to the
issuance of common stock or rights under any of the Company's
employment contracts, benefit plans or other similar arrangement
with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to
the applicable Extension Period). Prior to the termination of any
such Extension Period, the Company may further extend the
Extension Period, provided that no Extension Period may exceed 20
quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures or end on any date other than on an
Interest Payment Date. Upon the termination of any such Extension
Period and the payment of all amounts then due on any Interest
Payment Date, the Company may elect to begin a new Extension
Period subject to the above requirements. No interest shall be
due and payable during an Extension Period, except at the end
thereof. The Company shall give the Property Trustee, the Regular
Trustees and the Indenture Trustee notice of its election of such
Extension Period at least one Business Day prior to the earlier
of (i) the date the Distributions on the Capital Securities would
have been payable except for the election to begin such Extension
Period or (ii) the date the Regular Trustees are required to give
notice to an applicable self-regulatory organization or to
holders of such Capital Securities of the record date or the date
such Distributions are payable, but in any event not less than
one Business Day prior to such record date. The Property Trustee
shall give notice of the Company's election to begin a new
Extension Period to the holders of the Capital Securities.
Redemption
The Junior Subordinated Debentures are not redeemable prior
to ,2003 unless a Special Event has occurred. The Junior
Subordinated Debentures are redeemable prior to maturity at the
option of the Company, on or after ,2003, in whole or in
part at any time at 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to, but excluding, the date
of redemption.
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The Junior Subordinated Debentures are also redeemable at
any time in whole but not in part, within 90 days of the
occurrence of a Special Event, at a redemption price equal to
100% of the principal amount of such Junior Subordinated
Debentures, together with accrued and unpaid payments of interest
thereon to, but excluding, the date of redemption.
In the event that Junior Subordinated Debentures are
redeemed, the Trust must redeem Trust Securities having an
aggregate liquidation preference equal to the aggregate principal
amount of Junior Subordinated Debentures or portions thereof
called for redemption.
Notice of any redemption will be mailed at least 30 days
but not more than 60 days before the redemption date to each
holder of Junior Subordinated Debentures to be redeemed at its
registered address. Unless the Company defaults in payment of the
redemption price, on and after the redemption date interest
ceases to accrue on such Junior Subordinated Debentures or
portions thereof called for redemption.
Certain Covenants of the Company
The Company will covenant in the Indenture that if and so
long as the Trust is the holder of all Junior Subordinated
Debentures, the Company, as borrower, will pay to the Trust all
fees and expenses related to the Trust and the offering of the
Capital Securities and will pay, directly or indirectly, all
ongoing costs, expenses and liabilities of the Trust (including
any taxes, duties, assessments or governmental charges of
whatever nature (other than withholding taxes) imposed by the
United States or any domestic taxing authority upon the Trust)
but excluding obligations under the Trust Securities.
The Company will also covenant that it will not, and will
not permit any subsidiary of the Company to, (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire,
or make a liquidation payment with respect to, any of the
Company's capital stock, (ii) make any payment of principal,
interest or premium, if any, on or repay or repurchase or redeem
any debt securities of the Company that rank pari passu with or
junior in interest to the Junior Subordinated Debentures or (iii)
make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company
if such guarantee ranks pari passu with or junior in interest to
the Junior Subordinated Debentures (other than (a) dividends or
distributions in the form of stock, warrants, options or other
rights where the dividend stock or the stocks issuable upon
exercise of such warrants, options or other right is the same
stock as that on which the dividend is being paid or ranks pari
passu with or junior to such stock, (b) payments under the
Guarantee, (c) any declaration of a dividend in connection with
the implementation of a shareholders' rights plan, or the
issuance of rights, stock or other property under any such plan
in the future, or the redemption or repurchase of any such rights
pursuant thereto, (d) as a result of reclassification of the
Company's capital stock into one or more other classes or series
of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock (or any
capital stock of a subsidiary of the Company) for another class
or series of the Company's capital stock, or of any class or
series of the Company's indebtedness for any class or series of
the Company's capital stock, (e) the purchase of fractional
interests in the shares of the Company's capital stock pursuant
to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged and (f) repurchases,
redemptions or other acquisitions of common stock related to the
issuance of common stock or rights under any of the Company's
employment contracts, benefit plans or other similar arrangement
with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to
the applicable Extension Period) if at such time (x) there shall
have occurred any event of which the Company has actual knowledge
that (I) with the giving of notice or the lapse of time, or both,
would constitute an Indenture Event of Default with respect to
Junior Subordinated Debentures and (II) in respect of which the
Company shall not have taken reasonable steps to
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cure, (y) the Company shall be in default with respect to its
payment of any obligations under the Guarantee or (z) the Company
shall have given notice of its election of an Extension Period as
provided in the Indenture and shall not have rescinded such
notice, or such Extension Period, or any extension thereof, shall
be continuing.
Subordination
In the Indenture, the Company has covenanted and agreed
that any Junior Subordinated Debentures issued thereunder will be
subordinated and junior in right of payment to all Senior
Indebtedness to the extent provided in the Indenture. Upon any
payment or distribution of assets of the Company upon any
liquidation, dissolution, winding-up, reorganization, assignment
for the benefit of creditors, marshaling of assets or any
bankruptcy, insolvency, debt restructuring or similar proceedings
in connection with any insolvency or bankruptcy proceeding of the
Company, the holders of Senior Indebtedness will first be
entitled to receive payment in full of principal of and premium,
if any, and interest, if any, on such Senior Indebtedness before
the holders of Junior Subordinated Debentures or the Property
Trustee on behalf of the holders of Capital Securities will be
entitled to receive or retain any payment in respect of the
principal of, or interest, if any, on the Junior Subordinated
Debentures; provided, however, that holders of Senior
Indebtedness shall not be entitled to receive payment of any such
amounts to the extent that such holders would be required by the
subordination provisions of such Senior Indebtedness to pay such
amounts over to the obligees on trade accounts payable or other
liabilities arising in the ordinary course of the Company's
business.
In the event of the acceleration of the maturity of any
Junior Subordinated Debentures, the holders of all Senior
Indebtedness outstanding at the time of such acceleration will
first be entitled to receive payment in full of all amounts due
thereon (including any amounts due upon acceleration) before the
holders of Junior Subordinated Debentures will be entitled to
receive or retain any payment in respect of the principal of, or
interest, if any, on the Junior Subordinated Debentures;
provided, however, that holders of Senior Indebtedness shall not
be entitled to receive payment of any such amounts to the extent
that such holders would be required by the subordination
provisions of such Senior Indebtedness to pay such amounts over
to the obligees on trade accounts payable or other liabilities
arising in the ordinary course of the Company's business.
No payments on account of principal or interest, if any, in
respect of the Junior Subordinated Debentures may be made if
there shall have occurred and be continuing a default in any
payment with respect to Senior Indebtedness, or an event of
default with respect to any Senior Indebtedness resulting in the
acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default.
"Senior Indebtedness" means, with respect to the Company,
whether recourse is to all or a portion of the assets of the
Company and whether or not contingent, (i) every obligation of
the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar
instruments of the Company, including obligations incurred in
connection with the acquisition of property, assets or
businesses; (iii) every reimbursement obligation of the Company
with respect to letters of credit, bankers' acceptances or
similar facilities issued for the account of the Company; (iv)
every obligation of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary
course of business); (v) every capital lease obligation of the
Company; (vi) every obligation of the Company for claims (as
defined in Section 101(4) of the United States Bankruptcy Code of
1978, as amended) in respect of derivative products such as
interest and foreign exchange rate contracts, commodity contracts
and similar arrangements; and (vii) every obligation of the type
referred to in clauses (i) through (vi) above of another person
and all dividends of another person the payment of which, in
either case, the Company has guaranteed or is responsible or
liable for, directly or indirectly, as obligor or otherwise;
provided, however, that Senior Indebtedness shall not be deemed
to include
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(i) any indebtedness of the Company that is by its terms
subordinated to or ranked pari passu with the Junior Subordinated
Debentures; (ii) any indebtedness of the Company which when
incurred and without respect to any election under Section
1111(b) of the United States Bankruptcy Code of 1978, as amended,
was without recourse to the Company; (iii) any indebtedness of
the Company to any of its subsidiaries; (iv) any indebtedness to
any employee of the Company; (v) trade accounts payable in the
ordinary course of business; or (vi) any indebtedness in respect
of debt securities issued to any trust, or a trustee of such
trust, partnership or other entity affiliated with the Company
that is a financing entity of the Company in connection with the
issuance by such financing entity of securities that are similar
to the Capital Securities.
The Indenture places no limitation on the amount of
additional indebtedness or other liabilities that may be incurred
by the Company's subsidiaries. As of June 30, 1998, the Company
had no Senior Indebtedness outstanding, and the Company's
consolidated subsidiaries had indebtedness and other liabilities
(exclusive of obligations to policyholders) of approximately
$123.7 million to which the Junior Subordinated Debentures would
be effectively subordinated.
Indenture Events of Default
The Indenture provides that any one or more of the
following described events with respect to the Junior
Subordinated Debentures that has occurred and is continuing
constitutes an "Indenture Event of Default" with respect to the
Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior
Subordinated Debentures when due (subject to the deferral of any
due date in the case of an Extension Period); or
(ii) failure to pay any principal on the Junior
Subordinated Debentures when due whether at maturity, upon
redemption, by declaration of acceleration or otherwise; or
(iii) failure to observe or perform any other covenant
contained in the Indenture for 90 days after written notice to
the Company from the Indenture Trustee or the holders of at least
25% in aggregate outstanding principal amount of outstanding
Junior Subordinated Debentures; or
(iv) certain events of bankruptcy or insolvency of the
Company.
The holders of a majority in aggregate outstanding
principal amount of Junior Subordinated Debentures have the right
to direct the time, method and place of conducting any proceeding
for any remedy available to the Indenture Trustee. The Indenture
Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of Junior Subordinated Debentures
may declare the principal due and payable immediately upon an
Indenture Event of Default, and, should the Indenture Trustee or
such holders of such Junior Subordinated Debentures fail to make
such declaration, the holders of at least 25% in aggregate
liquidation amount of the Capital Securities shall have such
right. The holders of a majority in aggregate outstanding
principal amount of Junior Subordinated Debentures may annul such
declaration and waive the default if the default (other than the
non-payment of the principal of Junior Subordinated Debentures
which has become due solely by such acceleration) has been cured
and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been
deposited with the Indenture Trustee, and should the holders of
such Junior Subordinated Debentures fail to annul such
declaration and waive such default, the holders of a majority in
aggregate liquidation amount of the Capital Securities shall have
such right.
The holders of a majority in aggregate outstanding
principal amount of the Junior Subordinated Debentures affected
thereby may, on behalf of the holders of all the Junior
Subordinated Debentures, waive
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any past default, except a default in the payment of principal or
interest (unless such default has been cured and a sum sufficient
to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the
Indenture Trustee) or a default in respect of a covenant or
provision which under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Junior
Subordinated Debenture, and should the holders of such Junior
Subordinated Debentures fail to waive such default, the holders
of a majority in aggregate liquidation amount of the Capital
Securities shall have such right. The Company is required to file
annually with the Indenture Trustee a certificate as to whether
or not the Company is in compliance with all the conditions and
covenants applicable to it under the Indenture.
In case an Indenture Event of Default shall occur and be
continuing, the Property Trustee will have the right to declare
the principal of and the interest on such Junior Subordinated
Debentures and any other amounts payable under the Indenture to
be forthwith due and payable and to enforce its other rights as a
creditor with respect to such Junior Subordinated Debentures.
Enforcement of Certain Rights by Holders of Capital Securities
If an Indenture Event of Default has occurred and is
continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Junior Subordinated
Debentures on the date such interest or principal is otherwise
payable, a holder of Capital Securities may institute a Direct
Action for payment. The Company may not amend the Indenture to
remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Capital
Securities. Notwithstanding any payment made to such holder of
Capital Securities by the Company in connection with a Direct
Action, the Company shall remain obligated to pay the principal
of or interest on the Junior Subordinated Debentures held by the
Trust or the Property Trustee and the Company shall be subrogated
to the rights of the holder of such Capital Securities with
respect to payments on the Capital Securities to the extent of
any payments made by the Company to such holder in any Direct
Action. The holders of Capital Securities will not be able to
exercise directly any other remedy available to the holders of
the Junior Subordinated Debentures.
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that the Company shall not
consolidate with or merge into any other Person or convey,
transfer or lease its properties and assets substantially as an
entirety to any Person, unless (i) in case the Company
consolidates with or merges into another Person or conveys,
transfers or leases its properties and assets substantially as an
entirety to any Person, the successor Person is organized under
the laws of the United States or any state or the District of
Columbia, and such successor Person expressly assumes the
Company's obligations on the Junior Subordinated Debentures
issued under the Indenture; (ii) immediately after giving effect
thereto, no Indenture Event of Default, and no event which, after
notice or lapse of time or both, would become an Indenture Event
of Default, shall have happened and be continuing; (iii) if at
the time any Capital Securities are outstanding, such transaction
is permitted under the Declaration and Guarantee and does not
give rise to any breach or violation of the Declaration or
Guarantee; (iv) any such lease shall provide that it will remain
in effect so long as any Junior Subordinated Debentures are
outstanding; and (v) certain other conditions as prescribed in
the Indenture are met.
Modification of Indenture
From time to time the Company and the Indenture Trustee
may, without the consent of the holders of the Junior
Subordinated Debentures, amend, waive or supplement the Indenture
for specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies (provided that any such
action does not materially adversely affect the interest of the
holders of Junior Subordinated Debentures or any
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outstanding Capital Securities) and qualifying, or maintaining
the qualification of, the Indenture under the Trust Indenture
Act. The Indenture contains provisions permitting the Company and
the Indenture Trustee, with the consent of the holders of not
less than a majority in principal amount of outstanding Junior
Subordinated Debentures affected, to execute supplemental
indentures which modify the Indenture in a manner affecting the
rights of the holders of such Junior Subordinated Debentures;
provided that no such supplemental indenture may, without the
consent of the holder of each outstanding Junior Subordinated
Debenture so affected, (i) change the Stated Maturity of the
Junior Subordinated Debentures, or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of
interest thereon (except such extension as is contemplated
hereby) or (ii) reduce the percentage of principal amount of
Junior Subordinated Debentures, the holders of which are required
to consent to any such modification of the Indenture, provided
that, so long as any Capital Securities remain outstanding, no
such modification may be made that adversely affects the holders
of such Capital Securities in any material respect, and no
termination of the Indenture may occur, and no waiver of any
Indenture Event of Default or compliance with any covenant under
the Indenture may be effective, without the prior consent of the
holders of at least a majority of the aggregate liquidation
amount of the Capital Securities unless and until the principal
of the Junior Subordinated Debentures and all accrued and unpaid
interest thereon have been paid in full and certain other
conditions are satisfied.
Distributions of Junior Subordinated Debentures; Book-Entry
Issuance
Under certain circumstances involving the termination of
the Trust, Junior Subordinated Debentures may be distributed to
the holders of the Capital Securities in liquidation of the Trust
after satisfaction of liabilities to creditors of the Trust as
provided by applicable law. If distributed to holders of Capital
Securities in liquidation, the Junior Subordinated Debentures
will initially be issued in the form of global securities and
certificated securities. DTC, or any successor depositary for the
Capital Securities, will act as depositary for such global
securities. It is anticipated that the depositary arrangements
for such global securities would be substantially identical to
those in effect for the Capital Securities. For a description of
DTC and the terms of the depositary matters, see "Description of
Capital Securities--Book-Entry Issuance."
If the Junior Subordinated Debentures are distributed to
the holders of Capital Securities upon the liquidation of the
Trust, the Company will use its best efforts to list the Junior
Subordinated Debentures on such stock exchanges or inter-dealer
quotation system, if any, on which the Capital Securities are
then listed or quoted. There can be no assurance as to the market
price of any Junior Subordinated Debentures that may be
distributed to the holders of Capital Securities.
Payment and Paying Agents
The Company initially will act as Paying Agent with respect
to the Junior Subordinated Debentures except that, if the Junior
Subordinated Debentures are distributed to the holders of the
Capital Securities in liquidation of such holders' interests in
the Trust, the Indenture Trustee will act as the Paying Agent.
The Company at any time may designate additional Paying Agents or
rescind the designation of any Paying Agent or approve a change
in the office through which any Paying Agent acts, except that
the Company will be required to maintain a Paying Agent at the
place of payment.
Any moneys deposited with the Indenture Trustee or any
Paying Agent, or then held by the Company in trust, for the
payment of the principal of, or interest on, any Junior
Subordinated Debentures and remaining unclaimed for two years
after such principal or interest has become due and payable
shall, at the request of the Company, be repaid to the Company
and the holder of such Junior Subordinated Debentures shall
thereafter look, as a general unsecured creditor, only to the
Company for payment thereof.
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Governing Law
The Indenture and the Junior Subordinated Debentures will
be governed by and construed in accordance with the laws of the
State of New York.
Defeasance and Discharge
The Indenture provides that the Company, at the Company's
option: (a) will be discharged from any and all obligations in
respect of the Junior Subordinated Debentures (except for certain
obligations to register the transfer or exchange of Junior
Subordinated Debentures, replace stolen, lost or mutilated Junior
Subordinated Debentures, maintain paying agencies and hold moneys
for payment in trust) or (b) need not comply with certain
restrictive covenants of the Indenture, in each case if the
Company deposits, in trust with the Indenture Trustee, money or
U.S. Government Obligations which through the payment of interest
thereon and principal thereof in accordance with their terms will
provide money, in an amount sufficient to pay all the principal
of, and interest, if any, on the Junior Subordinated Debentures
on the dates such payments are due in accordance with the terms
of such Junior Subordinated Debentures. To exercise any such
option, the Company is required to deliver to the Indenture
Trustee and the Defeasance Agent, if any, an opinion of counsel
to the effect that (i) the deposit and related defeasance would
not cause the holders of the Junior Subordinated Debentures to
recognize income, gain or loss for U.S. federal income tax
purposes and, in the case of a discharge pursuant to clause (a),
such opinion shall be accompanied by a private letter ruling to
the effect received by the Company from the United States
Internal Revenue Service or revenue ruling pertaining to a
comparable form of transaction to the effect published by the
United States Internal Revenue Service, and (ii) if listed on any
national securities exchange, such Junior Subordinated Debentures
would not be delisted from such exchange as a result of the
exercise of such option.
Information Concerning the Indenture Trustee
The Indenture Trustee shall have and be subject to all the
duties and responsibilities specified with respect to an
indenture trustee under the Trust Indenture Act. Subject to such
provisions, the Indenture Trustee is under no obligation to
exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless
offered reasonable indemnity by such holder against the costs,
expenses and liabilities which might be incurred thereby. The
Indenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the
performance of its duties if the Indenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably
assured to it.
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DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company
concurrently with the issuance by the Trust of the Capital
Securities for the benefit of the holders from time to time of
such Capital Securities. The Bank of New York will act as
guarantee trustee ("Guarantee Trustee") under the Guarantee for
the purposes of compliance with the Trust Indenture Act and the
Guarantee will be qualified as an Indenture under the Trust
Indenture Act. This summary of certain provisions of the
Guarantee, which summarizes all of the material terms thereof,
does not purport to be complete and is subject to, and qualified
in its entirety by reference to, all of the provisions of the
Guarantee, including the definitions therein of certain terms,
and the Trust Indenture Act. The form of the Guarantee will be
filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Capital
Securities.
General
The Company will irrevocably and unconditionally agree to
pay in full on a subordinated basis, to the extent set forth
herein, the Guarantee Payments (as defined below) to the holders
of the Capital Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have
or assert other than the defense of payment. The following
payments with respect to the Capital Securities, to the extent
not paid by or on behalf of the Trust (the "Guarantee Payments"),
will be subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on the Capital Securities, to
the extent that the Trust has funds on hand available therefor at
the time, (ii) the Redemption Price with respect to any Capital
Securities called for redemption, to the extent that the Trust
has funds on hand available therefor at such time, and (iii) upon
a voluntary or involuntary dissolution, winding up or liquidation
of the Trust (unless the Junior Subordinated Debentures are
distributed to holders of the Capital Securities in exchange
therefor), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid Distributions on the Capital
Securities to the date of payment and to the extent that the
Trust has funds on hand legally available therefor, and (b) the
amount of assets of the Trust remaining available for
distribution to holders of Capital Securities in liquidation of
the Trust. The Company's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by the
Company to the holders of the applicable Capital Securities or by
causing the Trust to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a
subordinated basis of the Trust's obligations under the Capital
Securities, but will apply only to the extent that the Trust has
funds on hand available to make such payments, and is not a
guarantee of collection.
If the Company does not make interest payments on the
Junior Subordinated Debentures held by the Trust, the Trust will
not be able to pay Distributions on the Capital Securities and
will not have funds legally available therefor. The Guarantee
does not limit the incurrence or issuance of other secured or
unsecured debt of the Company, whether under the Indenture or any
existing or other indenture that the Company may enter into in
the future or otherwise.
The Company has, through the Guarantee, the Junior
Subordinated Debentures and the Indenture, taken together, fully
and unconditionally guaranteed all of the Trust's obligations
under the Capital Securities. No single document standing alone
or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a
full and unconditional guarantee of the Trust's obligations under
the Capital Securities. See "Relationship Among the Capital
Securities, the Junior Subordinated Debentures and the
Guarantee--General."
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Status of the Guarantee
The Guarantee will constitute an unsecured obligation of
the Company and will rank subordinate and junior in right of
payment to all Senior Indebtedness of the Company and will be
structurally subordinated to all liabilities and obligations of
the Company's subsidiaries. The Guarantee does not place a
limitation on the amount of additional Senior Indebtedness that
may be incurred by the Company.
The Guarantee will constitute a guarantee of payment and
not of collection (i.e., the guaranteed party may institute a
legal proceeding directly against the Company to enforce its
rights under the Guarantee without first instituting a legal
proceeding against any other person or entity). The Guarantee
will be held for the benefit of the holders of the Capital
Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid
by the Trust or upon distribution of the Junior Subordinated
Debentures to the holders of the Capital Securities in exchange
for all of the Capital Securities.
The obligations of the Company under the Guarantee will be
structurally subordinated to all liabilities and obligations of
the Company's subsidiaries. See "Risk Factors--Ranking of
Subordinated Obligations Under the Guarantee and the Junior
Subordinated Debentures."
Amendments and Assignment
Except with respect to any changes that do not materially
and adversely affect the rights of holders of the Capital
Securities (in which case no consent will be required), the
Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate liquidation
amount of the outstanding Capital Securities. The manner of
obtaining any such approval will be as set forth under
"Description of Capital Securities--Voting Rights; Amendment of
the Declaration." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees
and representatives of the Company and shall inure to the benefit
of the holders of the Capital Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the
failure of the Company to perform any of its payment or other
obligations thereunder. The holders of not less than a majority
in aggregate liquidation amount of the Capital Securities have
the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust
or power conferred upon the Guarantee Trustee under the
Guarantee.
Any holder of the Capital Securities may institute a legal
proceeding directly against the Company to enforce its rights
under the Guarantee without first instituting a legal proceeding
against the Trust, the Guarantee Trustee or any other person or
entity.
The Company, as guarantor, is required to file annually
with the Guarantee Trustee a certificate as to whether or not the
Company is in compliance with all the conditions and covenants
applicable to it under the Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and
continuance of a default by the Company in performance of the
Guarantee, undertakes to perform only such duties as are
specifically set forth in each Guarantee and, after default with
respect to the Guarantee, must exercise the same degree of care
and
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skill as a prudent person would exercise or use in the conduct of
his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers
vested in it by the Guarantee at the request of any holder of any
Capital Security unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be
incurred thereby.
Termination of the Guarantee
The Guarantee will terminate and be of no further force and
effect upon full payment of the Redemption Price of the Capital
Securities, upon full payment of the amounts payable upon
liquidation of the Trust or upon distribution of Junior
Subordinated Debentures to the holders of the Capital Securities
in exchange for all of the Capital Securities. The Guarantee will
continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the Capital Securities must
restore payment of any sums paid under the Capital Securities or
the Guarantee.
Governing Law
The Guarantee will be governed by and construed in
accordance with the laws of the State of New York.
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RELATIONSHIP AMONG THE CAPITAL SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
Payments of Distributions and other amounts due on the
Capital Securities (to the extent the Trust has funds available
for the payment of such Distributions and other amounts) are
irrevocably guaranteed by the Company as and to the extent set
forth under "Description of Guarantee." If and to the extent that
the Company does not make payments under the Junior Subordinated
Debentures, the Trust will not pay Distributions or other amounts
due on the Capital Securities. The Guarantee does not cover
payment of Distributions when the Trust does not have sufficient
funds to pay such Distributions. In such event, a holder of
Capital Securities may institute a legal proceeding directly
against the Company to enforce payment of such Distributions to
such holder after the respective due dates. Taken together, the
Company's obligations under the Junior Subordinated Debentures,
the Indenture and the Guarantee provide, in the aggregate, a full
and unconditional guarantee of payments of distributions and
other amounts due on the Capital Securities. No single document
standing alone or operating in conjunction with fewer than all of
the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of
providing a full and unconditional guarantee of the Trust's
obligations under the Capital Securities. The obligations of the
Company under the Guarantee and the Junior Subordinated
Debentures are subordinate and junior in right of payment to all
Senior Indebtedness of the Company.
Sufficiency of Payments
As long as payments of interest and other payments are made
when due on the Junior Subordinated Debentures, such payments
will be sufficient to cover Distributions and other payments due
on the Capital Securities, primarily because (i) the aggregate
principal amount of the Junior Subordinated Debentures will be
equal to the sum of the aggregate stated liquidation amount of
the Capital Securities and the Common Securities; (ii) the
interest rate and interest and other payment dates on the Junior
Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the related Capital
Securities; (iii) the Company will pay for all and any costs,
expenses and liabilities of the Trust except the Trust's
obligations under the Capital Securities; and (iv) the
Declaration further provides that the Trust will not engage in
any activity that is not consistent with the limited purposes of
the Trust.
Notwithstanding anything to the contrary in the Indenture,
the Company has the right to set-off any payment it is otherwise
required to make thereunder with and to the extent the Company
has theretofore made, or is concurrently on the date of such
payment making, a payment under the Guarantee.
Enforcement Rights of Holders of Capital Securities
A holder of Capital Securities may institute a legal
proceeding directly against the Company to enforce its rights
under the Guarantee without first instituting a legal proceeding
against the Guarantee Trustee, the Trust or any other person or
entity.
A default or event of default under any Senior Indebtedness
of the Company will not constitute a default or Indenture Event
of Default. In addition, in the event of payment defaults under,
or acceleration of, Senior Indebtedness of the Company, the
subordination provisions of the Indenture provide that no
payments may be made in respect of the Junior Subordinated
Debentures until such Senior Indebtedness has been paid in full
or any payment default thereunder has been cured or waived.
Failure to make required payments on the Junior Subordinated
Debentures would constitute an Indenture Event of Default under
the Indenture.
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Limited Purpose of Trust
The Capital Securities evidence a beneficial interest in
the Trust, and the Trust exists for the sole purpose of issuing
the Capital Securities and the Common Securities and investing
the proceeds thereof in Junior Subordinated Debentures. A
principal difference between the rights of a holder of Capital
Securities and a holder of Junior Subordinated Debentures is that
a holder of Junior Subordinated Debentures is entitled to receive
from the Company the principal amount of and interest accrued on
Junior Subordinated Debentures held, while a holder of Capital
Securities is entitled to receive Distributions from the Trust
(or from the Company under the Guarantee) only if and to the
extent the Trust has funds available for the payment of such
Distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution, winding-up
or liquidation of the Trust involving the liquidation of the
Junior Subordinated Debentures, and after satisfaction of
creditors of the Trust, if any, as required by applicable law,
the holders of the Capital Securities will be entitled to
receive, out of assets held by the Trust, the liquidation
distribution in cash. See "Description of Capital
Securities--Liquidation Distribution Upon Dissolution." Upon any
voluntary or involuntary liquidation or bankruptcy of the
Company, the Property Trustee, as holder of the Junior
Subordinated Debentures, would be a subordinated creditor of the
Company, subordinated in right of payment to all Senior
Indebtedness, but entitled to receive payment in full of
principal and interest before any stockholders of the Company
receive payments or distributions. Because the Company is the
guarantor under the Guarantee and has agreed to pay for all
costs, expenses and liabilities of the Trust (other than the
Trust's obligations to the holders of the Capital Securities),
the positions of a holder of Capital Securities and a holder of
the Junior Subordinated Debentures relative to other creditors
and to stockholders of the Company in the event of liquidation or
bankruptcy of the Company would be substantially the same.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal
income tax consequences and certain other tax consequences of the
purchase, ownership and disposition of Capital Securities, and
where specifically indicated constitutes the opinion of Cleary,
Gottlieb, Steen & Hamilton regarding such material consequences.
This summary does not purport to be a comprehensive description
of all of the tax consequences that may be relevant to a decision
to purchase Capital Securities by any particular investor,
including tax consequences that arise from rules of general
application to all taxpayers or to certain classes of taxpayers
or that are generally assumed to be known by investors. This
summary addresses the tax consequences only to a person that
acquires Capital Securities on their original issue at their
original offering price and that is (i) an individual citizen or
resident of the United States, (ii) a corporation or partnership
organized in or under the laws of the United States or any state
thereof or the District of Columbia or (iii) otherwise subject to
U.S. federal income taxation on a net income basis in respect of
the Capital Securities (a "United States Holder"). This summary
also does not address the tax consequences to (i) persons that
are not United States Holders, except as described below under
"--United States Alien Holders" (ii) persons that may be subject
to special treatment under United States federal income tax law,
such as banks, insurance companies, thrift institutions,
regulated investment companies, real estate investment trusts,
tax-exempt organizations, traders in securities that elect to
mark to market and dealers in securities or currencies, (iii)
persons that will hold Capital Securities as part of a position
in a "straddle" or as part of a "hedging," "conversion" or other
integrated investment transaction for federal income tax
purposes, (iv) persons whose functional currency is not the
United States dollar or (v) persons that do not hold Capital
Securities as capital assets.
This summary is based upon the U.S. Internal Revenue Code
of 1986, as amended (the "Code"), Treasury regulations, Internal
Revenue Service rulings and pronouncements and judicial decisions
now in effect, all of which are subject to change at any time.
Such changes may be applied retroactively in a manner that could
cause the tax consequences to vary substantially from the
consequences described below, possibly adversely affecting a
beneficial owner of Capital Securities. For example, a judicial
decision could be issued or legislation could be enacted that
would adversely affect the Company's ability to deduct interest
or original issue discount on the Junior Subordinated Debentures,
either of which might in turn permit the Company to cause a
redemption of the Capital Securities. See "--Possible Tax Law
Changes." The authorities on which this summary is based are
subject to various interpretations, and it is therefore possible
that the federal income tax treatment of the purchase, ownership
and disposition of Capital Securities may differ from the
treatment described below. All references herein to federal tax
refer to United States federal tax.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN
TAX ADVISORS IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO
THE UNITED STATES FEDERAL TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF CAPITAL SECURITIES, AS WELL AS THE
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Classification of the Junior Subordinated Debentures and the Trust
In the opinion of Cleary, Gottlieb, Steen & Hamilton, under
current law and assuming full compliance with the terms of the
Indenture (and certain other documents), and based on certain
facts and assumptions, the Junior Subordinated Debentures will
be treated for United States federal income tax purposes as
indebtedness of the Company. By acceptance of a Capital Security,
each Holder covenants to treat the Junior Subordinated Debentures
as indebtedness of the Company and the Capital Securities as an
undivided beneficial ownership interest in the Junior
Subordinated Debentures.
In the opinion of Cleary, Gottlieb, Steen & Hamilton, under
current law and assuming full compliance with the terms of the
Trust Agreement and the Indenture (and certain other documents),
and based on certain facts and assumptions, the Trust will be
treated for United States federal income tax purposes as a
grantor trust
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and not as an association taxable as a corporation. Accordingly,
for United States federal income tax purposes, each United States
Holder of Capital Securities will be considered the owner of an
undivided beneficial ownership interest in the Junior
Subordinated Debentures, and each United States Holder will be
required to include in its gross income any interest (or original
issue discount accrued) with respect to its allocable share of
those Junior Subordinated Debentures. See "--Interest Income and
Original Issue Discount."
An opinion of Cleary, Gottlieb, Steen & Hamilton is not
binding on the Internal Revenue Service (the "IRS") or the
courts. Prospective investors should note that no rulings have
been or are expected to be sought from the IRS with respect to
any of these issues and no assurance can be given that the IRS
will not take contrary positions. Moreover, no assurance can be
given that any of the opinions expressed herein will not be
challenged by the IRS or, if challenged, that such challenge will
not be successful. See "--Possible Tax Law Changes."
Interest Income and Original Issue Discount
Under Treasury regulations applicable to debt instruments
issued on or after August 13, 1996 (the "Regulations"), a
contingency that stated interest will not be timely paid that is
"remote," because of the terms of the relevant debt instrument,
will be ignored in determining whether such debt instrument is
issued with OID. As a result of terms and conditions of the
Junior Subordinated Debentures that prohibit certain payments
with respect to the Company's capital stock and indebtedness if
the Company elects to extend interest payment periods, the
Company believes that the likelihood of its exercising its option
to defer payments is remote. See "Description of Junior
Subordinated Debentures--Option to Extend Interest Payment
Period." Based on the foregoing, the Junior Subordinated
Debentures will not be considered to be issued with OID at the
time of their original issuance and, accordingly, a United States
Holder should include in gross income such holder's allocable
share of interest on the Junior Subordinated Debentures in
accordance with such holder's normal method of accounting for tax
purposes.
If the option to defer any payment of interest was
determined not to be "remote" or if the Company exercises its
option to defer any payment of interest, the Junior Subordinated
Debentures would be treated as issued with OID at the time of
issuance or at the time of such exercise, as the case may be, and
all stated interest on the Junior Subordinated Debentures would
thereafter be treated as OID as long as the Junior Subordinated
Debentures remained outstanding. In such event, all of a United
States Holder's taxable interest income with respect to the
Junior Subordinated Debentures would be accounted for as OID on a
constant yield method regardless of such holder's method of tax
accounting, and actual distributions of stated interest would not
be reported as taxable income. Consequently, a United States
Holder would be required to include OID in gross income even
though the Company would not make any actual cash payments during
an Extension Period.
The Regulations have not been addressed in any rulings or
other interpretations by the IRS, and it is possible that the IRS
could take a position contrary to the interpretation herein.
Because income on the Capital Securities will constitute
interest or OID, corporate United States Holders of the Capital
Securities will not be entitled to a dividends-received deduction
with respect to any income taken into account with respect to the
Capital Securities.
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Distribution of Junior Subordinated Debentures to Holders of
Capital Securities Upon Liquidation of the Trust
Under current law, a distribution by the Trust of the
Junior Subordinated Debentures as described under the caption
"Description of Capital Securities--Liquidation Distribution upon
Dissolution" will be non-taxable and will result in the United
States Holder receiving directly its pro rata share of the Junior
Subordinated Debentures previously held indirectly through the
Trust, with a holding period and aggregate tax basis equal to the
holding period and aggregate tax basis such United States Holder
had in its Capital Securities before such distribution. If,
however, the liquidation of the Trust were to occur because the
Trust is subject to United States federal income tax with respect
to income accrued or received on the Junior Subordinated
Debentures, as would be the case if, for example, the Trust were
treated as an association taxable as a corporation, the
distribution of Junior Subordinated Debentures to a United States
Holder by the Trust would be a taxable event to the Trust and
each United States Holder, and each United States Holder would
recognize gain or loss as if the United States Holder had
exchanged its Capital Securities for the Junior Subordinated
Debentures it received upon the liquidation of the Trust. A
United States Holder will include interest in income in respect
of Junior Subordinated Debentures received from the Trust in the
manner described above under "--Interest Income and Original
Issue Discount."
Sale or Redemption of Capital Securities
A United States Holder that sells (including a redemption
for cash of its Capital Securities) Capital Securities will
recognize gain or loss equal to the difference between its
adjusted tax basis in the Capital Securities and the amount
realized on the sale of such Capital Securities. Assuming that
the Company does not exercise its option to defer payment of
interest on the Junior Subordinated Debentures and the Junior
Subordinated Debentures are not considered issued with OID, a
United States Holder's adjusted tax basis in the Capital
Securities generally will be its initial purchase price. If the
Junior Subordinated Debentures are deemed to be issued with OID,
as a result of the Company's deferral of interest payments, a
United States Holder's adjusted tax basis in the Capital
Securities generally will be its initial purchase price,
increased by OID previously includible in such United States
Holder's gross income to the date of disposition and decreased by
Distributions or other payments received on the Capital
Securities since and including the date of the first Extension
Period. Such gain or loss generally will be a capital gain or
loss (except to the extent any amount realized is treated as a
payment of accrued interest with respect to such United States
Holder's pro rata share of the Junior Subordinated Debentures
that is required to be included in income). Under recently
enacted legislation, long-term capital gains recognized by
non-corporate United States Holders generally are subject to a
maximum rate of 20 percent in respect of property held for more
than one year, effective for amounts properly taken into account
on or after January 1, 1998. To the extent the selling price,
less accrued but unpaid interest through the date of disposition,
is less than the United States Holder's adjusted tax basis, such
holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary
income for United States federal income tax purposes.
The Capital Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest with
respect to the underlying Junior Subordinated Debentures. A
United States Holder who disposes of its Capital Securities
between record dates for payments of distributions thereon will
be required to include a portion of the selling price equal to
the accrued but unpaid interest on the Junior Subordinated
Debentures through the date of disposition in income as ordinary
income (i.e., interest or, possibly, OID), to the extent not
previously taken into income. To the extent the selling price,
less accrued but unpaid interest through the date of disposition,
is less than the United States Holder's adjusted tax basis, a
United States Holder will recognize a capital loss. Subject to
certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax
purposes.
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<PAGE>
Backup Withholding Tax and Information Reporting
The amount of interest income paid and OID accrued on the
Capital Securities held of record by United States Holders (other
than corporations and other exempt United States Holders) will be
reported to the IRS. "Backup" withholding at a rate of 31% will
apply to payments of interest to a nonexempt United States Holder
unless the United States Holder furnishes its taxpayer
identification number in the manner prescribed in applicable
Treasury regulations, certifies that such number is correct,
certifies as to no loss of exemption from backup withholding and
meets certain other conditions.
Payment of the proceeds from the disposition of Capital
Securities to or through the United States office of a broker is
subject to information reporting and backup withholding unless
the holder or beneficial owner establishes an exemption from
information reporting and backup withholding.
Any amounts withheld from a United States Holder under the
backup withholding rules will be allowed as a refund or a credit
against such United States Holder's United States federal income
tax liability, provided the required information is furnished to
the IRS.
It is anticipated that income on the Capital Securities
will be reported to holders on Form 1099-INT or, if the Company
exercises its option to defer any payment of interest, on Form
1099-OID, and mailed to holders of the Capital Securities by
January 31 following each calendar year.
Possible Tax Law Changes
Prospective investors should be aware that Enron
Corporation has filed a petition in U.S. Tax Court challenging
the proposed disallowance by the IRS of the deduction of interest
expense on securities issued by Enron Corporation in 1993 and
1994 that are similar to, although different in a number of
respects from, the Junior Subordinated Debentures. It is possible
that a decision in that case could give rise to a Tax Event,
which would permit the Company to cause a redemption of the
Capital Securities, as described more fully herein under
"Description of Capital Securities--Redemption--Special Event
Redemption or Distribution of Junior Subordinated Debentures."
Prospective investors also should be aware that legislation has
been proposed by the Clinton Administration in the past that, if
enacted, would have denied an interest expense deduction to
issuers of instruments such as the Junior Subordinated
Debentures. No such legislation is currently pending. There can
be no assurance, however, that similar legislation will not
ultimately be enacted into law, or that other developments will
not occur on or after the date hereof that would adversely affect
the tax treatment of the Junior Subordinated Debentures or the
Trust. Such changes also could give rise to a Tax Event.
United States Alien Holders
For purposes of this discussion, a "United States Alien
Holder" is a holder of Capital Securities that is a nonresident
alien individual or a foreign corporation. Under present United
States federal income tax laws: (i) payments by the Trust or any
of its paying agents to any holder of a Capital Security who or
which is a United States Alien Holder will not be subject to
withholding of United States federal income tax; provided that,
(a) the beneficial owner of the Capital Security does not
actually or constructively own 10 percent or more of the total
combined voting power of all classes of stock of the Company
entitled to vote, (b) the beneficial owner of the Capital
Security is not a controlled foreign corporation that is related
to the Company through stock ownership, and (c) either (A) the
beneficial owner of the Capital Security certifies to the Trust
or its agent, under penalty of perjury, that it is not a United
States Holder and provides its name and address (or, with respect
to payments made after December 31, 1999, satisfies certain
documentary evidence requirements for establishing that it is not
a United States Holder) or (B) a securities clearing
organization, bank or other
65
<PAGE>
financial institution that holds customers' securities in the
ordinary course of its trade or business (a "Financial
Institution"), and holds the Capital Security in such capacity,
certifies to the Trust or its agent, under penalty of perjury,
that such statement has been received from the beneficial owner
by it or by a Financial Institution between it and the beneficial
owner and furnishes the Trust or its agent with a copy thereof;
and (ii) a United States Alien Holder of a Capital Security will
generally not be subject to withholding of United States federal
income tax on any gain realized upon the sale or other
disposition of a Capital Security provided the gain is not
effectively connected with the conduct of a trade or business in
the United States by the United States Alien Holder.
With respect to payments made after December 31, 1999, for
purposes of applying the rules set forth under this heading
"United States Alien Holders" to an entity that is treated as
fiscally transparent (e.g., a partnership) for U.S. federal
income tax purposes, the beneficial owner means each of the
ultimate beneficial owners of the entity.
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other
employee benefit plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and each entity whose
underlying assets include "plan assets" by reason of such a
plan's investment in such entity (each, a "Plan"), should
consider the fiduciary standards of ERISA in the context of the
Plan's particular circumstances before authorizing an investment
in the Capital Securities. Accordingly, among other factors, the
fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would
be consistent with the documents and instruments governing the
Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit
Plans, as well as individual retirement accounts, Keogh plans and
other arrangements subject to Section 4975 of the Code (also
"Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or
"disqualified persons" under the Code ("Parties in Interest")
with respect to such Plan. A violation of these "prohibited
transaction" rules may result in the imposition of an excise tax
or other liabilities under ERISA and/or Section 4975 of the Code
on such persons, unless exemptive relief is available under an
applicable statutory or administrative exemption.
Under a regulation (the "Plan Assets Regulation") issued by
the U.S. Department of Labor (the "DOL"), the assets of a trust
would be deemed to be "plan assets" of a Plan for purposes of
ERISA and Section 4975 of the Code if "plan assets" of the Plan
were used to acquire an equity interest in such trust and no
exception were applicable under the Plan Assets Regulation. An
"equity interest" is defined under the Plan Assets Regulation as
any interest in an entity other than an instrument which is
treated as indebtedness under applicable local law and which has
no substantial equity features and specifically includes a
beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets
Regulation, the assets of a trust would not be considered "plan
assets" of investing Plans if the equity securities of such trust
were deemed to be "publicly-offered securities." In order to be
considered "publicly-offered securities," such securities must
be, among other things, sold pursuant to an effective
registration statement, timely registered under the Securities
Exchange Act of 1934, as amended, freely transferable and widely
held. No assurance can be given by the Trust that the Capital
Securities will be "widely held" for purposes of the
"publicly-offered securities" exception.
Certain transactions involving the Trust could be deemed to
constitute direct or indirect prohibited transactions under ERISA
and Section 4975 of the Code with respect to a Plan if the
Capital Securities of the
66
<PAGE>
Trust were acquired with "plan assets" of such Plan or assets of
the Trust were deemed to be "plan assets" of Plans investing in
the Trust. For example, if the Company is a Party in Interest
with respect to the investing Plan (either directly or by reason
of its ownership of its subsidiaries), an indirect extension of
credit prohibited by Section 406(a)(1)(B) of ERISA and Section
4975(c)(1)(B) of the Code between the Company and the investing
Plan may be deemed to occur, unless exemptive relief were
available under an applicable administrative exemption (see
below).
The DOL has issued five prohibited transaction class
exemptions ("PTCEs") that may provide exemptive relief for direct
or indirect prohibited transactions resulting from the purchase
or holding of the Capital Securities. Those class exemptions are
PTCE 96-23 (for certain transactions determined by in-house asset
managers), PTCE 95-60 (for certain transactions involving
insurance company general accounts), PTCE 91-38 (for certain
transactions involving bank collective investment funds), PTCE
90-1 (for certain transactions involving insurance company pooled
separate accounts), and PTCE 84-14 (for certain transactions
determined by independent qualified professional asset managers).
The Capital Securities may not be purchased or held by any
Plan, any entity whose underlying assets include "plan assets" by
reason of any Plan's investment in the entity (a "Plan Asset
Entity") or any person investing "plan assets" of any Plan,
unless such purchaser or holder is eligible for the exemptive
relief available under PTCE 96-23, 95-60, 91-38, 90-1, or 84-14.
Any purchaser or holder of the Capital Securities or any interest
therein will be deemed to have represented by its purchase and
holding thereof that it either (a) is not a Plan or a Plan Asset
Entity and is not directly or indirectly purchasing such
securities on behalf of or with "plan assets" of any Plan or (b)
is eligible for the exemptive relief available under PTCE 96-23,
95-60, 91-38, 90-1 or 84-14 with respect to such purchase and/or
holding.
Due to the complexity of these rules and the penalties that
may be imposed upon persons involved in non-exempt prohibited
transactions, it is particularly important that fiduciaries or
other persons considering purchasing the Capital Securities on
behalf of or with "plan assets" of any Plan consult with their
counsel regarding the availability of exemptive relief under PTCE
96-23, 95-60, 91-38, 90-1 or 84-14 and regarding the potential
consequences if the assets of the Trust were deemed to be "plan
assets."
67
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the
Underwriting Agreement, the Company and the Trust have agreed
that the Trust will sell to each of the Underwriters named below
for whom Lehman Brothers Inc., Goldman, Sachs & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan
Securities Inc. are acting as the representatives (the
"Representatives"), and each of the Underwriters has severally
agreed to purchase from the Trust the respective liquidation
amount of Capital Securities set forth opposite its name below:
Liquidation Amount
Underwriters of Capital Securities
- ------------ ---------------------
Lehman Brothers Inc. ............... $
Goldman, Sachs & Co. ...............
Merrill Lynch, Pierce,
Fenner & Smith Incorporated ......
J.P. Morgan Securities Inc. ........
------------
Total ................. $150,000,000
============
Under the terms and conditions set forth in the
Underwriting Agreement, the Underwriters are committed to take
and pay for all such Capital Securities offered hereby, if any
are taken.
The Underwriters propose to offer the Capital Securities in
part directly to the public at the initial public offering price
set forth on the cover page of this Prospectus and in part to
certain securities dealers at such price less a concession of
$ per Capital Security. The Underwriters may allow, and such
dealers may reallow, a concession not to exceed $ per Capital
Security to certain brokers and dealers. After the Capital
Securities are released for sale to the public, the offering
price and other selling terms may from time to time be varied by
the Representatives.
In view of the fact that the proceeds from the sale of the
Capital Securities will be used to purchase the Junior
Subordinated Debentures issued by the Company, the Underwriting
Agreement provides that the Company will pay as Underwriters'
compensation for the Underwriters' arranging the investment
therein of such proceeds an amount of $ per Capital Security for
the accounts of the several Underwriters.
Until the distribution of the Capital Securities is
completed, rules of the Commission may limit the ability of the
Underwriters and certain selling group members to bid for and
purchase Capital Securities. As an exception to these rules, the
Representatives are permitted to engage in certain transactions
that stabilize the price of the Capital Securities. Such
transactions may consist of bids or purchases for the purposes of
pegging, fixing or maintaining the price of the Capital
Securities.
The Representatives also may impose a penalty bid on
certain Underwriters and selling group members. This means that
if the Representatives purchase Capital Securities in the open
market to reduce the Underwriters' short position or to stabilize
the price of the Capital Securities, they may reclaim the amount
of the selling concession from the Underwriters and selling group
members who sold those Capital Securities as part of the
Offering.
68
<PAGE>
In general, purchases of a security for the purposes of
stabilization or to reduce a syndicate short position could cause
the price of the security to be higher than it might otherwise be
in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent
that it were to discourage resales of the security by purchasers
in the applicable offering.
Neither the Company nor any of the Underwriters make any
representation or prediction as to the direction or magnitude of
any effect that the transactions described above may have on the
price of the Capital Securities. In addition, neither the Company
nor any of the Underwriters make any representation that the
Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without
notice.
Prior to this offering, there has been no public market for
the Capital Securities. Application has been made to have the
Capital Securities approved for listing on the New York Stock
Exchange. In order to meet one of the requirements for listing
the Capital Securities on the New York Stock Exchange, the
Underwriters will undertake to sell lots of 100 or more to a
minimum of 400 beneficial holders. Trading of the Capital
Securities on the New York Stock Exchange is expected to commence
within a 30-day period after the initial delivery of the Capital
Securities. The Representatives have advised the Company that
they intend to make a market in the Capital Securities prior to
commencement of trading on the New York Stock Exchange, but are
not obligated to do so and may discontinue market making at any
time without notice. No assurance can be given as to the
liquidity of the trading market for the Capital Securities.
The Company and the Trust have agreed to indemnify the
several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933.
Certain of the Underwriters or their affiliates have
provided from time to time, and expect to provide in the future,
investment or commercial banking services to the Company and its
affiliates, for which such Underwriters or their affiliates have
received or will receive customary fees and commissions.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of
the Capital Securities, the enforceability of the Declaration and
the formation of the Trust will be passed upon by Richards,
Layton & Finger, special Delaware counsel to the Company and the
Trust. The validity of the Junior Subordinated Debentures and the
Guarantee will be passed upon for the Company and the Trust by
Cleary, Gottlieb, Steen & Hamilton, New York, New York and for
the Underwriters by Simpson Thacher & Bartlett, New York, New
York. Cleary, Gottlieb, Steen & Hamilton and Simpson Thacher &
Bartlett will rely on the opinion of Richards, Layton & Finger as
to matters of Delaware law, and Richards, Layton & Finger will
rely on the opinion of Cleary, Gottlieb, Steen & Hamilton as to
matters of New York law.
EXPERTS
The financial statements incorporated in this Prospectus by
reference from GWL&A's Annual Report on Form 10-K for the year
ended 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.
The financial statement of GWL&A Financial Inc. included in
this prospectus has been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, appearing herein
and elsewhere in the
69
<PAGE>
registration statement and are included in reliance upon the
report of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
Each of GWL&A and the Company is or will be subject to the
informational reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files or will file reports and other information with
the Commission. Such material filed by the Company and GWL&A with
the Commission may be inspected by anyone without charge at the
Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material may also be
obtained at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of prescribed fees. Certain of such
reports and other information are also available from the
Commission over the Internet at http://www.sec.gov. The periodic
reports and other information filed by the Company and GWL&A with
the Commission may also be inspected at the offices of the
National Association of Securities Dealers, Inc., NASDAQ Reports
Section, 1735 K Street, Washington, D.C. 20006.
No separate financial statements of the Trust have been
included or incorporated by reference herein. The Company does
not believe such financial statements would be material to
holders of the Capital Securities because (i) all of the common
securities of the Trust will be owned, directly or indirectly, by
the Company, a reporting company under the Exchange Act, (ii) the
Trust has no independent operations but exists for the sole
purpose of issuing securities representing undivided beneficial
interests in its assets and investing the proceeds thereof in
Junior Subordinated Debentures issued by the Company, and (iii)
taken together, the Company's obligations under the Junior
Subordinated Debentures, the Indenture and the Guarantee provide,
in the aggregate, a full and unconditional guarantee by the
Company of the Trust's obligations under the Capital Securities.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by GWL&A
(File No. 333-01173) are incorporated herein by reference: (a)
Annual Report on Form 10-K for the year ended December 31, 1997,
as amended by Form 10-K/A dated March 31, 1998; (b) Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1998 and
June 30, 1998; and (c) Current Reports on Form 8-K dated May 15,
1998 and July 23, 1998.
All documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date hereof shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of such filing.
Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
This Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. Such documents
(other than exhibits to such documents unless such exhibits are
specifically incorporated therein by reference) relating to the
Company or GWL&A are available without charge upon
70
<PAGE>
request to: GWL&A Financial Inc., 8515 East Orchard Road,
Englewood, Colorado 80111, attention: The Corporate Secretary's
Department.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
Independent Auditors' Report........................... F-2
Balance Sheet of the Company, September 18, 1998....... F-3
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
of GWL&A Financial Inc.:
We have audited the accompanying balance sheet of GWL&A Financial
Inc. (a wholly-owned subsidiary of The Great-West Life Assurance
Company) as of September 18, 1998. This financial statement is
the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the balance sheet is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the
balance sheet provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all
material respects, the financial position of GWL&A Financial Inc.
as of September 18, 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Denver, Colorado
September 28, 1998
F-2
<PAGE>
GWL&A FINANCIAL INC.
- --------------------
BALANCE SHEET
- -------------
September 18, 1998
=================================================================
ASSETS
- ------
Cash and cash equivalents $ 250,000
---------
TOTAL ASSETS $ 250,000
=========
STOCKHOLDER'S EQUITY
--------------------
Preferred stock, no par value, 500,000 shares
authorized, none outstanding
Common stock, no par value, 500,000 shares
authorized, 250,000 shares issued and
outstanding $ 250,000
---------
TOTAL STOCKHOLDER'S EQUITY $ 250,000
=========
See accompanying notes to balance sheet.
F-3
<PAGE>
GWL&A FINANCIAL INC.
- --------------------
NOTES TO BALANCE SHEET
- ----------------------
September 18, 1998
=================================================================
1. ORGANIZATION
Organization - GWL&A Financial Inc. (the Company) is a
financial holding company domiciled in the State of
Delaware. The Company is a wholly-owned subsidiary of The
Great-West Life Assurance Company, a Canadian company (the
"Parent Corporation"). The Company was incorporated on
September 16, 1998 and was capitalized on September 18,
1998 through a $250,000 cash investment from its Parent
Corporation for 250,000 shares of common stock.
On September 28, 1998, the Company established Great-West
Life & Annuity Insurance Capital I ("GWL&A Capital"), a
trust company. GWL&A Capital exists for the exclusive
purpose of issuing trust securities (the "Offering")
representing undivided beneficial ownership interests in
its assets which are expected to consist of junior
subordinated debentures of the Company.
Prior to the closing of the Offering, the Parent
Corporation will cause all of the outstanding shares of
Great-West Life & Annuity Insurance Company's common stock
to be contributed to the Company.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes money market funds.
F-4
<PAGE>
================================================================
No dealer, salesperson or other person has been authorized to
give any information or to make any representations other than
those contained or incorporated by reference in this Prospectus
and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company, the
Trust or the Underwriters. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities
other than those to which it relates nor does it constitute an
offer to sell or a solicitation of an offer to buy to any person
in any jurisdiction in which it would be unlawful to make such an
offer or solicitation. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create
an implication that there has been no change in the facts set
forth in this Prospectus or incorporated by reference herein or
in the affairs of the Company or the Trust since the date hereof.
---------------
TABLE OF CONTENTS
Page
----
Forward Looking Statements...................................4
Summary......................................................5
Risk Factors................................................13
Reorganization..............................................18
Recent Developments.........................................18
Capitalization..............................................19
Use of Proceeds.............................................20
Ratio of Earnings to Fixed Charges
and Ratio of Earnings to
Combined Fixed Charges and
Preferred Stock Dividends...............................20
Accounting Treatment........................................20
The Trust...................................................21
The Company.................................................23
Selected Pro Forma Consolidated Financial Data..............26
Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................28
Description of Capital Securities...........................37
Description of Junior Subordinated Debentures...............49
Description of Guarantee....................................57
Relationship Among the Capital Securities, the
Junior Subordinated Debentures and the Guarantee........60
U.S. Federal Income Tax Consequences........................62
Certain ERISA Considerations................................66
Underwriting................................................68
Legal Matters...............................................69
Experts.....................................................69
Available Information.......................................70
Incorporation of Certain Documents by Reference.............70
Index to Financial Statements..............................F-1
=================================================================
=================================================================
$150,0000,000
[Great-West Logo]
GREAT-WEST LIFE & ANNUITY
INSURANCE CAPITAL I
SKIS SM
% Subordinated Capital
Income Securities
(Liquidation Amount $25 Per Capital Security)
fully and unconditionally guaranteed,
as described herein, by
GWL&A FINANCIAL INC.
------------------------
PROSPECTUS
, 1998
-----------------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
=================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with issuance and
distribution of the securities being registered, other than
underwriting compensation, are:
Securities Act Filing Fee..................... $ 44,250
New York Stock Exchange Listing Fee........... 88,100
Legal Fees and Expenses....................... 300,000*
Accounting Fees and Expenses.................. 100,000*
Printing and Engraving Fees................... 90,000*
Property Trustee's Fees....................... 6,000*
Miscellaneous................................. 6,650
-------
Total................................... $ 635,000
=======
- ------------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation law permits
a corporation to include in its charter documents, and in
agreements between the corporation and its directors and
officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
GWL&A Financial Inc.'s Articles of Incorporation provides
for the indemnification of directors.
GWL&A Financial Inc.'s Bylaws provide for the
indemnification of officers, directors and third parties acting
on behalf of GWL&A Financial Inc. if such person acted in good
faith and in a manner reasonably believed to be in and not
opposed to the best interest of GWL&A Financial Inc.'s, and, with
respect to any criminal action or proceeding, the indemnified
party had no reason to believe his conduct was unlawful.
ITEM 16. EXHIBITS
1* Form of Underwriting Agreement.
3.1** Articles of Incorporation of GWL&A Financial Inc.
3.2** Bylaws of GWL&A Financial Inc.
4.1** Certificate of Trust of Great-West Life & Annuity
Insurance Capital I.
4.2* Form of Amended and Restated Declaration of Trust
of Great-West Life & Annuity Insurance Capital I.
4.3* Form of Indenture between GWL&A Financial Inc. and
The Bank of New York, as Trustee.
4.4* Form of Guarantee Agreement between GWL&A Financial
Inc. and The Bank of New York, as Trustee.
4.5* Form of Capital Security (included in Item 4.2 above).
4.6* Form of Subordinated Debt Security (included in Item 4.3
above).
5.1* Opinion of Richards, Layton & Finger.
5.2* Opinion of Cleary, Gottlieb, Steen & Hamilton.
8.1* Opinion of Cleary, Gottlieb, Steen & Hamilton.
12 Calculation of Ratio of Income to Fixed Charges
and Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3* Consent of Richards, Layton & Finger (included in its
Opinion filed as Exhibit 5.1).
23.4* Consent of Cleary, Gottlieb, Steen & Hamilton (included
in its Opinion filed as Exhibit 5.2).
II-1
<PAGE>
24 Powers of Attorney of GWL&A Financial Inc.
25.1 Form T-1, Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Property Trustee under the Amended and
Restated Declaration of Trust of Great-West Life &
Annuity Insurance Capital I.
25.2** Form T-1, Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Trustee under the Indenture.
25.3** Form T-1, Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Guarantee Trustee under the Guarantee of
GWL&A Financial Inc. for the benefit of holders of the
Capital Securities of Great-West Life & Annuity
Insurance Capital I.
- -------------------------------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes that:
(1) for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment
that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
Each of the undersigned Registrants hereby undertakes that,
for the purpose of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, each of the Registrants
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred by
a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
each of the Registrants certifies that it has reasonable grounds
to believe that it has qualified for filing on Form S-3 and has
duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly
authorized in Englewood, State of Colorado, on November 4, 1998.
GREAT-WEST LIFE & ANNUITY INSURANCE
CAPITAL I
By: GWL&A Financial Inc., as Sponsor
By: /s/ Mitchell T.G. Graye
--------------------------
Mitchell T.G. Graye
Senior Vice President,
Chief Financial Officer
Date: November 4, 1998
GWL&A FINANCIAL INC.
By: /s/ William T. McCallum
--------------------------
William T. McCallum
President and Chief
Executive Officer
Date: November 4, 1998
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 1 to the Registration Statement has been
signed below by the following persons on behalf of GWL&A
Financial Inc. in the capacities and on the dates indicated.
Signature and Title Date
/s/ William T. McCallum November 4, 1998
---------------------------
William T. McCallum
President and Chief Executive
Officer and a Director
/s/ Mitchell T.G. Graye November 4, 1998
---------------------------
Mitchell T.G. Graye
Senior Vice President, Chief
Financial Officer
/s/ Glen R. Derback November 4, 1998
---------------------------
Glen R. Derback
Vice President and Controller
*
--------------------------- November 4, 1998
James Balog, Director
*
--------------------------- November 4, 1998
James W. Burns, Director
II-3
<PAGE>
*
--------------------------- November 4, 1998
Orest T. Dackow, Director
*
--------------------------- November 4, 1998
Andre Desmarais, Director
--------------------------- November , 1998
Paul Desmarais, Jr., Director
*
--------------------------- November 4, 1998
Robert G. Graham, Director
*
--------------------------- November 4, 1998
Robert Gratton,
Chairman of the Board
*
--------------------------- November 4, 1998
N. Berne Hart, Director
*
--------------------------- November 4, 1998
Kevin P. Kavanagh, Director
*
--------------------------- November 4, 1998
William Mackness, Director
*
--------------------------- November 4, 1998
Jerry E.A. Nickerson, Director
*
--------------------------- November 4, 1998
P. Michael Pitfield, Director
*
--------------------------- November 4, 1998
Michel Plessis-Belair, Director
*
--------------------------- November 4, 1998
Brian E. Walsh, Director
* By: /s/ D. Craig Lennox November 4, 1998
-------------------
D. Craig Lennox
Attorney-in-fact pursuant to Powers of
Attorney filed herewith.
II-4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
1* Form of Underwriting Agreement.
3.1** Articles of Incorporation of GWL&A Financial Inc.
3.2** Bylaws of GWL&A Financial Inc.
4.1** Certificate of Trust of Great-West Life & Annuity
Insurance Capital I.
4.2* Form of Amended and Restated Declaration of Trust
of Great-West Life & Annuity Insurance Capital I.
4.3* Form of Indenture between GWL&A Financial Inc. and
The Bank of New York, as Trustee.
4.4* Form of Guarantee Agreement between GWL&A Financial
Inc. and The Bank of New York, as Trustee.
4.5* Form of Capital Security (included in Item 4.2 above).
4.6* Form of Subordinated Debt Security (included in Item 4.3
above).
5.1* Opinion of Richards, Layton & Finger.
5.2* Opinion of Cleary, Gottlieb, Steen & Hamilton.
8.1* Opinion of Cleary, Gottlieb, Steen & Hamilton.
12 Calculation of Ratio of Income to Fixed Charges
and Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividend.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3* Consent of Richards, Layton & Finger (included in its
Opinion filed as Exhibit 5.1).
23.4* Consent of Cleary, Gottlieb, Steen & Hamilton (included
in its Opinion filed as Exhibit 5.2).
24 Powers of Attorney of GWL&A Financial Inc.
25.1 Form T-1, Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Property Trustee under the Amended and
Restated Declaration of Trust of Great-West Life &
Annuity Insurance Capital I.
25.2** Form T-1, Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Trustee under the Indenture.
25.3** Form T-1, Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Guarantee Trustee under the Guarantee of
GWL&A Financial Inc. for the benefit of holders of the
Capital Securities of Great-West Life & Annuity
Insurance Capital I.
- ------------------------------
* To be filed by amendment.
** Previously filed.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Exhibit 12
GWL&A FINANCIAL INC.
COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES
AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(Dollars in Thousands)
June 30,
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
Earnings:
Pretax income from
continuing
operations .......... $135,364 $256,357 $190,547 $176,612 $102,734 $ 95,688
Interest expense ........ 4,972 9,758 11,282 10,778 $ 11,145 7,250
-------- -------- -------- -------- -------- --------
Total earnings: (a) ......... $140,336 $266,115 $201,829 $187,390 $113,879 $102,938
-------- -------- -------- --------
Fixed charges:
Interest expense ........ $ 6,692 $ 14,117 $ 15,659 $ 15,972 $ 14,621 $ 7,250
-------- -------- -------- -------- -------- --------
Total fixed charges (b) ...... $ 6,692 $ 14,117 $ 15,659 $ 15,972 $ 14,621 $ 7,250
-------- -------- -------- -------- -------- --------
Ratio of earnings to fixed
charges (a/b) ........... 21 19 13 12 8 14
Preferred stock dividend
requirements:
Preferred stock dividends
(c) ................. $ 4,308 $ 8,854 $ 8,587 $ 9,217 $ 7,475 $ 9,335
Effective tax rate (d) ....... 33% 38% 29% 27% 27% 32%
-------- -------- -------- -------- -------- --------
Preferred stock dividend
requirements adjusted for
taxes: (c/(100%-d))=(e) ...... $ 6,430 $ 14,281 $ 12,094 $ 12,626 $ 10,240 $ 13,728
-------- -------- -------- -------- -------- --------
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements:
(a/(b+e)) .................... 11 9 7 7 5 5
</TABLE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment
No. 1 to the Registration Statement of Great-West Life & Annuity
Insurance Capital I and GWL&A Financial Inc. on Form S-3 of our
report dated January 23, 1998, appearing in the Annual Report on
Form 10-K of Great-West Life & Annuity Insurance Company for the
year ended December 31, 1997 and to the reference to use under
the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Denver, Colorado
November 5, 1998
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to use in this Amendment No. 1 to the Registration
Statement of Great-West Life & Annuity Insurance Capital I and
GWL&A Financial Inc. on Form S-3 of our report dated September
28, 1998 on the balance sheet of GWL&A Financial Inc., appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Denver, Colorado
November 5, 1998
Exhibit 24
POWER OF ATTORNEY
RE
GWL&A FINANCIAL INC.
Know all men by these presents, that I, A. Desmarais, a Member of
the Board of Directors of GWL&A Financial Inc., a Delaware
corporation, do hereby constitute and appoint each of D.C. Lennox
and M.T.G. Graye as my true and lawful attorney and agent for me
and in my name and on my behalf to do, individually and without
the concurrence of the other attorney and agent, any and all acts
and things and to execute any and all instruments which either
said attorney and agent may deem necessary or desirable to enable
GWL&A Financial Inc. to comply with the Securities Act of 1933
and any rules, regulations, and requirements of the Securities
and Exchange Commission thereunder, in connection with the
registration under said Act of trust preferred securities issued
by GWL&A Financial Inc.'s wholly owned subsidiary, Great-West
Life & Annuity Capital I, including specifically, but without
limiting the generality of the foregoing, power and authority to
sign my name, in my capacity as a Member of the Board of
Directors of GWL&A Financial Inc. to the Registration Statement
(Form S-3) of GWL&A Financial Inc., and to any and all
amendments thereto, and I hereby ratify and confirm all that
either said attorney and agent shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of
September, 1998.
/s/ A. Desmarais
----------------
A. Desmarais, Director
GWL&A Financial Inc.
Witness:
/s/ Anne-Marie Gaudreau
- -----------------------
Name: Anne-Marie Gaudreau
(Type or print name of witness)
<PAGE>
POWER OF ATTORNEY
RE
GWL&A FINANCIAL INC.
Know all men by these presents, that I, J.E.A. Nickerson, a
Member of the Board of Directors of GWL&A Financial Inc., a
Delaware corporation, do hereby constitute and appoint each of
D.C. Lennox and M.T.G. Graye as my true and lawful attorney and
agent for me and in my name and on my behalf to do, individually
and without the concurrence of the other attorney and agent, any
and all acts and things and to execute any and all instruments
which either said attorney and agent may deem necessary or
desirable to enable GWL&A Financial Inc. to comply with the
Securities Act of 1933 and any rules, regulations, and
requirements of the Securities and Exchange Commission
thereunder, in connection with the registration under said Act of
trust preferred securities issued by GWL&A Financial Inc.'s
wholly owned subsidiary, Great-West Life & Annuity Capital I,
including specifically, but without limiting the generality of
the foregoing, power and authority to sign my name, in my
capacity as a Member of the Board of Directors of GWL&A Financial
Inc. to the Registration Statement (Form S-3) of GWL&A Financial
Inc., and to any and all amendments thereto, and I hereby ratify
and confirm all that either said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of
October, 1998.
/s/ J.E.A. Nickerson
--------------------
J.E.A. Nickerson, Director
GWL&A Financial Inc.
Witness:
/s/ M. Lynne Reid
- -----------------
Name: M. Lynne Reid
(Type or print name of witness)
<PAGE>
POWER OF ATTORNEY
RE
GWL&A FINANCIAL INC.
Know all men by these presents, that I, P.M. Pitfield, a Member
of the Board of Directors of GWL&A Financial Inc., a Delaware
corporation, do hereby constitute and appoint each of D.C. Lennox
and M.T.G. Graye as my true and lawful attorney and agent for me
and in my name and on my behalf to do, individually and without
the concurrence of the other attorney and agent, any and all acts
and things and to execute any and all instruments which either
said attorney and agent may deem necessary or desirable to enable
GWL&A Financial Inc. to comply with the Securities Act of 1933
and any rules, regulations, and requirements of the Securities
and Exchange Commission thereunder, in connection with the
registration under said Act of trust preferred securities issued
by GWL&A Financial Inc.'s wholly owned subsidiary, Great-West
Life & Annuity Capital I, including specifically, but without
limiting the generality of the foregoing, power and authority to
sign my name, in my capacity as a Member of the Board of
Directors of GWL&A Financial Inc. to the Registration Statement
(Form S-3) of GWL&A Financial Inc., and to any and all
amendments thereto, and I hereby ratify and confirm all that
either said attorney and agent shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of
September, 1998.
/s/ P.M. Pitfield
-----------------
P.M. Pitfield, Director
GWL&A Financial Inc.
Witness:
/s/ Diane Meilleur
- ------------------
Name: Diane Meilleur
(Type or print name of witness)
<PAGE>
POWER OF ATTORNEY
RE
GWL&A FINANCIAL INC.
Know all men by these presents, that I, M. Plessis-Belair, a
Member of the Board of Directors of GWL&A Financial Inc., a
Delaware corporation, do hereby constitute and appoint each of
D.C. Lennox and M.T.G. Graye as my true and lawful attorney and
agent for me and in my name and on my behalf to do, individually
and without the concurrence of the other attorney and agent, any
and all acts and things and to execute any and all instruments
which either said attorney and agent may deem necessary or
desirable to enable GWL&A Financial Inc. to comply with the
Securities Act of 1933 and any rules, regulations, and
requirements of the Securities and Exchange Commission
thereunder, in connection with the registration under said Act of
trust preferred securities issued by GWL&A Financial Inc.'s
wholly owned subsidiary, Great-West Life & Annuity Capital I,
including specifically, but without limiting the generality of
the foregoing, power and authority to sign my name, in my
capacity as a Member of the Board of Directors of GWL&A Financial
Inc. to the Registration Statement (Form S-3) of GWL&A Financial
Inc., and to any and all amendments thereto, and I hereby ratify
and confirm all that either said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of
September, 1998.
/s/ M. Plessis-Belair
---------------------
M. Plessis-Belair, Director
GWL&A Financial Inc.
Witness:
/s/ Danielle Durocher
- ---------------------
Name: Danielle Durocher
(Type or print name of witness)
Exhibit 25.1
- -----------------------------------------------------------------
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
------------
GWL&A FINANCIAL INC.
(Exact name of obligor as specified in its charter)
Delaware applied for
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
8515 East Orchard Road
Englewood, Colorado 80111
(Address of principal executive offices) (Zip code)
------------
Capital Securities
(Title of the indenture securities)
=================================================================
<PAGE>
1. General information. Furnish the following information as to
the Trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
- -----------------------------------------------------------------
Name Address
- -----------------------------------------------------------------
Superintendent of Banks 2 Rector Street, New York,
of the State of New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank 33 Liberty Plaza, New York,
of New York N.Y. 10045
Federal Deposit Insurance Washington, D.C. 20429
Corporation
New York Clearing House New York, New York 10005
Association
(b) Whether it is authorized to exercise corporate trust
powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe
each such affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the
Commission, are incorporated herein by reference as an
exhibit hereto, pursuant to Rule 7a-29 under the Trust
Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of
New York (formerly Irving Trust Company) as now in
effect, which contains the authority to commence
business and a grant of powers to exercise corporate
trust powers. (Exhibit 1 to Amendment No. 1 to Form
T-1 filed with Registration Statement No. 33-6215,
Exhibits 1a and 1b to Form T-1 filed with Registration
Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee.
(Exhibit 4 to Form T-1 filed with Registration
Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b)
of the Act. (Exhibit 6 to Form T-1 filed with
Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the
Trustee published pursuant to law or to the
requirements of its supervising or examining
authority.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of
New York, a corporation organized and existing under the laws of
the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in The City of New York, and State
of New York, on the 22nd day of September, 1998.
THE BANK OF NEW YORK
By: /s/ MARY BETH A. LEWICKI
------------------------------
Name: MARY BETH A. LEWICKI
Title: ASSISTANT VICE PRESIDENT
<PAGE>
Exhibit 7
- -----------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of
the Federal Reserve System, at the close of business March 31,
1998, published in accordance with a call made by the Federal
Reserve Bank of this District pursuant to the provisions of the
Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from
depository institutions:
Noninterest-bearing balances and
currency and coin................... $ 6,397,993
Interest-bearing balances............. 1,138,362
Securities:
Held-to-maturity securities........... 1,062,074
Available-for-sale securities......... 4,167,240
Federal funds sold and Securities
purchased under agreements to
resell................................ 391,650
Loans and lease financing
receivables:
Loans and leases, net of unearned
income....................36,538,242
LESS: Allowance for loan and
lease losses.................631,725
LESS: Allocated transfer risk
reserve............................0
Loans and leases, net of unearned
income, allowance, and reserve...... 35,906,517
Assets held in trading accounts......... 2,145,149
Premises and fixed assets (including
capitalized leases)................... 663,928
Other real estate owned................. 10,895
Investments in unconsolidated
subsidiaries and associated
companies............................. 237,991
Customers' liability to this bank on
acceptances outstanding............... 992,747
Intangible assets....................... 1,072,517
Other assets............................ 1,643,173
------------
Total assets............................ $ 55,830,236
============
LIABILITIES
Deposits:
In domestic offices................... $ 24,849,054
Noninterest-bearing...........10,011,422
Interest-bearing..............14,837,632
In foreign offices, Edge and
Agreement subsidiaries, and IBFs.... 15,319,002
Noninterest-bearing..............707,820
Interest-bearing..............14,611,182
Federal funds purchased and
Securities sold under agreements
to repurchase.......................... 1,906,066
Demand notes issued to the U.S.
Treasury............................... 215,985
Trading liabilities...................... 1,591,288
Other borrowed money:
With remaining maturity of one
year or less.......................... 1,991,119
With remaining maturity of more
than one year through three
years................................. 0
With remaining maturity of more
than three years...................... 25,574
Bank's liability on acceptances
executed and outstanding................ 998,145
Subordinated notes and debentures......... 1,314,000
Other liabilities......................... 2,421,281
------------
Total liabilities......................... 50,631,514
------------
EQUITY CAPITAL
Common stock.............................. 1,135,284
Surplus................................... 731,319
Undivided profits and capital
reserves................................ 3,328,050
Net unrealized holding gains (losses)
on available-for-sale securities........ 40,198
Cumulative foreign currency
translation adjustments................. ( 36,129)
------------
Total equity capital...................... 5,198,722
------------
Total liabilities and equity capital...... $ 55,830,236
============
I, Robert E. Keilman, Senior Vice President and Comptroller of
the above-named bank do hereby declare that this Report of
Condition has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System
and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this
Report of Condition and declare that it has been examined by us
and to the best of our knowledge and belief has been prepared in
conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true and correct.
Thomas A. Renyi {
Alan R. Griffith { Directors
J. Carter Bacot {
- ---------------------------------------------------------------------
